Building a World Top Green and Sustainable Bond Hub

23 Challenges for Hong Kong’s Transition Towards the Green and Sustainable Bond Hub use. Through these goals, it unifies the requirements for different types of issuers. The ASEAN countries, South Korea, and other countries and regions have also established green taxonomies applicable in their own jurisdictions. The fragmented global pattern within green taxonomy has brought difficulties of increasing the green premium and greenwashing risks to Hong Kong’s green bond market. The survey conducted by the HKIMR on 48 green financial institutions in the city shows that about 43% of the existing market participants and 52% of the potential participants believe that Hong Kong’s green bond market is facing the challenge of inconsistent standards. First, the non- harmonization of green taxonomy greatly weakens the interoperability between different jurisdictions, which will increase transaction costs and reduce issuers’ interest in green bonds. In addition, it is difficult to recognize the green taxonomy of different regions as issuers face a variety of green certification processes when issuing offshore green bonds in Hong Kong. This requires them to entrust a third-party organization to conduct the identification of the green taxonomy, which increases the issuers’ transaction costs and subsequently diminishes their interest in green bonds. Second, the inconsistency of green classification standards makes it difficult to compare across different jurisdictions, which will increase the risk of “greenwashing” and gradually reduce investors’ confidence in green bonds. Finally, the inconsistencies in green taxonomy will inevitably bring data incomparability in market statistics and information disclosure, thereby potentially reducing the reliability of the overall green bond market in the minds of investors. 3.2 The Compatibility of Green Bond Standards The current bond issuance and listing procedure in Hong Kong is divided into two systems: a general procedure and a green procedure (Table 2). The general procedure refers to the issuance and listing of traditional bonds, and the green procedure refers to the necessary work for issuing or listing the bonds. The green procedure is closely related to the green taxonomy, green bond principles and other standards. Around the world, there are multiple green bond standards or principles providing guidelines for the approval of bonds labeled "green". Based on different classification subjects, the green bonds standards can be further divided into international agency standards and national or regional standards. In the international realm, there are two green bond standards widely recognized: the Climate Bond Standard (CBS) and the Green Bond Principles (GBP). The CBS 1.0 was issued by the CBI in 2011 and the latest version, Climate Bond Standard 4.1, was released in March 2024. The GBP was initially published by the ICMA in 2014, with the latest version updated in June 2021. Standards set by the EU and China have attracted much attention. The EU Sustainable Finance Classification Climate Mandatory Act in June 2021 has strengthened the EU’s position in the global green bond market. A political agreement was reached in February 2023 regarding the European Green Bonds Standard and the European Green Bond Standard Regulation was published in November 2023. As for China, its Green Bond Standards Committee issued the China GBP in July 2022 to unify the mainland green bond standards. Besides the EU and China, countries such as India, Brazil and France have also formulated relevant green bond standards.