Building a World Top Green and Sustainable Bond Hub

26 Hong Kong’s Transition Towards a Green and Sustainable Finance Center: Building a World Top Green and Sustainable Bond Hub aligned. "Rating" refers to the post-issuance score or rating of the green bonds, which is assessed by a qualified third party (such as a rating agency) following established scoring and rating methodologies to reflect the ESG risks. External review plays a key role in improving market transparency and can lead one based on green bonds towards standardization. In the green bond market, external reviews have long been seen as a guarantee of credibility. By confirming the consistency of bonds with relevant green standards, external review effectively demonstrates the credibility and quality of green-related information to investors, reducing the asymmetry of environmental-related information between them and issuers. In addition, such a review is a channel for investors to reduce information search costs, allowing them to make investment and financing decisions by reading independent opinions. This is especially important for investors who do not have the capacity or technical expertise to conduct a thorough investigation of the environmental performance of the assets they intend to invest in. Furthermore, previous market research has shown that external review can bring huge benefits to the green bond market by increasing market transparency and increasing demand for products from international investors. In some regions, green bond issuers with external reviews can benefit from lower funding costs. At present, different green bond standards around the world have varying requirements regarding whether external review is mandatory. For instance, the GBP, which is widely adopted internationally, does not require issuers to conduct external reviews. However, the EU requires that all EU green bonds be checked by an external examiner to ensure compliance with regulations and classification criteria for project funding. In contrast, China has relatively loose regulations related to external review of green bonds. It only encourages green bond issuers to conduct an external review without a mandatory requirement. Hong Kong currently recognizes multiple green bond standards or principles. High external review fees are usually considered a major factor attracting issuers. According to the survey by the HKIMR, 100% of the existing issuers and 80% of the potential issuers pointed out that the biggest challenge in issuing green bonds in Hong Kong is the external review process involving high monetary and time costs. This challenge is not specific to Hong Kong but a common problem worldwide. On a global scale, the cost of obtaining external review for green bonds is higher than conventional bonds. However, as Hong Kong plans to attract mainland issuers, the high cost of external review of green bonds undermines Hong Kong’s advantages. Another challenge that Hong Kong faces is the different requirements regarding external review. On the one hand, if the city does not ensure external review, it may potentially lead to a lack of transparency in the green bond market and investors’ withdrawal. On the other hand, if it chooses to relax requirements for external review, international investors who often rely on such procedures may feel discouraged. 3.4 Manpower Shortage Green talent has always been regarded as a key to success in becoming a green financial center. The above-mentioned areas such as green taxonomy standards, green bond standards, external review, policy formulation and market supervision all require sufficient