The Hong Kong Monetary Authority (HKMA) has announced measures to promote the development of green finance. These measures aim to support the financial sector's role in environmental sustainability. One key initiative is the Hong Kong Taxonomy for Sustainable Finance.

The Urgency of Climate Action

The World Meteorological Organization has confirmed that 2023 was the warmest year on record, with global temperatures nearing 1.5°C above pre-industrial levels. This data highlights the need for efforts to reduce carbon emissions. The financial industry is crucial in mobilizing the capital required to meet the climate goals set in the Paris Agreement.

The Hong Kong Taxonomy: A Tool for Green Finance

Purpose and Importance

The Hong Kong Taxonomy provides guidelines for identifying and categorizing green economic activities. It aims to prevent greenwashing by ensuring investments labeled as green genuinely contribute to environmental sustainability. This standardized framework helps identify projects that align with the climate objectives of the Paris Agreement.

Development and Alignment

The development of the Hong Kong Taxonomy is influenced by international standards, particularly the Common Ground Taxonomy (CGT) developed by the International Platform on Sustainable Finance (IPSF). The CGT compares the taxonomies of China and the European Union (EU), providing a basis for Hong Kong's green classification framework.

The Hong Kong Taxonomy aligns with mainstream international standards while considering local circumstances. It maps activities against the Hong Kong Standard Industrial Classification (HSIC) and adopts criteria from other recognized taxonomies. This alignment ensures interoperability and reduces transaction costs in cross-border sustainable investments.

Applications and Future Enhancements

Current Applications

The Hong Kong Taxonomy aims to increase awareness about green finance and promote a common understanding of green economic activities. Financial institutions can use the taxonomy to assess the greenness of projects and assets, facilitating transparency and informed investment decisions. The taxonomy's alignment with the CGT helps streamline cross-border financial transactions, promoting the flow of green finance globally.

Future Developments

The HKMA plans to enhance the Hong Kong Taxonomy in phases. Future developments will expand the taxonomy's coverage to include more sectors and activities, such as renewable energy projects and green infrastructure developments. Additionally, the taxonomy will identify transition activities—carbon-intensive activities that have the potential to decarbonize. These enhancements will support the mainstreaming of transition finance and help achieve climate goals.

Physical Risk Assessment Platform

The HKMA is launching a beta version of a physical risk assessment platform. This cloud-based platform will provide data to assist financial institutions in conducting climate risk assessments and stress tests. The platform includes a database of over 40 public data sources related to physical risk, enabling analysis of the potential impacts of climate change on residential and commercial buildings in Hong Kong. The final version, incorporating user feedback and local climate data, is expected to be released early next year.

Conclusion

The introduction of the Hong Kong Taxonomy and the physical risk assessment platform demonstrates the HKMA's commitment to enhancing the financial industry's resilience against climate risks. By promoting green finance and facilitating sustainable investments, Hong Kong aims to contribute to global efforts to combat climate change. The HKMA encourages the financial sector to use these tools to support the transition to a more sustainable and resilient economy.