Financial institutions working for the good of society. Some may be sceptical. But Financial Secretary of the HKSAR Government, Mr Paul Chan, is confident that green finance is the real deal. He tells us what the government is doing to make the city a regional leader.
HongKongEcho: When we set out to cover the evolution of Hong Kong’s finance sector, there was one topic that stood out as essential – green finance. But what exactly is it?
Paul Chan: Green finance is a new but rapidly expanding area of financial activities that seeks to make use of capital markets and/or financial intermediaries to bring a positive impact on the environment through emphasis on social responsibility and sustainable development. The concept of green finance, as well as the underlying principles and mechanisms for assessment and evaluation, is at the nascent stage of development, and keeps on evolving as it attracts more public attention and increased investment from around the world.
HKE: The government has been quite vocal in recent years about its development – what exactly are your ambitions?
PC: We aim to develop and firmly establish Hong Kong as a leading hub for green finance in the region, with a focus on the mainland and economies along the Belt and Road. By leveraging our strengths and advantages as an international financial centre, we seek to create values through sophisticated professional services and our unparalleled expertise and reputation in the provision of financial services.
The Government will facilitate and provide the necessary infrastructure and catalyst for jump-starting market developments. We will at the same time build up our international profile on green finance with proactive promotion targeting audiences overseas.
We’ve already seen steady growth. In the first half of 2018, at least 15 green bonds were issued in Hong Kong, with an aggregate size reaching US$8 billion by notable issuers including multilateral agencies and private sector entities around the world.
On that point, progress is being made on a number of fronts including the Green Finance Certification Scheme, the Green Bond Grant Scheme, the Government Green Bond Programme, the Pilot Bond Grand Scheme as well as the Enhanced Qualifying Debt Instrument Scheme.
HKE: What’s the reason behind the timing of such a focus? Why now?
PC: Following the Paris Agreement in 2016, the unprecedented multilateral treaty to combat climate change, governments around the world are taking steps to embark on the arduous but necessary journey of moving towards economic development that is greener and puts increased emphasis on sustainability. On the back of market players’ growing demand for higher environmental, social and governance standards, as well as increasing public awareness of sustainable development, green finance has become a hot topic among the investment community in recent years where global green bond issuance in 2012 increased by 60 times to around US$160 billion in 2017.
Riding on the increasing global and domestic demand, China has emerged as a leader and key player in green finance. Under the G20 presidency in 2016, China took the initiative of launching the G20 Green Finance Study Group (currently known as the G20 Sustainable Finance Study Group), and called for scaling up of green finance. Development of green industries was likewise featured in the National 13th Five-Year Plan.
The mainland itself has witnessed notable development in the green bond market since then, with issuance reaching some US$23 billion consecutively in both 2016 and 2017, ranked as the first and second largest green bond issuer in the world in the two respective years.
As an international financial centre and the global RMB business hub leveraging on our status as the prime gateway between the mainland and the rest of the world, Hong Kong can play an important role as a premier financing platform for international and mainland enterprises in channelling global capital to projects and investments that bring environmental benefits.
HKE: Surely this role is one that has particular significance within the context of the Greater Bay Area and the Belt & Road project?
PC: Yes, these initiatives will add further momentum to cross-border and cross-boundary infrastructure and investment projects, including those with a green focus.
As stipulated in the Framework Agreement signed between the HKSAR Government and the mainland authorities last year, building a green and low-carbon Bay Area is one of our key cooperation areas. In fact, Guangdong is now one of the five green finance pilot zones as launched by the mainland authorities.
As for the Belt & Road, infrastructure development and investment is crucial. According to estimates from the Asian Development Bank, infrastructure investment of as much as US$1.7 trillion per year will be needed until 2030 in Asia alone. That will be even higher for the entire Belt & Road region. A concerted effort will be required to ensure the sustainability and environmental friendliness of these investment projects. To this end, under arrangements signed in December 2017, we have agreed to develop a green bond market on the basis of Hong Kong’s platform by supporting qualified Chinese enterprises to raise funds through issuing bonds in Hong Kong for green projects relating to the Belt & Road initiative; and to promote the setting up of an internationally-recognised green bond certification institution.
HKE: Those are the concrete projects, but how are you looking to promote Hong Kong’s positioning on this topic to the world?
PC: We’re always keen to publicise Hong Kong’s competitive capital markets and highlight our edge in developing green financial products at regional and international forums including the annual Asian Financial Forum organised in Hong Kong.
In June this year, the Hong Kong Monetary Authority, in collaboration with the International Capital Market Association and the People’s Bank of China respectively, held two events on green bonds that brought together a total of 1,300 industry professionals and policymakers.
The Securities and Futures Commission and the Hong Kong Exchanges and Clearing Limited have also been actively taking part in the global green finance scene such as the United Nations Sustainable Stock Exchange Initiative to promote market development.
With Hong Kong being a member centre of the G7-supported International Network of Financial Centres for Sustainability, the Government will continue to support local professional bodies and their collaboration with overseas counterparts to jointly promote green finance.
All of this will not only deepen the understanding of green finance among the investment community and the general public in Hong Kong, but will also help enhance Hong Kong’s participation and profile in green finance globally.