Hong Kong Influence in Global Climate Finance of ‘Critical Importance’

At the Asian Financial Forum, SFC chief Ashley Alder discussed the steps Hong Kong has taken to support a greener and more sustainable future.

Hong Kong has a crucial role to play in climate and environmental finance, due to its “extremely large footprint” and the international significance of its financial market, SFC (Securities and Futures Commission) chief Ashley Alder said at the Asian Financial Forum on Monday (18 January).

Last year, the SFC and HKMA (Hong Kong Monetary Authority) established a new cross-agency steering group to coordinate how climate and environmental factors are managed in the financial sector.

“This signified a major step change in the sustainable finance agenda for Hong Kong, complementing and supporting the Hong Kong Government’s broader climate strategies,” Alder said.

In December, the steering group announced a strategic plan to strengthen the financial ecosystem to support a greener and more sustainable future, with an initial focus is on the environment, and specifically, the financial risks and opportunities arising from climate change, Alder noted.

“Clearly, there is now an urgent need to do more to address the climate threat. And the financial sector will undoubtedly have a critical role to play in financing activities which can lower carbon emissions over time.”

Alder said the action plan relies on ensuring that investors have the best available information about how climate change is affecting companies and financial assets, and in turn, how the activities of the companies and funds affect climate change.

“This means they must have consistent, comparable and decision-useful disclosures from companies as well as from financial market intermediaries such as asset managers. But right now we are still a long way from this goal. Instead, we have seen the development of a dizzying number of alternative sustainability disclosure frameworks. Many of these are strictly voluntary or only set out high-level principles, which in some respects can be conducive to greenwashing.”

“If reporting and disclosure standards are to be effective, they have to be universally recognised and applied across the board.”

As announced in the strategic plan, Hong Kong will require that climate-related disclosures must be aligned with all the TCFD recommendations no later than 2025, joining the UK, the EU and New Zealand in mandating TCFD climate reporting.

In October, the SFC launched a consultation on proposed changes to the FMCC (Fund Manager Code of Conduct) which will require fund managers to factor climate-related risks into their investment processes and mandate their disclosure to end-investors.

To facilitate the new requirements, Alder said asset managers face major data challenges which will need to be “tackled head-on” over the coming months. The SFC has been working with local and international partners on ways to address these challenges, he said.

“The ultimate goal is to produce disclosures which reveal considerably more about what is being financed—especially the volume of carbon dioxide emissions, whether investment portfolios are climate-aligned and how fund managers address climate risks.”

Alder also spoke of the IFRS Foundation’s proposal to establish a new, global sustainability standard-setting board alongside the existing IASB (International Accounting Standards Board), reiterating Hong Kong’s support for the initiative.

In addition, he emphasised the need for greater use of climate-focused scenario analysis by industry participants. The SFC’s consultation proposed that large fund managers be required to evaluate the use of scenario analysis in the investment process.

Also in the works is the development of a ‘Common Ground Taxonomy’ for green finance under the EU’s IPSF (International Platform on Sustainable Finance), where the SFC and HKMA are members.

According to Alder, Hong Kong is “uniquely situated” to be a natural global leader in climate and environmental finance, due to its “extremely large footprint” and the international significance of its financial market, which include a “huge swath of Mainland businesses.”

He said it is “universally acknowledged” that solutions to climate change will largely depend on successfully reducing emissions in China, in line with its national goals.

“Hong Kong may only be small geographically, but its influence in global climate finance will be of critical importance.”

The 14th Asian Financial Forum, held on 18-19 January 2021, is jointly organised by the Hong Kong government and the HKTDC (Hong Kong Trade Development Council). 

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