Weather in Hong Kong has been unstable recently, but the HKMA seems to be surrounded by lush greenery. That’s because we hosted a number of media briefings and seminars on green finance last week. The most notable ones must be the “International Capital Market Association (ICMA) Green and Social Bond Principles Annual General Meeting and Conference” (Green Bond Principles AGM and Conference) and the seminar on “Mainland and Hong Kong Green Finance Opportunities”. These two major events brought together a total of 1,300 participants including industry professionals and policymakers. With both events drawing to a successful close, I would like to sum up in this article the opportunities brought about by green finance and the achievements of these two major events.
Green finance has become a hot topic among the investment community in recent years. Last year, global green bond issuance amounted to around US$160 billion, representing a significant increase of 60 times from 2012. The development of Mainland’s green bond market has been phenomenal. Jumping on the bandwagon only in 2015, the Mainland has soon become an important player in the global green bond market. The amount of green bond issuance on the Mainland reached some US$23 billion in both 2016 and 2017, ranking first and second respectively in terms of green bond issuance in the world.
On the other hand, as a leading bond hub, Hong Kong is the third largest bond market by issuance in Asia (excluding Japan), behind only Mainland China and Korea. In the first five months of 2018, at least 13 green bonds were issued in Hong Kong, with an aggregate size of over US$5 billion. When the local investment community learnt about the two major green finance events hosted by the HKMA, they responded most enthusiastically with a view to keeping abreast of the latest developments on green finance globally and on the Mainland.
The Green Bond Principles AGM and Conference is a high-profile international event in the world of green finance. The Green Bond Principles laid down by the ICMA are the most authoritative industry framework. 85% of global green bond issuance in 2017 was aligned with the Green Bond Principles. Representatives of the relevant ICMA members meet every year to discuss the latest market and regulatory developments, as well as updates to the Green Bond Principles in light of market developments. This is the fourth year for the London-based ICMA to organise the Green Bond Principles AGM and Conference, with the previous three AGMs and conferences all held in Europe. With the lobbying of the HKMA and given the rapid development of green finance in Asia as recognised by the ICMA members, Hong Kong stands out from all other international financial centres, and becomes the first city in Asia to host this flagship international green finance event.
Consensus is reached in this year’s AGM on refining some important Green Bond Principles, including recognising five key environmental-friendly objectives, defining in more details external certification services, and requiring the timely notification of major events by issuers. These new principles will help enhance the quality of green bonds globally.
Another spotlight is the seminar on “Mainland and Hong Kong Green Finance Opportunities” jointly hosted by the HKMA and the People’s Bank of China. The discussions focused on the latest green finance developments in the Mainland and Hong Kong, as well as opportunities for cooperation between the two places. The seminar highlighted Hong Kong’s unique advantage in developing green bond market – the “Belt and Road” Initiative and green bonds are complementary to each other. Under the “Belt and Road” Initiative, the Mainland seeks to promote market-based and sustainable investments which are priced in local currency. Hong Kong is the world’s freest economy and largest offshore renminbi financial centre with the biggest renminbi liquidity pool. As long as Hong Kong is able to capture the opportunities in green and sustainable finance, it will play an even more important role under “Belt and Road” Initiative. In addition, it was mentioned at the seminar that the development of green bond market in Hong Kong currently focused on promoting the issuance of green bonds. In fact, the primary and secondary markets go hand in hand. To support Mainland enterprises seeking bond funding for green projects, apart from providing an offshore platform for bond issuance to broaden their financing channels, Hong Kong can also help increase the secondary market liquidity of green bonds on the Mainland, by facilitating overseas investors’ access to the Mainland’s bond market via Bond Connect.
Over the years, the HKMA has been actively promoting the development of the local bond market. It is well-prepared to grasp the opportunities brought about by this “green wave”. Earlier on, the Government has launched the Pilot Bond Grant Scheme which subsidises bond issuance with an aim to encouraging companies to issue bonds in Hong Kong. The Qualifying Debt Instrument Scheme will also be enhanced to broaden the coverage of tax concession for bond investment in Hong Kong. Last Friday, the Government announced the launch of a three-year Green Bond Grant Scheme, which will subsidise eligible green bond issuers in obtaining certification under the Green Finance Certification Scheme established by the Hong Kong Quality Assurance Agency, up to a maximum subsidy of HK$800,000 per bond issuance. Both first time and repeated issuers with their green bonds (of any tenor and in any currency denomination) issued and listed in Hong Kong are welcome to apply for the grant as long as the bond issuance size is HK$500 million (or the equivalent in foreign currency) or above. Further, a HK$100 billion Green Bond Programme will be launched by the Government to create demonstration effect to attract green bond issuers to Hong Kong.
External review is the key to green bond issuance. Green bond issuance is subject to stringent standards and requirements, and its proceeds must be used for green projects. Hence, the authenticity of the "greenness" of those projects and their transparency must be certified by the relevant independent bodies pursuant to established standards. In fact, many renowned green bond review agencies from local, overseas and the Mainland have already set up offices in Hong Kong to provide external review services for green bonds. Having a presence in Hong Kong, these agencies can provide more effective services for regional investors by combining on-the-ground knowledge of the local market with their robust and internationally recognised green assessment approach.
The HKMA itself is also dedicated to supporting green finance. Apart from implementing the issuance and promotion of Government green bonds, the HKMA has incorporated “environmental, social and governance (ESG)” principles into the investment processes of the Exchange Fund. Examples include investments in renewable energy projects such as solar energy and wind farms, as well as green bonds. A key element of the ESG principles is to promote long-term environmental sustainability in order to unveil the long-term value of investments for investors. This philosophy is well in line with the established principle of the Exchange Fund in pursuing a long-term stable return. I believe that other asset managers will also recognise the contribution of green finance to long-term sustainability, and also hope that more asset managers will join us in contributing to the development of global green finance. For our part, we will continue to work closely with the Government and the industry in supporting the growth of green finance in Hong Kong.
Deputy Chief Executive
Hong Kong Monetary Authority
20 June 2018
Please refer to the Factsheet on Green Finance in Hong Kong produced by the HKMA for more details on the development of green finance in Hong Kong.