Welcome Remarks at HKMA and International Finance Corporation (IFC) Seminar on Greening Financial Institutions: Implications for Corporates
Speeches
11 Oct 2019
Welcome Remarks at HKMA and International Finance Corporation (IFC) Seminar on Greening Financial Institutions: Implications for Corporates
Edmond Lau, Senior Executive Director, Hong Kong Monetary Authority
- Good morning everyone.
- It is my pleasure to welcome you to the second day of the seminar on green financing. I would like to extend our special thanks to the IFC, who has been a strong supporter and partner of the HKMA, for their dedicated support for this workshop. Their experience in helping corporates to develop green projects and environmental strategies will surely benefit our audience today. We are also happy to have a number of chambers of commerce and associations as supporting organisations.
- Climate change is one of the major risks threatening the well-being of mankind. The effects of climate change are already visible around the world: more severe weather, super typhoons (with Typhoon Mangkhut still vivid in our memories), problems with food security, water resources, and even human health. The effects of climate change will likely bring about financial impacts to economies and businesses in the long term.
- Indeed, the impact of climate change has compelled governments to act. Countries around the world are putting in place policies to implement the 2015 Paris Agreement, which aims to limit global warming to below 2 degrees Celsius, and preferably to 1.5 degrees.
- What can we do about this? I believe financing plays an important role in supporting the transition to a low-carbon economy, as a massive reallocation of capital is needed to address the consequences of climate change.
- In fact, in order to achieve the 2 Degree Celsius target, the Organisation for Economic Co-operation and Development (OECD) predicts that bonds financing renewable energy, energy efficiency and low-emission vehicle sectors have the potential to reach $620-720 billion USD in annual issuance, a four-fold increase compared with the total global issuance of $168 billion USD recorded in 2018.
- There is also a growing consensus amongst the central banks and financial regulators that climate-related risks are a source of financial risk, and have to be tackled. Regulators should ensure their financial institutions and financial systems are resilient to these risks.
- As a result, banks, financiers, and investors are already factoring in climate-related risks more prominently in their lending decisions and risk management practices. From corporates’ point of view, this trend will inevitably impact their capital plans and financing costs.
- One thing that is reassuring is that Hong Kong already has a comprehensive ecosystem in green finance to help you get prepared for this trend. There is a strong presence of banks with specialists experienced in green finance, and international institutional investors based in Hong Kong who have made strong commitments to green investments. A number of international green advisory firms and external reviewers also have presence in Hong Kong.
- In May this year, the HKMA unveiled three sets of measures to promote green finance. These measures include:
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- As a bank regulator, we would further encourage the banking industry to take a more proactive approach in managing climate-related risks;
- As an investor, the HKMA will ensure and increase our adoption of responsible investment by the Exchange Fund, priority will be given to green investments if the long term return is comparable to other investments on a risk adjusted basis; and
- As a market facilitator, the HKMA has set up the Centre for Green Finance under the Infrastructure Financing Facilitation Office, which should help and serve as a knowledge hub to equip the industry with the latest trends and insights in green finance.
- In fact, Hong Kong is already one of the major green finance hubs globally with green bonds issued and arranged totalling US$11 billion last year, up from US$3 billion in 2017. The issuers include both multilateral development banks, as well as local, Mainland, and international private sector entities.
- To further deepen the market, the HKMA also helped issue HKSAR Government’s inaugural $1 billion USD, 5-year green bond under the Government Green Bond Programme in May this year. We are delighted to see a strong demand for the issuance, attracting orders exceeding $4 billion USD from a diverse group of over 100 global institutional investors, about half of which could be loosely called “green investors”. More importantly, the deal showcased the Government’s environmental policies and commitment to green finance, and set a market benchmark for potential green bond issuers to follow.
- Ladies and gentlemen, the momentum of green financing is certainly gaining traction, and growing faster and faster. Green and sustainable finance is no longer a “nice-to-have”, but a “must have”, not only out of the need to promote sustainable development but also for capturing business opportunities arising from green financing. The following sessions will highlight the opportunities brought by green financing from the perspectives of industry specialists, banks, regulators and corporates. I hope you make the most of today’s event. Thank you very much!
