ESG and Green Finance Forum cum Recognition Ceremony 2022

The Hong Kong Economic Times organised the "ESG and Green Finance Forum and Award Ceremony 2022" on 27 October 2022, bringing Hong Kong's policy makers, corporate finance practitioners, and investors together to discuss a topic that is vital to global social and economic development.

Mr. Plato Yip Kwong-to (Chairperson of Friends of the Earth (HK)), Dr. Stephen Wong Yuen-shan (Senior Vice President of Our Hong Kong Foundation and Executive Director of Public Policy Institute) and Mr Johnny Yu Ching-yan (Advisor to Chairman of Henderson Land Development Co Ltd) were invited to be the guest speakers in the panel discussion "Leading the Wave of Carbon Trading: Present and Prospect" to share their valuable experience and insights on green finance.

The Importance of Accuracy in Carbon Credits

Regarding carbon trading, Friends of the Earth (HK) believes that establishing an effective carbon trading platform and mechanism is particularly important to achieve the goal of carbon neutrality and net-zero emissions. As carbon credits are used in carbon market transaction, its effectiveness depends on two factors: 1) high standard of carbon credits and 2) data consistency and integrity. The biggest challenge lies in ensuring the openness, transparency and immutability of all carbon credit measurements from the moment of generation, along with an effective monitoring and validating process that facilitates its eventual transference to the carbon trading platform.

At present, carbon credit transactions are mostly executed over-the-counter. This does not pose a huge issue for bulk trading, but its high cost has regrettably put off some small and retail investors. An effective and convenient carbon trading mechanism and an effective trading platform is therefore vital.

The Global Rise of Carbon Trading

More and more companies around the world are bringing forward timetables for their net-zero commitments, but they still require carbon credits to achieve this net-zero transition. The International Carbon Action Partnership (ICAP) publishes reports on the recent development of global carbon market every year. The latest report in 2022 indicates a rise in global carbon market maturity and expansion in market scope. Economies with carbon market mechanism account for 55% of global GDP, and carbon markets cover 17% of global greenhouse gas emissions. According to the "Carbon Pricing 2021" report, carbon pricing instruments raised USD 53 billion in 2020.

China’s Ever-expanding Carbon Market

As the world's largest carbon emitter, China also has the largest carbon market in the world. On 16 July 2021, China launched the nationwide emission trading scheme (ETS). The first phase covered the power sector—comprising over 2,000 power generation enterprises and captive power plants—with annual carbon emissions reaching 4 billion tonnes. Since the official launch last year, cumulative carbon transactions in China reached 179 million tonnes, with an accumulated turnover of over RMB 7.6 billion.

The second phase will cover large firms in seven additional sectors: petrochemical, chemical engineering, building materials, iron and steel, dyeing and finishing, pulp and paper, and aviation. If all the above are included, the number of emission control enterprises will reach 8,000-10,000, covering an estimated total annual carbon emission of 8 billion tonnes and accounting for approximately 70-80% of China's carbon emissions.

Hong Kong’s Role in the Carbon Market

The Hong Kong government should seize the opportunities in China to promote the development of local carbon market--the voluntary carbon markets (VCM) in particular--and explore integration with the carbon market in the Guangdong-Hong Kong-Macao Greater Bay Area. This enables enterprises to better prepare for the environmental cost and opportunities arising from climate change, thereby accelerating low-carbon transformation. We should put emphasis on voluntary carbon trading market and build a diverse, high-quality and multilateral trading system.

VCM is an important complement to mandatory compliance markets. Generally, participants are companies that wish to fulfill their corporate social responsibility. These companies reduce or offset carbon emissions from their business operations by purchasing carbon credits. Between 2019 and 2021, the market has grown by more than 60% annually. In 2021, the trading volume of the global VCM exceeded USD 1 billion for the first time, and the price of high-quality carbon credits often reaches USD 30-50 per ton in the global market.

According to forecast from the Taskforce on Scaling Voluntary Carbon Markets (TFVCM), if the world were to halve emissions from current levels by 2030 and become net-zero by 2050 to achieve the Paris Agreement goals, the current market would need to scale up by 15 times compared to 2020, and expand by 100 times by 2050. Facing the opportunities of the carbon trading market, the Green and Sustainable Finance Cross-Agency Steering Group recently published its preliminary feasibility assessment on Hong Kong carbon market’s opportunities, and the report supports the development of Hong Kong as a regional carbon trading hub.

We believedigital integration of the carbon chain would allow low-carbon technology, carbon trading and green finance to form a closed loop with the real economy. Through establishing an effective carbon trading mechanism, we can foster the development of low-carbon technologies and financing means, bringing in new growth for green finance in the Greater Bay Area (GBA) and Hong Kong.

Gathering Expertise to Secure Opportunities

"Talent scramble" has become a buzzwordrecently, and Hong Kong's cooperation with the Mainland also requires lots of talents in carbon trading. As an emerging industry, professionals in the field of finance, innovation and technology, and environment are all in great demand. Friends of the Earth (HK) proposes to launch a pilot scheme in the GBA, working together with experts in related industries to accelerate Hong Kong’s fintech and green finance transformation. With the support of China and the GBA, it constitutes a new economic growth point with absolute advantages that enables Hong Kong to compete with Singapore. Hong Kong should definitely seize this opportunity.

This transformation process needs cross-departmental and multi-disciplinary talents. We need financial expertise to design carbon credit tradable products; we also need professionals in environmental and low-carbon technologies to address the potential supply and demand of various industries, and generate verifiable and certifiable carbon credits. Meanwhile, innovative technology and blockchain experts can help to foster automated capturing of carbon credits using IoT technologies when they are generated, utilising the blockchain technology to ensure accurate carbon credit data flow to the market. The ultimate goal is to find a way that can constantly provide high quality and high value carbon credits for trading. By leveraging the power of the capital market and Hong Kong’s role as an international financial center, this will empower Hong Kong and GBA to achieve the dual carbon goals and realise sustainable development in a low-carbon economy.

Looking ahead, Friends of the Earth (HK) will continue to work together with relevant industries and respective stakeholders to promote Hong Kong as an important hub for green and sustainable finance. We look forward to the prosperous development of carbon trading market, and hope to see more businesses join us on the journey towards a carbon-free future!