Serena Mak, Green Finance Advisor of Friends of the Earth (HK) / Serena Mak, 香港地球之友綠色金融顧問
If we look
beyond Hong Kong, the topic of Green Finance is picking up momentum globally. Governments
are putting up measures such as initiatives to incentivize green investing or
laws & regulations that penalize corporations that are negatively impacting
the environment. In the private sector, it can be seen that green investments
can generate good returns, which is encouraging to see. Apart from products
such as Green Bonds, China is also engaging in innovative ways to ‘monetize’
the effect of business to the environment, such as the first China Emissions
Exchange located in Shenzhen which was established in 2013 and is trading
‘emission allowances’ for carbon dioxide.
As
mentioned by the various interviewees in one of our inaugural blog videos,
there is a great need for international collaboration across boundaries to
promote the topic of Green Finance. Few examples include the setting up of the
US-China Green Fund which is supported by both the US and China government, and
also the recent collaboration between the French Development Agency (AFD) and a
Chinese Bank.
Hong Kong
as one of the world’s biggest financial markets has a unique opportunity to
also promote cross-border collaboration to further expand its footprint in the
Green Finance space.
Some
opinion article about emission trading system can be found here:
Special commissioned by Alexandra Tracy, President of Hoi Ping Ventures / 特約撰稿Hoi Ping Ventures主席 Alexandra Tracy
Green finance in Hong Kong has really started to take on some momentum over the past few months, with a raft of announcements from policy makers which will have an impact across a range of financial sectors.
In a bold signalling move, Hong Kong has become the first Asian government to sign up to the Green Bond Pledge, while issuing its first tranche of sovereign green bonds in May. In a similar vein, the Hong Kong Monetary Authority will reportedly soon become a signatory to the United Nations Principles of Responsible Investing, and is looking at joining the central banks’ Network for Greening the Financial System.
More tangibly, on the ground, HKMA has also announced a new sustainable bank initiative for Hong Kong banks, aiming to push them towards greater “greenness” and will create a Centre for Green Finance to provide technical assistance. On the investment side, HKMA’s Exchange Fund is looking to incorporate more ESG principles into its activities, while the Securities and Futures Commission and the Hong Kong Stock Exchange are looking to heighten ESG disclosure by listed companies and fund providers.
So, green finance in Hong Kong is moving forward, and this is a good thing. Financial markets must evolve to keep ahead – Hong Kong can’t play the “offshore RMB” card for ever – and competence in this area is likely to be essential to maintaining global market competitiveness.
What is green finance for?
But let’s look at the bigger picture for a moment: not so much, “what is green finance?” (and how do we get really good at it ?), but also, “what is green finance for ?”
There is a huge demand for financing for green and sustainable development, infrastructure and business. Trillions of dollars need to be invested in our region every year to achieve the Sustainable Development Goals. Construction of cclimate smart infrastructure alone in developing Asia is likely to cost nearly US$2 trillion annually.
Much of that investment, over time, will increasingly come from so called “mainstream” investors, as we see business practices shifting towards more green and sustainable norms. Where green finance is needed – in the short to medium term – is to fill market gaps and to fund projects and businesses that traditional fund managers and banks currently won’t touch.
When this is done correctly, it can be incredibly powerful and transform local markets.
For example, the Connecticut Green Bank in the US has implemented one of the most successful commercial building energy efficiency programmes in the world, creating a structure for long term financing of energy upgrades, which was not then available from banks in the state. The positive performance of loans under the programme has since attracted several private funders into this sector.
Similarly, the Indian Solar Loan Programme transformed the market for solar home systems in Southern India from a small, cash only business into a thriving sector which was able to attract significant bank capital. With initial support from the UN, local banks could become familiar with the potential risks of funding solar and appreciate the opportunities in this growing business line. They are now lending on purely commercial terms.
Transforming business as usual
Green finance plays a crucial role in financing businesses that struggle to raise funding from traditional sources. Its value lies in transforming “business as usual” – enabling green and sustainable activity that might not otherwise be able to succeed.
At the same time, green finance is itself a business, which can generate substantial rewards both for its proponents and for the wider economy. Growing the pool of capital available in Hong Kong to green businesses will create new opportunities for the financial services sector, as well as supporting the low carbon technology, construction and supply chain sectors.
