Green Finance Advisor of Friends of the Earth (HK)
It is very clear that
humanity closes the books on the hottest year in 2023 on record, it’s worth
asking whether the strategy is still working — and what might be lost by
continuing to embrace it.
At COP28 in Dubai, 1.5°C will be front and center — in part because this year
has offered a sobering glimpse of it. By early November 2023 had seen more than
80 days with temperatures at least 1.5°C above pre-industrial levels, according to the UN, along with
second-order effects that include deadly wildfires, damaging flooding and
historic drought.
“We are already unsafe and we have not reached 1.5°C yet,” says Rachel Cleetus, the policy director of the non-profit
Union of Concerned Scientists’ Climate and Energy program. COP28 will also
include the first “global stocktake,” a rigorous review of how country-level
climate efforts are stacking up against Paris goals. The process, intended to
inform the next round of national climate pledges due in 2025, is sure to
highlight how few countries are moving as quickly or aggressively as is needed
to keep 1.5°C
within the realm of reality.
Never before has the finance industry attended a United Nations Conference of
the Parties in such vast numbers, according to provisional registration data
from the UN’s Framework Convention on Climate Change. Attendees include
BlackRock Inc. Chief Executive Officer Larry Fink, as well as HSBC Holdings Plc
CEO Noel Quinn and Brian Moynihan of Bank of America Corp.
They will be rubbing shoulders with numerous oil executives, which is another
notable feature of this year’s talks. Sultan Al Jaber, president of the COP28
summit and head of the Abu Dhabi national oil company, Adnoc, has said he wants
as many interests as possible represented to ensure a “successful” outcome.
Against that backdrop, Darren Woods just became the first ever Exxon Mobil
Corp. CEO to attend a COP since the summits started in the 1990s.
The mantra of this year’s summit is fast becoming that finance needs to go
where emissions are, meaning it’s no longer feasible to blacklist firms that
pollute, according to Huw van Steenis, vice-chair and partner at Oliver Wyman
Inc. It’s about “financing emissions reductions” rather than just “reducing
financed emissions,” he said.
Attendees will also turn their attention to the voluntary carbon market, which
has been hit by a string of scandals that have raised serious questions as to
the validity of the offsetting claims made by those buying carbon credits.
Discussions on how to overhaul the voluntary carbon market come as executives
from the world’s biggest banks and investment firms explore new funding
structures and partnerships, as they use finance day at the COP28 climate
summit in Dubai to devise viable pathways to a low-carbon economy.
Beijing ‘attaches great importance’ to COP28 decision to have 2035 carbon goals
laid out within two years, climate envoy Xie Zhenhua says in Dubai. China will
set up new emissions reduction targets for 2030 and 2035 as part of global
pledges to fight climate change, the country’s top climate envoy said, while
urging a greater push for methane control. On methane emissions, Xie says China
is ‘willing to act’ but still lacks the capabilities, as he calls for global
joint efforts.
Meanwhile, on December 6, Hong
Kong hosted its first forum at the United Nations
climate talks to promote the city as a green and sustainable financial centre.
The event was co-hosted by the Financial Services Development Council and
Friends of the Earth at the COP28 summit.
“We will co-host a forum at the China Corner side event of COP28,”
said Plato Yip the chairman of Friends of the Earth in Hong Kong. “This
marks a significant and meaningful milestone for our Hong Kong-based NGO
Friends of the Earth as it is our first opportunity to deliver our message
directly.”
We
are looking forward to seeing a meaningful and fruitful outcome of COP28!
The ESG (environmental, social and governance) investment market has
been growing rapidly in recent years. World-renowned pension funds, such as
Japanese pension funds, the California Public Employees’ Retirement System of
the USA and the Canada Pension Plan, collectively manage trillions of US
dollars and have established strict ESG investment standards. The HKSAR
government aims to turn Hong Kong into an ESG investment hub in Asia, as well
as assisting Mandatory Provident Fund (MPF) trustees in incorporating ESG
elements into MPF schemes through the Mandatory Provident Fund Schemes
Authority (MPFA). The objective is to keep up with the global trend of the
increasing importance of ESG in pension funds.
As early as November 2021, the MPFA released the Principles for
Adopting Sustainable Investing in the Investment and Risk Management Processes
of MPF Funds (Principles). The Principles cover ‘governance, strategy, risk
management and disclosure’ as four key elements helping MPF trustees integrate
ESG factors into MPF investments and risk management processes from a financial
risk management perspective, while also making relevant disclosures to MPF
scheme members. In January last year, the Hong Kong Securities and Futures Commission
(SFC) issued new guidelines to improve the disclosure requirements for ESG
funds. According to the 2023 ESG Reporting Study for Hong Kong Listed Companies
issued by PricewaterhouseCoopers International Limited (PwC), the disclosure
level of all issues relevant to ESG reports submitted by sampled companies
tends to be mature, with social issues disclosure reaching a maturity level of
90% (1).
With the continuous improvement of ESG regulations in Hong Kong,
more products which are certified by a third party and track various ESG
indices are emerging in the market, including products such as Exchange Trade
Funds (ETFs). This has a positive impact on MPF trustees, encouraging them to
increase the allocation of ESG ETFs within the MPF schemes. On October 3 this
year, an ESG ETF which tracks HSI ESG Enhanced Index received substantial
subscriptions of nearly 6.9 billion Hong Kong dollars from MPF trustees,
leading to a significant increase in the total market value of Hong Kong-listed
ESG ETFs to nearly 10 billion Hong Kong dollars (2).
In June this year, the International Sustainability Standards Board
(ISSB) also issued IFRS (International Financial Reporting Standards) S1
General Requirements for Disclosure of Sustainability-related Financial
Information and IFRS S2 Climate-related Disclosures of IFRS Sustainability
Disclosure Standards 1 and 2 respectively. The standards ensure the
comparability of information regarding global companies’ sustainability-related
risks and opportunities, which facilitates investors’ decision making. They are
endorsed by the International Organization of Securities Commissions (IOSCO),
and the Hong Kong Exchange (HKEx) stated that it would take into account the
final ISSB Climate Standard when finalising the Listing Rule amendments, and will
be effective for annual reporting periods beginning on or after January 1, 2025.
In this regard, the Financial Services and the Treasury Bureau, the Hong Kong
Exchanges and Clearing Limited, the MPFA, the Insurance Authority and the
Environment and Ecology Bureau formed the Green and Sustainable Finance
Cross-Agency Steering Group, which will develop a roadmap to establish local
reporting standards for sustainable development (3).
The two ISSB disclosure standards will further enhance the
comprehensiveness of disclosure in ESG reports by local listed companies and
lead to more investments in Assets under Management (AuM) in ESG. Local
ESG-themed MPF schemes will become increasingly popular. However, though it may
be the case that ESG investments generate better returns than non-ESG
investments or benchmark indices, there are still problems in ESG assessment,
including the lack of unified standards, in transparency and greenwashing. MPF
is a long-term investment and ESG investments are relatively new compared to
traditional ones. Therefore, the true performance of ESG MPF schemes will
require long-term observation.
Article is written by EFFAS Certified
Environmental, Social, and Governance Analyst (CESGA). CESGA is highly
recognized in Europe and globally which has been steadily increasing in the
worldwide. If interested in enrolling, please refer to https://bit.ly/3tFUQ1M.
