Coming up in Nov, Friends of the Earth (HK) and PolyU Economic Sustainability & Entrepreneurial Finance (CESEF) will jointly hold an online Green Finance Forum regarding ESG development in Hong Kong. We are delighted to announce that JP, Under Secretary, Financial Services and the Treasury Bureau and Head of Markets, Hong Kong Exchanges and Clearing Limited will be joining us for the event. Other details of the symposium are as follow:
Title: “Green Finance Connect Forum- ESG Implementation in HK” Panel Discussion Topic: Opportunities & Challenges of ESG Integration in HK Date: November 2, 2020 (Mon) Time: 2:30 pm – 4:40 pm Organisations: Friends of the Earth (HK), Center for Economic Sustainability and Entrepreneurial Finance, The Hong Kong Polytechnic University Language: English
**The session will be conducted online via Zoom.
If you are interested, please register HERE to reserve your seat. For more information, please visit HERE.
Green Finance Advisor of Friends of the Earth (HK)
In a previous article The Financialization of Negative Externalities, this blogpost argued for an adoption of Coasean bargaining in attaching a measurable, fair and standardized financial cost to negative externalities that leads to global warming in the normal course of economic activity. In attaching a financial cost, the market mechanism takes over, leading to incentives for economic participants to adapt, innovate, and wean itself from fossil fuel energy sources, and provide a real and quantifiable economic basis for moving towards a carbon neutral economic system. Often times the theoretical basis for such arguments are sound, however when it comes to application, regulators and industry participants often cite lack of evidence or impracticality or other unforeseen difficulties such as unequal impact to lower income countries or demographics. Taken together, there is considerable inertia in implementing policies that can mitigate the effects of global warming which in order to meet targets of carbon neutrality, ought to be implemented as early as possible. It is therefore encouraging that Goldman Sachs and Bill Gates recently published articles citing the practicality of quantifiable financial measures of negative externalities as one of the tools to tackle the immense challenge of climate change.
Exhibit 1: The Cost Curve of Decarbonization Shows Many Low-Cost Investment Opportunities, but Quickly Becomes Steep
Exhibit 2: A Carbon Tax of $50 Would Lower Emissions by Around 25%
Exhibit 3: Empirical Studies Find Similar Effects of Carbon Taxes on Emissions
In the Goldman Sachs research, the team finds that the marginal cost of replacing current power generation in the United States from fossil fuels to gas & renewable alternatives to be low and represents one of the low hanging fruits in the first steps towards reducing carbon emissions. The team also modelled a mere $50 per metric ton of carbon tax would have the effect of reducing CO2 emissions at 2018 levels by 25% and a tax of $100 per metric ton would lower this further by 45%. Moreover, these estimates are supported by empirical studies from jurisdictions that implemented carbon taxes in Europe and Canada (Hatzius, J., Struyven, D., Bhushan, S., Milo, D., 2020).
Similar to the carbon tax argued by the Goldman Sachs team, Bill Gates advocates for a Green Premium as a measure of our progress toward eliminating carbon emissions as well as a guide to action to identify where the biggest gaps are and thus where innovation is needed. Gates defines the Green Premium as the difference between the cost of the existing fossil fuel source of energy and its clean alternative. One notable study Gates cited is that decarbonizing Europe’s power grid by 90 to 95% would only cause rates to increase around 14 euros per month for a typical household in the European Union. In the United States, the cost would be an increase of $18 per month for the average home. These are striking findings as it suggests only incremental increases of costs will have a significant reduction in carbon emissions. Gates suggests three levers to reduce Green Premiums and thus the adoption of the clean alternative. (i) Governments to use policies to increase the cost of the carbon-based production method, similar to the carbon tax proposed by the Goldman Sachs team and or to make the clean alternative cheaper; (ii) Companies and investors to commit to buying an using cleaner alternatives, invest in research and development, and support for clean-energy entrepreneurs and startups; (iii) Individuals can help by choosing the cleaner alternatives, thereby incrementally increasing the market and demand, encourage innovation and ultimately reduce the price and increase affordability of clean alternatives (Gates, B., 2020).
In summary, the basis for applying Coasean theorem to tackle the challenges of climate is not only theoretically sound but also has practical basis. Of course, for large economic polities such as the United States and the European Union, it is understandable that incorporating Carbon Taxes or Green Premiums may encounter more political hurdles to achieve implementation as the potential cost for ill-conceived or poorly implemented policies may be quite significant. However, for us in Hong Kong, we have prided ourselves as a highly developed and nimble economy, the costs of missteps will be manageable given our relatively small economy. Moreover, seeing the success achieved in Canada and Scandinavian countries with the implementation of the carbon tax in achieving reduction in carbon emissions, the likelihood of not achieving carbon emissions reduction should be relatively low. Thus, our government should adopt measures of carbon taxation and or green premiums and serve as a leading example in the Asia-Pacific region in the global charge towards carbon neutrality, the eventual success will only serve as another case study for global leaders to take reference and further push the needle towards the full adoption of green policies.
B., 2020. Introducing the Green Premiums, Gates Notes
Hatzius, J., Struyven, D., Bhushan, S., Milo, D., 2020. Mitigating Climate Change via Taxes and Subsidies, Goldman Sachs Global International Research
Since 2013, The Stock Exchange of Hong Kong Limited (SEHK) has launched the ESG Reporting Guide, which provides a framework for listed companies and requires them to report on ESG work annually. Therefore, in recent years, more and more SMEs have incorporated Environment, Social and Governance into their businesses to improve productivity. In the long run, ESG will maintain the business growth of SMEs and will be able to assist them to expand into new markets.
Friends of the Earth (HK) will be organising an online
webinar with SME Sustainability Society to enable SMEs to learn more about ESG (Environmental,
Social and Governance) related content and how to look for opportunities so
that they can fulfil their corporate social responsibilities and create a
Organiser: Friends of the Earth (HK), SME Sustainability Society Date: 20 Oct 2020 (Tue) Time: 2:30-4:00pm Language: Cantonese *The session will be conducted online via Zoom.
Host: Simon Mak, Vice-Chairperson of Friends of the Earth (HK) Ophelia Lin, Board Members of Friends of the Earth (HK)
Rundown: 2:25pm check in 2:30pm Sharing Session: Hauman Yeung – Green Finance Advisor of Friends of the Earth (HK) 3:30pm Closing remarks: Jeffrey Hung – CEO of Friends of the Earth (HK) 3:40pm Q&A session 4:00pm End
Jointly presented by FoE (HK) and EFFAS, the Certified ESG Analyst Programme (CESGA) will be closing for registration for Nov 2020 intake tomorrow. If you are a financial analyst, a portfolio manager or others specialists who are interested in ESG and corporate sustainability, you must not miss this chance to upgrade yourselves with internationally recognised ESG♻️ qualification. For registration and more information, please browse️ the link here.
Green Finance Advisor of Friends of the Earth (HK)
Last week the Hong Kong government has announced a new round of issuance of iBond, an inflation linked bond as part of the Government Bond Programme for retailers like you and me to subscribe. As we are in the near-zero interest rate environment the offer of a minimum 2% of interest payment every six months for 3 years by the latest iBond is certainly attractive.
Disclaimer: this is not an investment advice from the Green Finance Advisory or Friends of Earth (Hong Kong) and we are not saying that you should subscribe to these bonds. And we remind you that prices of assets, including the iBond, can go up and down… 🙂
That being said, iBond only gives us financial return. Will there be sustainability contributions by investing our money in iBond? Will the proceeds be used to improve our environment and society? We do not know the answer as the money raised from the iBond will go to the government’s bond fund, which does not have a specific tie to sustainability development.
In our view, the Hong Kong government should consider evolving the iBond into sustainability-linked bonds (sBond) of which the proceeds should contribute to sustainable development and the interest rate should adjust with key sustainability performance indicators (KSPI). Echoing to our response to the government’s 2020-2021 budget, here are some of our suggestions for the use of proceeds and the KSPI for interest rate adjustment.
Embracing a sustainable world should be the job of every government regardless of population and scale of economy. There are many things Hong Kong government can do to achieve this and sustainable financing is certain a tools that it can use wisely. In our view, the issuance of sBonds can demonstrate Hong Kong’s innovation in sustainable finance and its commitment to sustainability development. At the same time sBond could also perform the basic duties of iBond – raising capital from retail investors and offering them a minimum return. An innovative design of sBonds may even have the potential to lower the government’s longer term cost of funding. We encourage the HK government to take a closer look of this financing option.