Climate change is high on the agenda at the Hong Kong Monetary Authority (HKMA) and Asia where Hong Kong's position as a hub for global investors - particularly Chinese investors - stands to boost green engagement, according to Eddie Yue, chief executive of the island’s central bank.
He told the Financing Climate Change virtual conference - hosted by FinanceAsia, AsianInvestor’s sister publication - that the booming market in green bonds would become a focus going forward.
“Market estimates suggest that $66 trillion of investment over the next three decades would be required in Asia to achieve the Paris climate target of limiting global warming to 1.5 degrees," he said.
"The capital injections required for Asia are substantially higher than those necessary for any other region.”
In 2020, Chinese companies issued more than 200 green bonds to raise a total of $22.3 billion, according to data from Climate Bonds Initiative.
Although 2020 saw a dip from the previous year, during the first quarter of 2021, the country issued a total of Rmb116.8 billion ($18.3 billion). The country ranked the fourth in terms of issuance, according to Climate Bonds Initiative (see chart below).
To put it in context, China issued just $1 billion in green bonds by the end of 2014.
China’s onshore and offshore green bond issues accounted for around one-fifth of global new green bond deals in 2019, ranking top among all countries, according to a Fitch Ratings report in December 2020.
“We are very mindful of the role Hong Kong can play in all stages of green investment,” Yue noted, highlighting that to better achieve a greener investment environment, Hong Kong could play a significant part, especially for Chinese issuers.
“China will need to access global capital. Hong Kong and the Greater Bay Area are good places for Chinese corporates to start. Green bonds need to converge with international standards and there is strong potential in this area,” he said.
In early May, the HKMA released a guideline that provided subsidies for eligible bond issuers and loan borrowers to cover their expenses on bond issuance and external review services.
Called the Green and Sustainable Finance Grant Scheme, it became effective from May 10 and lasts for three years.
Covid-19 had also proven an interesting time for sustainable finance, he said, noting that investors with ESG practices had generally performed better.
HKMA has adopted a three-phased approach to promoting green and sustainable banking.
Under phase one, the focus is on developing a common framework to assess the “greenness baseline” of individual banks. Yue said there are now 29 banks participating in the bank’s sustainable banking initiative.
Hong Kong Exchanges (HKEX) would also bring more strength to the government's green targets.
“2020 marked the record for Hong Kong’s listings of green and sustainability-related bonds (18 issuance with a total of HK$66.6 billion raised) and the record has been surpassed. For the first four months this year, we’ve already listed 30 green/ESG-focused bonds, totaling HK$ 91.1 billion,” Grace Hui, head of green and sustainable finance at HKEX, told AsianInvestor.
Hui said that in terms of future development, HKEX wanted to start scaling other asset classes so as to give investors even more green choices.
“In this regard, both product innovation and market education are key if we want to encourage more investors/companies from the Greater Bay Area to gain higher engagement in green finance development," she added.
More interview highlights with Eddie Yue can be found here.