Hong Kong: Latest updates from the Green and Sustainable Finance Cross-Agency Steering Group

Hong Kong's Green and Sustainable Finance Cross-Agency Steering Group (the "Steering Group") has issued details of the planned next steps in developing Hong Kong as a global carbon market, as well as welcoming the publication of the International Sustainability Standards Board ("ISSB")'s draft sustainability disclosure standards (see our blog on the details of the proposals here). 

Both the development of the carbon market and the ISSB’s development of comprehensive global standards for companies’ climate and other sustainability-related disclosures are critical steps in establishing a meaningful and effective green finance architecture, and are featured in the short list of action points which the Steering Group has described as being near-term plans of importance to firms grappling with sustainable finance challenges.

The ISSB proposals 

The ISSB has released two draft standards for consultation, which build on the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD"). One draft is the General Requirements for Disclosure of Sustainability-related Financial Information Standard, which require companies to disclose information that enables investors to assess the effect of significant sustainability-related risks and opportunities on its enterprise value (Exposure Draft IFRS S1), and the other is the Draft Climate-related Disclosures Standard (Exposure Draft IFRS S2). The Steering Group is encouraging the financial sector, listed companies and all interested stakeholders to participate in the ISSB consultation. The ISSB is aiming to finalise the standards by the end of 2022.

The Steering Group, and in particular SFC CEO Ashley Alder, have been very supportive of the development of a global uniform set of sustainability reporting standards. The Steering Group’s press release states that the SFC and Hong Kong Exchanges and Clearing Limited plan to engage with industry practitioners including the audit and accounting profession, the Hong Kong Institute of Certified Public Accountants, listed companies, global standard setters (such as IOSCO) and other key stakeholders to evaluate and gather feedback on how the ISSB’s proposed disclosure requirements can be applied in Hong Kong.

Carbon market opportunities

Following the publication of the Steering Group’s preliminary feasibility assessment of carbon market opportunities for Hong Kong, the Steering Group has endorsed the next steps in its plan to support the development of Hong Kong as a regional carbon trading centre.

The non-exhaustive list includes leveraging Hong Kong’s status as a champion of international standards (such as the ISSB proposals) as well as its role facilitating access for global capital into mainland China and its status as an international financial centre with a stable and mature regulatory system in order to develop a global, high-quality voluntary carbon market, which allows buyers to purchase carbon credits to neutralise or compensate for their carbon dioxide emissions.

There is also a strong focus on establishing the Guangdong-Hong Kong-Macao Greater Bay Area ("GBA") Unified Carbon Market, and exploring opportunities to link up international investors with the GBA Unified Carbon Market and potentially the national emissions trading system. In line with the aim to increase Hong Kong’s role as a risk management centre, the Steering Group are also looking at strengthening cooperation with the Guangzhou Futures Exchange on carbon market development to enable Hong Kong to act as mainland China’s offshore risk management centre. Steps toward cooperation with mainland China in tackling climate change have already been taken by the Hong Kong Exchanges and Clearing Limited, which signed a Memorandum of Understanding with the China Emissions Exchange in March, to explore cooperation in reducing carbon emissions. 

No exact timeline has been given yet for the carbon market plan, but the Steering Group has said that they are intending for these steps to occur in parallel.

What is the Green and Sustainable Finance Cross-Agency Steering Group?

Established in May 2020 and made up of the main financial regulatory bodies in Hong Kong as well as the Financial Services & Treasury Bureau and Insurance Authority, the Steering Group is focused on accelerating the growth of green and sustainable finance in Hong Kong. Since its inception, the Steering Group has been setting out a direction for regulatory policy and welcomed the Hong Kong government’s plan to make Hong Kong carbon neutral by 2050.