Hong Kong Monetary Authority publishes “Phase 2A prototype” of its sustainable finance taxonomy for public consultation

On 8 September 2025, the Hong Kong Monetary Authority (HKMA) launched a public consultation on Phase 2A prototype of the Hong Kong Taxonomy for Sustainable Finance (the Phase 2A Taxonomy).

The Phase 2A Taxonomy builds on Phase 1 of the Hong Kong Taxonomy published in May 2024 (see our previous blog post) by adding new sectors, economic activities, and transition elements. The Phase 2A Taxonomy also introduces climate change adaptation as an environmental objective, being one of the first few taxonomy frameworks globally to address this issue.

To recap - the Hong Kong Taxonomy aims to provide guidance for market participants to make more informed investment decisions regarding “green” and sustainable finance products in order to scale up the flow of capital towards green and sustainable assets, projects, and investments (not only in Hong Kong, but also in Mainland China and internationally). It is intended to provide market participants with greater confidence in sustainability claims, addressing greenwashing concerns and enhance comparability across portfolios and investments.

In this blog, we set out the key developments in the Phase 2A Taxonomy: 

Expanded sector coverage 

Two new sectors - manufacturing and information and communications technology - have been added to the four sectors under the Phase 1 Taxonomy (being energy; transportation; construction; and waste), therefore, increasing the total number of sectors from four to six. 

Increase in economic activities 

13 new economic activities have been added, bringing the total number of economic activities from 12 to 25. Updates have also been made to the technical screening criteria of a number of activities introduced under the Phase 1 Taxonomy. 

The table below (reproduced from the consultation document) sets out the expansion of scope from Phase 1 to Phase 2A with new activities in bold: 

* Activities published in Phase 1 and updated in Phase 2

Transition elements

The Phase 1 Taxonomy focused on defining criteria for “green” activities under the climate change mitigation environmental objectives whereas the Phase 2A Taxonomy introduces a “transition” category. As with other transition taxonomies developed in certain Asia jurisdictions, the aim is to scale up transition finance to high-emitting sectors, such as energy and manufacturing. 

For activities focused on climate change mitigation, the Phase 2A Taxonomy adopts a classification framework that categorises activities as Green, Transition, or Exclusion, based on their level of alignment with the globally recognised Paris Agreement 1.5°C climate goals.

Activities classified as Green are those that contribute substantially to climate change mitigation.

The Transition category covers “carbon-intensive activities that are on a time-bound decarbonisation journey to align their operations with a 1.5°C trajectory, ultimately reaching net zero in 2050”. The Transition category also covers activities or measures that enable substantial reductions in greenhouse gas emissions in the short term, even if these activities or measures ultimately may, or may not, align with the Green criteria. Accordingly, the two types of classifications under the Transition category are (i) “Transition Activity” and (ii) “Transition Measure”.

The Exclusion Category activities are currently not eligible under the Hong Kong Taxonomy, because, for example, the activity is not compatible with, or is not progressing rapidly enough towards, a 1.5°C decarbonisation pathway. 

For the Transition category to apply, the Phase 2A Taxonomy sets out the following principles: 

• Transition applies only to activities with limited or no low-carbon alternatives to decarbonise - For example, fossil-based land transport vehicles are not eligible under the Hong Kong Taxonomy, as low-carbon alternatives such as electric vehicles are available.
• Transition requires demonstrable progress – A suitable level of reduction in emissions intensity and/or an increase in energy efficiency to show steady improvement and growing alignment with the Green criteria must be demonstrated. Where feasible, forward-looking thresholds, based on currently available technologies, should be established for different time periods, reflecting anticipated improvements. These thresholds are subject to review in future iterations of the Hong Kong Taxonomy and may potentially be revised as new technologies and methodologies emerge.
• Transition is time-bound - A “sunset date” must be set by which point all activities must either fully meet the Green criteria or be deemed non-aligned with the Hong Kong Taxonomy. Sunset dates are determined based on a range of factors and therefore vary across sectors / activities e.g. the maritime transport sector has a sunset date of 2030, while the energy sector has a longer lead time till 2035.
• Transition focuses on existing infrastructure - Transition should primarily apply to existing infrastructure and activities, rather than new developments to prevents carbon lock-in and ensure that the development and deployment of low-carbon alternatives are not hindered.

New environmental objective – climate adaption: 

The Phase 2A Taxonomy introduces climate change adaptation as a new environmental objective. Climate change adaption has been introduced as one of the core objectives to address the growing funding needs for managing physical risks and responding to the increasing frequency of extreme weather events. 

The adaptation framework set out in the Phase 2A Taxonomy (the Adaption Framework) has the following four core principles:

• Building block approach for phased development – Recognising that climate change adaptation is relatively nascent and still evolving, the Adaptation Framework adopts a “building block approach” so that it can be expanded as circumstances and market needs change.
• Localised for Hong Kong and adjacent regions - The Adaptation Framework prioritises the most relevant adaptation-related investments for Hong Kong and its adjacent regions that face similar physical risks.
• Adapting measures-focused - The Phase 2A Taxonomy prioritises the water sector (with flood damage and water stress being identified as two climate hazards for the sector). It identifies four “adapting measures” within the water sector using the “whitelist approach” (explained below). 
• Graduated assessment approach – Similar to mitigation activities, adaptation-related investments must meet the defined substantial contribution criteria to be deemed taxonomy-aligned. Initially, the Adaptation Framework relies on a Whitelist approach which puts forward a “whitelist” of adapting measures that are automatically deemed eligible without the need to meet specific criteria. 

What’s next?

The public consultation closes on 8 October 2025. The consultation paper is available on the HKMA website.

The Phase 2A Taxonomy is clear that the intention is for the scope of the taxonomy to evolve and expand in response to market dynamics, technological advancements, policy priorities and evolving green and sustainable practices and expectations.

Areas under consideration for future development on the Hong Kong Taxonomy include, in the energy sector, natural gas-fired power generation and nuclear energy power generation as transitional and low-carbon energy sources, as well as hydrogen for electricity generation; in the transportation sector, air transport, including emerging technologies to reduce emissions in the aviation sector (e.g. sustainable aviation fuel); and in the manufacturing sector, activities such as the production of cement, iron and steel, basic chemicals, low-carbon liquid fuels, and biofuels. Carbon Capture, Utilisation and Storage (CCUS) is a new sector which is under review, while the role of “Do No Significant Harm” will be explored in future iterations of the Hong Kong Taxonomy. 

In terms of climate adaption, other climate hazards significant to Hong Kong and its adjacent regions - for instance, storm damage, mass movement damage, and heat stress - will be explored in future iterations of the Taxonomy.

The use of the Hong Kong Taxonomy remains voluntary, although the consultation document states that “in the long run, the incorporation of the Taxonomy into banking supervisory policies will be explored to further strengthen its role in advancing green and sustainable finance”.