Climate Blog
2024-03-24
Hong Kong's green finance policy has three loopholes and ranks behind Singapore and Tokyo
Groups urge government to form top-tier strategy and enhance accountability to mitigate the climate crisis
The Hong Kong SAR government asserts that it has become a green financial centre in Asia. However, a study conducted by Greenpeace East Asia and CarbonCare InnoLab, identifies three major loopholes in Hong Kong's green financial sector. The study also finds that Hong Kong's performance lags behind that of Singapore and Tokyo, and that its regulations to combat greenwashing are inadequate.
The groups are urging the government to create a timetable and roadmap for the development of green finance that meets the requirements of the Paris Agreement, which aims to limit the global temperature rise to 1.5°C. Additionally, a specialised mechanism to prevent greenwashing should also be established to ensure Hong Kong's competitiveness in the global green finance market.
Tom NG, a Greenpeace East Asia Campaigner, said:
"The government boasts that Hong Kong is a green finance hub in Asia, but it lacks comprehensive policies and measures to tackle greenwashing. It's like navigating the sea without a map, which can easily lead us astray and weaken our response to the climate crisis."
The study examines the policies and measures of Hong Kong on green finance by reviewing the policies and guidelines of the Hong Kong Monetary Authority and the Securities and Futures Commission, environmental, social, and governance (ESG) disclosure requirements for listed companies, and climate risk reporting. It focuses on five key areas, namely "governance and accountability," "information transparency," "climate risk management," "green financial products," and "carbon markets and innovative solutions".
The study reveals three major loopholes in Hong Kong's green finance development: (1) the lack of a high-level strategic plan, (2) the absence of restrictions on direct financing for fossil fuels, and (3) the absence of regulations targeting greenwashing. These loopholes may hinder Hong Kong's ability to become Asia's leading green finance hub.
Taking Loophole (1) as an example, Hong Kong lacks a high-level strategic plan and leadership. The Hong Kong government and regulators have introduced piecemeal green finance guidelines and policies, such as the Securities and Futures Commission's Strategic Framework for Green Finance and the Hong Kong Exchanges and Clearing's rules on ESG disclosure for listed companies. In contrast, top-tier financial authorities in Asian financial centres such as Shanghai, Shenzhen, Singapore, and Tokyo have taken the lead in implementing strategic plans with roadmaps and timelines toward their net-zero emissions goals.
Kevin LI, a CarbonCare InnoLab researcher, said ,
"Climate finance is one of the keys to limiting the global temperature rise to 1.5°C. Hong Kong should actively promote green finance and contribute to global climate change mitigation efforts as an international financial centre. However, current policies simply fail to see the forest for the trees. Since the policies lack key performance indicators, the public may find it difficult to hold the stakeholders accountable, limiting the effectiveness of these efforts."
Loopholes (2) and (3) show that Hong Kong lags behind Singapore in green finance. First, Hong Kong has yet to formulate a plan to phase out fossil fuel financing, but Singapore has already committed to phasing out such financing and restricting direct financing for coal-fired power projects. Secondly, while the Hong Kong government plans to adopt the International Sustainability Standards Board (ISSB) framework by 2025 to strengthen ESG reporting requirements for listed companies, Singapore plans not only to increase disclosure requirements for listed companies, but also to expand their scope from fiscal year 2027, requiring large non-listed companies with annual revenues of more than SGD 1 billion (~ USD 740 million) to disclose climate-related information.
The emergence of ESG-related products gives rise to the risk of greenwashing, but Hong Kong has yet to enact laws to combat greenwashing, creating Loophole (3). Currently, Hong Kong relies solely on its Trade Descriptions Ordinance and guidelines issued by the Hong Kong Exchanges and Clearing Limited to prevent greenwashing. In contrast, Singapore, Tokyo and Seoul have already strengthened their reporting requirements or are in the process of enacting specialised legislation to combat greenwashing. To prevent greenwashing, Hong Kong's financial regulators should establish a rigorous vetting process and third-party audits to prevent the flow of funds to polluting projects and ensure that Hong Kong will not become a haven for greenwashing.
The organisations suggest that the government should:
1. Enact legislation to regulate greenwashing and establish a rigorous review process and third-party audits;
2. Set specific quantitative targets, roadmaps, and timetables;
3. Strengthen the assessment of the impact of climate risks on the financial system, and;
4. Integrate climate considerations into financial policies.
To ensure progress towards sustainable development goals and make Hong Kong more competitive in the global green finance market, thereby achieving a win-win situation.
Download the working paper here.