Green bonds to spur Hong Kong sustainability agenda

Diversification and growth in sustainable investment activity in 2020 in Hong Kong have sharpened the focus on using green bonds to help achieve climate-related goals this year.

The $2.1bn worth of green bonds launched in Hong Kong in 2020 represented a record number of deals from local issuers – with 15 internationally aligned green bonds and one green loan, according to the Climate Bonds Initiative at its recent Hong Kong Green Bond Market Briefing.

Although the overall volume was down 18% from 2019, cumulative green bond issuance has reached $9.2bn overall. Low-carbon buildings dominated use of proceeds in 2020, at 36%, with low-carbon transport a close second, at 26%.

“Despite the disruptive effect of Covid-19, we are seeing new issuers from around the world and alternative financing instruments coming to the market,” said Darryl Chan, executive director (external) at the Hong Kong Monetary Authority.

Efforts to maintain this momentum include the launch of the new Green and Sustainable Finance Grant Scheme and further issuance of government green bonds. “We aim to attract more issuers, investors and service providers to Hong Kong, further enriching our green and sustainable finance ecosystem,” Chan added.

In early 2021, in its most recent budget announcement, the Hong Kong government said it would issue roughly $23bn in green bonds over the next five years, aiming to cover a larger variety of project types and bond features.

Upping the green ante

There are three specific focus areas to fuel green and sustainable finance in Hong Kong in 2021:

1. Closer collaboration with the Greater Bay Area – capitalising on green investment opportunities and coordinating efforts on strategic planning for deep decarbonisation through the Greater Bay Area Green Finance Alliance.
   
2. Working towards Hong Kong’s net zero carbon future – encouraging the government, regulators, banks, investors and the private sector to jointly devise decarbonisation strategies and action plans at the sectoral level, with the support of an extensive policy toolkit.
   
3. Boosting transition finance in support of Asia’s carbon neutrality goals – with Hong Kong leading the collaborative effort with key stakeholders in reinforcing the idea of an ambitious and robust model for growing transition finance as an effective tool, and to speed up the low-carbon journey of the high-emitting, hard-to-abate industries in Asia.

As part of these initiatives, new financing tools including transition bonds and loans will have a vital role in new green growth and sustainable development.

“Hong Kong’s leadership in aligning to robust frameworks and international best practice remains crucial to meeting the climate finance challenge we all face,” explained Sean Kidney, chief executive officer of the Climate Bonds Initiative.

To date, the government has issued $3.5bn worth of green bonds as part of its Green Bond Programme – including the inaugural $1bn in 2019 and $2.5bn in February 2021.

“With mainland China and Hong Kong’s carbon neutrality commitments in place, we are confident that Hong Kong’s green and sustainable finance market will play a more important role in raising urgently needed capital to support the regional transition to a net zero and sustainable future,” said Ma Jun, chairman and president of the Hong Kong Green Finance Association.