Financing a Greener Economy
31 March 2022
Sammie Leung, Partner, Climate and Sustainability Leader in Mainland China and Hong Kong, PwC
Climate change has emerged as a key agenda item for business and political leaders around the world. Climate risk management and decarbonisation have also gained a lot of traction in both the public and the private sectors in Hong Kong. Policymakers, banks, investors and insurers have been finding ways to help address climate-related risks, many of whom are also making efforts to re-strategise and reinvent their business models to take advantage of the opportunities arising from the green movement.
Leveraging Hong Kong’s status as an international financial hub, policymakers have taken a number of proactive measures to drive the climate agenda, not only to ensure the stability of the city’s financial systems but to also maintain its competitiveness. The Green and Sustainable Finance Cross-Agency Steering Group1 is keen to strengthen Hong Kong’s leading position in the green finance space.
Several climate-related regulatory requirements came into effect in 2022. Banks and asset managers are expected to incorporate climate risk factors into their money lending and investment decision-making processes2. Listed issuers3 are also required to disclose their risk assessment process and the actions taken to address climate-related risks. The push from regulators has undoubtedly been effective in urging corporates to take a closer look at climate risk management.
Investor demand is another driving force behind the climate agenda. Integrating ESG factors into investment decision-making is no longer a novel or just a ‘nice-to-have’ concept. It has become part and parcel in the investment space, and many institutional investors believe ESG and climate factors help them generate alpha and manage beta. Fund managers such as BlackRock and SSGA issued updates on their 2022 voting policies to emphasise climate and net-zero transition, as well as board diversity. The rise of shareholder activism is also notably seen in the success of investment group Engine No.1 last year in garnering shareholder support to ultimately replace a quarter of Exxon Mobil’s board with new directors in support of ESG movements. BlackRock also forecasted that 20% of all its ETFs will be tied to ESG ratings by 2028.
I have seen an uptrend in the issuance volume of green or transition-themed loans and bonds. Not only do banks now play a key role in providing capital to enable and accelerate decarbonisation on a transactional level, some have even gone the extra mile in collaborating with climate solution providers to assist their corporate clients in their decarbonisation journey. Financial institutions are also taking steps to phase out coal-related activities. For example, DBS, Bank of China and AIA have all announced their timeline and plans to terminate the financing and underwriting of coal-mining and coal-fired power projects.
My consultancy work has given me the front-row seat to witness the tremendous developments in the ESG space in recent years. In particular, our finance sector is gradually accumulating the knowledge and capabilities needed to identify, understand, assess, measure and formulate responses to climate-related risks. Quite a number of industry practitioners are already benefiting from the early mover advantage in ESG financing and enabling the real economy by facilitating the transition to a lower-carbon business model. Lastly, the climate movement has created tremendous opportunities for practitioners of all levels and roles, helping them achieve business success and personal growth while doing good for the planet.
Ms Sammie Leung,
Partner, Climate and Sustainability Leader in Mainland China and Hong Kong, PwC
1 The Green and Sustainable Finance Cross-Agency Steering Group is co-chaired by the Hong Kong Monetary Authority and the Securities and Futures Commission. Members include the Environment Bureau, Financial Services and the Treasury Bureau, Hong Kong Exchanges and Clearing Limited, Insurance Authority and the Mandatory Provident Fund Schemes Authority. The Steering Group aims to coordinate the management of climate and environmental risks to the financial sector, accelerate the growth of green and sustainable finance in Hong Kong and support the Government’s climate strategies.
2 The Hong Kong Monetary Authority (HKMA) also issued the Supervisory Policy Manual module GS-1 on climate risk management to guide authorised institutions in building climate resilience by incorporating climate considerations into governance, strategy, risk management and disclosure. The Securities and Futures Commission (SFC) published its conclusions in 2021 on the proposed amendments to the Fund Manager Code of Conduct, requiring fund managers to incorporate climate-related risks in their daily operations.
3 The updated Appendix 27 by the Hong Kong Exchanges and Clearing (HKEx) requires listed companies to disclose a new “comply or explain” aspect, Climate Change, where companies should outline how they are impacted by climate-related issues and actions taken to manage them.
* The above article only reflects the opinion of the writer and does not represent the positions of the Hong Kong Academy of Finance.
Last revision date: 31 March 2022