Eddie Yue: Hong Kong - the Asian hub for sustainable finance
Opening remarks by Mr Eddie Yue, Deputy Chief Executive of the Hong Kong Monetary Authority,
at the Euromoney's 2nd Asia Sustainable & Responsible Capital Markets Forum, Hong Kong, 25
June 2019.
* * *
Distinguished guests, Ladies and Gentlemen,
1. I would like to thank Euromoney for inviting me to speak at this 2nd Asia Sustainable and
Responsible Capital Markets Forum today. It is indeed an honour to have this opportunity to talk
about this important topic, especially here in Hong Kong, where we place a high priority on and
direct much effort towards developing our sustainable finance platform.
2. I understand that we will have a very comprehensive programme today, covering not just the
potential of sustainable finance in the region and the role of different stakeholders, but also
exciting developments of green bonds and other innovative products. Allow me then to focus my
remarks on the bigger picture and on three areas in particular:
(i) First, the potential for sustainable finance in Asia;
(ii) Second, Hong Kong's role as Asia's hub for sustainable finance; and
(iii) Third, some of the Hong Kong Monetary Authority (HKMA)'s latest initiatives on this topic.
Potential for sustainable finance in Asia
3. The effects of climate change are already visible around the world: more severe weather
events, infrastructure damage, problems with food security, water resources, and even human
health. No country or community is immune. According to the International Monetary Fund (IMF),
in the past four decades, we have witnessed the warmest years on record and the number of
natural disasters has more than doubled.
4. The global community is already taking concrete actions to tackle climate change and there
have been many admirable efforts. For example, countries around the world are putting in place
policies to implement the 2015 Paris Agreement. In the world of finance, central banks, financial
regulators and institutions are increasingly adopting agendas to promote green finance. The IMF
has highlighted in its latest Global Policy Agenda the importance for international collaboration to
combat climate risk and what the IMF will do to support this effort.
5. Here in Asia, huge investments in green and climate-resilient infrastructure are needed across
the region. The Asian Development Bank (ADB) estimates that US$1.7 trillion per year will be
needed through 2030 for the region to maintain growth momentum, eradicate poverty and
respond to climate change.
6. There is also growing awareness in the region of the need to ensure not just the level but also
the quality of growth. This has forced policymakers to make a fundamental shift towards a more
sustainable economic model which is less resource and carbon-intensive.
7. This requires a massive reallocation of capital and substantive involvement of the capital
markets. Hence, the momentum of sustainable finance is building up strongly and will continue
even more so in the coming years. For the global financial community, sustainable finance is no
longer nice-to-have, but a necessary direction. We must therefore ensure that we are prepared
to embrace it.
Hong Kong's role as the Asian hub for sustainable finance
8. What role can Hong Kong play in this global effort? Most importantly, it is critical that we use
our strengths as an international financial centre to contribute to this endeavour.
9. Hong Kong is already one of the major green finance hubs globally. Last year, green bonds
arranged and issued in Hong Kong reached US$11 billion, up from US$3 billion in 2017. The
issuers included multilateral development banks, such as the ADB and the European Investment
Bank, as well as private sector participants from Hong Kong, Mainland China and abroad.
10. In fact, a green finance ecosystem is already taking shape in Hong Kong. Many international
green advisory firms and external reviewers have a presence in Hong Kong. They combine
onthe-ground knowledge of the Asian market with robust international standards. We also have a
local Green Finance Certification Scheme developed by the Hong Kong Quality Assurance
Agency (HKQAA) with reference to a number of widely recognised international and Mainland
standards.
11. The Hong Kong Government is a strong supporter of green finance, and puts in place
supportive policies to promote green finance, such as the Green Bond Grant Scheme, which
subsidises the cost of obtaining certification under the HKQAA's Green Finance Certification
Scheme, as well as the Pilot Bond Grant Scheme, which covers issuance costs of eligible
firsttime bond issuers in Hong Kong, including green bonds. Furthermore, under the Outline
Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area, Hong Kong is also
the designated green finance centre in the area.
12. We also have a strong presence of banks and other financial intermediaries with experienced
specialists in green finance, and international institutional investors based in Hong Kong who
have made strong commitments to green investments.
13. So there is already strong momentum and an ecosystem here. But there is more that we
can do.
HKMA's latest initiatives
14. This brings me to my third point on HKMA's initiatives - the HKMA's commitment to fully
support green finance to combat climate change. As a bank regulator, one of the largest asset
owners globally, and key promoter of market development, we can make use of our various roles
and take meaningful actions to support and nurture green finance. We have already been taking
a number of concrete actions to drive awareness and development of the market: for example,
we co-hosted major conferences last year with the International Capital Market Association,
which determines the Green Bond Principles and Social Bond Principles, and with the People's
Bank of China to raise awareness and knowledge of green finance in Hong Kong. To grow the
market on green bonds, the HKMA has also been actively reaching out to potential green bond
issuers. Building on these efforts, and to further promote green and sustainable finance in Hong
Kong, the HKMA announced three further sets of measures in May:
15. First, a three-phased approach to promote Green and Sustainable Banking.
(i) In the first phase, we will develop a common framework to assess the existing baseline of
individual banks in order to establish how "green" they are.
(ii) The second phase is to engage and consult the industry and other relevant stakeholders to
develop our supervisory expectation or requirements, particularly on how to incorporate
Environmental, Social and Governance (ESG) risk elements in banks' corporate mandate, risk
management practice and financial disclosure. The key objective of this phase is to set tangible
deliverables for Hong Kong's banking industry to become greener and more sustainable.
(iii) The third phase will focus on implementation, monitoring and evaluation. During the process,
we will take into account the unique circumstances, risk profiles, nature and scale of business of
each bank.
16. The second measure is adoption of the responsible investment principle by the Exchange
Fund.
(i) Apart from it being a good cause, responsible investment makes good investment sense.
ESG risk has become too significant to be ignored in the investment decision making process.
Assets or companies with high ESG risk might see diminishing value over time or even risk
becoming "stranded" assets. By integrating ESG factors into investment, we aim to seek better
risk-adjusted return in the long run, which is consistent with the objectives of the Exchange Fund.
(ii) While we have been weaving ESG factors into our investment process over the past few
years, the HKMA will now adopt a guiding principle that priority will be given to Green and ESG
investments if the long term return is comparable to other investments on a risk-adjusted basis.
(iii) Going forward, we will be more proactive in embracing ESG in Exchange Fund investment in
both public markets and private assets, for example, by: (a) growing the green bond portfolio by
direct investment or investing in green bond funds; (b) on the public equities side, we aim to
create ESG mandates by adopting ESG equities index as benchmark for passive portfolio, or by
engaging active equities managers who use an ESG filter in equity selection; and (c) in the
private markets, we will include green accreditation as a predominant factor for investment in real
estate, and will also conduct ESG evaluation as a mandatory part of due diligence of all private
markets investments, especially in infrastructure area.
17. The third measure is to strengthen our capacity building efforts by launching the Centre for
Green Finance (CGF) under the HKMA Infrastructure Financing Facilitation Office (IFFO).
(i) The purpose of the Centre is to ensure that our financial institutions are equipped with the
knowledge, skills, tools and other resources in green finance, particularly with the launch of the
green and sustainable banking initiative. The CGF will serve as a one-stop shop in capacity
building for the financial industry, especially banks, in the coming months. We are already in
discussions with international organisations such as the International Finance Corporation on
how to leverage their expertise on this.
18. Apart from these three initiatives, the HKMA helped to issue Hong Kong Government's
inaugural US$1 billion, 5-year green bond under the Government Green Bond Programme earlier
in May.
(i) We have seen strong demand for this issuance, attracting orders exceeding US$4 billion,
allowing the green bond to be priced at a tight spread against the US Treasury at issuance. The
issuance has helped to set an important new benchmark for potential green bond issuers in
Hong Kong and the region.
(ii) The deal has attracted interests from a diverse group of conventional and green investors.
Orders were received from over 100 global institutional investors, and 50% of the Green Bond
was distributed to Asia, 27% to Europe and 23% to the United States. By investor type, 29% was
distributed to banks, 30% to fund managers, private banks and insurance companies, and 41%
to sovereign wealth funds, central banks and supranationals. Based on some rough calculations
by our Joint Global Coordinators, about half of the investors participating in our deal could be
loosely defined as "green investors".
19. By going through the issuance process ourselves, along with the help of external parties, we
have hopefully showcased to potential green bond issuers, both locally and overseas, that Hong
Kong is a convenient platform for issuing green bonds, for three reasons:
(i) Hong Kong has a strong presence of finance and legal professionals, who can advise on all
aspects of the bond offering and assist in arranging, managing, co-ordinating and marketing the
green bond certification and issuance;
(ii) Hong Kong combines the best market practice from internationally renowned green
reviewers and local agencies. For example, we obtained a Second Party Opinion from Vigeo
Eiris for the Green Bond Framework and the inaugural transaction under the Framework has
also received the "Green Finance Certificate" (Pre-issuance) from the HKQAA; and
(iii) Hong Kong is home to leading international institutional investors, including many of the
investors who have made strong commitments to green investments.
20. During the roadshow for the green bond, we were joined by our Environment Bureau
colleagues to reach out to overseas investors in major cities such as London, New York, Paris,
and Frankfurt, in order to demonstrate to the international community the HKSAR Government's
coordinated commitment to green finance and our broader objective to address climate change
risks. We believe the exercise has gone a long way in asserting Hong Kong's branding as the
premier regional green finance hub to the leading institutional investors around the world.
21.To join like-minded peers globally in promoting best practices in green and sustainable
finance, we have signed up to or are in the process of joining several international charters or
organisations, such as the United Nations-supported Principles for Responsible Investment
(UNPRI), Focusing Capital on the Long Term (FCLT), the Financial Stability Board (FSB)'s Task
Force on Climate-related Financial Disclosures (TCFD), and the Central Banks and Supervisors
Network for Greening the Financial System (NGFS).
22. The HKMA is not alone in driving green and sustainable finance in Hong Kong. For example,
the Securities and Futures Commission (SFC) announced its Strategic Framework for Green
Finance in September last year and published guidance on enhanced disclosures for green or
ESG funds earlier in April. The Hong Kong Stock Exchange also launched a consultation in May
on enhancing ESG reporting and disclosure. With these ongoing efforts, we hope to bring
sustainable finance in Hong Kong to the next stage.
Concluding remarks
23. Finally, I would like to emphasise that this is just the beginning of a very long journey. While
developments in sustainable finance have been encouraging, we are still at the initial phase of
development and a lot more still needs to be done. Today's forum is a most welcome
opportunity to help prepare for the future. I look forward to working closely together with all of you
in our common effort to develop the sustainable finance market.
24. Thank you.