In order to strengthen its position as a global hub for sustainable finance, Hong Kong should adopt the stricter standards employed by China and the European Union for defining green and climate mitigation initiatives.
If the city raises its standards to satisfy the needs of a wider spectrum of foreign investors, said Civic Exchange research analyst Bon Cheung, it can play a bigger role in directing foreign investment into decarbonization projects in China.
"When Hong Kong aligns with the China and European Union's common ground taxonomy, where there are differences between the two standards, if we embrace the more stringent ones, it will enhance our credibility," he said dannouncing the publication of a research report on Tuesday.
His comments come ahead of a market consultation that the Hong Kong Monetary Authority is anticipated to launch next month on creating a local "green taxonomy" framework for categorizing economic activities that are thought to be sustainable or environmentally beneficial.
According to the de facto central bank of the city's sustainability report, the taxonomy's introduction will improve market openness and facilitate uniform green finance policymaking.
It tries to decrease "greenwashing," which is the act of making unsupported claims about the environmental advantages of a product or practice.
According to the paper, the proposed Hong Kong framework will be consistent with major international standards, such as the common ground taxonomy used by China and the EU.
According to Deng Manshu, deputy head of the China program at the Climate Bond Initiative, more than 20 green taxonomies have been developed internationally to close the knowledge gap between project engineers and practitioners of green financing.
It is difficult for investors to negotiate cross-border investments because of the expanding number of taxonomies and the fact that they are amended over time as climate mitigation technology develops, she said at a discussion held by the Civic Exchange on Tuesday.
A joint task force undertook extensive technical study in 2021 to enable like-for-like comparison of green standards between China and the EU in order to improve cross-border green financial flows.
The sustainable finance taxonomy of the EU and the green bond project catalogue of China both recognize about 72 climate mitigation actions.
However, there are discrepancies between the technical standards used by China and the EU within each activity. Hong Kong should choose the stricter one to use in its proposed taxonomy in this instance, according to Cheung.
He continued that the city should also incorporate industry-specific strategies for reducing greenhouse gas emissions that have precise deadlines and goals.
Hong Kong is not the only financial hub competing to build a link between foreign investment and China's decarbonization initiatives.
To improve cooperation on green finance, mainland China and Singapore decided to form a joint task force in April.
According to a recent report released by the Civic Exchange, "As Hong Kong seeks to strengthen its position as a green and sustainable finance hub, there is a need and an opportunity to ensure that the tools adopted to facilitate sustainability reporting and disclosure are conducive to international transactions."
"To function as a super-connector, Hong Kong must adopt a framework that enables green capital flow between China and the offshore market."
By fLEXI tEAM