Net Zero Plan for Banking
The Hong Kong Monetary Authority (HKMA) releases the Net Zero plan for the banking industry, which aims to assist banks in completing their net zero transition and promote the development of transitional finance.
In June last year, HKMA included climate risks in the scope of banking supervision, requiring banks and other authorized institutions to manage climate risks and explore transition plans. The Basel Committee has also included the net-zero transition of the banking industry in its 2023-2024 working plan.
Related Post: IIGCC Launches Net Zero Standards for Banks
Key Elements of the Net Zero Plan
The HKMA’s previous supervisory plan and relevant practices of international institutions have formulated relevant rules for net-zero transition for banks established in Hong Kong (including subsidiaries).
- Set clear net zero targets. HKMA believes that, whether as a risk management measure or as part of a business strategy, clear goals need to be set for net zero transition. These targets need to be science-based and consistent with the global warming targets set by the 2015 Paris Agreement.
- Establish a comprehensive governance framework. HKMA believes that the supervision and support from the board of directors and senior management are very essential for the implementation of the net zero plan. Therefore, financial institutions should incorporate the net zero plan into the scope of corporate governance and integrate it with existing business models, products and services.
- Implement appropriate net zero initiatives. The HKMA recommends that financial institutions set out specific steps in their net zero plans, such as adopting a green taxonomy to identify transition activities, and regularly assessing the development of net zero plans. These measures can help banks achieve net zero in the long term.
- Understand the customer’s demands. HKMA believes that banks need to have a certain understanding of their customers’ net-zero progress and participate in the allocation of funds for their customers’ net-zero transition.
- Review net zero plans. When baseline scenarios, assumptions or pathways change, banks will need to adjust their net zero planning to reflect actual conditions.
- Maintain transparency. As stakeholder demands for disclosures continue to increase, banks will need to provide relevant information as required and increase transparency in the net-zero transition.
HKMA’s Follow-up Steps for Net Zero
HKMA states that the above-mentioned net zero plan may change regarding to the policies of international regulatory agencies. The HKMA will continue to monitor the Basel Committee’s requirements and conduct an investigation into the banking sector’s net zero plans in the fourth quarter of this year. At the same time, HKMA will continue to consider incorporating climate factors into the regulatory process.