Hong Kong Green Taxonomy
The Hong Kong Monetary Authority (HKMA) plans to establish a green taxonomy in order to strengthen the status of Hong Kong as an international green financial center.
Hong Kong previously proposed the 2050 Climate Action Plan, which aims to achieve carbon neutrality by 2050 through four measures: net zero power generation, energy conservation and green buildings, green transportation, and waste reduction. HKMA believes that the green taxonomy system can provide a standardized framework for sustainable actions, enabling investors to identify and invest in activities that have a positive impact on the environment, and improving the efficiency of the financial sector.
Related Post: Introduction to HK’s Climate Action Plan 2050
What is Green Taxonomy
Green taxonomy is playing an essential role in promoting sustainable investment and achieving environmental, social, and governance goals, and different stakeholders can benefit from it:
- For investors, green taxonomy provides standardized information and reduces information asymmetry.
- For green bond issuers, green taxonomy method improves the credibility of fundraising.
- For regulators, the green taxonomy provides a measure of sustainable development goals.
- For society, green taxonomy can support low-carbon and sustainable economic transformation.
Green taxonomy is also a versatile tool that can achieve numerous goals, such as:
- Provide guidance to stakeholders, including issuers and investors. Green taxonomy method can reduce the occurrence of greenwashing and promote the flow of funds for green projects.
- Attract climate-oriented investments. Green taxonomy can increase global investors’ interest in green financing and provide convenience for invested projects.
- Assess environmental risks. Green taxonomy can provide climate risk information for the financial sector.
- Support climate goals. Countries can achieve the goals of the Paris Agreement planning through green taxonomy.
History and Current Situation of Green Taxonomy
In 2012, the Climate Bonds Initiative (CBI) developed the world’s first green taxonomy as a voluntary guide for the green bond market. Afterwards, the green taxonomy system gradually transformed from a market-oriented tool to a government led tool. Currently, more than 20 jurisdictions worldwide have established green taxonomy systems (including sustainable finance classification systems).
Currently, there are three types of green taxonomy systems worldwide:
- Green taxonomy based on whitelist (for example, China’s Green Taxonomy). This classification method directly decides the compliance projects and economic activities of each department or sub department.
- Classification based on technical screening criteria (EU’s Green Taxonomy). This classification method establishes thresholds and screening criteria for economic activities at the climate change and environmental levels.
- Principle based classification (Green Taxonomy by International Capital Market Association). This classification system defines a set of overall principles for the market, but does not specify specific activities and thresholds.
The development of global green taxonomy methods has raised concerns in the market that different classification methods may cause confusion for investors. Therefore, the International Platform on Sustainable Finance (IPSF) is coordinating the assets and indicators included in national classifications and plans to establish a Common Ground Taxonomy.
Future Plans for Hong Kong Green Taxonomy
The green taxonomy in Hong Kong aims to provide an internationally recognized definition of green and environmentally sustainable economic activities for the financial industry. The Hong Kong Monetary Authority has commissioned Climate Bond Initiative to assist in the development of a green taxonomy. The new green taxonomy system will be created based on the Common Ground Taxonomy and gain experience from China’s Green Taxonomy and EU’s Green Taxonomy.
The green taxonomy will be led by the Hong Kong Green and Sustainable Finance Cross Agency Steering Group (CASG). The initial green taxonomy plan included limited departments and activities to develop internal structures, core elements, and key mechanisms, as well as to gather opinions from stakeholders.
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