The importance of keeping climate change on the agenda in HK

Diana Cesar May 19, 2020 08:57

With COVID-19 disrupting the global economy, challenges relating to climate change may have receded from the spotlight for the moment. But, they remain very real indeed.

Hong Kong had a relatively drama-free typhoon season last year, but Supertyphoon Mangkhut in 2018 taught us an important lesson: rising sea levels and more frequent intense storms are increasingly becoming the norm.

The government have taken a number of important steps recently to support our city’s transition to a cleaner and more climate-resilient future.

A year ago, it launched its first green bond, led by HSBC and Credit Agricole, raising USD1 billion for energy efficiency, waste management, water treatment, green buildings and other environmentally-friendly projects.

The 2020-2021 Budget includes plans for a HKD200 million fund to support R&D into green technologies, various initiatives to promote the use of electric vehicles and ferries, and plans to issue HKD66 billion-worth of green bonds over the next five years.

Such initiatives matter beyond the narrow world of finance.

After all, the transition is expensive. Think about it: entire industries need to be weaned off fossil fuels. Buildings and factories need to become more energy and water-efficient. Ports, roads, electricity grids and other infrastructure has to be built to withstand higher sea levels and fiercer storms.

Green financing - bonds and loans that specifically raise funding for projects and technologies that benefit the environment - is critical to drawing in the vast sums involved.

For now, such financing still accounts for only a tiny portion of the overall capital markets. And in Hong Kong, relatively few local entities have so far issued green bonds. Last year, just six Hong Kong issuers came to market, raising a combined USD2.6 billion via green bonds and loans. That’s 5 per cent less than in 2018, according a report published by the Climate Bonds Initiative on 6 May.

Clearly, it is taking time for many corporates to fully understand that green financing options can actually bring substantial advantages – particularly as global demand for sustainable investment options has risen strongly in recent years. Research commissioned by HSBC last year, for example, showed that 82 per cent of investors and 80 per cent of issuers in Hong Kong felt that Environmental, Social and Governance (ESG) factors are “very” or “somewhat” important to them.

Against this backdrop, Hong Kong Exchanges and Clearing Limited (HKEX) recently announced changes to its listing rules, including requiring issuers to disclose significant climate-related issues that may impact them.

And earlier this month, the Hong Kong Monetary Authority, the Securities and Futures Commission, the Environment Bureau and others established a cross-departmental steering group to co-ordinate the management of climate and environmental risks and accelerate the growth of green and sustainable finance in Hong Kong.

These initiatives help cement Hong Kong’s role in what is a fast-growing sector of the global financial markets. They bolster the city’s reputation as a versatile and forward-looking financial centre. Also, by moving the climate-change conversation into the limelight, they have helped raise awareness of the challenges and opportunities that come with climate change.

In fact, as we approach this year’s typhoon season, we all need to remember that climate change is not just about the next storm. It is all-encompassing and here to stay. Ten or 20 years from now, today’s droughts, floods and heat waves – plus much-reduced biodiversity - will be the norm. This means not just damaged homes and infrastructure and disrupted supply chains, but also higher insurance premiums, shifting consumer and investor expectations, and changing regulatory requirements around environmental and social issues.

The world is at a critical juncture in its response to climate change. UN Secretary General Antonio Guterres in March warned that the world is “way off track” in dealing with the climate crisis.

Climate change now represents one of the most urgent challenges facing economies, investors, businesses and societies around the world – Hong Kong’s included. The challenge for all of us - businesses, investors, financial institutions, governments and individuals alike - is now to act and build on them, quickly, holistically and ambitiously.

So focus we must. Although we have made a good start, more needs to be done.

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Diana Cesar

Chief Executive, Hong Kong, HSBC