The Hong Kong government’s desire is for the city to become an environmental, social and governance, (ESG) and international green finance hub. The government also wants Hong Kong to be a green technology centre. It is important to first clarify the relevant definitions – what are ESG and green finance about, and why have they become important to the business world in recent years?
The focus is on the word “green”, which is related to the natural environment. The planet has run into problems with years of environmental damage, such as high levels of pollution, including greenhouse gas emissions that cause global warming, as well as massive biodiversity loss. The extreme weather events experienced all over the world this year is testament to a changing climate.
Hence, governments through the multilateral Paris Agreement 2015, are dealing with climate change, setting timelines and targets to climate mitigation, as well as focusing on adaptation. Climate action requires massive green projects all over the world, which need to be financed. The idea of green finance is to use various means to direct capital to green projects.
Projects to decarbonize and strengthen infrastructure are costly. One of the tools governments are using is to raise money from the capital market by means of raising green bonds for well-defined green projects, such as to build renewable energy plants, improve energy efficiency, expand rail systems, and adopt new fuels for certain types of vehicles.
Hong Kong aims to be a capital raising centre for itself, for the nation, the Asia-Pacific region, and along the Belt and Road economies. It has the capability to do this because it has a high concentration of professional and financial services talent that can package projects and to provide services such as standards setting, and quality assurance. However, professionals do need to learn the basics about the environment.
It helps a lot to improve capacity and capability of the talent pool when there are projects in Hong Kong. Even though the city is small, by honing one’s green projects and finance skills here, they can be applied in external markets.
ESG is one of the green finance skill sets. While disclosing corporate ESG information could be seen as compliance because regulators are demanding it, the information that companies collect, compile and consider should give them deeper insights into the wider impacts of their businesses. As governments continue to tighten ESG standards, companies can use their new insights for both risk management and identifying opportunities. Companies that only look at ESG through a compliance lens will short-change themselves by not reflecting on the future of their businesses.
Alongside this is the digital revolution. It is well-accepted that data offers insights but the handling of large amounts of data requires investment in digitalization of one’s management system. This has brought about what data is available and what is not and why.
To consider decarbonization, such as achieving energy saving, it is critical to have information about where energy is being used. In Hong Kong, most of our energy is used in buildings, but the government does not have detailed data because the data belongs to private companies that provide energy. This is widely acknowledged as a highly undesirable situation because the government cannot make good policy decisions without fulsome data, and the data is unavailable to others who wish to create new energy-saving businesses.
As Hong Kong also aspires to be a green technology hub, there is a need to consider what data the energy companies should disclose that would not compromise the privacy of specific householders or corporate entities. The vitality of Hong Kong as a green finance-green technology and ESG hub requires the government and private sector to look forward rather than keep to past practices.
About the archived webinar
With the theme “Creating a Pathway to Advancement: Empowering Enterprises for the Future”, the CPA Congress – the flagship event of the Institute’s 50th anniversary – was held on 15 July. The archived webinar is available for subscription for a limited time now.
Featuring world-class guests and speakers, the event featured four panel discussions. The first panel, titled “Transitioning Hong Kong into an ESG and Green Finance Hub,” examines how ESG can help corporate leaders and professionals to achieve their business goals with the adoption of professional protocols and ESG financial products.
Christine Loh is Chief Development Strategist, Institute for the Environment at The Hong Kong University of Science and Technology. She was a prominent legislator in the 1990s, before establishing a non-profit think tank to help find policy solutions. She is a former undersecretary for the environment for the Hong Kong government. Loh had served on the board of the Hong Kong Exchanges and Clearing Limited, and is currently on the boards of CDP Worldwide, Global Maritime Forum, New Forests Pty Limited, and Towngas Smart Energy Company Limited.