Promoting Green Development of Financial Services
Accurate positioning, policy guidance and market forces are essential for successful market development. While market development is a process, identifying clear goals, striving to achieve them and learning from experiences continuously will let us have a better understanding of the market characteristics and demands. Taking the stock market as an example, for over two decades since Hong Kong’s return to the motherland, riding on the reform and opening up of the Mainland with enormous financing needs, the market capitalisation of Hong Kong’s stock market has soared rapidly from some HK$2 trillion to over HK$45 trillion at present. There have been ups and downs during the booming process, but our regulatory regime and its effectiveness continued to strengthen as the market continued to grow steadily in both quality and quantity terms. Coupled with the proper management of market risks, Hong Kong’s stock market has achieved breakthroughs continuously.
As for the local bond market, although its speed of development appears to be slightly behind that of the stock market, it still stands at a leading position in Asia. In recent years, the Government is determined to develop the local bond market. Through the government bond programmes, we have promoted bond issuances in multiple types and currencies. With tax measures, we have attracted an increasing number of entities in the region to raise funds in our market through issuing bonds. Significant progress has been seen in various aspects of our market including the speed of development, the size and the variety in product types and risk management tools.
Let’s take green bonds as an example. In the 2018-19 Budget, I proposed the establishment of a green bond framework, which clearly set out the direction for the Government to promote green bond issuances, thereby channeling funds to propelling the development of a green and low-carbon economy. The Government Green Bond Programme has been working well, meeting with overwhelming market response. I therefore announced in my Budget earlier this year to double the borrowing ceiling of the programme to HK$200 billion.
Last week, we successfully offered a new batch of green bonds with a total issuance size of US$3 billion. About one-third of them were US dollar-denominated bonds and the rest were euro-denominated. This was the HKSAR Government’s inaugural offering of euro-denominated bonds and also the first time that an Asian government issued a euro-denominated green bond of as long as 20 years. At the beginning of this year, we issued a 30-year US dollar-denominated green bond, which was also the first issuance among Asian governments.
Europe has been running at the forefront of green finance. This time, more than 70% of our EUR tranches were allocated to European investors, which demonstrated that European investors had great confidence in the financial strength of the HKSAR Government as well as our commitment in promoting green finance. The successful issuance of euro-denominated green bonds has further broadened our investor base and diversified our green bond programme. During the green bond roadshow, we were delighted to see that on the whole, international investors had a high regard for our green bond framework and our prudence and transparency in project selection.
This batch of green bonds was well received, achieving very low levels of funding cost and providing an important new benchmark for potential issuers in Hong Kong and the region. Taking the 10-year USD tranche as an example, the yield was 1.855%, which was only 23 basis points over the 10-year US Treasuries. The yield of the 5-year EUR tranche was close to zero, while that of the 20-year EUR tranche was 1.059%. This accomplishment has not been easy as it has come at a time when the global bond market is increasingly volatile.
Green bond issuance is just part of the Government’s efforts to develop Hong Kong as a green finance centre in the Asia-Pacific region. We have been promoting the development of green finance in three main directions. First, on the regulatory front, the Hong Kong Monetary Authority, the Securities and Futures Commission and various regulators have introduced a series of regulatory measures on areas like climate risk management and disclosure. Hong Kong is the first place in Asia which has explicitly required the financial industry to implement the G20 climate-related financial disclosures by 2025. At the same time, we will also adopt the Common Ground Taxonomy developed by China and the European Union, which will, to a large extent address the pain point of the lack of a unified standard among the financial sector. These measures will help financial institutions better manage the risks associated with climate change and the transition towards decarbonisation, while bringing additional benefit of channeling funds towards addressing climate change and promoting carbon neutrality through market forces.
Second, on green finance infrastructure, talent and data are the major bottlenecks in the development of green finance around the globe. The Government and various regulators have jointly launched the Centre for Green and Sustainable Finance to support the industry in areas such as capacity building, data collection and analysis, etc. We also launched the Green and Sustainable Finance Grant Scheme in May this year to provide subsidy to corporate green bond issuers and loan borrowers on expenses on bond issuance and external review services, incentivising their green transition.
Third, on enhancing the industry and public awareness and attention on green finance, apart from the engagement of Exchange Fund in responsible investment and expansion of the green portfolio, we have also created more green finance business opportunities for the financial sector through stepping up our promotional efforts and issuing government green bonds. As a next step, we are actively preparing for the issuance of retail green bonds, which will provide an avenue for the public to invest in and promote our green economy. Through sharing the returns with the general public, our financial services can benefit more people while we enjoy a greener environment.
The Government, by promoting green finance development, is attracting resources for Hong Kong’s own sustainable development. As the country’s international financial centre, Hong Kong also has the responsibility to support the country’s “30·60” targets for carbon emission reduction. The successful issuance of RMB-denominated green bonds by the Shenzhen Municipal Government in Hong Kong last month has set an important example for governments and enterprises in the Mainland, especially those in the Greater Bay Area, to make use of the Hong Kong market for green financing. To encourage more Mainland issuers to do so, the Government will soon issue RMB-denominated green bonds, following the successful issuance of the USD and EUR tranches last week, consolidating further Hong Kong’s role as an offshore RMB hub and green finance centre.
Climate change is an imminent issue for all of us. The Government and financial regulators are working with the industry to enhance the financial sector’s resilience to climate risks and to seize the relevant opportunities, so as to support Hong Kong meeting its pledge to achieve carbon neutrality before 2050. At the same time, we also leverage our role as the financial centre for the country and Asia to move towards green and sustainable development.
November 21, 2021