Sustainable Finance – Hong Kong Is Ready!

By Tze-wei Ng, Leonie Kelly, Alicia Lui 22 March, 2018

RS Group's Kelly, Ng & Lui share findings from the Sustainable Finance Initiative's first market-survey

Hong Kong showed its ambition to lead in green finance last week when finance chief announced plans to issue what would become the world’s biggest sovereign green bond (HKD100 billion), with accompanying schemes to attract third party issuers to Hong Kong. While this is a welcomed step, it is long overdue and we hope the government does not just stop here. Green finance is more than green bonds; and sustainable finance is more than green finance. Ten years after World Bank introduced the world’s first green bonds, and with China issuing one-third of world’s green bonds in 2017, Hong Kong is already late to the game. Can it catch up on the sustainable finance wave and become a leader in this region?

Our Initiative’s recent study, “Mapping Sustainable Finance in Hong Kong”, is the first of its kind market survey to review the state of play of sustainable finance in Hong Kong. We approached nearly 690 market participants with a role in transitioning Hong Kong towards a sustainable finance centre, and received responses from 239 participants. They represent six stakeholder groups: asset owners, asset managers, financial institutions, corporates, thought leaders, and governments and regulators. Of the respondents, 51% were of senior executive level.

Our survey shows that NOW is the window of opportunity for Hong Kong to embrace sustainable finance

Our survey shows that NOW is the window of opportunity for Hong Kong to embrace sustainable finance, which over 75% of our respondents see as key to Hong Kong’s relevance and competitiveness as an international finance centre. This is particularly the case as global momentum is growing to align the financial system with sustainable development, and governments around the world increasingly appreciate that economic growth and environmental and social stability should go hand in hand.

“There is no future for humanity if it is not sustainable across all aspects of our lives”

As one respondent reflects, “There is no future for humanity if it is not sustainable across all aspects of our lives. Faced with rapidly growing need to invest in low carbon and resilient infrastructure and economic activity and growing demand from investors for sustainable finance, Hong Kong’s financial markets will miss important opportunities and lose relevance if they do not offer sustainable investment products on a large scale…” This sentiment is reflected in the key findings of our study, as laid out below:

Key Finding #1: Sustainable Finance is Key to Hong Kong’s Competitiveness as a Financial Centre

• Nearly 90% of respondents believe Hong Kong is “behind” or “reactive” in terms of sustainable finance compared with other global financial centres
• 75% believe sustainable finance is important for Hong Kong’s future

Key Finding #2: Low Market Awareness, Poor Government Incentives and Misperception of Concessionary Return are Top Challenges

• 21% of respondents cite lack of market awareness and understanding of sustainable finance as top challenges to overcome for sustainable finance to grow in Hong Kong
• 17% believe a perceived concessionary financial return as a key barrier to growth
• 16% see lack of enabling government policies/regulations as another major challenge stifling growth

Our study also identified key perceived challenges, potential opportunities, and catalysts for change. The challenges are not insurmountable, and most encouragingly we see a clear desire to do more from market participants – they are ready to “get active”—as demonstrated in the key findings below:

Key Finding #3: An Increase in Investor Demand and Government will be the Greatest Market Catalysts

Top five market catalysts identified are:

• The growing of investor demand
• The development of a supportive policy environment through incentives, subsidies and regulation
• The expanding of fiduciary duties with respect to ESG
• The developing of innovative sustainable products; and
• The growth of awareness and knowledge by building an information platform on sustainable finance.

Key Finding #4: Now is a Window of Opportunity and Stakeholders Want to Get Active

• 90% of the participants wish to “maintain their current activity levels” or “become more active in the future”
• 31% of survey respondents would like to become leaders in sustainable finance in the future
• With 36% of millennials wishing to become future sustainable finance leaders

For more detailed analysis of the above findings please read our full report.
Even though Hong Kong is faced with a range of sustainability challenges, including climate change, land scarcity, biodiversity loss, environmental pollution, an ageing population, and growing housing crisis, we believe the financial sector has a key part to play in the solution of all these issues.
So, can Hong Kong catch up on the sustainable finance wave and become a leader in this region? We think the answer is yes!

Stakeholders believe that it is important for Hong Kong to embrace sustainable finance to maintain competitiveness

We believe Hong Kong is in fact uniquely positioned to be a leader with our well-established legal, accounting and financial infrastructure, international connectivity and talent pool of professionals. It is evident from the survey that stakeholders believe that it is important for Hong Kong to embrace sustainable finance to maintain competitiveness and that there is a strong desire amongst individuals to become active within the space. Hong Kong is ready.

Moving forward, SFI would like to introduce events and programs that tackle some of the key challenges identified the need to overcome lack of awareness, dispel the myth of sacrificed financial performance, and increase investor demand for sustainable finance.
We invite you to join us on this journey and continue to connect and engage with us to collectively achieve this mission. Write us if you would like to stay in touch and receive updates from us.

What is SFI?
SFI is a new initiative to drive forward sustainable finance in Hong Kong by building a platform to foster knowledge, connect interested parties, and facilitate actions.  SFI hopes to build an active community of sustainable finance stakeholders and ultimately drive more private capital towards impact in Hong Kong. SFI is incubated by RS Group, a Hong Kong-based family office which has chosen to apply its entire capital portfolio towards its mission:  to advance a paradigm shift in people’s values and priorities, so that economic growth will not jeopardise human development and environmental sustainability.

Further Reading

• Two Sessions, Five Highlights For Water – An ‘ecological civilisation’ is now embedded in China’s constitution and ministerial reform has been tabled. Find out what these mean for water in our review of this year’s Two Sessions. Pay attention or risk being blindsided
• Key Water Policies 2017 – 2018 – Missed out on key water and water-related policies in China this past year? Catch up with China Water Risk Woody Chan’s review, including the latest on the new Water Ten Law and environmental tax law
• Is China Taking Over Global Leadership On The Environment? – Top experts, from the founder of TECONET to the Head of Asia-Pacific for Bloomberg New Energy Finance, share their thoughts at a high level panel in City University of Hong Kong. Their Sadhika Nanda reviews
• China Steps Into Soft Power Vacuum – As the US retreats, Asit Biswas and Cecilia Tortajada explore how China is becoming the world’s leading soft power, from infrastructural development to research progress, and hurdles it faces ahead
• Water Efficiency Policy: A Technological High-Water Mark? – From biomimicry to data analytics, Singapore is developing new technology to produce clean water without sinking the environment. Lee Kuan Yew School of Public Policy’s Tommy Kevin Lee and Cecilia Tortajada expand

•  Green Financing For Climate Resilience – We sat down with Dr Christine Chan from the Climate Bonds Initiative working group to get the latest on green finance globally & in China. How have China’s green bonds been received? What is next for investors?
• Financing Water Resilience: Climate Bonds for China – Green or “climate” bonds is a rapidly growing market but there are verification concerns plus gaps for water-related investments. AGWA’s John Matthews & Climate Bond Initiative’s Anna Creed & Lily Dai introduce the new water climate bond standard that addresses these issues
• Can APAC Lead In Adaptation Finance? – After attending two key climate conferences, including COP 22, CWR’s Hu shares why adaptation financing in APAC is crucial though it’s lagging and how the private sector can lead this effort