After introducing the green taxonomy framework last month, the Hong Kong Monetary Authority (HKMA) is now considering making it mandatory for the banking sector to boost the development of sustainable financing.
The green taxonomy framework is designed to help banks and investors assess the sustainability of economic activities. It covers 12 economic activities across four sectors – energy, transport, construction, and water and waste management and offers a clear reference for determining what constitutes as green.
Kenneth Hui, executive director (external) of HKMA, informed about the potential shift from voluntary adoption to mandatory compliance at the launch of the University of Hong Kong’s Jockey Club Enterprise Sustainability Global Research Institute. He said, “We will look into whether to make it mandatory, at least for the banking sector, so that we have a solid investor base,” adding “Right now it’s voluntary, so capital market and banking [participants] can choose to adopt it. We believe it provides a good reference point for investors as well as issuers to have a clear definition of what is green and what isn’t.”
HKMA is also working on extending the taxonomy’s coverage to include additional green activities beyond the initial four sectors, with hydrogen and hydropower being considered. There are also plans to incorporate transition financing and provide industry-specific guidance to ensure comprehensive and practical implementation.
Ma Jun, chairman and president of the Hong Kong Green Finance Association said, “Hong Kong can play a key role as a testing ground for interoperable standards. The inconsistency and incompatibility of various taxonomy and disclosure standards, principles and regulations could result in market fragmentation, increase transaction costs and even encourage greenwashing.”