The latest edition of the Hong Kong Green and Sustainable Debt Market Briefing reveals a significant surge in labeled green bonds arranged in Hong Kong in 2022, despite an overall decrease in the volume of green, social, sustainability, sustainability linked, and transition (GSS+) bonds issued by Hong Kong issuers.
This growth highlights the increasing importance of Hong Kong as a regional and international hub for green and sustainable finance.
According to the report, co-produced by the Climate Bonds Initiative in collaboration with the Hong Kong Monetary Authority (HKMA) and the Hong Kong Green Finance Association (HKGFA), with support from Standard Chartered, GSS+ bond volumes that aligned with Climate Bonds definitions from Hong Kong issuers witnessed a 60% year-on-year decline, reaching US$5.3 billion in 2022.
However, the cumulative volume of GSS+ bonds by the end of 2022 stood at US$27.2 billion, and green bonds accounted for over three-quarters (76%) of the total.
Hong Kong’s pacesetting commitment to climate action
Hong Kong has been at the forefront of embracing the opportunities presented by green finance and green bonds. The Hong Kong Green Finance Association was established in September 2018, bringing together approximately 100 market practitioners and business leaders to position the Special Administrative Region (SAR) as a green finance capital.
Since 2019, the Hong Kong Special Administrative Region (HKSAR) Government has successfully priced ten green bonds, totaling US$9.8 billion by the end of 2022, denominated in USD, EUR, CNY, and HKD. This volume exceeds that of any other government in the Asia Pacific region, equivalent to the combined sum of sovereign deals from Indonesia, New Zealand, Singapore, and South Korea.
In November 2020, the Chief Executive of the HKSAR announced the target of achieving carbon neutrality before 2050. The city further outlined specific strategies and actions in Hong Kong’s Climate Action Plan 2050 in October 2021.
The HKSAR Government pledged to allocate around HK$240 billion (US$31 billion) over the next 15 to 20 years for climate change mitigation and adaptation.
Hong Kong SAR then made history in May 2022 by issuing an HK$20 billion (US$2.6 billion) bond with a coupon linked to the Hong Kong Consumer Price Index (HKPCI), becoming the first government globally to issue an inflation-linked green bond.
This issuance was also the largest retail green bond worldwide, allowing residents to directly contribute to greening Hong Kong while diversifying the range of retail financial products available in the city.
Government’s role in driving green finance
Hong Kong aims to consolidate its position as the regional green and sustainable finance hub, leveraging its established status as an international financial center.
The report highlights that sovereign or government GSS+ bond issuers have the ability to scale up green and sustainable finance more effectively than any other issuer class, making a substantial contribution to the market beyond capital raising.
Recognising the potential economic growth associated with addressing climate change, the HKSAR Government is actively promoting transition and pursuing its climate agenda.
In the upcoming five financial years starting from 2023, the government plans to increase the annual issuance of green bonds under its Government Green Bonds (GGB) Programme to HK$65 billion (approximately US$8.3 billion) while expanding the scope to include sustainable finance projects.
Hong Kong’s innovations in green ‘blockchain bonds’
In February 2022, the HKSAR Government published an updated version of its Green Bond Framework to align with Hong Kong’s latest climate commitments and international standards in the green bond market. Shortly after, the Financial Services and the Treasury Bureau (FSTB) outlined the government’s approach to developing a vibrant sector and ecosystem for virtual assets, which included a pilot project for tokenising GGB issuance targeted at institutional investors.
Hong Kong authorities achieved a groundbreaking milestone in the fast-developing arena of blockchain bonds by successfully issuing tokenised green bonds — once again, the first of their kind issued by any government worldwide.
This HK$800 million (approximately US$102 million) tokenised issuance has been commended by public sector leaders in Hong Kong as a significant step toward promoting the use of distributed ledger technology (DLT) in the bond market.
Hong Kong aims to solidify its position as a regional hub for green technology and finance. The city is already home to a growing list of greentech firms and successfully issued the world’s first tokenised government green bonds in February.
In 2022, Hong Kong was the leading issuer of green and sustainable debts in Asia, raising US$80 billion, as highlighted in the Hong Kong Green and Sustainable Debt Market Briefing.
Hong Kong Financial Secretary, Paul Chan, expressed the city’s ambition to attract investments and become a center for green technology and finance. The government plans to develop its green technology ecosystem, foster cross-sector collaboration, accelerate innovations in green financing, facilitate easier access to funds for businesses, and attract talent from around the globe.
Additionally, Hong Kong aims to advance fintech and embrace Web3, recognising it as a significant arena for financial innovation with vast opportunities.
Hong Kong spearheads green finance innovation and regulation
The Hong Kong Monetary Authority (HKMA) has been actively involved in the intersection of blockchain-based bond issuance and green finance over the past few years. Collaborating with the Bank for International Settlements (BIS) Innovation Hub and the private sector, the HKMA launched ‘Project Genesis’ 18 months ago, developing two DLT-based prototype platforms for issuing retail green bonds and monitoring their environmental impact.
And of course, the HKMA has been running the GGB Programme, a long-standing initiative aimed at promoting the development of green finance.
Currently the HKMA, with support from Climate Bonds, is leading the development of a green classification system (taxonomy) specific to Hong Kong. The system seeks to facilitate easy alignment with the Common Ground Taxonomy, Mainland China’s taxonomy, and the European Union’s taxonomies.
Working groups have explored various aspects related to the formulation of the Common Ground Taxonomy, including standards and verification services, green buildings, decarbonisation roadmaps, transition finance, low-carbon supply chains, green technology, and climate investment funds.
Hong Kong’s commitment to green finance and its innovations in the field of green bonds and blockchain technology are positioning the city as a leader in sustainable finance. With its ambitious goals, supportive initiatives, and active involvement in global collaborations, Hong Kong aims to become a premier center for green technology and finance, facilitating the transition to a sustainable future.
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