17 June 2019

Typhoon season is round the corner and climate change is upon us – there’s no better time to get into green finance

Helen Wong, Chief Executive, Greater China, HSBC
(This article was first published on 17 June 2019 by South China Morning Post)

The Hong Kong government’s issuance of a green bond is most timely, promoting awareness of climate change and increasing the city’s profile as a hub for green finance. Around the world, sustainable investment is also growing.

Typhoon season is almost upon us. If Super Typhoon Mangkhut of September 2018 and the double punch of Hato and Pakhar in August 2017 are anything to go by, we should brace ourselves for the likelihood that weather-related damage will become increasingly common and painful in the years ahead.

Against this backdrop, the Hong Kong government’s issuance of a green bond last month came at the perfect time. It spotlights the most urgent challenge facing humanity today, and at the same time helps position Hong Kong as an international hub for green finance.

The bond, part of a programme totalling nearly HK$100 billion (US$12.7 billion), has raised US$1 billion, to be used for energy efficiency, waste management, water treatment, green buildings and other environmentally friendly projects. The authorities have also announced other measures, including the establishment of a Centre for Green Finance to provide technical support to the local banking and finance industry.

Fighting climate change will require massive effort from businesses, policymakers, bankers and individuals alike. Most scientists believe it is essential to keep global warming below 2 degrees Celsius. That means societies around the world, including Hong Kong, urgently need to rewire much of the economic activity they have built up over the past 150 years.

Power stations and transport technologies have to be weaned off fossil fuels. Buildings need to consume less electricity. Consumption habits need to change. Roads, ports, electricity and IT grids need to cope with higher sea levels and more storms like Mangkhut.

Green financing will raise the trillions that need to flow into lower-carbon, climate-resilient technologies, projects and infrastructure.

For now, such financing accounts for a tiny portion of the overall capital markets. Political and business climate action, and investor demand for sustainable financing, are growing though.

Research for HSBC by East & Partners, an analysis firm, shows investors are increasingly incorporating environmental, social and governance, or ESG, factors into their investment strategies. According to a recent report from the Global Sustainable Investment Alliance, assets invested sustainably topped US$30 trillion across Europe, the United States, Canada, Japan, Australia and New Zealand as of early 2018. That’s up 34 per cent from 2016.

Meanwhile, policymakers are encouraging green financing. China has emerged as a global leader in clean technologies, and its green bond issuance reached US$31 billion last year – almost one-fifth of the global total. Beijing has also announced green investment principles to keep the Belt and Road Initiative sustainable.

In Hong Kong, only a handful – including Link Reit, the MTR Corporation and Swire Properties – have issued green bonds. Many companies still do not fully understand the urgency for action, or the fact that environmentally friendly investments need not come at the expense of corporate profits.

This is where the government’s new green bond comes in. It will raise awareness of how green bonds can bring substantial advantages to issuers – by tapping into growing global demand for sustainable investment options. By providing a benchmark against which to price future deals, it will encourage a broader range of issuers to come to the market.

The issuer of a green bond is showing awareness of, and preparing for, the long-term challenges of global warming. Over the long term, this could create an advantage in terms of valuation, access to financing and business prospects.

More broadly, the government’s green finance initiatives are also about Hong Kong securing a leading role in this fast-growing sector, and bolstering the city’s reputation as a versatile, forward-looking financial centre.

Hong Kong lives and breathes finance, and closer regional coordination under the Greater Bay Area framework will only enhance opportunities to connect not only Chinese issuers with international capital markets, but also global issuers and investors with China’s growing green bond market.

The world is at a critical juncture for climate change. The optimism sparked by the 2016 Paris Agreement has given way to concern. Emissions are rising, not falling, and countries are off track from the 2-degree target set in Paris.

In Hong Kong, Mangkhut was a stark reminder that we are not immune to the destructive power of climate-change-linked disasters. Flooded homes, damaged infrastructure, disrupted supply chains, higher insurance premiums – these are some of the effects we need to plan for.

The city’s sustainable finance initiatives are welcome steps. The challenge now is to act on them. There’s no time to waste.

Typhoon season is round the corner and climate change is upon us – there’s no better time to get into green finance (3-page PDF 137KB)