How HK could funnel investors into China green finance

Hong Kong's seeming indifference to environmental, social and governance principles could rapidly shift to heavy engagement, courtesy of China's rising interest in green finance.

Hong Kong has a real shot at shifting from a once-indifferent attitude to green finance to becoming Asia's leading green finance centre, believes the head of the newly launched Hong Kong Green Finance Association (HKGFA).

Given his position, he would say that but by piggybacking on China’s rising commitment to improving environmental standards at home, it is not (polluted) hot air. 

On September 21, the HKGFA officially opened its doors with a one-day conference centred around environmental, social and governance (ESG) issues, with a particular focus on green finance – forms of market funding that are used to support environmentally friendly projects.

Ma Jun, the chief executive of the new think-tank, said the city has all it needs to become a genuine force in this space.

“I view Hong Kong to be the best candidate for the role of green finance if the policies are put in place and the private sector is engaged,” he told AsianInvestor on the sidelines of the event.

Ma Jun, Hong Kong Green Finance Association

Ma, who was the chief economist of the research bureau of the People’s Bank of China from 2014 to 2017, noted Hong Kong chief executive Carrie Lam's introductory speech at the event, in which she heralded the territory’s ambition to issue HK$10 billion ($1.28 billion) of green bonds.

He added that Lam “came to [the topic of] green finance development many times. This encourages political support.”

Such a commitment is essential if Hong Kong is to lead the way in both green bonds and green loans. “To be a green finance sector you need a few conditions and the top leadership needs to be supportive, and you need talent and money,” Ma said.


To date, Hong Kong has seen several green bonds list on its bourse, all from mainland Chinese borrowers. Beijing is actively pushing green finance, to help clear up polluted waterways and arable land and reduce air pollution. According to estimates by environmental research organisation Berkeley Earth in 2015, air pollution kills up to 1.6 million people a year in the country.

Ma noted that the Chinese government wants to ensure $600 billion a year is raised in green finance – about 90% of which is meant to be sourced from the private sector.

“Some of that must come from overseas. Some of this [local financing] is becoming more expensive due to deleveraging [in China’s financial system], so foreign money is cheaper. If Europe is happy with a 1.5% or 2%, then they can get more from China,” he said.

He believes that Hong Kong could play a vital conduit for such offshore investor capital, helping international investors to access Chinese green finance instruments.   

“Hong Kong can do a few things,” he said. “It can apply best practices that are seen globally, for example the equity principles [for responsible investment] for the bank system, bank investors and Hong Kong-based institutional investors. Secondly, a lot of products exist already and these are global products, so they can do these quickly, like green bonds.”

While green bonds have gained the most attention to date, Ma agreed when asked that green loans could end up becoming the larger area of growth, particularly given Beijing’s ongoing plans over its Belt and Road infrastructure initiatives.

“Green bonds are great, and a flagship and easy to recognise, but banking is much larger and Belt and Road is bank-financed,” he said, noting that global banking assets are $114 trillion, whereas the totality of green bond issuance to date is well under $1 trillion.

“[Green finance for Belt and Road] is another set of recommendations we intend to develop,” Ma continued. “These are incentives and could involve subsidies. But such principles need at least a definition of green loans and to collect green statistics.”

Ma argued that the Hong Kong government’s commitment, combined with that of the regulator – the Securities and Futures Commission launched a Strategic Framework for Green Finance on the same day as the HKGFA’s launch – and the Hong Kong Monetary Authority's willingness to be a responsible investor offered a strong basis to build more green finance services.

“I think the MPF (Mandatory Provident Fund scheme, Hong Kong’s defined benefit set of pension funds) want to be green as well,” he said.


If so, though, MPF fund operators will have to better demonstrate that commitment; to date very few funds offer any sort of ESG component. BCT Financial is understood to be one of the few MPF providers to consider ESG components when picking fund houses.  

It’s a sticking point in mainland China too. While several asset managers such as E-Fund Management have declared their desire to offer ESG-compliant funds, to date no Chinese asset owner has expressed its support for such investments or signed up to the Principles for Responsible Investing, the UN body that is seen as the standard bearer for ESG globally. 

A typical argument made by pension funds or insurers reluctant to engage in ESG is that applying such measures goes against their fiduciary duty to maximise investment returns for their stakeholders or customers. However, for Ma it’s only a matter of time before large institutional investors begin to engage, even if they have "to spend time researching the implications [of ESG implementation].”

“Pension funds [in China] want ESG products but they don’t have many,” he said. “Asset managers and brokers need to create new products for ESG investors to invest into. This is part of their fiduciary duty; internationally there is a move to establish some fiduciary duty that says institutional investors have a responsibility to take care of ESG factors on behalf of their clients.”

He also raised another point: that there is increasing evidence that an ESG integration approach, when properly introduced, can enhance returns. 

“There is the notion that ESG portfolios perform better in the long term, which means largely the removal of downside risk,” he said. “When you consider that polluting companies are likely to be penalised on this and other transition factors, they can suffer problems and defaults.”


The territory should offer more explicit information when it comes to listed companies soon too, but not entirely due to its own efforts. The Hong Kong stock exchange upgraded its ESG Reporting Guide to comply-or-explain in 2016, but disclosing information is still not mandatory. 

It's a different story in mainland China where the China Securities Regulatory Commission (CSRC) has just announced that all Chinese listed companies will have no choice but to declare their environmental information from 2020.

Speaking at the conference, Ashley Alder, chief executive of Hong Kong’s SFC, said this rules change meant Hong Kong Exchanges and Clearing would likely have little choice but to follow suit.

“It would be very odd for some [Hong Kong-listed] Chinese companies to be subject [to such disclosure requirements] and others not to be. Inconsistency is the enemy of progress,” he said.

Ma, who is also the co-chair of the G20 Green Finance Study Group, said the CSRC Research Institute has begun work on environmental indicators that companies have to disclose, including carbon dioxide, sulphur dioxide, nitrogen oxide, chemical oxygen demand (water pollution), energy consumption and water consumption.

“By 2020 if nobody catches up with China’s speed [of regulation] it will be the only large economy to have introduced such [stringent] rules,” he said.

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