Introduction

Since its release of the Strategic Framework for Green Finance in September 2018 (“2018 Strategic Framework”), the Securities and Futures Commission (“SFC”) has been playing a significant role in promoting Hong Kong as a regional green finance centre. The SFC has since then developed policies, designed regulatory framework and formed task force to achieve the various goals set out in the 2018 Strategic Framework. On 2 August 2022, the SFC published its Agenda for Green and Sustainable Finance (“Agenda”), setting out further steps to be taken by SFC in support of Hong Kong’s green finance development and transition to a greener economy.

The focus area

Under the Agenda, the SFC set out three main focus areas, namely:

1.       corporate disclosures;

2.       monitoring the implementation of and enhancing existing measures; and

3.       a regulatory framework for carbon markets.

Corporate Disclosures

The SFC has endeavoured to align with the approach adopted by the International Organization of Securities Commissions (“IOSCO”) and has actively evaluated and gathered feedback on how the disclosure requirements proposed by the International Sustainability Standards Board (“ISSB”) can be applied in Hong Kong.

With the aim to formulate a comprehensive global baseline for climate related disclosures that will provide decision-useful information for investors, the SFC will continue to support the work of the new ISSB and sustainability disclosures through:

1.       continuing to work with the Stock Exchange of Hong Kong Limited (the “Stock Exchange”) on a proportionate approach to corporate disclosure requirements that are aligned with global baseline standards;

 

2.       considering how the requirements in the new ISSB climate standard Exposure Drafts could be adopted as part of Hong Kong’s domestic reporting framework;

 

3.       engaging with the China Securities Regulatory Commission on the use of the ISSB climate standard to enhance cross-border consistency; and

 

4.       continuing to participate in the work of IOSCO on corporate sustainability disclosures.

 

The SFC and the Stock Exchange will collaborate to form a working group (the “Working Group”) to examine the readiness of listed companies to report under the proposed ISSB climate standard and the challenges faced by them, and to consider a framework aligned with the ISSB climate standard for Hong Kong, such as how issuers are phased in to make disclosures and the content of such disclosures, as well as assessing listed issuers’ readiness, capabilities, and data needs and gaps. Further, the Working Group will also consider certain long-term targets such as the digitalisation of climate reporting information, capacity building needs, and the development of an assurance framework in Hong Kong.

Monitoring the implementation of and enhancing existing measures

The SFC has taken measures in areas including asset management, ESG funds, taxonomy, education and training and technology and innovation. Going forward, the SFC will continue monitoring the implementation of the measures by:

1.       continuing to consider the issues concerning asset manager disclosures in climate-related risks and maintaining regular communication with the industry to monitor the progress of licensed fund managers’ incorporation of new climate-related risks conduct and disclosure requirements, as well as providing the necessary clarification and guidance to fund managers;

 

2.       continuing to monitor ESG funds’ compliance with the applicable requirements and engaging with stakeholders to provide guidance to investors in order to enhance their awareness of ESG funds;

 

3.       continuing to monitor developments in adopting green and sustainable finance taxonomies, meaning the systemic classification and definition of items that qualify as being sustainable or green and may be used as a reference by authorities and market participants in determining whether their activities or products are truly sustainable or green, and work with the Green and Sustainable Finance Cross-Agency Steering Group (“CASG”) in developing such structure and core elements of a local green classification framework for consultation;

 

4.       continuing to work with the Investor and Financial Education Council to support investor education through regular updates, publicity campaigns, press events, public talks and stakeholder collaborations; and

 

5.       continuing to work with CASG members and stakeholders to facilitate the development of technologies to support green and sustainable finance initiatives locally, regionally and internationally.

Regulatory framework for carbon markets

The SFC recognised the potential in the expansion of China’s carbon markets and Hong Kong’s strategic role in adding value to such carbon market development. There are two key types of carbon markets, being (i) voluntary carbon markets comprising buyers that voluntarily purchase carbon credits generated by projects that avoid or remove greenhouse gas emissions to neutralise or compensate for their emissions; and (ii) compliance markets or emissions trading schemes which provide a regulated mechanism for market participants to trade allowances for carbon emissions. In this regard, the SFC will focus on identifying the appropriate regulatory framework on carbon market opportunities in Hong Kong and continue its work under the Carbon Market Work Stream set up by the CASG to support Hong Kong’s development of a greener economy.

Conclusion

In recent years, the SFC has presented clearer roadmap to develop an effective regulatory framework for green and sustainable finance and to ensure green finance initiatives are properly regulated. Market players may anticipate more comprehensive policies and regulatory framework to come in place in the course of time.

 

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2022