How Hong Kong’s capital markets can push companies’ net-zero drive

Amid growing global momentum, HKEX is taking the lead in Hong Kong with stricter environmental, social and corporate governance disclosure requirements – but guidance, education and help is also needed

Laura M. Cha

Published: 9:15am, 14 Nov 2021

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In a year when the world has focused on the Covid-19 economic recovery, the more significant challenge remains at large – creating a sustainable, long-term growth path for the world economy.

That’s the focus of the recent 6th climate change report by the Intergovernmental Panel on Climate Change, which charted fundamental long-term climate change trends and stressed the need for urgent action to prevent extreme global warming.

That report, cited by UN Secretary General Antonio Guterres as a “code red for humanity”, gave context to the COP26 Climate Change Conference in Glasgow, which many are calling a “pivotal moment for the planet”.

Progress at COP26 has been broadly encouraging: global leaders have signed measures to limit temperature rises, including reducing coal power financing, halting deforestation, and cutting methane emissions by 30 per cent by 2030.

These COP26 commitments add to growing political momentum around the globe.

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China, South Korea and Japan – which account for around one-third of global emissions – have committed to reaching carbon neutrality by 2050 at the earliest or 2060 at the latest.

In Hong Kong, the government released its Climate Action Plan 2050 early last month to achieve carbon neutrality before 2050 by focusing on net-zero electricity generation, energy-saving and green buildings, green transport and waste reduction.

Though very welcome, the commitments from leaders and policymakers across the globe beg the question of what’s next and can we now push for more?

How do we translate commitments into tangible actions and a solid road map with clear key performance indicators? That’s where capital markets come in: they have a crucial role to play in driving companies along the path to net zero.

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Global financiers and investors have shown they are ready and willing to finance companies that want to build a better future.

Investment flows into environmental, social and corporate governance (ESG) assets and strategies have grown from US$30.6 trillion in 2018 to US$37.8 trillion at the end of last year, and are forecast to rise to US$53 trillion by the end of 2025, according to Bloomberg.

More than 450 financial institutions, including banks, exchanges, asset managers and insurers, have committed to aligning investments, services and products to achieve net-zero emissions by 2050 as part of the umbrella association, Glasgow Financial Alliance for Net Zero (Gfanz).

And Hong Kong Exchanges and Clearing is delighted to join this initiative, leading the way among our community and all our stakeholders.

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As a regulator, operator and listed company, we see ourselves as a change agent providing the framework, guidance, resources and support needed to help investors and issuers embark on their journey towards low carbon, drive the sustainability agenda in Hong Kong and Asia, and establish Hong Kong as a global sustainable finance hub.

And we want to bring companies on board for the transition to net zero.

As a first step, disclosure is crucial to help management and investors gauge carbon footprints, identify material non-financial risks, and set strategies that can help companies transition to net zero.

Our “ESG Reporting Guide” has provided clear guidance on disclosure since 2013, with the revision last year elevating ESG to the board room, requiring listed issuers’ ESG commitments and disclosures of all environmental and social key performance indicators on a “comply or explain” basis.

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As momentum builds to drive the net-zero transition, Hong Kong businesses – big and small – can all play a part, but there is still much room for improvement, and we need to see action now.

Despite high-profile commitments from some of Hong Kong’s larger companies, a recent study by The Green Earth, a Hong Kong-based environmental advocacy body, found that 47 per cent of the constituents of the Hang Seng Index have yet to set targets to reach carbon neutrality by 2050.

Timelines are tightening. The Hong Kong Green and Sustainable Finance Cross Agency Steering Group has asked companies to improve climate-related reporting on governance, strategy, risk management, metrics and targets, aligning with the requirements set out by the Task Force on Climate-Related Financial Disclosures by 2025.

Asking companies to improve is important, but guidance, education and help is also needed. HKEX is committed to playing a vital role in the journey ahead: we have just released the “Guidance on Climate Disclosures” to help companies meet their targets on climate-related reporting, with a series of practical steps.

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With this and our commitment to Gfanz, we are adding to the growing global momentum to tackle climate change. Capital markets are an essential part of a global climate solution and together, as investors, issuers and market operators, we can realise our sustainability goals and address the most pressing challenge of our generation.

Now, it’s up to all our market constituents, large or small, based in mainland China, Hong Kong or internationally, to take action.

Addressing the challenges may seem an insurmountable task. And it will, over time, require substantial investment, constant innovation, open minds and wide-ranging behavioural changes. But it is achievable, and we can deliver a future for the next generation and beyond. We have a net-zero future to win, so let’s take action now – together.

Laura M. Cha is chairman of Hong Kong Exchanges and Clearing

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