The Hong Kong Green Finance Association (HKGFA) promotes green finance principles in the region and helps position Hong Kong as an international green finance center. Its founder Dr MA Jun, a veteran economist, banker and leading advocate for green finance, talks about how industry forces should be gathered in Hong Kong, the Mainland and beyond in driving green investment.
The robust development of green finance must be a joint effort across the Greater Bay Area (GBA), says Dr Ma Jun, Chairman and President of the Hong Kong Green Finance Association (HKGFA). Organizations like the HKGFA play an important role in bringing together the private sector, the government, and other regulators to develop green finance in Hong Kong.
The goal of the HKGFA is to position Hong Kong as a leading international green finance hub by providing greater access and opportunities for Hong Kong’s financial institutions to participate in green transactions in Hong Kong, the Mainland, and in markets along the Belt and Road.
The HKGFA is achieving this via seven working groups in key areas: green banking, green insurance, green bonds, ESG disclosure and integration, policy research and dissemination, Mainland-Hong Kong collaboration, and green Belt and Road initiatives.
“One of our goals is to create a network by linking potential projects to potential funding,” Ma explains. “We can help facilitate some innovative green finance transactions, because that is not something that a single private sector player can do by itself. That’s because the process requires some changes in regulations and policies and some convening of resources, especially in regard to green standards, disclosure requirements, cross-border transactions, and capacity building. We can add value as an association by utilizing our convening power.”
Ma is also a member of the Monetary Policy Committee of the People’s Bank of China, the Chairman of the Green Finance Committee of the China Society for Finance and Banking, and the Co-chair of the Steering Committee of the Green Investment Principles for the Belt & Road. He is passionate about addressing climate change, and believes that green finance can solve some of the pressing climate issues facing the world.
Ma thinks that, via mobilizing private capital to participate in green investment, green finance can help achieve environmental remediation, fight climate change by enabling a carbon-neutral society and economy, and enhance resource utilization developing a circular economy.
A strategic framework
Ma’s conviction inspired him to form a taskforce to help develop a strategic framework for the Chinese central government to green its entire financial system in 2014-2015. The purpose was to encourage private capital to move away from resource-intensive and pollution-intensive investments towards green investments.
While China had made good progress building a green economy by taking a top-down, government-led approach, and had the support of its citizens, it still needed financial backing from the private sector to fully realize this goal.
China knows it can’t go at it alone, but neither can Hong Kong. This is why Ma believes that cross-border collaboration is a key to shifting China’s economy to carbon neutral. This will also help Hong Kong’s efforts to become a major international green finance center, he says.
“Hong Kong’s strength is that it has an open market, where money moves in and out freely, and where international financial institutions and private sector finance have a strong presence,” Ma says.
Because many regional headquarters of large global financial institutions are based in Hong Kong, the HKGFA can help to mobilize global green capital for green projects in both Hong Kong and the Mainland. The legal system in Hong Kong is also more conducive to fund raising, especially from international capital markets. “In the past years, with strong support from the SAR Government, Hong Kong has already developed one of the largest regional green bond markets in the world,” Ma says.
But Ma points out that Hong Kong still has some way to go, as the city needs a few key elements to establish its international leadership in green finance. These include a taxonomy to define what is green, operational requirements for environmental and climate information disclosure, incentives to encourage green financing activities and incubate green asset managers, more sophisticated green products and analytical capacity for environmental and climate risk analysis, and a carbon trading mechanism. Regulators and asset managers should also work towards building a more solid ESG investment capacity within Hong Kong, he says.
An advantageous position
Despite these challenges, positioning Hong Kong as a regional green finance hub remains possible, as the city can serve local green finance demand as well as fuel the Mainland’s green strategy. “Hong Kong can lead in financial product innovation, but it will not necessarily lead in terms of the final demand, which must come from the real economy,” Ma says.
Ma points to Guangzhou Auto, a joint-venture car manufacturer, as an example. The company was keen to green its supply chain, and went through a screening process that allowed it to pick environmentally friendly and socially responsible suppliers. It then turned to banks to provide low-cost funding to suppliers, with some interest subsidies from the Guangzhou Government.
“This is how we organize green supply chain finance to promote the greening of the suppliers around a major buyer. Hong Kong doesn’t have this ecosystem as it doesn’t have a manufacturing base. But we can still provide financing, possible cheaper financing, and become a part of these green supply chains,” Ma says.
In recent months, Ma got the ball rolling for the Green Finance Alliance in the GBA. The Alliance aims to incubate green projects that will benefit the GBA by increasing the demand for green finance in Guangdong, and by extending green finance capabilities in Hong Kong and Macau.
“Cross-border collaboration is very important for small economies and open markets like Hong Kong and Singapore,” Ma reiterates. “Hong Kong’s green finance services are largely for corporates in other places with different policy and regulatory environment and that’s why collaborative arrangements such as the new Alliance are important. The alliance can bring in government support from different localities, reduce information and regulatory barriers, and boost the confidence of participants.”
As green finance takes hold in the region, Ma says there has been a welcome shift in attitude. Many businesses are starting to see the financial opportunities that it presents, and no longer view it as a cost or burden. That is a huge step forward.
“China Industrial Bank, for example, has developed a green banking department, and that business has grown by nearly 30 percent per year. That is much faster than a regular banking business,” he says.
Furthermore, the non-performing loan ratio related to green lending is only 0.4 percent in China, while it is about two percent for the Chinese banking industry as a whole. “It’s low risk, high growth and it brings more profitability. So why not do it?” Ma says.
GBA carbon market and “Carbon Connect”
Soon after Chinese President XI Jinping announced China’s carbon neutrality target by 2060, Chief Executive Carrie LAM of HKSAR Government also declared in November that Hong Kong would aim to achieve carbon neutrality by 2050. Carbon trading mechanism is a key instrument for implementing the zero carbon commitment.
Ma believes that by including Hong Kong’s power, transport and building sectors into a carbon trading mechanism, it can enhance the efficiency and reduce the cost of decarbonization, compared with many other policy tools such as government subsidies.
One of the new ideas that Ma proposed is Hong Kong should consider working with Guangdong and Macao to develop a unified carbon market for the Greater Bay Area. “If Hong Kong does it alone, such a carbon market will not have enough liquidity. Hong Kong should leverage the much larger emission and trading volumes in Guangdong and be part of the GBA carbon market”, Ma says.
“Moreover, Hong Kong should aim to establish a ‘Carbon Connect’ mechanism, modelled after the ‘stock connect’ and ‘bond connect’, to allow international investors to participate in the GBA carbon market in a convenient way”, Ma adds. Ma thinks that Hong Kong needs to have “something new” for its green finance market, and the “next big thing” should be the carbon market and carbon connect.
“China knows it can’t go at it alone, but neither can Hong Kong. This is why cross-border collaboration is a key to shifting China’s economy to carbon neutral,” says Dr Ma Jun, Chairman and President of the HKGFA.
News Original Source: South China Morning Post