China’s pledge to achieve carbon neutrality by 2060 has given a big shot in the arm to global climate mitigation. It spurred Japan and South Korea to pledge 2050 as their target year. Hong Kong too committed to 2050. The EU is already working on 2050, and the next US administration under Joe Biden could well make a similar pledge.
Hot on the heels of the flurry of carbon neutrality announcements, the Hong Kong Stock Exchange (HKEX) launched STAGE, an online portal that is part of its ambition to be the Asian ‘green finance’ hub.
Climate change and environmental sustainability are the future. Exchanges have a role to play by guiding capital flows from brown to green investments. HKEX is out front to support the growth of Asia’s sustainable finance market by increasing awareness, accessibility, data availability and transparency of green and sustainable investment products.
Hence, HKEX is aggressively encouraging regional issuers of green and sustainable products to consider inclusion on STAGE to build Asian financial markets’ own sustainability.
What does it really mean though?
The pledges to achieve carbon neutrality are nothing short of a socio-economic, financial, industrial and technological revolution. China (including Hong Kong), Japan and South Korea have to phase down fossil fuel very substantially and at the same time ramp up renewable and new energy sources. Industries, manufacturing, construction, transportation – you name it – have to decarbonize within 30 to 40 years.
Companies in pretty much all sectors of business have to change too. In China’s case, there has already been a stream of policies and regulations to cut pollution, reduce waste and restore biodiversity – and more can be expected.
Bridging sustainability and finance
Enormous sums of money have to be diverted from existing investments in fossil fuels – especially coal, which emits the most carbon – to clean sources such as solar, wind, hydrogen and biofuels. In addition, very large sums are needed all over Asia on pollution control, waste management and reviving ecosystems, as well as dealing with severe weather events to prevent floods, landslides and sea level rise.
Government policy and regulatory changes, including by stock exchanges, are important to help economies make that transition. For example, Hong Kong is already phasing down coal in favor of natural gas – a lower-carbon fossil fuel – in electricity generation by the early 2030s, and now has to think about how to adopt clean energy by 2050.
With the launch of STAGE, HKEX is differentiating itself from other exchanges as the one with an eye to the future that has spotted the profitability of climate change and sustainability having arrived in Asia. That’s why it is calling itself a “Sustainable and Green Exchange”.
The rise and evolution of environmental, social and governance (ESG) reporting by listed companies is evidence of the start of this transition. This has forced companies to look at their wider impacts on society and the world. Starting on a voluntary basis, ESG reporting is fast-becoming mandatory. For example, China now requires its listed companies to disclose environmental information; and HKEX requires ESG disclosures.
Companies are issuing green bonds for climate and environmentally-related projects. Banks are making green loans to borrowers. China is one of the three biggest green bonds issuers alongside the US and France. There are now also blue bonds to fund water or ocean-related projects, as well as social and sustainability bonds for human development purposes.
What STAGE needs to do
Companies that are prepared to be more sustainable want investors to know they are making a difference. STAGE’s purpose is to convey to investors the causal link between social impact and economic performance, so investors can distinguish the companies they want to invest in more easily.
STAGE is in effect an online portal for green, social and sustainable investment products to help issuers increase the visibility and awareness of their green/social/sustainable efforts via disclosure of relevant information.
The idea is that it will give investors and asset managers access to information for investment due diligence, selection and monitoring of sustainable and green investments; and that it will connect issuers and investors to global green, social and sustainable products, as well as innovative green financing solutions and opportunities.
STAGE is also to be an online repository of green and sustainable finance resources, to help educate the financial sector.
All this is positive. Now that the portal is there, it needs participation. HKEX needs to aggressively market it and continue to invest in its upkeep and usefulness.
More important still is for HKEX to attract new listings and continue to launch new products that are green and sustainable. Only then will it be the green regional exchange.
China has piloted emissions trading for carbon, and there could well be a time when a range of environmental products, such as water and electricity, can be traded. Can HKEX help Hong Kong to think through how it can profit from such new endeavors?
OPINION by Bruno Occhipinti
OPINION by Camille Levy