Hong Kong government leads Asia in green-bond issuance, becomes fifth largest worldwide

The Hong Kong government has become the largest source of climate-aligned government bonds in Asia and the fifth largest cumulative issuer of government green bonds in the world, according to a new report from the Climate Bonds Initiative.

The city’s sustainable debt market achieved its largest growth yet in 2023, increasing by 236 per cent year on year to US$18.2 billion, according to the non-profit’s report on Monday.

Green-theme debt made up most of the market, at US$15.6 billion, with the social theme accounting for US$2.6 billion. Social and sustainability issuance volumes from Hong Kong grew for a third consecutive year, increasing by 29 per cent to US$2.56 billion.

“Transition finance is a significant trend in global sustainable finance development, offering tremendous growth opportunities in financing the transition of high carbon emitting industries in Asia,” said Ma Jun, chairman and president of the Hong Kong Green Finance Association.

“Hong Kong can capture this opportunity by expanding its local [Common Ground Taxonomy] to include transition activities, to mitigate greenwashing and to facilitate capital flows across jurisdictions.”

Green bond issuance grew 173 per cent year on year in 2023, and the Hong Kong government was the world’s fourth-largest source of aligned government green bonds, behind the United Kingdom, Germany and Italy.

“As the leading Asian government issuer of green debt, Hong Kong can further pioneer transition products linked to decarbonisation performance and incentives, develop transition-related disclosures, and foster a science-based transition approach, solidifying its position as a leading sustainable financing hub for Asia,” Ma said.

The study was produced in association with the Hong Kong Monetary Authority (HKMA) and Hong Kong Green Finance Association, and with support from Standard Chartered.

Hong Kong’s green bond volumes were driven by record single-year growth of US$1.4 billion in government issuance. Government-issued green bonds accounted for 92 per cent or US$14.4 billion of the green bond volume, with the remainder coming from financial companies.

Retail green bonds have become a popular investment choice among retailers, with record subscription amounts, as investors turned to to safer yield-producing, investment options.

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“As a regulator, we have to work hard to expand our coverage of our taxonomy,” Lilian Tse, senior manager of the HKMA’s banking policy department, said during a panel discussion at an event hosted by the Capacity-building Alliance of Sustainable Investment on Monday. “We hear the market really wants transition activities for issuing transition bonds and loans, so we are working hard on that.

The HKMA understands that the market needs time to gear up and build capacity to put the taxonomy to good use, and will put effort into engaging with banks and expanding its taxonomy, she said. “We encourage the sector to use our taxonomy to help mobilise capital,” she added.

The city’s 2024-25 budget calls for issuing between HK$95 billion (US$12 billion) and HK$135 billion worth of bonds each year through the 2028-29 budget, including green sustainable bonds and the Sustainable Finance Grant Scheme, which lasts until 2027.

The government’s climate goals are to halve emissions by 2035 and reach net zero by 2050.

The Climate Bonds Initiative report said non-government issuance volume fell in Hong Kong in 2023 amid the economic downturn coming out of the pandemic.

As conditions improve, Hong Kong has an opportunity to boost the volume and quality of its sustainable debt markets, revitalising the breadth of the issuer base and restoring private sector issuance to historical levels, the report said.

Additional reporting by Martin Choi

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