Hong Kong is one of the world’s leading financial centers. With the burgeoning interest in green finance in China, the city is well placed to show the world how green finance is integral to low carbon economic success, especially as mainland China pushes ahead with its plans for a national emissions trading regime.
But time is of the essence for Hong Kong.
Paula DiPerna, CDP’s special advisor and an expert in emissions trading, is in Hong Kong looking at how this unique and historic city can seize the opportunities at hand.
The future of global investment
Capital investment has recently taken on a new role.
Environmental, social and governance (ESG) considerations have made their way into mainstream investment and wider financial services, in large part because of the steady expansion of environmental disclosure CDP kicked off in 2003. Investors are now increasingly taking ‘non-financial’ factors into account in their search for financial returns.
The shift is gathering momentum. According to the U.S. Sustainable Investment Forum, one in five dollars invested in the US is now assessed for its ESG impact. That’s up 33% since 2014.
This trend is global in scope. Across the world, assets managed under sustainable investment strategies grew by 25% since 2014. Asia is lagging behind slightly, with an increase of 16% over the same period, but the line of travel is nevertheless clear.
Can Hong Kong ride the wave of responsible investment?
So what does this shift mean for Hong Kong? Responsible investment offers Hong Kong a unique opportunity as the city seeks to find its place in a changing world.
The city can boost its reputation as a green hub by deploying a whole range of innovative financial products, from green bonds, ESG indices, impact funds and, with the development of China’s emissions trading scheme, ‘carbon credits’.
Developing an expertise in these products will have another vital knock-on effect: attracting and retaining the next generation of skilled practitioners – the cadre of financial managers and thinkers – who are increasingly drawn towards these new ways of deploying capital.
Performance is key
Neither products nor practitioners matter much if “performance” is inadequate. But studies show ESG products often provide better than average financial returns.
A recent landmark review of 2,000 academic studies concluded that a large majority of them found a positive link between ESG products and financial performance, especially when ESG considerations are integrated into other investment approaches.
Increasingly, too, asset owners and managers are taking corporate social behavior into consideration. Larry Fink, the CEO of financial giant Blackrock, wrote in a much publicized letter to CEOs earlier this year that “every company must not only deliver financial performance, but also show how it makes a positive contribution to society.”
Hong Kong’s evolving policy landscape
Hong Kong’s regulatory authorities are already moving to address this new concern with more accountability on ESG.
To help fight “greenwashing”, Hong Kong Exchanges and Clearing (HKEX) stepped up its scrutiny of listed companies on their ESG reporting with its “comply or explain” rules. These policies will keep evolving, and accountability must now reach up to directors on corporate boards.
A new purpose for a new era
The global shift we see towards sustainability also reflects a reconsideration of the purpose of financial markets. But for ESG to become fully part of the mainstream, we must see significant reflection on why we do business.
To situate itself in the global green finance trend, Hong Kong will be co-hosting the June 2018 Annual General Meeting of the International Capital Markets Association (ICMA), with an emphasis on green and social bond principles. Recently, Rene Karesenti, senior advisor to the ICMA, has said, “green and sustainable finance is the future of finance. All of us should feel privileged to contribute, in particular, to a vital low-carbon transformation of the economy and other social impacts.”
So, major trends are converging in Hong Kong these days, to greater global good.