The Hong Kong Monetary Authority (HKMA) published a research memorandum exploring the sensitivity of global equity market investors to different types of climate risks and whether this relationship depends on environmental activity and performance of firms. Additionally, HKMA published enhancements to the Code of Banking Practice. The Hong Kong Association of Banks (HKAB) and the DTC Association (DTCA) jointly issue the Code with the endorsement of HKMA. The revised Code came into effect from December 10, 2021. Authorized institutions are expected to achieve full compliance with the new provisions within six months of the effective date, with an extension of up to 12 months for provisions requiring more extensive system enhancements. Meanwhile, HKMA and the industry are reviewing other parts of the Code and will announce the details in due course.
The key changes to the Code will:
- Enhance customer experience and protection in digital banking services, including requiring banks to effectively and clearly disclose product information when undertaking promotions through social media, providing channels for the public to authenticate digital promotional activities of banks, and issuing warnings on specific security risk events (like cyber fraud and bogus advertisements) to customers.
- Strengthen protection and transparency of banking services, such as providing more information on credit card chargeback mechanism, enhancing information disclosure on local and cross-boundary transfers, and strengthening the procedures for handling mis-transfer of funds by customers
- Further promote financial inclusion, to ensure that customers with different needs are provided with appropriate banking services, to require banks to take into account the needs of customers for physical banking services when modifying their branch networks, and to accommodate the needs of different customers when providing services or information through digital means
Coming back to the research memorandum, the authors have constructed news-based indices capturing public perception of climate-related physical and transition risks. Estimates show that global stock prices respond negatively to increases in both types of climate risk and being “green” is rewarded while being "brown” is penalized by the market. The research finds that environmental, social, and governance (ESG) rankings and emission intensity are important drivers of stock market fluctuations. Subsample analysis further reveal that these findings are driven primarily by firms headquartered in advanced economies, with the stock prices of emerging market firms yielding modest if not insignificant responses to changes in climate-related risks and their interactions with environmental performance. As emerging markets are more vulnerable to the impact of climate change and less able to afford its consequences, this raises the concern of disruptive financial market repricing when investors eventually come to terms with the very real threats climate change poses to firms in these economies. The results highlight the importance for emerging markets to scale up ESG integration and boost awareness of the virtues of “green” efforts and performance among investors of emerging market firms. In Hong Kong, rapid improvement in emissions disclosure has coincided with heightened investor scrutiny of firms’ carbon disclosure and intensity, suggesting corporate disclosure and dissemination of environmental data can facilitate the assessment of climate-related risks.
Keywords: Asia Pacific, Hong Kong, Banking, Securities, Code of Banking Practice, Climate Change Risk, ESG, Transition Risk, Green Finance, Disclosures, HKMA
Hasan leads Moody’s Analytics ESG methodology development. He is expert on carbon transition, nature related risks and is a guest lecturer at ESSEC Business school on sustainable finance.
Dr. Denton provides industry leadership in the quantification of sustainability issues, climate risk, trade credit and emerging lending risks. His deep foundations in market and credit risk provide critical perspectives on how climate/sustainability risks can be measured, communicated and used to drive commercial opportunities, policy, strategy, and compliance. He supports corporate clients and financial institutions in leveraging Moody’s tools and capabilities to improve decision-making and compliance capabilities, with particular focus on the energy, agriculture and physical commodities industries.
Previous ArticleFED, PRA, and FCA Set Out Expectations for Risk Management at Banks
The finalization of the two sustainability disclosure standards—IFRS S1 and IFRS S2—is expected to be a significant step forward in the harmonization of sustainability disclosures worldwide.
Decentralized finance (DeFi) is expected to increase in prominence, finding traction in use cases such as lending, trading, and investing, without the intermediation of traditional financial institutions.
The Basel Committee on Banking Supervision (BCBS) published reports that assessed the overall implementation of the net stable funding ratio (NSFR) and the large exposures rules in the U.S.
At the global level, supervisory efforts are increasingly focused on addressing climate risks via better quality data and innovative use of technologies such as generative artificial intelligence (AI) and blockchain.
The finalization of the IFRS sustainability disclosure standards in late June 2023 has brought to the forefront the themes of the harmonization of sustainability disclosures
The European Banking Authority (EBA) recently issued several regulatory publications impacting the banking sector.
The Basel Committee on Banking Supervision (BCBS) launched a consultation on revisions to the core principles for effective banking supervision, with the comment period ending on October 06, 2023.
The U.S. banking agencies (FDIC, FED, and OCC) recently proposed rules implementing the final Basel III reforms, also known as the Basel III Endgame.
The Financial Stability Board (FSB) recently published the second annual progress report on the July 2021 roadmap to address climate-related financial risks.
The recognition of climate change as a systemic risk to the global economy has further intensified regulatory and supervisory focus on monitoring of the environmental, social, and governance (ESG) risks.