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    HKMA Publishes Hong Kong Taxonomy for Sustainable Finance

    May 21, 2024

    The Hong Kong Monetary Authority (HKMA) published the Hong Kong Taxonomy for Sustainable Finance. The taxonomy is intended to provide finance professionals with consistent and internationally recognized definition of “green” and “environmentally sustainable” economic activities. HKMA also published a consultation report summarizing stakeholder feedback, along with the supplemental guidance providing background information, illustrative use cases, and responses to the frequently asked questions (FAQs) to aid understanding and application of the taxonomy.

    The Hong Kong Taxonomy will serve as a pivotal tool to raise awareness about green finance, promote common understanding on green activities, facilitate green finance flows, and provide a foundation for further applications. The taxonomy will help to align investment decisions with climate goals and reduce the risk of investing in assets that are not aligned with a low-carbon future. It will also help unlock new investment opportunities for green technologies and sustainable projects and increase transparency and accountability in the financial sector. The taxonomy covers 12 economic activities across four sectors: power generation, transportation, construction, and water and waste management. The taxonomy outlines the following core principles that ensure its credibility, scientific approach, and alignment with all key benchmarks:

    • Alignment with the Paris Agreement — The taxonomy focuses on providing clearly defined metrics and thresholds aligned to the Paris Agreement and science-based targets.
    • A proof from greenwashing — The taxonomy takes note of best practices from existing taxonomies to develop an easy-to-use set of criteria and to provide more clarity about what can be considered “green” and to ensure that claims of meeting this definition can be verified accordingly.
    • Interoperability with other taxonomies — The taxonomy considers significant sustainable finance taxonomy developments that have occurred in other jurisdictions, particularly the Mainland China, the EU and the ASEAN. The key taxonomies referenced are the Common Ground Taxonomy (CGT), the European Union’s Taxonomy for Sustainable Activities, the China’s Green Bond Endorsed Projects Catalog, ASEAN Taxonomy, and the Climate Bonds Taxonomy (CBT).
    • Science-based criteria and thresholds — The taxonomy aligns with the overall need to transition the global economy to net-zero emissions by 2050.
    • Foundations of Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS) — The taxonomy focuses on climate change mitigation and acknowledges the interconnectedness of sustainability issues.

    The publication of Hong Kong Taxonomy follows a discussion paper released in May 2023, which sought feedback on a green classification framework prototype. The feedback was positive, highlighting the prototype's potential to clarify green product definitions, improve interoperability, and mitigate greenwashing risks. HKMA has encouraged the financial sector to utilize the taxonomy for assessing the greenness of projects and assets when labeling and developing products as well as making disclosures. Going forward, HKMA plans to expand the coverage of this taxonomy to include more sectors and activities, including transition activities; it will also continue to promote the application and enhancement of its taxonomy in collaboration with relevant stakeholders in Hong Kong and across the world.

     

    Visit Moody's Analytics Climate and ESG Risk Microsite to learn how you can proactively incorporate climate and ESG insights into your risk assessment process.

     

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    Keywords: Asia Pacific, Hong Kong, Banking, ESG, Climate Change Risk, Sustainable Finance, Taxonomy, Greenwashing, Green Finance, HKMA

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