Decarbonisation of Greater Bay Area requires further inter-regional cooperation

But further harmonisation of approaches could further boost investment in projects funded by green financing.

The GBA Initiative was launched in 2017 to foster cooperation among nine cities in China’s Guangdong province and the Special Administrative Regions of Hong Kong and Macau.

Being the most open and international city in the GBA, Hong Kong is known for its status as a hub for international finance, transport, trade, aviation and professional services. Hong Kong plays an important role in the GBA development.

China launched its plan to reach emissions peak by 2030 and reach net zero by 2060, and decarbonisation and green finance development have been prioritised to assist in achieving the goal.

Both Hong Kong and the mainland have launched a series of policies and measures for supporting green financing via government and other public sectors.

The Hong Kong Special Administrative Regions (HK SAR) government in the annual policy address in December 2020 stressed efforts to pursue further integration into the mainland China, focusing on a series of initiatives in the GBA on further development economically.

In the same month, regulators announced its green and sustainable finance strategy for Hong Kong. Financial institutions including banks, asset managers, insurance companies and pension trustees will be subject to enhanced climate-related disclosure obligations in Hong Kong.

Meanwhile, China’s central bank sets out measures for supporting green finance including higher green finance standards, introduce mandatory requirements for financial institutions to disclose environment-related information, strengthen capacity to analyse and manage environmental and climate risk,  and streamline access for international investors to enter China's green finance market.

In the aspect of capital market, HK SAR government revealed its plan to issue HK$175 billion green bonds in next half decade in its 2021 budget. China mainland launched a new future exchange Guangzhou Futures Exchange (GFEX) focusing on carbon futures in April.

Two economies need to harmonise

More cross-border investment opportunities are becoming available while more policies are ongoing to support capital liquidity in Hong Kong and the mainland.

In April, China’s central bank issued a new catalogue of projects that are eligible for green bond issuance which will come into effect on 1 July. The catalogue for the first time excludes coal and other fossil fuels from the list of eligible projects that can be financed through green bond issuance, signalling a move towards international harmonisation. In addition, with China’s central bank working with the European Union on the common green finance taxonomy to harmonise the classification criteria for green investments in both markets, Hong Kong can be expected to benefit from aligning its regulatory framework by adopting the common taxonomy as well.

Hong Kong, with its international capital raising capabilities, is well placed to play a pivotal role in providing the capital for investment opportunities that are likely to be undertaken in the mainland. Such cross-border opportunities highlight the need for a consistent framework for decarbonisation notwithstanding the two economies having different legal systems and regulations.