Hong Kong's push to establish itself as the regional hub for green bonds and other related finance initiatives will gain further momentum with the unveiling of a new proposal today.
Leading figures in the ESG investing industry, under the auspices of the European Chamber of Commerce in Hong Kong (EuroCham), are today launching a concept paper on how Hong Kong could benefit from establishing a green investment bank (GreenBank).
Alexandra Tracy, former chairman of the Association of Socially Responsible Investment in Asia (Asria) and lead author of the paper, told AsianInvestor: "The levels of investment needed for developing low carbon infrastructure in Asia are considerable, and Hong Kong is the logical choice to be the regional centre for raising and structuring this capital.”
Playing to HK's strengths
In addition to the market's deep experience with the green finance sector, Tracy said it is Hong Kong's capacity to utilise public funding to catalyse private investment that would transform GreenBank from another 'talking shop' into a powerful economic tool.
Whilst acknowledging that there is a lot of hype around green finance, she said: “It’s a fast growing sector that is also generating tangible opportunities that play to Hong Kong’s strengths. Hong Kong has been a leader in financing for energy, ports, airports, roads in Asia for decades. That's what I came here to do 25 years ago.
“GreenBank would directly leverage Hong Kong’s strong position in structuring and raising financing for infrastructure in Asia," she added. "Through HKEx [Hong Kong's exchange] and its banking, asset management and insurance sectors, Hong Kong has enormous experience and long established regional networks that underlie its clear leadership in this area.
“We also have energy and infrastructure companies [listed] on HKEx, and apparently Belt and Road infrastructure companies looking to list here,” Tracy said.
HK promotes green finance
The initiative requires Hong Kong government support. The paper states that as a quasi-government entity, GreenBank would be backed by the financial resources and robust credit rating of the Hong Kong government, which would initially capitalise the bank.
Tracy says she has “deliberately not floated this with government yet”, in anticipation of the campaign launch by EuroCham today. However, the Hong Kong government has already signalled its intention to encourage public sector bodies to promote green finance iniatiatives.
As reported, asset owners are looking to allocate more to infrastructure and real assets. Tracy suggests that if GreenBank is able to foster the creation of investible products—such as investment funds, fixed income and asset-backed securitisation—by improving their risk profiles, this could lead to opportunities for fund managers to channel capital into them.
The fund managers most likely to get involved initially would be bond funds that could buy project bonds or asset-backed paper. Tracy suggested that GreenBank credit support could help them get an investment-grade rating so that insurance companies and pension funds could buy them.
“GreenBank would also be a platform for co-investment and credit enhancement, via insurance, guarantees and first loss tranches, that would de-risk investments and get the private sector to invest and lend,” she said.
Backed by Xi
The Hong Kong EuroCham proposal follows the commitment last week by China's president Xi Jinping for continuing policy initiatives in support of the green bond market.
Bryan Carter, head of emerging market debt at BNP Paribas Asset Management, told AsianInvestor that Hong Kong could play a key role in promoting green bonds for China.
“Hong Kong has unrivaled access to offshore funding sources," he noted, "and the city boasts the innovative, academic and legal capacity to build credibility and standardisation behind this new and fast-growing market."
International investors, particularly in Europe and especially among public funds, are highly motivated to take part in green bond investment, Carter added. “It's not just about yield; there is a passion there as well, an ethos and a moral directive that drives the inflows.”
The Asian investing landscape falls far short of the demand established by the likes of the UN’s Economic and Social Commission for Asia and the Pacific. It predicts that investment of some $2.5 trillion a year until 2030 is needed for sustainable development in Asia to upgrade basic services and infrastructure and protect the environment.
The Asian Development Bank (ADB) also estimates that developing Asia will need to invest $1.7 billion a year on climate-smart infrastructure up until 2030, with total investments of $14.7 trillion required for power and $8.4 trillion for transportation.
Nonetheless, over 90% of the flows to emerging cities to finance environmentally-friendly projects are in the form of green bonds issued by the World Bank and ADB.
Only four green bond issuances have taken place in Hong Kong, worth $1.24 billion, with MTR Corp being the first and so far the largest green bond issuer.
China estimates that as much as $640 billion of investment is needed annually to tackle the country’s chronic pollution and environmental degradation issues. It has committed to reducing greenhouse gas emissions by 60% from 2005 levels by 2030.
In April, Internatinonal Finance Corporation, the private-sector arm of the World Bank, announced a partnership with Amundi to create a green bond for emerging markets. IFC will invest up to $325 million in the new Green Cornerstone Bond Fund, which will buy green bonds issued by banks in Africa, Asia, the Middle East, Latin America, Eastern Europe and Central Asia. Amundi is raising the rest of the $2 billion from institutional investors worldwide. The fund aims to be fully invested in green bonds within seven years.
Jolie Ho provided some material for this story