In recent years, there has been a significant increase in global demand for environmentally friendly and sustainable finance, driven by a growing focus on environmental protection, social responsibility, and corporate governance (ESG). On one hand, with the continuous growth of green financing demand in mainland China, and on the other hand, global investors actively seeking green investment opportunities, Hong Kong plays a unique and important role as an international financial center and a gateway connecting mainland China with international markets in promoting interconnectivity in the financial markets and seizing green finance opportunities.

Mr. Ma Jun, Director of the Institute of Green Finance, Honorary Chairman of the Guangdong-Hong Kong-Macao Greater Bay Area Green Finance Alliance, Chairman of the Hong Kong Green Finance Association, and President, stated during the inaugural Hong Kong Green Week in February this year that Hong Kong's cumulative demand for green and low-carbon investment will reach HKD 5 trillion by 2050, from now until 2050, over a span of 27 years.

What is green investment?

• Understanding ESG

ESG, which stands for Environmental, Social, and Governance, was first introduced by the United Nations Global Compact in 2004. It is considered an important indicator for assessing corporate performance and forms the basis for gaining trust from customers and investors.

Within the ESG framework, environmental factors cover areas such as climate change, pollution and waste management, and renewable energy. Social responsibility includes aspects such as human resource development, product safety responsibility, and stakeholder engagement. Governance is related to business ethics, competition practices, financial system stability, and transparency.

The importance of ESG is increasing, and countries are beginning to focus on promoting the concept of sustainable development. As a result, we often hear about companies needing to publicly disclose their carbon emissions and product carbon footprints, actively promoting the development of renewable energy, and properly managing electronic waste in terms of environmental protection. In terms of social responsibility, companies need to ensure the protection of employees' rights while avoiding controversies related to human rights exploitation in procurement practices. Transparent wage calculations and accounting audit systems are also essential requirements in terms of corporate governance.

• ESG Investment Drives Green Investment

With the increasing emphasis on ESG (Environmental, Social, and Governance) by companies, ESG investment has been regarded as sustainable investment and socially responsible investment, becoming a focal point for investors. ESG investment represents investors' consideration of not only financial factors but also sustainable factors such as ESG in their decision-making process, actively avoiding investments in industries with negative impressions, such as gambling, coal, and tobacco companies, in order to generate broader social impacts and more proactive change.

In summary, green investment is an investment in sustainable development, characterized by a focus on environmental protection and sustainable development, concern for social responsibility, emphasis on the realization of long-term value, advocacy for asset diversification, and a commitment to achieving a combination of investment returns and social impact.

Development and Driving Factors of Green Investment in Hong Kong

At present, Hong Kong has become a green finance hub in Asia. The total issuance of green and sustainable debt in Hong Kong in 2022 increased by over 40% compared to 2021, reaching $80.5 billion. Among them, the total amount of green and sustainable bonds arranged for issuance in Hong Kong accounted for more than one-third of the market share in Asia, ranking first in Asia.

• Driving Factors

1. International Trends

Green investment has become a global trend and important issue worldwide. As an international financial center, Hong Kong is influenced by the global development of green finance and actively responds to and promotes the development of green investment.

2. Government Support

The Hong Kong government actively supports green finance and sustainable development, introducing a series of policies and measures, including the establishment of a cross-departmental working group on green finance, promoting the green bond market, and formulating sustainable financing frameworks, providing policy guidance and impetus for green investment.

3. Investor Demand

Investors' emphasis on environmental, social, and governance (ESG) factors is increasing. They are increasingly concerned about the long-term value and sustainability of investments. Investors and institutions in Hong Kong are also paying more attention to green investment and hope to channel funds into environmental protection and sustainable development.

4. Corporate Responsibility and Financial Institution Participation

More and more companies recognize the importance of the environment and sustainable development. They are beginning to view green investment as a strategic choice to enhance corporate image, meet the demands of investors and consumers, and actively participate in sustainable development practices. Financial institutions such as banks, insurance companies, and asset management companies are actively involved in green investment, promoting the development of green financial products and services.

5. Sustainable Development Goals

The United Nations' Sustainable Development Goals (SDGs) provide a framework and common vision for global sustainable development. As an international financial center, Hong Kong incorporates the SDGs into its development strategy and promotes the development of green investment.

The Potential and Opportunities of Green Investment in Hong Kong

• Hong Kong's Advantages as an International Financial Center and the Potential as an Asian Green Finance Hub

Hong Kong, located between mainland China and other major economies in Asia, serves as a crucial gateway connecting Asia with the rest of the world. With its unique system under the "One Country, Two Systems" framework and its advantageous geographical location, Hong Kong has gained the trust of international investors. Its efficient market operations make it one of the key centers for global capital flow. Combined with a series of government policies and support, Hong Kong can play a vital role in attracting international funds to high-quality green projects and contribute actively to the green transformation within the region and Asia as a whole.

• Innovation and Development of Green Financial Products and Services in Hong Kong

Hong Kong has made significant progress in the innovation and development of green financial products and services. It is one of the largest green bond markets in Asia. The Hong Kong Stock Exchange has introduced a green bond framework that encourages issuers to issue bonds that meet green standards to support sustainable development projects. These bonds provide investors with investment opportunities related to environmental sustainability and serve as a financing channel for green projects. Sustainable development indices, such as the Hang Seng ESG Index, have also been launched, measuring the environmental, social, and governance performance of listed companies. Investors can use these indices to select investment opportunities that meet sustainable development standards and drive improvements in ESG aspects of listed companies.

Banks and financial institutions in Hong Kong are actively promoting green financial innovation. Some banks have introduced green loans and financing products to support sustainable and environmentally friendly projects. Additionally, financial institutions provide professional services such as green bond ratings and sustainable investment consulting to help clients assess and manage environmental risks.

Furthermore, the Hong Kong government has nurtured and gathered a group of high-quality green technology companies in recent years, with over 100 located in the Science Park and Cyberport. Several startups are dedicated to developing renewable energy technologies, intelligent energy management systems, environmental monitoring technologies, and more.

Prospects for the Green Investment Market in Hong Kong

1. Policy and Regulatory Support

The Hong Kong government will continue to introduce policies and regulations to support green finance and sustainable development. This includes strengthening regulations and supervision of the green bond market, promoting the development of sustainable development indices and investment products, and enhancing requirements for environmental, social, and governance (ESG) reporting and disclosure. Policy and regulatory support will provide a more stable and reliable environment for the green investment market in Hong Kong.

2. Growing Investor Demand

With increasing awareness of sustainable investment, the green investment market in Hong Kong will experience growing investor demand. Institutional investors, fund managers, and individual investors are paying more attention to the environmental and social impacts of investments and are seeking investment opportunities aligned with sustainable development goals. This will drive the expansion and diversification of Hong Kong's green investment market.

3. Innovation in Financial Products and Tools

To meet the growing demand for green investment, it is expected that more innovative green financial products and tools will emerge. For example, the variety and scale of green bonds may further expand, and green loans and green securitization products may receive more attention. Additionally, sustainable development indices, green funds, and green insurance products are likely to increase.

4. Technology-Driven Innovation

Technological innovation will play a significant role in Hong Kong's green investment market. With the development of digital technologies, blockchain, artificial intelligence, big data, and other technologies will be applied in the field of green finance to enhance data transparency, risk assessment, and investment decision-making efficiency. Simultaneously, the development of green technologies will provide investors with more sustainable investment opportunities.

5. Cross-Border Cooperation and International Connections

As an international financial center, Hong Kong will continue to strengthen cooperation with international institutions and other green finance hubs. This includes collaboration with international development organizations, multinational corporations, and other financial centers to promote cross-border cooperation in fund flows and green investment. Through international connections, Hong Kong will further enhance its position and influence in the green investment market in Asia and globally.