Hong Kong launches taxonomy to classify green activities and investments

The Hong Kong Monetary Authority (HKMA), Hong Kong’s central banking institution, has announced the publication of the Hong Kong Taxonomy for Sustainable Finance, aimed at defining and classifying environmentally sustainable economic activities, to help inform decision-making and facilitate green finance flows to ease.

According to the HKMA, the sustainable finance taxonomy provides an important tool by enabling a standardized framework for the classification and labeling of financial products based on their environmental sustainability characteristics, allowing investors to identify and invest in activities that have a positive impact on the environment to generate. and to avoid investments with a negative impact, in addition to aligning investments with climate objectives while reducing the risk of investing in assets that are not aligned with a low-carbon future, and unlocking investment opportunities in green technologies and sustainable projects.

The launch marks the latest in a series of initiatives across jurisdictions to establish a classification system for the definition of sustainable economic activities, including taxonomy systems already in place or under development in the EU, UK and Australia.

At launch, the new Hong Kong Taxonomy covers 12 economic activities in 4 sectors, including power generation, transport, construction and water and waste management. Going forward, the HKMA said it aims to expand the taxonomy’s coverage to more sectors and activities, including adding transition activities. Notably, the Monetary Authority of Singapore (MAS) recently released its own taxonomy, which was the first to introduce a ‘transition’ category.

The publication of the taxonomy follows the HKMA’s launch last year of a prototype green classification framework and discussion paper. According to the HKMA, feedback received showed that stakeholders welcomed the classification system, which could help provide a clearer definition of green products, increase interoperability and reduce the risk of greenwashing.

Key principles outlined in the taxonomy’s approach include alignment with the Paris Agreement, providing evidence of greenwashing, providing interoperability with other taxonomies, particularly those from jurisdictions in mainland China, the EU and the ASEAN, the use of science-based criteria and thresholds, and recognition of the importance of the concepts of Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS).

HKMA chief executive Eddie Yue said:

“The release of the Hong Kong Taxonomy for Sustainable Finance marks an important milestone for Hong Kong’s sustainable finance landscape. By providing a common language and framework for sustainable finance, we provide market participants with an important tool to make informed decisions, drive impactful cross-border investments and contribute to the global effort to combat climate change.”

Click here to access the Hong Kong taxonomy.