Capital markets set to turn climate change goals into achievements
Grace Hui
Written By
Feb 1, 2021
By Grace Hui, Head of Green & Sustainable Finance, HKEX.

International leaders have issued an encouraging round of new and renewed commitments to take action against climate change. Work on the ground, led by companies that seek to find more sustainable ways of doing business, can turn those targets into achievements. Proactive and transparent environmental, social and governance (ESG) reporting and data play a critical role in raising the capital that companies need in order to lead on this transformative sustainability journey.

Exchanges can help by providing a platform for raising sustainable finance, developing new sustainable finance products and indices, and supporting market education for both investors and issuers.
Grace Hui
Head of Green & Sustainable Finance
HKEX

The Hong Kong government has set a goal to become carbon neutral by 2050, following President Xi Jinping’s commitment to speed up reductions in emissions in the world’s top-polluting nation and reach carbon neutrality by 2060. Meanwhile, US President Joe Biden has signed an executive order to have the US rejoin the Paris agreement, resuming America’s engagement in global coordination on climate change.

These are encouraging developments because government support and clear leadership is crucial in the fight against climate change, from regulations and reporting to incentives and innovative funding schemes.

At Hong Kong Exchanges and Clearing (HKEX) we are active champions of the need for corporations to manage their ESG risks and impacts. These must be measured, reported, and taken into consideration in business strategies, and operations, in order to build long-term sustainable success for society as a whole.

As an exchange operator and a listed company ourselves, we recognise the important role that capital markets play in that process. Companies need to raise capital to finance the transition to a low-carbon economy and a more sustainable business model. Exchanges can help by providing a platform for raising sustainable finance, developing new sustainable finance products and indices, and supporting market education for both investors and issuers.

Investors also play an important role by providing the financing that enables companies to develop new environmental technologies and transition their businesses to greener, more socially beneficial models. Those investors stand to profit, with growing evidence that more efficient business practices and long-term sustainable strategies deliver positive results.

ESG reporting

The global sustainable finance market has attracted about US$30 trillion in investments, but only 0.8% of that is in Asia, according to the Global Alliance for Sustainable Finance. This region has powerful growth potential.

In order for companies to raise the capital they need to transition to more sustainable business practices they need investors, and investors need clear ESG reports and performance data to help them compare, select and monitor their investments. Investors want to make their investment decisions based on credible ESG data, which requires issuers to take a structured and documented approach to their sustainability strategy, and effectively communicate that.

HKEX, as a market regulator, has introduced listing rules that require issuers to publish ESG reports, but this is just a start. Companies that want to have a significant social and environmental impact, or want to become sustainability leaders in their industries and regions, need to go beyond listing requirements and aim for international best practices.

There is growing support and resources to help companies achieve their sustainability goals. Hong Kong’s new Green and Sustainable Finance Cross-Agency Steering Group recently unveiled a strategic plan for strengthening Hong Kong’s financial ecosystem to support a greener and more sustainable future.

In another example, the market community behind the Green Bond Principles, Social Bond Principles, Sustainability Bond Guidelines, and Sustainability-Linked Bond Principles recently launched the Climate Transition Finance Handbook detailing the disclosures that should be made by issuers on their climate change strategy when raising funds using sustainability-themed bonds.

Corporate sustainability leaders manage their ESG risks, voluntarily report the data that tracks their sustainability journey, and are proactive in sharing that with all stakeholders, including investors. Sustainable finance products are held to account by annual post issuance reports that detail environmental and social impact and use of proceeds.

ESG performance has become the proxy of a company’s resilience, risk management capability, and long-term value. Robust ESG reporting reflects management strength, builds investor confidence and helps companies attract talent.

STAGE

HKEX has launched STAGE, a sustainable finance platform that connects issuers, investors and other stakeholders, as a way to grow the under-served sustainable finance market in Asia by increasing sustainable investment data awareness, accessibility and transparency. STAGE draws attention to ESG performance and reporting, as well as sustainable finance products. By raising awareness of these, it rewards companies for their long-term commitment to sustainability.

STAGE inspires, educates, and encourages companies to reach beyond the reporting requirements within the listing rules. It draws attention to the usage of proceeds, environmental or social impact resulting from the sustainable investment products issued. Those that commit to going the extra mile will find that they may earn higher ratings from analysts, attract liquidity and new investors, and gain recognition within their communities. These are the rewards of voluntarily embracing greater transparency and setting ambitious sustainability goals.

STAGE will help educate investors and give them easier access to additional, voluntary data on sustainable finance products while enabling companies to share their ESG performance with investors in greater detail and relevance. This is how capital markets can work for the benefit of all.

Taking action

Renewed ambition to tackle climate change at a macro level gives us at HKEX the inspiration to innovate with new tools and platforms that support companies on their sustainability journey. Together, as investors, issuers and market operators, we can take action that will help us realise our sustainability goals and address the most pressing challenge of our generation.

 
Credit: This article first appeared in THE Asset on 1 February, 2021