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By Grace Hui, Head of Green & Sustainable Finance, HKEX.

The business world is embracing sustainability with increasing enthusiasm as investors and companies alike learn how it can improve their businesses and profits. But before companies can make money from sustainability, they must first invest in their transition, and that’s where capital markets have a role to play.

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A key part of building a more sustainable business culture is to provide the capital that enables companies to make changes and transition towards greener operations. The investment management industry has a vital role to play in financing this transition. Stakeholder capitalism, which seeks to serve the interests of all stakeholders and not just shareholders, has become the new rallying cry, and its popularity signals that there is a ready and willing market for sustainable investment products.

As the global markets leader in the Asian time zone, Hong Kong Exchanges and Clearing Limited (HKEX) has a leading role to play in this evolution. We are a public company with sustainability at the heart of our strategy, and therefore we must act on behalf of our shareholders. As a regulator, we have a powerful platform to affect change in our more than 2,400 listed companies and to encourage all market participants to realign their priorities. As a market operator, we are creating an ecosystem of green and sustainable investment products and information that makes us the Asian sustainable market leader.

 
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Steps Towards Sustainability

HKEX has taken numerous steps in recent years to encourage greater sustainability within the investment industry, and are beginning to build momentum.

In 2016, in our role as a regulator, HKEX made environmental, social and governance (ESG) reporting mandatory for all Hong Kong-listed companies. We collaborate with listed companies to help them improve their ESG practices through education and insight, helping directors better understand materiality assessment, target setting, and reporting boundaries. We recently elevated the ESG debate to board level by requiring them to incorporate ESG into their business strategies, assess risks and opportunities, and explain their approach on material ESG-related issues to their stakeholders.

HKEX also has a duty to educate issuers and investors on sustainable finance, values, and products and expand our offering of sustainable investment products. We are doing this by launching the Sustainable and Green Exchange (STAGE), an online portal that provides information and education materials on innovative financing solutions and financial products in the green and sustainable finance space. Millennial investors are demanding direct access to market information to enable them to make informed decisions of such sustainable investments. The information provided on STAGE will meet that demand, while also initiating conversations between HKEX and listed companies on the standards, positioning and marketing of sustainable investment products.

Our sustainable product offering began with green bonds, and that market raised HK$75 billion in 2019, up from HK$2.4 billion in 2015, showing that demand is growing. To meet that increased investor interest we are exploring sustainable exchange traded funds (ETFs) and sustainability linked loans (SSL), which are aligned to a set of sustainability principles and incentivise clients to improve their performance. Equities, too, can offer direct investing opportunities in sustainable businesses in, for example, the technology, energy, food production, and transport sectors.

 

Rewarding Sustainability

Investors and the finance industry must offer incentives in order to attract listed companies that implement strategies to benefit all stakeholders, from customers, employees, and suppliers to communities. The greatest reward is investor appetite, which results in a higher share price, improved liquidity and greater ease in raising funds.

As an exchange operator, HKEX can offer a platform that showcase companies in green or sustainable businesses or with sustainable business practices, along with inclusion in thematic product presentation and marketing. We play an important role in recognising the success of these companies and encouraging them to reach even higher.

Companies are beginning to transition the way they plan, invest in and build their businesses according to a more sustainable model, but they need the support and encouragement of investors and capital markets. HKEX is committed to providing the tools, financial instruments, and ecosystem of investors that enable all of our stakeholders to take more meaningful steps towards sustainability.