December 22, 2021
As the world’s second-largest economy pledges to become net zero by 2060, the Hong Kong Insurance Authority’s annual conference heard $1 billion in green investment opportunities lie just the other way side of the border. David Walker reports
Hong Kong’s insurance industry has vowed to play its part in building green finance in the jurisdiction, despite some obstacles, as rival centers battle to be crowned a ‘green finance centre’ in Asia.
One thing that all jurisdictions want to share in this honor, and which is driving sustainable investing, is the threat of climate change, said Ma Ho-fai, non-executive director of the Insurance Authority (IA).
Its unmistakable impact “gives momentum to green and sustainable finance” in Asia and elsewhere “and insurers should have an important role to play in the fight against climate change, because [they] have expertise and data to deliver innovative climate risk management and mitigation solutions,” he says.
“They are also important institutional investors for impact investing, in addition to being corporate citizens.”
A dash for money
But making Hong Kong a hub for green financial transactions is not just about “avoiding the worst” of global warming, speakers said at the annual AI conference in December.
Chaoni Huang, vice president and general secretary of the Hong Kong Green Finance Association, called financing for a low-carbon future “$1 billion in opportunity”.
She said that by helping Beijing reach net zero, as promised, even 10 years “late” by 2060, immense volumes of R&D will need funding “and Hong Kong has a natural advantage to support the ambitions of China, as well as those of Hong Kong.  net zero climate ambition.
“We are only at the very beginning of the journey in terms of exploring opportunities,” said Huang, who is also head of sustainable capital markets, global markets APAC at BNP Paribas.
Speakers alongside Huang agree that the obstacle in Hong Kong is rarely a lack of capital, but its mobilization “to support climate change mitigation and adaptation to climate challenges”.
Nearly half of the conference’s online audience (49%) believed that the Hong Kong government had a decisive hand in fostering green finance there – double the share of attendees who said they were “regulatory bodies”.
While Huang agrees that the government plays “a central role in producing the right policies and incentives”, she adds that the role of the private sector is “essential in raising capital for its own risk management and growth opportunities”. The financial sector must be part of the solution”.
Christopher Hui Ching-Yu, Secretary of Financial Services and Treasury of Hong Kong, said that while the challenge of green finance was once how best to foster the supply of instruments, now it was about satisfying the demand from these large investors.
“If you talk to a lot of asset holders now, it’s more demand-driven. People come to us and say ‘I want to invest ‘green’, what are the systems?” With this change, the role of [government] makes sure we have the right things in place to meet demand,” he added.
At the same time, he said, authorities needed to ensure that all insurers would be able to follow the TCFD’s disclosure precepts, which will be mandatory from 2025, “so there needs to be a Capacity Building”.
Issuance of green bonds
“The Hong Kong government is doing its part to satisfy the appetite, having issued $3.75 billion of green bonds denominated in USD, euros and RMB last month,” said Paul Chan Mo-po, Secretary Hong Kong financial. “And we are now working to issue retail green bonds this financial year to the general public. Our green financing program is here…to encourage more issuers to take advantage of Hong Kong as a green financing hub.”
“Having subsidies for private sector issuers is a way for the government to say ‘we need the private sector to do this with us,'” says Hui Ching-yu.
It seems to work. Authorities received 30 emissions applications, and what was once “companies planning to build green buildings” has expanded to include sustainability-linked loans managed by an ESG matrix – “something we want to encourage “.
Fight for the podium
Panelists agree that no jurisdiction in APAC can assume leadership in green finance is set in stone.
To gain an edge, Huang says Hong Kong must integrate environmental, social and governance issues into its entities’ risk matrices, product offerings and recruitment plans. “With a very dynamic financial market of banks and insurers with capital, it is a question of connecting the dots [in Hong Kong]. An existing vibrant financial sector is important for competitive advantage – but we also need to add the ESG ingredient.”
She adds: “Everyone claims to be a ‘green finance hub’ and an ‘ESG hub’, both on the continent and outside of Asia. It is increasingly competitive – and for good reason. It is It’s about the demand-driven dynamics we see in the market.”
For Hui Ching-yu, the advantage of the special administrative region is to have all insurers, banks and fintechs present – the latter presumably helping the government to consider issuing “symbolic green bonds”.
One speaker underscored the need for asset allocation and risk management by insurers on the continent, as well as enabling regulations and policies. “In the past, people saw ESG and climate risk as something very distant, but with recent events happening in Germany or China, people now see it as very imminent and have to manage it from an economically viable way.”
He pointed to skills in Hong Kong “which are good at collecting and analyzing data. We need to make sure that the interests of global investors can take advantage of the opportunities.”
Eric Hui, chairman of the Hong Kong Insurers Federation’s Green Insurance Task Force, called for “better collaboration on data and [for] good professionals to help us model. Insurers are sitting on a lot of capital, and need to know how to take advantage of a better green return on investment, and achieve better transparency.”
Panelists also pointed to the emergence of insurance-linked securities issued in Hong Kong as climate-related investment institutions that could benefit from buying. China P&C Re issued Hong Kong’s first ILS, worth $30 million and tied to mainland typhoon risk, in October.
Hui Ching-yu said these products “are not tied to economic cycles, so there is diversification there that people looking for risk management and diversification are looking for.”
China Re’s chief financial officer in Hong Kong, Hu Xiao, said the ILS issue was “a good example of creating links with other financial services sectors”, and that underwriters like his could acquire experience speaking with overseas investors of ILS and knowing “what kind of long-term products they can identify for us.
“In Hong Kong’s risk-based capital regime, we may have preferential capital policies – and that will be a good promoter for the financial services sectors.”
Green finance, today’s solution to tomorrow’s problem?
Eric Hui, chairman of the Hong Kong Insurers Federation’s Green Insurance Task Force and managing director of Zurich Insurance Hong Kong, predicts that Hong Kong may face a challenge in convincing insurers that green finance must solve an urgent problem.
“Many members see green finance and green insurance as very distant, and they expect their government or regulator to lead the way. It is a challenge for us, how to change that mindset. “
Christopher Hui Ching-yu names data access as another common problem. “In a study we conducted with asset owners and managers, we found that many financial services companies are still looking for a lot of weather-related loss data.”
Another practitioner added: “For indicators and benchmarks, a framework is important to help insurers identify what is truly ‘green’.”