The Hong Kong Monetary Authority (HKMA) has unleashed a steady volley of green finance policies in recent years, from guiding banks to bake climate risks into their balance sheets, to mandating financial institutions hit net zero in their operations by 2030 and financed emissions by 2050.

Hong Kong is putting its money where its mouth is, bolstered by the government’s sustainable bond programme which by the end of August 2024 had a total underlying debt issuance of around US$120bn. In Asia, Hong Kong’s green bond market stands out, surpassing its regional peers in both ambition and scale.

This steadfast commitment to building sustainable finance markets stands in stark contrast to the US withdrawal and political headwinds in Europe.

Hong Kong’s bet is strategic: while sustainability efforts continue to be bogged down in the west, the city has made them a core component of its growth strategy. By positioning itself as the platform for channelling green capital between China – the world’s clean energy and green investment juggernaut – and the rest of the world, Hong Kong is not only preserving its position as Asia’s financial hub but also sharpening its competitive edge.

Harmonising green finance definitions in China and the EU

Maintaining this position as a link between east and west will be difficult. In some ways, the proliferation of taxonomies has fractured sustainable finance. The Asia Pacific region alone juggles at least 10 competing green standards, leaving international investors navigating a Rubik’s cube of sustainability definitions.

The common ground taxonomy (CGT) developed by the EU and China, launched in 2021, proved that alignment pays off. According to one report, Chinese issuers of CGT-aligned bonds recorded a 30-basis-point “greenium”. While the precise size of a greenium may continue to be debated in academic circles, the lesson here is evident: clarity lowers costs.

By finding common ground between definitions, issuers and project developers across markets can communicate how their planned investments can meet the expectations of a wider range or deeper pool of investors, potentially helping to reduce borrowing costs and accelerating the transition.

Enter the Hong Kong Taxonomy for Sustainable Finance. True to the city’s hybrid east-west DNA, it is the first to align with the CGT while keeping both Chinese and European contexts in mind.

However, maintaining this position as the HKMA continues to expand the Hong Kong taxonomy will require careful consideration. The EU’s approach to defining what constitutes a substantial contribution to climate change mitigation in the energy sector is notable for its straightforward methodology: dividing the EU’s remaining carbon budget towards 2050 targets by its anticipated energy demand to arrive at a threshold of approximately 100g of CO2 equivalent per kilowatt hour. Technologies operating below this threshold are considered green as they aid in mitigating climate change.

In contrast, China has adopted an allowlist strategy, categorising specific technologies as green without necessitating a demonstration of meeting emission intensity criteria. This disparity between technical screening and allowlist approaches poses challenges for EU investors evaluating investments like Chinese green bonds against EU standards, often requiring additional data collection and analysis to reconcile differences.

The HKMA could step in by adopting a nuanced approach tailored to realities outside the west. For instance, it could adopt a methodology for setting transition finance thresholds in the energy sector based on a market’s carbon budget (its share of allowable emissions), forecasted energy demand, and average emissions intensity (a measure of pollution per unit of economic output). This would align with the EU’s approach but continue to reflect other markets’ development status and conditions.

To streamline this further, the HKMA could introduce a dual-labelling system: one label for Hong Kong-based projects, customised to regional priorities, and another aligned with global standards for international ventures, balancing local relevance with worldwide appeal.

Filling the void in transition finance

To fully unlock the potential, Hong Kong must solve green finance’s trillion-dollar riddle: what qualifies as credible transition investment? Asia’s economic engines – its high-emitting industries – have been left in the shadows as capital chases pristine green assets. As a result, emerging markets bear unintended fallout.

The HKMA is working to plug the gaps in the CGT by incorporating transition activities crucial to regional decarbonisation – particularly as it pertains to the production of electricity from gaseous fuels, all vital to mainland China, the Greater Bay Area and other Asean economies. An updated prototype is slated for public consultation in the first half of this year.

Closer to home, Hong Kong has committed to enabling the low-carbon transition by expanding its hydrogen economy. This pivot demands hefty investment in infrastructure, not just in hydrogen production facilities but in technologies that use hydrogen fuel. Yet what constitutes a green or transitional investment in hydrogen remains unclear.

The challenge is stark. For hydrogen-powered buses, trucks, ships or factories to take off, supply must be plentiful and priced to compete. But green hydrogen, made via renewable-powered electrolysis, remains neither cost-competitive nor sufficiently scalable. Worse, diverting renewable resources to hydrogen production often makes less sense than feeding it straight into power grids. Transition finance standards for hydrogen production need to wrestle with these realities.

If Hong Kong can broker consensus on transition finance, it won’t just be the bridge to green capital; it will also create the design blueprints which can be referenced globally. Developing a transition taxonomy is no simple feat but it’s the pragmatic path forward. Hong Kong, a trailblazer in transition finance, sparked the trend with local power company Castle Peak’s inaugural $500mn transition bond in 2017, the world’s first.

By defining clear, robust standards, the HKMA can dispel fears of greenwashing (or its murkier cousin, transition-washing) and unlock investor confidence to fuel a real, resilient economic shift in Asia.

The event in New York highlighted that, despite challenging market conditions, enthusiasm and commitment to the theme remains. Genevieve Redgrave reports

Environmental Finance welcomed over 150 attendees to its third annual Natural Capital Investment Americas conference. The event demonstrated the extent to which the theme is progressing year-on-year, with discussions moving beyond the ‘why’ and into the technicalities of the ‘how’.

While maturity on the theme still lags behind Europe, there was clear drive to scale up investment into nature. From innovative regenerative agriculture practices to the more established timberland markets, participants were keen to approach this theme broadly – and find out how to make it palatable to a North American market.

Market turbulence and sustainability commitment backpedalling were inevitably a point of concern for conference participants, but many highlighted that progress continues. Krista Gnau, market engagement lead (North America) for the Taskforce on Nature-related Financial Disclosures (TNFD), pointed out that many are “doing the work, but maybe not doing it publicly”.

With firm recognition that nature loss is a business risk, internal assessments and preparations continue, she said, arguing that the North American market is still “taking nature risk seriously”.

Rodolfo Jaffé, managing consultant at Ramboll, highlighted that it has been accepted as a long-term risk, with many “pushing forward in the absence of regulatory mandates”. Despite it now not looking likely that the US will introduce its own form of Biodiversity Net Gain – England’s mandatory biodiversity credit market – anytime soon, many are acting now in the expectation that this will come further down the line, he said.

Investor pressure was also highlighted as a key driver of company action by the TNFD’s Gnau.

Structural issues remain

There are wider structural issues, however, which continue to hold back nature investment in the US, particularly in more nascent or emerging themes.

Atish Babu, principal at Agriculture Capital, said “challenging” conditions for famers are holding back sustainable agriculture. While many farmers may be willing to look at sustainable agriculture or alternative revenue streams from a “value perspective”, the complexity of pivoting towards these opportunities is too high.

The US also fails to provide the regulatory environment and financial incentives that make credit markets viable as a business model elsewhere. This means sustainable agriculture investors cannot rely on these revenue streams, in the way that it is possible in the EU or Australia.

Jillian Dyszynski, director of climate finance at the American Forest Foundation, added that the “land rich, cash poor” small holder forestry owners, find it “hard to make it work”.

With this demographic being the largest forestry owners in the US, it is imperative that forestry investors address how to bring them into any opportunities and sustainability efforts, she said.

While timberland and forestry remains some of the most mature and stable nature investment themes in the US, the conference heard how difficulties remain in attracting attention. Rather than there being “keen interest” in forestry strategies, it is viewed as a diversification or inflation hedging opportunity.

However, MaryKate Bullen, managing director at Forest Investment Associates, pointed to growing demand for products from woodlands, adding that forestry investments can help meet climate and nature goals, which is becoming an increasingly important value driver.

It is therefore increasingly having to compete with real estate or infrastructure opportunities, according to JP Gibbons, senior investment director of sustainable and impact investing at Cambridge Associates.

Structural issues also linger within blue finance, particularly on the lack of standardised definitions, registries and enabling conditions. Despite this, it was highlighted as a clear area of opportunity, with the Inter-American Development Bank pointing towards a host of potential instruments from which it expects to see growth.

This includes blue bonds, debt for nature swaps, parametric insurance and blended finance instruments.

While blended finance was cited throughout the day as key to scaling up many markets, Invesco highlighted that its blended finance fund has seen challenges in working with multilateral development banks (MDBs).

Gerald Evelyn, senior client portfolio manager and lead for the taxable fixed income client portfolio management at Invesco, told the conference that aligning with MDBs on its Climate Adaptation Action Fund (ICAAF) proved to be a challenge.

With varying regional specificities in their mandate, “we had to pander to a number of customisations”.

It meant that institutional investors were more willing to take risk than their concessionary capital counterparts, he said – something which was highlighted throughout the day by other panellists as a sign that the winds are turning on nature investment. It was hoped that investors will soon be willing to take more risk on pre-development carbon project financing as well as more innovative structures.

Optimism

While there were many structural issues highlighted, these were not seen as a permanent block in the road.

The North American market is clearly willing to get down to business and begin acting on nature. While short-term headwinds are clearly playing a role, the conference suggested that many are in it for the long haul and willing to take a leadership role.

More stories from the conference:

The Bezos Earth Fund called for the development of ‘an operating system for valuing nature’. Paul Bodnar, director of sustainable finance, industry and diplomacy told the conference that “we treat nature as a valueless asset, worth more dead than alive”. Read the full story here.

The Swiss Central Bank said its mandate does not allow it to tackle climate or biodiversity goals, even as its of “great importance for our society”, while a complaint was filed against the EU Commission over its omnibus proposals, the European Banking Authority released an ESG climate risk dashboard, and Pakistan’s central bank plans to launch a green taxonomy by June. All this and more in this week’s roundup.

Swiss central bank mandate does not cover climate or biodiversity goals

The Swiss National Bank (SNB) does not have the mandate to tackle climate change or biodiversity issues, chair Martin Schlegel said at the central bank’s annual general meeting on Friday.

“I understand this topic is of great importance for our society and all humanity and it is of personal concern for me,” Schlegel said.

“But our foreign currency reserves are there to serve our mandate. Climate goals or biodiversity are not part of our mandate”.

Activists gathered outside the shareholder meeting to demand that the central bank divest from fossil fuels and influence companies to take action on climate change. While the SNB has set out exclusion policies on its investments, it is still likely to be investing in fossil fuels as it does not take into account scope 3 emissions.

EBA launches climate risk dashboard

The European Banking Authority (EBA) released a dashboard covering climate risk across the EU/EEA banking sector. It shows the spectrum of green financing and covers risk from both a transition and physical perspective.

The data show that EU banks have a high exposure (over 70% in many countries) to sectors that are contributing to climate change. This means banks may have significant exposure to climate-related transition risk, the EBA said. In most countries, physical risk is below 30% but the degree to which data is disclosed varies.

The dashboard also includes indicators related to the banking sector’s alignment with the EU taxonomy, which shows the green asset ratio is low at less than 3% on average. However there is a noticeable variation across banks and countries.

Nonprofits file complaint over EU’s omnibus proposal

A group of nonprofits filed a complaint against the European Commission over its sustainable omnibus directive, arguing that the body is weakening rules without consulting the public.

The omnibus proposal limits the scope of companies required to submit climate data, including emissions, and curbs other supply chain checks. The commission argues that the bloc’s myriad sustainability rules are confusing and make businesses less competitive, but investors say the data rules are vital for transparency.

Legal charity ClientEarth and others said in a complaint filed with the European ombudsman that the EU has failed to assess the impacts of changing the rules, which amounts to maladministration. They also accused the commission of holding closed-door meetings with lobby groups and not holding a public consultation.

Elsewhere, ratings agency S&P Global said that setbacks on sustainable reporting rules in the EU and US will likely make it more difficult to assess the climate-related credit risk of companies.

Pakistan to launch green taxonomy by June

The State Bank of Pakistan will launch a green taxonomy by June, Pakistan’s finance minister announced, as the country looks for ways to reduce its emissions by 50% by 2030.

Pakistan could also launch a green sukuk, a Shariah-compliant Islamic bond that would be used to finance green projects, Finance Minister Muhammad Aurangzeb said.

He said they were also hoping to launch the first green panda bond. A panda bond is a Chinese yuan-denominated bond issued by a non-Chinese entity in China’s domestic market.

Qatar releases sustainable finance framework

The Qatar Central Bank issued a sustainable finance framework which includes guidance on enhancing transparency, revenue management, reporting and external audits. The framework is designed to increase growth and innovation within Qatar.

The central bank previously launched a sustainability strategy to position Doha as a hub for green finance and innovation, including climate risk stress testing, ESG disclosure requirements and sustainable sovereign debt issuance.

ISSB to decide on biodiversity and human capital reporting

The International Sustainability Standards Board (ISSB) is expected to decide if it will issue reporting standards for biodiversity and human capital in the coming months, Responsible Investor reported.

If it does decide to issue standards, it likely would not be launched before 2026. The ISSB voted last year to start various research projects on biodiversity, ecosystems and human capital, and met recently to discuss the first phase which is focused on evidence of investor interest, effects on entities’ prospects and other standards and disclosures.

Meanwhile, the IFRS Foundation and the Taskforce on Nature-related Financial Disclosures signed a memorandum of understanding to expand their existing collaboration around nature, including sharing research and technical expertise.

Climate change could destroy capitalism, warns insurer

The climate crisis could destroy capitalism due to increased financial costs from extreme weather, a top insurer warned.

Günther Thallinger, a board member at Allianz SE, said the world is approaching temperature levels at which insurers will not be able to cover climate risks, which would mean other financial services would not be available.

Insurance companies are already starting to pull back or limit coverage in areas prone to extreme weather, like flooding and wildfires.

In his LinkedIn post, Thallinger called it a “climate-induced credit crunch”.

“This applies not only to housing, but to infrastructure, transportation, agriculture, and industry,” he said. “The economic value of entire regions – coastal, arid, wildfire-prone – will begin to vanish from financial ledgers. Markets will reprice, rapidly and brutally. This is what a climate-driven market failure looks like.”

Research notes

Mind the Climate-related Protection Gap: Reinsurance Pricing and Underwriting Considerations

This paper looks at the reinsurance market and the role of reinsurance in climate change and narrowing the climate protection gap.

Managing the Climate Change-fueled Property Insurance Crisis

In this paper, the authors discuss how losses from extreme weather events have reduced insurers’ ability to diversify risks, resulting in less coverage. It offers suggestions for how policymakers can help reduce risk from climate change.

State of Nature and Climate 2025

This World Economic Forum briefing paper provides a global overview of the health of the planetary system and progress by companies on addressing climate and nature risks. It finds that the stability of the earth system is at risk, as well as global economic development.

Healthy Debt on a Healthy Planet

This final report from the governments of Colombia, Kenya, France and Germany offers recommendations for how low- and middle-income countries can have a holistic approach to the triple crisis of debt pressure, nature loss and climate impacts.

Nearly 18 months after the UAE hosted the mammoth COP28 summit, Environmental Finance’s focused and thoughtful new event in Abu Dhabi highlighted a region ready to pitch a pragmatic but proactive approach to the transition. Ahren Lester reports

More than 150 local and regional market experts joined the engaging discussions at the debut Environmental Finance Gulf Transition & Sustainable Finance event in Abu Dhabi, which highlighted that the region has critical role to play in regional and global transition finance.

With 26 speakers from leading investors, banks, corporates and service providers, as well as high profile government and regulatory officials, the audience was offered a rich and varied set of insights on the challenges and opportunities facing sustainable finance markets in the region.

Time and time again, panellists and attendees raised the potential for the Gulf to offer a “pragmatic” approach to transition financing to support global goals.

In the context of an increasingly reactionary global debate on sustainability, there was a strong sense that this ‘pragmatic potential’ is ready to play a core role in consolidating the existing progress in sustainable finance, while catalysing the next phase towards a fully inclusive and extensive transition finance

As NinetyOne Middle East co-head Nicolaas Alberts explained, the Gulf “holds the key to an orderly transition globally” through its pragmatic approach, which means the “importance of this region is coming to the fore” as geopolitics dampen appetite for sustainable finance globally.

But what was clear is that this pragmatic approach is not a euphemism for watered down ambition, but a proactive recognition that the journey many regions – including the Gulf – must take to transition.

Like many developing regions, for example, the Gulf faces acute challenges around ensuring a ‘just transition’ in its shift away from fossil fuels and tackling hard-to-abate sectors. Unlike many others in a similar situation, however, it is also clear it has the resources, resolve, and rule-makers to try and determine a course others can follow, or support the activities that other need to pursue.

And this was also apparent throughout the day. Crédit Agricole Corporate & Investment Bank (CA-CIB) global sustainability head Tanguy Claquin described the “very high innovation and enthusiasm mode” the region was in when it comes to sustainable finance.

And this is feeding ambition, not only to stimulate growth in existing sustainable finance markets, such as sustainable bonds, but also play the role of the ‘Silicon Valley’ of sustainable finance. In addition, this pragmatism is also helping the region to identify and act on some of the additional nuances that are sometimes undervalued in the sustainable finance markets to date – including the ‘just transition’.

Certainly, the Gulf countries have already moved at pace to recognise the multi-faceted climate risks facing their economies. But also – more importantly – they have been proactive in identifying and acting upon transition opportunities.

The conference suggested that a region that often can seem shut out of global sustainable finance conversations is ready to listen and learn from practical approaches taken elsewhere in the world.

After the success of this inaugural conference, Environmental Finance is looking forward to further news, views and events in the region to help catalyse this potentially transformative role the Gulf can play in global sustainable finance growth and progress.

As with elsewhere in the world, there are many headwinds to transition and sustainable finance. Yet it was refreshing that the level of optimism and ambition in the region around the sustainable finance opportunity is strong, and is strengthening.

South Korea’s central bank says the country needs to ramp up its green transition efforts, while the Net Zero Banking Alliance plans to ask member banks to ditch climate commitments. In addition, the ISSB is considering biodiversity reporting approaches. All this and more in this week’s roundup.

South Korea’s central bank outlines need for faster transition

South Korea needs to quickly reform its green finance policy if it is to accelerate its decarbonisation efforts. Research from the Bank of Korea (BoK) found that the country’s emission reduction efforts are slower than other developed nations and has fallen below the G7 nations.

Other developed nations are transitioning away from carbon-intensive practices, while South Korea still has a long way to go. The BoK recommended that South Korea increase its domestic efforts to encourage green finance, such as transition-focused finance.

ISSB considers biodiversity reporting approaches

The International Sustainability Standard Board (ISSB) is considering using various reporting frameworks to approach its own rulemaking on biodiversity, ecosystems and ecosystem services (Bees), IPE reported.

Various reporting frameworks – such as the Task Force on Nature-related Financial Disclosures, IFRS S1 and the Sustainability Accounting Standards Board all have similarities – which means the ISSB could build on them, a staff member told the board.

ISSB research staff have also found differences, some with “greater specificity”, between the board’s literature and Bees-related disclosure standards. The next phase is to further assess the differences.

Bank climate alliance to vote on ditching 1.5ºC pledge

The Net Zero Banking Alliance will ask members to vote on ditching a pledge to align their assets with the Paris Agreement of limiting global warming to 1.5ºC in an effort to save the voluntary group after an exodus of US-banks in December.

Instead, the new proposal would require members to commit to keeping their activities aligned with a less ambitious goal to keep warming below 2ºC. Voting is expected later in the month.

The group was launched by then UN envoy Mark Carney and created to lower emissions through financing but has faced pressure from Republicans in the US. European banks have also threatened to pull out unless it softens its rules, as financial institutions around the world have started to backtrack on their net-zero commitments.

AI is reshaping nature finance, says UNEP FI

AI and technology are reshaping nature finance, the UN Environment Programme Finance Initiative (UNEP FI) said. The advance of AI is making nature-based solutions more accessible, transparent,and scalable.

According to the initiative, there is a push to solve data challenges, while technology can help manage nature-related risk. Insurance is also likely to play an increasing role in the nature transition by identifying and addressing nature-related issues. The public finance of de-risking will also continue to grow, the UNEP FI predicted.

Meanwhile, Cop30 is likely to integrate nature into decarbonisation plans, Moody’s Ratings said, with biodiverse nations in focus at the conference in Brazil later this year. Land use trade-offs could also become important, especially as use for the transition away from fossil fuels and biodiversity preservation comes into play.

US federal job cuts could jeopardise insurers’ climate risk data

A plethora of job firings at US science agencies could threaten key climate data that insurers use to manage risks and determine pricing for consumers, the FT reported.

The Reinsurance Association of America is lobbying to preserve data collection at the National Oceanic and Atmospheric Administration, which is planning to cut 1,000 staff. The agency oversees the National Weather Service and monitors real-time storm data used to forecast potential life-threatening storms.

Insurers have also raised concerns about cuts to other US federal agencies tasked with tracking hurricanes and hailstorms, and monitoring drought conditions which can raise wildfire alarms.

If the data is not preserved, insurers would need to collect modeling data from private satellite operators, a cost that would likely be passed onto consumers.

Research notes

Some recent research on climate and the economy that are worth reading:

Planetary financial policy and the riskification of nature

Authors Jens van ‘t Klooster and Klaudia Prodani look at how risk models from the 1990s turn nature into financial risk and how recent regulatory strategies go beyond a risk-based approach.

How Climate-Transition Risks May Impact Lending Practices

MSCI researchers Anja Luszuweit and Guilherme de Melo Silva found that the default risk of lenders in the Asia-Pacific region could double due to transition risks, while banks in Europe and the Americas saw a smaller default increase.

Banks’ Climate Commitments: A Silver Lining for Climate Action or Just Hot Air?

Author Mischa Aeshclimann explores the efforts of net-zero implementation at banks and the likelihood that they can meet reduction targets. Examining Swiss mortgage portfolios, the findings show that while banks have measures to achieve net zero, they often fail due to fears of market disadvantage.