14 7月 2020 Sumit Indwar  - Clara Hackney Financial Regulation

Hong Kong SAR – HKMA on Green and Sustainable Banking

The HKMA has recently issued a white paper about its supervisory approach to addressing climate-related issues. The paper outlines some initial thinking and includes some practical, possible actions that Authorised Institutions (AIs) may take to address climate-related issues, including principles and recommendations on the areas of governance, strategy, risk management and disclosure.

In addition to the white paper, the HKMA also issued a circular with an annex setting out examples of good practices that it observed when assessing AIs’ progress so far in green and sustainable banking.

HKMA’s Focus on Green and Sustainable Banking

Given the HKMA’s role as a banking regulator, its primary focus is on the risks posed by issues such as climate change to banks, and how these risks can be managed. The HKMA has been building up its understanding of the landscape of green and sustainable banking over the last couple of years. The white paper looks at the HKMA’s findings from its first stocktake on green and sustainable banking carried out in 2019 in Hong Kong SAR. It considered issues including awareness of the topic, risk management related to green and sustainable banking and whether any green or sustainable activities had been carried out by AIs. The HKMA notes that the findings demonstrated there is room for AIs to strengthen their awareness of and progress in the management of environmental and climate-related risks, and to accelerate the development of green and sustainable banking business.

The Three Phased Approach

As announced previously, the HKMA has a three phased approach to promoting green and sustainable banking. As part of the first phase, the HKMA launched a first round of common assessment framework looking at the “greenness” of 50 baseline AIs. The results are expected in August, but in the white paper the HKMA states that it has now entered phase II in which the major focus is the development of supervisory expectations and requirements.

The HKMA plans to consult the industry in early 2021 on supervisory expectations, and intends to adopt a proportionate approach in the development of the expectations based on AI’s size, as well as looking at ways to help AIs in the management of climate-related risks and business.

Phase III will involve setting green and sustainable targets, and implementing, monitoring and evaluating the progress of AIs toward these targets.

Guiding Principles for Building Climate Resilience

The HKMA has set out nine principles grouped into four areas which summarise the HKMA’s supervisory expectations of AIs to build climate resilience;

Governance

  • Board’s accountability in climate resilience
  • Board’s oversight of climate strategy development and implementation

Strategy

  • Formulation
  • Implementation

Risk Management

  • Identification
  • Measurement
  • Monitoring and reporting
  • Control and mitigation

Disclosure

  • Disclosure

The paper sets out further details on the principles and how they can be implemented. They are intended to be relevant to all AIs, but should be applied on a proportionate basis. The HKMA has given further details on the practical implementation of each of the principles based on HKMA discussions with some of the AIs which have more developed frameworks for managing climate risks.

Next Steps

The HKMA has said that while the ultimate goal is to get all banks on board to go green, it is aware that some banks may be further ahead on this journey than others; some of the smaller institutions with simpler operations have not yet made progress. The HKMA does not intend to create excessive hardship to AIs which are less ready, however, this is a topic of global importance which will not be moving from the top of the agenda. AIs of all sizes should therefore be reviewing the HKMA’s publications and assessing their green and sustainable framework against the guiding principles and range of practices set out in the white paper. Much work is being done in various jurisdictions in this area, so AIs should also be keeping abreast of international developments on the topic.