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Business of climate change
BusinessCommodities

Here’s how Hong Kong’s deep capital pool and access to China puts city in good stead to be the green finance regional hub

  • Hong Kong could pick “the lowest hanging fruit” by launching carbon credit derivatives accessible to both mainland Chinese and international investors
  • A range of credits-backed investment products can also be created to help investors diversify their portfolios and hedge against inflation

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Eric Ng

The final instalment of a four-part series on the United Nations Climate Change Conference (COP26) in Glasgow looks at how Hong Kong can play a role in reversing global warming. The first three instalments are here, here and here.

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Hong Kong’s track record as a mature international financial centre puts the city in good stead to become a regional hub for climate finance and the trading of carbon credits, but success will require hard work on setting a standard for disclosures and risk management, industry experts said.

In particular, the nascent business of private sector-driven voluntary carbon credits trading is tipped to see explosive growth and present great opportunities, even if the city – with a tiny industrial sector – is not forced by the government to undergo mandatory carbon trading.

A working group formed by the city’s securities regulators is expected to finish a report next month to assess the feasibility for the city to be the carbon trading centre for the Greater Bay Area, comprising nine cities of Guangdong province, Hong Kong and Macau.
“The development potential of this sector should be enormous, given the size of China’s economy, leadership position in many clean energy technologies and ambitious targets,” said Martin Hennecke, Asia investment director of UK-based St. James’s Place Wealth Management, which oversees £140 billion (US$189 billion) in assets. “A mandatory carbon trading home market is not a prerequisite to a potential vibrant voluntary market, given Hong Kong’s natural advantage as the international arm of China, and the very large trading volume and liquidity advantage of the local exchange versus other regional competitors.”
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Carbon contract spot prices on display during the inaugural trading at the Carbon Market in Shanghai on November 26, 2013. Photo: Xinhua
Carbon contract spot prices on display during the inaugural trading at the Carbon Market in Shanghai on November 26, 2013. Photo: Xinhua
Hong Kong, which hosts Asia’s third-largest stock market and the world’s fourth-biggest for foreign exchange, could pick “the lowest hanging fruit” by launching carbon credit derivatives accessible to the investors in mainland China and elsewhere, he said.
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