The Hong Kong Monetary Authority (HKMA) has released a set of principles to guide banks in transitioning to a net-zero economy, as reported by ESG Today on September 4. According to these principles, banks must establish clear targets and objectives that align with their net-zero transition strategy and the goals of the Paris Agreement, which seeks to limit global temperature increases to well below 2°C, preferably to 1.5°C. Additionally, banks are required to incorporate transition considerations into their internal processes, including governance, accountability, and risk management. The guidelines also call for increased transparency in banks’ transition planning processes and plans, with a commitment to adapting these plans to meet evolving disclosure requirements.

These principles will complement the HKMA’s two-year strategy, introduced in June 2022, which aims to integrate climate risk into the supervisory processes of the banking sector. This strategy includes a review of the framework used to assess the “Greenness Baseline” of individual banks and an expansion of its scope to evaluate their transition planning considerations. Daryl Ho, the Executive Director of Banking Policy at HKMA, acknowledged that international practices and discussions related to transition planning are continually evolving. Therefore, given the growing emphasis on this topic and in alignment with the HKMA’s two-year initiative, the authority believes it is beneficial to establish high-level principles to assist authorized institutions (AIs) in planning for a net-zero transition.

Sources:

https://www.esgtoday.com/hong-kong-central-bank-directs-banks-to-integrate-net-zero-transition-into-processes/

https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2023/20230829e1.pdf

https://fintech.global/2023/09/04/hkma-lays-down-net-zero-transition-principles-for-hong-kong-banks/

https://www.moodysanalytics.com/regulatory-news/jun-30-22-hkma-sets-out-two-year-plan-on-supervision-of-climate-risks