Hong Kong's Taxonomy for Sustainable Finance

As the impacts of climate change become increasingly apparent, governments and financial institutions worldwide are taking action to transition to a more sustainable, low-carbon economy. In Hong Kong, a key tool supporting this shift is the Hong Kong Taxonomy for Sustainable Finance (Hong Kong Taxonomy). Developed by the Hong Kong Monetary Authority in partnership with the non-profit Climate Bonds Initiative, the Hong Kong Taxonomy provides a standardized framework for classifying green economic activities.

This comprehensive guide will walk you through everything you need to know about the Hong Kong Taxonomy - its core principles, structure, the sectors and activities it covers, and its alignment with other major international taxonomies. Whether you're a sustainability professional, financial advisor, business leader or simply an eco-conscious individual, understanding the Hong Kong Taxonomy is crucial for advancing green finance and combating climate change in Hong Kong and beyond.

Core Principles of the Hong Kong Taxonomy

The Hong Kong Taxonomy is underpinned by several key principles that ensure its scientific rigor, credibility and usability:

1. Alignment with the Paris Agreement: The taxonomy defines the emissions performance thresholds required of activities to keep global warming well below 2°C. Criteria are objective and science-based.
2. Proof against greenwashing: By synthesizing best practices into clear criteria, the taxonomy clarifies what can be considered truly "green" and ensures claims can be verified.
3. Interoperability with other taxonomies: The Hong Kong Taxonomy references and aligns with major taxonomies including the Common Ground Taxonomy, EU Taxonomy, China's Green Bond Endorsed Project Catalogue and ASEAN Taxonomy.
4. Science-based criteria and thresholds: Performance thresholds reflect the ambition needed to transition to net-zero emissions by 2050, based on the latest climate science.
5. Foundations of "Do No Significant Harm" and "Minimum Social Safeguards": While focused on climate mitigation, the taxonomy recognizes the interconnectedness of sustainability issues and will incorporate these principles in the future.

The Taxonomy Spreadsheet

The Hong Kong Taxonomy spreadsheet provides an at-a-glance overview of the green activities included in each sector. It maps each activity to industry classification codes, specifies the key metrics used to assess eligibility, and links to detailed "activity cards" containing the full technical screening criteria.

Layer 1 maps each activity to the relevant Hong Kong Standard Industrial Classification (HSIC) code, along with the corresponding ISIC and NACE international codes. Layer 2 specifies the key assessment metrics, usually adopted from the Common Ground Taxonomy. Layer 3 references the relevant activity card with the detailed performance thresholds required for an activity to substantially contribute to climate change mitigation.

Sectors and Activities Covered

Currently, the Hong Kong Taxonomy covers over 20 activities across 4 major sectors that are crucial for decarbonization:

Electricity, Gas, Steam and Air Conditioning Supply

• Electricity generation using concentrated solar power, solar photovoltaic, and wind power

Transportation and Storage

• Urban passenger transport
• Freight and passenger water transport
• Personal mobility devices and cycle logistics

Water Supply; Sewerage, Waste Management and Remediation

• Anaerobic digestion of sewage sludge and bio-waste
• Collection and transport of non-hazardous segregated waste

Construction

• Construction of new green buildings
• Renovation of existing buildings for improved energy efficiency

For each activity, specific quantitative thresholds are defined based on the best available metrics. For example, green electricity generation activities must have lifecycle emissions below 100g CO2e/kWh, while low-carbon water transport must meet annual efficiency ratios based on the IMO Energy Efficiency Operational Index. In some cases, like low-carbon personal mobility, zero direct emissions vehicles are automatically eligible.

Alignment with Other Taxonomies

To enable interoperability and support international sustainable investment flows, the Hong Kong Taxonomy has made significant efforts to align with other major green finance taxonomies worldwide. Many activity criteria directly adopt those in the Common Ground Taxonomy, EU Taxonomy and China's Green Bond Endorsed Project Catalogue where applicable to Hong Kong's context.

For example, the green building criteria reference certification schemes used in Hong Kong like BEAM Plus and HKGBC NET Zero, but also enable eligibility of green buildings certified under LEED, China's Three Star System, and other international schemes when they meet equivalent performance levels. This positions Hong Kong's taxonomy to facilitate the flow of global green capital.

Real-World Examples

To illustrate how the Hong Kong Taxonomy applies in practice, let's look at a few real-world examples:

1. CLP Wind Farms: CLP operates several onshore and offshore wind farms that supply zero-emissions renewable electricity to the Hong Kong grid. Since wind power generation has lifecycle emissions well below the 100g CO2e/kWh threshold, these projects automatically qualify as green under the Taxonomy.
2. Kowloon East High-Rise: This new Taikoo Place commercial development achieved BEAM Plus Platinum and WELL Platinum certification by integrating advanced energy efficiency, water conservation, indoor air quality and sustainability features. With at least 10 credits under BEAM Plus's EU2 criteria and 30% energy savings vs. code, it meets the Taxonomy criteria for green construction.
3. T-Park Waste-to-Energy: Hong Kong's first self-sustained sludge treatment facility uses anaerobic digestion to convert 1,200 tonnes per day of sewage sludge into biogas for electricity generation. With detailed monitoring and safety plans to minimize methane leakage risk, and over 14 MW of surplus low-carbon electricity exported to the grid, T-Park aligns with the waste management criteria.
4. Electrification of Ferries: As of 2023, 11 electric ferries are being deployed in Hong Kong waters, eliminating direct carbon and air pollutant emissions on routes to outlying islands like Lamma and Peng Chau. Since they use 100% electricity and outperform the annual efficiency ratio thresholds, these ferries meet the Taxonomy criteria for low-carbon water transport.
5. Recyclable Waste Separation: To increase municipal solid waste recovery, the Environmental Protection Department and major property managers are rolling out a Three-Coloured Waste Separation Bin program for paper, metals and plastics. By collecting non-hazardous waste in segregated fractions for recycling, these initiatives align with the Taxonomy.

So What's Next?

The Hong Kong Taxonomy for Sustainable Finance marks a major milestone in the city's roadmap to carbon neutrality and sustainable development. By providing a credible, usable framework to define green activities and prevent greenwashing, it enables financial institutions and investors to direct capital toward assets and projects that are truly environmentally beneficial.

While this initial version focuses on climate mitigation, the Taxonomy provides a foundation to expand to other sustainability objectives and will continue to evolve dynamically based on the latest climate science and market developments. Closely aligned with other major international taxonomies, the Hong Kong Taxonomy strengthens the city's role as a global green finance hub.

As more investors, companies and projects utilize the Taxonomy, Hong Kong can accelerate its transition to a climate-aligned, sustainable economy - and inspire other markets across Asia and worldwide to do the same. The time for green action is now, and the Hong Kong Taxonomy lights the way forward.

P.S. Now that you know the key features of the Hong Kong Taxonomy, how do you think it could be applied in your industry or field of work to support the shift to sustainability? Share your thoughts in the comments below!

Key Takeaways

• The Hong Kong Taxonomy for Sustainable Finance provides a robust, science-based classification system for green activities across major economic sectors.
• By referring to clear, quantitative technical screening criteria, the Taxonomy helps market participants identify genuine green investments and guard against greenwashing.
• The Taxonomy is designed for interoperability - it adopts international best practices and enables cross-border green investment flows between Hong Kong and other major markets.
• Currently focused on climate change mitigation, the Taxonomy lays the foundation to incorporate other environmental and social objectives in the future.
• Real-world projects like renewable energy generation, green buildings, sustainable waste management and low-carbon transport in Hong Kong illustrate how the Taxonomy can be applied in practice.

Disclaimer: The views expressed in this blog are not necessarily those of the blog writer and his affiliations and are for informational purposes only.

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