May 8, 2023
By Joe Pan
The sound of the starting gun echoed across the track as the starting line was finally drawn for Hong Kong’s carbon neutrality race.
Listed companies in the city were spurred on by new climate-related disclosures and the push for sustainable finance.
Hong Kong Exchanges and Clearing Limited (HKEx) has announced in a recent consultation paper that all companies listed on the Hong Kong Stock Exchange (HKEx) must make climate-related disclosures in their Environmental, Social, and Governance (ESG) reports from 1st January 2024.
The new proposal represents a significant step forward for Hong Kong’s commitment to fulfill disclosures mandated by the Task Force on Climate-related Financial Disclosures (TCFD) by 2025.
This announcement has been welcomed by the conservation and regenerative finance communities, as it highlights the regulatory progress of the Hong Kong market towards the baseline carbon footprint in achieving the 2030 climate neutrality goal.
Regenerative finance, or ReFi, utilizes blockchain to help reverse the effects of industrialization and systemic financial imbalance. (See below for more complete definition).
The new rule requires companies to disclose their governance process, controls, and procedures used to monitor and manage climate-related risks and opportunities. Companies must also disclose the material climate-related risks and opportunities they face and their impact on business operations, models, and strategies.
They must disclose their response to climate-related risks and opportunities, including changes to their business model and strategy, adaptation and mitigation efforts, and climate-related targets set for such plans.
Companies must disclose the resilience of their strategy (including its business model) and operations to climate-related changes, developments, or uncertainties, which shall be assessed using a method of climate-related scenario analysis that is commensurate with the issuer’s circumstances.
Many in the conservation and ReFi communities are expressing their support, with some being cheerleaders, others offering encouragement from the sidelines, and some holding skepticism or high hopes for the race ahead.
According to Chloe Cheung, Asia-Pacific Lead of Sustainable Debt Capital Markets at WWF-Hong Kong, “The introduction of mandatory climate-related disclosures represents another step forward in promoting climate-related risk management and opportunities for the private sector and the investment community. It will create more opportunities for sustainable finance, as well as encouraging investors to better consider climate-related risks and opportunities in their investment decisions.”
The requirement for compliance with the new regulations is expected to come into effect on January 1, 2024.
An individual who has previously worked at the Hong Kong bourse and is well-versed in the consultation process told NFTMetta.com, “The consultation process is typically the final step before implementation and is preceded by a year or two of policy planning and development. Often, groundwork has already been laid and pre-consultation has taken place with relevant stakeholders and listed companies. It’s highly unlikely for a requirement or policy to be scrapped or significantly altered from its proposed form during the consultation period.”
While it may take time to bring all listed companies on board with carbon neutrality in Hong Kong, proponents of regenerative financing using decentralized finance on blockchain have become a popular movement in the last few years.
Dominic Varley, Head of Hong Kong-based Web3.0 and impact NFT project Green Token, added, “The HKEX’s proposed changes to the ESG disclosures are a great step forward for Hong Kong. If implemented, the reporting requirements will be in line with the International Sustainability Standards Board (ISSB). This is an ambitious goal, especially on the 2-year timeline, but I see this as an opportunity for blockchain and ReFi, more generally. Web 3.0 tools and the community that use them can provide solutions for companies to meet these requirements, and, more importantly, take impactful measures to limit their impact on climate change.”
“HKEx’s move to mandate reporting in line with ISSB goals is a much-needed step towards ensuring transparency and accountability in the financial industry. As the world moves towards more sustainable finance, blockchain technology and the Refi movement can facilitate this transition for legitimate players. At Scubaverse, we are committed to engaging younger generations as stakeholders for the planet through gaming, and we look forward to supporting this important initiative,” said Eric Hansel, CEO of Scubaverse.xyz
Professor Thomas CC Wong, President of the Institute of International Sustainable Development and Executive Committee Member cum Chairman of the Sustainable Development Committee of The Chinese Manufacturers’ Association of Hong Kong, recognizes the significance of the new climate-related disclosures for SMEs listed on Hong Kong’s stock exchange. He stated, “This is an important and challenging step for SMEs, but it is a necessary step for the environment. While some may have reservations about the increased disclosure requirements, it is crucial that we prioritize the health of our planet and take action to address the impacts of climate change.”
According to the latest HKEx announcement, the summary of requirements includes: Governance, Strategy, Risk Management, Metrics and Target. Disclosures include the issuer’s process to identify, assess and manage climate-related risks and, where applicable, opportunities; metrics and targets such as greenhouse gas emissions, cross-industry metrics, and internal carbon price; and executive remuneration policy that factors in climate-related considerations.
“This mandate is not only significant for the listed SMEs, but it also helps the Greater Bay Area reach its carbon neutrality goals. Although it may be challenging for some, increased transparency is necessary to address the impacts of climate change and prioritize the health of our planet. As a member of the GBA Carbon Neutralization Association and with years of experience green financing, I fully support this mandate and look forward to seeing the positive impact it will have on the environment and society as a whole” said Dr. Kenny Siu, Responsible Officer of Chinese Enterprise Securities Co Ltd & Committee Member of GBA Carbon Neutralization Association.
Max Song, CEO of Carbonbase which is a climate tech and carbon calculation specialist company, stated, “Creating a strategy and declaring a carbon neutrality goal with a baseline carbon footprint is a crucial new step for Hong Kong in moving towards its 2030 goal. At Carbonbase, we are excited to see this push towards sustainable finance and increased transparency, and we look forward to supporting the listco companies in their journey towards carbon neutrality.”
A summary of the new climate-related disclosure requirements are as follows:
- Disclose the issuer’s governance process, controls and procedures used to monitor and manage climate-related risks and opportunities;
- Climate-related risks and opportunities: Disclose material climate-related risks and, where applicable, opportunities faced by the issuer, and their impact on the issuer’s business operations, business model and strategy;
- Transition plans: Disclose issuer’s response to climate-related risks and opportunities identified, including any changes to its business model and strategy, adaptation and mitigation efforts, and climate-related targets set for such plans;
- Climate resilience: Disclose resilience of the issuer’s strategy (including its business model) and operations to climate-related changes, developments or uncertainties, which shall be assessed using a method of climate-related scenario analysis that is commensurate with the issuer’s circumstances;
- Financial effects of climate-related risks and opportunities: Disclose current (quantitative where material) and anticipated (qualitative) financial effects of climate-related risks, and where applicable, opportunities on the issuer’s financial position, financial performance and cash flows;
- Disclose the issuer’s process to identify, assess and manage climate-related risks and, where applicable, opportunities;
Metrics and target
- Greenhouse gas emissions: Disclose scope 1, scope 2 and scope 3 emissions;
- Cross-industry metrics: Disclose the amount and percentage of assets or business activities (i) vulnerable to transition/physical risks or (ii) aligned with climate-related opportunities, and the amount of capital expenditure deployed towards climate-related risks and opportunities;
- Internal carbon price: For issuers who maintain an internal carbon price, disclose the internal carbon price and such that was applied in the issuer’s decision-making; and
- Remuneration: Disclose how climate-related considerations are factored into executive remuneration policy.
Interested parties are encouraged to respond to the consultation paper by submitting a questionnaire on the HKEX website by 14 July 2023.
What is Refi?
ReFi, or Regenerative Finance, is a blockchain-based platform that aims to incentivize and finance sustainable and regenerative practices. It uses decentralized finance (DeFi) to connect impact investors with conservation and restoration projects, providing a new way to fund and scale environmental initiatives. The platform operates on the Ethereum blockchain, allowing for transparency and traceability of funds and impact.
Traditional conservation agencies and environmental companies can work with the ReFi community to create impact and accelerate ESG (Environmental, Social, and Governance) and climate change goals by collaborating on projects that align with ReFi’s values and goals. For example, ReFi can provide funding for reforestation projects, sustainable agriculture practices, and clean energy initiatives, while conservation agencies can provide expertise and on-the-ground implementation. Environmental companies can also partner with ReFi to access funding and leverage the platform’s technology to enhance their impact reporting and transparency.
By working together, these organizations can create a more holistic approach to sustainability and accelerate progress towards a regenerative economy. The ReFi platform provides a way for impact investors to put their capital to work towards environmental and social goals, while traditional conservation agencies and environmental companies can access funding and expertise to scale their impact. Ultimately, this collaboration can lead to greater awareness, engagement, and action towards a more sustainable and equitable future.
How Web3 games are becoming an integral part of Refi
Blockchain technology has the potential to transform the way we address some of the world’s most pressing issues, including climate change. One way this is happening is through the integration of renewable energy financing (Refi) into web3 games. These games offer an engaging and immersive experience that allows younger generations to learn practical skills related to environmental conservation and sustainability. The integration of Refi into web3 games represents a unique opportunity to promote environmental awareness and facilitate sustainable finance through blockchain technology, empowering and educating younger generations towards a more sustainable future.
Use case of Refi – Scubaverse.xyz
By leveraging web3 technology, the Scubaverse is able to offer an immersive and engaging gameplay experience that can educate younger generations on environmental issues and promote sustainable living. The game provides players with a virtual world to explore and experiment with different scenarios related to environmental conservation and sustainability, providing a safe and fun way to learn and practice practical skills and knowledge. With the rise of blockchain-based sustainable finance solutions, there is great potential for web3 technology to help drive positive change towards a more sustainable future. The Scubaverse is a great example of how technology can be harnessed for social good, inspiring and empowering younger generations to be the catalyst for positive change
About the author
Joe Pan is an editor and producer at NFTMetta.com.