Hong Kong Stock Exchange: Eight aspects to help Asia achieve net zero goals

On April 14th, Kelvin Wong, Chief Sustainable Development Officer of the Hong Kong Exchanges and Clearing Limited (HKEX), stated that as Asia accelerates regional development and carbon neutrality, regions are increasingly focusing on guiding capital to help achieve net-zero goals. As Asia's voluntary carbon market continues to develop, capital hubs like HKEX can play a role in connecting capital with climate projects and harnessing the potential of the carbon market to help Asia accelerate towards a green future. Kelvin Wong believes that there are at least eight aspects in which HKEX can assist in this process. 1. Advocating for proper use of carbon credits Asia cannot rely solely on carbon offsetting to address the climate crisis. HKEX encourages companies to prioritize direct emission reduction measures. Carbon credits, as a supplementary tool, can be used to offset emissions that cannot be avoided. Companies still need to strive to reduce emissions at the source. 2. Promoting internationally recognized carbon credit trading Various climate projects and their resulting carbon credit products vary in quality. In order to help market participants select high-quality carbon credit products, the Core Climate platform adopts international certification standards. Currently, all carbon credits traded on Core Climate come from projects certified independently under international certification standards such as Gold Standard's Verified Emission Reductions and the Verified Carbon Standard from Verra. HKEX also encourages the continuous review of carbon projects and their certification bodies to enhance trust and transparency in the voluntary carbon market, thereby aiding in the decarbonization process. 3. Advocating for issuers to disclose ESG information, including information related to the use of carbon credits HKEX advocates for issuers to comply with internationally recognized climate disclosure and reporting standards. Under HKEX's Environmental, Social, and Governance (ESG) framework, issuers must disclose information on the use, credibility, and related details of carbon credits. This includes the issuer's plans for using carbon credits and the third-party organizations that will verify or certify the carbon credits. It is hoped that through mandatory disclosure, transparency and standardization in the carbon market can be improved, and issuers will be encouraged to incorporate ESG into their daily operational strategies. 4. Cross-border connectivity Enhancing connectivity is crucial for establishing an efficient and liquid joint carbon market in Asia. However, developing cross-border joint carbon markets is challenging due to different legal jurisdictions. Currently, Core Climate is the only carbon market that accepts both Hong Kong Dollar and Renminbi for settlement. HKEX has also signed memorandums of cooperation with two carbon markets in mainland China (Beijing Green Exchange and Shenzhen Green Exchange) to share expertise in hopes of exploring future cooperation in cross-border trading, settlement, and related areas. HKEX also established the Hong Kong International Carbon Market Committee in 2022, composed of international and Asian carbon market professionals, leading financial institutions, and renowned companies, aiming to gather ideas to help Hong Kong develop an international carbon market. 5. Optimizing over-the-counter carbon trading Due to the specificity of carbon credit products, over-the-counter trading dominates the global market. However, over-the-counter trading can affect market efficiency. Core Climate is committed to building a transparent and efficient carbon market to reduce instances of price and information asymmetry in over-the-counter trading. Core Climate utilizes a "delivery versus payment" settlement mechanism to reduce counterparty risks, enhance trust between trading parties, and facilitate transactions. 6. Using new technologies The application of new technologies such as blockchain may make carbon credit tracking more transparent and efficient, and facilitate cross-border transactions. HKEX thus maintains an open attitude towards using technologies like blockchain to address existing issues in the carbon market. HKEX is collaborating with the Hong Kong Monetary Authority on the Ensemble project to test the feasibility of wholesale central bank digital currency (wCBDC) for interbank settlements and to explore the feasibility of tokenizing real-world assets (including carbon credits) using Distributed Ledger Technology (DLT). 7. Building a dialogue platform to promote exchanges Addressing the global climate crisis requires coordinated action across various sectors and international cooperation. As an important practice in promoting the development of voluntary carbon markets, HKEX will hold an International Carbon Market Summit on April 15th to create a dialogue platform across regions and sectors. The two-day summit will focus on topics such as regulatory framework coordination, market credit system development, digital technology innovation application, and regional cooperation, through roundtable discussions, dialogues, and keynote speeches. In addition, HKEXESG Academy continues to provide market education and training support for Hong Kong-listed issuers, helping companies establish ESG risk assessment systems and management mechanisms to ensure the long-term sustainable development of the Hong Kong market. HKEX has also published the "Net Zero Emission Guidance" to provide reference guidance for companies to establish net-zero goals and encourages companies to participate in the carbon market through Core Climate. 8. Developing a sustainable financial ecosystem A range of sustainable financial instruments offered in the Hong Kong market (such as green bonds, ESG ETFs, and carbon credits) can meet the evolving market demands, with carbon credits being an important tool for achieving green transformation. As global attention to sustainable development continues to rise and market demands become more diverse, there is a growing realization that the market needs more innovative products and tools. While products offered by Core Climate currently focus on carbon credits, HKEX is also exploring other potential products to expand the market ecosystem and provide market participants with more choices.