Earlier this year, Hong Kong appointed its commissioner for climate change. The role, created in 2022 in a shake-up of the city’s Environment and Ecology Bureau, was key to aligning Hong Kong with Beijing’s climate targets and obligations under the Paris Agreement. The new commissioner, Arthur Lee, looks set to have a busy year and difficult agenda ahead.
To start with, the Hong Kong stock exchange (HKEX), in line with stock exchanges around the world, has mandated the reporting of climate impacts and risks beginning this year for its 2,500 or so listed companies. Companies will be required to adopt the International Financial Reporting Standards (IFRS) S2 climate-related disclosures, a framework set out by the G20 countries and the International Sustainability Standards Board (ISSB). HKEX has recognised that if a price is not put on carbon, capital can be misallocated.
Beyond that, all countries will still have to provide their third round of Nationally Determined Contributions (NDCs), or 2035 climate targets, to the United Nations despite many missing the 10 February 2025 deadline. The second round of NDCs, submitted in 2021, showed that the world was some way off in meeting the Paris Agreement target to limit global warming to 1.5°C, so significant progress is needed.
China’s forthcoming NDC is expected to be both more ambitious and include intermediate targets for 2035 and 2040. Hong Kong is part of China’s current NDC commitment to reach peak emissions by 2030 and achieve carbon neutrality by 2060. While Hong Kong itself comprises less than one percent of China’s emissions, a study by City University of Hong Kong showed that emissions from companies or assets financed in Hong Kong account for around 11 times the city’s entire emissions, with much of those emissions the result of investments in China. On that basis, decarbonising Hong Kong’s financed emissions is material to China delivering its targets.
Hong Kong published its own Climate Action Plan in 2021 to support China’s NDCs with a promise to revise it every five years, so a revision is due in 2026. However, the new climate commissioner must ensure work on this new plan starts now, as much has changed since the first plan was published and will likely take up to a year to revise.
The first plan focused on the major sources of Hong Kong’s emissions: buildings, power generation, waste management and transport.
However, the issue with that plan was that the short-term targets were too vague; the plan targeted a 26-36 per cent reduction in emissions by 2030 and no other target until carbon neutrality in 2050. The United Kingdom, for example, has set a carbon budget for every 5-year period up to 2050, which makes it much easier to measure progress and respond with additional measures if needed.
The revised plan must also set specific, granular measures for policymakers and industry to deliver on. The government cannot simply set a target and assume the private sector will act on it. What is needed is the right policy and leadership from the new climate commissioner.
For example, to meet energy efficiency targets for buildings, there must be mandatory energy labels and minimum standards for existing buildings, as well as new builds. Energy efficiency standards and labels on appliances and equipment in Hong Kong have fallen behind the rest of Asia. On top of that, refurbishing these buildings to meet new energy standards will require financing.
Power generation also needs to be decarbonised faster. In particular, a post-mortem is needed on why Hong Kong postponed more offshore wind development in favour of nuclear from China, when everywhere else, offshore wind is cheaper than nuclear. In fact, China’s offshore wind industry – which comprises half of the global total – is growing more rapidly than its nuclear industry and will soon overtake it in terms of installed capacity. In 2024, China had 41 gigawatts (GW) of offshore wind capacity with 437 projects totalling 247 GW in generation capacity, while nuclear capacity is at 58GW with 118GW more being planned.
Pricing in carbon
Hong Kong’s updated climate action plan also cannot remain silent on the role of financial markets in driving decarbonisation, since, as mentioned above, its financed emissions are more than 11 times the entire city’s emissions. We recommend that the climate commissioner begin by engaging pension funds, which account for 6 per cent of funds in Hong Kong. An urgent meeting should be held with the Mandatory Provident Fund Scheme to understand how pension trustees are incorporating climate risks and opportunities into decisions.
The new Climate Action Plan also needs to put a price on carbon, which would help financiers better allocate capital towards low-carbon solutions. Since the original action plan was written, the focus on decarbonising international shipping and aviation has intensified because these sectors are a fast-growing source of emissions. While much of the action is happening at an international level, there are national implications for China. Companies like Cathay Pacific’s majority shareholder Swire already have an internal carbon price to guide their investment decisions. The rest of Hong Kong should follow suit.
Hong Kong needs to prepare to adapt to climate change as well. The world is all but committed to limiting global warming to 1.5°C today, but it could get as much as 4°C warmer than pre-industrial levels within the lifetime of children alive today.
One cannot help but notice that Hong Kong has imposed an annual reporting obligation on climate impacts and risks on companies, but isn’t doing the same thing for itself. Many of those risks that listed companies face will also affect the rest of the city.
Climate change poses substantial threats to Hong Kong as a vibrant city, but it also presents significant opportunities for financing solutions. The government must act on climate-related issues and risks today. In the meantime, Hong Kong’s private sector, led by its largest firms, can take climate action by forming a voluntary ‘coalition of the willing’ to drive meaningful change, all while mitigating risks.
Mark Hinnells is the director of strategy at Climate Finance Asia, a sustainable finance consultancy headquartered in Hong Kong and with offices in Singapore and Japan.
