HK and Singapore spar for green finance supremacy

Temasek-backed Climate Impact X has to-date sold 420,000 carbon credits via auction.

HONG KONG: Hong Kong and Singapore have long squared off to be the preeminent finance hub for Asia. That battleground is now shifting to the environmental, social and governance (ESG) space, with potentially trillions of dollars at stake.

From green bonds to carbon trading and asset management, both cities are angling to be the regional base for sustainable finance as governments and companies ramp up investments to fight climate change.

Combined ESG assets could soar to US$53 trillion (RM233 trillion) by 2025, with Asia sparking the next leg of growth, according to Bloomberg Intelligence.

The race to attract all that fresh money and trading business in Asia will take years to play out, but so far Singapore has an early edge over Hong Kong.

“Singapore knows that it might not be as established as Hong Kong as a financial hub, but in this area, if it manages to win, it will really be a game changer,” said Cherie Tam, senior manager in Hong Kong at Blunomy, a climate consulting firm.

As more firms look to expand ESG financing in Asia, here’s how the competition for environmental, social and governance business is shaping up.

There were 272 sustainability, green, social or transition bonds listed in Singapore as of Sept 28, more than double the 103 listed in Hong Kong.

Issuance linked to Hong Kong’s exchange totalled US$24bil (RM106bil), versus Singapore’s US$34bil (RM150bil). Singapore firms also hold an edge for green loans, with about US$39.5bil (RM174bil), nearly triple the US$13.4bil (RM59bil) raised in Hong Kong.

As an issuer though, Hong Kong is well ahead, selling US$7.2bil (RM31.67bil) in sovereign green bonds across different currencies since 2019 to establish a benchmark for corporate borrowers.

Singapore only entered the green bond market in August with its debut sale of US$1.7bil (RM7.5bil) in 50-year notes.

Hong Kong’s early adoption of a taxonomy that finds common ground between Europe and China will help the market grow, according to Elsa Pau, founder of BlueOnion Ltd, an ESG financial analytics firm.

“Investors’ demand is still growing for a sustainable ecosystem and a decent yield,” she said.

Hong Kong is also poised to benefit from its proximity to China, the fastest-growing market for green bonds.

Most of that issuance has been in the domestic market but as China looks to sell more abroad, the hub is “a natural listing place for them,” said Xuan Sheng Ou Yong, a green bonds and ESG analyst at BNP Paribas Asset Management.

Trading of carbon credits has the potential to reach US$50bil (RM220bil) by 2030 as polluting companies seek to balance their emissions with offsets generated by tracts of forests in Indonesia, carbon capture technology and other CO2-mitigating strategies, according to McKinsey & Co.

Singapore has two fledgling bourses: AirCarbon and Climate Impact X, which has the backing of state investor Temasek Holdings Pte and the Singapore Stock Exchange.

To date, CIX has sold 420,000 carbon credits via auction.

Hong Kong just launched a voluntary trading platform on the stock exchange in October. The city may be slower off the mark, but could leverage China’s carbon market.

“There is absolutely a first mover’s advantage” though not a “foregone conclusion” on which hub is better placed, said Hannah Hauman, global head of carbon trading at Trafigura Group Pte.

For now, Hong Kong is the undisputed assets leader, based on data compiled by Bloomberg.

There are 70 ESG funds run by managers based in Hong Kong, with total assets under management of US$53.1bil (RM234bil) as of November. — Bloomberg

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