A set of principles for banks to prepare for the transition towards a net-zero economy has been published by the Hong Kong Monetary Authority (HKMA), the region’s central banking institution. The guidelines emphasise the importance of establishing objectives aligned with the transition and integrating relevant considerations into their internal operations.
One of the initiatives under the HKMA’s two-year plan to integrate climate risk into its banking supervisory processes is to review the “greenness” of banks’ assessment of climate risks. Daryl Ho, executive director of banking policy at the HKMA, sent a letter to the chief executives of all authorised institutions, stating that these new high-level principles are aimed at helping banks ensure their safety and financial soundness during this transition.
Ho explained that the findings and recommendations are based on those from leading bodies such as the recent stocktake from the Network for Greening the Financial System, guidance provided by the Glasgow Financial Alliance for Net Zero (GFANZ) and the Task Force on Climate-related Disclosures.
The principles laid out by the HKMA encompass establishing well-defined targets and objectives, either as a part of a risk management process or in developing a transition strategy. Regardless of the purpose, these objectives are to be aligned with the goals of the Paris Agreement, which aim to limit global temperature increases to well below 2°C and preferably 1.5°C.
Additionally, the HKMA guidelines direct banks to incorporate transition considerations into their internal processes such as governance structures, accountability mechanisms and risk management frameworks. Banks are also encouraged to integrate these considerations into their business strategies, models, products and services as necessary.
Furthermore, banks are urged to engage with their clients on their individual paths toward transitioning to a net zero economy, which includes gathering relevant information and assessing the risks and opportunities within their respective sectors.
The HKMA’s recommendations also include increasing the transparency of bank transition planning processes, and regularly reviewing and updating their plans as climate scenarios and sector-specific pathways evolve over time.
In other related news, GFANZ announced it will open a chapter in Hong Kong to accelerate decarbonisation in the Asia Pacific region. This comes a few months after the Hong Kong Stock Exchange announced it will tighten climate disclosure rules.
This page was last updated September 13, 2023
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