Hong Kong regulators urged to require banks to disclose financed emissions

April 29, 2024|Written by Katy Lee|Securities and Futures Commission of Hong Kong, Hong Kong Monetary Authority

Hong Kong’s regulators have been urged to require banks to disclose their financed emissions – those resulting from their lending and investment activities – in a report that estimates these figures for the city’s overall financial sector.

The report by the City University of Hong Kong used data from the Hong Kong Monetary Authority (HKMA), Securities and Futures Commission (SFC) and major lenders’ annual reports to estimate the overall emissions financed by the Asian hub’s banks and asset managers.

That figure clocked in at some 380mn tonnes of carbon dioxide equivalent in 2021. For comparison, the report cited recent estimates for the UK’s total financed emissions (805mn tonnes), the US (1.968bn tonnes) and Canada (1.907bn).

Opponents of regulations that would require banks to disclose their financed emissions argue that the data on the emissions created up and down the supply chains of the companies they invest in, otherwise known as scope 3 emissions, is largely inadequate.

But campaigners see better estimates of financed emissions as crucial to better understanding the banking sector’s contribution to climate change and, in turn, pressuring lenders to end their investment in fossil fuels and other polluting industries.

The Carbon Disclosure Project estimates that, as of 2020, global banks’ financed emissions are over 700 times greater than their own direct emissions.

“The Hong Kong government, regulators and the community as a whole need to work together to develop better mechanisms for emission estimation,” the authors of the Hong Kong report wrote, acknowledging the limitations of the data available to them.

They recommended that along with the Hong Kong Stock Exchange, the HKMA and SFC should require all licensed lenders to submit ESG reports that include estimated financed emissions, arguing that better benchmarking information is “fundamental to the successful advancement of net-zero initiatives”.

The HKMA could also encourage banks to reduce their financed emissions by scaling down the regulatory reserve requirement for banks that meet targets on these emissions, the report proposes.

“The reserves released by this move will provide banks with additional lending capacity to support customers engaged in low-carbon businesses,” it says.

The Hong Kong academics included financed emissions estimates for the financial hub’s three biggest banks: HSBC (53.03mn tonnes), Hang Seng Bank (3.70mn) and the Bank of China in Hong Kong (6.73mn).

“The higher value of HSBC’s financed emissions was partly due to the observed higher proportion of loans to carbon intensive sectors like manufacturing industries,” the report says.

European researchers are also pushing for better estimates of this kind, with the European Central Bank including figures on corporate banks’ financed emissions in a recently released data set.

This data points to a decline in the emissions financed by European banks between 2018 and 2020 before an increase in 2021. “This uptick might be a result of increased economic activity as pandemic restrictions loosened,” senior ECB economist Andrew Kanutin wrote in a blog post.

But he added that the ECB’s analysis suggests “the general decrease in euro area financed emissions is mostly due to companies that are reducing the carbon emitted in their processes or banks shifting their investment to companies that emit fewer greenhouse gasses”.

This page was last updated April 29, 2024

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