Q&A with GITEX Impact speaker Glenda So, Managing Director and Global Head of Emerging Markets, Hong Kong Exchanges
1. As the world accelerates its transition to net zero, what are the opportunities for capital markets? And how can capital markets help facilitate decarbonisation efforts and help investors and corporates capture these opportunities?
The world needs urgent action to reduce carbon emissions and halt global warming. Per the Paris Agreement, limiting global warming to 1.5C (current temperature levels are 1.1C above pre-industrial levels) will require a 45% reduction in global carbon emissions by 2030. This means that if we are emitting 100,000 tons of CO2 annually worldwide, we have to reduce this amount to 55,000 tons per year by 2030 (hypothetically speaking and assuming we take 2023 as our base year).
Therefore we can’t go on as ‘business-as-usual’. We need to come up with new ways of doing things– and we need to do it now. But the changes needed to transform our economies and develop new technologies to reduce and remove carbon emissions will require huge pools of capital and resources.
There’s been a number of forecasts published on just how much investment and capital this undertaking will require. The Climate Policy Initiative forecasts annual investments of over USD4 trillion in global climate finance are needed by 2030, an increase of nearly six times 2020 levels. McKinsey predicts Asia needs USD3.1 trillion of green investments annually to hit net-zero by 2050. Meanwhile, China needs a total of USD20 trillion to reach carbon neutrality by 2060 as per the World Economic Forum.
The presence of multiple forecasts can convolute the green investment landscape – but it also indicates that the demand – and therefore the commercial opportunity – is there. And as conduits for channeling capital flows, it’s up to exchange groups – and the capital markets at large – to create effective market mechanisms to connect capital with climate-related opportunities, and help realise the world’s decarbonisation goals.
At HKEX, as a market operator, we have long been focused on facilitating the growth of a sustainable finance ecosystem – one that offers ESG-related investment, fundraising and transition opportunities.
Our STAGE platform provides detailed information on over 120 green, social and sustainable bonds worth over HKD460 billion, as well as on other ESG-related financial products in Asia, helping create market transparency on green and sustainable finance. Furthermore, 11 ESG-themed exchange traded funds with a total market cap of HK$2.5 billion are listed on HKEX, giving investors the opportunity to access ESG products.
Our IPO venue is well-known and well-respected around the world. Our newly launched 18C listing chapter for specialist technology companies provides a new route to market for innovative companies of tomorrow, including categories that cover green and renewable technology companies.
In addition, perhaps most pertinently, Core Climate – our international carbon marketplace launched in collaboration with various market stakeholders – helps connect capital with climate-related, high-impact projects in Hong Kong, Mainland China, Asia and beyond.
This is just on the market operations side. As market regulators, exchange groups also have a responsibility to provide clear regulatory frameworks and market standards to support the development of well-functioning green finance markets and protect investor interest. And this is more important than ever before, given the growing scrutiny on the integrity of green finance markets and the rise of “greenwashing” accusations.
At HKEX, we have been progressing on this front by providing our markets with a clear framework for ESG disclosure, application and implementation. Our efforts range from introducing ESG disclosures requirements back in 2013, to launching a public consultation on the enhancement of our markets’ climate disclosures in 2023 – with the aim of aligning them with ISSB Climate Standards and making them mandatory.
There is still lots more to be done – and this is expected in any new emerging area of business or industry. And the journey ahead will be bumpy – as also expected in any new venture. Amid the challenges and uncertainty, it’s up to exchange groups and – capital markets at large – to provide the clarity, the infrastructure and the mechanisms needed to further decarbonisation efforts.
2.What’s the role of carbon markets in helping to finance the technology needed to transition to net zero and address climate change? How do carbon markets in Asia fare compared with other parts of the world?
The transition to net-zero requires us to innovate and develop new technologies that reduce and remove carbon emissions. The challenge with any new technology is that it requires substantial R&D investment to bring it to life. This is where capital markets have a big role to play, and voluntary carbon markets are one of the few mechanisms available that could quickly scale to connect capital with high-potential, new tech-focused projects.
Voluntary carbon markets have been around for 20 years. They’ve seen rapid growth over the past five years – from 50 million carbon credits retired in 2018 to nearly 150 million retired in 2022 worldwide – on the back of increased corporate commitment on climate change.
Carbon markets help connect private capital – from sources such as corporates, academic institutions and industry bodies – with high-potential green projects in areas such as new energy production and nature protection, accelerating action and scaling new technologies. For example, conservation technology is one new area that’s gaining traction. Here, wildfire conservationists, researchers, field biologists and engineers are working together to develop new technologies such as tracking tags and remote satellite sensors to further their nature conservation goals.
For corporates, carbon credits allow them to voluntarily offset their carbon footprint, representing a helpful tool to show climate leadership and move along the carbon neutrality path, especially since carbon elimination costs still remain high in some industries at the moment.
For green tech pioneers, they represent a channel to access the funds they need to support the development of their technologies. Given their ability to connect hundreds of projects with hundreds of buyers, carbon markets have the potential to funnel billions to finance climate action.
The supply and demand for voluntary carbon markets (VCM) used to be largely EU and US-centric. But today, the voluntary market has become truly global and even more connected to governments and the private sector, and Asia has made considerable progress in its carbon markets journey in recent years. The region saw the most voluntary carbon offset transactions between 2019 and 2021 and places like Hong Kong, Thailand, Malaysia and Taiwan established voluntary carbon credit trading platforms and exchanges in the past two years.
What makes Asian carbon markets particularly exciting is the fact that Asia is home to China – which is making a huge effort to decarbonise and meet its target of carbon neutrality by 2060. China launched its first national carbon emission trading scheme (ETS) in July 2021 with eight pilot carbon markets (SZ, SH, BJ, Guangdong, Hubei, Chongqing, Fujian), in which eight sectors deemed as “high-emitters” are expected to be covered. This has the potential to make China’s ETS one of the world’s largest carbon market destinations.
As the most international city in China and the most Chinese city outside the Mainland China, Hong Kong is well-positioned to support China on its decarbonisation journey. At HKEX, our work with HKMA and SFC – as part of the Hong Kong Green and Sustainable Finance Cross-Agency Steering Group – and our carbon marketplace offering – Core Climate – play important roles in Hong Kong’s efforts to incubate green investments and connect capital with climate-related opportunities in Hong Kong, Mainland China and beyond.
3. What is the significance for you in speaking at GITEX Impact this year?
Home to some of the fastest growing investor groups, the Middle East is one of the world’s most dynamic and exciting economic and innovation hubs. As such, it forms an important part of HKEX’s international outreach strategy.
We’ve come out to the UAE and Saudi Arabia multiple times over the past twelve months to tell Asia’s story and strengthen our connectivity with the region, an outcome of which has been our MOU with Saudi Tadawul Group signed in February (the stock exchange operator in Saudi Arabia). But it will be my first time coming out here to represent HKEX, so I’m excited to continue the conversation and connect and exchange ideas with business leaders, innovators, investors and other market practitioners on the ground.
In particular, one of my key areas of focus is ESG and carbon markets, so I’m looking forward to sharing our expertise and experience in this area, learning from the region’s green experts, and exploring opportunities for collaboration as we build an effective, global, sustainable finance ecosystem together.