Hong Kong regulator proposes factoring climate risks in investment

The Securities and Futures Commission has set out steps for fund managers to include measurable climate-related disclosures.

Ashley Alder, Securities and Futures Commission

Editor’s note: this article was first published on Fund Selector Asia

The plan was the decision of a steering group made up of the SFC and the Hong Kong Monetary Authority last year to coordinate the management of climate and environmental factors in the territory’s financial sector.

“It includes measurable, concrete steps which we will take to strengthen the financial ecosystem to support a more sustainable future,” said the SFC’s chief executive, Ashley Alder, in a speech to the Asian Financial Forum in Hong Kong on Monday.

The “first concrete action point” is to require that climate-related disclosures must be aligned with all the Task Force on Climate-related Financial Disclosures (TCFD) recommendations no later than 2025, he said.

The Financial Stability Board created the TCFD in 2015, which has since developed a framework to help companies and financial institutions consistently measure and communicate their climate-related exposures as well as their impact on climate change. The UK, the European Union (EU) and New Zealand have already mandated TCFD climate reporting.

By falling in line with the TCFD framework, companies and asset managers will provide “consistent, comparable and decision-useful disclosures”, rather than follow a “dizzying number of alternative sustainability disclosure frameworks”, said Alder.

To accelerate the standardisation, the SFC is now consulting on proposed changes to its Fund Manager Code of Conduct, which will require fund managers to factor climate related risks into their investment processes and mandate their disclosure to end-investors.

Similar measures are also underway in Singapore, following the launch last December by the Monetary Authority of Singapore of its Guidelines on Environmental Risk Management.

“The ultimate goal is to produce disclosures [for instance, revealing weighted average carbon intensity at the fund level] which reveal considerably more about what is being financed — especially the volume of carbon dioxide emissions, whether investment portfolios are climate-aligned and how fund managers address climate risks,” said Alder, although he recognised that asset manager face “major data challenges”.

“If reporting and disclosure standards are to be effective, they have to be universally recognised and applied across the board. It needs to be more of a science and less of an art,” he said.


To help ensure TFCD adoption by 2025, the SFC supports the International Financial Reporting Standards (IFRS) Foundation’s proposal to establish a new, global sustainability standard-setting board – based on the TCDF requirements — alongside the existing International Accounting Standards Board.

The SFC is also promoting the greater use of climate-focused scenario analysis by industry participants, to assess the materiality of future physical and transition risks under different climate projections.

It proposes that that large fund managers must evaluate the use of scenario analysis in their investment processes.

Finally, the SFC wants the adoption of a universal taxonomy for green finance, which is being developed under the EU’s International Platform on Sustainable Finance. Both the SFC and HKMA are members of this platform.

“Taxonomies are vital to the green finance effort,” said Alder.

“They provide a universal, common catalogue to enable capital to be allocated to the right places to support the transition to a greener economy, such as directing investments to initiatives which help address climate change,” he said.

Hong Kong’s capital markets are especially important, because of its business with Mainland China which has a critical role to play in reducing carbon dioxide emissions, according to Alder.