Green Banking

Definition

Climate change is one of the major risks threatening the well-being of mankind. How the banking and financial system operates will have an impact on how climate risk is managed or reduced.

Green banking therefore introduces concepts such as strengthening climate resilience, supporting a low-carbon transition, reducing environmental pollution, and paying attention to social responsibility in the business and daily operation of banks, to make the development of the banking and financial system more sustainable.

Description

What is Green Banking?

In the operation of the banking business, in addition to optimising performance, it is crucial to create sustainable development. In fact, banks' business operations and returns may suffer from extreme weather and low-carbon transitions arising from climate change.

Taking ESG into consideration has become an emerging trend of decision-making for stakeholders such as customers and investors. Incorporating ESG elements into the banking business operation is beneficial to its long-term interests and promotes sustainable development.

Operational measures in Hong Kong

The HKMA adopts a three-phased approach in promoting green and sustainable banking in Hong Kong. They include develop and assess the greenness baseline; set supervisory requirements, and implement, monitor, and evaluate banks’ progress after targets are set by banks.

I. Access Greenness Baseline: To assess the “Greenness Baseline” of individual banks under a common framework developed by the HKMA and the industry. The HKMA will also collaborate with relevant international bodies to provide technical support to banks in Hong Kong to better understand the green principles and methodology in undertaking the baseline assessment.
II. Set supervisory requirements & objectives: Banks play an important role in promoting green and sustainable finance. Appropriate supervisory requirements and the sharing of responsible banking practices in the industry can help promote the development of green banking in a consistent manner, and effectively expedite the development of green banking in Hong Kong.
III. Implement, monitor and evaluate banks' progress: The banking industry should not only disclose climate-related information in a timely manner and encourage its clients and other industry players to follow the practices, but also regularly monitor the progress in promoting green and sustainable finance in the banking industry, and make corresponding enhancements in the light of the evolving impacts.

Challenge and response

Green banking is an emerging concept, and the development of green banking has faced a number of challenges, including non-standardised definitions of green economic activities, and the emergence of “Greenwashing” marketing practices, where companies focus on promoting their green image via advertising and marketing rather than taking measures to reduce environmental impact.

To reduce the risk of greenwashing, China and the European Union (“EU”) have jointly developed a Common Ground Taxonomy to help define activities that make a significant contribution to climate change. Local financial regulators will aim to refer to the Common Ground Taxonomy that classifies economic activities that are considered environmentally sustainable, and this will help boost user and investor confidence in green services and products.

Case Study

After learning about different green financial products and enterprises, Little Thrifty hopes to support green finance and sustainable development in his daily life apart from investing. As a consumer of financial and banking services, Little Thrifty uses online banking to manage his finances and takes the extra step of applying for e-Statements to reduce the use of paper statements. This act not only can reduce the use of paper but also save energy consumption in postage and transportation, thus promoting green and sustainable development.