Mainland China puts Hong Kong insurers green

Canals : Asia-Pacific, SAA / ALM, Sustainable development

Companies: BNP Paribas, Insurance Authority, Hong Kong Green Finance Association, Hong Kong Federation of Insurers, Zurich Insurance Hong Kong

People: Christopher Hui Ching-yu, Eric Hui, Ma Ho-fai, Chaoni Huang, Paul Chan Mo-po, Hu Xiao

As the world’s second-largest economy pledges to become net zero by 2060, the Hong Kong Insurance Authority’s annual conference heard $ 1 billion in green investment opportunities just across the border. David walker reports

Hong Kong’s insurance industry has vowed to play its part in building green finance in the jurisdiction, despite some hurdles, as rival centers fight to be crowned the ‘green finance center’ of the jurisdiction. Asia.

One thing that all jurisdictions want this honor, and which spurs sustainable investment, is the threat of climate change, said Ma Ho-fai, non-executive director of the Insurance Authority (IA).

Its undeniable impact “gives a boost to green and sustainable finance” in Asia and elsewhere “and insurers should have an important role to play in the fight against climate change, because [they] have the expertise and data to provide innovative solutions for climate risk management and mitigation, ”he said.

“They are also important institutional investors for impact investing, as well as corporate citizens.”

A dash for money

But making Hong Kong a hub for green financial transactions isn’t just about “avoiding the worst” of global warming, speakers said at the annual AI conference in December.

Chaoni Huang, vice president and general secretary of the Hong Kong Green Finance Association, called financing a low-carbon future “$ 1 billion in opportunity.”

She said that by helping Beijing reach net zero, as promised, even 10 years behind by 2060, huge volumes of R&D will need funding, “and Hong Kong has a natural advantage to support China’s ambitions, as well as those of Hong Kong. [2050] net zero climate ambition.

“We are only at the very beginning of the journey in terms of exploring opportunities,” said Huang, who is also head of sustainable capital markets, APAC global markets at BNP Paribas.

The obstacles

Speakers alongside Huang agree that the obstacle in Hong Kong is rarely a lack of capital, but mobilizing it “to support climate change mitigation and adaptation to climate challenges.”

Almost half of the conference’s online audience (49%) believed the Hong Kong government had the decisive hand in promoting green finance there – double the proportion of attendees saying “regulators” .

While Huang agrees that government plays “a central role in producing the right policies and incentives,” she adds that the private sector’s own role is “essential in raising capital for its own risk management and growth opportunities.” The financial sector must be part of the Solution “.

Christopher Hui Ching-Yu, Secretary of Financial Services and Treasury in Hong Kong, said that while the challenge for green finance was how to best foster the supply of instruments, now it was to meet the demand. of these big investors.

“If you talk to a lot of asset holders now, it’s more demand driven. People come to us and say “I want to invest ‘green’, what are the systems? »With this change, the role of [government] is to make sure we have the right things in place to meet demand, ”he added.

At the same time, he said, authorities should ensure that all insurers would be able to follow the TCFD disclosure precepts, which will be mandatory from 2025, “so there must be some capacity building “.

Green bond issue

“The Hong Kong government is doing its part to satisfy the appetite, having issued $ 3.75 billion in green bonds denominated in USD, euros and RMB last month,” said Paul Chan Mo-po, Hong Kong financial secretary. “And we are now working to issue retail green bonds this fiscal year to the general public. Our green finance program is here … to encourage more issuers to take advantage of Hong Kong as a green finance center.”

“Having subsidies for private sector issuers is a way for the government to say ‘we need the private sector to do it with us,’” says Hui Ching-yu.

It seems to be working. Authorities have received 30 emissions applications, and what were once “companies planning to build green buildings” has expanded to include sustainability-linked loans managed by ESG matrices – “something we want to encourage “.

Fight for the podium

Panelists agree that no APAC jurisdiction can assume that leadership in green finance is immutable.

To gain an advantage, Huang says Hong Kong needs to cement environmental, social and governance issues into the risk matrices, product offerings and recruitment plans of its entities. “With a very dynamic financial market of banks and insurers with capital, it is a question of connecting the dots [in Hong Kong]. An existing vibrant financial industry is important for competitive advantage – but we also need to add the ESG ingredient. “

She adds: “Everyone claims to be a ‘green finance hub’ and an ‘ESG hub’, on the continent and outside of Asia. It is increasingly competitive – and for good reason. It’s about the demand dynamics that we see in the market. “

For Hui Ching-yu, the advantage of the Special Administrative Region is to have insurers, banks and fintech all present – the latter presumably helping the government to consider issuing “token green bonds”.

One speaker underscored the need for continental insurers’ asset allocation and risk management, as well as enabling regulations and policies to do so. “In the past, people viewed ESG and climate risk as something very far away, but with recent events unfolding in Germany or China, people now see it as very imminent and are managing it in a way that is economically viable. “

He pointed to the skills in Hong Kong “that allow data collection and analysis. We must ensure that the interests of global investors can take advantage of the opportunities ”.

Eric Hui, chairman of the Hong Kong Federation of Insurers’ Green Insurance Working Group, called for “better collaboration on data and [for] good professionals to help us model. Insurers are seated on a lot of capital, and must know how to benefit from a better return on green investment, and obtain better transparency “.

Alternative investments

The panelists also highlighted the emergence of insurance-related securities issued in Hong Kong as climate-related investment institutions that could benefit from the purchase. China P&C Re issued Hong Kong’s first ILS, valued at $ 30 million and linked to mainland typhoon risk, in October.

Hui Ching-yu said that these products “are unrelated to economic cycles, so there is diversification that people looking for risk management and diversification seek.”

China Re’s chief financial officer in Hong Kong, Hu Xiao, said the ILS issue was “a good example of building links with other financial services industries,” and underwriters like his could gain experience talking to ILS foreign investors and knowing “what kind of long term products they can identify for us.

“In Hong Kong’s risk-based capital regime, we may have preferential capital policies – and that will be a good promoter for the financial services industries.”

Green finance – today’s solution for tomorrow’s problem?

Eric Hui, chairman of the Hong Kong Federation of Insurers’ Green Insurance Working Group and Managing Director of Zurich Insurance Hong Kong, predicts that Hong Kong may struggle to convince insurers that green finance is to solve a problem. urgent problem.

“Many members see green finance and green insurance as a long way off, and they expect their government or regulator to lead the way. It is a challenge for us to know how to change this mindset.

Christopher Hui Ching-yu cites data access as another common problem. “In a study we conducted with owners and asset managers, we found that many financial services companies are still looking for a lot of data on weather-related losses. “

Another practitioner added: “For indicators and benchmarks, a framework is important to help insurers identify what is actually ‘green’.

Martin E. Berry