On 18 June 2020, the Hong Kong Stock Exchange (HKEX) announced plans to launch the HKEX Sustainable and Green Exchange (STAGE), a first-of-its-kind platform intended to act as a central hub for data and information on sustainable and green finance in Asia. STAGE will provide, among other things, access to a comprehensive database of sustainable and green investment options available in Hong Kong's securities markets, as well as a sustainable finance education and advocacy platform. Going forward, HKEX intends to continue to develop the platform in response to the dynamic and evolving sustainability landscape in Asia.

STAGE Objectives

According to HKEX, STAGE will promote the visibility, transparency and accessibility of sustainable and green finance. Specifically, STAGE will:

  • Promote green finance and sustainability integration across asset classes and product types, providing access to a comprehensive online database of information on sustainable and impact investing;
  • Help issuers increase the visibility and awareness of their financial products that meet certain sustainable and green standards across asset classes;
  • Provide investors and asset managers with easy access to information for investment due diligence and the selection and monitoring of sustainable and green investments; and
  • Champion a diverse range of sustainable and green initiatives and opportunities across Asia, connecting stakeholders to innovative products, ideas and strategies from around the globe.

The broad scope of these objectives suggests that STAGE may prove useful in a variety of contexts, from capital markets issuers looking to promote their sustainability or green initiatives to asset managers seeking to perform environmental, social and governance (ESG)-related due diligence and otherwise integrate ESG information into their investment processes. Sustainability-minded market participants in any industry should monitor STAGE as HKEX develops the platform and rolls out other initiatives and products that may be relevant to their own businesses.

Sustainable, Green and Social Bond Repository

In the initial phase, STAGE will provide a repository of information on sustainability, green and social bonds, as well as ESG-related "Exchange Traded Products", listed on HKEX. To have sustainability, green and/or social bonds displayed on the STAGE platform, issuers must:

  • Designate the classification of the bonds to be displayed (i.e., sustainability, green or social);
  • State the international standards or principles that the bonds adhere to;
  • Submit a copy of the bond framework, which usually includes information on the use of proceeds, project selection, management of proceeds and reporting process;
  • Submit a copy of the relevant external review of the bonds; and
  • Submit, on an annual basis, a post-issuance report on allocation of proceeds and expected impacts, if any, during the tenor of the bonds.

While it remains to be seen which international standards and principles regarding sustainability, green and social bonds will be acceptable to HKEX, the international organisations it has partnered with in developing STAGE may provide clues. The bourse counts the International Capital Markets Association (ICMA) and Climate Bonds Initiative (CBI) among its various partners, suggesting that adherence to the Green Bond Principles (GBP), Social Bond Principles and Sustainability Bond Guidelines developed by ICMA, as well as the Climate Bonds Standard and Certification Scheme developed by the CBI, could be sufficient to satisfy this requirement for STAGE inclusion.

Interested parties may also note that the Hong Kong Quality Assurance Association's Green Finance Certification Scheme, a government-supported scheme that provides third-party conformity assessments for green bond issuers, was developed with reference to various green finance standards including the GBP, ISO 26000:2010 Guidance on Social Responsibility, the Clean Development Mechanism under the UN Framework Convention on Climate Change and green bond guidance issued by the People's Bank of China, among others.1

In any event, all bonds eligible for STAGE inclusion must first be listed on HKEX in accordance with Chapters 22 to 37 of the HKEX Listing Rules (Main Board). Issuers that meet the requirements to display their products on the platform may be able to join STAGE without the need to pay any fees. 

Going Forward

HKEX expects to launch the online repository for sustainability, green and social bonds later this year. Over time, it will consider expanding STAGE coverage to include more asset classes and product types. Covered products may eventually include derivatives linked to relevant sustainability or ESG indices, as well as other sustainable and green financial products.

As HKEX notes, there has been considerable growth of sustainable and green investment in Asia in recent years. In particular, Asia-Pacific green bond issuances hit record annual levels in 2019, raising US$18.89 billion (with Mainland China's green bond market alone accounting for US$8.13 billion), while the cumulative amount of green bonds arranged and issued in the local Hong Kong market reached US$26 billion at the end of 2019. It appears that the STAGE platform will, at least initially, capitalise on the already robust activity in regional green bond markets to facilitate issuance of these instruments. As interest in other sustainable investment products such as social bonds and ESG-linked derivatives continues to grow and markets develop, market participants should watch out for STAGE and its various offerings to do the same.

HKEX has launched the STAGE website here. To learn more about sustainable finance and the ESG landscape across the Asia-Pacific region, we invite you to read our comprehensive article, "Private Equity for the Public Interest: The Evolution of ESG in Asia and Considerations for Asset Managers and Investors".

Footnote

1. http://www.hkqaa.org/en_certservice.php?catid=26

Visit us at www.mayerbrownjsm.com

Mayer Brown is a global legal services organization comprising legal practices that are separate entities (the Mayer Brown Practices). The Mayer Brown Practices are: Mayer Brown LLP, a limited liability partnership established in the United States; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales; Mayer Brown JSM, a Hong Kong partnership, and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.