Green finance: Hong Kong’s role in the global standard to cut through the alphabet soup of ESG rules

As the world’s governments and corporations face up to sustainability risks amid extreme weather patterns under the Earth’s changing climate, regulators are inching towards creating a common standard out of an alphabet soup of regulations.

The world has at least 200 sets of standards for reporting and assessing climate and sustainability risks, most of them created in recent years without coordination between regulators, industry guilds, companies or financial institutions across different jurisdictions.

“This proliferation led to market fragmentation and could potentially increase transaction costs when it comes to cross-border capital flows,” said Ma Jun, chairman of the Hong Kong Green Finance Association, and co-chair of the G20 Sustainable Finance Working Group that is responsible for improving sustainability reporting and aligning the efforts of financial institutions with the Paris climate agreement.

Small transaction costs could add up to large sums given the fast proliferation of sustainable finance tools such as stocks and debt instruments. A global body called the International Sustainability Standards Board (ISSB) is due in June, mandated to come up with a set of internationally accepted baseline standards for measuring and reporting corporate sustainability performance and aspirations.