HKGFA publishes guidance on using Common Ground taxonomy
The Common Ground Taxonomy can be used for issuing debt securities, constructing stock portfolios, creating indices, disclosing company and fund information, and setting policies.
The HKGFA (Hong Kong Green Finance Association) has released a new report offering guidance on the different use cases of CGT (Common Ground Taxonomy) in Hong Kong and the rest of the GBA.
The CGT was developed by an IPSF (International Platform for Sustainable Finance) working group co-chaired by the PBOC (People’s Bank of China) and the European Commission.
It provides a comprehensive analytical tool for mapping and comparing EU and Chinese green finance taxonomies, initially focusing on activities that contribute to climate change mitigation. A first version of the CGT was published in November 2021, then an updated version in June 2022.
The new report clarifies that the CGT is not intended to be considered legal documentation or a single taxonomy standard. Instead, it is intended to be an evolving tool that identifies commonalities and differences between the EU and Chinese taxonomies, to help users understand the types of activities that would be covered by the one or other of the taxonomies.
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To date, four CGT-aligned public bond issues have been completed – by China Construction Bank, China Merchants Bank, Industrial Bank and Bank of China – and it has also been used to issue a accounts receivable financing and a green loan.
The new report, published in HKGFA’s fifth annual forum Thursday, September 22, examines six potential use cases for CGT in Hong Kong and the rest of the GBA, based on industry experience with taxonomies globally.
The six use cases proposed in the report are:
- Debt financing: The use of CGT in emissions increases the comparability of sustainable finance instruments, thereby facilitating assessments by investors and other market participants, improving transparency and enhancing the credibility of financed activities.
- Investment strategies: The CGT could serve as a tool to harmonize the investment process for cross-border green finance flows across asset classes, as well as a tool for stock selection and portfolio construction. It can also play a role in supporting investors in real estate assets such as properties and infrastructure funds.
- Benchmark and creation of indices: A CGT-based index would provide an objective and robust measure to track the performance of a group of securities that are generally aligned with the EU and China definition of green investments.
- Corporate Disclosures: CGT could help improve the transparency and comparability of companies’ sustainability efforts, support the mitigation of greenwashing activities, and help improve and standardize sustainability reporting regulations.
- Disclosure to Investors: CGT could help standardize definitions of what can be considered green and feed into ESG fund labeling and disclosure requirements, which would ultimately guard against greenwashing and enable better comparability between assets, investment funds and portfolios.
- Policy setting: Policy makers can refer to the CGT when defining policy. Specifically, jurisdictions can reference CGT when developing their local taxonomies, to effectively guard against further market fragmentation in the sustainable finance space.
The report notes that Hong Kong’s Green and Sustainable Finance Inter-Agency Steering Group has already committed to adopting the CGT as a benchmark for developing a local taxonomy.
The report states that future HKGFA research will focus on how CGT use cases can be brought to market, including through the development of a Hong Kong taxonomy, and how this can fit into Hong Kong’s broader sustainable finance policy and regulatory framework.
The full report is published here.