The Hong Kong Monetary Authority (HKMA), Hong Kong’s central banking institution released a series of principles for banks on planning for the transition to a net zero economy, including ensuring that setting objectives aligned with a net zero transition, and embedding transition considerations into internal processes.

One of the HKMA’s key functions is to promote the stability and integrity of the financial system, including the banking system. According to a letter sent to the Chief Executives of all authorized institutions by HKMA’s Executive Director of Banking Policy Daryl Ho, the new high-level principles were designed “with a view to assisting banks in maintaining safety and soundness in the transition.”

Ho said:

“The HKMA recognises that international practices and discussions on transition planning and transition plans are still evolving. Nevertheless, given the increasing focus on the subject and in the light of the HKMA’s two-year plan, we consider it useful to set out some high-level principles to assist authorized institutions (AIs) in planning for a net-zero transition.”

The principles set out by the HKMA include setting clear targets and objectives – whether the primary purpose of a bank’s transition planning is the implementation of a transition strategy or the  development of a risk management process – with objectives guided to be aligned with a net zero transition, and targets aligned with the goals of the Paris Agreement, which include limiting the increase in global temperatures to well below 2°C, and preferably to 1.5°C.

The HKMA principles also guide banks to integrate transition considerations into internal processes, including governance, accountability and risk management frameworks, as well as into business strategies and models, products and services as necessary, and also to engage with clients on their own transition pathways, including collecting relevant information from clients and understanding the risks and opportunities that their sectors face in the transition to a net zero economy.

Additional principles set out by the HKMA for banks include enhancing the transparency of their transition planning processes and plans, and reviewing and updating transition planning as climate scenarios and sectoral pathways evolve over time.

Click here to access the HKMA circular outlining the net zero transition planning principles.