Green Finance Briefing Paper Published by the Financial Services Business Council

The Financial Services Business Council (“FSBC”) of the European Chamber of Commerce in Hong Kong (“EuroCham”) published a briefing paper, Driving Private Financing for Green Industries in Hong Kong - The Catalytic Role of a Green Investment Bank (“Green Finance Briefing Paper”) in December 2018. The Green Finance Briefing Paper proposes the establishment of a Green Investment Bank in Hong Kong (a “Hong Kong Greenbank”).

Green Investment Banks

A Green Investment Bank is a financial institution set up and owned by the government to direct private finance into low carbon infrastructure and environmentally friendly construction. It structures projects on a commercial basis and seeks to create different liquid markets that can operate independently. The Green Investment Bank model seeks to mobilise private investment capital for projects that are otherwise unable to obtain financing for investment in low carbon infrastructures.

According to the Briefing Paper, investors’ reluctance to invest in low carbon infrastructure projects is often due to a lack of understanding of the associated risks. Green Investment Banks thus play a crucial role in making investors comfortable with green investment through the provision of credit support, education and information. They attract private sector investment to green projects by providing financial tools (such as co-investment, insurance etc.) and market support to reduce the perceived risks, and may suggest aggregating small projects into larger vehicles to attract institutional investors. The Briefing Paper identified investment opportunities in rooftop solar power, energy efficiency for buildings, waste management and low carbon transportation.

Rooftop Solar Power

A Hong Kong Greenbank could replicate the solar lease programme implemented by the Connecticut Green Bank to help produce residential solar power systems. Connecticut’s solar lease programme offered a combination of solar rebates and investment tax credits to provide access to affordable solar energy. Residents could install solar panels at no upfront cost, but paid a fixed lease price for 15 years. A Hong Kong Greenbank could partner with local banks to provide financing for a similar programme in Hong Kong and possibly the Greater Bay Area.

Energy Efficiency for Buildings

As Hong Kong’s building sector is its main source of carbon emissions, retrofitting existing buildings could significantly reduce electricity usage. Adopting a lien-based financing structure similar to the Australian fund established by the Clean Energy Finance Corporation and the National Australia Bank which provided loans to owners for building upgrades which were repaid through a surcharge on local property taxes. “Bill financing” where energy upgrade loans are repaid through customers’ utility bills is another possibility. Securitising project portfolios once they reach a sufficiently large scale can also be considered.

Waste Management

With 3,600 tons of food waste sent to landfills every day, Hong Kong could benefit from organic waste treatment plants promoted and implemented by a Hong Kong Greenbank. This has been done in Australia, where the Clean Energy Finance Corporation financed the South Eastern Organics Processing Facility, which is due to be fully operational this year. A Hong Kong Greenbank could also help mobilise funding for processing waste-to-energy facilities. The UK Green Investment Bank has provided debt funding to UBB Waste (Gloucestershire) Ltd to develop a waste-to-energy plant to recycle residual household waste.

Low Carbon Transportation

Instead of using taxpayer funds to subsidise electric vehicles for public transport, the electric vehicle market in Hong Kong could instead by supported by affordable financing provided by a Hong Kong Greenbank. In Australia, the Clean Energy Finance Corporation provided funding to encourage government, business and not-for-profit buyers of fleets to choose low emission vehicles. The Connecticut Green Bank collaborated with local commercial lenders to provide long-term financing at low interest rates for electric vehicle charging stations, and developed a system of using carbon credit markets to increase the revenues derived from charging stations. A Hong Kong Greenbank could introduce a system to provide carbon credits or renewable energy credits to incentivise the installation of charging infrastructure to improve Hong Kong’s charging infrastructure for electric vehicles.

Jurisdictions: 

Solicitor, Charltons Law, Hong Kong

With a background in banking and debt capital markets in London and Hong Kong, Kim joined boutique corporate law firm, Charltons, in 2003 and focuses on Hong Kong corporate finance regulation, including IPOs, listed company regulatory compliance, SFC licensing, funds, and debt capital markets.  Her main interest is the development of Hong Kong regulation to facilitate Hong Kong’s continued growth as Asia’s premier international finance centre.  Key areas of interest currently include continued broadening of access to Hong Kong’s stock exchange, crypto assets, crowd-funding, fintech, virtual banking and green banks.