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SFC: SFC’s Strategic Framework for
Green Finance Turns Two Today

SFi’s Policy Spotlight examines how Hong Kong’s regulatory and policy landscape is changing to encourage and foster sustainable finance.

In this article we interview Christine Kung, head of international affairs and sustainable finance at the Securities and Futures Commission (“SFC”). We discuss the driving factors behind SFC’s strategic framework for green finance, where we are two years on since its release and recent strides to advance sustainable finance in Hong Kong.

The team steering SFC’s ESG journey

“Supporting the development of green and sustainable finance is a key focus for us and increasingly for authorities and the financial industry worldwide,” says Christine.


Christine Kung heads the international affairs and sustainable finance (“IASF”) team at SFC, with responsibility for advising the SFC on international securities regulatory developments, strategy and cooperation.

“With Europe and Mainland China taking the lead to drive the green finance agenda and creating a global effort, we envisage this is a theme that is here to stay and it will be important to support both Hong Kong’s commitment to the Paris Agreement and its international financial centre status,” says Christine.


Christine is part of a dedicated team that has been recently renamed to reflect the SFC’s recognition of the increasing significance of ESG and sustainability issues. Christine’s team are focused on driving and coordinating efforts to bolster Hong Kong as a hub for sustainable finance and to achieve the priorities set out in SFC’s Strategic Framework for Green Finance.

The team has adopted a similar hub and spokes organisational model as used by Central Banks and Supervisors Network for Greening the Financial System (“NGFS”). IASF acts as the central hub, and coordinates efforts across the organisation including the investment products team, corporate finance, corporate affairs, external relations, markets supervision and the Investor and Financial Education Council (“IFEC”). The IASF team reports directly to the SFC CEO, Ashley Alder – this direct line is key to coordinating all sustainable finance initiatives within the organisation.


Securities and Futures Commission

The Securities and Futures Commission (SFC) is an independent statutory body set up in 1989 to regulate Hong Kong’s securities and futures markets. SFC derive their investigative, remedial and disciplinary powers from the Securities and Futures Ordinance (SFO) and subsidiary legislation.
As a financial regulator in an international financial centre, the SFC strives to strengthen and protect the integrity and soundness of Hong Kong’s securities and futures markets for the benefit of investors and the industry.

Picking up the Green Pace

The SFC increased its pace to integrate green and sustainable finance into its policies and operations since publishing the Strategic Framework for Green Finance (the “Framework”) back in September 2018.

The Framework identified 5 key aims:

(i) enhance listed companies’ reporting of environmental information with a focus on climate-related data, taking into account the Mainland’s move to make environmental disclosure mandatory, and to align with The Task Force on Climate-related Disclosures (“TCFD”)
(ii) engage asset managers and asset owners on their sustainable investment practices with a view to forming ESG policies, codes and guidance that obliges managers to disclose ESG issues, with a special focus on environmental factors
(iii) facilitate the development of green-related investments, including listed green products, unlisted, exchange-traded and OTC green products and work with the HKEX to develop and promote the listing and trading of green products including bonds, indices and derivatives
(iv) support investor awareness and knowledge in green finance by working with the Investor Education Centre (“IEC’) and others, and
(v) promote Hong Kong as an international green finance centre through participation in international initiatives.

Since issuing the Framework, the SFC has conducted several activities, including issuing a survey to asset managers in March 2019 to understand how managers integrate environmental and climate change-related factors into their investment and risk management processes. The results were shared in December 2019.

In addition, a circular was issued in April 2019 setting out the SFC’s expectations as to how SFC-authorised funds with an investment focus on climate, green, environmental or sustainable development are to disclose and how the current Code on Unit Trusts and Mutual Funds (UT Code) and disclosure guidelines for SFC-authorised funds applies. This is an important circular as it helps investors make more informed investment decisions over such green funds. It is important to note this circular will continue to evolve as local and international ESG regulations evolve. The SFC also launched a central database of these listed and unlisted green and ESG products on its website to increase visibility of funds that meet the legal and regulatory requirements. In addition, the SFC has worked closely with the HKEX to enhance the ESG Reporting Guide and related Listing Rules, which came into effect 1 July 2020.

Partnering for Collective Influence

It is clear the window of opportunity to act on climate change is now, and the transition towards a greener economy will require regulators picking up the green pace. It will also necessitate closer collaboration between the regulators both locally and internationally. As such, it is encouraging to see that the SFC is partnering for collective influence and is spearheading local and regional initiatives to develop Hong Kong as the regional hub for green and sustainable finance.

SFC has also been collaborating with authorities overseas with Julia Leung, SFC’s Deputy CEO, acting as Vice Chair of the International Organisation of Securities Commissions (“IOSCO”) Board-level Task Force on Sustainable Finance (“STF”) and representing IOSCO on the Network of Central Banks and Supervisors for Greening the Financial System (“NGFS”).

The aim of the STF is to improve sustainability–related disclosures made by issuers and asset managers; to work in collaboration with other international organisations and regulators to avoid duplicative efforts and to enhance coordination of relevant regulatory and supervisory approaches. Through this work, the goal is to identify meaningful and decision-useful disclosures to promote transparency, investor protection and other relevant issues within sustainable finance.

Julia Leung is also the co-chair of the STF workstream looking to address greenwashing and investor protection issues, as well as asset manager disclosures. SFC also lead the IOSCO Asia-Pacific Regional Committee’s green and sustainable finance working group which focuses on ESG and climate-related disclosures and the integration of these issues in asset management.

Global collaboration to ensure a coordinated regulatory approach is taken internationally is critical in the development of sustainable finance markets. Such coordination is essential because like climate change, investing and financing do not take place within the bounds of clear borders, and cross-border capital flows are vital. Actively sharing perspectives and contributing to the international policy scene is essential for Hong Kong’s future.

From a local perspective several developments have occurred, including the announcement of the Green and Sustainable Finance Cross-Agency Steering Group (the “Group”) in May 2020. The Group was initiated by the SFC and the Hong Kong Monetary Authority (HKMA), and comprises of the Financial Services and the Treasury Bureau, Environment Bureau, HKEX, the Insurance Authority and the Mandatory Provident Fund Schemes Authority.

“Environmental and climate risks pose serious strategic challenges for businesses everywhere. This will enable investors to price financial assets accurately and identify those companies which have developed credible strategic responses to the environmental challenges they face,” says Ashley, who is also Co-Chair of the Steering Group.

At its inaugural meeting in May 2020, the group agreed to provide strategic direction, with a focus on regulatory policy and market development, to bolster Hong Kong’s position as a leading green and sustainable finance centre in Asia and globally. It will also facilitate regional cooperation, including in the Guangdong-Hong Kong-Macao Greater Bay Area.

“There are five different financial regulators in Hong Kong, all of whom recognise the need to step up efforts on green and sustainable finance,” says Christine.

“Given the interaction between our regulatory programmes, we saw that it would be useful for Hong Kong to leverage its multidisciplinary expertise for a more cohesive green and sustainable finance strategy. Communications between authorities on green and sustainable finance tended to be bilateral and fairly ad-hoc. We therefore envisaged that a cross-agency group would be ideally positioned to facilitate policy direction and coordination across authorities, as well as address technical cross-sectoral issues.” says Christine.

Examples of cross-sectoral issues that must be tackled collectively by regulators include (i) environmental and climate risk management – across banking, insurance and asset management and (ii) disclosures – corporate-level disclosures to ensure comparability, in order to boost sustainable assets in Hong Kong.

In July 2019, the British government published a comprehensive “Green Finance Strategy”, with its interdisciplinary Green Finance Taskforce having played a key role in designing the national blueprint. With the development of Hong Kong’s Cross-Agency Steering Group we wait to see if a similar Hong Kong ESG blueprint will be issued to the market.

Listening to local industry and investor demand

The SFC has been further proactive by engaging asset managers to promote ESG and released the results of its Survey on Integrating ESG Factors and Climate Risks in Asset Management back in December 2019. The findings indicated that it is not common place for asset managers in Hong Kong to consistently integrate ESG factors into their investment and risk management processes. With these findings in mind, it became clear that closer cooperation between the SFC and local industry was needed to progress sustainable finance and to ensure that the asset management industry is responsive to ESG risks.

On the back of the survey results, SFC established the Climate Change Technical Expert Group (TEG) in March 2020 comprising representatives from the asset management sector, information providers, standard-setting bodies and industry associations.

Specifically, TEG members are asked to provide technical support to help SFC formulate their regulatory response to manage climate change risks and provide practical guidance to the asset management industry. The results of this consultative work will help SFC in the development of expected standards as well as practical guidance for incorporating climate-related risks into asset managers’ investment and risk management processes.

From the SFC’s engagement with asset managers it is clear that 80% of active asset managers consider ESG factors, with 70% of asset managers viewing ESG factors as a source of financial risk and over 60% practice responsible ownership, through voting and engagement. However, only 35% of the asset managers systematically integrate ESG factors into their investment processes and the remaining 65% do not have any ESG oversight measures in place. Typical ESG measures can range from a list of ESG factors, a defined approach to ESG integration in investment selection and management, disclosures, showcasing the firms ESG roles and responsibilities and so on.

In fact, SFC’s engagement with asset owners showed asset managers are not engaging owners proactively to understand their ESG investment preferences or building an appropriate ESG product pipeline – a challenge we see at SFi.

Drumming up action by the 65% will take a mixture of regulatory and investor push. Christine and her team believe it is not enough to rely on regulation alone to mainstream green and sustainable finance in Hong Kong.

“We need both appropriate regulation and investor demand to drive this forward.” says Christine.


There is growing interest by the asset managers to step-up ESG efforts. Investor pressure and recognition that ESG risks, especially climate risks, impact the underlying asset values, and in turn, an investment portfolio’s performance and risk-return profile are driving this step-up.


“We mainly look at green and sustainable finance from the perspectives of investor protection and risk management, in line with SFC’s regulatory mandate. ESG is as much about risk management as it is about capitalising investment opportunities. For example, extreme weather from climate change and environmental degradation could disrupt resource availability, production capacity and supply chains, increase operational and maintenance costs, and impair asset values and investment returns,” says Christine.


The SFC itself is ensuring that it takes action to reflect these concerns in its own internal practices. Its Investment Committee, which manages the organisation’s financial reserves, now enquires in detail as to how and to what extent external fund managers incorporate ESG principles into their investment and risk analysis processes.

What can the industry expect in the years to come?

“The SFC is committed to contributing to global standard setting in this area and will continue to actively engage with our overseas counterparts and other relevant organisations. Not only does our international work help with developing alignment of frameworks and standards, it also informs decision-making in Hong Kong and will help to ensure that Hong Kong practices are aligned with global green standards,” says Christine.


“This is a very complex area, with numerous factors to consider. It would be very difficult for the SFC, as just one organisation, to deliver sweeping changes overall. However, we are optimistic that the establishment of the Cross-Agency Steering Group will lead to implementation of a road map in green and sustainable finance for Hong Kong. In addition, with coordinated efforts regionally and globally, we see a positive future for sustainable finance initiatives.”

The window of opportunity to act on climate change is narrowing very quickly. Despite the disruption brought about by the COVID-19 crisis and the need to address pandemic-related problems, Christine believes it is essential to view any economic recovery as an opportunity to accelerate the transition towards a green and sustainable financial system. To achieve this, the Government, public agencies and investors must have a shared understanding of the nature and urgency of the financial risks brought about by climate change and environmental degradation.

SFi private investor community call to action

Interest in ESG is growing in Asia and the upward trend in AUM flowing towards sustainable finance will continue. To fast-track the shift to sustainable portfolios we must collaborate with industry, asset managers, asset owners, regulators, standard setters and experts. SFC has been proactive, but a lot of work still needs to get done within the asset management industry itself in Hong Kong. As asset owners, SFi investor community can actively facilitate by:

  • Encouraging asset managers to commit to producing climate-related financial risk disclosures and becoming signatories to the UN Principles for Responsible Investment and other bodies

  • Promote fast-tracking the development of industry-wide standards for ESG in Hong Kong, standards that build-on (not reinvent) international developments

  • Promote building on international frameworks that encourage maintaining minimum standards and oversight of the ESG data provided by third parties, and to improve data integrity and credibility in the market.

  • Feedback to regulator, standard bodies, industry and policy consultations.

A concerted effort is needed, together we can make this the #newnormal.

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