Hong Kong is increasingly turning towards green bonds as a strategy to finance rising infrastructure costs that are expected to peak over the next few years.
The city has already issued approximately $3 billion in green bonds to fund stadiums and hospitals.
Hong Kong will offer a total amount of HK$120bn (approximately $15,4bn) in green bonds and infrastructure bonds in the fiscal year that ends in March 2025.
Allocate proceeds of green bonds
According to the 2023 Green Bond Report nearly two thirds of Hong Kong’s green debt proceeds have been allocated to building projects.
These investments are focused primarily on buildings due to their impact on energy consumption, and carbon emissions.
A spokesperson from the Financial Services Bureau and Treasury Bureau noted that they account for 90% of the city’s total electricity consumption, and contribute more than half of its carbon emission from electricity generation.
The government has set ambitious goals to improve energy efficiency of buildings.
The goal is to reduce electricity consumption by commercial buildings by 30-40% from 2015 levels, and residential buildings by 20-30%. Half of these targets are to be met by 2035.
Green bond demand is driven by infrastructure projects
The increasing use of green bonds is in line with Hong Kong’s plan to establish itself as the global hub for sustainable financial services.
The city has embarked on several landmark infrastructures projects. Annual capital expenditures are expected to reach HK$90billion over the next five-year period.
The latest budget shows that infrastructure spending will peak in the next three to four years.
The government reported a deficit of HK$100billion for the most recent fiscal period, marking the fourth deficit over the past five years.
This deficit was exacerbated due to a decline in the property market. Land sale revenues dropped to HK$19,6 billion, the lowest level since the global financial crises.
Gary Ng, an economist from Natixis SA, highlights the need for alternative financing methods such as green bonds and public-private partnership to address these funding gap.
Kai Tak Sports Park & other key projects
Kai Tak Sports Park is a notable example of the use of green bonds. Green bonds funded nearly 40% of this project’s projected cost of HK$32billion as of July last.
This shows the important role that green bonds play in supporting major infrastructure development.
Hong Kong’s green bond issue has been well received by the market. In July, Hong Kong’s green bond issuance of approximately HK$25 billion received orders from institutional investors that were 4.8 times larger than the issuance size. This reflects strong demand.
The success of these green bond issuances set important benchmarks for future green bond issuers and encouraged the adoption of best practice.
Hong Kong is the leader in green bond issuance
Bloomberg Intelligence reports that Hong Kong will be Asia’s largest sovereign green debt issuer in 2023. The city raised $14.4 billion which is more than 60% of all green bonds issued in the region.
This leadership highlights Hong Kong’s commitment towards sustainable finance and its important role in advancing Asia’s green bond market.
Green bonds are expected to be a key tool for financing the city’s development goals and addressing its fiscal challenges as it continues to expand infrastructure projects.
This post Hong Kong green bonds gain prominence amid infrastructure surge may be updated as new developments unfold.
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