In December 2021, the Hong Kong Monetary Authority (HKMA) issued the results of its pilot climate risk stress test (CRST).  The CRST assesses the potential impact of climate change on the Hong Kong banking sector.  It marks the latest such publication by a regulator on the topic, with French regulator, Autorité de contrôle prudentiel et de résolution (ACPR), having published the results of its climate risk stress test in Q2 2021 and a number of other countries’ regulators undertaking similar analyses during 2022.

The CRST indicates that the Hong Kong banking sector should remain resilient to climate-related shocks given the Banks’ strong capital buffers. However, it was noted that simplified assumptions and use of historical data in modelling could mean the potential impact could be more serious than predicted.

The exercise identified various climate-related vulnerabilities for Banks to seek to address and highlighted gaps in terms of insufficient granular, reliable data, as well as a lack of widely-accepted standards for classifying and identifying climate risk exposures.  HKMA notes that addressing these issues will require concerted efforts of the industry.

In this Blog Post, we set out a high level summary of the CRST in terms of the scope of the CRST, pertinent findings and actions required to enhance climate risk management going forward.


Continue Reading HKMA Publishes Report On First Climate Risk Stress Test Of The Hong Kong Banking Sector

The sustainable investing market is witnessing remarkable growth: since 2018, annual cash flows into sustainable funds have increased tenfold. Now, more than ever, investors and asset managers alike seek sustainable products and strategies offering robust financial returns. The field, however, has been haunted by greenwashing claims and a lack of consistency in identifying what, exactly, makes an investment “sustainable”.

Sustainability or “green” taxonomies developed by governments, international bodies and non-governmental organizations (NGOs) can help resolve these challenges and inconsistencies by identifying specific assets, activities or projects that meet defined thresholds and metrics that quantify sustainability. These systems can cover the full spectrum of sustainability topics, from achieving acceptable levels of greenhouse gas emissions to compliance with certain human rights standards. Among other benefits, sustainability taxonomies can:

  • assist investors, asset managers and asset owners in identifying sustainable investment opportunities and constructing sustainable portfolios that align with taxonomy criteria;
  • drive capital more efficiently toward priority sustainability projects;
  • help protect asset managers against claims of greenwashing by providing an independent benchmark for the sustainability performance of investments; and
  • guide future public policies and regulations targeting specific economic activities based on taxonomy criteria.

In this series of Blog Posts, we first provide a brief overview of some of the key existing and developing taxonomies around the world. We then set out our analysis of the ways asset managers are already leveraging taxonomies in their businesses based on a review of publicly available responsible investment reports.  Finally, we highlight certain challenges that asset managers may encounter as these systems develop and interest in sustainable investing continues to grow.

Continue reading this Part III to understand some of the taxonomy-related challenges that asset managers may encounter. You can find Parts I and II here and here.


Continue Reading Leveraging Taxonomies: How Asset Managers Are Using New Sustainability Classification Systems – Part III

The sustainable investing market is witnessing remarkable growth: since 2018, annual cash flows into sustainable funds have increased tenfold. Now, more than ever, investors and asset managers alike seek sustainable products and strategies offering robust financial returns. The field, however, has been haunted by greenwashing claims and a lack of consistency in identifying what, exactly, makes an investment “sustainable”.

Sustainability or “green” taxonomies developed by governments, international bodies and non-governmental organizations (NGOs) can help resolve these challenges and inconsistencies by identifying specific assets, activities or projects that meet defined thresholds and metrics that quantify sustainability. These systems can cover the full spectrum of sustainability topics, from achieving acceptable levels of greenhouse gas emissions to compliance with certain human rights standards. Among other benefits, sustainability taxonomies can:

  • assist investors, asset managers and asset owners in identifying sustainable investment opportunities and constructing sustainable portfolios that align with taxonomy criteria;
  • drive capital more efficiently toward priority sustainability projects;
  • help protect asset managers against claims of greenwashing by providing an independent benchmark for the sustainability performance of investments; and
  • guide future public policies and regulations targeting specific economic activities based on taxonomy criteria.

In this series of Blog Posts, we first provide a brief overview of some of the key existing and developing taxonomies around the world. We then set out our analysis of the ways asset managers are already leveraging taxonomies in their businesses based on a review of publicly available responsible investment reports.  Finally, we highlight certain challenges that asset managers may encounter as these systems develop and interest in sustainable investing continues to grow.

Continue reading this Part II for our analysis of how asset managers are already leveraging taxonomies. You can find Parts I and III here and here.


Continue Reading Leveraging Taxonomies: How Asset Managers Are Using New Sustainability Classification Systems – Part II

The sustainable investing market is witnessing remarkable growth: since 2018, annual cash flows into sustainable funds have increased tenfold. Now, more than ever, investors and asset managers alike seek sustainable products and strategies offering robust financial returns. The field, however, has been haunted by greenwashing claims and a lack of consistency in identifying what, exactly, makes an investment “sustainable”.

Sustainability or “green” taxonomies developed by governments, international bodies and non-governmental organizations (NGOs) can help resolve these challenges and inconsistencies by identifying specific assets, activities or projects that meet defined thresholds and metrics that quantify sustainability. These systems can cover the full spectrum of sustainability topics, from achieving acceptable levels of greenhouse gas emissions to compliance with certain human rights standards. Among other benefits, sustainability taxonomies can:

  • assist investors, asset managers and asset owners in identifying sustainable investment opportunities and constructing sustainable portfolios that align with taxonomy criteria;
  • drive capital more efficiently toward priority sustainability projects;
  • help protect asset managers against claims of greenwashing by providing an independent benchmark for the sustainability performance of investments; and
  • guide future public policies and regulations targeting specific economic activities based on taxonomy criteria.

In this series of Blog Posts, we first provide a brief overview of some of the key existing and developing taxonomies around the world. We then set out our analysis of the ways asset managers are already leveraging taxonomies in their businesses based on a review of publicly available responsible investment reports.  Finally, we highlight certain challenges that asset managers may encounter as these systems develop and interest in sustainable investing continues to grow.

Continue reading this Part I for a better understanding of existing and developing taxonomies around the world. You can find Parts II and III here and here.


Continue Reading Leveraging Taxonomies: How Asset Managers Are Using New Sustainability Classification Systems – Part I

The pressure on States and corporates to take action to address the socio-economic and environmental impacts of climate change is rapidly increasing. This pressure has resulted in a substantial rise in the number of climate change-related disputes. Although many of these disputes have thus far been brought before national courts, arbitration is likely to become an increasingly important method for resolving climate change-related disputes in the near future, since these disputes are often of an international nature and may benefit from the use of a neutral forum. In particular, there is likely to be an increase in climate change-related investment treaty arbitration, given the rising influence of climate change in the investment treaty landscape. This will bring into focus a variety of considerations affecting investments which are subject to the protection of one or more investment treaties.

Continue Reading Climate Change and Investment Treaty Arbitration

On 6 December 2021, the Netherlands became the latest European government to announce plans to introduce mandatory human rights and environmental due diligence (HREDD) legislation at a national level, adding to a growing movement and proliferation of national HREDD laws. This puts the Netherlands in the company of the likes of France, Germany and Norway (which have enacted or adopted such laws) and Austria, Belgium and Switzerland, among others (which are progressing their own national HREDD laws).

This development comes despite further delay on the publication of HREDD legislation at an EU level (see our previous Blog Post). On 6 December 2021, the Dutch Foreign Trade and Development minister said that he was “very disappointed” at the European Commission’s further delay to introduce EU mandatory HREDD legislation and announced the Dutch Government’s plans to develop and introduce a national HREDD law instead.


Continue Reading Business and Human Rights – The Netherlands to Introduce Mandatory Human Rights Due Diligence Legislation

The European Commission has indefinitely postponed its much-anticipated directive on human rights and environmental due diligence (HREDD) – more than 150 days after it was first expected to be published. While the reason for the delay is unclear, 47 civil society organisations have penned an open letter seeking “full transparency on the reasons for the delay and on the decision-making process going forwards.”

Despite this setback, national HREDD legislation continues afoot: laws have been adopted or are in force in France, Germany and Norway, while proposed national legislation is being progressed in a number of other European countries. Most recently, in December 2021, the Netherlands announced its intent to introduce its own national HREDD law in view of the further delay of the proposed EU law.

Legislative developments aside, investors, civil society and other stakeholders are scrutinising how companies identify and mitigate human rights impacts in their operations and supply chains more closely than ever.

And so the message is clear: companies still need to take steps to develop and reinforce their human rights due diligence programmes, both in anticipation of further mandatory HREDD laws and to respond to stakeholder expectations and demands.


Continue Reading Business and Human Rights – EU’s Proposed Mandatory Human Rights and Environmental Due Diligence Law Faces Further Delay

On December 16, 2021, the US Office of the Comptroller of the Currency (OCC) released draft principles for managing exposures to climate-related financial risks (Climate Principles). The OCC regulates national banks, federal savings associations, and federal branches and agencies of foreign banking organizations.

The Climate Principles are targeted at banks with

“Delivering effective corporate governance practices and ESG measures is more than a box-ticking exercise. The change needs to begin with a shift of mindset at the top of the organisations.” – SEHK, December 2021

On December 10, 2021, the Stock Exchange of Hong Kong Limited (SEHK) published the conclusions from its April 2021 consultation on amendments to the SEHK’s Corporate Governance Code (the Code) and Listing Rules intended to promote good corporate governance practices among listed companies and IPO applicants. The final amendments address a range of topics that could significantly change the way that the boards of covered entities operate, including with respect to gender diversity, ESG reporting timelines and the role that ESG plays in corporate governance structures and processes.

In this Blog Post, we highlight final amendments to the Code and the Listing Rules addressing the link between ESG and good corporate governance, ESG reporting and gender diversity at both the board and workforce levels.


Continue Reading ESG and Gender Diversity Requirements Finalized for Listed Companies and IPO Applicants in Hong Kong

On November 26, 2021, Hong Kong’s Mandatory Provident Fund Schemes Authority (MPFA) advanced the Special Administrative Region’s sustainable finance strategy with new Principles for Adopting Sustainable Investing in the Investment and Risk Management Processes of MPF Funds (the Principles). The Principles lay out a high-level ESG integration framework for trustees of Mandatory Provident Funds (MPF), the investment vehicles for the Hong Kong’s mandatory retirement protection scheme, across four key elements: governance, strategy, risk management and disclosure.

In this Blog Post, we provide a brief overview of the Principles and highlight each element, as well as important next steps for MPF trustees. We also provide guidance on how companies are already implementing ESG frameworks similar to the Principles.


Continue Reading Hong Kong Regulator Issues Sustainable Investing Principles for Pension Fund Trustees