Hong Kong is increasingly turning to green bonds as a key strategy to finance its rising infrastructure costs, which are expected to peak in the coming years.
The city has already issued approximately $3.9 billion in green bonds this year to fund projects such as stadiums and hospitals.
Looking ahead, Hong Kong plans to offer a total of HK$120 billion (approximately $15.4 billion) in green and infrastructure bonds for the fiscal year ending in March 2025.
Allocation of green bond proceeds
According to the 2023 Green Bond Report, nearly two-thirds of the proceeds from Hong Kong’s green debt issuance have been allocated to construction projects.
Buildings are a major focus of these investments due to their significant impact on energy consumption and carbon emissions.
They account for about 90% of the city’s total electricity consumption and contribute more than 50% of its carbon emissions from electricity generation, as noted by a spokesperson from the Financial Services and the Treasury Bureau.
The government has set ambitious targets to improve energy efficiency in buildings.
It aims to reduce electricity consumption in commercial buildings by 30%-40% from 2015 levels by 2050 and to cut consumption in residential buildings by 20%-30%, with half of these targets to be achieved by 2035.
Infrastructure projects drive green bond demand
The increased use of green bonds aligns with Hong Kong’s strategy to establish itself as a global hub for sustainable finance.
The city is embarking on several landmark infrastructure projects, with annual expenditure on capital works projected to reach HK$90 billion over the next five years.
The latest budget indicates that infrastructure spending will peak within the next three years.
The government reported a budget deficit of HK$100 billion for the most recent fiscal year, marking the fourth deficit in five years.
This deficit was exacerbated by a downturn in the property market, which resulted in land sale revenues dropping to HK$19.6 billion, the lowest since the global financial crisis.
Economists, such as Gary Ng from Natixis SA, highlight the necessity of alternative financing methods, including green bonds and public-private partnerships, to address these funding gaps.
Kai Tak Sports Park and other key projects
One notable example of green bond utilisation is the Kai Tak Sports Park. As of July last year, nearly 40% of the projected cost of HK$32 billion for this project was funded through green bonds.
This highlights the significant role that green bonds are playing in supporting major infrastructure developments.
Hong Kong’s green bonds have been well received in the market. In July, the city’s green bond offering of about HK$25 billion attracted orders amounting to 4.8 times the issuance size from institutional investors, reflecting strong demand.
The success of these issuances has set important benchmarks for potential green bond issuers in the region and has encouraged the adoption of best practices.
Hong Kong leads in green bond issuance
In 2023, Hong Kong emerged as Asia’s top issuer of sovereign green debt, raising $14.4 billion, which accounted for more than 60% of the region’s total green bond issuance, according to Bloomberg Intelligence.
This leadership underscores Hong Kong’s commitment to sustainable finance and its role in advancing the green bond market in Asia.
As the city continues to expand its infrastructure projects and address fiscal challenges, the use of green bonds is expected to remain a crucial tool in financing its development goals while supporting its environmental objectives.
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