The Common Ground Taxonomy can be used for debt issuance, equity portfolio construction, index creation, company and fund disclosures, and policy settings.
The HKGFA (Hong Kong Green Finance Association) has issued a new report offering guidance on the different use cases of the CGT (Common Ground Taxonomy) in Hong Kong and the rest of GBA.
The CGT was developed by an IPSF (International Platform for Sustainable Finance) working group co-chaired by the PBOC (People’s Bank of China) and the European Commission.
It provides a comprehensive mapping and comparison analytical tool to between the EU and China’s green finance taxonomies, initially focusing on activities that contribute to climate change mitigation. The first version of the CGT was published in November 2021, and then an updated version in June 2022.
The new report clarifies that the CGT is not intended to be seen as legal documentation or a single taxonomy standard. Instead, it is intended to be an evolving tool that identifies commonalities and differences between the EU and China taxonomies, to help users understand the types of activities that would be covered under either taxonomy.
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To date, four public bond issuances aligned to the CGT have been completed – by China Construction Bank, China Merchants Bank, Industrial Bank, and Bank of China – and it has also been used to issue an account receivable financing facility and a green loan.
The new report, released at the HKGFA’s fifth annual forum on Thursday (22 September), examines six potential use cases of the CGT in Hong Kong and the rest of GBA, based on industry experience with taxonomies globally.
The six use cases proposed in the report are:
- Debt financing: The use of the CGT in issuances increases the comparability of sustainable finance instruments, thereby facilitating assessments by investors and other market participants, improving transparency, and enhancing the credibility of financed activities.
- Investment strategies: The CGT could serve as a tool to harmonise the investment process for cross-border green finance flows across asset classes, as well as an equity selection and portfolio construction tool. It can also play a role to support investors in real assets such as properties and infrastructure funds.
- Benchmark and index creation: A CGT-based index would provide an objective and robust measure to track the performance of a group of securities that are generally aligned with both the EU and China’s definition of green investments.
- Corporate disclosures: The CGT could help to improve transparency and comparability of corporate sustainability efforts, support the mitigation of greenwashing activities, and help to improve and standardise sustainability reporting regulations.
- Investor disclosures: The CGT could help to standarise definitions on what can be considered green and fed into requirements on ESG fund labelling and disclosures, which would ultimately guard against greenwashing and allow for better comparability across assets, investment funds, and portfolios.
- Policy setting: Policymakers may reference the CGT when setting policy. Specifically, jurisdictions may reference the CGT when developing their local taxonomies, to effectively guard against further market fragmentation in the sustainable finance space.
The report notes that Hong Kong’s Green and Sustainable Finance Cross-Agency Steering Group has already committed to adopting the CGT as a reference for developing a local taxonomy.
The report says the HKGFA’s future research will focus on how the CGT use cases can be carried forward to the market, including through the development of a Hong Kong taxonomy, and how this can fit into Hong Kong’s broader sustainable finance policy and regulatory framework.
The full report is published here.