Enclosure - Hong Kong Taxonomy for Sustainable Finance (Phase 2A)

This document outlines the Hong Kong Taxonomy for Sustainable Finance (Phase 2A), published in January 2026. This Taxonomy serves as a critical framework for defining and classifying environmentally sustainable economic activities, with the overarching goal of scaling up green and sustainable finance flows to address climate change mitigation and adaptation challenges.

Document Overview:

The Hong Kong Taxonomy for Sustainable Finance (the "Hong Kong Taxonomy" or "the Taxonomy") is a classification system developed by the Hong Kong Monetary Authority (HKMA). Its primary purpose is to provide clear guidelines for identifying and categorizing economic activities that contribute to environmental sustainability. This is crucial for directing capital towards credible green and sustainable projects, thereby supporting Hong Kong's transition to a low-carbon economy and its ambition to become a premier green hub. Phase 2A builds upon Phase 1 by expanding the scope to include climate change adaptation and introducing new sectors, particularly in manufacturing and Information and Communications Technology (ICT), alongside enhancements to energy and transportation. The Taxonomy is designed for voluntary adoption by market participants, aiming to build market confidence, prevent greenwashing, and foster greater transparency and comparability in sustainable finance.

Main Content:

The Hong Kong Taxonomy is structured around key environmental objectives, with Phase 2A focusing on Climate Change Mitigation and introducing Climate Change Adaptation.

Chapter II: Climate Change Mitigation

This chapter details the criteria for economic activities that contribute to climate change mitigation, aligning with the Paris Agreement's 1.5°C climate goals. It categorizes activities into three classes: Green, Transition, and Exclusion.

• Green Category: Activities that substantially contribute to climate change mitigation and operate at near-zero emissions or are aligned with a 1.5°C pathway but not yet at near-zero.
• Transition Category: This new category introduced in Phase 2 covers carbon-intensive activities that are on a time-bound decarbonisation journey towards net-zero by 2050, or activities/measures enabling significant short-term emissions reductions.
• Transition Activity: A standalone activity not yet aligned with a 1.5°C pathway but progressing towards it within a specified timeframe, or facilitating significant short-term emissions reductions.
• Transition Measure: A component of an activity designed to materially reduce Scope 1 and 2 emissions, such as installing a dual-fuel engine.
• Sunset Dates: Transition Activities and Measures are time-bound, with defined sunset dates (e.g., 2030 for Maritime Transport, 2035 for Energy).
• Exclusion Category: Activities that are fundamentally incompatible with a 1.5°C future, not progressing rapidly enough, or have low climate materiality.

Key updates and new activities introduced under Phase 2A for Climate Change Mitigation:

A. Energy:
The scope has expanded from three to seven activities.

• New Green Activities:
• Transmission and Distribution of Renewable and Low-carbon Gases: Covers emerging energy carriers like hydrogen and biogas.
• District Heating and Cooling: Focuses on improving energy efficiency in buildings.
• Electricity Storage Systems: Encompasses various storage technologies for grid stability.
• Updated Green Activities:
• Transmission and Distribution of Electricity: Enhanced to accommodate increasing renewable and low-carbon sources.
• Metrics: Primary metric is gCO2e/kWh. Specific thresholds are detailed for emissions intensity.

B. Transportation:
New activities and updates aim to promote low-carbon transport.

• New Green Activities:
• Transport by Motorbikes, Passenger Cars and Light Commercial Vehicles: Criteria focused on zero-emission vehicles.
• Low-carbon Transport Infrastructure: Includes charging infrastructure and infrastructure for low-emission public transport.
• Updated Green Activities (from Phase 1):
• Public transportation system in urban and suburban areas.
• Personal mobility devices, cycle logistics.
• Transportation of freight by sea.
• Transportation of passengers by sea.

C. Construction:
Focus remains on green buildings.

• Green Activities:
• Construction of new buildings (with specific criteria for energy efficiency, materials, etc.).
• Renovation of existing buildings (meeting specific energy performance improvements).
• Installation, maintenance, and repair of building equipment (focus on energy efficiency and low-carbon systems).

D. Waste:
New activities related to waste management.

• Green Activities:
• Sewage Sludge Treatment – Anaerobic Digestion or Co-digestion: For energy recovery.
• Collection and Transport of Non-hazardous Waste in Source Segregated Fractions: To facilitate recycling and treatment.
• Utilisation / Treatment of Domestic Waste – Anaerobic Digestion or Co-digestion: For energy recovery.

E. Manufacturing:
A new sector introduced in Phase 2A, focusing on critical industrial processes.

• Green Activities:
• Manufacture of Hydrogen: Production through electrolysis using renewable energy.
• Manufacture of Equipment for the Production of Hydrogen through Electrolysis: Focusing on electrolyzer manufacturing.
• Manufacture of Aluminium: Alumina refining and aluminium smelting with stringent emissions criteria.
• Transition Activities: Defined for hard-to-abate manufacturing processes (e.g., steel, cement) with time-bound decarbonisation pathways.

F. Information and Communications Technology (ICT):
Another new sector in Phase 2A, focusing on data centres and emissions reduction solutions.

• Green Activity (F-001): Construction, operation, or retrofitting of data centres:
• Energy Usage: Achieves specific PUE (Power Usage Effectiveness) levels (e.g., ≤1.35 at 100% IT load) or is powered by 100% renewable/low-carbon energy.
• Water Usage: Complies with specific WUE (Water Usage Effectiveness) thresholds (e.g., no more than 2.0 L/kWh) or uses advanced water treatment.
• GWP (Global Warming Potential): Refrigerants used must have a GWP ≤ 675, aligning with EU Taxonomy.
• For new data centre buildings, compliance with the Taxonomy’s green criteria for construction is also required.
• Transition Activity (F-001): Retrofitting and operations of existing data centres:
• Meets specific PUE thresholds (e.g., ≤1.40 at 100% IT load) with a commitment to meet Green Activity criteria by 2035.
• Meets specific WUE thresholds (e.g., no more than 2.3 L/kWh) with a commitment to meet Green Activity criteria by 2035.
• GWP criteria remain the same.
• Green Activity (F-002): Data-driven solutions for greenhouse gas emissions reductions:
• ICT solutions that provide data and analytics for energy efficiency and GHG emission reductions.
• Demonstrates life cycle GHG emissions reduction on par with best-performing solutions.
• Uses recognized methodologies (e.g., GHG Protocol) and verified by an independent third party.
• Alternatively, improves emission profiles of IT products/processes through energy efficiency, emission reduction, or maximizing product use.

Chapter III: Climate Change Adaptation

This chapter introduces a new environmental objective for Climate Change Adaptation, reflecting the increasing urgency of managing physical climate risks. The Taxonomy adopts a building block approach for phased development, starting with adapting measures.

• Core Principles:
• Adapting Measures-focused: Initial focus on specific components of activities rather than standalone activities.
• Localised for Hong Kong and adjacent regions: Tailored to local vulnerabilities and risks.
• Building block approach for phased development: Allows for incremental expansion.
• Assessment Approach: Primarily uses a Whitelist approach, where pre-defined adapting measures are automatically deemed eligible for making a substantial contribution to adaptation goals, minimizing maladaptation risks.
• Reporting: Only CapEx and OpEx can be classified as taxonomy-aligned for adaptation measures; revenue is excluded.
• Initial Focus Sector: Water Sector: Due to Hong Kong's vulnerabilities to tropical cyclones, heavy rain, and water scarcity.
• Climate Hazards: Flood damage and water stress.
• Impacts: Asset value loss, net revenue loss.
• Whitelisted Adapting Measures (Water Sector):
• Wastewater Collection and Treatment (G-001): Implementation of stormwater separation: Associated ISIC Codes: 3600, 4290. Adaptation outcome: Reduced physical vulnerability.
• Water Supplies (G-002): Installing water metering: Associated ISIC Codes: 4322. Adaptation outcome: Improved adaptive capacity.
• Future Scope: Other climate hazards like storm damage, mass movement damage, and heat stress will be explored for inclusion in future iterations across relevant sectors (buildings, transportation, energy infrastructure).

Key Changes:

• Introduction of Climate Change Adaptation Objective: A significant expansion beyond mitigation.
• Introduction of Transition Category: For carbon-intensive activities with defined decarbonisation pathways.
• Transition Activity: For whole activities.
• Transition Measure: For components of activities.
• Expansion of Sectors:
• New Sectors: Manufacturing and Information and Communications Technology (ICT).
• Expanded Sectors: Energy and Transportation.
• New Green Activities:
• Energy: Transmission and Distribution of Renewable and Low-carbon Gases, District Heating and Cooling, Electricity Storage Systems.
• Transportation: Transport by Motorbikes, Passenger Cars and Light Commercial Vehicles, Low-carbon Transport Infrastructure.
• Waste: Sewage Sludge Treatment – Anaerobic Digestion or Co-digestion, Collection and Transport of Non-hazardous Waste in Source Segregated Fractions, Utilisation / Treatment of Domestic Waste – Anaerobic Digestion or Co-digestion.
• Manufacturing: Manufacture of Hydrogen, Manufacture of Equipment for the Production of Hydrogen through Electrolysis, Manufacture of Aluminium (Alumina refining, Aluminium smelting).
• ICT: Construction, operation, or retrofitting of data centres (F-001); Data-driven solutions for greenhouse gas emissions reductions (F-002).
• Revised Green Activities: Transmission and distribution of electricity enhanced.
• Specific Thresholds and Criteria: Detailed metrics, PUE values, WUE values, and GWP caps are defined for various activities. For instance, a GWP cap of 675 for refrigerants in ICT.
• Whitelist Approach for Adaptation: Initial reliance on a predefined list of adapting measures for the Water sector.
• Alignment with International Standards: Continues to align with Common Ground Taxonomy (CGT) and explore compatibility with Multi-Jurisdiction Common Ground Taxonomy (M-CGT).
• Emphasis on Local Context: Tailored criteria and considerations for Hong Kong's specific economic structure and sustainability priorities.
• Voluntary Adoption: The Taxonomy is designed for voluntary adoption, with future exploration of incorporation into supervisory policies.

Important Dates:

• January 2026: Publication of Hong Kong Taxonomy for Sustainable Finance (Phase 2A).
• May 2024: Publication of Phase 1 of the Hong Kong Taxonomy.
• September 2025: Public consultation on Phase 2A conducted.
• Before 2035: Hong Kong to phase out coal for daily electricity generation.
• By 2035: Hong Kong aims for net-zero electricity generation before 2050, with renewable energy mix targeted at 7.5% to 10%, increasing to 15% subsequently.
• By 2030: Sunset date for transition activities and measures in the Maritime Transport sector.
• By 2035: Sunset date for transition activities and measures in the Energy sector.
• By 2035: Data centres undertaking Transition Activities must commit to meeting Green Activity criteria for PUE and WUE.
• Ongoing: The Taxonomy will continue to evolve and expand with subsequent phases.

Impact Scope:

• Applicable Parties:
• Financial Institutions: Banks, asset managers, insurers, and other financial service providers.
• Corporates: Companies across various sectors, including those in energy, transportation, construction, waste, manufacturing, and ICT.
• Investors: Institutional and retail investors seeking sustainable investment opportunities.
• Regulators and Policymakers: For guiding policy development and supervisory approaches.
• Public Sector: Government agencies and entities involved in sustainable infrastructure and projects.
• Affected Institutions: All entities involved in issuing, underwriting, investing in, or reporting on sustainable finance products and activities.
• Degree of Impact:
• High Impact: For entities actively developing or marketing green and sustainable finance products, or those seeking to finance transition activities in carbon-intensive sectors. The Taxonomy provides clarity and credibility.
• Medium Impact: For entities assessing their portfolio's sustainability alignment or seeking to improve their ESG performance.
• Low Impact: For entities not directly involved in sustainable finance, but awareness is crucial for future business strategy and market trends.
• Data Management: Institutions will need to enhance their data collection, management, and reporting capabilities to comply with the detailed criteria and metrics.

Compliance Requirements:

• Voluntary Adoption: The Taxonomy is currently designed for voluntary adoption. However, market participants are encouraged to align their activities and investments with its criteria.
• Alignment Assessment: Institutions will need to assess their activities and investments against the specific criteria and thresholds outlined for each category (Green, Transition, Exclusion).
• Reporting: While not mandated by the Taxonomy itself, market practice, investor demand, and potential future regulatory requirements will necessitate robust reporting on Taxonomy alignment. This includes reporting on Capital Expenditure (CapEx), Operational Expenditure (OpEx), and Revenue for Green activities, and CapEx/OpEx for Transition Activities/Measures. For Adaptation measures, only CapEx and OpEx can be reported.
• Due Diligence: Financial institutions and investors will need to conduct due diligence on the Taxonomy alignment of projects and companies they finance or invest in.
• Data Verification: Independent verification of emissions reductions and adherence to criteria may be required, particularly for Green Activities and data-driven solutions.
• Transition Planning: For entities engaging in Transition Activities, credible decarbonisation plans with defined pathways and sunset dates will be essential.
• Stakeholder Engagement: Ongoing engagement with stakeholders is a core principle, implying a need for continuous dialogue and feedback on the Taxonomy's application and evolution.

Technical Details:

• Key Terms and Definitions:
• Green Activity: Substantial contribution to climate mitigation, operating at near zero emissions or aligned with 1.5°C pathway.
• Transition Activity: Carbon-intensive activity on a time-bound decarbonisation journey or enabling significant short-term emissions reductions.
• Transition Measure: A component of an activity to materially reduce emissions.
• Exclusion Category: Incompatible with 1.5°C future, not progressing, or low climate materiality.
• Paris Agreement 1.5°C Climate Goals: The scientific benchmark for mitigation efforts.
• Scope 1, 2, 3 Emissions: Direct, indirect energy-related, and other indirect emissions.
• PUE (Power Usage Effectiveness): Ratio of total facility energy to IT equipment energy.
• WUE (Water Usage Effectiveness): Ratio of water consumed to IT equipment energy.
• GWP (Global Warming Potential): Measure of heat trapped by greenhouse gases relative to CO2.
• Maladaptation: Unintended increase in vulnerability to climate hazards.
• Adapting Measures: Sub-components of activities contributing to resilience.
• Whitelist Approach: Pre-approved list of adapting measures.
• ISIC Codes: International Standard Industrial Classification of All Economic Activities, used for associating activities with specific industries.
• Standards and Metrics:
• gCO2e/kWh: Grams of carbon dioxide equivalent per kilowatt-hour for electricity generation emissions intensity.
• PUE Thresholds: Defined for different IT loads in data centres (e.g., ≤1.35 at 100% IT load for Green Activity).
• WUE Thresholds: Defined for data centres (e.g., ≤2.0 L/kWh for Green Activity).
• GWP Cap: 675 for refrigerants in ICT.
• GHG Protocol, ISO 14067:2018, ISO 14064-2:2019: Methodologies for calculating GHG emissions reductions.
• Specific Numbers and Ratios:
• HK$240 billion: Allocation for climate change mitigation and adaptation measures over 15-20 years in Hong Kong.
• US$66 trillion: Estimated climate investment required in Asia (2020-2050).
• US$22 trillion: Projected investment needed in China (2020-2060).
• 61%: Hong Kong's total carbon emissions from the energy sector in 2023.
• ~60% to 70%: Target for zero-carbon energy in the total fuel mix before 2035.
• 7.5% to 10%: Target for renewable energy in the fuel mix by 2035.
• 15%: Further increase in renewable energy mix subsequently.
• 2035: Phase-out of coal for daily electricity generation.
• 2030: Sunset date for transition activities and measures in Maritime Transport.
• 2035: Sunset date for transition activities and measures in the Energy sector.
• 675: Maximum GWP for refrigerants in ICT data centres.
• 4.1%: Proportion of proceeds from the Government Sustainable Bond Programme allocated to adaptation projects as of 30 September 2024.
• HK$194 billion: Proceeds from adaptation-focused projects under the Government Sustainable Bond Programme as of 30 September 2024.
• Attachments, Tables, and Appendices:
• Appendix: Associated ISIC Codes: Provides a list of ISIC codes linked to the defined economic activities, facilitating industry classification.
• Table 1: Classifications under Transition category: Differentiates between Transition Activity and Transition Measure, outlining their definitions, scope, time-bound nature, and reporting eligibility.
• Table 2: Eligibility of taxonomy alignment for Green and Transition categories: Summarizes how CapEx, OpEx, and Revenue are considered for each category.
• Table 3: Energy Sector – Activity Classification: Lists the Green, Transition, and Transition Measure activities within the Energy sector.
• Table 4: Presents emissions intensity thresholds for activities within the Energy sector (content truncated in provided text).
• Table 16: Green PUE value required at different IT loads for data centres.
• Table 17: Transition PUE value required at different IT loads for data centres.
• Table 18: Whitelisted adapting measures within Water Sector: Details specific adapting measures, their ISIC codes, impacts of hazards, and adaptation outcomes in the Water sector for Climate Hazard: Flood Damage and Water Stress.

This comprehensive summary provides executives with the necessary details to understand the implications and requirements of the Hong Kong Taxonomy for Sustainable Finance (Phase 2A).