Summary of the HKMA Consultation Report: Prototype of Hong Kong Taxonomy for Sustainable Finance (Phase 2A)
This document summarises the consultation process and feedback received on the Prototype of Hong Kong Taxonomy for Sustainable Finance (Phase 2A), published by the Hong Kong Monetary Authority (HKMA) on September 8, 2025. The report details the findings of the public consultation, outlines the HKMA's responses to the feedback, and provides insights into the further development and implementation of the Hong Kong Taxonomy.
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1. Document Overview
Nature and Purpose: This document is a Consultation Report prepared by the HKMA in collaboration with the Climate Bonds Initiative. It presents the outcomes of a public consultation on the Prototype of Hong Kong Taxonomy for Sustainable Finance (Phase 2A). The primary purpose of the report is to:
- Summarise the feedback received from various stakeholders on the proposed Phase 2A prototype.
- Outline the HKMA's responses and the adjustments made to the Phase 2A Taxonomy based on the feedback.
- Inform the ongoing development and implementation of the Hong Kong Taxonomy, which aims to be an enabling tool for market participants to make informed decisions regarding green and sustainable finance and to scale up relevant capital flows in Hong Kong.
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2. Main Content
The report details the feedback received on the Phase 2A prototype, which builds upon Phase 1 of the Hong Kong Taxonomy (published May 2024) by introducing new green activities, transition elements, and a new environmental objective focused on climate change adaptation. The consultation aimed to gather diverse perspectives from financial institutions, corporates, industry bodies, non-governmental organisations, and other stakeholders.
Key themes covered in the report include:
- Overall Reception: The Phase 2A prototype was generally well-received and strongly supported by market participants, who recognized it as an important step towards a credible, interoperable, and usable sustainable finance framework for Hong Kong.
- Taxonomy Design and Structure: Respondents found the framework well-designed, logically organised, and robust, with a clear hierarchical structure and user-friendly activity cards. The classification into Green Activity, Transition Activity, and Exclusion categories was viewed as a practical "traffic-light" approach.
- Transition Elements: The inclusion of transition principles and separate categories for "Transition Activities" and "Transition Measures" was highly welcomed. Respondents emphasized the importance of these for facilitating transition finance, particularly for SMEs, and ensuring a credible, science-based approach to decarbonisation.
- Climate Change Adaptation: The introduction of climate change adaptation as a new environmental objective was well-received, with a focus on water-related measures for Phase 2A. This was considered particularly relevant for Hong Kong's climate resilience needs.
- Sector Expansion: The expansion of the Taxonomy's scope to include new sectors, namely Manufacturing and Information and Communications Technology (ICT), was a significant improvement highlighted by respondents.
- Methodology and Criteria: Feedback was provided on the credibility, usability, clarity, and ambition of the metrics and technical criteria, with suggestions for improvement and local adaptation.
- Interoperability: While alignment with global and regional frameworks was acknowledged, respondents requested clearer explanations and visual mappings to facilitate comparison with major taxonomies like the EU Taxonomy and China's Green Bond Endorsed Project Catalogue.
- Implementation and Use Cases: Respondents offered suggestions on how the Taxonomy could be used in Hong Kong, prioritising use cases such as guiding sovereign and sustainable debt issuances, supporting ESG fund products, and facilitating innovative financing.
The report then elaborates on specific feedback and HKMA responses across various categories:
- Harmonisation and Interoperability: The HKMA clarified that Phase 2A incorporates Phase 1 and will supersede it. It also highlighted that references to mainstream taxonomies are documented, and ISIC codes have been added for cross-referencing. Hong Kong will continue to participate in international interoperability initiatives.
- Interface between Taxonomy and Transition Plans: The HKMA responded to suggestions for entity-level criteria by explaining that transition plans at either activity or entity level are required in specific cases (e.g., maritime vessels, data centres). The Taxonomy is intended to complement these plans by providing detailed, activity-level technical criteria.
- Mitigation Framework – Transition Elements: The HKMA clarified the distinction between Transition Activities (activities not yet 1.5°C aligned but progressing or enabling short-term emission reductions) and Transition Measures (specific components or interventions improving emission performance). Transition Measures are eligible for transition CapEx and OpEx financing only, not revenue alignment.
- Mitigation Framework – Sunset Dates: Respondents supported sunset dates, with some suggesting extensions. The HKMA explained that sunset dates are determined by various factors including technology maturity, market readiness, climate commitments, and international alignment.
- Adaptation Framework: The HKMA acknowledged support for the adaptation framework, noting the initial whitelist approach. Future phases will explore more sophisticated assessment methods.
- Taxonomy Alignment Metrics (CapEx, OpEx, Revenue): Clarifications were provided on the definitions and significance of Capital Expenditure (CapEx), Operational Expenses (OpEx), and Revenue in relation to Taxonomy alignment.
- Sector-Specific Feedback: Detailed discussions and HKMA responses are provided for various sectors, including:
- Energy Sector: Transmission and distribution of electricity (emissions thresholds, grid emissions factor), transmission and distribution of renewable and low-carbon gases (definitions, PPA eligibility, throughput vs. design capacity), storage of electricity (battery and fossil fuel energy sources), district heating and cooling (thresholds, exclusion of waste heat from fossil fuels), and fossil gas power generation (potential inclusion in future phases, emissions thresholds).
- Transportation Sector: Personal mobility devices, cycle logistics, motorbikes, passenger cars, and light commercial vehicles (scope clarification).
- Buildings Sector: Construction of new buildings, retrofitting of existing buildings, and installation/maintenance of building equipment (alignment with BEAM Plus, energy saving thresholds, lifecycle approach, embodied carbon, qualitative criteria, eligible certifications).
- Waste Sector: Sewage sludge treatment and utilisation/treatment of domestic waste (quantitative definition of biogas utilisation, bio-waste thresholds, chemical definitions).
- Manufacturing Sector: Manufacture of hydrogen (activity scope, geological hydrogen, derivatives, lifecycle emissions scoping, renewable electricity correlation), manufacture of aluminium (calculation methodology, Hong Kong-specific thresholds, forward-looking thresholds).
- ICT Sector: Data processing, hosting and related activities (BEAM Plus standards, water usage effectiveness, GWP of refrigerants, construction of new data centres), data-driven solutions for GHG emissions reductions (demonstration of GHG reductions, minimum requirements for IT industry improvements).
- Further Development and Implementation:
- Expansion of the Taxonomy: Recommendations for future inclusions in mitigation and adaptation were noted, including waste-to-energy, landfill gas collection, water and wastewater treatment, critical mineral mining, and sectors like agriculture and forestry. Other environmental objectives proposed include pollution prevention, biodiversity, sustainable water resources, and circular economy.
- Taxonomy Implementation: Priority use cases identified include sovereign issuances, sustainable debt issuances, ESG fund products, and innovative financing. The Taxonomy is also seen as a tool for shaping local policies and corporate strategies.
- DNSH and MSS: Respondents sought further guidance on Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS), including considerations for a just transition and alignment with global standards.
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3. Key Changes
The consultation report outlines the feedback and the HKMA's responses, leading to potential adjustments and clarifications for the Hong Kong Taxonomy. The key changes and clarifications emerging from this Phase 2A consultation include:
- Superseding Phase 1: Phase 2A Taxonomy will supersede Phase 1 Taxonomy. All future references and criteria should align with Phase 2A.
- Introduction of Transition Elements:
- Transition Activities: A new category for economic activities that are not yet aligned with a 1.5°C pathway but are progressing towards alignment or enable significant short-term emissions reductions by a designated sunset date. The entire activity can access sustainable financing.
- Transition Measures: A category for specific components and interventions within an activity that partially improve emission performance, facilitating financing for granular processes and technologies. These are eligible only for transition CapEx and OpEx financing, not revenue alignment.
- Introduction of Climate Change Adaptation Objective: This new environmental objective, with a focus on water-related measures in Phase 2A, aims to enhance climate resilience. A whitelist approach has been adopted as an initial step.
- Expansion of Scope:
- New Sectors: Inclusion of Manufacturing and Information and Communications Technology (ICT) sectors.
- New Activities: Further activities within existing and new sectors are proposed for future consideration, such as waste-to-energy, landfill gas collection, methane recovery, water and wastewater treatment, desalination, critical mineral mining and refinement, and professional, scientific, and technical activities.
- Clarification on Interoperability: While alignment with global taxonomies is a guiding principle, specific ISIC codes have been added, and documentation of references to major frameworks is provided. The HKMA will continue to engage in international interoperability initiatives.
- Transition Plan Requirements: Activity-level and entity-level transition plans are now explicitly required for certain Transition Activities and Measures, providing safeguards for credible decarbonisation trajectories.
- Refined Sector-Specific Criteria: Numerous clarifications and refinements to technical criteria, definitions, and thresholds were made across sectors, including:
- Energy: Clarified emissions thresholds for transmission and distribution of electricity, definitions for renewable and low-carbon gases, and eligibility of batteries and thermal energy sources. Fossil gas power generation is under consideration for future phases.
- Buildings: Updated alignment with BEAM Plus requirements, consideration of new standards (BEC 2024), and clarification on Zero-Carbon-Ready Building Certification.
- Manufacturing: Defined "cradle-to-site" methodology for hydrogen, clarified renewable electricity correlation requirements, and noted the development of Hong Kong-specific thresholds for aluminium production.
- ICT: Enhanced clarity on water usage and GWP of refrigerants for data centres, with provisions for alternative cooling methods and phased refrigerant transitions.
- Definitions of Key Metrics: Explicit definitions of Capital Expenditure (CapEx), Operational Expenses (OpEx), and Revenue have been provided in the context of Taxonomy alignment.
- Future Development Focus: Prioritization of recommendations for material and relevant to Hong Kong, the Greater Bay Area, and the ASEAN region.
- DNSH and MSS Guidance: Acknowledged the need for further guidance and a clear stance on the inclusion of Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS).
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4. Important Dates
The document itself is dated January 2026, indicating it's a finalized report following a consultation process. The relevant dates mentioned or implied are:
- May 2024: Publication of Phase 1 of the Hong Kong Taxonomy for Sustainable Finance.
- September 8, 2025: Publication of the Prototype of Hong Kong Taxonomy for Sustainable Finance (Phase 2A) for public consultation.
- Consultation Period: The consultation period occurred after the September 8, 2025, publication and prior to the January 2026 report finalisation. Specific start and end dates are not provided in the provided text.
- Future Phases/Updates: The report extensively discusses "further development," "subsequent phases," and "future iterations" of the Taxonomy, implying an ongoing and iterative process with no specific deadlines for these future stages provided.
- Sunset Dates: Specific sunset dates for certain activities, such as 2040 for the manufacture of aluminium, are mentioned as examples within the consultation feedback. These dates are integral to the Taxonomy's transition framework.
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5. Impact Scope
The Phase 2A prototype and the resulting Taxonomy are designed to be an enabling tool for the financial market. Therefore, the impact scope is broad:
- Applicable Parties:
- Financial Institutions: Banks, asset managers, insurance companies, and other lenders and investors involved in financing green and sustainable projects.
- Corporates: Companies seeking to issue green or sustainability-linked debt, raise sustainable finance, or demonstrate their commitment to sustainability.
- Industry and Professional Associations: Bodies representing various sectors, providing guidance and best practices.
- Non-Governmental Organisations (NGOs): Environmental advocacy groups and sustainability watchdogs.
- Regulators and Policymakers: Shaping sustainable finance policies and frameworks.
- Investors: Making informed decisions about sustainable investments.
- Affected Institutions: All entities involved in the green and sustainable finance ecosystem in Hong Kong, and potentially those engaging in cross-border sustainable finance. The report indicates 25 responses were received from a diverse range of these stakeholders, highlighting the broad interest.
- Degree of Impact:
- Direct Impact: For entities actively seeking or providing green/sustainable finance, the Taxonomy will serve as a direct benchmark and criteria for eligibility. It will influence the design of financial products (e.g., green bonds, sustainability-linked loans).
- Indirect Impact: The Taxonomy will influence corporate strategies, investment decisions, risk management practices (related to transition and physical climate risks), and contribute to shaping market expectations and transparency in sustainable finance.
- Voluntary Tool (at this stage): The HKMA emphasizes that the Taxonomy is a voluntary tool. However, its adoption is encouraged through regulatory support and its utility in meeting market demands and international standards. The perceived benefits and alignment with global best practices are likely to drive adoption.
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6. Compliance Requirements
As the Taxonomy is a voluntary tool at this stage, direct compliance requirements are limited. However, the report outlines the guidance and expected practices for entities wishing to align with the Taxonomy:
- Alignment with Technical Criteria: Entities that wish to label their activities or assets as "Green Activity" or "Transition Activity" must adhere to the specific metrics and technical criteria outlined within the Taxonomy for each relevant sector and activity. This involves meeting defined thresholds for emissions reduction, resource efficiency, etc.
- Use of Transition Plans: For activities classified as "Transition Activities" or "Transition Measures," the implementation and demonstration of credible activity-level or entity-level transition plans are required. These plans must outline a clear pathway towards meeting relevant Green Activity criteria or demonstrating significant short-term emissions reductions.
- Documentation and Reporting: While not explicitly stated as mandatory reporting *to the HKMA* at this stage, entities using the Taxonomy would need to maintain robust documentation to substantiate their alignment with the criteria. This would include data on emissions, energy usage, water consumption, material inputs, and the effectiveness of transition measures. This documentation would be crucial for internal verification, external assurance (if sought), and for providing transparency to investors and stakeholders.
- Use of Defined Metrics: Adherence to the definitions and methodologies for Capital Expenditure (CapEx), Operational Expenses (OpEx), and Revenue in assessing Taxonomy alignment is expected.
- Data Source Requirements: For adaptation measures, leveraging specific data sources (e.g., Hong Kong Observatory, Environmental Protection Department, ISO standards, ESG frameworks, insurance risk models) is suggested for developing robust technical screening criteria.
- Lifecycle Assessment: For certain activities, like the manufacture of hydrogen, a specific lifecycle assessment methodology ("cradle-to-site") is outlined, requiring consideration of emissions from various stages of production and excluding end-use emissions. Reference to ISO standards for detailed calculations is recommended.
- Correlation of Renewable Electricity: For hydrogen production, demonstrating temporal (monthly minimum, hourly best practice) and geographical correlation of additional renewable electricity usage with the production plant is required.
- Regulatory Support for Adoption: The HKMA acknowledges the voluntary nature and suggests regulatory agencies can provide support to increase adoption through:
- Developing clear guidance and frameworks.
- Promoting education and capacity building.
- Facilitating dialogue between stakeholders.
- Potentially integrating the Taxonomy into future regulatory initiatives where appropriate.
- DNSH and MSS Considerations: While not fully defined, there's a stated need for further guidance on Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS), indicating these will likely become important considerations for comprehensive alignment in future iterations or related frameworks.
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7. Technical Details
This section retains important technical terms, definitions, standards, and metrics mentioned in the document.
- Taxonomy Categories:
- Green Activity: Economic activities that substantially contribute to one or more environmental objectives and do no significant harm to any other environmental objective, while meeting minimum social safeguards.
- Transition Activity: Economic activities that are not yet aligned with a 1.5°C pathway but are progressing towards alignment or enable significant short-term emissions reductions by the designated sunset date. The entire activity can access sustainable financing.
- Transition Measure: Specific components and interventions within an activity that could partially improve the emission performance of the activity, facilitating access to sustainable financing options for granular processes and technologies. These are eligible for transition CapEx and OpEx financing only.
- Exclusion Category: Activities that are explicitly excluded from the Taxonomy.
- Environmental Objectives:
- Climate Change Mitigation
- Climate Change Adaptation (newly introduced for Phase 2A, focusing on water-related measures)
- Pollution Prevention (proposed for future consideration)
- Biodiversity and Nature (proposed for future consideration)
- Sustainable Use and Protection of Water Resources (proposed for future consideration)
- Circular Economy (proposed for future consideration)
- Key Metrics and Standards:
- Emissions Thresholds: Measured in grams of CO2 equivalent per kilowatt-hour (gCO2e/kWh) or other relevant units, depending on the sector. Examples: 100 gCO2e/kWh (EU Taxonomy alignment for green electricity generation), 345 gCO₂e/kWh (TPI for non-OECD countries).
- Power Usage Effectiveness (PUE): A metric for data centre energy efficiency.
- Water Usage Effectiveness (WUE): A metric for data centre water efficiency.
- Global Warming Potential (GWP): Measured for refrigerants used in data centres (e.g., threshold of 675).
- Percentage Gas Thresholds: For renewable and low-carbon gases in transmission and distribution.
- Emissions Budget: Used in the manufacture of aluminium, referencing frameworks like the International Aluminium Institute’s (IAI) 1.5°C scenario.
- BEAM Plus: Hong Kong’s green building assessment tool, referenced for building sector criteria.
- BEC (Building Energy Code): Referenced for energy saving thresholds in buildings.
- NABERS Scheme: Referenced for building performance, with clarification on the exclusion of GreenPower as a substitute for intrinsic efficiency.
- Mandatory Energy Efficiency Labelling Scheme (MEELS) & Voluntary Energy Efficiency Scheme (VEELS): Local schemes for labelling energy-efficient equipment.
- ISO Standards: ISO 14040, ISO 14044, ISO 14067, ISO 19870 (for lifecycle assessment calculations).
- International Standard Industrial Classification of All Economic Activities (ISIC): Codes added to each activity for cross-referencing.
- Transition Plan Specifics:
- Activity-Level Transition Plans: Required for certain Transition Activities (e.g., maritime vessels, data centres).
- Entity-Level Transition Plans: Required for certain Transition Measures (e.g., forward-looking decarbonisation technologies).
- 1.5°C Pathway: The benchmark for credible transition trajectories.
- Financing Metrics:
- Capital Expenditure (CapEx): Payment for assets to maintain or grow a business; recorded on the balance sheet.
- Operational Expenses (OpEx): Shorter-term costs for ongoing business operations (e.g., maintenance, R&D).
- Revenue (Net Turnover): Money derived from sales of products and provision of services.
- Referenced Global Frameworks/Initiatives:
- EU Taxonomy: A key reference for criteria and approach.
- China’s Green Bond Endorsed Project Catalogue: Another important reference.
- Multi-Jurisdiction Common Ground Taxonomy: Used for comparison.
- IEA Net Zero by 2050 Roadmap: Referenced in discussions on fossil gas power generation.
- Transition Pathway Initiative (TPI): Referenced for emissions thresholds for non-OECD countries.
- International Aluminium Institute (IAI): Referenced for aluminium sector emissions pathways.
- Kunming-Montreal Global Biodiversity Framework & ASEAN Taxonomies: Referenced for biodiversity considerations.
- Intergovernmental Panel on Climate Change (IPCC), United Nations Environment Programme (UNEP), Science Based Targets Initiative (SBTi): Referenced for scientific studies and embodied carbon.
- Local Contextual Elements:
- Hong Kong Climate Action Plan 2050: Used as a reference point for emissions reduction targets.
- Hong Kong Observatory, Environmental Protection Department, Environment and Ecology Bureau: Sources for local climate and environmental data.
- BEAM Plus, BEC: Hong Kong-specific building standards.
- Mandatory Energy Efficiency Labelling Scheme (MEELS) & Voluntary Energy Efficiency Scheme (VEELS): Hong Kong labelling schemes.
- Definition of Key Terms:
- Renewable and Low-Carbon Gas: Defined as non-fossil gases, including biogas, biomethane, and hydrogen and its derivatives.
- Cradle-to-Site Methodology: For hydrogen manufacture, accounting for emissions from feedstock acquisition to storage, excluding end-use.
- Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS): Concepts requiring further clarification and guidance, aligned with international standards.
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*End of Summary*