Enclosure - Consultation Report: Prototype of Hong Kong Taxonomy for Sustainable Finance (Phase 2A)

This document is a consultation report by the Hong Kong Monetary Authority (HKMA) detailing feedback received on the prototype of the Hong Kong Taxonomy for Sustainable Finance (Phase 2A). The report aims to provide a summary of stakeholder input and the HKMA's responses, outlining adjustments made to the Phase 2A Taxonomy based on this feedback. This enhanced Taxonomy is intended to serve as an enabling tool for the financial sector to identify and scale up green and sustainable finance activities in Hong Kong.

Here's a detailed summary:

This report presents the findings of a public consultation conducted by the Hong Kong Monetary Authority (HKMA) on the prototype of the Hong Kong Taxonomy for Sustainable Finance (Phase 2A). The primary purpose of the Taxonomy is to act as a standardized framework to identify and facilitate green and sustainable finance activities, thereby scaling up relevant capital flows. Phase 2A builds upon Phase 1 (published in May 2024) by introducing new green activities, transition elements, and a new environmental objective focusing on climate change adaptation. The report summarizes the feedback received from various stakeholders, analyzes key areas of consensus and concern, and outlines the HKMA's responses and the resulting adjustments to the Phase 2A Taxonomy. This consultation process aims to ensure the Taxonomy remains robust, internationally aligned, and practical for the Hong Kong market.

The core of this report revolves around the feedback received on the Phase 2A prototype and the HKMA's subsequent revisions. The feedback was gathered through specific consultation questions covering the Taxonomy's design, structure, scope, methodology, sector-specific criteria, and implementation aspects.

Key Developments in Phase 2A:

• Expanded Scope: Phase 2A introduces new sectors, specifically Manufacturing and Information and Communications Technology (ICT).
• New Environmental Objective: A new environmental objective has been added: Climate Change Adaptation, with an initial focus on water-related measures.
• Transition Elements: The Taxonomy now incorporates distinct categories for Transition Activities and Transition Measures to facilitate transition finance.
• Harmonization and Interoperability: Efforts have been made to align the Hong Kong Taxonomy with international and regional frameworks such as the European Union (EU) Taxonomy and China's Green Bond Endorsed Project Catalogue.
• Methodology Enhancements: The methodology incorporates science-based approaches, time-bound criteria, and sunset dates for transition activities.

Feedback and HKMA Responses:

The report details specific feedback and the HKMA's responses across several key areas:

• Taxonomy Design and Structure: Respondents generally praised the design, structure, and ease of navigation, particularly the hierarchical structure and "traffic-light" approach (Green Activity, Transition Activity, Exclusion). The inclusion of International Standard Industrial Classification of All Economic Activities (ISIC) codes was a positive step for cross-referencing.
• Harmonization and Interoperability: While alignment with global frameworks was appreciated, respondents requested clearer explanations and visual mappings to major frameworks like the EU Taxonomy and China's Green Bond Endorsed Project Catalogue. The HKMA clarified that Phase 2A supersedes Phase 1 and references to major taxonomies are documented.
• Transition Elements: The introduction of Transition Activities and Transition Measures was strongly supported, recognizing the importance of transition finance, especially in the Asian context.
• Transition Activities: Defined as economic activities not yet aligned with a 1.5°C pathway but progressing towards alignment or enabling significant short-term emissions reductions by a designated sunset date. These activities can access sustainable financing.
• Transition Measures: Defined as specific components or interventions within an activity that can partially improve emission performance, enabling financing for granular processes and technologies when the entire activity doesn't qualify as Green or Transition. These are eligible for transition capital expenditure (CapEx) and operational expenses (OpEx) financing, but not revenue alignment.
• Transition Plans: The HKMA clarified that transition plans can be required at the activity level (e.g., maritime vessels, data centers) or entity level (for specific forward-looking decarbonisation technologies). These plans serve as safeguards for credibility and progress.
• Climate Change Adaptation: The inclusion of climate change adaptation as an objective was welcomed, with a whitelist approach for adaptation measures being considered a pragmatic starting point. Respondents suggested expanding the whitelist, incorporating technical criteria, and developing maladaptation checks. The HKMA will explore more sophisticated approaches in subsequent phases, considering local contexts and evolving global understanding.
• Taxonomy Alignment Metrics (CapEx, OpEx, Revenue):
• Revenue: Money derived from the sale of products and services after deductions. Taxonomy-aligned revenue is the proportion of net turnover from aligned activities.
• CapEx: Payments for goods or services to maintain or grow assets. Taxonomy-aligned CapEx is the proportion of CapEx for aligned activities.
• OpEx: Shorter-term costs for ongoing operational needs. Taxonomy-aligned OpEx is the proportion of OpEx for aligned activities.
  The HKMA clarified that Transition Measures are only eligible for transition CapEx and OpEx financing and cannot claim revenue alignment.
• Sector-Specific Feedback:
• Energy Sector:
• A-004 Transmission and distribution of electricity: The HKMA clarified that emissions thresholds for generation capacity are necessary for a whole-system approach and align with global taxonomies. A 67% threshold for Green Activity aligns with the EU Taxonomy, and a 50% threshold for Transition Activity aligns with Hong Kong's Climate Action Plan 2050 (50% reduction by 2035). Grid emissions factors are based on historical data over a five-year period.
• A-005 Transmission and distribution of renewable and low-carbon gases: Defined as non-fossil gases (biogas, biomethane, hydrogen and derivatives). Long-term Power Purchase Agreements (PPAs) are eligible. Percentage gas thresholds are based on actual throughput.
• A-006 Storage of electricity: All types of batteries are eligible. Fossil gas-based electricity storage is permitted only for firming and backup power.
• A-007 District heating and cooling: Thresholds are tiered for inclusivity, referencing the EU Taxonomy for Green Activity. Waste heat or cogenerated heat from fossil fuel-based operations has been excluded.
• Fossil gas power generation: Under consideration for future inclusion, with the HKMA acknowledging its transitional role. Criteria will be science-based and fit-for-purpose for the local context, potentially including localized decarbonisation pathways.
• Transportation Sector:
• B-002 Personal mobility devices, cycle logistics / B-003 Transport by motorbikes, passenger cars and light commercial vehicles: Clarified that light commercial vehicles have a maximum weight limit of 5.5 tonnes in Hong Kong, and motorbikes fall under B-003.
• Buildings Sector:
• C-001 and C-002 Construction and operation of buildings: The HKMA is reviewing updates to BEAM Plus and Building Energy Code (BEC) standards (e.g., BEAM Plus New Building v2.0 (2025 edition), BEC 2024) for future inclusion. Clarified that Zero-Carbon-Ready Building Certification refers to a specific reduction percentage. NABERS scheme does not allow GreenPower to substitute for intrinsic building efficiency.
• C-003 Installation, maintenance, and repair of building equipment: Qualitative criteria are retained, with a footnote added for clarity on eligible certifications (e.g., Mandatory Energy Efficiency Labelling Scheme (MEELS), Voluntary Energy Efficiency Scheme (VEELS) - Grade 1 and 2). The Taxonomy currently focuses on operational emissions due to data limitations on embodied carbon, but the Manufacturing sector expansion aims to address upstream emissions.
• Waste Sector:
• D-001 and D-003 Sewage sludge treatment / Utilisation/treatment of domestic waste – anaerobic digestion or co-digestion: It is intended for all biogas produced to be utilized, with flaring permitted only in rare breakdown cases. Bio-waste should be source-segregated, with food/feed crops limited to 10% of feedstock. Chemicals are defined broadly.
• Manufacturing Sector:
• E-001 Manufacture of hydrogen: Geological hydrogen is excluded for now. Hydrogen derivatives (low-carbon ammonia, methanol) are separate activities for future consideration. A "cradle-to-site" methodology is applied for lifecycle emissions, excluding end-use emissions. Additional renewable electricity usage requires temporal (monthly minimum, hourly best practice) and geographical correlation. Fossil fuel feedstock is restricted to technologies with the highest decarbonisation potential (electrolysis) to prevent carbon lock-in.
• E-003 and E-004 Manufacture of aluminium: Thresholds are based on the International Aluminium Institute's (IAI) 1.5°C scenario. Future consideration will be given to Hong Kong-specific thresholds and adapting to EU Taxonomy updates. Secondary aluminium production from scrap is considered automatically eligible under Green Activity.
• ICT Sector:
• F-001 Data processing, hosting and related activities: BEAM Plus standards are referenced. Alternative water usage options (recycled water, air cooling) are provided. The GWP threshold of 675 for refrigerants aligns with global taxonomies, encouraging a shift for new data centers, with retrofitting being a Transition Activity for existing ones. Multi-functional data centers are assessed under both C-002 (building structure) and F-001 (operations).
• F-002 Data-driven solutions for greenhouse gas emissions reductions: Criteria are qualitative to ensure broad inclusion. For solutions improving other sectors' emissions, comparison against best performers is required. For IT industry improvements, positive contributions to energy efficiency or GHG reduction are expected.

• Introduction of Transition Activities and Transition Measures: These categories are formally established to support financing for activities that are not yet fully green but are on a credible pathway to decarbonization.
• Inclusion of Climate Change Adaptation: A new environmental objective is added, initially focusing on water-related measures.
• Expansion of Sector Coverage: The Taxonomy now includes Manufacturing and Information and Communications Technology (ICT) sectors.
• Superseding of Phase 1: Phase 2A incorporates the content of Phase 1, meaning all future references should align with the latest criteria.
• Refined Methodology: Enhanced clarity on transition plan requirements (activity-level vs. entity-level), definition of CapEx, OpEx, and Revenue in the context of Taxonomy alignment.
• Specific Sector Criteria Updates: Numerous adjustments and clarifications for sectors like Energy, Buildings, Waste, Manufacturing, and ICT based on stakeholder feedback (e.g., specific thresholds, definitions, eligibility criteria).
• Harmonization Enhancements: Inclusion of ISIC codes for better cross-referencing with global taxonomies.

The document is a Consultation Report published in January 2026.
The prototype of Phase 2A Taxonomy for public consultation was published on 8 September 2025.
Phase 1 of the Hong Kong Taxonomy for Sustainable Finance was published in May 2024.
The HKMA is adopting a phased approach, implying future iterations and updates to the Taxonomy. Specific deadlines or effective dates for the finalized Phase 2A Taxonomy are not detailed within this consultation report, which focuses on the feedback received. However, it is implied that the finalized Phase 2A Taxonomy will be implemented in due course.

• Applicable Parties: The Hong Kong Taxonomy is a voluntary tool designed for market participants. This includes:
• Financial Institutions: Banks, asset managers, insurance companies (9 banks, 4 asset managers, 1 insurance company responded).
• Corporates: Businesses across various sectors seeking to issue green or sustainable finance instruments or align their operations.
• Industry and Professional Associations: Representing various sectors and providing industry-specific insights (7 associations responded).
• Non-Governmental Organisations (NGOs): Providing perspectives on environmental and social impacts (3 NGOs responded).
• Other Stakeholders: Including government bodies, regulators, and investors.
• Affected Institutions: Primarily financial institutions that will use the Taxonomy to assess eligibility of projects and assets for green and sustainable finance. Corporates issuing green bonds or seeking sustainable financing will also be directly affected.
• Degree of Impact: The impact is significant for institutions actively involved in sustainable finance. The Taxonomy provides a clear framework, reducing ambiguity and enhancing credibility. For those new to sustainable finance, it offers a roadmap for alignment. The inclusion of transition elements acknowledges the practicalities of decarbonization, potentially broadening the scope of eligible activities and investments.

The Hong Kong Taxonomy is a voluntary tool at this stage. However, its adoption is encouraged to:

• Facilitate Sustainable Capital Flows: Help channel and scale up sustainable capital from public and private sectors.
• Underpin Market Instruments: Serve as a benchmark for:
• Sovereign issuances (e.g., Government Sustainable Bond Programme).
• Sustainable debt issuances (debt capital markets, loan markets).
• ESG fund product issuance, labelling, and screening.
• Creation of innovative financing products, especially for adaptation finance.
• Shape Strategies: Inform local policies and corporate/investment strategies, including transition planning.
• Reporting: While voluntary, alignment with the Taxonomy can be used for reporting purposes, particularly for use-of-proceeds debt financing.
• Regulatory Support: The HKMA is considering actions and support mechanisms to increase adoption, although specific details are not elaborated in this report.

Key Aspects for Compliance/Implementation:

• Activity-Level and Asset-Level Assessment: Aligned with global taxonomies.
• Transition Plan Requirements: May be required at activity or entity level for specific transition activities/measures.
• Use of Metrics: Understanding and application of CapEx, OpEx, and revenue alignment.
• Adherence to Sectoral Criteria: Detailed technical criteria and metrics for each sector and activity.
• Use of ISIC Codes: For cross-referencing and interoperability.
• Potential Future Regulatory Measures: While currently voluntary, future regulatory integration or incentives are possible.

• Taxonomy Categories:
• Green Activity: Economic activities that substantially contribute to environmental objectives and meet specific technical screening criteria, causing no significant harm.
• Transition Activity: Economic activities that are not yet aligned with a 1.5°C pathway but are progressing towards alignment or enabling significant short-term emissions reductions by a designated sunset date.
• Transition Measure: Specific components or interventions within an activity that partially improve emission performance, facilitating access to sustainable financing for granular processes and technologies.
• Exclusion: Activities not eligible for sustainable finance.
• Environmental Objectives (Phase 2A):
• Climate Change Mitigation
• Climate Change Adaptation (newly introduced)
• Key Methodologies & Principles:
• Science-based methodologies
• Time-bound criteria
• Explicit sunset dates for transition activities and measures
• Activity-level and asset-level assessment approach
• Whitelist approach for adaptation measures (initially)
• Metrics:
• CapEx (Capital Expenditure): Payments for maintaining or growing assets.
• OpEx (Operational Expenses): Shorter-term costs for ongoing operations.
• Revenue: Money derived from sales/services.
• Emissions Thresholds: Specific quantitative limits (e.g., gCO2e/kWh) for various activities.
• Power Usage Effectiveness (PUE): A metric for data center energy efficiency.
• Water Usage Effectiveness (WUE): A metric for data center water efficiency.
• Global Warming Potential (GWP): For refrigerants.
• Key Frameworks Referenced:
• European Union (EU) Taxonomy
• China's Green Bond Endorsed Project Catalogue
• Multi-Jurisdiction Common Ground Taxonomy
• International Standard Industrial Classification of All Economic Activities (ISIC)
• Climate Bonds Initiative (CBI) Taxonomy 101 Guide
• IEA Net Zero by 2050 Roadmap
• Transition Pathway Initiative (TPI)
• International Aluminium Institute (IAI)
• BEAM Plus standards
• Building Energy Code (BEC)
• Mandatory Energy Efficiency Labelling Scheme (MEELS)
• Voluntary Energy Efficiency Scheme (VEELS)
• ISO standards (ISO 14040, ISO 14044, ISO 14067, ISO 19870)
• Kunming-Montreal Global Biodiversity Framework
• Leadership in Energy and Environmental Design (LEED) v5
• BREEAM v7
• Intergovernmental Panel on Climate Change (IPCC)
• United Nations Environment Programme (UNEP)
• Science Based Targets Initiative (SBTi)
• Specific Thresholds Mentioned:
• Transmission and distribution of electricity (A-004): 67% for Green Activity (newly enabled generation capacity), 50% for Transition Activity.
• Data centres (F-001): GWP threshold of 675 for refrigerants.
• Lifecycle Assessment: "Cradle-to-site" methodology applied for hydrogen manufacture (E-001).

This summary provides a comprehensive overview of the HKMA's Consultation Report on the Hong Kong Taxonomy for Sustainable Finance (Phase 2A), highlighting its purpose, key developments, stakeholder feedback, and technical underpinnings, suitable for executive decision-making.