The budgets announced recently from Hong Kong and Singapore highlight two different approaches to sustainability at the moment.

The two cities have long been locked in a financial rivalry, one that has increasingly focused on sustainable finance.

The Covid-19 pandemic allowed Singapore to advance ahead of Hong Kong in the green and sustainable finance league tables. Green and sustainable debt issuance more than doubled in 2021 to $99bn, according to the International Capital Market Association. Almost half of these bonds were listed on SGX, while Hong Kong, next in line, stood at 26%.

What has also helped is that the Singapore bourse is also ahead of the regional – and arguably even global – curve on setting disclosure requirements for green bond issuers.

In its 2023 budget, Singapore seemed more focused on the social aspects of ESG; the post-Covid-19 pandemic recovery, supporting economic growth and addressing inflation as well as the cost-of-living pressures.

On the other hand, Hong Kong’s budget gave a clear indication of its financial ambitions.

A report last week from Sustainable Fitch confirms this.

“The sharper focus in Hong Kong’s budget on boosting green business indicates the segment’s importance to the region’s long-term financial services industry strategy,” is the conclusion that authors Melissa Cheok, associate director of ESG research at Sustainable Fitch in Singapore, and Nneka Chike-Obi, head of APAC ESG ratings and research in Hong Kong for Sustainable Fitch, come to.

A love letter to S

So how did the budgets stack up?  Well, Singapore went first. Announced on 14 February, the budget was interpreted – rather appropriately given the date – as a love letter to the social aspects of ESG. “Generous,” was how Selena Ling, chief economist of OCBC Bank in Singapore, described it.

Aware of the demographic challenges that are facing all developed countries, Suan Teck Kin, head of research at UOB Bank in Singapore, noted that the budget tackled not only an ageing population but also falling fertility.

The incentives to “support parenthood into a new era” are, as he said – echoing OCBC’s Ling – “generous”.  These include more cash support in the form of a higher baby bonus and an increase in government contributions to the Child Development Account (CDA).

Government-paid paternity leave will be doubled, and Working Mother’s Child Relief will no longer be calculated as a percentage of the mother’s earned income, which will help lower-income working mothers. There was also the introduction of various types of housing support for families.

There has been a flavour of social issuance from the Lion City over the past 12 months.

At the beginning of April last year, healthcare-focused First REIT sold a S$100m ($73.8m) 3.25% five-year social bond, proceeds of which have been used to improve the quality of and access to healthcare services in Indonesia. And the country’s AAA-rated Housing and Development Board, the country’s public housing authority, raised S$3.3bn in three trips to the green bond markets last year.

Where Singapore fell was finance minister Lawrence Wong’s silence on any further measures to advance Singapore’s green transition, or indeed comment at all, about Singapore’s carbon tax.

Set at S$5 per tonne of carbon dioxide from 2019 to 2023, it will rise to S$25 next year.

UOB’s Suan called it a “notable absence”.

Roadmap for green finance

A week later, during his budget speech on 22 February, financial secretary Paul Chan talked about the “vigorous efforts” Hong Kong had made to achieve carbon neutrality before 2050.

There was a strong focus on promoting green and sustainable finance and technology.

Luanne Lim, chief executive of HSBC in Hong Kong, described the budget as a “clear roadmap”. What came through clearly was the emphasis on using the capital markets to achieve its aims. In mid-February, the government of Hong Kong sold an HK$800m ($102m) 365-day tokenised green bond at 4.05%, something that Lim highlighted.

As well as that issuance, Chan made four other commitments – all of which have been positively received. First, to issue a $5.75bn equivalent of government green bonds denominated in a variety of currencies; second, to keep providing grants under the government’s Green and Sustainable Finance Grant Scheme; to set up a Green Tech Fund to fund research and development projects; and to launch an international carbon marketplace to trade voluntary carbon credits and instruments.

Cindy Keung, Greater China research analyst at OCBC Bank in Hong Kong, approvingly noted that the budget as a whole was expansionary and that it would reduce the deficit – particularly significant as it follows a 7.3% budget deficit in 2022.

“We envisage that not only will the tokenisation of green bonds and trading of carbon credits continue to grow and gain traction in coming years,” writes Francis Chen, partner of law firm Mayer Brown in Hong Kong, but the budget will also boost green and sustainable finance products.

The Sustainable Fitch report does not doubt there is enough activity in the green, social, sustainable and sustainability-linked market to support two sustainable finance hubs in Asia. In fact, it makes the point that there is more than sufficient issuer and investor demand for ESG-related capital markets products.

But here, at least, Hong Kong appears to have the current edge. “We believe Hong Kong’s efforts to bolster its infrastructure and support sustainable finance and technology as being in line with the territory’s traditional strengths as an offshore financial centre for greater China,” the report says, especially as more than half of the bond issuance in 2021 came from entities that were domiciled outside Hong Kong itself.

The fight for financial primacy between the two centres will, inevitably, continue – but for the moment at least, Hong Kong appears to be in front.

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