HKMA Green and Sustainable Finance Regulation: Green Bond Issuance Guidance for Hong Kong

The Hong Kong Monetary Authority (HKMA) announced in its 2025-26 Budget that the government’s Green and Sustainable Finance Grant Scheme (GSFGS) will be extended for three years, with a revised cap on external review costs for eligible green bonds. This extension, effective from 1 July 2025, reflects a regulatory recalibration: the HKMA now requires issuers to demonstrate a direct linkage between the use of proceeds and Hong Kong’s decarbonisation targets under the Climate Action Plan 2050. For any institution preparing a green bond issuance in Hong Kong, the window for claiming the full grant is narrowing. The revised scheme caps the subsidy at HKD 2.5 million per issuance for external review costs, down from the previous HKD 4 million, and introduces a mandatory alignment with the Common Ground Taxonomy (CGT) published by the International Platform on Sustainable Finance. This article sets out the current regulatory framework, the step-by-step application process under the GSFGS, and the compliance obligations that attach to a green bond once listed on the HKEX.

The Regulatory Framework for Green Bond Issuance in Hong Kong

The HKMA administers the GSFGS under the Green and Sustainable Finance Cross-Agency Steering Group, which includes the Securities and Futures Commission (SFC) and the Hong Kong Exchange and Clearing Limited (HKEX). The scheme covers two broad categories: bond issuance and loan origination. For bond issuance, the relevant regulatory anchor is the HKEX Listing Rules Chapter 37 for debt securities, supplemented by the SFC’s Code on the Regulation of Green and Sustainable Finance Products (effective 1 January 2024).

Eligibility Criteria Under the GSFGS

An issuer must satisfy three conditions to qualify for the grant. First, the bond must be issued in Hong Kong, meaning the offering document must be lodged with the HKEX and the proceeds must be booked through a Hong Kong-licensed financial institution. Second, the bond must have a minimum size of HKD 100 million (or equivalent in foreign currency). Third, the issuer must obtain a pre-issuance external review from an approved reviewer listed on the HKMA’s register of green finance assessors.

The HKMA circular of 15 March 2025 (Ref: B10/01C) clarifies that the external review must cover both the bond’s alignment with the International Capital Market Association (ICMA) Green Bond Principles and the CGT. A review that only addresses ICMA principles will not qualify for the grant after 1 July 2025.

The Common Ground Taxonomy Requirement

The CGT establishes a set of common criteria for classifying economic activities as environmentally sustainable. For a green bond issued in Hong Kong, the use of proceeds must be allocated to activities that fall within the CGT’s “green” classification. The HKMA has published a localised list of eligible activities, which includes renewable energy generation, energy efficiency upgrades, clean transportation, and pollution prevention and control. Activities such as nuclear power or large-scale hydroelectric projects (above 50 MW) are explicitly excluded.

The CGT alignment is not optional. The HKMA’s 2025 guidance states that any bond failing to demonstrate CGT alignment at the time of application will be ineligible for the grant. The issuer must provide a mapping table in the offering document, showing how each project category corresponds to the CGT’s environmental objectives.

Step-by-Step Application Process for the GSFGS Grant

The application process involves four sequential steps, each with a specific deadline and documentation requirement.

Step 1: Pre-Issuance External Review

The issuer must engage an approved external reviewer at least 30 business days before the intended issuance date. The HKMA maintains a list of approved reviewers, which includes the Big Four accounting firms, specialised ESG rating agencies (e.g., Sustainalytics, ISS ESG), and Hong Kong-based consultancies certified under the HKMA’s Green and Sustainable Finance Certification Scheme. The review must produce a written opinion confirming that the bond framework meets the ICMA Green Bond Principles and the CGT criteria.

The cost of this review is the primary expense that the GSFGS covers. The revised cap of HKD 2.5 million per issuance applies to the total external review fees, including any pre-issuance and post-issuance verification costs. If the review cost exceeds HKD 2.5 million, the issuer bears the excess.

Step 2: Submission of the Grant Application

The issuer submits the grant application to the HKMA within 30 calendar days of the bond’s listing on the HKEX. The application must include:

• The final offering document (with the CGT mapping table)
• The external review opinion
• A declaration from the issuer’s board of directors confirming that the proceeds will be used exclusively for eligible green projects
• A copy of the HKEX listing approval letter

The HKMA aims to process applications within 15 business days. If the application is incomplete, the HKMA will issue a deficiency notice, and the issuer must respond within 10 business days. Failure to respond results in automatic rejection.

Step 3: Post-Issuance Allocation Reporting

Within 12 months of issuance, the issuer must submit a post-issuance allocation report to the HKMA. This report must demonstrate that the net proceeds have been fully allocated to the eligible green projects described in the offering document. The allocation must be certified by an external reviewer, who will verify the use of proceeds against the CGT criteria.

The HKMA may conduct its own audit of the allocation report. If the HKMA finds that proceeds were misallocated, it can claw back the grant amount plus a penalty of 10% of the grant value. This clawback provision was introduced in the 2025 revision.

Step 4: Annual Impact Reporting

The issuer must publish an annual impact report for the duration of the bond’s life, or until the proceeds are fully drawn down. The report must include quantitative metrics such as tonnes of CO2 avoided, megawatt-hours of renewable energy generated, or square metres of green building space certified. The HKMA does not require external verification of the impact report, but the SFC’s Code on the Regulation of Green and Sustainable Finance Products recommends independent assurance.

Compliance Obligations After Issuance

Once the bond is listed, the issuer enters a continuous compliance regime under the HKEX Listing Rules and the SFC’s product code. Non-compliance can result in delisting, regulatory fines, or exclusion from future GSFGS applications.

Ongoing Disclosure Under the HKEX Listing Rules

Rule 37.31 of the HKEX Listing Rules requires the issuer to disclose any material change to the bond’s green status within 15 business days. A material change includes a shift in the use of proceeds from an eligible to a non-eligible activity, a downgrade in the external reviewer’s opinion, or a regulatory finding that the bond no longer meets the CGT criteria. The HKEX maintains a public register of green bonds, and any adverse disclosure is visible to investors and regulators.

The SFC’s Product Code and Greenwashing Risk

The SFC’s Code on the Regulation of Green and Sustainable Finance Products (effective 1 January 2024) imposes a duty on the issuer to ensure that all marketing materials and offering documents do not contain misleading statements about the bond’s environmental benefits. The SFC has indicated that it will treat greenwashing as a form of market misconduct under the Securities and Futures Ordinance (Cap. 571). In 2024, the SFC issued its first enforcement action against a green bond issuer for misrepresenting the carbon offset ratio of its projects. The issuer was fined HKD 5 million and required to repurchase the bonds.

The Role of the External Reviewer

The external reviewer is not a one-time engagement. The HKMA expects the reviewer to provide ongoing oversight, including annual checks on the allocation and impact reports. If the reviewer withdraws its opinion, the issuer must immediately notify the HKEX and suspend trading in the bond until a new reviewer is appointed. The HKMA’s 2025 circular states that an issuer has 60 business days to appoint a replacement reviewer; otherwise, the bond will be removed from the GSFGS register, and the grant may be clawed back.

Actionable Takeaways for Issuers

1. Engage an approved external reviewer at least 60 business days before the planned issuance date to allow sufficient time for the CGT alignment mapping.
2. Ensure the offering document includes a standalone CGT mapping table that cross-references each project category to the CGT’s environmental objectives and technical screening criteria.
3. Budget for external review costs not exceeding HKD 2.5 million per issuance under the revised GSFGS cap; any excess must be funded from the issuer’s own resources.
4. Establish an internal tracking system for the use of proceeds, with quarterly reconciliations, to ensure the post-issuance allocation report can be submitted within the 12-month deadline.
5. Prepare a template for the annual impact report that includes the specific metrics required by the HKMA, and consider engaging an independent auditor for assurance to mitigate greenwashing risk under the SFC’s product code.

This does not constitute legal advice. Consult a solicitor for your specific case.