Hong Kong Taxonomy for Sustainable Finance

Banking Policy Department
Our Ref: B1/15C
B9/197C
3 May 2024
The Chief Executive
All Authorized Institutions
Dear Sir/Madam,
Hong Kong Taxonomy for Sustainable Finance
I am writing to inform you that the Hong Kong Monetary Authority (“HKMA”) published today the Hong Kong Taxonomy for Sustainable Finance (“Hong Kong Taxonomy”) to enable informed decision making on green and sustainable finance and facilitate relevant finance flows in scaling up sustainable investments. The HKMA has been developing a green classification framework for adoption in the local market. A discussion paper was released in May 2023 to gather feedback from stakeholders on a prototype of the classification framework. Having regard to consultation feedback, the prototype has been fine-tuned and is now published as the Hong Kong Taxonomy. The Hong Kong Taxonomy encompasses 12 economic activities under four sectors, namely power generation, transportation, construction, and water and waste management. Developed based on the Common Ground Taxonomy1 , the Hong Kong Taxonomy allows easy navigation across Mainland China’s and the European Union’s green taxonomies. The HKMA encourages authorized institutions to use the Hong Kong Taxonomy to assess the greenness of projects and assets for different applications such as product labelling, identification, disclosures, and guidance for investment. To facilitate users to understand and apply the Hong Kong Taxonomy, a supplemental guidance providing useful background information, illustrative use cases, and responses to frequently asked questions is published in conjunction with the Hong 1 The Common Ground Taxonomy is a milestone work by the International Platform on Sustainable Finance resulting from an in-depth comparison exercise that puts forward areas of commonality and differences between Mainland China’s and the European Union’s green taxonomies.

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Kong Taxonomy. A consultation report is also published to summarise the consultation feedback received, HKMA’s responses and recommendations for future work. The Hong Kong Taxonomy, supplemental guidance and consultation report are enclosed with this circular2 . We will also organise briefing sessions for banks. The second phase development of the Hong Kong Taxonomy will commence soon to expand the scope of sectors and economic activities including transitions covered. We will engage relevant stakeholders from time to time through appropriate channels as we continue to develop and enhance the Hong Kong Taxonomy. Should you have any questions about this circular, please contact Ms Lilian Tse (2597-0332) or Ms Angela Tang (2597-0878). Yours faithfully, Donald Chen Executive Director (Banking Policy) Encl cc: FSTB (Attn: Mr Justin To) 2 Hong Kong Taxonomy: https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-andcircular/2024/20240503e1.pdf Consultation Report: https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-andcircular/2024/20240503e1a1.pdf Supplemental Guidance: https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-andcircular/2024/20240503e1a2.pdf

Enclosure - Hong Kong Taxonomy for Sustainable Finance

Hong Kong Taxonomy for Sustainable
Finance
Supported by
May 2024

2
Contents

Introduction ....................................................................................................................................3
1.1. The need for developing a taxonomy for Hong Kong.............................................................3
1.2. Core principles ........................................................................................................................4
1.3. Alignment of the Hong Kong Taxonomy.................................................................................5
Taxonomy spreadsheet...................................................................................................................6
2.1. Prototype spreadsheet ...........................................................................................................7
Sectors in the Hong Kong Taxonomy ............................................................................................16
3.1. Sector: Electricity, Gas, Steam and Air Conditioning Supply ................................................18
3.1.1. Electric power generation, transmission and distribution..............................................18
3.2. Sector: Transportation and Storage......................................................................................22
3.2.1. Land transport including railways...................................................................................22
3.2.2. Water Transport..............................................................................................................26
3.3. Sector: Water Supply; Sewerage, Waste Management and Remediation Activities ...........31
3.3.1. Sewage sludge treatment ...............................................................................................31
3.3.2. Waste Collection, Treatment and Recycling ...................................................................33
3.4. Sector: Construction .............................................................................................................38
3.4.1. Construction and renovation of buildings.......................................................................38
Annex 1: List of Abbreviations..............................................................................................................46

Introduction
1.1. The need for developing a taxonomy for Hong Kong
Climate change is one of the most pressing global issues. Its impact on the planet can be felt in the form of rising temperatures, melting glaciers, rising sea levels, and more frequent natural disasters. The continued burning of fossil fuels and other human activities are causing greenhouse gas (GHG) emissions, trapping heat in the atmosphere and aggravating the issue. Asia is one of the places most vulnerable to climate change as the region is experiencing changes in rainfall patterns, rising sea levels, and more frequent extreme weather events, such as typhoons and floods. These events can lead to crop failures, water scarcity, and infrastructure damage, which can have a significant impact on the region's economies. Moreover, the low-lying landscape makes this region particularly vulnerable to rising sea levels. Hong Kong is no exception. According to the Hong Kong Observatory, temperature increased at a rate of 0.28℃ per decade during 1993-2022 1 whilst, on average, the mean sea level at Victoria Harbour rose at a rate of 32 millimetres per decade during 1954-2022 2 . In addition, in recent years Hong Kong is experiencing more frequent and intense weather events, such as typhoons and heavy rainfalls. These events disrupt the city's transportation and cause damages to infrastructure, affecting business operation and daily lives of peoples. In an effort to combat climate change, 196 Parties at the United Nations (UN) Climate Change Conference adopted the Paris Agreement in 2015 3 . As part of China, the Hong Kong Special Administrative Region has the duty to make its contribution in order to achieve the goals of the Paris Agreement. In 2021, the Government announced the “Hong Kong's Climate Action Plan 2050”, which set out four major decarbonisation strategies to allow it to achieve carbon neutrality before 2050: the “net-zero electricity generation”, “energy saving and green buildings”, “green transport” and “waste reduction”. To support the global action on climate change, the financial sector has a key role to play. It can green the world by directing capital flows towards sustainable investments and away from highemitting industries, hence driving the transition to a sustainable future. In this regard, a sustainable finance taxonomy is an important tool as it provides a standardised framework for classifying and labelling financial products and investments based on their environmental sustainability. This classification system allows investors to identify and invest in activities that are making a positive impact on the environment while avoiding those that have a negative impact. It helps to align investment decisions with climate goals and reduce the risk of investing in assets that are not aligned with a low-carbon future. It can also help unlock new investment opportunities for green technologies and sustainable projects and increase transparency and accountability in the financial sector. Given the critical role a sustainable finance
taxonomy can play in shaping green financial markets, the Hong Kong Monetary Authority (HKMA) has commissioned Climate Bonds Initiative (Climate Bonds) to work on a green classification framework for adoption in the local market. This will help underpin Hong Kong’s instrumental role in bridging green financial flows between Mainland China and the rest of the world, and hence strengthen Hong Kong’s status as an international green finance hub.

1 https://www.hko.gov.hk/en/climate_change/obs_hk_temp.htm 2 https://www.hko.gov.hk/en/climate_change/obs_hk_sea_level.htm 3 https://unfccc.int/process-and-meetings/the-paris-agreement

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1.2. Core principles
The Hong Kong Taxonomy is intended to provide financial sectors professionals with consistent and internationally recognised definition of “green” and “environmentally sustainable” (collectively referred to as “green” hereafter) economic activities. It will be guided by scientific principles and be interoperable, comparable and inclusive of other green definitions globally. More specifically, it will be based on the following core principles that ensure its credibility, scientific approach, and alignment with all important benchmarks:

Alignment with the Paris Agreement. The Hong Kong Taxonomy is primarily focused on
providing clear definitions regarding the emissions intensity performance required of economic activities in order to keep global warming well below 2℃, ideally aiming for 1.5℃. The criteria represent the maximum GHG-emissions intensity an economic activity can have to avoid breaching the remaining carbon budget. At this stage, climate change mitigation is the central environmental objective of the Taxonomy. The Hong Kong Taxonomy shall thus be objective in nature, supported by clearly defined metrics and thresholds aligned to the Paris Agreement, and science-based targets.
A proof from greenwashing. By synthesising existing taxonomies’ best practices into an easyto-use set of criteria, the Hong Kong Taxonomy’s goal is to provide more clarity about what
can be considered ‘green’, and to ensure that claims of meeting this definition can be verified accordingly.
Interoperability with other taxonomies. The Hong Kong Taxonomy considers significant
sustainable finance taxonomy developments that have occurred in other jurisdictions, particularly the Mainland China, the EU and the ASEAN. The key taxonomies referenced are the Common Ground Taxonomy (CGT), the European Union (EU) Taxonomy, the Green Bond Endorsed Projects Catalogue, ASEAN Taxonomy and the Climate Bonds Taxonomy (CBT). This was accomplished by categorising activities in accordance with the International Standard Industrial Classification of All Economic Activities (ISIC) and Hong Kong Standard Industrial Classification (HSIC) codes, and as far as possible, using universally applicable metrics.
Science-based criteria and thresholds. The thresholds reflect the ambition required to meet
global decarbonisation objectives. In many instances, the thresholds follow a trajectory that aligns with the overall need to transition the global economy to net-zero emissions by 2050.
Foundations of Do No Significant Harm (DNSH) and Minimum Social Safeguards(MSS). While
the Hong Kong Taxonomy primarily focuses on climate change mitigation, it acknowledges the interconnectedness of sustainability issues. The importance of DNSH and MSS is recognized and will be explored in future development.

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1.3. Alignment of the Hong Kong Taxonomy
The Hong Kong Taxonomy aims to achieve interoperability with other reference taxonomies. The table below presents whether and how reference taxonomies are adopted/adapted.
Figure 1: Taxonomy compatibility table
Sectors in Hong Kong
Taxonomy
Common
Ground
Taxonomy
EU
Taxonomy
Mainland
China
Taxonomy
ASEAN
Taxonomy
(V2)
Climate
Bonds
Taxonomy
Electricity generation using concentrated solar power technology Tier 1 Green Electricity generation using solar photovoltaic technology Tier 1 Green Electricity generation from wind power Tier 1 Green Construction and operation of public transportation system in urban and rural areas Construction and operation of personal mobility devices, cycle logistics Water Transport (freight and passenger) Collection and transport of non-hazardous waste in source segregated fractions Utilisation/ treatment of domestic waste – anaerobic digestion Sewage sludge treatment – anaerobic digestion Construction of new buildings Renovation of buildings Colour Coding Level of ambition is aligned Adapted Criteria not yet developed/ Comparison not yet conducted

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2. Taxonomy spreadsheet
The Taxonomy spreadsheet in Section 2.1. provides an overview of all the activities that have been included for each sector in the Taxonomy. The activities have been listed in the spreadsheet along with the activity description and key metrics. The substantial contribution criteria for each activity that defines the thresholds to classify the activity as green can be further referenced at the granular level by clicking on the link to the corresponding activity cards. Additionally, the activities have been mapped to HSIC codes and the closest taxonomy reference, to support interoperability and local applicability. The Taxonomy spreadsheet thus provides an initial reference list to users to identify all the activities included in the Taxonomy for each sector, and they can further reference to the linked activity cards (Section 3) for detailed information regarding the sector, metrics and criteria to classify the activity as green. Structurally, the prototype spreadsheet is divided into three layers:

Layer 1: Taxonomy activities and mapping
Layer 1 columns of the Spreadsheet represent the mapping of HSIC codes for each activity, including the activity name and description. More details are provided below:
o To support interoperability and ease of comparison to other taxonomies, the HSIC Industry class for each activity is also mapped against its corresponding ISIC and NACE codes o It is noted that a prototype activity can be mapped against one or more HSIC Industry subclasses based on the specific activity description as the HSIC and ISIC classification systems do not perfectly align.
Layer 2: Key Metrics
The corresponding Layer 2 columns of the Spreadsheet represent the key metrics for the prototype activity that has been adopted/adapted from a specific reference taxonomy. In most cases, prototype activities align and adopt/adapt CGT activity metrics and criteria.
Layer 3: Substantial contribution criteria
The layer 3 column of the Spreadsheet defines the substantial contribution criteria of the prototype activity. For ease of review, this column references the activity cards, which contain a more granular description of the prototype activity’s technical screening criteria.

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2.1. Prototype spreadsheet

Taxonomy Activities and Mapping
Key Metrics
Substantial
Contribution
Criteria
HSIC
Industry
Section
HSIC
Industry
Division (2
Digit)
HSIC Industry
Group (3 Digit) HSIC Industry Class (4 digit) (Corresponding ISIC / NACE) HSIC Industry Subclass (6 Digit) Taxonomylevel activity Description Closest Taxonomy Alignment FConstruc tion 41 - Construct ion of buildings 411: Erection of architectural superstructures, building construction 4110: Erection of architectural superstructures, building construction (ISIC: 4100 - Construction of Buildings) (NACE: 41.10 - Development of building projects; 41.20 - Construction of residential and non-residential buildings) 411000: Erection of architectural superstructures, building construction Constructi on of new buildings Constructi on of new buildings CGT F1.1 Constructio n of new buildings

Operational emissions:
a. Primary Energy Demand b. Energy Consumption
c. Direct emissions of building
d. Reference to PCAF technical guidance on operational emissions assessment.
Energy savings: The share of total
or relative energy consumption that can be saved because of the implemented measures.
Energy consumption of buildings
compared to peers
Buildings Certification Schemes:
BEAM Plus is commonly used in Hong
Kong.
Zero-Carbon-Ready Building
Certification & (Upcoming) Net Zero
Building Certification: HKGBC is in the process of developing a new building certification scheme which is primarily focused on the emissions performance of buildings in Hong Kong. Note: Items 1 to 3 in the above list of Metrics are the most ideal, however, this data may not be adequately available across the sector. As such, it is recommended that item 4 (BEAM Plus) should be the main criterion for Hong Kong while item 5 (Zero-Carbon-Ready Building Certification & Net Zero Building Certification) should be a supplementary criterion to provide flexibility for compliance. Please refer to the activity card for the full set of criteria 412: Structural steel framework erection 4120: Structural steel framework erection (ISIC: 4100 - Construction of Buildings) (NACE: 41.10 - Development of building projects; 41.20 - Construction of residential and non-residential buildings) 412000: Structural steel framework erection 419: Other new building construction works 4191: Structural alteration and addition works (ISIC: 4100 - Construction of Buildings) (NACE: 41.10 - Development of building projects; 41.20 - Construction of residential and non-residential buildings) 419100: Structural alteration and addition works 43 - Specialise d construct ion activities 432-Building services installation and maintenance activities 4321-Electrical equipment installation and maintenance (ISIC: 4321 - Electrical Installation) (NACE: 43.21 - Electrical installation) 4321XX: Electrical equipment installation and maintenance 4322-Ventilation, gas and water fitting installation and maintenance activities (ISIC: 4322 - Plumbing, Heat and Air-Conditioning Installation) (NACE: 43.22 - Plumbing, heat and air-conditioning installation) 4322XX: Ventilation, gas and water fitting installation and maintenance activities 4329-Other construction installation and maintenance (ISIC: 4329 - Other Construction Installation) (NACE: 43.29 - Other construction installation) 4329XX: Other construction installation and maintenance 439 - Building finishing and other specialised construction activities 4391-Decoration, repair and maintenance for buildings (ISIC: 4330 - Building Completion and Finishing) (NACE: 43.3 - Building completion and finishing) 439101: Interior fitting, decoration and repairs for buildings 4399-Other general finishing and specialised construction works (ISIC:4390 - Other Specialized Construction Activities) (NACE: 43.9 - Other specialised construction activities) 4399XX: Other general finishing and specialised construction works

Taxonomy Activities and Mapping
Key Metrics
Substantial
Contribution
Criteria
HSIC
Industry
Section
HSIC
Industry
Division (2
Digit)
HSIC Industry
Group (3 Digit)
HSIC Industry Class (4 digit) (Corresponding ISIC / NACE) HSIC Industry Subclass (6 Digit) Taxonomylevel activity Description Closest Taxonomy Alignment FCons tructi on 41 - Construct ion of buildings 419: Other new building construction works 4191: Structural alteration and addition works (ISIC: 4100 - Construction of Buildings) (NACE: 41.10 - Development of building projects; 41.20 - Construction of residential and non-residential buildings) 419100: Structural alteration and addition works Renovatio n of existing buildings Renovatio n of existing buildings CGT F1.2 Renovation of existing buildings

Primary Energy Demand: Amount
of energy that must be generated originally in order to meet the total energy demand of a building (kWh/m2)
Energy Consumption: Total
amount of electricity or equivalent electricity, and gas consumed by the building per annum (kWh/m2/year)
Direct emissions of building:
Greenhouse gases emitted from activities under the tenant or landlords' control - (KgCO2/m2/year) Please refer to activity card for the full criteria 43 - Specialise d construct ion activities 432-Building services installation and maintenance activities 4321-Electrical equipment installation and maintenance (ISIC: 4321 - Electrical Installation) (NACE: 43.21 - Electrical installation) 4321XX: Electrical equipment installation and maintenance 4322-Ventilation, gas and water fitting installation and maintenance activities (ISIC: 4322 - Plumbing, Heat and Air-Conditioning Installation) (NACE: 43.22 - Plumbing, heat and air-conditioning installation) 4322XX: Ventilation, gas and water fitting installation and maintenance activities 4329-Other construction installation and maintenance (ISIC: 4329 - Other Construction Installation) (NACE: 43.29 - Other construction installation) 4329XX: Other construction installation and maintenance 439 - Building finishing and other specialised construction activities 4391-Decoration, repair and maintenance for buildings (ISIC: 4330 - Building Completion and Finishing) (NACE: 43.3 - Building completion and finishing) 4391XX:
Decoration, repair and maintenance for buildings 4399-Other general finishing and specialised construction works (ISIC:4390 - Other Specialized Construction Activities) (NACE: 43.9 - Other specialised construction activities) 439101: Interior fitting, decoration and repairs for buildings ‘

Taxonomy Activities and Mapping
Key Metrics 3. Substantial Contribution
Criteria
HSIC
Industry
Section
HSIC
Industry
Division
(2 Digit)
HSIC
Industry
Group (3
Digit)
HSIC Industry Class (4 digit)
(Corresponding ISIC / NACE)
HSIC
Industry
Sub-class (6
Digit)
Taxonomylevel activity
Description Closest Taxonomy
Alignment
D -
Electricit y and gas supply
35-
Electric and gas supply
351-
Electric power generation, transmissio n and distribution 3510 - Electric power generation, transmission and distribution (ISIC: 3510 - Electric power generation, transmission and distribution) (NACE:35.11 - Production of electricity) 35100- Electric power generation, transmissio n and distribution Electricity generation using concentrated solar power Electricity generation using concentrated solar power (CSP) technology. Construction and operation of facilities using solar thermal power to generate electricity. CGT D1.2 Electricity generation using concentrated solar power (CSP) technology gCO2/kWh: Reflects the emissions intensity for electricity generation, and is based on life cycle emissions to account for GHG emissions throughout the value chain of energy production processes Please refer to activity card for the full criteria. Automatically eligible if Use of Proceeds comply with activity description. Electricity generation using solar photovoltaic technology Electricity generation using solar photovoltaic (solar PV) technology. Construction and operation of facilities using concentrated solar photovoltaic power to generate electricity. CGT D1.1 Electricity generation using solar photovoltaic technology Please refer to activity card for the full criteria. Electricity generation from wind power Construction or operation of electricity generation facilities that produce electricity from wind power. CGT D1.3 Electricity generation from wind power Please refer to activity card for the full criteria. Automatically eligible if Use of Proceeds comply with activity description.

Taxonomy Activities and Mapping
Key Metrics 3. Substantial Contribution
Criteria
HSIC
Industry
Section
HSIC
Industry
Division
(2 Digit)
HSIC
Industry
Group (3
Digit)
HSIC Industry Class (4 digit)
(Corresponding ISIC / NACE)
HSIC
Industry
Sub-class (6
Digit)
Taxonomylevel activity
Description Closest Taxonomy
Alignment
HTranspor tation, storage, postal and courier services 49 - Land Transport 491- Railway and cable transport 4910-Railway and cable transport (ISIC: 4921 - Urban and Suburban Passenger Land Transport) (NACE: 49.31 - Urban and suburban passenger land transport) 491000- Railway and cable transport Construction and operation of public transportation system in urban and rural areas Purchase, financing, leasing, rental and operation of urban and suburban transport vehicles for passengers and road passenger transport. This includes construction and operation of subways, light railways, tram, and other urban rail transportation facilities; construction and operation of high-capacity public transportation facilities, such as BRT bus stations, lines and other facilities construction and operation; purchase of public transportation vehicles, etc. CGT H1.1. Construction and operation of public transportation system in urban and rural areas The transport sector criteria require that operated fleets to become more efficient over time by linking eligibility to emissions performance below a certain threshold set to ensure substantially reduced emissions. Emission reduction thresholds are based on performance metrics:

CO2e emissions per
passenger kilometre
(gCO2e/pkm);
CO2e emissions per
vehicle kilometre
(gCO2e/vkm);
CO2e emissions per
tonne kilometre
(gCO2e/tkm).
Please refer to activity card for the full criteria.
The trains and passenger coaches that have zero direct (tailpipe) CO2 emissions Specific criteria for projects in the EU to align with EU Taxonomy

492 - Land
Transport by road
4921 - Public bus services
(ISIC: 4921 - Urban and Suburban
Passenger Land Transport)
(NACE: 49.31 - Urban and suburban passenger land transport) 492100 - Public bus services 4923 - Non-scheduled public light bus services (ISIC: 4922 - Other Passenger Land Transport) (NACE: 49.39 - Other passenger land transport n.e.c.) 492300 - Nonscheduled public light bus services 4924- Scheduled public light bus services (ISIC: 4922 - Other Passenger Land Transport) (NACE: 49.39 - Other passenger land transport n.e.c.) 492400 - Scheduled public light bus services 4925 - School bus services (ISIC: 4922 - Other Passenger Land Transport) (NACE: 49.39 - Other passenger land transport n.e.c.) 492500 - School bus services

Taxonomy Activities and Mapping
Key Metrics 3. Substantial Contribution
Criteria
HSIC
Industry
Section
HSIC
Industry
Division
(2 Digit)
HSIC
Industry
Group (3
Digit)
HSIC Industry Class (4 digit)
(Corresponding ISIC / NACE)
HSIC
Industry
Sub-class (6
Digit)
Taxonomylevel activity
Description Closest Taxonomy
Alignment
HTranspor tation, storage, postal and courier services 49 - Land Trans port 499 - Other land transpo rt services 4990 - Other land transport services (ISIC: 4922 - Other Passenger Land Transport) (NACE: 49.39 - Other passenger land transport n.e.c.) 499000 - Other land transport services Construction and operation of personal mobility devices, cycle logistics Selling, purchasing, financing, leasing, renting and operation of personal mobility or transport devices where the propulsion comes from the physical activity of the user, from a zero emissions motor, or a mix of zero-emissions motor and physical activity. This specifically also includes:

Construction of urban
walking and cycling transportation systems, including public bicycle rental sites, non-motorized vehicle parking facilities, road crossing facilities and other slow-moving urban systems.
Construction and operation
of shared transportation infrastructure, such as systems for public rental bicycles, online bicycle rental, online electric bicycle rental, online car rental, car sharing, parking facilities and equipment, and bicycle parking facilities.
The provision of freight
transport services by (cargo) bicycles.
Selling, purchasing,
financing, leasing, renting and operation of private electric or hydrogen vehicles CGT H1.5. Construction and operation of personal mobility devices, cycle logistics Please refer to activity card for the full criteria.

Automatically eligible if the
propulsion of personal mobility devices comes from the physical activity of the user, from a zeroemissions motor, or a mix of zero-emissions motor and physical activity.
Personal mobility devices are
allowed to be operated on the same public infrastructure as bikes or pedestrians.

Taxonomy Activities and Mapping
Key Metrics 3. Substantial Contribution
Criteria
HSIC
Industry
Section
HSIC
Industry
Division
(2 Digit)
HSIC
Industry
Group (3
Digit)
HSIC Industry Class (4 digit)
(Corresponding ISIC / NACE)
HSIC
Industry
Sub-class (6
Digit)
Taxonomylevel activity
Description Closest Taxonomy
Alignment
HTranspor tation, storage, postal and courier services 50- Water transport 501-Crossborder water transport 5013-Ship owners of sea-going vessels (ISIC: 5011 - Sea and Coastal Passenger Water Transport; 5012 - Sea and Coastal Freight Water Transport) (NACE: 50.10 - Sea and coastal passenger water transport; 50.20

Sea and coastal freight water
transport)
501301:
Ship owners of sea-going vessels for passenger transport Transportatio n of passengers by sea Transportation of passengers by sea Climate Bonds Criteria
Annual Efficiency Ratio
(AER): The ratio of a ship's carbon emissions per actual capacitydistance (e.g., deadweight tonnage per nautical mile (dwt-nm), which is a measure of a ship’s weight carrying capacity (not including the empty weight of the ship) x distance.
Energy Efficiency
Operational Indicator
(EEOI): The total operational emissions to satisfy transport work demanded, this is usually quantified over a period of time which encompasses multiple voyages (e.g. a year). The ratio of a ship's carbon emissions per unit of transport work (e.g., Tonne-nm (t-nm) is a measure of useful work done and is calculated as deadweight carried X distance).
Dry bulk by tonnes
Please refer to activity card for the full criteria.

The ship must report an
operational emissions intensity
(using AER or EEOI) according to the criteria table below.
Compliance can be reported by either AER or EEOI for a specific timeframe. For passenger vessels the denominator is GTnm (gross tonne- nautical mile). 5014-Operators of sea-going vessels (ISIC: 5011 - Sea and Coastal Passenger Water Transport; 5012 - Sea and Coastal Freight Water Transport) (NACE: 50.10 - Sea and coastal passenger water transport; 50.20

Sea and coastal freight water
transport)
501401:
Operators of sea-going vessels for passenger transport 5013-Ship owners of sea-going vessels (ISIC: 5011 - Sea and Coastal Passenger Water Transport; 5012 - Sea and Coastal Freight Water Transport) (NACE: 50.10 - Sea and coastal passenger water transport; 50.20
Sea and coastal freight water
transport)
501302:
Ship owners of sea-going vessels for freight transport Transportatio n of freight by sea Transportation of freight by sea Climate Bonds Criteria Please refer to activity card for the full criteria.

The ship must report an
operational emissions intensity
(using AER or EEOI) according to the criteria table below.
Compliance can be reported by either AER or EEOI. For freight, the denominator is tnm (tonnenautical mile)
Excluded assets:

Taxonomy Activities and Mapping
Key Metrics 3. Substantial Contribution
Criteria
HSIC
Industry
Section
HSIC
Industry
Division
(2 Digit)
HSIC
Industry
Group (3
Digit)
HSIC Industry Class (4 digit)
(Corresponding ISIC / NACE)
HSIC
Industry
Sub-class (6
Digit)
Taxonomylevel activity
Description Closest Taxonomy
Alignment
5014-Operators of sea-going vessels
(ISIC: 5011 - Sea and Coastal
Passenger Water Transport;
5012 - Sea and Coastal Freight
Water Transport)
(NACE: 50.10 - Sea and coastal passenger water transport; 50.20

Sea and coastal freight water
transport)
501402:
Operators of sea-going vessels for freight transport carried (Tonnes)
Volume of coal
transported (Tonnes)
Crude oil tankers and liquefied
gas tankers
Dry bulk carriers IF
transporting more than 20% of fossil fuels annually
Assets used for the
exploration or production of fossil fuels (floating production, supply and offloading (FPSO) vessels; subsea, umbilicals, risers, flowlines (SURF) vessels; drilling units; platform supply vessels; well intervention vessels. E - Water Supply; Sewerag e, Waste Manage ment And Remedia tion Activitie s 37 - Sewerage 370 - Sewerage 3700 – Sewerage (ISIC: 3700 - Sewerage) (NACE: 37.00 - Sewerage) 370000 Sewerage Sewage sludge treatment – anaerobic digestion or co-digestion Construction and operation of facilities for the treatment of sewage sludge by anaerobic digestion or codigestion with the resulting production and utilization of biogas or chemicals. CGT E1.1 Sewage sludge treatment – anaerobic digestion No specific quantifiable metrics Please refer to activity card for the full criteria.

A monitoring and contingency
plan is in place in order to minimise methane leakage at the facility.
The majority of the produced
biogas is used directly for the generation of electricity or heat, or injection into the city gas network, or used as vehicle fuel or as fuel/ feedstock in city gas production. In the unlikely event of equipment breakdown, unconsumed biogas will be safely flared.

Taxonomy Activities and Mapping
Key Metrics 3. Substantial Contribution
Criteria
HSIC
Industry
Section
HSIC
Industry
Division
(2 Digit)
HSIC
Industry
Group (3
Digit)
HSIC Industry Class (4 digit)
(Corresponding ISIC / NACE)
HSIC
Industry
Sub-class (6
Digit)
Taxonomylevel activity
Description Closest Taxonomy
Alignment
38-
Waste collection
, treatmen t and disposal activities; materials recovery 381-Waste collection 3811-Collection of nonhazardous waste (ISIC: 3811 - Collection of NonHazardous Waste) (NACE: 38.11 - Collection of nonhazardous waste) 381100 Collection of nonhazardous waste Collection and transport of nonhazardous waste in source segregated fractions Collection and transport of non-hazardous waste in source segregated fractions CGT E2.1Collection and transport of non-hazardous waste in source segregated fractions No specific quantifiable metrics Please refer to activity card for the full criteria.

All separately collected and
transported non-hazardous waste that is segregated at source is intended for preparation for reuse or recycling operations.

Taxonomy Activities and Mapping
Key Metrics 3. Substantial Contribution
Criteria
HSIC
Industry
Section
HSIC
Industry
Division
(2 Digit)
HSIC
Industry
Group (3
Digit)
HSIC Industry Class (4 digit)
(Corresponding ISIC / NACE)
HSIC
Industry
Sub-class (6
Digit)
Taxonomylevel activity
Description Closest Taxonomy
Alignment
E -
Water
Supply;
Sewerag e, Waste
Manage ment
And
Remedia tion
Activitie s
38-
Waste collection
, treatmen t and disposal activities; materials recovery 382-Waste treatment and disposal 3821-Treatment and disposal of non-hazardous waste (ISIC: 3821 - Treatment and Disposal Of Non-Hazardous Waste) (NACE: 38.21 - Treatment and disposal of non-hazardous waste) 382100 Treatment and disposal of nonhazardous waste Utilization/ treatment of domestic waste – anaerobic digestion or co-digestion Construction and operation of dedicated facilities for the treatment of separately collected bio-waste through anaerobic digestion or codigestion with the resulting production and utilisation of biogas and digestate and/or chemicals. CGT E2.4 Utilization/ treatment of domestic waste – anaerobic digestion

% of food and feed
crops used as feedstock
Please refer to activity card for the full criteria.

A monitoring and contingency
plan is in place in order to minimise methane leakage at the facility.
The majority of the produced
biogas is used directly for the generation of electricity or heat, or injection into the city gas network, or used as vehicle fuel or as fuel/ feedstock in city gas production. In the unlikely event of equipment breakdown, unconsumed biogas will be safely flared.
The bio-waste that is used for
anaerobic digestion or codigestion is source segregated and collected separately
The produced digestate is
used as fertiliser or soil improver.
Food and feed crops used as
input feedstock, measured in weight, as an annual average, is less than or equal to 10% of the input feedstock.

16
3. Sectors in the Hong Kong Taxonomy
This section sets out the “activity cards” for activities covered in the Hong Kong Taxonomy. They facilitate the use of the Hong Kong Taxonomy and its regular updates due to developments in climate science. Each card contains a detailed description of one or more activities depending on whether metrics, criteria and thresholds for these activities are similar in nature (e.g. different kinds of renewable energy) or must be viewed together because they are interconnected in the real economy. In most cases, one activity card covers several activities with identical sectoral affiliation (e.g. sewage sludge treatment (1 activity), waste collection, treatment and recycling (2 activities), water transport (2 activities) etc). Structurally, this section consists of the following subsections:

Sector overview. This subsection describes how the sector operates in Hong Kong, its share
of emissions, what technology is used, what kind of economic agents are involved in the sector (municipality or private companies), what the most pressing problems present in the sector are, and how this sector can be broken down for the purpose of its taxonomical classification.
Metrics. This subsection describes in detail what kind of metrics are going to be used to define
criteria and thresholds and why, including the units of measurement and justification for their use.
Criteria and thresholds. This subsection identifies the specific criteria and thresholds for each
activity and provides a justification in terms of scientific rigour, applicability in the local context, and consistency with other taxonomies. o Main criteria are the criteria taken from the CGT to the extent practicable. In most cases, the same criteria exist in both EU and Mainland China taxonomies and use universal metrics that do not require further adjustment. Hence, they should be applied regardless of the jurisdiction where the project is executed. o Additional criteria are primarily those considered more stringent and/or detailed for specific markets by the CGT. These criteria are only relevant when the project is executed in the jurisdiction mentioned in the criterion.
Activity card. This subsection contains the final product that constitutes the “body” of the
taxonomy as seen by the end user. In most cases, it contains all information needed to use the Taxonomy in practice.
Additional information (where applicable). This subsection provides more detailed
information about the selection and formulation of metrics and technical screening criteria.

17
Figure 1. Activity card parts and description

18
3.1. Sector: Electricity, Gas, Steam and Air Conditioning Supply
3.1.1. Electric power generation, transmission and distribution
Overview
Hong Kong is determined to achieve carbon neutrality before 2050.
In the 2021 policy address, the Chief Executive, called on the power companies to phase down coalfired generation units and replace the use of coal with other alternatives such as natural gas and renewable energy for electricity generation. She reaffirmed the government's efforts to grapple with Hong Kong’s geographical and environmental constraints in driving the development of renewable energy and strive to increase its share in the fuel mix for electricity generation through facilitating local projects, regional collaboration and joint ventures 4 . Hong Kong’s power sector accounted for approximately 63%, or 21.0 MtCO2e of Hong Kong’s total GHG emissions in 2022 5 . Hong Kong’s electricity consumption was 44.1TWh in 2020, a slight decrease from 2019 levels due to the COVID-19 pandemic. In the past 20 years, growth in electricity demand has slowed. Per capita electricity consumption peaked in 2014, the same year that total GHG emissions peaked. In order to reach net-zero electricity generation, Hong Kong's Climate Action Plan 2050 aims to cease the use of coal for daily electricity generation; increase the share of renewable energy in the fuel mix for electricity generation to 7.5% to 10% by 2035, and to 15% subsequently; and to trial the use of new energy and strengthen co-operation with neighbouring regions to achieve the long-term target of net-zero electricity generation before 2050 6 . The objective of the following energy sector criteria is to provide clear guidance on certain technologies, assets and investments that will provide a substantial contribution to climate change mitigation in the context of Hong Kong’s decarbonisation objectives. The criteria will potentially expand to include more technologies (such as ocean tidal, geothermal, hydropower and bioenergy) taking into account whether they could meet the overarching emissions intensity threshold, and other critical factors throughout the construction and operation of these energy systems which may increase the level of uncertainty regarding their emissions intensities. Metrics

gCO2/kWh
To be consistent with other global taxonomies including the EU Taxonomy, the primary metric for measuring emissions in the energy sector is gCO2/kWh as this directly reflects the emissions intensity for electricity generation, which is the major source of emissions from the energy sector. The metric is based on life cycle emissions to account for GHG emissions throughout the value chain of energy production processes (e.g., electricity generation from natural gas can have significantly large emissions due to methane leakage during extraction, transportation and distribution in addition to

4 https://www.policyaddress.gov.hk/2021/eng/p95.html 5 https://cnsd.gov.hk/en/climate-ready/ghg-emissions-and-trends/ 6 https://www.info.gov.hk/gia/general/202110/08/P2021100800588.htm

19 combustion. Hence, a lifecycle-based threshold is useful to assess the level of GHG emissions during the entire supply chain and not just during combustion). Criteria and thresholds

Lifecycle emissions from generation must not exceed 100gCo2e/kWh
A 100gCo2e/kWh threshold applies across all technology types within the electricity generation sector, declining to net zero by 2050. This reflects international best practice and is aligned with the EU Taxonomy criteria. Automatic eligibility is available for renewable energy technologies which are well recognised to have emissions intensities below this threshold and this helps to ease the process of operationalising the present Hong Kong Taxonomy by allowing activities conducted by technologies which are indisputably “green” to be considered eligible – for example, there is unanimous consent that renewable energy technologies such as solar photovoltaic or wind power are technologies which perform well below the 100gCo2e/kWh threshold and, therefore, can be considered to provide a substantial contribution to climate change mitigation. Consequently, to facilitate the use of the Hong Kong Taxonomy, issuers who are committed to using the proceeds of a bond to finance such technologies need not conduct a lifecycle assessment of their solar or wind asset. However, it is noted that in the CGT there are instances where additional technology-specific criteria apply. For example, although solar photovoltaic technologies are well recognised to have lifecycle emissions well below the 100gCo2e/kWh threshold, they are also subject to additional requirements regarding factors such as conversion efficiency. These are aligned with the PBOC Green Bond Endorsed Project Catalogue and are designed to help encourage innovation across the technology segment. It is noted that the Hong Kong Taxonomy should be a “living” document. The threshold and respective eligibility mentioned above should be reviewed and updated as the 100gCo2e/kWh threshold declines to 0gCo2e/kWh by 2050. Similarly, there may be opportunities to introduce additional criteria to promote the continued improvement of renewable energy technologies. For example, the Guobiao and the International Electrotechnical Commission Standards for Certification of Crystalline Photovoltaic (PV) Modules could be considered in future iterations of the Taxonomy. Unless otherwise stated, the Lifecycle analysis of GHG emissions should be calculated based on project-specific data, where available, using ISO 14067:2018 or ISO 14064-1:2018, or by using the European Commission Recommendation 2013/179/EU, and verified by an independent third party.

20
Activity cards
Electricity generation using concentrated solar power technology Sector Electricity, gas, steam and air conditioning supply Activity Category Electric power generation, transmission and distribution Activity Description Electricity generation using concentrated solar power (CSP) technology. Construction and operation of facilities using solar thermal power to generate electricity Closest HSIC Code 351000 CGT Code D1.2 Electricity generation using concentrated solar power (CSP) technology Corresponding ISIC Code 3510 Closest EU Taxonomy Code
4.2 Electricity
generation using concentrated solar power (CSP) technology Closest Chinese Green Bond Endorsed Projects Catalogue Codes
3.2.2.2 Construction and
operation of solar energy utilisation facilities HSIC Description Operation of generation facilities that produce electric energy; including thermal, nuclear, hydroelectric, gas turbine, diesel and renewable Criteria and Thresholds Main Criteria Automatically eligible if Use of Proceeds comply with activity description Additional Requirements and Comments None Electricity generation using solar photovoltaic technology Sector Electricity, gas, steam and air conditioning supply Activity Category Electric power generation, transmission and distribution Activity Description Construction or operation of electricity generation facilities that produce electricity using solar photovoltaic (PV) technology Closest HSIC Code 351000 CGT Code D1.1 Electricity generation using solar photovoltaic technology Corresponding ISIC Code 3510 Closest EU Taxonomy Code
4.1 Electricity
generation using solar photovoltaic technology Closest Chinese Green Bond Endorsed Projects Catalogue Codes
3.2.2.2 Construction and
Operation of Solar Energy
Utilisation Facilities
HSIC Description Operation of generation facilities that produce electric energy; including thermal, nuclear, hydroelectric, gas turbine, diesel and renewable Criteria and Thresholds Main Criteria 1. The minimum photoelectric conversion efficiency of polycrystalline silicon cells and monocrystalline silicon cells shall not be less than 19% and 21% respectively;

21
2. The minimum photoelectric conversion efficiency of polycrystalline
silicon cell modules and single crystal silicon battery modules shall not be less than 17% and 17.8% respectively;
3. The minimum photoelectric conversion efficiency of silicon-based,
CIGS, CdTe and other thin-film battery modules shall not be less than 12%, 14%, 14%, 12%;
4. The decay rates of polycrystalline silicon battery modules and
monocrystalline silicon battery modules shall not be higher than 2.5% and 3% in the first year, and not higher than 0.7% per year, and not higher than 20% within the period of 25 years; the attenuation rate of thin-film battery module shall not be more than 5% in the first year, no more than 0.4% per year in the following year, no more than 15% within the period of 25 years. Additional Requirements and Comments None Electricity generation from wind power Sector Electricity, gas, steam and air conditioning supply Activity Category Electric power generation, transmission and distribution Activity Description Construction or operation of electricity generation facilities that produce electricity from wind power Closest HSIC Code 351000 CGT Code D1.3 Electricity generation from wind power Corresponding ISIC Code 3510 Closest EU Taxonomy Code
4.3 Electricity
generation from wind power
Closest Chinese Green
Bond Endorsed Projects
Catalogue Codes
3.2.2.1 Construction and
Operation of Wind Generators
HSIC Description Operation of generation facilities that produce electric energy; including thermal, nuclear, hydroelectric, gas turbine, diesel and renewable Criteria and Thresholds Main Criteria Automatically eligible if Use of Proceeds comply with activity description Additional Requirements and Comments None

22
3.2. Sector: Transportation and Storage
3.2.1. Land transport including railways
Overview
To ensure sustainable development and effective utilisation of limited road resources, Hong Kong has adhered to a public transport-oriented policy whilst upgrading its transport infrastructure and services for private mobility. Hong Kong has a diverse and highly efficient multi-modal public transport system with railways acting as the backbone, complemented by other services including franchised buses, public light buses, taxis, non-franchised buses, tram, and ferry services. Over 11 million passenger trips are made through Hong Kong’s public transport every day, which is estimated to account for 90% of daily trips in the city, a proportion that is amongst the highest in the world. Hong Kong’s transport sector accounted for approximately 19 %, or 6.4 MtCO2e of Hong Kong’s total GHG emissions in 2022. 7 Road transport (motor vehicles) is the largest source accounting for 87% of GHG emissions within the transport sector. As of 2019 8 , private cars account for the highest share of the motor vehicle fleet, but freight vehicles represented the largest share of emissions, contributing 6% of Hong Kong’s total GHG emissions, followed by private cars (4.5%), buses (3.6%), and taxis (1.9%). 9 As per Hong Kong’s Climate Action Plan 2050, the goal for the transport sector is to achieve zero vehicular emissions before 2050. This would require strengthening the public transport system and specifically promoting vehicle (and ferry) electrification. Seeing this as their primary goal, the Hong Kong government aims to cease registration of new internal combustion engine-based and hybrid private cars (including plug-in hybrid electric vehicles) by 2035 or earlier. It actively promotes electric vehicles at a large scale for commercial purposes and testing out hydrogen fuel cell bus and heavy vehicles. 10 In this context and driven by various government policies, the proportion of electric private cars has increased rapidly in recent years. In 2023, the number of newly registered electric private cars was 28,500, accounting for 65% of all newly registered private cars. The government will announce a roadmap for the promotion of new energy public transport and commercial vehicles in 2025. The government also targets to introduce about 700 electric buses and 3,000 electric taxis by end-2027. Metrics

CO2e emissions per passenger kilometre (gCO2e/pkm);
CO2e emissions per vehicle kilometre (gCO2e/vkm);
CO2e emissions per tonne kilometre (gCO2e/tkm).

7 https://cnsd.gov.hk/en/climate-ready/ghg-emissions-and-trends/ 8 The data and figures refer to years before the COVID-19 pandemic because the years 2020, 2021 and 2022 are not representative of the status of the transport sector as economic activity decreased markedly. 9 https://www.legco.gov.hk/research-publications/english/2022issh03-decarbonization-strategy-in-hong-kong20220210-e.pdf 10 https://civic-exchange.org/wp-content/uploads/2022/10/HK-transport-report_-Final.pdf

23
As in other international taxonomies, the transport sector criteria require that operated fleets to become more efficient over time by linking eligibility to emissions performance below a certain threshold set to ensure substantially reduced emissions. Emission reduction thresholds are based on performance metrics (vehicle km, passenger km or tonne km). Criteria and thresholds Construction and operation of public transportation system in urban and rural areas The type of infrastructure available in a specific country or jurisdiction is a crucial element of transport behaviour and choice. Transport investments decided by governments can therefore lock in a highcarbon transport future when the projects and assets invested in are not aligned with a low-carbon future. In this context, the setting of the criteria for this activity was inspired by long term strategic vision of decarbonisation of the transport sector, as per Hong Kong’s Climate Action Plan 2050 wherein the goal for the transport sector is to achieve zero vehicular emissions before 2050. In line with other taxonomies at the international level (such as the EU, Thailand, Colombia, and South Africa), certain transport modes, such as electrified rail transport, are already associated with relatively low-carbon emissions whilst electric vehicles and hydrogen vehicles are singled out as eligible assets as they are a clear part of the low carbon transport sector in 2050. The purpose of the rationale is to provide a clear signal to the market and ease for issuers that are keen to finance such projects both in Hong Kong and other jurisdictions. Description and scope:
Purchase, financing, leasing, rental and operation of urban and suburban transport vehicles for passengers and road passenger transport. This includes construction and operation of subways, light railways, tram, and other urban rail transportation facilities; construction and operation of highcapacity public transportation facilities, such as BRT bus stations, lines and other facilities construction and operation; purchase of public transportation vehicles, etc.

The trains and passenger coaches have zero direct (tailpipe) CO2 emissions
The criteria ensure substantial GHG emission reduction by increasing the number of zero-emission vehicles, improving the efficiency of the transport system in general. Construction and operation of personal mobility devices, cycle logistics The promotion of electric vehicles for personal mobility devices, transport devices and improving cycle logistic is pivotal to achieve Hong Kong’s zero emission plan for the transport sector by 2050. Considering this activity defines that the propulsion of personal mobility devices should come from the physical activity of the user, from a zero-emissions motor, or a mix of zero-emissions motor and physical activity, the activity is automatically eligible. This aligns with other international taxonomies wherein the operation of vehicles with zero tailpipe emissions, or close to zero tailpipe emissions, is automatically eligible as it supports the decarbonisation of the transport sector. Furthermore, this activity also includes the promotion and use of hydrogen fuel cell vehicles. Description and scope:

24
Selling, purchasing, financing, leasing, renting and operation of personal mobility or transport devices where the propulsion comes from the physical activity of the user, from a zero emissions motor, or a mix of zero-emissions motor and physical activity. This specifically also includes:

Construction of urban walking and cycling transportation systems, including public bicycle
rental sites, non-motorised vehicle parking facilities, road crossing facilities and other slowmoving urban systems
Construction and operation of shared transportation infrastructure, such as systems for public
rental bicycles, online bicycle rental, online electric bicycle rental, online car rental, car sharing, parking facilities and equipment, and bicycle parking facilities
The provision of freight transport services by (cargo) bicycles
Selling, purchasing, financing, leasing, renting and operation of private electric or hydrogen
vehicles
The propulsion of personal mobility devices comes from the physical activity of the user,
from a zero-emissions motor, or a mix of zero-emissions motor and physical activity The criteria specify the propulsion methods of personal mobility device to ensure zero GHG emission.
The personal mobility devices are allowed to be operated on the same public infrastructure
as bikes or pedestrians
The criteria promote green transportation by allowing zero-emission personal mobility devices to share public infrastructure with bikes and pedestrians. Activity cards Construction and operation of public transportation system in urban and rural areas Sector Transportation and Storage Activity Category Land transport including railways Activity Description Purchase, financing, leasing, rental and operation of urban and suburban transport vehicles for passengers and road passenger transport. This includes construction and operation of subways, light railways, tram, and other urban rail transportation facilities; construction and operation of high-capacity public transportation facilities, such as BRT bus stations, lines and other facilities construction and operation; purchase of public transportation vehicles, etc. Closest HSIC Code 491000 492100 492300 492400 492500 CGT Code H1.1. Construction and operation of public transportation system in urban and rural areas Corresponding ISIC Code 4921 4922 Closest EU Taxonomy Code
6.3 Urban and
suburban transport, road passenger transport
Closest Chinese Green Bond
Endorsed Projects Catalogue
Codes
5.5.1.5 Construction and
operation of public transportation system in urban and rural areas HSIC Description 491000: Railway and cable transport 492100: Public bus services 492300: Non-scheduled public light bus services 492400: Scheduled public light bus services 492500: School bus services

25
Criteria and Thresholds
Main Criteria The trains and passenger coaches have zero direct (tailpipe) CO2 emissions Additional Requirements and Comments Specific criteria for projects in the EU to align with EU Taxonomy:
Other fleets/trains are eligible if direct emissions are below 50 gCO2e/pkm until 2025 (non-eligible thereafter). The threshold of 50 gCO2e/pkm until 2025 ensures that the carbon intensity remains similar to criteria for eligible road vehicles with low occupation factor (50 gCO2/vkm) and significantly lower than emissions for an average car. Construction and operation of personal mobility devices, cycle logistics Sector Transportation and Storage Activity Category Land transport including railways Activity Description Selling, purchasing, financing, leasing, renting and operation of personal mobility or transport devices where the propulsion comes from the physical activity of the user, from a zero emissions motor, or a mix of zero-emissions motor and physical activity. This specifically also includes:

Construction of urban walking and cycling transportation systems,
including public bicycle rental sites, non-motorised vehicle parking facilities, road crossing facilities and other slow-moving urban systems
Construction and operation of shared transportation infrastructure,
such as systems for public rental bicycles, online bicycle rental, online electric bicycle rental, online car rental, car sharing, parking facilities and equipment, and bicycle parking facilities
The provision of freight transport services by (cargo) bicycles
Selling, purchasing, financing, leasing, renting and operation of private
electric or hydrogen vehicles
Closest HSIC
Code
499000 CGT Code H1.5. Construction and operation of personal mobility devices, cycle logistics Corresponding ISIC Code 4922 Closest EU Taxonomy Code
6.4 Operation
of personal mobility devices, cycle logistics
Closest Chinese Green Bond
Endorsed Projects Catalogue
Codes
5.5.1.6 Construction and
operation of facilities for shared transport
5.5.1.4 Construction and
operation of slow mode transportation system
HSIC Description 499000: Other land transport services Criteria and Thresholds Main Criteria  The propulsion of personal mobility devices comes from the physical activity of the user, from a zero-emissions motor, or a mix of zeroemissions motor and physical activity  The personal mobility devices are allowed to be operated on the same public infrastructure as bikes or pedestrians Additional Requirements and Сomments None

26
3.2.2. Water Transport
Overview
Maritime transport currently accounts for over 80% of global trade by volume whilst in 2022, international seaborne trade volume reached 12.0 billion tonnes. The UN Conference on Trade and Development is forecasting an average growth rate of 2.1% for seaborne trade during the period of 2024-2028. Hong Kong is one of the major ports in Asia and has a unique opportunity to facilitate the financing of transport operations and infrastructure. While CO₂ represented almost all of the industry’s GHG emissions (98%), methane (CH₄) emissions from ships have recently increased due to the methane slip associated with increased use and transport of liquefied natural gas (LNG) in LNG carriers and other LNG-propelled ships. There is potential for this trend to continue in the future if there is an increased uptake of LNG-powered ships. However, there is potential for the sector to make significant GHG reductions. These can be achieved through a combination of increasing the energy efficiency of shipping and reducing the GHG intensity of the energy used by ships. According to the International Maritime Organisation (IMO), the shipping industry’s governing body, the sector currently accounts for 2.2% of global emissions. If left unchecked, shipping emissions are expected to grow by 50-250% by 2050. Metrics The shipping criteria are designed to apply to a wide range of ships, provided that issuers are able to provide either the Energy Efficiency Operation Index (EEOI) or Annual Efficiency Ratio (AER) data of the vessels. Specifically, issuers are required to submit information reported on an annual basis of their achieved EEOI or AER, alongside documentation that the data has been submitted to the IMO Ship Fuel Oil Consumption Database and verified under the mandatory reporting framework using the IMO Data Collection System. The use of such pre-existing systems also ensures that no additional data collection burden should be required.

AER:
The ratio of a ship's carbon emissions per actual capacity-distance (e.g., dwt x nm sailed).
Assumes ships are fully loaded on all miles travelled during the year. In practice, ships are not
always fully loaded and many ships (e.g., tankers and bulkers) operate with ballast voyages where for several voyages a year they have no cargo.
EEOI:
The total operational emissions to satisfy transport work demanded, usually quantified over
a period which encompasses multiple voyages (e.g. a year). The ratio of a ship's carbon emissions per unit of transport work (e.g. cargo x nm sailed).
Considered the ultimate measurement of a ship’s estimated “real-world” efficiency in that it
incorporates all of the components listed above, emissions when the ship is in port/anchor, etc. This also requires that operators and owners provide a vessel’s bills of lading, to increase transparency regarding the precise emissions-intensity/per unit of cargo transported.

27
Criteria and thresholds
The utilisation of EEOI and AER metrics and a 2020-2050 declining threshold are derived from the Climate Bonds Shipping Criteria which are in turn based on IMO Secretariat’s Third IMO GHG Study, published in 2014. The Third IMO GHG Study contains a dataset estimating the average operational emissions intensities of different ship types and sizes between 2010 and 2012. From this data, the criteria calculate the decarbonisation trajectories for each size and class of ship, adopting a linear threshold to net zero by 2050. These thresholds will be updated regularly. For example, in any given year the AER emissions intensity is = At any given year, a ship must be operating at the corresponding emissions intensity for that year. Ships remain compliant provided they are able to operate below the threshold. While the Fourth IMO GHG Study was published in July 2020, the criteria below still reference the Third IMO GHG Study, in line with Climate Bonds. With that in mind, these estimated emissions intensities can be continuously updated as the average emissions of the global fleet changes over time. Activity cards Transportation of freight by sea Sector Transportation and Storage Activity Category Water transport Activity Description Transportation of freight by sea Closest HSIC Code 501302 501402 CGT Code None Corresponding ISIC Code 5012 5022 Closest EU Taxonomy Code
6.10 Sea and coastal freight
water transport, vessels for port operations and auxiliary activities Closest Chinese Green Bond Endorsed Projects Catalogue Codes None HSIC Description 501302:

Freight transport by own sea-going vessels
Chartering of own sea-going vessels with crews (i.e. on a full basis) to other
operators for freight transport
Renting of own sea-going vessels without crews (i.e. on a bare vessel basis)
to other operators for freight transport
501402:
Operation of sea-going freight vessels rented or chartered from others.
Re-renting out sea-going freight vessels, which are rented or charted from
others to third party operators.
Criteria and Thresholds

28
Main
Criteria
In order to be compliant with the criteria the ship must report an operational emissions intensity (using AER or EEOI) according to the criteria table below. Compliance can be reported by either AER or EEOI. For freight the denominator is tnm (tonne-nautical mile) Type Size (GT) 2020 AER/EEOI 2030 AER/EEOI 2040 AER/EEOI 2050 AER/EEO I Bulk carrier 0-9999 35.1 / 24.6 23.4 / 16.4 11.7 / 8.2 0 10000-34999 12.2 / 6.6 8.1 / 4.4 4.1 / 2.2 0 35000-59999 9.2 / 4.6 6.2 / 3.1 3.1 / 1.5 0 60000-99999 8.4 / 3.6 5.6 / 2.4 2.8 / 1.2 0 100000-199999 4.6 / 2.4 3.1 / 1.6 1.5 / 0.8 0 200000-+ 4.1 / 2.3 2.7 / 1.5 1.4 / 0.8 0 Chemical tanker 0-4999 40.3 / 35.4 26.8 / 23.6 13.4 / 11.8 0 5000-9999 26.6 / 19 17.7 / 12.7 8.9 / 6.3 0 10000-19999 18.7 / 11.9 12.5 / 7.9 6.2 / 4 0 20000-+ 12.3 / 6.5 8.2 / 4.3 4.1 / 2.2 0 Container 0-999 27.3 / 16.9 18.2 / 11.3 9.1 / 5.6 0 1000-1999 24.9 / 14.8 16.6 / 9.9 8.3 / 4.9 0 2000-2999 19.5 / 10 13 / 6.7 6.5 / 3.3 0 3000-4999 16.8 / 8.3 11.2 / 5.5 5.6 / 2.8 0 5000-7999 16.2 / 7.8 10.8 / 5.2 5.4 / 2.6 0 8000-11999 14.1 / 6.7 9.4 / 4.5 4.7 / 2.2 0 12000-14500 10.4 / 4.6 6.9 / 3.1 3.5 / 1.5 0 14500-+ 10.4 / 4.6 6.9 / 3.1 3.5 / 1.5 0 General cargo 0-4999 30.2 / 24.2 20.1 / 16.1 10.1 / 8.1 0 5000-9999 27.2 / 16.7 18.2 / 11.1 9.1 / 5.6 0 10000-+ 24.2 / 13.1 16.2 / 8.8 8.1 / 4.4 0 Other liquid tanker 0-+ 106.6/
97.6 71.1 / 65.1 35.5 / 32.5 0
Refrigerated bulk 0-1999 72.8 / 48.7 48.5 / 32.5 24.3 / 16.2 0 Ro-Ro 0-4999 258.2 / 212.4
172.1 /
141.6 86.1 / 70.8 0
5000-+ 63.9 / 45.9 42.6 / 30.6 21.3 / 15.3 0
Vehicle 0-3999 124.7 / 46 83.2 / 30.7 41.6 / 15.3 0 4000-+ 58.1 / 13.8 38.7 / 9.2 19.4 / 4.6 0 Additional Requirements and Comments Excluded assets:

Crude oil tankers, liquefied gas tankers and any other vessels that are
dedicated to the transport or production of fossil fuels, including:
Dry bulk carriers IF transporting more than 20% of fossil fuels annually
Assets used for the exploration or production of fossil fuels (floating
production, supply and offloading (FPSO) vessels; subsea, umbilicals, risers, flowlines (SURF) vessels; drilling units; platform supply vessels; well intervention vessels.

29
Transportation of passengers by sea
Sector Transportation and Storage
Activity
Category
Water transport
Activity
Description
Transportation of passengers by sea
HSIC Code 501301
501401
CGT Code None Corresponding
ISIC Code
5011
5011
Closest EU
Taxonomy
Code
6.11 Sea and
coastal passenger water transport
Closest Chinese Green
Bond Endorsed Projects
Catalogue Codes
None
HSIC
Description
501301:
 Passenger transport by own sea-going vessels  Chartering of own sea-going vessels with crews (i.e., on a full basis) to other operators for passenger transport  Renting of own sea-going vessels without crews (i.e., on a bare vessel basis) to other operators for passenger transport 501401:
 Operators of sea-going passenger vessels, rented or chartered from others  Re-renting out sea-going passenger vessels, which are rented or charted from others to third party operators Criteria and Thresholds Main Criteria In order to be compliant with criteria, the ship must report an operational emissions intensity (using AER or EEOI) according to the criteria table below. Compliance can be reported by either AER or EEOI for a specific timeframe. For passenger vessels the denominator is GT-nm (gross tonne- nautical mile). Type Size (GT) 2020 AER / EEOI 2030 AER / EEOI 2040 AER / EEOI 2050 AER / EEOI Ferrypax only* 0-1999 1272135.8 848090.5 424045.3 0 2000-+ 1740606.6 1160404.4 580202.2 0 Cruise* 0-1999 2044403.4 1362935.6 681467.8 0 2000-9999 1286641.3 857760.8 428880.4 0 10000- 59999 1495064.7 996709.8 498354.9 0 60000- 99999 1738613.6 1159075.7 579537.9 0 100000-+ 1337274.9 891516.6 445758.3 0 FerryRoPax* 0-1999 822123.9 548082.6 274041.3 0 2000-+ 1137003.8 758002.5 379001.3 0 Additional Requirements Excluded assets:

30 and
Comments
Vessels built or operated for the sole purpose of transporting passengers to-andfrom assets or infrastructure that are dedicated to the production or transport of fossil fuels. Additional Information The criteria presented leverage the CBT criteria, whereby vessels must be compliant with the declining emissions intensity threshold in each year of operation. This can be proven through annual reporting. It should also be noted that:

The criteria for a low-carbon vessel are categorised according to the size and class of ship,
taking the average emissions for that segment and providing a linear threshold to zero by 2050. The AER measures carbon emissions associated with transport work, but it uses a ship’s size (deadweight) as a proxy for cargo carried. This does not provide an apple-to-apple comparison between two ships which carry different cargo amounts. Cargo influences the numerator (carbon emissions) because a ship which carries a larger cargo requires more energy for propulsion and the denominator (transport work is a function of cargo carried and distance). Because ships are not typically fully utilised, the AER would overestimate the efficiency of the ship. The IMO’s Data Collection System will require data to be collected (e.g. fuel consumption, distance sailed and DWT) for all ships 5000 DWT and will enable the calculation of AER. Efficiency metrics (gCO₂/tonne-nm) allow for an apple-to-apple comparison between two vessels which cargo movements produce different levels of transport work. They also enable the tracking of progress over time and comparison across different shipping fleets, companies, and different modes of transport. The carbon intensity of a ship in real operating conditions is known as the EEOI. It is the metric adopted by the IMO and represents the CO₂ emitted per tonne nautical mile for a voyage or specific time period. It can either be calculated from fuel consumption measurements and information on cargo carried and distance travelled or estimated using satellite tracking data and fleet technical specifications. EEOI therefore accounts for the real operating conditions of the vessel and their impact on fuel consumption (e.g. speed, weather, draught) and is therefore a more accurate representation of the CO₂ efficiency than if the efficiency were estimated in the vessel’s designed (or optimal operating) condition as is done by the EEDI or Existing Vessel Design Index (EVDI). The as-designed efficiency assumes that a ship operates in its designed speed (often above the actual ship speed) in ideal weather conditions and is fully loaded. The EEOI is influenced by speed, utilisation and a ship’s technical efficiency. Increasing the energy efficiency of a ship lowers the EEOI, controlling for all other factors. In practice however, there could be rebound effects as a result of the lower marginal operating cost from the technical efficiency improvement. If the ship is operating on zero emissions fuels, this rebound effect is no longer an issue.

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3.3. Sector: Water Supply; Sewerage, Waste Management and Remediation
Activities
3.3.1. Sewage sludge treatment
Overview
In Hong Kong, more than 94% of the population is served by the public sewerage system, with its sewerage network of about 2,000 kilometres and around 330 sewage pumping stations and sewage treatment plants collecting and treating 2.8 million cubic metres of sewage per day. On average, the system treats a little over 1 billion cubic metres of sewage per year, of which 80.3% undergo chemically enhanced primary treatment (CEPT), and 19.3% secondary treatment. The remaining 0.4% undergo preliminary, primary or tertiary treatment. For the purpose of the current phase of development of the Hong Kong Taxonomy, the following activities will be assessed:

Sewage sludge treatment – anaerobic digestion including co-digestion
During anaerobic digestion and co-digestion, a by-product generated is biogas, which consists mainly of methane and carbon dioxide (CO2). Methane is a much stronger absorber of the emitted thermal infrared radiation in Earth’s atmosphere than CO2 and, therefore, in practice, this means that methane is a much more powerful GHG with a warming potential 84-87 times higher than CO2 over the first 20 years after it reaches the atmosphere 11 . As a consequence, even though CO2 has a longer-lasting effect, methane sets the pace for warming in the near term and its current level of estimated anthropogenic emissions corresponds to a global temperature increase of over 3 degrees by 2100 12 . Crucially, methane emissions have increased drastically since 2007 and, in the longer term, their constant increase may be the biggest threat to keeping temperatures below the 2-degree scenario envisioned by the Paris Agreement and to avoid the tipping point towards catastrophic climate change 13 14 . Criteria and thresholds Sewage sludge treatment – anaerobic digestion or co-digestion
A monitoring and contingency plan is in place in order to minimise methane leakage at the
facility
The anaerobic digestion or co-digestion unit converts a certain class of waste into methane, a dangerous greenhouse gas, with a much higher global warming potential than CO2. It is essential that the plant has all the necessary safety measures in place to prevent the possibility of any leakages.

11 https://www.iea.org/reports/methane-tracker-2021/methane-and-climate-change 12 https://essd.copernicus.org/articles/12/1561/2020/ 13 https://esd.copernicus.org/articles/12/601/2021/ 14 https://www.ipcc.ch/sr15/chapter/chapter-3/

The majority of the produced biogas is used directly for the generation of electricity or
heat, or injection into the city gas network, or used as vehicle fuel or as fuel/ feedstock in city gas production. In the unlikely event of equipment breakdown, unconsumed biogas should be safely flared Biogas that is produced as a result of anaerobic digestion or co-digestion is a renewable energy source but has potential negative effects on climate and human health. Leakage risks also include explosion, asphyxiation, and poisoning. Therefore, it is crucial to store and utilise it in the correct manner. Activity cards Sewage sludge treatment – anaerobic digestion or co-digestion Sector Water supply; sewerage, waste management and remediation activities Activity Category Sewage sludge treatment Activity Description Construction and operation of facilities for the treatment of sewage sludge by anaerobic digestion or co-digestion with the resulting production and utilisation of biogas or chemicals. Activity Scope Construction and operation Closest HSIC Code 370000 CGT Code E1.1 Sewage sludge treatment – anaerobic digestion Corresponding ISIC Code 3700 Closest EU Taxonomy Code
5.6 Anaerobic
digestion of sewage sludge
Closest Chinese Green Bond
Endorsed Projects Catalogue
Codes
1.5.3.3 Comprehensive
utilisation of sludge from urban sewage treatment plants HSIC Description Sewage treatment Criteria and Thresholds Main Criteria ● A monitoring and contingency plan is in place in order to minimise methane leakage at the facility
The majority of the produced biogas is used directly for the generation of
electricity or heat, or injection into the city gas network, or used as vehicle fuel or as fuel/feedstock in city gas production. In the unlikely event of equipment breakdown, unconsumed biogas will be safely flared. Additional Requirements and Comments None

33
3.3.2. Waste Collection, Treatment and Recycling
Overview
Hong Kong is a densely populated area, so the issue of waste management is key to its sustainable development. About 5.7 million tonnes of waste are disposed of at landfills each year, including municipal solid waste (MSW), construction and demolition waste, chemical waste, and other special waste (clinical waste, animal carcasses, livestock waste, waste tyres, and waterworks/sewage sludge). Municipal solid waste accounts for 7% of the city’s GHG emissions 15, with the major source being organic waste decomposition in landfills. In 2022, the total quantity of MSW disposed to the landfills was 4.06 million tonnes (68% of the total), which represented a decrease of 2.0% as compared to 2021. Discounting the factor of population growth, the disposal rate of MSW was 1.51 kg/person/day, as compared to 1.53 kg/person/day in 2021 16 . The major component of MSW is domestic waste. Its quantity of disposal was 2.48 million tonnes in 2022, which has decreased by 2.8% as compared to 2021. On the other hand, the quantity of commercial and industrial (C&I) waste disposed of was 1.58 million tonnes in 2022, which has decreased by 0.8% when compared to 2021. The overall MSW recovery rate in 2022 was 32% (1.91 million tonnes), which has increased from 31% in 2021. Of the 11,128 tonnes of MSW landfilled daily in 2022, some 3,302 tonnes (30% of MSW) were food waste, which decreased by 3.9% as compared to 2021, whilst the second largest constituent of MSW was waste plastics. Some 2,369 tonnes per day (tpd) (21% of MSW) were disposed in landfills in 2022, which increased by 1.6% as compared to 2021. The third largest constituent of MSW was wastepaper, with a disposed quantity of 2,244 tpd (20% of MSW) in 2022, which has increased marginally by 0.4% as compared to 2021. Regarding construction waste, the quantity of waste generation dropped by about 3,100 tpd (6%) as compared with 2021 to 49,865 tpd, among which 45,736 tpd of construction waste (92% of total) were recovered either through transferring to projects for direct reuse or storing at public fill reception facilities for reuse in the future. The remaining 4,128 tpd of construction waste (8% of total) was disposed of at landfills, which was 483 tonnes more than that in 2021 and was on par with the level before COVID-19. In the past decade, the recovery rate of construction materials has remained at above 90% and was 92% in 2022. Currently, most of the municipal solid waste in Hong Kong is disposed of in the following landfills:

West-New Territories (WENT)
North-East New Territories (NENT)

15 https://www.scmp.com/comment/letters/article/3167424/why-hong-kongs-landfill-problem-wont-besolved-waste-energy-plants 16 https://www.wastereduction.gov.hk/sites/default/files/resources_centre/waste_statistics/msw2022_eng.pdf

34
There are 13 closed landfills in Hong Kong and their restoration works were completed between 1997 and 2006 to minimise their potential adverse impacts to the environment and to render them safe for beneficial use 17 . There are also nine recycling plants in Hong Kong working with different types of waste. In February 2021, the Hong Kong government adopted a plan called Waste Blueprint for Hong Kong 2035 18, which indicates priorities for the upcoming decades. According to the plan, per capita MSW disposal needs go down to 40-45% of the total, while recovery rate must go up to 55% in the medium term. In the long term, the government plans to abandon landfills altogether. For the purpose of the current phase of the Hong Kong Taxonomy development, two activities within this sector will be addressed:

Collection and transport of non-hazardous waste in source segregated fractions
Utilisation/treatment of domestic waste – anaerobic digestion or co-digestion
During anaerobic digestion and co-digestion, a by-product generated is biogas, which consists mainly of methane and CO2. Methane is a much stronger absorber of the emitted thermal infrared radiation in Earth’s atmosphere than CO2 and, therefore, in practice, this means that methane is a much more powerful GHG with a warming potential 84-87 times higher than CO2 over the first 20 years after it reaches the atmosphere 19 . As a consequence, even though CO2 has a longer-lasting effect, methane sets the pace for warming in the near term and its current level of estimated anthropogenic emissions corresponds to a global temperature increase of over 3 degrees by 2100 20 . Metrics
% of food and feed crops used as feedstock
Excessive utilisation of edible crops and food as a feedstock for producing bioenergy may lead to price distortion and negatively affect vulnerable population. Therefore, it is important to limit these kinds of feedstock and give preferences to non-edible types. Criteria and thresholds Collection and transport of non-hazardous waste in source segregated fractions Description and scope:
Separate collection and transport of non-hazardous waste in single or comingled fractions aimed at preparing for reuse or recycling.

17 https://www.gov.hk/en/residents/environment/waste/treatment/msw.htm 18 https://www.eeb.gov.hk/sites/default/files/pdf/waste_blueprint_2035_eng.pdf 19 https://www.iea.org/reports/methane-tracker-2021/methane-and-climate-change 20 https://essd.copernicus.org/articles/12/1561/2020/

All separately collected and transported non-hazardous waste that is segregated at source
is intended for preparation for reuse or recycling operations Waste that is destined for recycling plants should be collected from segregated sources in order to avoid contamination with non-recyclable waste. More specifically, if contaminated with nonrecyclable materials and biowaste, the feedstock might not be able to be used in the recycling plant and, hence, it might need to be landfilled or incinerated. Utilisation/ treatment of domestic waste – anaerobic digestion or co-digestion Description and scope:
Construction and operation of dedicated facilities for the treatment of separately collected bio-waste through anaerobic digestion or co-digestion with the resulting production and utilisation of biogas and digestate and/or chemicals.
A monitoring and contingency plan is in place in order to minimise methane leakage at the
facility
The anaerobic digestion or co-digestion unit converts a certain class of waste into methane, a dangerous greenhouse gas, with a much higher global warming potential than CO2. It is essential that the plant has all the necessary safety measures in place to prevent the possibility of any leakages.
The majority of the produced biogas is used directly for the generation of electricity or heat,
or injection into the city gas network, or used as vehicle fuel or as fuel/ feedstock in city gas production. In the unlikely event of equipment breakdown, unconsumed biogas will be safely flared Biogas that is produced as a result of anaerobic digestion or co-digestion is a renewable energy source but has potential negative effects on climate and human health. Leakage risks also include explosion, asphyxiation, and poisoning. Therefore, it is crucial to store and utilise it in the correct manner.
The bio-waste that is used for anaerobic digestion or co-digestion is source segregated and
collected separately
Bio-waste that is used for anaerobic digestion or co-digestion should be collected from segregated sources in order to avoid contamination of the feedstock. More specifically, if contaminated with plastics, metals and other non-biodegradable materials, the feedstock might not be able to be used in the anaerobic plant and, hence, it might need to be landfilled.
The produced digestate is used as fertiliser or soil improver, either directly or after
composting or any other treatment
The material that is left after anaerobic digestion or co-digestion is called digestate. It is a wet mixture that is usually separated into a solid and a liquid. Digestate is rich in nutrients and can be used as fertiliser for crops.

In the dedicated bio-waste treatment plants, the share of food and feed crops used as input
feedstock, measured in weight, as an annual average, is less than or equal to 10% of the input feedstock It is very important that the production of biomethane affects as little as possible the food supply chain as the use of food-quality feedstocks may lead to an increase of food prices in the market. Activity cards Collection and transport of non-hazardous waste in source segregated fractions Sector Water supply; sewerage, waste management and remediation activities Activity Category Waste collection, treatment and recycling Activity Description Separate collection and transport of non-hazardous waste in single or comingled fractions aimed at preparing for reuse or recycling Closest HSIC Code 381100 CGT Code E2.1 Collection and transport of nonhazardous waste in source segregated fractions Corresponding ISIC Code 3811 Closest EU Taxonomy Code
5.5 Collection and
transport of nonhazardous waste in source segregated fractions Closest Chinese Green Bond Endorsed Projects Catalogue Codes
5.3.1.2 Construction and
operation of garbage treatment facilities
HSIC Description Collection of non-hazardous waste Criteria and Thresholds Main Criteria ● All separately collected and transported non-hazardous waste that is segregated at source is intended for preparation for reuse or recycling operations Additional Requirements and Comments None

37
Utilisation/ treatment of domestic waste – anaerobic digestion or co-digestion Sector Water supply; sewerage, waste management and remediation activities Activity Category Waste collection, treatment and recycling Activity Description Construction and operation of dedicated facilities for the treatment of separately collected bio-waste through anaerobic digestion or co-digestion with the resulting production and utilisation of biogas and digestate and/or chemicals. Closest HSIC Code 382100 CGT Code E2.4 Utilisation/ treatment of domestic waste – anaerobic digestion Corresponding ISIC Code 3821 Closest EU Taxonomy Code
5.7 Anaerobic
digestion of bio-waste
Closest Chinese Green
Bond Endorsed Projects
Catalogue Codes
1.5.3.1 Comprehensive
utilisation of urban and rural household waste HSIC Description Treatment and disposal of non-hazardous waste Criteria and Thresholds Main Criteria ● A monitoring and contingency plan is in place in order to minimise methane leakage at the facility

The majority of the produced biogas is used directly for the
generation of electricity or heat, or injection into the city gas network, or used as vehicle fuel or as fuel/ feedstock in city gas production. In the unlikely event of equipment breakdown, unconsumed biogas will be safely flared
The bio-waste that is used for anaerobic digestion or co-digestion is
source segregated and collected separately
The produced digestate is used as fertiliser or soil improver, either
directly or after composting or any other treatment
In the dedicated bio-waste treatment plants, the share of food and
feed crops used as input feedstock, measured in weight, as an annual average, is less than or equal to 10% of the input feedstock Additional Requirements and Comments None

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3.4. Sector: Construction
3.4.1. Construction and renovation of buildings
Overview
Hong Kong’s Climate Action Plan 2050 sets out the vision of "Zero-carbon Emissions Liveable City Sustainable Development", and outlines strategies and targets for combating climate change and achieving carbon neutrality 21 . As part of the Action Plan, the Hong Kong government has set out to reduce the overall electricity consumption of buildings through promoting green buildings, improving buildings' energy efficiency, and promoting a low-carbon lifestyle. The goal is to reduce the electricity consumption of commercial buildings by 30% to 40% and that of residential buildings by 20% to 30% from the 2015 level by 2050, and to achieve half of the above targets by 2035. 22 The criteria below are to help building developers, owners, operators and investors to determine whether a building can be considered to be contributing to climate change mitigation. This is done by referencing locally and internationally available building certification schemes that can serve as proxies which denote whether a building is “green”. The criteria presented here are primarily focused on the operational emissions of buildings, and do not include the emissions associated with the construction of buildings. As will be explained in the following section, a major challenge for standardising the comparison of buildings’ operational emissions at both the local and international level is the uptake of globally applicable green building certification schemes. Metrics Currently, Hong Kong’s building market typically references BEAM Plus to determine whether a building can be considered “green”. BEAM Plus is a green building rating system to assess and recognise buildings which meet certain green requirements or standards. Recognised and certified by the Hong Kong Green Building Council (HKGBC) 23 and in line with other green building rating tools, BEAM Plus has a broad coverage, which includes not only energy performance but also water use, material embodied carbon, waste management, climate change adaptation, etc. It provides a comprehensive set of performance standards that can be pursued by developers and owners across the whole life-cycle of buildings and projects. A problem that is typically encountered when assessing the climate impact of buildings is the availability of universally comparable data. Ideally, information about energy consumption such as energy intensity per square metre, (including both electricity and gas) of a building would be made available for use. This could be in the form of Primary Energy Demand and Energy Use Intensity (EUI). However, it is often the case, particularly in buildings with multiple tenants, that building owners and operators cannot provide this information without the tenant’s consent. While acknowledging that efforts to generate this data should be made in the future, this goes beyond the scope of the present Taxonomy.

21 https://www.info.gov.hk/gia/general/202110/08/P2021100800588.htm 22 https://www.info.gov.hk/gia/general/202110/08/P2021100800588.htm 23 https://www.hkgbc.org.hk/eng/about-us/index.jsp

39
Therefore, in lieu of the data unavailability, the criteria reference the BEAM Plus certification scheme that is widely used in Hong Kong, with an additional focus on the energy use component within the BEAM Plus certification scheme. Applicants under the Hong Kong Taxonomy would be required to provide both their overall BEAM Plus rating (which should be at either Gold or Platinum) and show that they meet a minimum energy use threshold, using the BEAM Plus energy use scoring methodology. Certification should be provided or verified by an independent third party. Furthermore, the Hong Kong Taxonomy also incorporates the use of HKGBC’s Zero-Carbon-Ready Building Certification Scheme. It is recognised that at these early stages, many buildings will not have received such certification yet, thus using it to meet the Taxonomy is an option, but not a requirement. Metrics for New Buildings Design and operational data are required. Design-level and simulation data should be provided for new construction with a commitment to monitor and report emissions following construction.

Operational emissions: Operational emissions encompass all activities related to the use of
buildings, over their life span. This can be further disaggregated into the following measures:
a. Primary energy demand: Primary energy is the amount of energy that must be generated originally in order to meet the total energy demand of a building. A decrease of this parameter as well as the source of energy may influence carbon footprints of buildings. b. Energy consumption: Total energy consumption is defined as the total amount of electricity or equivalent electricity, and gas consumed by the building per annum. A decrease of this parameter as well as the source of energy may influence carbon footprints of buildings.
c. Direct emissions of building: Greenhouse gases emitted from activities under the
industry’s control such as from burning fuel for cement production are direct emissions; those from sources outside of its control including from the electricity it purchases are indirect emissions. This may also include the use of LPG or Towngas (for example use of Towngas in gas boilers). d. Reference can be made to the Product Carbon Accounting Footprint (PCAF) technical guidance for “Accounting and Reporting of GHG Emissions from Real Estate Operations”, for further details on the process for conducting an operational emissions assessment.
Energy savings: The share of total or relative energy consumption that can be saved because
of the implemented measures.
Energy consumption of buildings compared to peers: Energy consumption compared to bestin-class peers. The Electrical and Mechanical Services Department of the Hong Kong
government provides an online building-based electricity EUI Benchmarking Tool 24 and HKGBC also has a Benchmarking and Energy Saving Tool 25 which building owners could use to compare their energy consumption to peers.
Buildings Certification Schemes: Many jurisdictions have their own building certification
schemes. For example, BEAM Plus is commonly used in Hong Kong. Other building certification schemes used globally include the US Green Buildings Council Leadership in Energy Efficiency and Design (LEED) 26 , and the National Australian Built Environment Rating System (NABERS) 27 . The International Finance Corporation (IFC) has also developed a buildings rating system

24 https://eui.emsd.gov.hk/en/EUI_Introduction.html 25 https://hkbest.hkgbc.org.hk/ 26 https://www.usgbc.org/leed 27 https://www.nabers.gov.au/

40
Excellence in Design for Greater Efficiencies (EDGE) 28 , that can be easily applied to emerging market contexts. The CGT also outlines the minimum requirements for buildings to be considered green under the EU and Mainland China’s respective building certification schemes (i.e. the Nearly Zero-Energy Building (NZEB) and Mainland China’s three-star rating system). Given Hong Kong’s role as a global financial centre, the building criteria are designed to facilitate the mobilisation of capital for green buildings in Hong Kong and internationally. Therefore, the criteria are designed to recognise certifications of buildings outside of Hong Kong, provided that they meet certain thresholds under those international building certification schemes.
5) Zero-Carbon-Ready Building Certification & (Upcoming) Net Zero Building Certification 29:
The HKGBC has recently launched its Zero-Carbon-Ready Building Certification Scheme which is a positive step towards measuring the emissions performance of buildings in Hong Kong. We anticipate this scheme will help to enrich Hong Kong’s certification systems and have incorporated this into the Taxonomy, which may be used instead of the other options that are laid out in the activity card. a. The Zero-Carbon-Ready Building Certification Scheme is an energy performance certification whereby buildings will be certified according to their rating of building energy efficiency. It includes a Target Setting Certification, whereby buildings are awarded a certification if a target to zero-carbon-ready building requirements is set, and a Progress Certification rewarded when the reduction target is achieved. b. The anticipated Net Zero Building Certification is awarded if the annual on-site renewable energy generation is equal, or more than the annual energy consumption of the building. Note: Items 1 to 3 in the above list of Metrics for New Buildings are the most ideal metrics, however, this data may not be adequately available across the buildings sector. As such, it is recommended that item 4 (BEAM Plus) should be the main criterion for Hong Kong while item 5 (Zero-Carbon-Ready Building Certification & Net Zero Building Certification) should be a supplementary criterion to provide flexibility for compliance. Metrics for Renovations

Primary energy demand: Primary energy is the amount of energy that must be generated
originally in order to meet the total energy demand of a building. A decrease of this parameter as well as the source of energy may influence carbon footprints of buildings.
Energy consumption: Total energy consumption is defined as the total amount of electricity
or equivalent electricity and the total amount of gas consumed by the building per annum. A decrease of this parameter as well as the source of energy may influence carbon footprints of buildings.
Direct emissions of building: Greenhouse gases emitted from activities under the industry’s
control such as from burning fuel for cement production are direct emissions; those from sources outside of its control including from the electricity it purchases are indirect emissions.

28 https://edgebuildings.com/
29 https://zcrbc.hkgbc.org.hk/

41
Criteria and alignment
The Hong Kong Taxonomy for certification of buildings currently cover four separate economic activities, namely construction of new commercial buildings, construction of new residential buildings, renovation of commercial buildings, and renovation of residential buildings. In line with BEAM Plus, commercial buildings are those intended to be used for business, trade or entertainment, for example office, clubhouse and retail. The criteria for construction of new commercial buildings and construction of new residential buildings cover buildings that are constructed in Hong Kong, but also buildings that are constructed outside of Hong Kong. It is important to note that the criteria for construction of new commercial and residential buildings in Hong Kong references the existing BEAM Plus, as well as the Zero-Carbon-Ready Building Certification Scheme developed by the HKGBC. Furthermore, it is important to clarify that at this current stage, we only require that buildings meet the specified criteria under either BEAM Plus or the Zero-Carbon-Ready Building Certification Scheme. This optionality is to accommodate for the fact that the Zero-Carbon-Ready Building Certification Scheme is not yet commonplace within the Hong Kong buildings market. The present criteria are designed to be usable and supportive of the local buildings market in Hong Kong while also ensuring that the criteria are aligned with international best practice and help to position Hong Kong as a conduit for inbound and outbound investments in green buildings worldwide, irrespective of their location. The present criteria seek to be consistent with the Mainland China and the EU taxonomies by directly referencing the criteria outlined in the International Platform on Sustainable Finance’s CGT, while at the same time, establish a common level of stringency across different building labelling systems. While recognising that many different labelling schemes that exist worldwide vary in their approach to assessing a building’s impact on climate change, we have sought – through engagement with industry experts in particular from the HKGBC - to address the broader systematic challenge facing the comparability of low-carbon buildings labelling systems between markets. This has been done with a focus on the climate impacts of a building’s operations. However, we expect that as the Hong Kong Taxonomy is developed further, other environmental objectives can be introduced into the criteria. Furthermore, there is flexibility to update the different criteria in the Hong Kong Taxonomy from time to time to reflect the latest progress in the industry and developments in the green building certification schemes developed by the HKGBC.

42
Activity cards
Renovation of existing buildings
Sector Construction
Activity Scope Construction and renovation of buildings Activity Description Renovation of existing buildings Closest HSIC Code 419100 439101 439102 4321XX 4322XX 4329XX 4399XX CGT Code F1.2 Renovation of existing buildings Corresponding ISIC Code 4100 4321 4322 4329 4300 4390 Closest EU Taxonomy Code
7.2 Renovation
of existing buildings
Closest Chinese Green
Bond
Endorsed Projects
Catalogue Codes
5.2.1.5 Energy conservation
and environmental-friendly renovation of existing buildings HSIC Description 419100 - Structural alteration at erected buildings and structures 439101 - Interior fitting, decoration and repairs for buildings 439102 - Exterior renovation and repairs for buildings 4321XX - Electrical equipment installation and maintenance 4322XX - Ventilation, gas and water fitting installation and maintenance activities 4329XX - Other construction installation and maintenance 4399XX: Other general finishing and specialised construction works Criteria and Thresholds Main Criteria For the renovation of existing commercial buildings:

The building renovation leads to a reduction of primary energy demand,
energy consumption, or direct GHG emissions of at least 30% against the building’s historic average, or
Use HKGBC’s Zero-Carbon-Ready Building: Must be at least Extra Low or
Level 2 improvement (i.e., 25% reduction) according to Zero-Carbon-ready building Certification Scheme. For the renovation of existing residential buildings:
The building renovation leads to a reduction of primary energy demand, energy consumption, or direct GHG emissions of at least 30% against the building’s historic average. This is proven with measured and verified data. Additional Requirements and Comments None

43
Construction of new buildings
Sector Construction
Activity Scope Construction and renovation of buildings Activity Description Construction of new buildings Closest HSIC Code 411000 412000 419100 439101 4321XX 4322XX 4329XX 4399XX CGT Code F1.1 Construction of new buildings Corresponding ISIC Code 4100 4321 4322 4329 4330 4390 Closest EU Taxonomy Code
7.1 Construction
of new buildings
Closest Chinese Green
Bond
Endorsed Projects
Catalogue Codes
5.2.1.1 Construction of ultralow energy consumption
buildings
5.2.1.2 Green buildings
HSIC Description 411000 - Erection of architectural superstructures 412000 - Structural steel framework erection 419100 - Structural alteration at erected buildings and structures 439101 - Interior fitting, decoration and repairs for buildings 4321XX - Electrical equipment installation and maintenance 4322XX - Ventilation, gas and water fitting installation and maintenance activities 4329XX - Other construction installation and maintenance 4399XX: Other general finishing and specialised construction works Criteria and Thresholds Main Criteria For the construction of new commercial buildings in Hong Kong:

Buildings must be BEAM Plus certified (to either gold or above) or designed
to certify as such, and the Energy Use component of applicant’s BEAM Plus Certification must meet at least a minimum of 10 credits under EU2 (Reduction of CO2 Emissions) and a minimum score of 70% in Energy Use category and, either:
a. For projects certified under BEAM Plus 1.2: 30% energy saving against the BEC 2018 baseline, or b. For projects certified under BEAM Plus 2.0, 20% energy saving against BEC 2021 baseline.
Or buildings certified at least Extra Low in EUI or level 2 improvement (i.e.
25% reduction) in Energy Performance Certification under the ZeroCarbon-Ready Building Certification Scheme. For the construction of new residential buildings in Hong Kong:
Buildings must be BEAM Plus certified (to either gold or above) or designed
to certify as such, and the Energy Use component of applicant’s BEAM Plus Certification must meet at least a minimum of 10 credits under EU2 (Reduction of CO2 Emissions) and a minimum score of 70% in Energy Use category and, either:

44 a. For projects certified under BEAM Plus 1.2: 30% energy saving against the BEC 2018 baseline, or b. For projects certified under BEAM Plus 2.0, 20% energy saving against BEC 2021 baseline.
2) Or buildings certified at least Extra Low in EUI or level 2 improvement (i.e.
25% reduction) in Energy Performance Certification under the ZeroCarbon-Ready Building Certification Scheme. Construction of new commercial and residential buildings outside Hong Kong can also be eligible if the following conditions are met. Buildings that are situated in markets with existing taxonomies such as the EU or Mainland China would be required to meet the respective substantial contribution to climate change mitigation criteria in those markets:

For projects in the European Union:
a. Primary energy demand, defining the energy performance of the building resulting from the construction, is at least 10 % lower than the threshold set for the NZEB requirements in national measures implementing Directive 2010/31/EU of the European Parliament and of the Council. The energy performance is certified using an as built Energy Performance Certificate. b. For buildings larger than 5000m 2 , upon completion, the building resulting from the construction undergoes testing for air-tightness and thermal integrity, and any deviation in the levels of performance set at the design stage or defects in the building envelope are disclosed to investors and clients.
i. The testing should be carried out in accordance with
EN13187 (Thermal Performance of Buildings -
Qualitative Detection of Thermal Irregularities in Building Envelopes - Infrared Method) and EN 13829 (Thermal performance of buildings - Determination of air permeability of buildings - Fan pressurization method) or equivalent standards accepted by the respective building control body where the building is located.
For buildings in Mainland China:
a. Projects should be rated to the third-level of Mainland China’s Three Star System For buildings in markets that are currently not covered under the CGT, they may refer to the following criteria. These criteria may also be used for buildings in Hong Kong where relevant.
Certified under Leadership in Energy and Environmental Design (LEED)
to Gold level and a. Minimum score of 9 points under Energy Assessment Credits and

45 b. Optimise Energy Performance for 30% improvement above ASHRAE 90.1 in energy performance.
2) Certification under NABERS of at least five stars.
3) Certification under IFC EDGE is also acceptable. For buildings in Least
Developed Countries (as classified by the UN), any level of IFC EDGE certification is sufficient to be considered green, otherwise, buildings that seek to use IFC EDGE certification in non-Least Developed Countries, must obtain at least an IFC EDGE Advanced certification or above. Additional Requirements and Сomments For the construction of new residential buildings:
The criteria for construction of new residential buildings outside of Hong Kong reference international best practices. Additional Information Hong Kong uses BEAM Plus, a green building rating system to assess and recognise buildings which meet certain green requirements or standards. BEAM Plus is recognised and certified by the HKGBC. As of end 2022, there were 3,769 buildings, mainly situated in Hong Kong, that had been certified by BEAM Plus or its predecessor HK-BEAM. BEAM Plus defines a comprehensive set of performance criteria covering a range of sustainability issues relating to the planning, design, construction, commissioning, management, operation and maintenance of buildings. However, one characteristic of scoring-based rating systems is that they do not solely focus on the climate-performance of buildings. This is because this kind of rating system covers multiple aspects of a building (beyond climate change mitigation) including water, waste, material, site and transport, indoor environments, building management and more. Therefore, as can be seen in the criteria above, in order to balance the accuracy of the taxonomy criteria with usability and practicality, not only do we use the overall BEAM Plus performance level, but also ask for an additional set of climate and energy-related criteria. More information comparing the green building rating systems of different markets can be found here: Green-Building-Rating-Systems-Energy-Benchmarking-Study.pdf (hkgreenfinance.org) The HKGBC anticipated launch of a Net Zero Building Certification. We will monitor its development and incorporate it into the Taxonomy when it becomes available.

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Annex 1: List of Abbreviations
AER Annual efficiency ratio
ASEAN The Association of Southeast Asian Nations ASHRAE The American Society of Heating, Refrigerating and Air-Conditioning Engineers BEAM Building Environmental Assessment Method BEC Building Energy Code BRT Bus rapid transit C&I Commercial and industrial Climate Bonds Climate Bonds Initiative CBT Climate Bonds Taxonomy CEPT Chemically enhanced primary treatment CGT Common Ground Taxonomy CH4 Methane CO2 Carbon dioxide COVID Coronavirus Disease CSP Concentrated Solar Power DNSH Do no significant harm DWT Deadweight tonnage EDGE Excellence in Design for Greater Efficiencies EEDI Energy Efficiency Design Indicator EEOI Energy Efficiency Operational Indicator EU European Union EUI Energy use intensity EVDI Existing Vessel Design Index FPSO Floating production, supply and off-loading GHG Greenhouse gas GT-nm Gross tonne- Nautical mile HKGBC Hong Kong Green Building Council HKMA Hong Kong Monetary Authority HSIC Hong Kong Standard Industrial Classification KWh Kilowatts per hour Hong Kong Taxonomy Hong Kong Taxonomy for Sustainable Finance ICMA International Capital Market Association IFC International Finance Corporation IMO International Maritime Organisation ISIC International Standard Industrial Classification of All Economic Activities ISO International Organization for Standardization LEED Leadership in Energy Efficiency and Design LNG Liquefied natural gas M 2 Square metre MSS Minimum Social Safeguards

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MSW Municipal solid waste
NABERS National Australian Built Environment Rating System NACE Nomenclature of Economic Activities NZEB Nearly Zero-Energy Building PCAF Product Carbon Accounting Footprint PKM Passenger kilometre PV Photovoltaic TKM Tonne kilometre SURF Subsea, umbilicals, risers, flowlines UN United Nations VKM Vehicle Kilometre

Enclosure - Consultation Report: Prototype for a Green Classification Framework for Hong Kong

Consultation Report: Prototype for a Green
Classification Framework for Hong Kong
Supported by
May 2024

2
Contents
I. Introduction.......................................................................................................................................... 3
II. Responses Received from Market Consultation .................................................................................. 4
2.1. Respondents at a glance................................................................................................................4
2.2. Overview of the feedback received...............................................................................................4
2.3. Summary of feedback and our responses.....................................................................................4
2.3.1. Taxonomy design and structure ........................................................................................... 5
2.3.2. Metrics, technical screening criteria and thresholds ........................................................... 7
2.3.3. Next Steps............................................................................................................................. 9
III. Way Forward ...................................................................................................................................... 13
3.1. Future development of the Taxonomy....................................................................................... 13
3.1.1. New sectors and activities.................................................................................................. 13
3.1.2. Transition activities............................................................................................................. 13
3.1.3. New environmental objectives........................................................................................... 15
3.1.4. DNSH and MSS.................................................................................................................... 15
3.2. Implementation.......................................................................................................................... 16
Annex 1: Potential Sectors and Activities for Future Taxonomy................................................................ 17
Annex 2: List of Abbreviations.................................................................................................................... 18

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I. Introduction
The Hong Kong Monetary Authority (HKMA) commissioned Climate Bonds Initiative (Climate Bonds) to develop a green classification framework for adoption in the local market. In May 2023, we published a discussion paper on “Prototype of a Green Classification Framework for Hong Kong”. Apart from outlining our thinking on the development of a local green classification framework including the background, potential benefits and core principles, the paper also proposes the structure and core elements of a prototype framework. Based on the paper, a market consultation was conducted to gather feedback from stakeholders on the development and application of the framework. A range of stakeholders including financial sector participants, industry associations, academia, think tanks and non-government organisations (NGOs), were invited to participate in the consultation and relevant outreach sessions. This report is prepared by the HKMA and Climate Bonds to present the major findings from the consultation, together with our views, recommendations, and proposed way forward in advancing the development of the framework.

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II. Responses Received from Market Consultation
2.1. Respondents at a glance
On top of the feedback gathered from the outreach sessions, a total of 38 written responses were received. These responses were provided by a range of respondents as follows:

Figure 1: Chart of consultation respondent by type
2.2. Overview of the feedback received
Respondents welcomed the development of a taxonomy for Hong Kong, as it can help bolster our position as an international sustainable finance hub. They were of the view that the Hong Kong Taxonomy could help reduce greenwashing risks, provide a clearer definition of green products, and provide the foundation to enhance interoperability. They also offered a number of suggestions on the design and structure, metrics, Technical Screening Criteria (TSC) and thresholds as well as the next steps for the Taxonomy. More details of the feedback are in Section 2.3 below.
2.3. Summary of feedback and our responses
Type of respondent No. of respondents
Banks and
Development
Institutions 17
Industrial and
Professional
Associations 7
NGOs and Think
Tanks 5
Service and Solution
Providers 4
Asset Managers 2
Public Organization 1
Energy Company 1
Academic Institution 1
Total 38
Consultation questions
Taxonomy design and structure
 What are your views on the design and structure of the prototype? Do you agree with the principles on which the prototype is built? Metrics, TSC and thresholds  Do you have any comments on the metrics, TSC and thresholds? If you foresee any operational difficulties in implementing the metrics, TSC and thresholds, please provide specific details of alternative/substitute with supporting information and evidence.  Are there any metrics, TSC and thresholds that could be further adapted in the local context?  Are there any other certification schemes or labels in Hong Kong that can be used as proxies for compliance with TSC?

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2.3.1. Taxonomy design and structure
Feedback summary Our responses
(i) Respondents in general welcomed the development of the Hong Kong Taxonomy as it can help bolster our position as an international sustainable finance hub. There was broad agreement on the principles built on the prototype. We appreciate respondents’ support for our work on the Hong Kong Taxonomy for Sustainable Finance. The Taxonomy aims to operationalise and align with the Common Ground Taxonomy (CGT), taking into account the context in Mainland China and the European Union (EU). In the prototype, references were made to a number of other taxonomies such as the Climate Bonds Taxonomy (CBT) and ASEAN Taxonomy. In future development, we will endeavour to consider the regional context and other mainstream taxonomies and frameworks as appropriate, taking into account, for example, materiality of banking sector exposures and ease of adaptation under the TSC-based approach. (ii) Respondents generally agreed with the TSCbased approach adopted in the Taxonomy. (iii) Some respondents suggested that in addition to Hong Kong’s local context, the Hong Kong Taxonomy should take into account the regional context in the Greater Bay Area (GBA) and other jurisdictions. They recommended endorsing projects and activities that have the potential to contribute significantly to the decarbonisation roadmap of Hong Kong, Mainland China, and beyond. (iv) A few respondents recommended aligning the Hong Kong Taxonomy with other widely used reference taxonomies such as the Green Loan Principles and ASEAN Taxonomy to enable market participants to easily understand and match the relevant criteria in the Hong Kong Taxonomy. (v) Many respondents expressed the need for supplementary instructions and guides to help financial market participants understand and use the Taxonomy. For instance, some of them suggested including guidance on the application of Hong Kong Standard Industrial Classification (HSIC) code to the entity’s underlying activities, taking into account situations under which the use of proceeds was different from the entity’s underlying activities. Currently, the Hong Kong Taxonomy is intended to be a voluntary tool for the industry (please see 2.3.3(i) for more details). As standardised industrial classification codes (such as HSIC, International Standard Industrial Classification of All Economic Activities (ISIC) and the Nomenclature of Economic Activities (NACE)) provide a systematic hierarchical system to classify different economic activities, they serve as a good foundation for our Taxonomy to map Next steps  Do you have comments on any of the elements and activities to be included in the future development of the Taxonomy, such as any new sectors, transitional activities, new environmental objectives and the Do No Significant Harm (DNSH) and Minimum Social Safeguards (MSS) criteria?  Do you have any comments on how the Taxonomy should be used in Hong Kong?

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Feedback summary Our responses activities and set out relevant TSC. We acknowledge that the actual use of proceeds could be different from the industrial sector of an entity and agree that a precise assessment should be based on the relevant TSC. An illustrative guidance has been prepared to provide users with illustrations to facilitate the understanding and use of the Taxonomy. (vi) Some respondents saw a need to establish a governance structure to regularly assess and incorporate changes from reference taxonomies into the Hong Kong Taxonomy in a timely manner to ensure interoperability and comparability. We agree that there is a need for the Hong Kong Taxonomy to be regularly updated. We will keep in view the latest developments on this front and will also explore establishing relevant processes and structure for the next phase of work in developing the Taxonomy. (vii) A piece of feedback recommended that the Taxonomy should provide specific reference to a just and fair transition which includes (i) protecting the interests of financially vulnerable groups of society during the transition process, and (ii) recognising that transition pathways in emerging countries in Asia should reasonably allow for some catch up growth, without assuming that the current utilisation of the carbon budget is fair and equitable. We note the feedback and will consider the comments carefully, particularly when expanding the coverage of our Taxonomy to include transition activities in the next phase of work. (viii) There was a suggestion to include the Global Industry Classification Standard (GICS) code in the Taxonomy. To support interoperability and ease of comparison with other global taxonomies, in our Taxonomy spreadsheet, each HSIC Industry Class is mapped with the corresponding ISIC and NACE codes. We will explore adding a reference to the GICS code in our future work. (ix) There was a concern about the potential gaps between various taxonomies implemented by different regions, such as the EU and Mainland China, and hence a suggestion to explicitly specify the priority for alignment when conflicts arise between these taxonomies. The major taxonomy referenced in our work is the CGT, and hence the alignment of the Hong Kong Taxonomy mainly follows that of the CGT. Whether the CGT adopts the criteria in EU Taxonomy, Mainland China Taxonomy, or both depends on how the criteria overlap. For example, in a scenario where the EU criteria are more specific or stringent, such criteria are adopted in the CGT. (x) A proposal suggested reframing the Taxonomy as a “sustainable” taxonomy, which would broaden its scope to include activities such as nuclear, gas, and other transitional practices that are considered sustainable but may not We concur with the idea of reframing the Taxonomy as a “sustainable” taxonomy, which aligns with our future work, e.g. the expansion to include transition activities.

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Feedback summary Our responses necessarily align with the specific criteria of being “green”. (xi) A respondent opined that while the Taxonomy adopts a “sum-of-all” approach by combining different taxonomies and industry standards, the differing climate plans among the EU, Mainland China, and Hong Kong could pose a potential obstacle to establishing a clear and consistent green standard for investors. Another respondent agreed on the importance of interoperability but also pointed out the need for greater attention to local-specific circumstances. Given Hong Kong’s important role in bridging green financial flow between Mainland China and the world, a key feature of the Hong Kong Taxonomy is the interoperability with other taxonomies, and hence references are made to the CGT, EU Taxonomy, Mainland China Taxonomy, ASEAN Taxonomy and CBT. If there are any criteria specific to a market, we have also highlighted them in our work to facilitate users to understand such differences. On local circumstances, our work has also taken into account Hong Kong specific standards. For example, the Building Environmental Assessment Method (BEAM) Plus assessment criteria are adopted in our Taxonomy.
2.3.2. Metrics, technical screening criteria and thresholds
Feedback summary Our response
(i) Respondents proposed certain standards and labels to be incorporated into the Taxonomy, such as the Construction Industry Council green product certification, CarbonCare® Label, Guobiao Standards and the International Electrotechnical Commission Standards, to enhance the applicability of the Taxonomy in the Hong Kong context. In addition, regarding the building sector, respondents highlighted the importance of other green building rating schemes such as LEED and IFC-EDGE for building projects in Hong Kong. We appreciate respondents’ feedback. We will analyse the proposed standards and labels and will consider incorporating them into the Taxonomy as the coverage of activities increases. On green building rating schemes, we have enhanced the Hong Kong Taxonomy to include LEED and IFC-EDGE. (ii) There was some feedback on expanding the existing activities covered by the Hong Kong Taxonomy, for example, to include codigestion facilities under sewage sludge treatment. We agree to include co-digestion facilities and have enhanced the Taxonomy accordingly. (iii) A respondent provided details on the prevailing industry practices of certain activities and expressed concerns about the challenges of meeting the TSC. For example, for “sewage sludge treatment – anaerobic digestion” and “utilisation / treatment of We appreciate respondents’ feedback. We will carefully analyse the suggestions and enhance the Taxonomy as appropriate. We also note the need to strike a balance between the practical concerns of market participants and the need to put in place

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Feedback summary Our response domestic waste – anaerobic digestion”, the respondent highlighted the difficulty of measuring total lifecycle methane emissions in quantitative terms. On the other hand, for “collection and transport of non-hazardous waste in source segregated fractions”, the respondent expressed concerns that waste and recyclable bins are commonly made of plastic and metal, while bins made of 100% recycled plastics are rare in practical situations. green standards on par with international ambitions. In light of the complexities associated with quantifying methane emissions throughout the lifecycle of the activities concerned, we have removed the relevant criterion from the Taxonomy. The criterion was an additional requirement on top of the CGT. The revised TSC of the relevant activity thusremain in line with the CGT after the removal. Separately, in view of concerns on the practicality of requiring waste collection binsto be made from 100% recycled plastics, we have removed the corresponding criterion from the Taxonomy. Similar to the above, the revised TSC of the relevant activity remain in line with the CGT. (iv) Several respondents and market participants expressed concerns about the challenges of aligning with the thresholds in energy saving performance in construction of new buildings. They expressed that it takes time for building projects to plan and to factor in additional energy saving requirement on top of BEAM Plus rating. We appreciate respondents’ feedback. With regards to the threshold on energy saving for the building sector, the 30% energy performance improvement aligns with international ambitions such as CGT, the EU and the Climate Bonds baseline. Detracting from this target would compromise the Hong Kong Taxonomy’s goal of aligning with international best practices. We will further explore the possibility of introducing a transition category to address the concern. (v) There were a few suggestions related to specific metrics in the Taxonomy. For example, for transportation, it was recommended to include other industry metrics such as Energy Efficiency Existing Ship Index (EEXI) and Energy Efficiency Design Index (EEDI); and for buildings, there was a suggestion to add metrics of energy intensity per square metre. We appreciate respondents’ feedback. We will carefully analyse the suggestions and enhance the Taxonomy as appropriate. Regarding the suggestion on EEXI and EEDI, we do not intend to include them at the current phase as there is no consensus within the shippingdecarbonisation industry on the effectiveness of the two indexes in measuring the actual performance of a ship. Regarding the suggestion to include energy intensity metrics per square metre, the Taxonomy may eventually shift away from buildings certification and instead require issuers to provide specific energy intensity units. However, it is currently recognised that such information may not be readily available. This is particularly evident in
buildings with mixed ownership and use, where

9
Feedback summary Our response data privacy concerns can pose barriers to collecting such information. (vi) Some feedback was related to specific TSC. For instance, for “renovation of existing buildings”, there was a suggestion to include the additional requirement in the EU Taxonomy for larger buildings (more than 5000 m 2 ) to undergo testing for airtightness and thermal integrity; and for “transportation of freight by sea”, there was a suggestion to exclude vehicles dedicated to the transport of fossil fuels. We appreciate respondents’ feedback. We will continue enhancing the Taxonomy as appropriate. Regarding the suggestion of including the additional criteria of airtightness and thermal integrity for “renovation of existing buildings”, we do not intend to include them since these criteria are specific to “construction of new building” as set out in both CGT and EU Taxonomy. Separately, we agree to exclude the transport of fossil fuels and have enhanced the Taxonomy accordingly.
2.3.3. Next Steps
Feedback summary Our response
(i) Many respondents saw a need to further clarify the intended application, expectations, and timeline for adopting the Taxonomy. Some of them were concerned that the industry may not yet be ready for a comprehensive and mandatory framework based on the Taxonomy. A few respondents suggested implementing the Taxonomy by phase, and that initially the implementation could be voluntary for labelling and screening, alongside product development and disclosures. On the other hand, there were also views calling for disclosure requirements and regulatory mechanisms. Our current work provides a structure for classifying green and sustainable activities. To formulate any new regulatory requirements for applying the Taxonomy would require an additional set of rules or framework. Such requirements need to be considered carefully, taking into account challenges such as readiness of the industry and availability of data. Therefore, at the current stage, we aim to build a market-oriented tool and to make it available for voluntary use by the industry. This could help raise awareness, promote common understanding, facilitate the building up of experience, and more importantly, provide a foundation for different applications such as product labelling, development and disclosures. (ii) Several respondents sought clarification on the level of verification needed. In particular, a few of them opined that a building should undergo independent third-party verification to attain a certified green status. We appreciate respondents’ feedback. We will take note of the suggestions proposed by respondents when formulating additional guidance on the use of the Taxonomy, taking into account the costs and benefits of verification. Certain TSCs in the Taxonomy have made reference to third-party standards and labels.

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Feedback summary Our response
(iii) There were a number of suggestions on new sectors and activities to be included in the Taxonomy, such as consultancy activities, information and communication technologies, manufacturing of cement and steel, and manufacturing of electric vehicles. Several respondents took the view that the Taxonomy should prioritise green and transition activities that are more relevant in the GBA when considering new activities for the next phase. They highlighted that the manufacturing sector is a significant contributor to greenhouse gas (GHG) emissions in the GBA. Examples of suggested new activities received during the consultation period are listed in
Annex 1.
We appreciate respondents’ feedback and recognise the importance of including transition activities and other environmental objectives. Specifically, we will study transition activities in the GBA and Asian economies and formulate TSC taking into account relevant taxonomies and frameworks. The merits of using a traffic light system would also be considered. Among the various potential environmental objectives, we intend to prioritise climate change adaptation by exploring possible approaches in formulating the TSC. We will also keep in view international developments in the field of taxonomies, particularly that of the CGT, with regard to how other environmental objectives have been included. Activities in Annex 1 will be considered for inclusion in the Taxonomy, with appropriate prioritisation. (iv) Many respondents were in favour of including transition activities in the future development of the Taxonomy so as to facilitate decarbonisation efforts across industries in Hong Kong and the region. A few of them suggested to consider including transition activities that relate to the phase-out and conversion of high-emitting assets such as fossil fuel power plants in the next phase. Respondents suggested that the Hong Kong Taxonomy could make reference to other taxonomies when incorporating transition activities, such as declining emissions thresholds with sunset dates for certain activities as in the EU Taxonomy, and the traffic light approach as in the ASEAN Taxonomy. (v) Some respondents highlighted the importance of addressing the stance on natural gas in the Taxonomy to effectively communicate its robustness and credibility to global investors. They were concerned about the challenge of providing transition finance to natural gas facilities that could potentially cause significant harm to climate change mitigation. (vi) Some respondents supported the Taxonomy to include new environmental objectives such as climate change adaptation and resilience, the circular economy, pollution prevention, water

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Feedback summary Our response management and biodiversity. Specifically, there were views that climate change adaptation and resilience could be more feasible with co-benefits with climate change mitigation. However, some respondents were concerned that other environmental objectives may be more difficult to quantify. (vii) Some respondents expressed the need to include DNSH elements and suggested that the Taxonomy incorporate the EU Taxonomy criteria for DNSH. However, at the same time, some respondents were concerned that the application of DNSH might be complex in practice for investors and financial institutions. They suggested the prioritisation of the development of TSC and focus on capacity building for DNSH and MSS. We appreciate respondents’ feedback. We would explore the incorporation of DNSH and MSS criteria in the future development of the Taxonomy, bearing in mind the principles of interoperability and usability. (viii) There were concerns that it would be difficult for small and medium-sized enterprises to use the Taxonomy since they may not have the necessary expertise or resources to carry out the assessments. We will explore the possible ways to facilitate use of the Taxonomy and build capacity. (ix) A respondent highlighted the benefits of formulating national and/or regional level pathways and suggested considering interim solutions, such as utilising the decarbonisation pathways provided by the International Energy Agency (IEA) for the energy sector, while these pathways are being developed. We appreciate respondents’ feedback and recognise the importance of considering interim solutions. All the thresholds currently included in the Taxonomy meets the IEA trajectories and evidence by the Intergovernmental Panel on Climate Change on 1.5°C. The Hong Kong’s Climate Action Plan 2050 has set a target of achieving carbon neutrality and netzero electricity generation before 2050. At this stage, only conventional renewable energy technologies, such as solar and wind power, can confidently be considered capable of producing electricity with an emissions intensity commensurate with the Climate Action Plan. They are thus included in the current Hong Kong Taxonomy. Generally, there are three possible methodological approaches to formulate decarbonisation pathways for Hong Kong:

Based on actual GHG emissions: a baseline
year is set up and a trajectory is drawn to zero in 2050. Trajectories can then be

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Feedback summary Our response designed for both the green and transition components of the Taxonomy. This approach is the most accurate and robust, but it requires the availability of local data, which might be difficult to obtain especially for sectors such as buildings and manufacturing;
2. Trajectories from IEA or other reputable
and independent sources such as the
Transition Pathway Initiative are used:
these trajectories are very good benchmarks, recognised internationally and useful for the purpose of interoperability. However, they tend to be global in scope and may not provide jurisdiction-specific pathways; and
3. Measure-based approach: proxy is used to
determine the decarbonisation potential of a specific activity or sector. This approach is generally used for sectors where the availability of data both at the local and global level is a challenge such as mining and aviation. Each of the above approaches presents both challenges and benefits, and hence will be further explored. For the energy sector, in particular for technologies such as natural gas fired power generation, they will be taken into account when formulating relevant criteria. (x) Some feedback suggested that the Taxonomy should be applicable across industries to facilitate disclosure and reporting and ensuring better data availability and reliability. Respondents recommended close collaboration, such as forming a steering group specifically on the implementation of the framework, between the HKMA and other regulators in Hong Kong to ensure consistency in the use of the Taxonomy and thus reduce complexity and costs for financial institutions. The HKMA maintains close dialogue with other financial regulators through the Green and Sustainable Finance Cross-Agency Steering Group (CASG) 1 . One of the key action items of CASG is to develop a taxonomy for use across the financial sector. The HKMA will continue to work with other CASG members on this matter.

1 Established in May 2020, the CASG is co-chaired by the HKMA and the Securities and Futures Commission. Members include the Environment and Ecology Bureau, Financial Services and the Treasury Bureau, Hong Kong Exchanges and Clearing Limited, Insurance Authority and the Mandatory Provident Fund Schemes Authority. The CASG aims to coordinate the management of climate and environmental risks to the financial sector, accelerate the growth of green and sustainable finance in Hong Kong and support the Government’s climate strategies.

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III. Way Forward
Based on the feedback from the consultation, we have fine-tuned the framework and published it as the Hong Kong Taxonomy for Sustainable Finance. By publishing the Taxonomy, we hope to provide an infrastructure to facilitate better understanding and early adoption by the market. We also recommend continuing to enhance and expand the Taxonomy to make it more complete and useful. Taking into account the suggestions received during the consultation period and new market practices that have emerged in the development of taxonomies globally, we outline below key considerations in the future work.
3.1. Future development of the Taxonomy
3.1.1. New sectors and activities
The Taxonomy is based on the prototype framework which currently focuses on 12 specific economic activities in four sectors, namely power generation, transportation, construction, and water and waste management. These activities were selected for their applicability to the specific circumstances of Hong Kong as well as for their ability to serve as good prototype material. In the future, a key focus is thus to expand the sectors and activities of the Taxonomy to have a more comprehensive coverage of green and sustainable activities. Examples of suggested new activities from the consultation are in Annex 1. We will consider these suggestions and, as a starting point, explore building upon those already in the CGT not currently covered in the Taxonomy, such as storage of hydrogen and green lighting upgrades. Apart from the local context, we will also take into consideration the context of the region, such as the GBA and the ASEAN region when prioritising activities to be covered.
3.1.2. Transition activities
The current Taxonomy covers green activities but not transition activities which include those activities with a decarbonisation pathway towards net zero and the “hard-to-abate sectors” which confront formidable economic and technological obstacles that make their decarbonisation process complex and demanding. Establishing a transitional category for such activities could draw attention and facilitate targeted measures to support their transition. We therefore recommend including transition activities in the future work in order to address the crucial aspect of time-bound progress towards environmental sustainability. By including a transition category, the Taxonomy would not only address a vital component of the economy but also signal Hong Kong’s dedication to a holistic approach to sustainability. The inclusion of the transition category, encompassing both challenging industrial sectors and time-bound emission reduction goals, enriches the Taxonomy’s effectiveness in guiding fund flows and promoting responsible financial practices aligned with global environmental goals. As the current Taxonomy mainly covers green activities, establishing a category for transition activities would require a few issues to be addressed. Firstly, we need to explore what is meant by transition activities and define a credible transition pathway, as indicated in Figure 2 below:
 Pathway to Net Zero Transition (light-green): if an activity is not currently at or near zero emission, but can technologically become net-zero by 2050, transition for this activity means gradual decrease of emission intensity in line with a prescribed declining threshold.

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 Interim Transition (amber): if an activity is important for the economy, not in a designated red list of unsustainable activities, but at the same time has no clear pathway to net-zero by 2050, it must be completely phased out at a later date (but no later than 2050). However, if this activity is undergoing technological improvements that decrease its carbon intensity in line with a prescribed pathway, it is considered transitional until the phase-out date (sunset date).
Figure 2. Visual representation of green, transition and non-compliant (red) space in relation to GHG emissions
Climate Bonds established five core principles for transition 2 , which provide the basis for a credible transition pathway for an activity:

Align with zero carbon by 2050 and nearly halving emissions by 2030;
Be led by scientific experts and not be entity or country-specific;
Be sure that credible transition goals and pathways do not count offsets;
Include an assessment of current and expected technologies which can be used to determine a
decarbonisation pathway;
Be backed by operating metrics rather than a commitment or a pledge.
Secondly, we need to select and prioritise the specific transition activities to be included, taking into account global developments as well as the contexts in Hong Kong, Mainland China including the GBA, and the region. For example,  Construction sector transition: Transition activities within the construction sector pose one of the biggest challenges from the point of view of criteria scientificity and applicability. It may not be feasible for some buildings in Hong Kong to achieve the proposed 30% energy performance improvement threshold due to various constraints and physical limitations. Nevertheless, these buildings are also in need of significant investment and have a role to play in meeting Hong Kong's

2 https://www.climatebonds.net/principles-transition

15 decarbonisation objectives. One of the solutions may be to develop criteria that would allow transition for some of the existing buildings.  Energy sector transition: Transitional activities in the energy sector concern the gradual modernisation of the energy system and the transition to clean energy sources. Transition trajectories could be developed considering local and regional policies, and global climate science taking into account emission intensity trajectory ending at net zero in 2050. Below are some examples of transition activities that have no easy pathway to decarbonisation but have a big role to play in the post-2050 economy, and thus must be decarbonised on a step-by-step basis:

Manufacture of organic basic chemicals
Manufacture of iron and steel
Manufacturing of cement
Electricity generation from hydrogen
Furthermore, it is important to consider how the design and structure of the Taxonomy should be adapted to incorporate a stand-alone transition category. As the current version of the CGT does not include a transition category, the inclusion of such a category or the adoption of a traffic light system could involve major changes to the Taxonomy and imply certain compatibility issues with the CGT. We will thus explore an approach which on the one hand aims to maintain compatibility with the CGT for activities that are already considered net-zero or on a net-zero pathway, whilst on the other hand devise a transition category for those transition activities (including hard-to-abate activities) that require a specific decarbonisation pathway per sector. The decarbonisation pathways for those hard-to-abate sectors should still be based on global pathways in order to maintain a high degree of interoperability with global taxonomies and could also be tailored to incorporate sunset dates.
3.1.3. New environmental objectives
The Taxonomy should be expanded over time to cover environmental objectives apart from climate change mitigation. It would be pragmatic to include the objective of climate change adaptation with the following considerations:
Resilience building: the inclusion of climate change adaptation and resilience in the Taxonomy would
enhance Hong Kong’s resilience to the impacts of climate change, reduce vulnerabilities and safeguard its critical infrastructure.
Synergy with climate change mitigation: adaptation efforts would attract environmentally conscious
investors, promote broader pool of capital for sustainable finance and support projects that contribute to long-term climate resilience.
Policy alignment: aligning the Taxonomy with adaptation goals would reinforce Hong Kong's
commitment to international agreements such as the Paris Agreement, signalling its dedication to both mitigation and adaptation strategies.
3.1.4. DNSH and MSS
On the one hand, the incorporation of DNSH and MSS requirements could help sustainable finance initiatives align with holistic environmental and social considerations. On the other hand, there are concerns that their inclusion might be complex in practice for investors and financial institutions. We would explore the incorporation of both components in the future development of the Taxonomy, bearing in mind the principles of interoperability and usability.

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3.2. Implementation
Our prototype framework aims to provide a structure for classifying green activities. Through the publication of the Hong Kong Taxonomy, we hope to facilitate its early adoption by the market by raising awareness, promoting common understanding, building experience, and more importantly, providing a foundation to support and complement specific applications. For example:

Labelling of green bonds – with additional procedures and criteria on the use and management of
proceeds, project assessment and selection, and reporting, the Taxonomy could support the labelling of green bonds. Examples of these standards or frameworks in the market include China Green Bond Principles 3 , the Climate Bonds Standard, International Capital Market Association Green Bond Principles, and the ASEAN Green Bond Standards.
Classification of green loans – similar to those frameworks for green bonds, the Taxonomy could
support the issuance of green loans with respect to the various transparency requirements under different frameworks and standards. Noteworthy examples include the Loan Markets Association Green Loan Principles and the Green Finance Guidelines issued by the former China Banking and Insurance Regulatory Commission 4 .
Disclosure – the Taxonomy could also support specific reporting guidelines to enhance comparability
to facilitate international capital flows. For example, it enables the determination of the proportion of assets that finance and are invested in green and sustainable activities. Currently, the Taxonomy could serve as a market tool for voluntary use by the industry, for example, in combination with those market-based frameworks mentioned above. There were different views from the consultation on the implementation. Some support voluntary use because of the readiness of the industry including the availability of data, but there were also suggestions supporting a phased mandatory implementation. We note that there is no common practice and indeed taxonomies in many jurisdictions are for voluntary use. We will keep abreast of the usage of the Taxonomy and challenges facing the industry, and further evaluate the cost and benefit of putting in place mandatory requirements for use of the Taxonomy and the feasibility of mandatory application. With a view to helping the industry familiarise with the Taxonomy and encouraging its integration with business operations, we issued a supplemental guidance to provide some background based on the discussion paper together with illustrations of how the Taxonomy could be used and responses to some frequently asked questions.

3 https://www.nafmii.org.cn/ggtz/gg/202207/P020220801631427094313.pdf 4 https://www.gov.cn/zhengce/zhengceku/2022-06/03/content_5693849.htm

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Annex 1: Potential Sectors and Activities for Future Taxonomy
Presented below are some suggestions on sectors and activities for incorporation in the next phase of the Taxonomy received during the consultation:
 Construction and operation of rail freight transport and upgrade of existing railways  Construction, installation and operation of heat pump facilities  Data processing, hosting and related activities  Electricity generation from hydropower  Energy production from natural gas  Green lighting upgrades  Installation, maintenance and repair of renewable energy technologies in buildings  Manufacture of cement  Manufacture of equipment for the recycling and harmless treatment of food waste  Manufacture of iron and steel  Manufacture of low carbon transport fleets and vessel  Recycling non-hazardous waste  Professional, scientific and technical activities

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Annex 2: List of Abbreviations
ASEAN The Association of Southeast Asian Nations BEAM Building Environmental Assessment Method CASG Green and Sustainable Finance Cross-Agency Steering Group CBT Climate Bonds Taxonomy CGT Common Ground Taxonomy Climate Bonds Climate Bonds Initiative DNSH Do No Significant Harm EDGE Excellence in Design for Greater Efficiencies EEDI Energy Efficiency Design Index EEXI Efficiency Existing Ship Index EU European Union GBA Greater Bay Area GHG Greenhouse Gas GICS Global Industry Classification Standard HKMA Hong Kong Monetary Authority HSIC Hong Kong Standard Industrial Classification IEA International Energy Agency IFC International Finance Corporation ISIC International Standard Industrial Classification of All Economic Activities LEED Leadership in Energy Efficiency and Design MSS Minimum Social Safeguards NACE Nomenclature of Economic Activities NGO Non-Governmental Organisation TSC Technical Screening Criteria

Enclosure - Hong Kong Taxonomy for Sustainable Finance: Supplemental Guidance

Hong Kong Taxonomy for Sustainable
Finance: Supplemental Guidance
Supported by

May 2024

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Table of Contents

Introduction......................................................................................................................................3
Taxonomy design and structure.......................................................................................................3
2.1. Decision Tree............................................................................................................................5
2.2. Key references..........................................................................................................................5
2.3. Thresholds and criteria development ......................................................................................6
Illustrative use cases.........................................................................................................................7
3.1. Basic steps................................................................................................................................7
3.2. Example 1: Construction of a portfolio of new buildings.........................................................9
3.3. Example 2: Financing for electric vehicles................................................................................9
3.4. Example 3: Wind farm project............................................................................................... 10
Frequently Asked Questions ......................................................................................................... 10
Annex 1: List of Abbreviations............................................................................................................... 13
Table of Figures
Figure 1: Taxonomy layers scheme ..........................................................................................................4
Figure 2: Taxonomy criteria decision tree................................................................................................5
Figure 3: Basic steps of adopting Hong Kong Taxonomy .........................................................................8
Figure 4: Possible taxonomy applications............................................................................................. 11
Figure 5: Example of the relationship between sectors, entities and activities ................................... 11

Introduction
The Hong Kong Monetary Authority (HKMA) commissioned Climate Bonds Initiative (Climate Bonds) to develop a green classification framework for adoption in the local market. In May 2023, we published a discussion paper on “Prototype of a Green Classification Framework for Hong Kong”. Apart from outlining our thinking on the development of a local green classification framework including the background, potential benefits and core principles, the paper also proposes the structure and core elements of a prototype framework. Based on the paper, a market consultation was conducted to gather feedback from stakeholders on the development and application of the framework. A range of stakeholders including financial sector participants, industry associations, academia, think tanks and non-government organisations (NGOs), were invited to participate in the consultation and relevant outreach sessions. From the consultation, there were some requests for more illustrations and clarifications about the Taxonomy. Thus, we have prepared this Supplemental Guidance to facilitate the use of the Hong Kong Taxonomy for Sustainable Finance (Hong Kong Taxonomy). It does not provide regulatory advice but aims to help users develop an understanding on the applicability of the Taxonomy. It also provides some background about the Taxonomy based on the discussion paper, and responses to some frequently asked questions.
Taxonomy design and structure
The Hong Kong Taxonomy has three layers of depth to provide green definitions of different degrees of preciseness, taking into account the complexity of the activities and their applicability in Hong Kong circumstances.
Mapping to standardised industrial codes. The first layer is intended to map activities to
standardised industrial classification codes and categorise them according to whether they could be considered either:
Automatically eligible and adopted immediately for Hong Kong because they are universally
considered green based on existing taxonomies without any major refinement (such as solar and wind); or
Potentially green, i.e. activities that are considered green subject to meeting specific technical
screening criteria (such as building).
Specifically, standardised industrial classification codes (such as the International Standard Industrial Classification of All Economic Activities (ISIC) and Hong Kong Standard Industrial Classification (HSIC)) are used to form the structure of the Taxonomy and as the basis for its mapping at the granular level. The Common Ground Taxonomy (CGT), the European Union (EU) Taxonomy, the Mainland China Taxonomy, the ASEAN Taxonomy, the Climate Bonds Taxonomy (CBT) and others are then referenced to assess whether an activity can be seen as green without any further refinement.
Key metrics. The second layer identifies the key metrics for the Taxonomy, based on the review of
existing global guidance and other national/regional taxonomies so as to establish whether:
any existing metrics can readily be applied for an activity;

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2. the metrics are relevant in the local context; and
3. they are usable for adoption by financial institutions in Hong Kong.
The metrics identified in this layer could be included in investor reports or annual reports as a standing item for disclosure. They can also be considered as a guide for bond issuers and financial institutions to better understand what type of data to gather and disclose to prove eligibility against the Taxonomy.
3. Substantial contribution criteria. This layer aims to propose technical screening criteria. Specifically,
existing global guidance and other national/regional taxonomies mentioned above have been reviewed to propose:

technical screening criteria from existing taxonomies that can be readily applied to an activity;
adaptations to either the metric or ambition level of an existing screening criteria for it to be
applied locally; and
new metrics and criteria required to be usable in the Hong Kong context.
As much as possible, technical screening criteria have been proposed in consultation with industry experts. This may be the case particularly for sectors or activities where there is limited or no existing guidance in existing taxonomies - for instance shipping. Thresholds have been based on thorough research by the technical experts of the best available science and best available local data to demonstrate a pathway towards zero over time. Where data or scientific pathways are not available, the threshold may have been set based on current best practices with the intention to strengthen this over time following a pathway to zero.
Figure 1: Taxonomy layers scheme
In some instances, to cater for the local circumstances and activities in Hong Kong, some metrics or thresholds have not been previously featured in any other taxonomies. For example, the “Construction of New Buildings” criteria reference Hong Kong-specific industry standards such as Building Environmental Assessment Method (BEAM) Plus. In such instances, the Taxonomy endeavours to draw an equivalence in ambition between this scheme and those used in international taxonomies.

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2.1. Decision Tree
In order to build a robust taxonomy and to clearly understand its potential scope of decarbonisation, the thought process was based on a sequence of decision points that have been summarised in the decision tree below (Figure 2). As a preamble, the decision-making process included an in-depth preparatory assessment of all economic activities as defined by the ISIC 1 and the HSIC (V.2.0) 2 .
Figure 2: Taxonomy criteria decision tree
2.2. Key references
The development of the Hong Kong Taxonomy has made reference to a number of taxonomies and frameworks. The major ones include the following:

The major taxonomy referenced is the CGT. It was developed by the International Platform on
Sustainable Finance (IPSF)
3 as a bridge between the Mainland China and the EU taxonomies.
In July 2020, the EU and Mainland China convened a Working Group with the objective of undertaking a comprehensive assessment of existing taxonomies for environmentally sustainable investments, including identifying the commonalities and differences in their respective approaches and outcomes.
The EU taxonomy 4
is a cornerstone of the EU’s sustainable finance framework and an important market transparency tool. The Taxonomy Regulation 5 entered into force on 12 July 2020. It establishes the basis for the EU taxonomy by setting out the four overarching conditions that an economic activity has to meet in order to qualify as environmentally sustainable. The EU Taxonomy consists of advanced technical screening criteria and activity thresholds as well as an extensive set of supplementary documents related to the issuance of

1 https://unstats.un.org/unsd/publication/seriesm/seriesm_4rev4e.pdf 2 https://www.censtatd.gov.hk/en/index_hsic2_code.html 3 https://finance.ec.europa.eu/sustainable-finance/international-platform-sustainable-finance_en 4 EU Taxonomy Compass (europa.eu) 5 https://finance.ec.europa.eu/sustainable-finance/tools-and-standards/eu-taxonomy-sustainable-activities_en#legislation

6 financial instruments, disclosures, sectoral operational principles, etc. It is also at the centre of the IPSF efforts to build the CGT.
3) In Mainland China, regulators responsible for the green bond market jointly released the
Green Bond Endorsed Projects Catalogue 6 for consultation in May 2020. The 2021 version of the Catalogue is used as a reference and referred to as Mainland China Taxonomy in this document.
4) ASEAN Taxonomy was first published in November 2021 7
. Its second version with the first batch of criteria was published in March 2023 8 . This is a multilayer “traffic lights system” taxonomy which allows different ASEAN states to choose different decarbonisation criteria baselines depending on their economic capabilities.
5) The CBT 9
is the oldest and one of the most developed taxonomies used as a reference for the Hong Kong Taxonomy. At the heart of the CBT lies a suite of sector-specific eligibility criteria determined through a multi-stakeholder engagement process convened and managed by Climate Bonds and are subject to public consultation and revised as needed as a result of that feedback. They are reviewed and approved by the Climate Bonds Standard Board.
2.3. Thresholds and criteria development
In order to be eligible as contributing to the environmental objective of climate change mitigation, the activity must be compliant with specific technical screening criteria and related thresholds. These criteria are developed on the basis of technical work conducted for the CGT, Mainland China taxonomy, EU taxonomy and CBT, having regard to the applicability in Hong Kong. Criteria can be either generic (postulating a general principle) or based on an absolute threshold. For this Taxonomy, concrete criteria are usually constructed in one of the following manners:

Upper boundary based. These are the most common types of criteria. This criterion usually
utilises emission metric of some kind, expressed as emission of greenhouse gas (GHG) in CO2 equivalent per unit of production specific to this industry. o Example: “Lifecycle emission of the installation must not exceed 100gCo2e/kWh”
Percentage change. If the retrofitting or modernisation of a facility is discussed, a fixed
percentage change may be an excellent way to establish a threshold. o Example: “New Buildings must be at least 25% more emissions-efficient than their peers according to a constructed baseline”

6 http://www.pbc.gov.cn/goutongjiaoliu/113456/113469/4342400/2021091617180089879.pdf 7 https://asean.org/wp-content/uploads/2022/06/ASEAN_Taxonomy_V1_final_310522.pdf 8 https://asean.org/wp-content/uploads/2023/03/ASEAN-Taxonomy-Version-2.pdf 9 https://www.climatebonds.net/standard/sector-criteria

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3. Illustrative use cases
The Hong Kong Taxonomy serves as a market infrastructure by providing a framework for classifying green and sustainable activities for voluntary use by the industry. It provides a foundation to support and complement specific applications. Some examples 10 are set out in this section to illustrate how the Taxonomy could be applied with the necessary instruments and external set of principles such as the Climate Bonds Standard 11 , International Capital Market Association Green Bond Principles(GBP) 12 and the Loan Markets Association Green Loan Principles (GLP) 13 .
3.1. Basic steps
The basic unit of the Taxonomy is the economic activity. To assess whether an entity, asset, or project (or some of their components) is aligned with the Taxonomy, the following steps should be followed:

Break down into activity level
An entity, asset, or project is first broken down at the activity level, e.g. according to the industry codes (HSIC/ISIC) provided in the Taxonomy. Expenditures such as capital expenditure (CapEx) and operating expense (OpEx) or revenue/turnover can then be tagged against each identified activity.
Check the coverage
An activity listed in the breakdown can be compared against the activity descriptions provided in the relevant Activity Card to verify if they are covered in the Taxonomy.
Assess eligibility against the technical screening criteria
Information including granular data should then be collected and processed so as to determine the eligibility of the identified activities against the technical screening criteria. A combination of data provided by third-party together with in-house research may support the process.
Conclude the evaluation
If an activity is eligible under the Taxonomy, the expenditure (CapEx or OpEx) or revenue/turnover linked to the implementation of the activity can be considered green. The eligible expenditure could then form the basis of the underlying use of proceeds of a potential green financial instrument - for instance, a green bond or a loan 14 . If 100% of the activities of a company are aligned with the screening criteria of the taxonomy, the company in its entirety may be considered green. However, if only a portion of the activities of the

10 These examples are intended to illustrate how the Taxonomy could be applied. In actual implementation, the eligibility of the application under the Taxonomy and other standards/principles should be assessed taking into account the specific circumstances. 11 https://www.climatebonds.net/files/files/climate-bonds-standard-v3-20191210.pdf 12 https://www.icmagroup.org/assets/documents/Sustainable-finance/2022-updates/Green-Bond-Principles_June-2022- 280622.pdf 13 https://www.lsta.org/content/green-loan-principles/ 14 In order to operationalise the bond or loan labelling process, an external set of principles (e.g. GBP) or a standard (the Climate Bonds Standard) are required, which are both separate frameworks independent of this taxonomy.

8 company is aligned with the criteria, then only the relevant expenditure, turnover or revenue of the activities of the company could be considered eligible as green, depending on the referenced rules and frameworks.
Figure 3: Basic steps of adopting Hong Kong Taxonomy

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3.2. Example 1: Construction of a portfolio of new buildings
The GBP consist of a set of voluntary process guidelines (around Use of Proceeds, Process for Project Evaluation and Selection, Management of Proceeds, and Reporting) in relation to green bond issuance that recommend transparency and promote integrity in the development of the green bond market. The GBP recommend a clear process and disclosure for issuers, which investors, banks, underwriters, arrangers, placement agents and others may use to understand the characteristics of any given green bond. As the GBP do not have specific threshold-based criteria for the selection of projects and assets, the Taxonomy could be a useful tool to assess their environmental performance for inclusion in the labelled financial instruments. In practice, the criteria of the Taxonomy could assist the selection of projects and assets using the thresholds as a filtering tool to assess eligibility. The use of the Taxonomy as a selection tool could then be referenced in the “Process for Project Evaluation and Selection”
section of a bond’s Green Bond/Sustainability Framework.
For example, a bank may assist a company in issuing a green bond to finance the construction of multiple commercial buildings in Hong Kong, Mainland China and the EU. As different locations are involved, the relevant technical screening criteria in the Taxonomy could be applied when assessing the environmental performance benefits of projects and assets. Under the Hong Kong Taxonomy, for those located in Hong Kong, buildings are required to have at least BEAM Plus (either gold or above) designed to certify as such, and the Energy Use component of BEAM Plus Certification must meet at least a minimum of 10 credits under EU2 (Reduction of CO2 Emissions) and a minimum score of 70% in Energy Use category and certified under BEAM Plus 2.0, with 20% energy saving against BEC 2021 baseline. Alternatively, issuers may reference the HKGBC Zero-Carbon Ready Building Certification Scheme. Those buildings in Mainland China should be rated to the third-level of Mainland China’s Three Star System. For buildings in the EU, their primary energy demand needs to be at least 10% lower than the threshold set for the nearly zero-energy building requirements in national measures implementing Directive 2010/31/EU of the European Parliament and of the Council. In accordance with the GBP, a green/sustainability bond framework could then be established which, among other things, explains how the Taxonomy is used in the process of the selection of eligible projects and assets.
3.3. Example 2: Financing for electric vehicles
Similarly, the Taxonomy could also be applied with the GLP in respect of green loans. For example, a bank could make reference to the Taxonomy when developing green loan products. Under the Hong Kong Taxonomy, the “selling, purchasing, financing, leasing, renting and operation of personal transport devices” are considered green if the emissions of the vehicles are zero tailpipe. The bank may thus provide green loans by financing companies which operate combustion engine vehicles to migrate to electric vehicles. To label a loan as green using Hong Kong Taxonomy, the bank may use GLP as the framework to guide the loan’s labelling process, which is very similar to that for bonds as it is also centred around the same four components (Use of Proceeds, Process for Project Evaluation and Selection, Management of Proceeds, and Reporting). Specifically, the positive environmental performance of the project funded by the loan, as well as the process by which the project is assessed against the Hong Kong Taxonomy, should be clearly articulated.

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3.4. Example 3: Wind farm project
Apart from labelling financial products, the Hong Kong Taxonomy could also be a reference tool to support disclosure. In preparing for climate-related disclosures, there could be a need to assess the alignment of assets or portfolios with climate goals and commitments, and this is where a taxonomy may come in. For example, a bank may wish to disclose climate-related opportunities and relevant targets in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures. It could refer to the Hong Kong Taxonomy in assessing the alignment of its financed projects. If, for instance, there are any projects supporting the construction and operation of a wind farm, and since such projects are considered as eligible under the Hong Kong Taxonomy, the bank can leverage this information in its reporting and disclosure practices. This facilitates better communication and understanding of a bank's green initiatives, allowing investors and other stakeholders to be better informed.
4. Frequently Asked Questions

What is a sustainable finance taxonomy?
A sustainable finance taxonomy can be considered as a classification system that identifies activities or investments that deliver on environmental objectives, helping drive capital more efficiently towards sustainable projects. As a consequence, taxonomies can help banks and other financial institutions originate and structure green products (e.g. loans, credits, and guarantees). They can also help investors identify opportunities that comply with sustainability criteria for impact investments. By contrast, a taxonomy is not:

A list of “good” and “bad” activities. A taxonomy does not preclude anyone from investing in
any specific activities because it simply helps to define what is sustainable and what is not.
A self-sufficient mechanism that can single-handedly trigger the green transformation of the
economy. Whilst a taxonomy is the heart of this transformation, additional tools and frameworks are required to apply it in practice (such as reporting and disclosure requirements).
A document frozen in time. Taxonomies would evolve with climate science to regularly reflect
all changes and all new technologies.

What are the possible applications of a taxonomy?
A taxonomy may be used for a variety of different purposes associated with confronting climate change as well as shifting the economy towards a more sustainable model (please see figure 4 below). It is important to note that, whilst a taxonomy is the “engine” or “soul” of a green finance system, for any systematic and consistent applications, a taxonomy should be used with additional instruments such as supplementary frameworks and instructions.

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Figure 4: Possible taxonomy applications
Source: Climate Bonds Initiative
3. Why does the Hong Kong Taxonomy operate on the activity level? How can I assess my entity
or portfolio with it?
Activities are the basic units to which specific criteria and screening thresholds are applied within this taxonomy. This is in line with other major international taxonomies which consider activities as operational taxonomical units and do not consider entities. This is optimal because an activity is, on the one hand, large enough to be the object of a bond or loan issuance and, on the other hand, granular enough to be separated from similar activities. On the contrary, an entity comprises different activities, some of which can be decarbonised with significant emission reduction benefits (e.g. steelmaking, battery production, power generation, etc.), while the effect of others on climate is negligible (e.g. management, accounting, etc.).
Figure 5: Example of the relationship between sectors, entities and activities
Source: Climate Bonds

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To assess the alignment of an entire entity or portfolio against a taxonomy, a common approach is to ascertain the percentage of green activities of an entity that align with the taxonomy. A specific set of guidelines may also be developed for systematic and consistent assessment.
4. How are technical screening criteria and thresholds in the Hong Kong Taxonomy formulated?
As described above in the taxonomy design section, criteria and thresholds for certain activities in the Hong Kong Taxonomy have been formulated by referencing certain national/regional taxonomies and frameworks such as the CGT, EU Taxonomy, Mainland China Taxonomy, and the CBT. More information about how these taxonomies are developed, such as the involvement of technical expert groups, the different stages of development and public consultation, can be found on the relevant websites. In addition, the Taxonomy has considered the local context and incorporated Hong Kongspecific industry standards (e.g. BEAM Plus).
5. How does the Hong Kong Taxonomy align with other taxonomies?
As the Hong Kong Taxonomy was developed with the aim to operationalising the CGT, it is interoperable with the EU Taxonomy and the Mainland China Taxonomy. It is also compliant with the majority of other threshold-based taxonomies in terms of key criteria and thresholds (but not in mechanisms or objectives which are country-specific). It may not be practical to achieve full interoperability among jurisdictional taxonomies because of the different legal systems and sectoral standards that are referred to by the legislation.
6. How should I calculate my emissions for the purpose of using the Hong Kong Taxonomy? What
scope should I consider for this?
Emissions should be calculated using internationally acceptable tools and standards, such as GHG protocols. The scope of the emissions that needs to be considered is usually indicated in the sectoral activity card - specifically in the “Activity scope” section. The default scopes are 1 and 2 (direct emissions plus emissions from electricity, water, heating and steam consumed) unless stated otherwise. Other options:

Only Scope 1 emissions (e.g., direct tailpipe emissions of the car in case of transportation
activities)
Lifecycle emission (Scopes 1+2+3), e.g., in the case of energy.

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Annex 1: List of Abbreviations
ASEAN The Association of Southeast Asian Nations BEAM Building Environmental Assessment Method CapEx Capital expenditure CBT Climate Bonds Taxonomy CGT Common Ground Taxonomy Climate Bonds Climate Bonds Initiative EDGE Excellence in Design for Greater Efficiencies EU European Union GBP Green Bond Principles GHG Greenhouse Gas GLP Green Loan Principles HK-GBC Hong Kong Green Building Council HKMA Hong Kong Monetary Authority HSIC Hong Kong Standard Industrial Classification IFC International Finance Corporation IPSF International Platform on Sustainable Finance ISIC International Standard Industrial Classification of All Economic Activities NABERS National Australian Built Environment Rating System NGO Non-Governmental Organisation OpEx Operating expense

Hong Kong Taxonomy for Sustainable Finance

Enclosure - Hong Kong Taxonomy for Sustainable Finance

Enclosure - Consultation Report: Prototype for a Green Classification Framework for Hong Kong

Enclosure - Hong Kong Taxonomy for Sustainable Finance: Supplemental Guidance

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