Further Frequently Asked Questions on Sale and Distribution of Green and Sustainable Investment Products

1 Further Frequently Asked Questions on Sale and Distribution of Green and Sustainable Investment Products Applicability of the 2023 G&S Circular1

1. Are registered institutions (“RIs”) required to provide information about green and sustainability characteristics and associated risks specific to the green and sustainable investment products to the customers in execution-only trades of non-complex green and sustainable investment products? As far as the 2023 G&S Circular is concerned, the expected standards (except those on bookbuilding) set out therein are not applicable to transactions where the RIs do not market or classify the investment products as green and sustainable. As long as the RI does not market or classify the investment product as green and sustainable, the expected standards (except those on bookbuilding) set out in the 2023 G&S Circular do not apply even if the name or other information of the investment product may contain elements suggesting it as green and sustainable. RIs are reminded to ensure that adequate information is provided to customers for making informed decisions, such as the key characteristics and associated risks of the investment products, regardless of whether a green and sustainable classification framework is in place. Disclosure
2. Can RIs exercise flexibility in streamlining disclosure of the green and sustainability characteristics and associated risks specific to the green and sustainable investment product for a non-retail banking customer? RIs may apply existing regulatory guidance on streamlining product disclosure to meet the expected standards under “Disclosure” in the 2023 1 HKMA’s circular “Sale and Distribution of Green and Sustainable Investment Products” dated 29 November 2023. Appendix

2 G&S Circular. In this connection, RIs may2 , having regard to the non-retail banking customer’s level of financial sophistication (e.g. investment knowledge or investment experience with the RI or other financial institutions), streamline disclosure of the green and sustainability characteristics and associated risks specific to the green and sustainable investment product for a non-retail banking customer, provided that the RI assures itself and maintains a record to evidence that the customer understands the green or sustainability characteristics and associated risks specific to the product and does not need a full disclosure in the circumstances, before entering into a transaction. 3. What are the HKMA’s expectations for RIs in providing information about the green and sustainability characteristics specific to the green and sustainable investment products to customers? The HKMA does not intend to prescribe specific operational arrangements for RIs regarding the disclosure pertaining to green and sustainable investment products. RIs may establish their own operational arrangements in this regard. The overarching objective of the disclosure requirement is to ensure that customers possess a comprehensive understanding of the product prior to entering into a transaction. Where RIs market or classify investment products as green or sustainable, RIs are expected to provide information about the green and sustainability characteristics and associated risks specific to the green and sustainable investment products, based on the information provided in the prospectuses, offering circulars, and other relevant documents related to the investments. Other practices noted from RIs 4. Is there any other experience of RIs that could be shared, apart from those mentioned in the 2023 G&S Circular? Disclosure  Some RIs have developed a disclosure document for customers, outlining 2 Q8 in Appendix to HKMA’s circular “Frequently Asked Questions on Investor Protection Measures” dated 23 December 2020 applies.

3 the key characteristics and risk factors of green and sustainable investment products, to help the customers understand the products and make informed decisions.  An RI provided customers with sustainability scores on product issuers, which were derived from an in-house scoring methodology, along with explanations of the scores’ meanings, for information. Governance and controls  Review and approval of methodologies to assess whether investment products are green and sustainable was included as one of the responsibilities of the committees of RIs responsible for overseeing issues and risks arising from sale and distribution of green and sustainable investment products. Staff training  An RI hosted an environmental, social and governance (“ESG”) thematic conference highlighting the latest ESG trends and recent developments in the industry for customers. Staff were also invited to attend to deepen their understanding of ESG-related topics.  An RI established an ESG training programme to help staff obtain a professional ESG qualification.