Sale and Distribution of Green and Sustainable Investment Products

Our Ref: B1/15C G16/1C 29 November 2023 The Chief Executive All Registered Institutions Dear Sir / Madam, Sale and Distribution of Green and Sustainable Investment Products I am writing to share with the industry the good practices observed in a recent review conducted by the Hong Kong Monetary Authority (“HKMA”) on sale and distribution of green and sustainable investment products, and set out the expected standards in respect of sale and distribution of green and sustainable investment products by registered institutions (“RIs”). With the rising global awareness of climate change and commitment to tackle the issue, the HKMA notes increasing demand for green and sustainable investment products, and some RIs have offered such products to meet customer demand. In light of this, the HKMA has conducted a thematic review on all RIs (covering retail banks, private banks and corporate banks) with respect to their sale and distribution of green and sustainable investment products (the “Review”). The Review focused on the types of green and sustainable investment products offered, the relevant classification framework, the selling process as well as controls and monitoring conducted by the RIs. From the Review, the HKMA observes that green and sustainable investment products offered include funds, bonds and structured products. Some RIs have established policies and procedures governing the product due diligence (“PDD”) and the classification framework for green and sustainable investment products, and put in place control measures to mitigate potential greenwashing, social washing and impact washing risks. Some good practices have been identified in areas including PDD, customer’s sustainability preference, disclosure,

• 2 - governance and controls, staff training, as well as bookbuilding activities. In formulating the expected standards, the HKMA has also made reference to international developments, with evolving standards and practices. The HKMA’s expected standards and examples of good practices are set out in Annex I and Frequently Asked Questions in Annex II. Please note that the expected standards outlined in Annex I are applicable to RIs that market or classify investment products as green and sustainable (except those on bookbuilding). The HKMA will keep in view the latest trends and market developments going forward. RIs are expected, where applicable, to review and make any necessary enhancements to their policies and procedures, having regard to the expected standards set out in this Circular, so that adequate control measures are in place to manage potential risks arising from the sale and distribution of green and sustainable investment products to customers. Implementation arrangements RIs should comply with the expected standards set out in this Circular as soon as practicable and in any case not later than 12 months from the date of issuance of this Circular. In case of questions on this Circular, please contact Ms Christine Ho at 2878- 8229 or Mr Andrew Ng at 2878-8813. Yours faithfully, Alan Au Executive Director (Banking Conduct) Encl. c.c. Securities and Futures Commission (Attn: Mr Keith Choy, Interim Head of Intermediaries)