Hong Kong’s expanded sustainable finance taxonomy has added hard-to-abate sectors, which is expected to boost transition lending for financing decarbonisation, while also helping banks address greenwashing concerns.
The Hong Kong Monetary Authority concluded a consultation on October 7 on the latest expansion of its sustainable finance taxonomy, proposing to include more high-emitting sectors and activities under the transition category. The changes could broaden financing options for borrowers whose activities do not qualify as green.
Bankers said the expanded framework could also provide greater clarity for lenders previously deterred by greenwashing risks.
The proposal, Taxonomy for Sustainable Finance (Phase 2B), adds high-emitting activities such as iron and steel manufacturing. Air transport has also been established as a standalone activity, rather than being grouped under transport infrastructure as in the previous iteration published in January.
The proposal recognises sustainable aviation fuels under both green and transition categories, while low-carbon liquid transport fuels qualify as a transition measure.
“[The expansion] signals to credit committees and risk functions that these projects are ‘endorsed’ from a regulatory/sustainability standpoint,” said Ling Han, head of sustainable capital markets for APAC at BNP Paribas. “The transparent technical screening criteria enable banks to structure [loans] more confidently and borrowers know what evidence they need to provide. This shortens negotiation time and improves standardisation across syndicates.”
The six hard-to-abate sectors — aviation, cement, heavy-duty road transport, iron and steel, petrochemicals and chemicals, and shipping — account for roughly a quarter of global energy consumption and a fifth of carbon dioxide emissions, according to the International Renewable Energy Agency.
While adoption of the Phase 2B taxonomy remains voluntary, the HKMA has said it plans to incorporate the framework into its supervisory policies. Banks could eventually be required to disclose the proportion of their financing and investments aligned with the taxonomy.
The finalised Phase 2B taxonomy is expected by the end of 2026 or early 2027, according to an HKMA spokesperson.
Definitions consensus
Transition loans remain largely confined to bilateral lending, although a handful of syndicated transactions have closed over the past 12 months, bankers said.
In September, China Eastern Airlines raised a Rmb745m (US$112m) transition loan from HSBC to fund the procurement of new Boeing aircraft that will cut carbon emissions intensity by a third compared to old models.
“As banks have their own internal transition taxonomies and scorecards, it is more likely that a smaller number of banks can agree on what a transition activity is, such as a club loan. For general syndication, it would be more challenging to reach a consensus,” said Candy Tang, director of sustainable solutions group APAC at ING Bank.
Societe Generale is among the lenders that consider the Hong Kong taxonomy and other local frameworks where relevant to clients, according to Raphael Vialat, the bank’s head of sustainability and impact advisory for Asia Pacific.
The HKMA sees Hong Kong as well positioned to facilitate sustainable finance across Asia and remains open to expanding the taxonomy to cover additional sectors and activities. These could include natural gas-fired electricity generation, hydrogen, nuclear energy and carbon capture in hard-to-abate sectors such as cement.
The expansion could help revive sustainable lending activity in Hong Kong, where volumes remain well below last year’s levels.
For the nine months ended September 30, Hong Kong recorded US$16.85bn across 33 sustainable financings, including green, social and sustainability-linked loans, compared with US$37.1bn from 69 deals for the whole of 2025, according to LSEG LPC data.
Across Asia excluding Japan, sustainable loan volumes totalled US$97.2bn from 214 deals in the first nine months of 2026, compared with US$158.5bn from 344 deals for all of 2025.
Those numbers are a far cry from the US$13.6trn in estimated investments Asia Pacific requires by 2030 for its transition to a low-carbon economy, according to the Glasgow Financial Alliance for Net Zero, a global coalition co-founded in 2021 by current Canadian prime minister Mark Carney, who was UN special envoy on climate action and finance at the time, and Michael Bloomberg.
Carbon lock-in
Banks have become more active in transition lending in recent months, supported by the publication of the Loan Market Association’s Transition Loan Guide in October 2025, bankers said.
Developed alongside the Asia Pacific Loan Market Association and the Loan Syndications and Trading Association, the guide has helped give lenders greater confidence in structuring transition loans.
A central principle of both the LMA guide and Hong Kong’s proposed taxonomy is avoiding carbon lock-in, where investments prolong dependence on high-emitting assets or technologies despite the availability of lower-carbon alternatives.
To mitigate that risk, Hong Kong’s proposal envisages transition financing primarily supporting existing infrastructure and activities rather than new developments.
However, some bankers are concerned the approach could exclude investments in some new assets even though they help reduce emissions.
“For borrowers seeking a loan for investing in a new, less polluting asset that eventually replaces existing high-emission assets, it would appear that this ‘new development’ won’t be recognised as a transition project,” said an ESG loan banker.
Carmen Tsang, head of sustainable investment banking for Greater China at Credit Agricole, said avoiding carbon lock-in while facilitating investment in lower-carbon alternatives is essential to credible transition finance.
“For new developments, it is important and commercially sensible to incorporate environmental considerations. Ultimately, eligibility would depend on the project’s specific characteristics and supporting evidence,” said Tsang.
Marcus Chau, associate director at Sustainable Fitch, said compliance with the LMA’s guidance is the starting point when assessing transition loans for a second-party opinion, while alignment with local taxonomies can be assessed on request.
“Borrowers need to demonstrate the asset being financed could contribute to its decarbonisation journey. For use of proceeds transition loans, we will assess if the new asset added would protract the project’s high carbon intensity for multiple years.”
