Hong Kong has taken another step in strengthening its sustainable finance framework with the release of Phase 2A of its Sustainable Finance Taxonomy. The update broadens the taxonomy beyond “green” activities to formally include climate transition and climate adaptation, signaling a more pragmatic approach to directing capital toward real-world decarbonization and resilience.

The taxonomy is overseen by the Hong Kong Monetary Authority and is intended to support consistency, credibility, and comparability across sustainable finance products in the Hong Kong market.

From “Green Only” to Real-Economy Transition

A central change in Phase 2A is the introduction of a Climate Transition category. This recognizes economic activities that are not yet aligned with long-term climate goals but are on a credible, time-bound pathway toward net-zero emissions.

The framework distinguishes between:

• Transition Activities, which represent whole operations moving toward a science-based decarbonization pathway, and

• Transition Measures, which are specific actions or investments that materially reduce emissions or improve environmental performance.

Eligibility is constrained by sector-specific timelines, reflecting differences in technological readiness and decarbonization feasibility.

Climate Adaptation Enters the Framework

For the first time, the taxonomy explicitly incorporates climate change adaptation as a sustainability objective. This covers activities that enhance resilience to physical climate risks, such as extreme weather, flooding, or heat stress.

Initially, adaptation is defined through a targeted list of eligible activities, with the expectation that criteria will become more granular over time as methodologies mature.

Expanded Sector Coverage Improves Market Relevance

Phase 2A significantly widens the scope of the taxonomy:

• Sector coverage expands to include Manufacturing and Information and Communications Technology (ICT), alongside existing energy and infrastructure sectors.

• The number of eligible economic activities more than doubles, capturing a broader set of transition-relevant and enabling activities.

This expansion is designed to improve usability for financial institutions and corporates operating across diverse sectors.

What This Means for International Companies Operating in Hong Kong

While the taxonomy does not impose direct legal reporting obligations on corporates, it has clear implications for international companies doing business in Hong Kong:

• Access to Capital: Companies seeking green, sustainability-linked, or transition-linked financing from Hong Kong–based banks or investors may increasingly be assessed against taxonomy alignment, including transition and adaptation criteria.

• Financing Narratives: Multinational companies with Hong Kong operations can now position credible transition investments — not just fully green assets — as taxonomy-aligned, provided they meet time-bound decarbonization expectations.

• Investor Scrutiny: International issuers listing debt or sustainability-linked products in Hong Kong should expect closer scrutiny of transition plans, emissions trajectories, and adaptation strategies.

• Regional Consistency: For companies already navigating EU or other taxonomy-style frameworks, Hong Kong’s approach introduces another reference point that may require internal mapping and alignment across jurisdictions.

In practice, the taxonomy raises the bar for credibility rather than creating a new compliance burden, particularly for carbon-intensive or infrastructure-heavy sectors.

Why This Matters Strategically

Hong Kong’s updated taxonomy reflects a broader shift in sustainable finance toward pragmatism over purity. By formally recognizing transition pathways and climate resilience, the framework supports capital allocation to parts of the economy that must decarbonize — not just those that are already low-carbon.

Bottom Line for ESG and Finance Leaders

Phase 2A positions Hong Kong as a more mature sustainable finance market by embracing transition finance and adaptation, alongside traditional mitigation. For international companies, this increases both opportunity and expectation: access to sustainable capital improves, but only where transition claims are supported by clear plans, measurable progress, and defined timelines.