February 2022

SECOND PARTY OPINION

on the sustainability of the Government of the Hong Kong Special Administrative Region of the People’s
Republic of China’s Green Bond Framework
V.E considers that the Green Bond Framework of the Government of the Hong Kong Special Administrative Region of the
People’s Republic of China is aligned with the four core components of the ICMA’s Green Bond Principles 2021 (“GBP”)

Framework
Contribution to Sustainability: Characteristics of the Framework
Weak Limited Robust Advanced
Green Project  9 Green Project
Categories Categories
Expected impacts

Robust
Project Hong Kong, China
Locations
ESG risks management
Existence of Yes
Framework
Advanced Limited SDG Mapping
Share of Lower than 50%
Robust Weak Refinancing

Look-back Two financial years

Period

Issuer

The Issuer is not part of our ESG performance rating universe nor the V.E sovereign rating one and our methodology for identifying involvement in controversial activities
does not cover local and non-sovereign authorities.

Coherence

Coherent
V.E considers that the contemplated Green Bond Framework is coherent with the Government of the Hong
Partially coherent Kong Special Administrative Region of the People’s Republic of China’s strategic sustainability priorities
and sector issues and that it contributes to achieving the Issuer’s sustainability commitments.
Not coherent

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
1
February 2022

Key findings

Contextualisation:

V.E has been commissioned to provide an SPO update for the Government of the Hong Kong Special Administrative
Region of the People’s Republic of China’s Green Bond Framework first delivered to V.E in 2019.

V.E considers that the HKSAR Government’s Green Bond Framework is aligned with the four core components of the
GBP.

Use of Proceeds - aligned with the GBP

• The Eligible Categories are clearly defined. The Issuer has communicated the nature of the expenditures, the
eligibility criteria, and location of Eligible Projects for all categories.
• The Environmental Objectives are clearly defined, relevant and set in coherence with sustainability objectives
defined in international standards, for all the Eligible Categories.
• The Expected Environmental Benefits are clear, relevant, measurable, and will be quantified for all the Eligible
Categories in the reporting.
• The Issuer has committed to limit the share of refinancing to lower than 50%. The look-back period for refinanced
Eligible Categories will be equal or less than two financial years from the issuance date, in line with good market
practices.

Evaluation and Selection - aligned with the GBP

• The Process for Project Evaluation and Selection has been clearly defined and detailed by the Issuer. The process
is well-structured in all the evaluation and selection steps (including the proposal, selection, validation,
monitoring of Eligible Categories). The roles and responsibilities are clear and include relevant internal and
external expertise. The Process is publicly disclosed in the Green Bond Framework.
• Eligibility criteria for project selection have been clearly defined by the Issuer, including relevant exclusion
criteria for all of the Eligible Categories.
• The process applied to identify and manage potentially material environmental and social (E&S) risks associated
with the projects is publicly disclosed in this Second Party Opinion. The process is considered advanced: it
combines monitoring, identification, corrective and preventive measures, for all Eligible Projects (see detailed
analysis on pages 26 - 28).

Management of Proceeds - aligned with the GBP and best practices identified by V.E

• The Process for the Management and Allocation of Proceeds is clearly detailed and defined, and is publicly
available in the Green Bond Framework.
• The allocation period will be 24 months or less.
• The proceeds of the Bond will be placed in the Capital Works Reserve Fund (“CWRF”) and tracked by the Issuer
in an appropriate manner and attested to in a formal internal process.
• Information on the intended types of temporary placement for the balance of the unallocated proceeds is publicly
disclosed. For as long as the Bond is outstanding, the Issuer has committed to periodically adjust the balance of
tracked proceeds to match allocations to Eligible Projects. The Issuer has provided information on the procedure
that will be applied in case of project divestment or postponement and has committed to reallocate divested
proceeds to projects that comply with the Green Bond Framework within 12 months.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
2
February 2022

Reporting - aligned with the GBP

• The Issuer has committed to report on the Use of Proceeds on an annual basis through a Green Bond Report,
until full allocation and on a timely basis in case of material developments. The report will be publicly available
on the Issuer’s website1.
• The Issuer has committed to include in the reports relevant information related to the allocation of Bond proceeds
and the expected sustainable benefits of the Eligible Projects.
• The reporting methodology and assumptions used to report on environmental benefits of the Eligible Projects
will be publicly disclosed in the Green Bond Reports.
• An external reviewer will verify the tracking and allocation of funds to Eligible Projects until full allocation and
in case of material changes. An external reviewer will verify the reporting on environmental benefits of the
Eligible Projects until full allocation and in case of material changes.

Contact

Sustainable Finance Team | [email protected]

1
https://www.hkgb.gov.hk/en/greenbond/

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
3
February 2022

SCOPE
V.E was commissioned to provide an updated independent Second Party Opinion (“SPO”) on the sustainability
credentials and management of the Green Bonds2 (the “Bonds”) to be issued by the Government of the Hong Kong
Special Administrative Region of the People’s Republic of China (the “Issuer” or “HKSAR Government”) in compliance
with the Green Bond Framework (the “Framework”) created to govern their issuance(s). V.E was first commissioned by
the HKSAR Government in 2019 to provide an independent SPO on a first version of the Green Bond Framework.

Our opinion is established according to V.E’s Environmental, Social and Governance (“ESG”) exclusive assessment
methodology and to the latest version of the voluntary guidelines of ICMA’s Green Bond Principles (“GBP”) - edited in
June 2021.

Our opinion is built on the review of the following components:

• Framework: we assessed the Green Bond Framework, including the coherence between the Framework and
the Issuer’s environmental commitments, the Bond’s potential contribution to sustainability and its alignment
with the four core components of the GBP 2021.

Our sources of information are multichannel, combining data (i) gathered from public sources, press content providers
and stakeholders, and (ii) information provided from the Issuer through internal documentation.

We carried out our due diligence assessment from January 12th to February 28th, 2022. We consider that we were
provided access to all documents and interviewees we solicited. For this purpose, we made reasonable efforts to verify
the accuracy of all data used as part of the assessment.

Type of External Reviews supporting this Framework

☒ Pre-issuance Second Party Opinion ☒ Independent verification of impact reporting

☒ Independent verification of funds allocation ☐ Climate Bond Initiative Certification

2
The “Green Bonds” is to be considered as the bonds to be potentially issued, subject to the discretion of the Issuer. The name “Green Bonds” has been
decided by the Issuer: it does not imply any opinion from V.E.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
4
February 2022

COHERENCE
Coherent V.E considers that the contemplated Green Bond Framework is coherent with the
Partially coherent
Government of the Hong Kong Special Administrative Region of the People’s Republic
of China Government’s strategic sustainability priorities and sector issues and that it
Not coherent
contributes to achieving the Issuer’s sustainability commitments.

Asia and the Pacific account for more than 50 per cent of global Greenhouse Gas (“GHG”) emissions and is one of the
most rapidly developing regions of the world, with a significant proportion of the global population. Main urban area
and cities of the region have therefore the great potential to play a key role driving significant positive changes towards
sustainable development and environmental protection. By implementing actions targeting clean transportation, urban
planning, green buildings, energy efficiency or waste and water management, major cities could effectively support the
attainment of the goals of the Paris Agreement and drive meaningful, measurable and sustainable action on climate
change. Pursuing a green recovery in the aftermath of COVID-19 presents an opportunity for the region to direct recovery
spending into stimulating sustainable jobs and growth.

In January 2017, the HKSAR Government published “Hong Kong’s Climate Action Plan 2030+” to set out the target to
reduce Hong Kong’s carbon intensity by 65% to 70% by 2030 from the 2005 levels and respond to the goal of the Paris
Agreement.

Following the publication of the Central People’s Government’s plan entitled “The Outline of the 14th Five-Year Plan for
National Economic and Social Development of the People’s Republic of China and the Long-Range Objectives Through
the Year 2035”, the Chief Executive (“CE”) of the HKSAR Government announced in the 2020 Policy Address that Hong
Kong would strive to achieve carbon neutrality before 2050 (10 years before China’s 2060 target) through “Hong Kong’s
Climate Action Plan 2050” issued in October 2021. The Climate Action Plan 2050 is based on four major
decarbonization strategies including different targets and measures, namely: (i) net-zero electricity generation, (ii) energy
saving and green buildings, (iii) green transport and (iv) waste reduction.

The HKSAR Government appears to acknowledge its role in addressing these challenges and has formalised several
strategies and environmental policies coupled in some cases with quantified targets, including but not limited to:

• Pollution Prevention and Control:

- Clean Air Plan for Hong Kong 2035 (“CAP 2035”) to enhance in the air quality in Hong Kong and meet
the ultimate standards of the World Health Organisation Air Quality Guidelines;
- Hong Kong Roadmap on Popularisation of Electric Vehicles (“EV Roadmap”) issued in March 2021, setting
out long-term objectives and plans to promote the adoption of electric vehicles and attain zero vehicular
emissions by 2050;
- Harbour Area Treatment Scheme (“HATS”) and Sewerage Master Plans (“SMPs”) addressing water quality
improvement in Hong Kong;
• Waste Management and Resource Recovery:
- “Waste Blueprint for Hong Kong 2035” issued in February 2021, outlining the strategies, goals and
measures to tackle the challenge of waste management up to 2035;
• Nature Conservation / Biodiversity:
- The Biodiversity Strategy and Action Plan (“BSAP”) for Hong Kong issued in December 2016 towards
Biodiversity protection within and outside Hong Kong;

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
5
February 2022

• Green Buildings:
- Green Government Buildings Circular for government buildings, setting specific requirements in terms of,
among other things, energy efficiency and targeted ratings of green building certification;
• Energy Efficiency and Conservation:
- “Energy Saving Plan for Hong Kong’s Built Environment 2015~2025+” setting the target of reducing Hong
Kong’s energy intensity by 40% by 2025 using 2005 as the base and implementing projects to meet a
projected increase in cooling demand;
• Renewable Energy:
- Promoting the development of Renewable Energy (“RE”) by earmarking HKD 3 billion (USD 385 million)
for the provision of small-scale RE installations;
• Clean Transportation:
- “Railway Development Strategy 2014” and other dedicated plans focused on the expansion of the railway
network in Hong Kong to respond to mobility, traffic congestion and pollution challenges;
- The HKSAR Government will take forward the measures under the EV Roadmap and the CAP 2035,
including the development of green transport network, adoption of environmentally friendly transport
modes in new development areas and promotion of the use of new energy ferries.

By creating a Green Bond Framework to issue Bonds to finance or refinance projects related to pollution prevention and
control, waste management and resource recovery, nature conservation/biodiversity, green buildings, energy efficiency
and conservation, renewable energy, clean transportation, water and wastewater management and climate change
adaptation, the HKSAR Government coherently aligns with its sustainability strategy and commitments and addresses
main issues in terms of cities’ environmental responsibility.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
6
February 2022

FRAMEWORK
The HKSAR Government has described the main characteristics of the Bonds within a formalised Green Bond Framework
that covers the four core components of the GBP 2021 (the last updated version was provided to V.E on February 22nd,
2022). The HKSAR Government has committed to make this document publicly accessible on HKSAR Government Bonds
website3, in line with good market practices.

Alignment with the Green Bond Principles

Use of Proceeds

Not Aligned Partially Aligned Aligned Best Practices

The proceeds of the Bonds will exclusively finance or refinance, in part or in full, projects falling under nine Green
Project Categories (“Eligible Categories”), as indicated in Table 1.

• The Eligible Categories are clearly defined. The Issuer has communicated the nature of the expenditures, the
eligibility criteria, and location of Eligible Projects for all categories.
• The Environmental Objectives are clearly defined, relevant and set in coherence with sustainability objectives
defined in international standards, for all the Eligible Categories.
• The Expected Environmental Benefits are clear, relevant, measurable, and will be quantified for all the Eligible
Categories in the reporting.
• The Issuer has committed to limit the share of refinancing to lower than 50%. The look-back period for refinanced
Eligible Categories will be equal or less than two financial years from the issuance date, in line with good market
practices.

BEST PRACTICES

 Relevant environmental benefits are identified and measurable for all project categories
 The Issuer has committed to limit the share of refinancing to lower than 50%
 The look-back period for refinanced assets is equal or less than two financial years, in line with good market practices

3
https://www.hkgb.gov.hk/en/greenbond/

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
7
February 2022

Table 1. V.E’s analysis of Eligible Categories, Sustainability Objectives and Expected Benefits as presented in the Issuer’s Green Bond Framework

- Nature of expenditures: CAPEX and OPEX

- Location of Eligible Projects: Eligible Projects should be within the territory of the HKSAR Government

ELIGIBLE CATEGORIES DESCRIPTION SUSTAINABILITY OBJECTIVES AND V.E’S ANALYSIS

BENEFITS

Renewable Energy Design, construction, installation, operation and Climate change mitigation The Eligible Category is clearly defined. The Issuer has
connection of renewable energy systems, including communicated the nature of the expenditures, the eligibility
solar (photovoltaic), wind and hydropower, at criteria, and the location of Eligible Projects.
Reduction of GHG emissions
buildings, venues, facilities and infrastructure. • Eligible solar and wind projects will include onshore
Increase in the use of renewable energy for
and offshore projects and will exclude concentrated
electricity generation
solar power
• Eligible hydropower projects will exclude plants with a
reservoir and with power density below 5W/m2 (unless
they meet the life cycle-based GHG emission intensity
threshold of 100gCO2e/kWh)

The Intended Environmental Objective is clearly defined and set

in coherence with sustainability objectives defined in
international standards.
The Expected Environmental Benefit is clear. It is considered
relevant, measurable, and will be quantified in the reporting.
The eligibility criteria of the projects are in line with the technical
screening criteria defined by the EU Taxonomy Climate
Delegated Act for the “Energy” category.4

4
https://ec.europa.eu/info/publications/210421-sustainable-finance-communication_en#taxonomy

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the express written authorization of V.E and is protected by the provision of
the French Intellectual Property Code.
8
February 2022

ELIGIBLE CATEGORIES DESCRIPTION SUSTAINABILITY OBJECTIVES AND V.E’S ANALYSIS

BENEFITS

Energy Efficiency and • Design, construction, installation and Climate change mitigation The Eligible Category is clearly defined. The Issuer has
Conservation operation of energy-efficient and energy- communicated the nature of the expenditures, the eligibility
saving systems and installations in buildings criteria, and the location of Eligible Projects.
Reduction of GHG emissions
and properties; • In 2015, the Government published the “Energy
• Design, construction and operation of Energy saving in the private and public
Saving Plan for Hong Kong’s Built Environment
energy-efficient infrastructure. sectors
2015~2025+”5 which set the target to reduce energy
intensity in Hong Kong by 40%, including a reduction
in electricity consumption by government buildings by
5% from 2015-16 to 2019-20, using the operating
conditions in 2013-14 as the baseline. The target was
achieved 1 year in advance and reached a final saving
of 7.8% (2.8% above target).
• The 2019 Policy Address announced the "Green
Energy Target” that aims to further improve the
Government’s energy performance by 6% in the five
years ending 2024-2025.
The Intended Environmental Objective is clearly defined and set
in coherence with sustainability objectives defined in
international standards.
The Expected Environmental Benefit is clear. It is considered
relevant, measurable, and will be quantified in the reporting.
The eligibility criteria of the projects are in line with the technical
screening criteria defined by the EU Taxonomy Climate
Delegated Act for the “Installation, maintenance and repair of
energy efficiency equipment” category.6

5
https://www.enb.gov.hk/sites/default/files/pdf/EnergySavingPlanEn.pdf
6
https://ec.europa.eu/info/publications/210421-sustainable-finance-communication_en#taxonomy

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the express written authorization of V.E and is protected by the provision of
the French Intellectual Property Code.
9
February 2022

ELIGIBLE CATEGORIES DESCRIPTION SUSTAINABILITY OBJECTIVES AND V.E’S ANALYSIS

BENEFITS

Pollution Prevention and Monitoring, treatment systems and facilities for Pollution prevention and control The Eligible Category is clearly defined. The Issuer has
Control improvement of air quality. communicated the nature of the expenditures, the eligibility
criteria, and the location of Eligible Projects.
Improvement of air quality through the
reduction of air pollutant emissions The Intended Environmental Objective is clearly defined and set
in coherence with sustainability objectives defined in
international standards.
The Expected Environmental Benefit is clear. It is considered
relevant, measurable, and will be quantified in the reporting.

Waste Management and • Waste treatment, recycling and resource Pollution prevention and control The Eligible Category is clearly defined. The Issuer has
Resource Recovery recovery projects; communicated the nature of the expenditures, the eligibility
• Waste-to-energy projects: Power generation criteria, and the location of Eligible Projects.
Reduction in waste generation and
projects from solid waste and sewage sludge • The Issuer declared a medium-term goal to gradually
improvement of the rate of resource
with 25% waste-to-energy efficiency, as well as reduce the per capita Municipal Solid Waste (MSW)
recovery through recycling; ensuring proper
life-cycle GHG emissions intensity below disposal rate by 40-45% (2019 baseline) and raise
treatment of waste for final disposal
100gCO2e/kWh and where waste has been recovery rate to about 55% (2019 baseline) by 2035
sorted prior to input; through the implementation of MSW charging and
• Recycling of organic waste. other waste reduction and recycling initiatives
Climate change mitigation
• Eligible projects include improvements of sewage
treatment plant to help reduce pollution areas in
Reduction of GHG emissions through designated areas of Hong Kong
renewable energy generation • The major types of waste being treated and collected
are metals, paper and plastic. Further details on the
type of waste collected can be found in the HKSAR
Government Waste Statistics for 2020.7
The Intended Environmental Objectives are clearly defined and
set in coherence with sustainability objectives defined in
international standards.
The Expected Environmental Benefits are clear. It is considered
relevant, measurable, and will be quantified in the reporting.

7
https://www.wastereduction.gov.hk/sites/default/files/msw2020.pdf

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the express written authorization of V.E and is protected by the provision of
the French Intellectual Property Code.
10
February 2022

ELIGIBLE CATEGORIES DESCRIPTION SUSTAINABILITY OBJECTIVES AND V.E’S ANALYSIS

BENEFITS

Water and Wastewater • Establishment of intelligent network management Conservation and sustainable use of water The Eligible Category is clearly defined. The Issuer has
Management system with analytical tools and associated works resources communicated the nature of the expenditures, the eligibility
to reduce water consumption; criteria, and the location of Eligible Projects.
• Collection, treatment and recycling facilities for Increase of the proportion of wastewater • The Issuer declared that the energy efficiency of the
grey water, treated effluent and rainwater; treated, reused and avoided water and wastewater treatment facilities is regularly
• Provision and rehabilitation of sewerage monitored and that measures for the reduction of GHG
Reduction of water consumption
infrastructure for the collection and treatment of emissions will be reviewed as part of the ongoing
sewage; environmental auditing and reporting system.
Climate change adaptation The Intended Environmental Objectives are clearly defined and
• Construction and maintenance of water
infrastructure which help enhance climate set in coherence with sustainability objectives defined in
resilience. Strengthen resilience of the water international standards.
infrastructure in case of extreme weather and The Expected Environmental Benefits are clear. It is considered
climate events including droughts and flood relevant, measurable, and will be quantified in the reporting.
An area for improvement would be to implement GHG mitigation
measures over the operational lifetime of the projects, in line with
international standards (i.e., EU taxonomy and CBI)

Nature Conservation / Conservation and restoration of natural environment Biodiversity conservation The Eligible Category is clearly defined. The Issuer has
Biodiversity and biodiversity. communicated the nature of the expenditures, the eligibility
criteria, and the location of Eligible Projects.
Conservation and sustainable use of
terrestrial inland freshwater and marine • The Issuer has declared that the Eligible Projects in this
ecosystems category will exclusively be related to the sustainable
management of Hong Kong’s protected areas.
The Intended Environmental Objective is clearly defined and set
in coherence with sustainability objectives defined in
international standards.
The Expected Environmental Benefit is clear. It is considered
relevant, measurable, and will be quantified in the reporting.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the express written authorization of V.E and is protected by the provision of
the French Intellectual Property Code.
11
February 2022

ELIGIBLE CATEGORIES DESCRIPTION SUSTAINABILITY OBJECTIVES AND V.E’S ANALYSIS

BENEFITS

Clean Transportation Development, construction and operation of and Climate change mitigation The Eligible Category is clearly defined. The Issuer has
investment in zero direct carbon emission communicated the nature of the expenditures, the eligibility
transportation solutions: criteria, and the location of Eligible Projects.
Reduction of GHG emissions through
• Projects to build or operate public, urban metro, • The eligible projects apply zero direct emission
the promotion of zero direct carbon
heavy or light electric rail, non-motorised, multi- criteria which is part of the environmental criteria for
emission transportation
modal transportation; clean transportation in line with international
• Construction of infrastructure that supports zero thresholds (i.e., EU taxonomy and CBI).
direct carbon emission transportation: ground Improvement of air quality
The Intended Environmental objective is clearly defined and set
preparation, stations, signalling equipment,
in coherence with sustainability objectives defined in
network interfaces (passenger access, ancillary Reduction of air pollutant emissions
international standards.
passenger services, facilities required for the through the promotion of zero direct
safe, clean and efficient operation of the carbon emission transportation The Expected Environmental Benefit is clear. It is considered
network, utilities and other enabling relevant, measurable, and will be quantified in the reporting.
infrastructure);
• Construction of infrastructure and related
expenditure which facilitate cycling.

Green Buildings Construction of new buildings/ facilities and Climate change mitigation The Eligible Category is clearly defined. The Issuer has
renovation/ retrofitting of existing buildings/ facilities communicated the nature of the expenditures, the eligibility
that have received or are expected to receive a Enhance the sustainability performance of a criteria, and the location of Eligible Projects.
recognised green building certification8: building, including reduction of GHG
• The accepted Green Buildings certifications rely on
emissions through the development of green
• Schemes under BEAM Plus with a provisional/ locally and internationally recognised sector
buildings
final rating at “Gold” or “Platinum”, or standards.
“Excellent” or “Good” under the Selective The Intended Environmental Objective is clearly defined and set
Scheme of BEAM Plus Existing Buildings; or in coherence with sustainability objectives defined in
• U.S. Leadership in Energy and Environmental international standards.
Design (LEED) with a rating at “Gold” or The Expected Environmental Benefit is clear. It is considered
“Platinum”. relevant, measurable, and will be quantified in the reporting.
An area for improvement would be to provide further details on
the exhaustivity of the international certifications that can be
received.

8
Other internationally recognised building environmental assessment systems which are suitable for Hong Kong’s local use and the relevant building types may be considered with full justifications

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the express written authorization of V.E and is protected by the provision of
the French Intellectual Property Code.
12
February 2022

ELIGIBLE CATEGORIES DESCRIPTION SUSTAINABILITY OBJECTIVES AND V.E’S ANALYSIS

BENEFITS

Climate Change Adaptation • Design, development, installation, operation and Climate change adaptation The Eligible Category is clearly defined. The Issuer has
connection of observation and early warning communicated the nature of the expenditures, the eligibility
systems for extreme weather and climate events; criteria, and the location of Eligible Projects.
Strengthen adaptation and resilience
• Design, construction, maintenance and capabilities of Hong Kong to combat climate The Intended Environmental Objective is clearly defined and set
operation of infrastructure, buildings and change and extreme weather and climate in coherence with sustainability objectives defined in
installations for combating climate change and events international standards.
extreme weather and climate events: sea level The Expected Environmental Benefit is clear. It is considered
rise, extreme rainstorms, tropical cyclones, relevant, measurable, and will be quantified in the reporting.
drought and heat.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the express written authorization of V.E and is protected by the provision of
the French Intellectual Property Code.
13
February 2022

SDG Contribution

The Eligible Categories are likely to contribute to 8 of the United Nations’ Sustainable Development Goals (“SDGs”),
namely:

ELIGIBLE CATEGORY SDG SDG TARGETS

Pollution Prevention and Control 3.9 By 2030, substantially reduce the number of deaths and
illnesses from hazardous chemicals and air, water and soil pollution
and contamination
Clean Transportation

Water and Wastewater Management 6.2 By 2030, achieve access to adequate and equitable sanitation
and hygiene for all and end open defecation, paying special
attention to the needs of women and girls and those in vulnerable
situations
6.3 By 2030, improve water quality by reducing pollution,
eliminating dumping and minimizing release of hazardous
chemicals and materials, halving the proportion of untreated
wastewater and substantially increasing recycling and safe reuse
globally

Renewable Energy 7.2 By 2030, increase substantially the share of renewable energy
in the global energy mix

Energy Efficiency and Conservation 7.3 By 2030, double the global rate of improvement in energy
efficiency

Green Buildings

Energy Efficiency and Conservation 9.4 By 2030, upgrade infrastructure and retrofit industries to make
them sustainable, with increased resource-use efficiency and
greater adoption of clean and environmentally sound technologies
Clean Transportation
and industrial processes, with all countries taking action in
accordance with their respective capabilities

Pollution Prevention and Control 11.2 By 2030, provide access to safe, affordable, accessible and
sustainable transport systems for all, improving road safety, notably
by expanding public transport, with special attention to the needs
Waste Management and Resource
of those in vulnerable situations, women, children, persons with
Recovery
disabilities and older persons

Clean Transportation
11.6 By 2030, reduce the adverse per capita environmental impact
of cities, including by paying special attention to air quality and
municipal and other waste management

Waste Management and Resource 12.2 By 2030, achieve the sustainable management and efficient
Recovery use of natural resources
12.3 By 2030, halve per capita global food waste at the retail and
Water and Wastewater Management consumer levels and reduce food losses along production and
supply chains, including post-harvest losses

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
14
February 2022

ELIGIBLE CATEGORY SDG SDG TARGETS

Renewable Energy

Energy Efficiency and Conservation

Clean Transportation
The projects are likely to contribute to SDG 13 which consists
Waste Management and Resource in adopting urgent measures to combat climate change and
Recovery its impacts.

Green Buildings

Climate Change Adaptation 13.1 Strengthen resilience and adaptive capacity to climate-related
hazards and natural disasters in all countries

Nature Conservation / Biodiversity 15.1 By 2020, ensure the conservation, restoration and sustainable
use of terrestrial and inland freshwater ecosystems and their
services, in particular forests, wetlands, mountains and drylands, in
line with obligations under international agreements

15.a Mobilize and significantly increase financial resources from all

sources to conserve and sustainably use biodiversity and
ecosystems

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
15
February 2022

Evaluation and Selection of Eligible Projects

Not Aligned Partially Aligned Aligned Best Practices

• The Process for Project Evaluation and Selection has been clearly defined and detailed by the Issuer. The process
is well-structured in all the evaluation and selection steps (including the proposal, selection, validation,
monitoring of Eligible Categories). The roles and responsibilities are clear and include relevant internal and
external expertise. The Process is publicly disclosed in the Green Bond Framework.
• Eligibility criteria for project selection have been clearly defined by the Issuer, including relevant exclusion
criteria for all of the Eligible Categories.
• The process applied to identify and manage potentially material environmental and social (E&S) risks associated
with the projects is publicly disclosed in this Second Party Opinion. The process is considered advanced: it
combines monitoring, identification, corrective and preventive measures, for all Eligible Projects (see detailed
analysis on pages 26 - 28).

Process for Project Evaluation and Selection

- For the purpose of the Bonds, The Steering Committee on the Government Green Bond Programme (the “SC”)
has been created and chaired by the Financial Secretary. This Committee is composed of representatives of
but not limited to:

- Secretary for Financial Services and the Treasury

- Secretary for the Environment

- Deputy Chief Executive of the Hong Kong Monetary Authority

- The Project Evaluation and Selection follows the procedure below:

- HKSAR Government has formalised the Public Works Programme (“PWP”) to govern and control all
public works projects of non-recurrent nature. The PWP financing is managed through the CWRF.
- The CWRF was established as a Resolution passed by Hong Kong’s Legislative Council, which states
that the fund is to be administered by the Financial Secretary. The approval power of public works
projects is vested with the Finance Committee (“FC”) or public officers under the delegated authority.
The Public Works Subcommittee (“PWSC”) falls under the FC and its role is to examine capital works
expenditures and make recommendations to the FC.
- The PWP has clearly structured the stages for the approval of public work projects, from its conception
to its implementation that explicitly determine the authority, responsibilities and the specific
requirements that must be completed at each stage:
- Category D: smaller projects/consultancies estimated to cost not more than the prevailing financial
ceiling (in general $50M). Finance Committee has delegated to the Financial Secretary the approval
of funding for Category D projects.
- Category B: The inclusion of the public work project in the PWP of which its preliminary technical
feasibility is established on a prima facie basis. Once all procedures are completed, the director of
the relevant works department seek funding for the project from the legislature through the
presentation of the PWSC paper.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
16
February 2022

- Category A: The approval of the FC upgrades the project to Category A status with funding approval.
- After receipt of competitive tenders, the authority to accept a tender shall be given from either the
relevant tender board or the Controlling Officers, depending on the value of the contract and whether
the contract is awarded to the highest combined price-quality scorer or not. When the authority has
given its approval, the works department can accept the tender and get construction under way.
- Bureaux and Departments of the HKSAR Government will submit potential Eligible Projects to the SC
for consideration against the eligibility criteria outlined in the Use of Proceeds section of the Green
Bond Framework, based on the following:
▪ Description of the project and the technical/scientific approach setting out the
environmental benefits to be obtained
▪ Preliminary, provisional or final certificates received in respect of compliance with relevant
standards
▪ Where applicable, review of energy, water, waste management review data, against relevant
standards or benchmarks
- If such project is approved as an Eligible Project by the SC in accordance with the Green Bond
Framework, it may be earmarked for the use of proceeds.
- Bonds Procedure:

- HKSAR Government has set up the SC, which is responsible for the review and approval of the
allocation of proceeds to Eligible Projects
- The traceability and verification of the selection and evaluation of the projects is ensured throughout the
process:

- The SC will annually verify that the Eligible Projects financed by the Bond continue to comply with the
eligibility criteria.

- Minutes of each meeting will be created to ensure decision traceability.

Eligibility Criteria

The process relies on explicit eligibility criteria (selection and exclusion), relevant to the environmental objectives defined
for the Eligible Categories.

- The selection criteria are based on the definitions in the Eligible Categories defined in Table 1 in the Use of
Proceeds section.

- The exclusion criteria included in the Green Bond Framework are clear and relevant as they cover the main
topics in terms of environmental and responsibility for the Eligible Categories.

An area for improvement includes:

- Specify whether and how the Issuer will monitor potential ESG controversies throughout the life of the bond.

BEST PRACTICES

 The Issuer reports that it will monitor compliance of selected projects with eligibility and exclusion criteria specified in the
Green Bond Framework throughout the life of the instrument and has provided details on content/frequency/duration and on
procedure adopted in case of non-compliance.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
17
February 2022

Management of Proceeds

Not Aligned Partially Aligned Aligned Best Practices

• The Process for the Management and Allocation of Proceeds is clearly detailed and defined, and is publicly
available in the Green Bond Framework.
• The allocation period will be 24 months or less.
• The proceeds of the Bond will be placed in the Capital Works Reserve Fund (“CWRF”) and tracked by the Issuer
in an appropriate manner and attested to in a formal internal process.
• Information on the intended types of temporary placement for the balance of the unallocated proceeds is publicly
disclosed. For as long as the Bond is outstanding, the Issuer has committed to periodically adjust the balance of
tracked proceeds to match allocations to Eligible Projects. The Issuer has provided information on the procedure
that will be applied in case of project divestment or postponement and has committed to reallocate divested
proceeds to projects that comply with the Green Bond Framework within 12 months.

Management Process

- The proceeds of each Green Bond will be credited to the CWRF, administered by the Financial Services and
the Treasury Bureau (“FSTB”) pending earmarking to Eligible Projects. For each Green Bond Transaction
(“GBT”) issued, the FSTB will maintain an internal register to keep track of the GBT details and allocation of
proceeds.

- Proceeds pending allocation will remain at the CWRF which, as part of the Operational and Capital Reserves
of the fiscal reserves, and in accordance with the existing arrangement between the HKSAR Government and
the Hong Kong Monetary Authority, is placed with the Exchange Fund at a fixed rate of return determined every
year.

- The proceeds of each GBT will only be allocated to expenditures within the last two and next two financial
years9 from the GBT issuance date.

- The SC will annually verify that the proceeds of the Bond match the allocations to Eligible Projects.

BEST PRACTICES

 The allocation period is 24 months or less.

 The Issuer has committed not to invest temporarily unallocated proceeds in Green House Gas (GHG) intensive activities or
controversial activities.
 The Issuer has provided information on the procedure that will be applied in case of project divestment or postponement and
it has committed to reallocate divested proceeds to projects that are compliant with the Green Bond Framework within 12
months.

9
A financial year of the HKSAR Government runs from 1 April of a calendar year to 31 March of the next calendar year.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
18
February 2022

Reporting

Not Aligned Partially Aligned Aligned Best Practices

• The Issuer has committed to report on the Use of Proceeds on an annual basis through a Green Bond Report,
until full allocation and on a timely basis in case of material developments. The report will be publicly available
on the Issuer’s website10.
• The Issuer has committed to include in the reports relevant information related to the allocation of Bond proceeds
and the expected sustainable benefits of the Eligible Projects.
• The reporting methodology and assumptions used to report on environmental benefits of the Eligible Projects
will be publicly disclosed in the Green Bond Reports.
• An external reviewer will verify the tracking and allocation of funds to Eligible Projects until full allocation and
in case of material changes. An external reviewer will verify the reporting on environmental benefits of the
Eligible Projects until full allocation and in case of material changes.

Indicators

The Issuer has committed to transparently communicate at Eligible Project level, on:

- Allocation of proceeds: The indicators selected by the Issuer to report on the allocation of proceeds cover all
relevant information.

REPORTING INDICATORS

 Amount of proceeds allocated to the various Eligible Project categories.

 Description of major Eligible Projects.
 Aggregate amount of proceeds of GBT allocated that has been earmarked to Eligible Projects.
 The remaining balance of unallocated proceeds yet to be earmarked.
 Percentages of refinancing and financing of Eligible Projects.

- Environmental benefits: The indicators selected by the Issuer to report on the environmental benefits are clear
and relevant.

ELIGIBLE ENVIRONMENTAL BENEFITS INDICATORS

CATEGORIES

OUTPUTS AND OUTCOMES IMPACT INDICATORS

Renewable Energy - Installed capacity (kW) and renewable - Carbon dioxide (CO2) and other GHG avoided, in
energy generated (kWh) CO2e where appropriate (in tonnes)

10
https://www.hkgb.gov.hk/en/greenbond/

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
19
February 2022

ELIGIBLE ENVIRONMENTAL BENEFITS INDICATORS

CATEGORIES

OUTPUTS AND OUTCOMES IMPACT INDICATORS

Energy efficiency and - Energy saving in the private and public - Annual reduction of energy consumption (% or
conservation sectors MWh)
- CO2 and other GHG avoided, in CO2e where
appropriate (in tonnes)

Pollution prevention - Improvement of air quality through the - Reduction in NOx, PM10 and PM2.5 emissions (in
and control reduction of air pollutant emissions tonnes)

Waste management/ - Reduction in waste generation and - Waste that is reused, recycled, or otherwise treated
resource recovery improvement of the rate of resource recovery (in tonnes)
through recycling; ensuring proper treatment - Share of waste reused, recycled or otherwise
of waste for final disposal treated (in % of total tonnes per year)
- Reduction of GHG emissions through - Waste diverted from landfills (in tonnes)
renewable energy generation
- Reduction of waste sent to landfill (%)
- CO2 and other GHG avoided, in CO2e where
appropriate (in tonnes)
- Renewable energy generated (MWh)
- Waste-to-Energy efficiency (%)

Water and wastewater - Strengthen resilience of the water - Water and wastewater treated (in cubic metres)
management infrastructure in case of extreme weather and - Volume of leakage prevented
climate events including droughts and flood
- Annual volume (or population equivalence) of
sewage / wastewater collected, conveyed, treated,
reused and avoided (in cubic metres)

Social Co-Benefit:
- Population (number of people) with access to
improved sanitation facilities

Nature conservation/ - Number of nature conservation/biodiversity - Area conserved/restored/sustainably managed (in

biodiversity facilities constructed hectare)

Clean transportation - Tracks built/repaired/modernised (in km) - CO2 and other GHG avoided, in CO2e where
- Number of rolling stocks, carriages/ appropriate (in tonnes)
locomotives bought or repaired
- Number of passengers carried

Green buildings - Number and types of green building - Rating level of certifications obtained
certifications obtained - Amount of energy saved (MWh)
- Total floor area of buildings concerned (in - CO2 and other GHG avoided, in CO2e where
metre square) appropriate (in tonnes)

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
20
February 2022

ELIGIBLE ENVIRONMENTAL BENEFITS INDICATORS

CATEGORIES

OUTPUTS AND OUTCOMES IMPACT INDICATORS

Climate Change - Strengthen adaptation and resilience - Number and type of adaptation and resilience
Adaptation capabilities of Hong Kong to combat climate measures or systems installed
change and extreme weather and climate
events

BEST PRACTICES

 The Issuer report will be publicly available.

 The Issuer will report on allocation of proceeds and on environmental benefits at project level.
 The indicators selected by the Issuer are exhaustive with regards to allocation reporting
 The indicators selected by the Issuer are clear and relevant and cover all expected benefits associated with the Eligible
Categories.
 The reporting methodology and assumptions used to report on environmental benefits of the Eligible Projects will be
disclosed publicly.
 Environmental benefits and impacts will be externally verified, until full allocation and in case of material changes.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
21
February 2022

Contribution to Sustainability

Expected Impacts

The potential positive Impact of the eligible projects on environmental and social objectives is considered to be robust.

ELIGIBLE EXPECTED
ANALYSIS
CATEGORY IMPACT
Renewable Energy As of 2019, around 84% of global primary energy still came from coal,
oil and gas.11 Coal continues to be a critical energy source and is also
the most polluting, both in terms of the amount of CO2 it produces per
unit of energy, but also the amount of local air pollution it creates.
Developing renewable energy is key for the decarbonisation of the
country’s energy mix and reducing its GHG emissions but only
accounts for 11.4% of the global energy mix as of 2019.12

In Hong Kong, CO2 emissions for 2019 totalled 40.1 million tons13 with
approximately 66% coming from the power sector alone. Therefore,
decarbonisation of the sector is critical for the city to achieve its carbon
neutrality goal. The Eligible Projects will help increase Hong Kong’s
installed capacity of renewable energy as well as its share in the
domestic energy mix, through the design, construction, installation,
ADVANCED operation and connective of renewable energy systems, including solar
photovoltaic assets (onshore and offshore), wind (onshore and
offshore) and small hydropower.

Nevertheless, Hong Kong is limited by its geographical conditions and

resources which means that domestic renewable energy can only play
a limited role in Hong Kong’s energy mix14. Additionally, there may be
some short-term negative impacts during the construction and
operational phase (e.g., pollution and energy usage during
construction, waste, etc.). However, the Eligible Projects overall will
bring positive impacts in terms of avoidance of GHG emissions and
mitigating climate change. The eligibility criteria of the projects are in
line with the technical screening criteria defined by the EU Taxonomy
Climate Delegated Act for the “Energy” category, which are one of the
most stringent international standards.
Energy Efficiency and As of 2019, around 64% of the world’s electricity came from fossil
Conservation fuels.15 Reducing energy demand by promoting energy-efficient
equipment and appliances is a crucial step to reduce the consumption
of fossil fuels globally as well as GHG emission associated with energy
usage.
ADVANCED
The Eligible Category is relevant with Hong Kong's Built Environment
2021-2025 roadmap, which sets target of reducing Hong Kong's
energy intensity by 40% in 2025. The HKSAR Government is leading
initiatives to implement District Cooling Systems (DCS) to make new
and existing government buildings more energy efficient. One of these

11
https://ourworldindata.org/fossil-fuels
12
https://ourworldindata.org/energy-mix
13
https://www.climateready.gov.hk/files/pdf/Greenhouse%20Gas%20Emissions%20and%20Carbon%20Intensity%20in%20Hong%20Kong.pdf
14
https://www.wri.org.cn/sites/default/files/Pathways%20towards%20a%20Net-
Zero%20Emissions%20Power%20System%20for%20Hong%20Kong.pdf
15
https://ourworldindata.org/fossil-fuels#:~:text=Globally%2C%20fossil%20fuels%20account%20for,electricity%20came%20from%20fossil%20fuels.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
22
February 2022

ELIGIBLE EXPECTED
ANALYSIS
CATEGORY IMPACT
initiatives, the Kai Tak Development, will generate an annual saving in
electricity consumption of 85 million kilowatt-hour (equivalent to a 35%
reduction as compared with the electricity consumption using
traditional air-cooled air-conditioning system). The eligibility criteria of
the projects are in line with the technical screening criteria defined by
the EU Taxonomy Climate Delegated Act for the “Installation,
maintenance and repair of energy efficiency equipment” category,
which are one of the most stringent international standards.
Pollution Prevention According to the World Health Organization (WHO) Air Quality
and Control Guidelines (AQG), the outdoor air quality of Hong Kong has been
considered poor, in particular levels of particulate matters (PM2.5and
PM10) exceeded WHO guidelines by more than 100% in 2016.16

Hong Kong's air pollution is mainly due to three factors: (i) motor
vehicles, (ii) marine vessels and (iii) power plants. The two greatest
challenges are local street-level pollution and regional smog. Diesel
vehicles (particularly trucks, buses and light buses) are the main source
ROBUST of street-level pollution. Hong Kong’s smog is caused by a combination
of pollutants mainly from motor vehicles, industry and power plants in
Hong Kong and the Pearl River Delta.

The project category is centred around Hong Kong’s Clean Air Plan for
Hong Kong 2035 (“CAP 2035”) issued in June 2021 and the EV
Roadmap issued in March 2021. The Eligible Projects aim to popularise
the wide adoption of electric vehicles to attain zero vehicular emissions
before 2050. The Eligible Projects will enable the reduction of negative
environmental impacts (e.g., CO2 emissions from diesel vehicles).
Waste Management According to a 2018 World Bank study, globally 70% of waste is
and Resource Recovery landfilled or just dumped, and around 11% of waste is incinerated.
GHG emissions from waste management is estimated to represent 5%
of global GHG emissions or 1.6 billion tonnes CO2e, primarily from
open dumping and disposal in landfills without landfill gas capture
systems.17

The Eligible Projects aim to promote recycling and reuse of waste, and
potentially reduce the amount of waste ending in landfills and hence
reduce associated environmental impacts (e.g., methane emission from
landfill, groundwater pollution, etc.). Hong Kong produces over
ROBUST 15,000 tonnes of MSW per day. In 2019, the city exported 1.44 million
tonnes of recycled material as a result of the HKSAR Government’s
actions for the three largest waste categories: Waste paper, waste
plastic and food waste. For waste that cannot be recycled, it will be
transformed into energy.

Nevertheless, investments in Waste-to-Energy (WtE) projects could

lead to lock-in such facilities, diverting further investment needed for
waste recycling and reuse. According to the EU Taxonomy, Waste-to-
energy plants are activities which would ultimately undermine climate
change mitigation objectives and harm environmental objectives. In
this sense, waste-to-energy has been excluded as it may harm one of

16
https://sph.hku.hk/en/News-And-Events/Press-Releases/2017/HKU-School-of-Public-Health-Launches-New-Version-of-Hedley-Environmental-Index-
Better-Inform-and-Ass
17
Kaza, S., Lisa, Y., Bhada-Tata, P. and Van Der Woerden, F., (2018). What a Waste 2.0: A Global Snapshot of Solid Waste Management to 2050. Overview
booklet. World Bank, Washington, DC.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
23
February 2022

ELIGIBLE EXPECTED
ANALYSIS
CATEGORY IMPACT
the key environmental objectives, that is to ensure the transition to a
circular economy, waste prevention and recycling, excluding any
activity leading to significant inefficiencies in the use of materials in
one or more stages of the life-cycle of products, including in terms of
durability, reparability, upgradability, reusability or recyclability of
products; or where that activity leads to a significant increase in the
generation, incineration or disposal of waste.

To curb such lock-in effects, the HKSAR Government have adopted

some internationally recognised technical thresholds (i.e., Climate
Bond Initiative criteria). However, the Climate Bond Initiative (CBI)
thresholds adopted are insufficient to be fully eligible according to
CBI’s list of criteria for the activity.
Water and Wastewater With no natural lakes, large rivers or underground water, Hong Kong,
Management a densely populated centre of trade and industry, faces challenges of
securing a stable and adequate supply of water to meet its development
needs. The mountainous landscape of the territory's 1,104 km2 of land
has made collection and storage of the precious rainwater a big
challenge.

The project category is centred around Hong Kong’s Harbour Area

Treatment Scheme (“HATS”) which came in operation in 2015 and
Sewerage Master Plans (“SMPs”) since the years 2000s. The Eligible
Projects promote the conservation and sustainable use of water across
the city with intelligent water management networks and treatment
ROBUST facilities, including the implementation of sewerage infrastructures
required to collect the sewage and direct it to treatment facilities before
disposal into the sea in an environmentally acceptable manner. Eligible
projects will enable the reduction of negative environmental impacts
(i.e., water pollution).

The HKSAR Government has declared that the energy efficiency of the
water and wastewater treatment facilities is regularly monitored and that
measures for the reduction of GHG emissions will be reviewed as part
of the ongoing environmental auditing and reporting system. We have
suggested implementing GHG mitigation measures over the
operational lifetime of the projects, in line with international standards
(i.e., CBI criteria).
Nature Conservation / According to the World Bank, the global decline in biodiversity and
Biodiversity ecosystem services creates obstacles for a country’s potential
attainment of the United Nations Sustainable Development Goals, and
is likely to affect the poorest countries the most. The loss of ecosystem
services has negative effects on food security, water supply,
livelihoods, and output of many economic sectors.

Country parks and nature reserves cover about 40% land area of Hong
ADVANCED
Kong and the Government of the Hong Kong Special Administrative
Region of the People’s Republic of China has designated a total of 24
country parks for the purposes of nature conservation, countryside
recreation and outdoor education. The HKSAR Government has
launched the Biodiversity Strategy and Action Plan (BSAP) in December
2016 which will exclusively be related to the sustainable management
of Hong Kong’s protected areas.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
24
February 2022

ELIGIBLE EXPECTED
ANALYSIS
CATEGORY IMPACT
Clean Transportation As of 2018, transportation accounted for 24% of global CO2 emissions
from energy which totalled 8 billion tonnes of CO2. Of these, 45.1%
came from passenger transportation (cars, motorcycles, buses, taxis)
and 29.4% came from freight transportation (trucks and lorries).18

As of 2019, oil & coal products represented 82% of the fuel type used
by Hong Kong’s transportation sector. Gas and liquefied petroleum gas
(LPG) represented 15% and electricity only 5% for the same year.19 As
ADVANCED such, Eligible Projects aiming at the development, construction and
operation of zero direct carbon emission transportation solutions in
Hong Kong will be critical to reduce local and global GHG emissions
and air pollutants from traffic, providing Hong Kong an early start to its
carbon neutrality objectives for 2050.

Overall, the technologies proposed within this category align with

international standards taxonomies (i.e. EU Taxonomy, CBI).

Green Buildings According to the United Nations, the real estate sector accounts for
40% of global energy consumption and 30% of GHG emissions. 20 As
a result, this sector can play a leading role in how CO2 emissions are
valued and integrated into the development, design and management
of real estate assets.

Eligible Projects aiming at constructing new buildings and

ROBUST renovating/retrofitting existing buildings in Hong Kong that have
received or are expected to receive a recognised green building
certification is critical to reduce the share of global energy
consumption and GHG emissions of the real estate sector. Eligible
categories include some examples of Green Building certifications, but
an exhaustive list of recognised sector standards is required to fully
assess the impact of the category.

Climate Change Due to its geographical location, Hong Kong is particularly vulnerable
Adaptation to tropical cyclones between May and November each year which
cause severe floods and landslides and ultimately bring long-term
consequences such as loss of lives, infrastructure damage and
economic downturns.

ADVANCED
Eligible Projects aim at strengthening Hong Kong’s resilience towards
natural disasters through the development of early warning systems and
the construction of cyclone-proof buildings. The development and
installation of weather observation and such early warning systems for
extreme weather events is in line with CBI criteria.

OVERALL
ROBUST
ASSESSMENT

18
https://ourworldindata.org/co2-emissions-from-transport
19
https://www.emsd.gov.hk/filemanager/en/content_762/HKEEUD2021.pdf
20
https://www.unepfi.org/publications/investment-publications/property-publications/sustainable-real-estate-investment-2/

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
25
February 2022

ESG Risks Identification and Management Systems in Place at Project Level

The identification and management of the environmental and social risks associated with the Eligible Projects are
considered advanced.

Integration of ESG considerations into Public Works

The HKSAR Government has formalised procedures to govern the development, construction and operation of public
works, namely the Public Works Programme (“PWP”). We consider that these procedures are exhaustive and adequately
structured, covering the identification, monitoring and control of the relevant E&S risks in all the Eligible Projects:

The PWP procedures explicitly state the mandatory E&S requirements for a project to be approved for funding and the
government authorities responsible for each stage of the project planning process. While tasks differ from one type of
project to another, the general procedures and sequence of stages apply to all Eligible Projects to be financed or
refinanced by the Bonds.

The monitoring and reporting of all projects financed by the HKSAR Government is ensured through a register in the
Public Works Programme Information System (“PWPIS”) and the publicly available Quarterly Report on Public Works
Programme for major projects.

In addition, the procedures to monitor and control the environmental and social performance of contractors and suppliers
entering into contracts for public works are formalised in the Contractor Management Handbook, which is publicly
accessible. The Handbook includes:

- Explicit procedures for the admission of contractors and suppliers in the List of Approved Contractors for Public
Works or the List of Approved Suppliers of Material and Specialist Contractors for Public Works. (hereafter
“the List/Specialist List”). Contractors and suppliers, who would like to apply for admission into the
List/Specialist List, must comply with a number of criteria covering, but not limited to, financial, technical and
management experience and personnel as well as applicable legislation and regulations, including, for
example, the statutory minimum wage under the Minimum Wage Ordinance. These approval criteria are in line
with the E&S criteria recommended by V.E. covering the respect to human and labour rights, respect to working
conditions including minimum wage and maximum working hours, ensure appropriate health and safety
conditions and prevent corruption, fraud and conflict of interest.

In addition, consultants and contractors are required to provide certification of their quality management
systems in accordance with ISO 9001:2015 standard and declaration of Conflict of interest.

- A central record system is maintained to monitor the workload, performance and financial status of contractors
and suppliers entering into contracts for public works, the Report on Contractor’s Performance (“RCP”). The
RCP is a scorecard that assesses 11 relevant criteria and sub-criteria. The first ten criteria assessed are: 1)
Workmanship, 2) Progress, 3) Site safety, 4) Environmental pollution control, 5) Organisation, 6) General
obligations, 7) Industry awareness, 8) Resources, 9) Design, and 10) Attendance to emergency. Their
assessment is based on a five-scale evaluation: 1) Very Good, 2) Good, 3) Satisfactory, 4) Poor and 5) Very
Poor. The remaining criteria is the contractor’s attitude to claims and is based on a two-scale evaluation:
reasonable/no claim submitted and unreasonable. The assessment of the performance of contractors includes
onsite monitoring visits.

- The formalised Regulating Actions include the removal, suspension, downgrading or demotion of
contractor/supplier from the List/Specialist List, if a contractor or supplier fails to comply with the standards set
in the Handbook including, but not limited to, unsatisfactory performance, misconduct or suspected
misconduct, winding-up, bankruptcy or other financial problems, poor site safety record, poor environmental
performance, and violation to Hong Kong laws.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
26
February 2022

Public Works Programme E&S Due Diligence Procedures

In order to be considered part of the Public Works Programme, all Eligible Projects have to deliver the following relevant
documents:

- The Project Definition Statement in which the need of the project and the potential contribution to local
development is justified and the compliance with the HKSAR Government policies, policy committees and
basic planning standards for the development is confirmed.
- Technical Feasibility Statement including:
- Detailed project description, land requirements, development constraints (geotechnical aspects,
management of construction and demolition material, interface problems, traffic impact, etc.),
heritage considerations and greening and landscape considerations.
- Environmental considerations: categorisation of the project under or not under the Environmental
Impact Assessment Ordinance (“EIAO”). Projects under EIAO are required to conduct an
Environmental Impact Assessment (“EIA”) study in accordance with the Technical Memorandum on
EIA Process or seek permission to apply directly for an Environmental Permit. Other projects should
provide dedicated measures to implement standard pollution control measures during construction
or to carry out a Preliminary Environmental Review of the project, as appropriate.
- Further feasibility studies if considered needed. Of note, the engagement of consultants to conduct
feasibility studies is structured in a formalised procedure that includes price ceilings.
- Sustainability Evaluations conducted at the early planning stage of a proposal. Examples of these
evaluations include the regional or sub-regional planning studies, comprehensive transport studies,
waste management plans, etc.
- The PWSC paper, which is required for the submission of a project for approval under the PWP. This
paper contains, amongst others, project scope, details, cost breakdown, etc.
- If the project cost estimate is HK$200M, the Systematic Risk Management has to be implemented.
This system includes annual monitoring using a Risk Register, from the project’s inclusion in the PWP
until the completion of the project.
- The PWP has a formalised framework of dispute resolution procedures with contractors and suppliers divided
in three stages: a decision of the engineer, mediation and arbitration.
- The PWP process includes the consultation with the relevant government departments, district councils, rural
committees, and local and industry stakeholders to ensure smooth coordination. In addition, the HKSAR
Government has a formalised procedure to confidentially receive and manage complaints from members of
the public throughout the lifetime of the project.

Expansion of the scope of the Government Green Bond Programme (“GGBP”)

In July 2021, the Legislative Council (“LegCo”) of the HKSAR approved the Government’s proposal to expand the scope
of the GGBP. Under the expanded scope, the bonds will finance a variety of green projects not limited to major public
works mentioned above. The eligible projects and associated ESG procedures are expanded to cover the following:

- minor works projects: e.g. small-scale energy saving, recycling and greening projects;
- Minor works projects (including pre-construction activity underlying major works), are part of the
Government’s Public Works Programme mentioned above and are funded under the CWRF block
allocations approved by Financial Secretary acting under the delegated power of Finance Committee
(“FC”) of the LegCo.
- On the management of E&S risks of minor works projects, the Controlling Officers in Bureaux and
Departments (“B/Ds”) ensure that all E&S risks are solved prior to starting the projects.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
27
February 2022

- Project procedures follow the government’s standards and guidelines including requirements under
the Environmental Impact Assessment Ordinance mentioned above (i.e., Controlling Officers should
ensure that the statutory environmental procedures are complied with and environmental permits
obtained before the construction and operation of projects).
- Controlling Officers are also mandated to ensure that tree preservation requirements have been
adequately addressed before works are committed.
- Major systems and equipment projects: e.g. pollution surveillance, climate observation and early warning
projects;
- Only eligible projects with environmental benefits will be selected for inclusion under the GGBP and
would be covered by the same E&S risk mitigation measures prevented above.
- Projects under capital subventions: e.g. hospitals, school and welfare premises projects implemented by non-
government organisations.
- Major projects under capital subventions are approved by the FC like major public works projects.
- Same as the major public works projects, the execution of all major projects under capital subventions
are closely monitored by the relevant Government bureau as the proponent of the projects.
- The project data are also included in the Public Works Programme Information System for monitoring.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
28
February 2022

METHODOLOGY
In V.E’s view, Environmental, Social and Governance (ESG) factors are intertwined and complementary. As such they cannot be
separated in the assessment of ESG management in any organisation, activity or transaction. In this sense, V.E provides an opinion on
the Issuer’s ESG performance as an organisation, and on the processes and commitments applicable to the intended issuance.

Our Second Party Opinions (SPOs) are subject to internal quality control at three levels (Analyst, Project Manager and Quality Reviewer).
If necessary, this process is complemented by a final review and validation by the Expertise Committee and Supervisor. A right of
complaint and recourse is guaranteed to all companies under our review.

COHERENCE
Scale of assessment: not coherent, partially coherent, coherent

This section analyses whether the activity to be financed through the selected instrument is coherent with the Issuer's sustainability
priorities and strategy, and whether it responds to the main sustainability issues of the sector where the Issuer operates.

ISSUANCE
Alignment with the Green and/or Social Bond Principles

Scale of assessment: Not aligned, Partially aligned, Aligned, Best Practices

The Framework has been evaluated by V.E according to the ICMA’s Green Bond Principles - June 2021(“GBP”), and on our methodology
based on international standards and sector guidelines applicable in terms of ESG management and assessment.

Use of proceeds
The definition of the Eligible Projects and their sustainable objectives and benefits are a core element of Green/Social/Sustainable
Bonds and Loans standards. V.E evaluates the clarity of the definition of the Eligible Categories, as well as the definition and the
relevance of the primary sustainability objectives. We evaluate the descriptions of the expected benefits in terms of relevance,
measurability and quantification. In addition, we map the potential contribution of Eligible Projects to the United Nations Sustainable
Development Goals’ targets.

Process for evaluation and selection

The evaluation and selection process is assessed by V.E on its transparency, governance and relevance. The eligibility criteria are
assessed on their clarity, relevance and coverage vs. the intended objectives of the Eligible Projects.

Management of proceeds
The process and rules for the management and the allocation of proceeds are assessed by V.E on their transparency, traceability and
verification.

Reporting
The monitoring and reporting process and commitments defined by the Issuer are assessed by V.E on their transparency, exhaustiveness
and relevance, covering the reporting of both proceeds’ allocation and sustainable benefits (output, impact indicators).

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
29
February 2022

Contribution to Sustainability

Scale of assessment: Weak, Limited, Robust, Advanced

V.E’s assessment of activities’ contribution to sustainability encompasses both the evaluation of their expected positive impacts on
environmental objectives, as well the management of the associated potential negative impacts and externalities.

Expected positive impact of the activities on environmental objectives

The expected positive impact of activities on environmental objectives to be financed by the Issuer or Borrower is assessed on the basis
of:

i) the relevance of the activity to respond to an important environmental objective for the sector of the activity; 21

ii) the scope of the impact: the extent to which the expected impacts are reaching relevant stakeholders (i.e. the Issuer, its value chain,
local and global stakeholders);

iii) the magnitude and durability of the potential impact of the proposed activity on the environmental objectives (capacity to not just
reduce, but to prevent/avoid negative impact; or to provide a structural/long-term improvement);

iv) the extent to which the activity is adopting the best available option.

ESG risk management for eligible activities

The identification and management of the potential ESG risks associated with the eligible projects/activities are analysed on the basis
of V.E’s ESG assessment methodology, international standards and sector guidelines applicable in terms of ESG management and
assessment.

STATEMENT ON V.E'S INDEPENDENCE AND CONFLICT -OF-INTEREST

POLICY

Transparency on the relation between V.E and the Issuer: V.E has carried out one audit mission or consultancy activity for the HKSAR
Government. No established relation (financial or commercial) exists between V.E and the HKSAR Government. V.E’s conflict of interest
policy is covered by the Moody’s Corporation Code of Conduct.

This opinion aims at providing an independent opinion on the sustainability credentials and management of the Bonds, based on the
information which has been made available to V.E. V.E has neither interviewed stakeholders out of the Issuer’s employees, nor
performed an on-site audit nor other test to check the accuracy of the information provided by the Issuer. The accuracy,
comprehensiveness and trustworthiness of the information collected are a responsibility of the Issuer. The Issuer is fully responsible for
attesting the compliance with its commitments defined in its policies, for their implementation and their monitoring. The opinion
delivered by V.E neither focuses on the financial performance of the Bond/Loan, nor on the effective allocation of its proceeds. V.E is
not liable for the induced consequences when third parties use this opinion either to make investments decisions or to make any kind
of business transaction. Restriction on distribution and use of this opinion: The deliverables remain the property of V.E. The draft version
of the Second Party Opinion by V.E is for information purpose only and shall not be disclosed by the client. V.E grants the Issuer all
rights to use the final version of the Second Party Opinion delivered for external use via any media that the Issuer shall determine in a
worldwide perimeter. The Issuer has the right to communicate to the outside only the Second Party Opinion complete and without any
modification, that is to say without making selection, withdrawal or addition, without altering it in any way, either in substance or in the
form and shall only be used in the frame of the contemplated concerned bond (s) issuance. The Issuer acknowledges and agrees that
V.E reserves the right to publish the final version of the Second Party Opinion on V.E’ website and on V.E’ internal and external
communication supporting documents.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
30
February 2022

DISCLAIMER
© 2022 Vigeo SAS and/or its licensors and subsidiaries (collectively, “V.E”). All rights reserved.

V.E provides its customers with data, information, research, analyses, reports, quantitative model-based scores, assessments and/or
other opinions (collectively, “Research”) with respect to the environmental, social and/or governance (“ESG”) attributes and/or
performance of individual issuers or with respect to sectors, activities, regions, stakeholders, states or specific themes.

V.E’S RESEARCH DOES NOT ADDRESS NON-ESG FACTORS AND/OR RISKS, INCLUDING BUT NOT LIMITED TO: CREDIT RISK,
LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. V.E’S ASSESSMENTS AND OTHER OPINIONS INCLUDED IN V.E’S
RESEARCH ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. V.E’S RESEARCH: (i) DOES NOT CONSTITUTE OR
PROVIDE CREDIT RATINGS OR INVESTMENT OR FINANCIAL ADVICE; (ii) IS NOT AND DOES NOT PROVIDE RECOMMENDATIONS
TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES; AND (iii) DOES NOT COMMENT ON THE SUITABILITY OF AN
INVESTMENT FOR ANY PARTICULAR INVESTOR. V.E ISSUES ITS RESEARCH WITH THE EXPECTATION AND UNDERSTANDING
THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER
CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

V.E’S RESEARCH IS NOT INTENDED FOR USE BY RETAIL INVESTORS AND IT WOULD BE RECKLESS AND INAPPROPRIATE FOR
RETAIL INVESTORS TO USE V.E’S RESEARCH WHEN MAKING AN INVESTMENT DECISION. IF IN DOUBT YOU SHOULD CONTACT
YOUR FINANCIAL OR OTHER PROFESSIONAL ADVISER. V.E’S RESEARCH IS NOT INTENDED FOR USE BY ANY PERSON AS A
BENCHMARK AS THAT TERM IS DEFINED FOR REGULATORY PURPOSES AND MUST NOT BE USED IN ANY WAY THAT COULD
RESULT IN THEM BEING CONSIDERED A BENCHMARK.

ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY LAW, INCLUDING BUT NOT LIMITED TO, COPYRIGHT LAW, AND
NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED,
TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN
WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT V.E’S PRIOR
WRITTEN CONSENT.

ALL INFORMATION CONTAINED HEREIN IS OBTAINED BY V.E FROM SOURCES BELIEVED BY IT TO BE ACCURATE AND RELIABLE.
BECAUSE OF THE POSSIBILITY OF HUMAN OR MECHANICAL ERROR AS WELL AS OTHER FACTORS, HOWEVER, ALL
INFORMATION CONTAINED HEREIN IS PROVIDED “AS IS” WITHOUT WARRANTY, EXPRESS OR IMPLIED, OF ANY KIND,
INCLUDING AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE. V.E IS NOT AN AUDITOR AND CANNOT IN EVERY INSTANCE INDEPENDENTLY VERIFY OR VALIDATE INFORMATION
IT RECEIVES.

To the extent permitted by law, V.E and its directors, officers, employees, agents, representatives, licensors and suppliers (together,
“V.E Parties”) disclaim liability to any person or entity for any (a) indirect, special, consequential, or incidental losses or damages, and
(b) direct or compensatory losses or damages caused to any person or entity, including but not limited to by any negligence (but
excluding fraud, willful misconduct or any other type of liability that, for the avoidance of doubt, by law cannot be excluded); on the
part of, or any contingency within or beyond the control of any V.E Party, arising from or in connection with the information contained
herein or the use of or inability to use any such information.

Additional terms For PRC only: Any Second Party Opinion, Climate Bond Initiative (CBI) Verification Report or other opinion issued by
V.E: (1) does not constitute a PRC Green Bond Assessment as defined under any relevant PRC laws or regulations; (2) cannot be
included in any registration statement, offering circular, prospectus or any other documents submitted to the PRC regulatory authorities
or otherwise used to satisfy any PRC regulatory disclosure requirement; and (3) cannot be used within the PRC for any regulatory
purpose or for any other purpose which is not permitted under relevant PRC laws or regulations. For the purposes of this disclaimer,
“PRC” refers to the mainland of the People’s Republic of China, excluding Hong Kong, Macau and Taiwan.

Additional terms for Hong Kong only: Any Second Party Opinion or other opinion that falls within the definition of “advising on
securities” under the Hong Kong Securities and Futures Ordinance (“SFO”) is issued by Vigeo Eiris Hong Kong Limited, a company
licensed by the Hong Kong Securities and Futures Commission to carry out the regulated activity of advising on securities in Hong

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
31
February 2022

Kong. This Second Party Opinion or other opinion that falls within the definition of “advising on securities” under the SFO is intended
for distribution only to “professional investors” as defined in the SFO and the Hong Kong Securities and Futures (Professional Investors)
Rules. This Second Party Opinion or other opinion must not be distributed to or used by persons who are not professional investors.

Copyright V.E 2022 – Reproduction of this content (documents, graphs and images) in whole or in part are prohibited without the
express written authorization of V.E and is protected by the provision of the French Intellectual Property Code.
32