Speech at Council Meeting-Members’ Motion ”Enacting dedicated laws and regulations to regulate greenwashing“

Motion on “enacting dedicated laws and regulations to regulate greenwashing”

Mr Chan Chun-ying:

President, I move that the motion, as printed on the Agenda, be passed.

In order to strike a balance for the harmony between humanity and nature while sustaining economic development, it has become an international consensus to promote green transformation.  Many major economies have formulated carbon reduction targets and strategies, with enormous injections of financial resources into the planning and implementation of measures to promote energy conservation and emission reduction, and drive the development of green finance, facilitate the upgrading and transformation of industries, as well as actively popularize the concepts of green consumption and low-carbon living through publicity and education to encourage the public to purchase green products and services.

With the strong publicity efforts of the SAR Government over the years, the concepts of “green environmental protection”, “energy saving and emission reduction”, etc. have taken root in the hearts of the people.  The concept of green consumption is gradually gaining popularity in the whole society.  More and more consumers actively practise green consumption by ways such as purchasing green products and trading idle items.  According to a research report, consumers are willing to pay a higher price for sustainable products and services.  Investors have also become more inclined to invest in companies demonstrating environmental, social and governance (“ESG”) development.

Financial Secretary Paul CHAN said that being an international financial centre, Hong Kong is also rising as an international green finance centre.  The SAR Government has so far provided subsidies to eligible bond issuers and loan borrowers for the issuance of more than 340 green and sustainable debt instruments through the Green and Sustainable Finance Grant Scheme which totalled more than US$100 billion.

To seize this green business opportunity, many enterprises have started to actively develop green products and services, implement green management, integrate the concept of environmental protection into the operation and management of the enterprises, and use this as the focus of marketing and promotion to enhance their corporate image and strengthen their competitive edge in the market.

However, at the same time there have been exaggerated or false claims of environmental benefits of products or services which actually do not meet the principle of green and sustainable development, i.e. greenwashing, in an attempt to enhance the corporate image and gain the good impression and trust of consumers, thereby increasing the sales and market share.  Common greenwashing behaviour includes playing up the highlight of a certain green product to divert public attention away from the environmentally damaging behaviour of the enterprise in other areas; packaging the product as being consistent with the concepts of environmental protection and sustainability; or revising the energy saving and emission reduction targets before the setting of such targets, thus making it difficult for consumers to notice the difference.

The market abounds with all kinds of eco-friendly products with an array of marketing slogans.  To assist consumers in choosing truly eco-friendly products, the SAR Government has implemented the Mandatory Energy Efficiency Labelling Scheme (“MEELS”) by phases since 2008 to inform consumers of the energy efficiency performance of the relevant products, and launched a voluntary labelling scheme for products not covered by MEELS.

The Green Council also launched the voluntary Hong Kong Green Label Scheme in 2000 for the certification of environmentally preferable products to help consumers identify such products, thus promoting a more sustainable pattern of consumption.  Such a certification system, to a certain extent, is also a way to prevent greenwashing.

Meanwhile, the Government, in collaboration with other environment-related organizations and groups, have launched such initiatives as Hong Kong Awards for Environmental Excellence, Hong Kong Green Innovations Awards and Hong Kong Green Organisation Certification to commend organizations with outstanding environmental performance, so that the public can find out which organizations are truly outstanding in green performance.

With the rise of green finance and ESG concepts, financial institutions realize their support for green projects through interest concessions and so on, and greenwashing risk has started to surface in the financial field.  When an asset management company labels itself as “green” or “sustainable” but fails to fully incorporate these factors into its investment management process, the risk of greenwashing arises.  If an enterprise acquires bank financing or funding deliberately in the pretext of a green project, indirectly resulting in the bank’s green loan not being used for eligible green projects, or if a financial institution, owing to ineffective management of greenwashing risk, mistakenly matches ineligible assets with green deposits or green bonds, resulting in the clients or investors’ funds not being used for truly green projects, not only will it pose legal risks to the financial institution, and the funds will not be channelled to projects that are genuinely conducive to environmental protection.  It is also detrimental to the development of green industries.

To address the risk of greenwashing, the International Platform on Sustainable Finance released the Common Ground Taxonomy (“CGT”) in 2022, which defines activities with significant contribution to climate change mitigation, thereby helping international investors identify green products in different countries for investment and reducing transaction costs of cross-border investments.  In May this year, the Hong Kong Monetary Authority also established the Hong Kong Taxonomy which aligns with CGT, providing a green finance assessment tool to help the industry identify “green economy activities” and reduce greenwashing risk, which is praiseworthy.

Greenwashing is essentially fake environmental protection and false publicity, which will easily lead to negative public sentiment towards green marketing, thus causing injustice to enterprises which genuinely produce green products and provide green services.  The effectiveness of the Government’s publicity and education on environmental protection will also be undermined.  Therefore, if green subsidies, green investments, etc. are obtained deceptively through greenwashing behaviour, the Government and financial institutions will be misled into channelling social resources or capital, which should have flowed into green enterprises, to high-carbon emission industries, such as the traditional coal and oil industries.  Not only will this fail to mobilize more financial and social capital to invest in the green and low-carbon industries, but also affect the confidence of investors, and impede the upgrading and transformation of industries.

In recent years, the market’s concern about greenwashing behaviour has increased significantly, President.  The governments of quite a number of countries or regions (such as the United States, Europe, France and South Korea) have successively formulated policies as well as laws and regulations to prevent greenwashing, or amended existing consumer legislation, advertising laws and environmental laws to cover the binding force on green claims, so as to make enterprises practically fulfil their corporate social responsibility and implement environmental protection measures.

For example, the Directive on Empowering Consumers for the Green Transition and the Directive on Green Claims of the European Union explicitly define green claims and regulate greenwashing behaviour beyond the existing frameworks of consumer protection and advertising standards, prohibiting enterprises from advertising their products with casual use of green terminology before their claims are substantiated.  Non-compliant enterprises will be suspended from participation in public procurement tenders or even fined.  Canada has launched a high-level anti-greenwashing guide on environmental claims and greenwashing, which suggests avoiding claims such as “eco-friendly” or “safe for the environment” that are relatively vague.

On the contrary, in Hong Kong, the various green labelling and certification schemes launched by the SAR Government and relevant organizations are mainly for the convenience of the public in choosing products, rather than focusing on combating greenwashing behaviour.  At present, there are no dedicated laws and regulations against greenwashing behaviour.  The regulation over false green claims by enterprises merely relies on the Trade Descriptions Ordinance (“TDO”).  That is, it is only when the relevant claim is proved to be untrue or misleading to a material degree that it may constitute the offence of false trade description.  However, TDO only punishes greenwashing behaviour in the area of consumer products.  It may not be applicable to greenwashing behaviour in financial and ESG reports.

Strengthening regulation of greenwashing is the general global trend.  The SAR Government should learn and draw reference from the greenwashing laws and regulations in different regions, expeditiously enact dedicated laws and regulations to regulate greenwashing, formulate clear legal definitions of greenwashing behaviour, and establish and implement a punitive mechanism, so as to prevent a minority of enterprises from obtaining benefits by means of greenwashing, and protect consumers, investors as well as financial institutions more effectively.  When international investors have more confidence in Hong Kong’s green standards, Hong Kong will be in an even stronger position to become an international green finance centre.

President, let me first throw a sprat to catch a mackerel with my idea of preventing greenwashing.  I will listen carefully to the views expressed by other Honourable colleagues on the motion.  Thank you.

Mr Chan Chun-ying:

Thank you, President.  I am very grateful to Mr LUK Chung-hung and Dr Hoey Simon LEE for proposing the amendments.

In the market there is a wide variety of green products with varying green labels, marketing contents and eco-friendly claims, which makes it more difficult for investors to tell whether a product is green or not.  Dr Hoey Simon LEE’s amendment proposes that the Government should “expeditiously establish the definitions of green products and behaviour, further improve the regulatory framework for green products and behaviour”.  This has enriched the details of the original motion, and is in line with my advocacy of urging the Government to expeditiously enact dedicated laws and regulations to regulate greenwashing.  I will, therefore, support it.

As for Mr LUK Chung-hung’s amendment, while it supports my motion of urging the Government to expeditiously enact dedicated laws and regulations to regulate greenwashing, it also specifically points out that the dedicated laws and regulations should “include but not limited to imposing penalties and establishing a mechanism for consumers, investors and financial institutions”.  I will also support this part of the amendment.

Besides, while Mr LUK’s remarks on his amendment were fair and objective, in his amendment he added that “the Government should also establish stringent and clear green auditing principles in environmental, social and governance aspects, including but not limited to mandating enterprises listed on the Hong Kong Stock Exchange to regularly disclose the amount and intensity of greenhouse gas emissions (“GHG”) directly and indirectly generated by their businesses, as well as the amount and intensity of GHG emissions generated by the enterprises’ supply chains, and mandating enterprises to appoint certification bodies to conduct independent audits”.  These proposals actually involve details such as auditing principles, listing rules, greenhouse gas emissions, etc.  I think these proposals are well-intentioned originally but given fierce competition in the global capital market at present, this stringent requirement on listed enterprises may immediately undermine the attractiveness of the local capital market.  The feasibility of this requirement indeed requires detailed studies and discussion.  It may also be necessary to provide an appropriate adaptation period in accordance with the different characteristics of different industries.  It is impossible to make the requirement mandatory right away.  Therefore, I hope that Members will only support my original motion and the amendment proposed by Dr Hoey Simon LEE.  Thank you.

SECRETARY FOR FINANCIAL SERVICES AND THE TREASURY:

UNDER SECRETARY FOR COMMERCE AND ECONOMIC DEVELOPMENT:

President, I thank Mr CHAN Chun-ying for proposing this motion, Mr LUK Chung-hung and Dr Hoey Simon LEE for their amendments, as well as other Members for their valuable input.  I will now give a consolidated response to the motion and Members’ views from the perspective of the protection of consumer rights and interests.

Currently, various laws in Hong Kong protect consumers’ rights and interests.  Among them, the Trade Descriptions Ordinance (Cap. 362) (“the Ordinance”) prohibits specified unfair trade practices deployed by traders against consumers, including false trade descriptions, misleading omissions, aggressive commercial practices, bait advertising, bait-and-switch and wrongly accepting payment.  The Ordinance covers goods and services, and is applicable to both physical and online traders.

Under Interpretation in section 2 of the Ordinance, “trade description” means an indication, direct or indirect, and by whatever means given, with respect to the goods or services or any part of the goods or services.  In relation to goods, it includes an indication of the “method of manufacture, production, processing or reconditioning”, “composition”, “conformity with standards specified or recognized by any person”, etc.  In relation to a service, it includes an indication of “fitness for purpose, strength, performance, effectiveness, benefits or risks”, “method and procedure by which, manner in which, and location at which, the service is supplied or to be supplied”, etc.

Depending on the actual circumstances of the case, traders’ claims of the environmental protection features of their products or services which are inconsistent with the actual situations and are false to a material degree may constitute false trade descriptions.

Traders who, in the course of any trade or business, apply a false trade description to any goods, or supplies or offers to supply any goods to which a false trade description is applied, may commit an offence of false trade description under sections 7 and 7A of the Ordinance.

Besides, a trader may commit an offence of misleading omission under section 13E of the Ordinance if he engages in relation to a consumer in a commercial practice that is a misleading omission, including omitting or hiding material information; providing material information in a manner that is unclear, unintelligible, ambiguous or untimely and as a result it causes, or is likely to cause, the average consumer to make a transactional decision that the consumer would not have made otherwise.

A trader who violates these provisions is liable to a maximum penalty of imprisonment for five years and a fine of $500,000.

The Customs and Excise Department (“C&ED”) is the principal enforcement agency of the Ordinance.  The C&ED adopts a three-pronged approach, which covers enforcement actions, compliance promotion and publicity and public education, to combat unfair trade practices proactively and protect consumer rights and interests.  If any traders are found to be in breach of the Ordinance, C&ED will take decisive enforcement action.

We will continue to closely monitor the number of complaints and reports and review the trend of unfair trade practices, so as to formulate appropriate strategies in protecting consumers’ rights and interests.

President, I so submit.

UNDER SECRETARY FOR ENVIRONMENT AND ECOLOGY:

President, first of all, I thank Mr CHAN Chun-ying for moving this motion, Mr LUK Chung-hung and Dr Hoey Simon LEE for proposing their amendments, as well as various Members for their forward-looking, enlightening views.  In the following, I will give a response with reference to the work of the Environment and Ecology Bureau (“EEB”) in complementing the efforts made by relevant Policy Bureaux.

EEB and its departments have all along endeavoured to work with the relevant Policy Bureaux and their regulators as well as stakeholders, and assisted them by providing professional knowledge of climate change and carbon neutrality with respect to their work on enhanced disclosure of information and formulation of relevant standards, and the development of green financial products and services, in order to facilitate the healthy development of green and sustainable finance and prevent enterprises from using low carbon and environmental protection as pretexts to mislead or even deceive investors and consumers.

Since its establishment in 2020, the Green and Sustainable Finance Cross-Agency Steering Group (“Steering Group”) co-initiated by the Hong Kong Monetary Authority (“HKMA”) and the Securities and Futures Commission has been exploring and coordinating policy and regulatory issues to accelerate the development of green and sustainable finance.  As a member of the Steering Group, EEB has been actively supporting the work on developing green and sustainable finance, such as assisting in the formulation of standards for green financial products and providing information on climate change, environmental protection, etc., which are conducive to preventing greenwashing behaviours.

Enhanced disclosure of information helps prevent greenwashing behaviours.  Established by the Steering Group, the Centre for Green and Sustainable Finance is a cross-sectoral platform to coordinate the efforts of financial regulators, relevant government departments, industry stakeholders and academic institutions in training and policy formulation, as well as to build up a repository of knowledge and resources to support the industry’s transition to a more sustainable development model.  EEB provides information on climate change policies and statistics on greenhouse gas emissions for the Centre’s online data portal.  Regarding the greenhouse gas emissions calculation and estimation tools introduced by the Steering Group and The Hong Kong University of Science and Technology in February 2024, EEB has also provided professional advice during their formulation to ensure that the estimation tools are in line with the basis for calculating carbon emissions in Hong Kong.

Setting the relevant standards also helps prevent greenwashing behaviours.  Providing clear and comprehensive standards for green financial products can help investors and consumers choose products that are truly beneficial to the environment.  HKMA published in May 2024 the Hong Kong Taxonomy for Sustainable Finance (“the Taxonomy”) which provides a clearer definition for green products to enable informed decision making on green and sustainable finance in the industry and help reduce the risk of greenwashing.  During the formulation of the Taxonomy, EEB provided professional advice on the scope covered by “green economic activities” in areas such as power generation, green transportation, and water and waste management.  This is to ensure that the criteria adopted in the Taxonomy are in line with the standards of environmental science and consistent with the latest technological development in environmental protection and carbon reduction.  For example, the Taxonomy affirms that hydrogen vehicles are an integral part of low carbon transport and includes hydrogen vehicles as an economic activity in the Taxonomy.  We will continue to provide assistance to HKMA to support the ongoing development of the Taxonomy.

As the Secretary for Financial Services and the Treasury pointed out in his opening remarks, it is hoped that the Government Sustainable Bond Programme can set a benchmark and provide a good example for green and sustainable bond products in the market.  EEB has consistently provided support for the development of the Programme, including assisting in the formulation of the Green Bond Framework, providing professional advice on the definition of “eligible categories” of financing or refinancing projects to ensure that the Green Bond Framework appropriately reflects Hong Kong’s latest climate commitments and strategy, as well as the Government’s commitment to improving air and water quality, enhancing waste management, conservation and biodiversity, promoting energy efficiency, renewable energy and climate change adaptation.  In this connection, some projects of EEB and its departments, such as the replacement of the storm-detecting weather radar at Tai Mo Shan, the district cooling system at the Kai Tak Development, O•PARK1, O•PARK2 and I•PARK1 are eligible projects under the Programme.  For each green bond issued under the Green Bond Framework, the Government will obtain an issuance level (pre-issuance) external review from an independent, qualified third party.  It will also engage an independent, qualified third party to assure the contents of the Green Bond Report.

President, Members, we will continue to work with the relevant Policy Bureaux and their regulators as well as stakeholders to enable Hong Kong to seize the opportunities and overcome the challenges on the path of green and low-carbon transformation.  In addition, the Government will continuously enhance the green environmental protection awareness among the public, so that apart from driving the development of green economy and the market demand for green investments and products, we will also enable investors and consumers to make informed choices.

I so submit.  Thank you, President.

PRESIDENT: I now propose the question to you and that is: That the amendment moved by Mr LUK Chung-hung be passed.I now put the question to you as stated.  Will those in favour please raise their hands? Those against please raise their hands. Mr CHAN Chun-ying has claimed a division.  The division bell will ring for five minutes. Mr CHAN Chun-ying has claimed a division.  The division bell will ring for five minutes. Will Members please check their votes.  If there are no queries, voting shall now stop and the result will be displayed.

THE PRESIDENT announced that among the Members returned by the Election Committee, 36 were present, 4 voted in favour, 15 voted against and 17 abstained; while among the Members returned by functional constituencies and geographical constituencies, 45 were present, 8 voted in favour, 28 voted against and 8 abstained.  Since the question was not agreed by a majority of each of the two groups of Members present, he declared the amendment negatived.

PRESIDENT: Dr Hoey Simon LEE, you may move your amendment.

DR HOEY SIMON LEE: President, I move my amendment.

PRESIDENT: I now propose the question to you and that is: That the amendment moved by Dr Hoey Simon LEE be passed. I now put the question to you as stated.  Will those in favour please raise their hands? Those against please raise their hands.

I think the question is agreed by a majority of each of the two groups of Members present, that is, those returned by the Election Committee and those returned by functional constituencies and geographical constituencies. I declare the amendment passed.

Mr CHAN Chun-ying, you still have 1 minute 7 seconds to reply.  Then, the debate will come to a close.

MR CHAN CHUN-YING:

President, I am grateful to the 22 Members who have expressed their views on the motion.  A veteran of the printing and dyeing industry whom I very much respect once said to me that: “preventing ‘漂綠’ (greenwashing in Chinese and literally meaning green-bleaching)” should be revised to “preventing ‘染綠’ (green-dyeing)”.  It is because anything that is bleached generally turns white, not green.  Regrettably, this is a term used by convention.

In their speeches, Members have put forward many valuable views, including the need for a clear definition of “green”, the need for appropriate certification, the need for enhanced disclosure, third-party certification and auditing, stepping up publicity and education, and so on.  I also respect the different views expressed by Mr Paul TSE.

From the Government’s response, I can sense that the Government has, as the officials also said, attached great importance to this issue.  But such emphasis should be translated into actions as soon as possible, for only in this way can Hong Kong can become a city that provides genuinely green products and services.

I urge Members to support my motion.  Thank you.

PRESIDENT: I now put the question to you and that is: That the motion moved by Mr CHAN Chun-ying, as amended by Dr Hoey Simon LEE, be passed.  Will those in favour please raise their hands? Those against please raise their hands. I think the question is agreed by a majority of each of the two groups of Members present, that is, those returned by the Election Committee and those returned by functional constituencies and geographical constituencies.