Hong Kong Monetary Authority has released Phase 2A of the Hong Kong Taxonomy for Sustainable Finance, significantly expanding its framework for classifying environmentally sustainable economic activities. The updated taxonomy introduces formal categories for climate transition and climate adaptation, while broadening sector coverage and the range of eligible activities, marking a shift from a purely green classification system toward one that reflects the realities of economy-wide decarbonisation.

The update builds on the initial Hong Kong Taxonomy launched in May 2024, which was designed to help investors identify activities that support environmental objectives, align capital flows with climate goals, and reduce exposure to assets inconsistent with a low-carbon future. From the outset, the HKMA signaled that the taxonomy would evolve through a phased approach, with additional sectors and categories added over time. Phase 2A follows a public consultation launched in September 2025.

Moving Beyond “Green” to Include Transition Pathways

A central feature of the Phase 2A update is the formal introduction of climate transition categories. Under the revised framework, climate mitigation activities are now classified into three distinct groupings.

Green activities are those that already operate at net zero emissions or are aligned with a 1.5 degrees Celsius pathway. Transition activities are carbon-intensive but are on a defined and time-bound pathway toward alignment with a 1.5 degrees Celsius trajectory, with the objective of reaching net zero by 2050. Exclusion applies to activities that do not meet green or transition criteria, are incompatible with a 1.5 degrees Celsius future, or are considered to have low climate materiality.

By incorporating transition categories, the HKMA has explicitly acknowledged the role of high-emitting sectors in the decarbonisation process. In its accompanying statement, the authority emphasized that enabling credible transition pathways is essential to mobilising finance for sectors such as energy and manufacturing, while avoiding disorderly economic disruption. The taxonomy is positioned as a tool to balance environmental objectives with economic growth by defining what credible transition looks like in practice.

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Time-Bound Transition Criteria and Practical Measures

Within the transition category, the updated taxonomy introduces two sub-classifications. Transition Activities refer to economic activities that are not yet aligned with a 1.5 degrees Celsius pathway but are demonstrably progressing toward alignment or delivering significant near-term emissions reductions. Transition Measures focus on specific components within an activity that improve emissions performance, such as sourcing low-carbon electricity for energy-intensive manufacturing processes.

A notable design feature is the requirement that transition eligibility be time-bound. Activities must meet sunset dates that vary by sector and technology, reflecting differences in technological readiness, environmental impact, and regulatory context. This approach is intended to prevent indefinite reliance on transitional labels and to reinforce the expectation of continuous progress toward net zero alignment.

Introducing Climate Adaptation Into the Framework

Phase 2A also marks the first inclusion of a Climate Change Adaptation category within the Hong Kong Taxonomy. Rather than defining full standalone adaptation activities, the initial focus is on “adapting measures.” These include technologies, processes, materials, practices, or services that enhance the resilience of broader economic activities to climate risks.

The adaptation category launches with a whitelist approach, meaning a curated set of measures is automatically considered eligible without the need to meet additional technical thresholds. The HKMA described this as a pragmatic starting point, noting that as understanding of climate adaptation deepens and more Hong Kong-specific criteria are developed, more sophisticated assessment approaches may be introduced in future phases.

Broader Sector and Activity Coverage

The scope of the taxonomy has expanded substantially under Phase 2A. Sector coverage has increased from four to six, with the addition of Manufacturing and Information and Communications Technology. The number of economic activities covered has more than doubled, rising from 12 to 25.

Newly included activities span areas such as electricity transmission and distribution, district heating and cooling, and low-carbon transport infrastructure. The expansion reflects an effort to align the taxonomy more closely with real economy structures and investment opportunities relevant to Hong Kong and the wider region.

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Preparing the Ground for Future Phases

The HKMA confirmed that work on the next phase of the taxonomy is already underway. Areas under consideration include nuclear power, natural gas-fired power generation, hydrogen for electricity generation, and sustainable aviation fuel. Additional sectors such as carbon capture, utilisation and storage, as well as waste and wastewater treatment, are also being assessed. Further development of adaptation criteria and exploration of “Do No Significant Harm” principles are part of the forward agenda.

Implications for Markets and Capital Allocation

With Phase 2A, Hong Kong’s sustainable finance taxonomy moves closer to reflecting the full complexity of climate transition in a real-world economy. By formally recognising transition and adaptation, the framework provides clearer signals to investors, lenders, and issuers operating in carbon-intensive and climate-exposed sectors.

For financial institutions, the expanded taxonomy offers a more nuanced basis for structuring sustainable and transition finance products, managing climate risk, and aligning portfolios with net zero objectives. For corporates, particularly in manufacturing and infrastructure, it clarifies how incremental improvements and time-bound transition efforts can be recognised within a credible sustainability framework.

As regional and global taxonomies continue to evolve, Hong Kong’s approach positions the city as an active participant in shaping how capital markets support both immediate emissions reductions and longer-term climate resilience.

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