To kickstart 2022, the Hong Kong Airport Authority (HKAA) announced on January 4th that it was raising money from investors to finance the expansion plans for Hong Kong International Airport (HKIA). While increasing air traffic growth is one of the biggest threats to our carbon budget, the operation included a US$1 billion “green” bond, in a high-flying greenwashing attempt to attract investors. With the project wrecking serious climate and biodiversity-related damage, especially for the threatened Chinese White Dolphin, this sale encapsulates the failures of so-called “green finance”: 11 banks – including BNP Paribas – committed to being carbon neutral by 2050 participated in the greenwashed bond (1) and 60% of the “green” money raised was provided by “ESG-aligned investors”.

Why is it easy to greenwash with green bonds?

In simple terms, a green bond is a type of loan from investors to a company that will be used to finance or refinance projects supposed to deliver climate or environmental benefits. As there are neither mandatory rules (2) nor standardized supervision overseeing how a company uses green bonds, it is a wild west. Green bonds have financed controversial projects in the past (3). There have even been cases of green bonds from fossil fuel companies developing large quantities of oil and gas. A company needs only to say they will use it for a green project and can practically define green however they like.

The problem with HKIA’s green bond

The HKAA says the money raised by the bond will be used for projects related to green buildings, clean ground transportation or energy efficiency. Not only do these projects refer exclusively to HKIA’s infrastructure and its operation (simply ignoring that an airport’s purpose is to make planes fly), but they are also all linked to the airport’s expansion plan. This raises massive concerns for both the environment and biodiversity, and for climate:

1. Environment and biodiversity

Since the construction of the expansion starting in 2016, approximately 650 hectares of land north of the existing airport island have been ‘reclaimed’, worsening what was already a delicate situation for the last Chinese white dolphins in Hong Kong’s waters. Also called pink dolphins, the species is threatened with extinction and is listed in Annex I (the highest protection level) of the Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITIES). It is one of several marine species that will see their habitat destroyed, along with the water, noise and air pollution caused by the project.

2. Climate

HKAA and the banks supporting the green bond claim that the airport is overall making efforts to pollute less, and that it will have net zero emissions in 2050. But this is just an accounting trick to fudge the number and pure greenwashing (4).

No matter how many green buildings or electric ground vehicles are installed, the bulk of an airport’s GHG emissions come from the planes operating in the airport. According to Airport Tracker, the HKIA currently emits as much annually as three coal plants combined from passenger aircrafts alone. Worse still, the envisioned expansion alone is equivalent to building a new airport next to the existing one.

Technological improvements as a sole solution for reducing aviation emissions must be treated with caution (5). Air traffic growth caused an increase in CO2 emissions of 42% between 2005 and 2019, even considering the continuous improvements in aircraft fuel efficiency. Indeed, a study by the Shift Project that analyzed two scenarios of decarbonization of the aviation sector through technology shows that the sector could not realistically align with a 2°C trajectory without reducing air traffic growth.

Why we cannot rely on fake green certification claims

All these obvious problems did not prevent HKIA’s green bond from being certified by the Hong Kong Quality Assurance Agency (HKQAA) and its general “Sustainable Finance Framework” from being approved by Sustainalytics, a Second Party Opinion provider. Indeed, Sustainalytics qualified the Framework as “credible and impactful” without even addressing the aforementioned issues (3). But Second Party Opinions are not intended to be a deep assessment of the environmental and climate credentials of the bonds, as they are often limited to verifying the alignment of the framework with market practices in terms of disclosure and financial structuring (6).

The banks and investors involved must be held accountable

Beyond the issue of classifying part of the project as green, the simple fact of participating in such financing is incompatible with a net zero goal. 11 of the involved banks are members of the Net-Zero Banking Alliance (7), which raises doubt on the credibility of their climate pledges while supporting air traffic growth. These banks are ANZ, Bank of America, BNP Paribas, Citibank, Credit Suisse, HSBC, J.P. Morgan Chase, Mizuho, Morgan Stanley, Standard Chartered and UBS (1). Worse, BofA Securities, BNP Paribas, HSBC and UBS are even joint sustainability structuring advisers and could not have ignored the unsustainability of the project.

Sadly, the story doesn’t have a happy ending: after only two days, money flew towards the bond. To top it all off, the green bond part was bought at 60% by “green investors”. Given the climate-destructive nature of the project, these investors are at best ill-informed and at worst impervious to the actual content of the bond, as long as a green label is slapped on.

While these financial institutions talk about their green credentials, they continue to profit from helping companies, like Hong Kong Airport Authority, to finance polluting activities undermining our chances to avoid climate chaos. Financial institutions must publicly commit not to take part in any other green bond related to the growth of air traffic or any project that is blowing our carbon budget.

Notes :

(1) The 11 banks that participated in the transaction and are members of the Net-Zero Banking Alliance are: ANZ, Bank of America, BNP Paribas, Citibank, Credit Suisse, HSBC, J.P. Morgan Chase, Mizuho, Morgan Stanley, Standard Chartered and UBS. At least 22 banks participated in the transaction. Information disclosed via the Bloomberg Terminal and reported by several media.

(2) While some standards exist – e.g. Green Bond Principles, Climate Bonds Initiative, European green bond standard – all of them are voluntary and do not necessarily set minimal environmental criteria that green bonds need to comply with. Moreover, none of them prevent a company involved in highly polluting activities from issuing a green bond.

(3) For instance, the Hong Kong Airport Authority is not the first airport company to issue a green bond to finance the expansion of its infrastructure. According to Reclaim Finance’s research, at least five other airport companies have done so since the first example, a green bond issuance by the Mexico City Airport Trust in 2016. The other airports are: Royal Schiphol Airport, Swedavia airports, Aeroporti di Roma Group, Korea’s Incheon International Airport Corporation.

(4) The Sustainable Finance framework puts forward the net zero commitment of the HKAA. But the HK Airport Authority only includes “Paper disposal at landfill and electricity consumption for processing fresh water and sewage” in its Scope 3 emissions (HKAA 2020 Sustainability Report). The emissions from planes are not included, nor are the emission from passengers travelling to the airport, which represent the bulk of an airport’s emissions. Under Scope 2, which they refer to as ‘indirect emissions’, only electricity appears to be included.

(5) Large-scale use of low-carbon fuels for the aviation sector is still under development and there is risk of undersupply. Moreover, its use must be treated with caution since non-CO2 climate impacts of these alternative fuels are less well-understood. Similarly, fuel efficiency has limited impact as past progress in efficiency was overcompensated by air traffic growth and efficiency potential has its technical limits.

(6) Some Second Party Opinions might evaluate environmental aspects, but their assessments are often restricted to ESG ratings, participation in controversial activities, peer comparison and sectorial benchmarks. Meaning no deep assessment of the environmental credibility and ambition.

(7) The NZBA requires its members to set targets on their Scope 1, 2 and 3 emissions. But the alliance is failing to address fossil fuels and to enact reductions in absolute emissions.

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