The recently-issued Phase 2A of the Hong Kong Taxonomy for Sustainable Finance is seen as a pivotal shift in the city’s approach to decarbonization, with stakeholders across the banking, asset management and various professional sectors welcoming the update for its clarity and practicality.

Phase 2A of the taxonomy, issued by the Hong Kong Monetary Authority ( HKMA ) on January 22 2026, is being hailed as a “real economy” framework that reflects the complex nature of decarbonization in Asia, unlike Phase 1 ( issued on May 3 2024 ), which was seen as a foundational green baseline.

The transition from Phase 1 to Phase 2A is seen by the HKMA, industry bodies and other stakeholders as representing Hong Kong’s evolution from defining what is already “clean” to providing a roadmap for how carbon-intensive industries can effectively change.

“While Phase 1 of the taxonomy provided a foundational green baseline,” according to an industry expert, “this expansion is being hailed by industry leaders as a sophisticated real economy framework that finally addresses the messy, complex reality of industrial transition.”

The most significant development in Phase 2A of the HKMA taxonomy is the introduction of a formal transition category.

Effectively, the HKMA taxonomy adopted a “traffic light” approach – involving green, transition ( credible pathways for high-emitters ) and exclusion categories – which has given banks the green light to fund heavy industry without the fear of greenwashing.

Greenwashing occurs when a bank or company claims an investment is environmentally friendly when it actually isn’t. For a long time, banks were afraid to fund heavy industries ( like steel or shipping ) for fear of greenwashing

Under the traffic light approach of Phase 2A, the taxonomy provides a clear, government-backed rulebook where “green” ( go ) covers activities that are already sustainable or net-zero, “amber” ( proceed with caution ) covers transition activities and “red” ( stop ) covers activities that are incompatible with achieving the 1.5 degrees Celsius net-zero target.

Green

The green category provides banks with a “safe zone” in which financing and investing are considered 100% green without question. Examples of activities under the category are solar farms, wind energy or electric vehicle manufacturing.

Amber

The amber category is considered a breakthrough for the taxonomy as it identifies industries that are currently high-emitting, but are on a proven, time-bound path to becoming green.

Under the amber category, a company can qualify for investment if it meets the criteria of having a credible pathway for transitioning to sustainability, for example, a steel plant switching from coal to green hydrogen by a specific date.

The transition to sustainability must have an expiration date by which the company can either become fully green otherwise it will lose its amber status.

For banks, the amber category gives them a “safe harbour”. As long as the project meets the HKMA’s technical criteria, the bank can officially label the loan as transition finance and point to the government’s own rules to prove they aren’t greenwashing.

“The inclusion of transition elements is critical for driving the decarbonization of the real economy,” according to the HKMA. “It enables the mobilization of capital to high-emitting sectors like manufacturing to shift systematically towards sustainable practices.”

Red

The red category represents exclusion for banks since activities under this category are considered simply incompatible with a 1.5 degrees Celsius net-zero target. Examples are new coal-fired power plants or fossil fuel-only vehicles ( where electric alternatives already exist ). For banks, financing these projects cannot be labelled as sustainable or green under any circumstances.

For a city prone to typhoons and rising sea levels, the addition of climate-change adaptation as a core objective, according to a sustainability expert, is a major win for Hong Kong.

“Urban planners and infrastructure funds have specifically praised the ‘whitelist’ approach,” the expert says. “This user-friendly method allows projects, such as flood defences or heat-resilient infrastructure, to qualify for sustainable financing without navigating overly burdensome technical screenings.”

Also, the taxonomy’s expansion into manufacturing and information and communications technology is considered as a major improvement, with tech industry leaders noting that the new energy efficiency criteria for data centres align Hong Kong with global standards.

For the hard-to-abate sectors – heavy industries where reducing carbon emissions is technically difficult, prohibitively expensive or currently impossible using existing commercial technology –  representatives of the energy and transport sectors welcomed the inclusion of sea freight and electricity distribution, which are areas that were previously considered gaps in the framework.

Challenges

Despite the positive reception, the industry is already looking toward Phase 2B of the HKMA taxonomy with sustainability-focused groups like the Principles for Responsible Investment pushing for more formal social safeguards, arguing that a project shouldn’t be considered green if it fails basic human rights or labour standards.

Also, asset managers have requested better interoperability tools. While the taxonomy aligns with the EU-China Common Ground Taxonomy, practitioners are calling for clearer mapping to simplify reporting across different global jurisdictions.

However, ultimately, the consensus is clear that with Phase 2A, Hong Kong has moved beyond good intentions to a scientifically grounded, contextually practical roadmap for the entire region.