Hong Kong Taxonomy Phase 2A: Transition and Adaptation Added

ByRegReportingDesk

Hong Kong Taxonomy Phase 2A, published by the Hong Kong Monetary Authority on 22 January 2026, expanded the HKMA’s voluntary framework for classifying economic activities as green, transition-aligned or adaptation-aligned. The classification that Phase 1 introduced in May 2024 covered 12 economic activities across four sectors and dealt only with climate change mitigation. Phase 2A widens that to 25 activities across six sectors and folds in two things Phase 1 left out: credible transition pathways for high-emitting industries, and a separate environmental objective for climate change adaptation.

For anyone who labels a green loan, structures a sustainability bond, or maps a fund’s holdings against a taxonomy in Hong Kong, the practical consequence is a remapping exercise. Activities that were out of scope under Phase 1 may now qualify as transition, some with an expiry date attached. Phase 2A introduces an adaptation objective initially limited to four whitelisted adapting measures within the Water sector; other adaptation projects remain outside the current scope unless a listed measure applies. And the reconciliation question that follows every taxonomy expansion returns: does an activity that qualifies here also qualify under the EU Taxonomy or the Common Ground Taxonomy, and where do the definitions part ways.

The Hong Kong Taxonomy is a voluntary reference framework, with no submission portal attached. The HKMA describes it as a tool for classifying economic activities that contribute to green and sustainable development, published to facilitate capital flows. That distinction matters for how you treat it, and it is the first thing teams get wrong when a new phase lands.

Related reading: our guide to the EU Taxonomy Article 8 disclosure KPIs.

The Phase 2A calendar at a glance

Phase 1 appeared in May 2024, establishing green classification for 12 activities across four sectors on the single objective of climate change mitigation. The HKMA opened a public consultation on the Phase 2A prototype in September 2025, with submissions closing in October. Phase 2A followed on 22 January 2026, published alongside a consultation report summarising feedback and the HKMA’s responses. Eight days later, on 30 January 2026, the Green and Sustainable Finance Cross-Agency Steering Group announced its strategic priorities for 2026 to 2028, placing transition and adaptation finance at the centre. Looking further ahead, Hong Kong’s Roadmap states that large publicly accountable entities will fully adopt the ISSB-aligned Hong Kong Sustainability Disclosure Standards no later than 2028; HKEX plans a 2027 consultation and, subject to consultation feedback, the first batch of listed companies is expected to apply the standards for financial years beginning on or after 1 January 2028.

Hong Kong Taxonomy Phase 2A moves from green-only to transition and adaptation

Phase 1 answered one question: is this activity green enough to count toward climate change mitigation. It did so for a compact list. Power generation, transportation, construction, and water and waste management were the four sectors, and 12 activities sat inside them. That scope was deliberate, because a taxonomy that tries to cover everything on day one tends to cover nothing well.

Phase 2A keeps the green core and builds two new wings onto it. The first is transition. An aluminium smelter cannot switch to zero emissions overnight, and a green-only taxonomy does not capture all capital used for its decarbonisation. Phase 2A introduces transition classifications for covered activities and measures; cement and iron and steel production remain under review for a later phase. The second wing is climate change adaptation, which recognises that money spent making assets and communities resilient to extreme weather is a distinct category of sustainable finance in its own right.

The headline numbers frame the expansion. The Cross-Agency Steering Group’s own description of Phase 2A records the move to six sectors and the increase in economic activities from 12 to 25. Two sectors are new: manufacturing, and information and communications technology. Thirteen new economic activities were added across the framework, spanning items such as transmission and distribution of electricity, district heating and cooling, and low-carbon transport infrastructure. The point of naming them is that each was a gap a Hong Kong lender previously had to fill with judgement or by borrowing another jurisdiction’s criteria.

Two environmental objectives: mitigation and adaptation

Practitioners who work daily with the EU Taxonomy are used to six environmental objectives, from climate change mitigation and adaptation through to water, circular economy, pollution and biodiversity. The Hong Kong Taxonomy currently recognises two. Phase 1 operated on a single environmental objective, climate change mitigation; Phase 2A adds climate change adaptation as the second. Hong Kong has established no separate objectives for water, circular economy, pollution or biodiversity, and EU alignment under one of those objectives does not transfer to Hong Kong. The activity must be tested separately against any applicable Hong Kong mitigation or adaptation criteria. Reading the Hong Kong Taxonomy as a two-objective climate framework, and checking eligibility only against mitigation and adaptation, keeps teams from assuming a broader environmental perimeter that the text does not contain.

This is also where the interoperability work sits. The Hong Kong Taxonomy was designed with interoperability in mind and references taxonomy developments in Mainland China, the EU and ASEAN. The Common Ground Taxonomy is a comparison tool for climate-change-mitigation activities; it does not currently provide an adaptation crosswalk. Cross-border groups must therefore reconcile adaptation and other environmental objectives directly against the applicable jurisdictional taxonomies.

How the transition category actually works

The transition wing is the part most likely to be misread, because transition finance means different things in different frameworks. In the Hong Kong Taxonomy, the sources describing Phase 2A distinguish a transition activity, which is an economic activity progressing toward a 1.5 degrees Celsius aligned pathway or enabling significant short-term emissions reductions, from a transition measure, which is a specific component within an activity that improves its emissions performance. The worked example that appears in the analysis is the purchase of low-carbon energy for aluminium production: the smelting is not green, but the measure that cuts its carbon intensity can be recognised.

The operational catch is time. Transition classifications in Phase 2A are time-bound. Eligibility is tied to interim decarbonisation targets and to sunset dates that vary by sector, the date after which the activity is no longer treated as a credible transition and drops out of scope. A loan booked today as transition-aligned against a 2030 sunset will not remain aligned in 2031 on the same criteria. For portfolio controls, firms using the Taxonomy should record the applicable sunset date and reassess classification when it is reached. The taxonomy specifies criteria; how the expiry date is recorded belongs to the firm’s own governance.

This design is deliberate and it mirrors where transition-finance thinking has landed internationally: a pathway is only credible if it ends. The reporting discipline it demands is that transition status is a point-in-time judgement anchored to a target and a date, and both belong in the record you keep for the exposure.

Climate change adaptation and the whitelist

Adaptation is the genuinely new objective, and Phase 2A handles it differently from mitigation. The framework builds on adapting measures, which are subcomponents that make an activity more resilient to physical climate risk, and it uses a whitelist approach. A curated list of measures is deemed eligible up front, which gives lenders and issuers a usable starting point while the more granular criteria are developed in later phases.

The reason this matters operationally is that adaptation finance has historically been hard to label. A sea wall, a drainage upgrade or a heat-resilient building retrofit does not reduce emissions, so it never fit a mitigation-only taxonomy, and the absence of an agreed definition kept capital on the sidelines. A whitelist is a pragmatic answer: it trades some precision for the certainty that a named measure counts. Teams should read the eligible-measure list as the current boundary of what the Hong Kong Taxonomy will recognise as adaptation, and treat anything outside it as unclassified until further guidance extends that scope.

The new sectors: manufacturing and ICT

Adding manufacturing and information and communications technology is more consequential than a brief scope expansion suggests. Manufacturing is where the hardest-to-abate emissions live, so bringing it into the framework gives the transition wing practical reach. Phase 2A introduces criteria for covered manufacturing activities, including aluminium-related transition measures. Production of cement and iron and steel remains under review for a subsequent phase and should not be treated as within the current Phase 2A scope by analogy.

The ICT sector contains two economic activities: data processing, hosting and related activities, and data-driven solutions for greenhouse-gas emissions reductions. Eligibility must be tested against the criteria for those named activities. The named activities define the scope, and Phase 2A does not extend to a general classification for communications networks.

Interoperability with the EU and Common Ground taxonomies

For a Hong Kong booking entity within a cross-border group, the same exposure may receive different classifications under the Hong Kong and EU Taxonomy. That difference may affect voluntary Hong Kong product classification and any separately applicable EU Taxonomy reporting; it does not create a Hong Kong taxonomy return.

The Hong Kong Taxonomy was built to reduce that friction. From Phase 1 it referenced the Common Ground Taxonomy, the EU Taxonomy and China’s Green Bond Endorsed Projects Catalogue, and its founding principles include interoperability with other taxonomies and science-based criteria. Phase 2A extends the same architecture into transition and adaptation. The two frameworks are designed to be comparable, and comparability stops short of mutual recognition. An activity that clears the Hong Kong criteria must still satisfy the applicable EU substantial-contribution technical screening criteria, do-no-significant-harm criteria and minimum safeguards before it can be treated as EU Taxonomy-aligned. The safe working assumption is that dual-tagged exposures need both tests run and both results stored separately.

Who uses the taxonomy, and how it reaches disclosure

Because the Hong Kong Taxonomy is voluntary, the regulation does not compel any single return from it. Its force comes from the users who choose to anchor products and disclosures to it. Banks may use taxonomy classifications when labelling green or transition loans and substantiating associated sustainability claims. Issuers and arrangers may use them when defining eligible proceeds for green, transition or adaptation financing. Asset managers may also use the classifications as supporting evidence for a fund’s stated sustainability characteristics, in a similar way to how European managers evidence SFDR sustainability disclosure characteristics.

The connection to mandatory disclosure runs through the wider Hong Kong roadmap. The Hong Kong Taxonomy and Hong Kong’s sustainability-disclosure roadmap are separate initiatives. The Roadmap expects large PAEs to adopt the ISSB-aligned Hong Kong Sustainability Disclosure Standards no later than 2028; for listed PAEs, HKEX plans a 2027 consultation on a proportionate mandate expected from 1 January 2028. Phase 2A remains voluntary, and IFRS S1 and IFRS S2 do not prescribe Hong Kong Taxonomy alignment ratios or green, transition and adaptation figures.

Where Phase 2A sits in the 2026 to 2028 roadmap

Phase 2A did not arrive alone. Eight days after publishing it, the Green and Sustainable Finance Cross-Agency Steering Group, co-led by the HKMA and the Securities and Futures Commission and including the Financial Services and the Treasury Bureau, the Environment and Ecology Bureau, the Insurance Authority, the Mandatory Provident Fund Schemes Authority, the Accounting and Financial Reporting Council and Hong Kong Exchanges and Clearing, set out its 2026 to 2028 priorities. Those priorities rest on two pillars: consolidating Hong Kong as a sustainable finance centre, and developing emerging strengths in transition and adaptation finance. The taxonomy is the classification backbone for both.

The HKMA is explicit that the Hong Kong Taxonomy is a living document, with the next phase already under development and shaped by market feedback, government policy and technology. Two areas are worth watching in particular. Phase 2A does not establish a general operational DNSH or minimum-social-safeguards assessment for the expanded scope. The role of DNSH is listed for consideration in future development. And the sunset dates attached to transition activities mean the framework has moving parts that will need revisiting as targets and technologies change. Where a loan or bond voluntarily references Phase 2A, apply the criteria current at the assessment date and retain evidence of that assessment.

Frequently Asked Questions

Is the Hong Kong Taxonomy mandatory for banks and asset managers?

The taxonomy is a voluntary reference framework for classifying economic activities. Hong Kong’s Roadmap expects large PAEs to adopt the ISSB-aligned Hong Kong Sustainability Disclosure Standards no later than 2028, but the listed-PAE mandate remains subject to a planned 2027 HKEX consultation. The ISSB-aligned standards do not themselves require Hong Kong Taxonomy alignment figures.

Does an activity that qualifies under the EU Taxonomy automatically qualify under the Hong Kong Taxonomy?

The Hong Kong Taxonomy was designed with interoperability in mind and maintains alignment with the Common Ground Taxonomy and other international frameworks. That design intent does not create mutual recognition; the Hong Kong and EU criteria must be applied separately. An EU-aligned activity still has to be tested against the Hong Kong criteria, and vice versa. For dual-reported exposures, run both tests and store both results.

What happens to a transition-classified exposure after its sunset date?

Transition classifications in Phase 2A are time-bound and tied to interim decarbonisation targets, with sunset dates that vary by sector. At the sunset date, the activity must meet the applicable Green criteria to remain aligned; otherwise it falls outside the Hong Kong Taxonomy. Record the classification with its expiry so a portfolio tag does not silently overstate transition alignment once the date passes.

Do we need a do-no-significant-harm assessment for activities classified under Phase 2A?

Phase 2A does not prescribe a general operational DNSH or minimum-social-safeguards assessment for the expanded scope. The role of DNSH is identified for consideration in future development. Confirm the current DNSH expectation against the published Phase 2A document before concluding either that no assessment applies or that the EU DNSH criteria carry across unchanged.

How does Phase 2A relate to Phase 1 and to the 2028 ISSB disclosure requirement?

Phase 2A extends rather than replaces Phase 1: the green classifications and the climate change mitigation objective remain, and Phase 2A adds the transition category and the climate change adaptation objective on top. The HKMA describes the taxonomy as a living document developed in phases, so treat Phase 2A as the current consolidated position. On the ISSB relationship: the Hong Kong Sustainability Disclosure Standards govern disclosures of material sustainability- and climate-related risks and opportunities; the taxonomy may be used voluntarily as supporting classification information, but the ISSB standards do not require green, transition or adaptation alignment figures.

For context on parallel frameworks, the EU Taxonomy Article 8 KPI guide explains how the EU’s six-objective taxonomy drives the green-asset ratio and Article 8 reporting for banks and large companies. How those classifications flow into supervisory templates is covered in the EBA ESG Pillar 3 Disclosure Templates article. The CSRD Sustainability Reporting guide explains the European corporate regime that taxonomy classifications feed into. On comparable disclosure regimes in other major financial centres, the FCA Climate Reporting Rules and TCFD Product Disclosure article covers a parallel framework in the UK. Within Hong Kong, our coverage of HKMA’s first stablecoin issuer licences sets out another recent HKMA framework and what its licensing regime means for issuers and global banks.

Key Takeaways

  • Phase 2A, published 22 January 2026, expands the Hong Kong Taxonomy to 25 activities across six sectors, adding manufacturing and information and communications technology to the original four.
  • The framework recognises two environmental objectives, climate change mitigation and climate change adaptation, so eligibility must be tested against those two only; EU alignment under the other four EU objectives does not transfer.
  • Transition classifications carry sector-specific sunset dates. Record the expiry on every transition-tagged exposure and reassess when that date is reached; classification does not carry forward automatically.
  • Climate change adaptation uses a whitelist of eligible adapting measures. Treat measures outside the current list as unclassified until further guidance extends that scope.
  • The taxonomy is voluntary and ISSB-aligned standards do not require green, transition or adaptation alignment figures. Interoperability with the EU and Common Ground taxonomies is a design goal, but both sets of criteria must be run separately for dual-reported exposures.

Sources and References

What to do before the next phase lands

Phase 2A broadens Hong Kong’s taxonomy to cover the economy’s high-emitting activities in transition, alongside the ones already clean, filling the gap Phase 1 left and reaching the segment where financing is most needed. The work it creates is concrete: remap your green classifications to the six-sector, 25-activity scope, add a transition tag that carries an expiry date, and decide how you will treat the adaptation whitelist and the still-developing do-no-significant-harm criteria. For groups that also report under the EU Taxonomy, the reconciliation of dual-tagged exposures is the task that will not wait. The next phase is already in development. Where a loan, bond or fund voluntarily references Phase 2A, apply the current criteria and retain evidence of the assessment date and any applicable sunset date.

Disclaimer: The information on RegReportingDesk.com is for educational and informational purposes only. It does not constitute legal, regulatory, tax, or compliance advice. Always consult your compliance officer, legal counsel, or the relevant supervisory authority for guidance specific to your institution.

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