Note: This is the second of a multi-part series on sustainable urban growth. Read part one, on the private sector’s role in sustainable urban development, here.

When it comes to sustainable urban growth, Hong Kong has been a noted success story and possible model for mainland China and other emerging economies. The city’s emphasis on infrastructure has been its traditional path to development, with new towns and a mass transit railway in the 1970s and 1980s, airport and seaport development in the 1990s, and increased bridge and rail links to mainland China in the 2000s. Hong Kong has also enjoyed the flexibility to experiment with greener, socially conscious, and more sustainable development at its own pace.

To follow up on my feature earlier this month—which covered the challenges in scaling up sustainable growth, given that 70 percent of all people will live in cities by 2050—I spoke to a diverse group of stakeholders in Hong Kong to understand what we can learn from the city’s apparent infrastructure development successes and how we can apply these lessons to other cities. While I set out to understand a series of best practices for urban sustainability (there are some), I was left with was a sense that Hong Kong is in the midst of an identity crisis. Today, demographic changes, resource constraints, and political complacency have prompted questions about the city’s path: Will Hong Kong remain a positive example of sustainable urban growth?

Growing Population, High Density

Hong Kong’s current population of 7.07 million is projected to grow to 8.47 million by 2041, with most of the city’s “suburban sprawl” taking place in the densely populated New Territories to the north of the older Hong Kong Island and Kowloon districts. According to William Lam, Hong Kong Polytechnic University professor of civil and transportation engineering, the increasing population is happening slowly, not from growing Hong Kong families, which have traditionally been small, but from expatriates and mainland Chinese residents moving to the city.

Lam points out that Hong Kong is more efficient than most of North America due to its high density, something that has also given the city a high ranking on many international city-level sustainability indices, which typically put a high value on population density. But the high density creates other sustainability challenges related to infrastructure and social issues. “Land is scarce, and there is an increased need for both transportation and housing projects,” Lam said.

Currently, however, city planning is not centered on these social needs. For instance, while much of the space planning is done to accommodate cars, only 7 percent of people in Hong Kong own a car. Transportation infrastructure (such as roads and parking) account for 4 percent of the total Hong Kong area, but residential development accounts for only 3 percent of area.

To remedy this challenge, Civic Exchange, a Hong Kong-based sustainability think tank, has begun developing a new City Well-Being Index that takes into account issues that Asian urban residents themselves identify as their priorities though engagement (the group has also published a compendium of 160 global city indices in its 2012 report “Measuring Well-Being in Cities”).

Top Sustainability Issues

Today, one of Hong Kong’s biggest sustainability issues is poor air quality. The Hedley Environmental Index, an online air-quality-monitoring tool managed by a group of stakeholders including the Hong Kong University School of Public Health, communicates the health impacts in terms of real-time economic losses. Contrary to casual assumptions given the city’s proximity to the manufacturing centers of mainland China, 53 percent of air pollution is generated locally. One of the primary causes relates to lack of infrastructure planning: Poor airflow through “building canyons”—those high-rise monoliths developed to satisfy housing demand—means air pollution becomes trapped. The protests against this type of design have prompted proposed regulation requiring air-circulation studies for new buildings. Another major contributor to poor air quality comes from shipping emissions at the port.

While private-sector developers have started to engage because of new ad hoc regulations and public interest, government appears to be lagging. Hong Kong’s air-quality standards are cited by many stakeholders as lax and lacking ambition. When Hong Kong released its new ambient air-quality standards this year, just two days after Beijing released more ambitious targets for China, concerns about Hong Kong’s lack of leadership were exacerbated.

Water is another significant issue that may threaten sustainable growth. With 80 percent of Hong Kong’s water coming from the Dongjiang River, projections are dim: Upstream water quality is degrading due to open garbage disposal and untreated wastewater surrounding the water supply. While Hong Kong is currently using less than the allocated limit set by the Guangdong Province People's Government, demand is catching up to supply. Additionally, the significant demand from the other cities upstream in the province is set to increase, which could affect availability and price. The one area of success and continued opportunity is in toilet water, for which the city already uses a separate seawater system.

The Role of Stakeholder Engagement

Hong Kong Polytechnic University’s Lam emphasized that addressing these challenges and ensuring sustainable growth will require engagement among the government, private sector, and civil society. But due to changing demographics, Lam said, stakeholder engagement has become contentious, highlighting the question of whether the current model of engagement between government, business, and civil society is achieving the intended benefits.

Thomas Tang, director of sustainability and corporate initiatives for global technical and management support company AECOM, said, “The Hong Kong government seems to be singularly weak at engaging—either with businesses or the civil sector—leading to suspicion and a current impasse.” Tang points out that getting beyond the suspicion is needed to deal with the larger challenges, such as tackling air quality or the growing wealth gap in the population.

AECOM’s work with Singapore’s Urban Renewal Agency may provide a useful example (Singapore, with its similarly constrained geography, is often held up as a benchmark for Hong Kong). In Singapore, AECOM uses a “Sustainability Systems Integration Model” that Tang said “breaks down sustainability issues into small chunks, allowing for engagement with the right stakeholders, and then re-integration in the city’s strategic plan.” He believes it has allowed the government to move “rhetoric to real engagement.”

A consequence of not engaging in sustainable development is the exodus of Hong Kong’s inhabitants—including Chinese and expatriates working for multinational companies—to places like Singapore, where quality of life is ranked comparable or higher. Companies are recognizing that they can attract talent with the offer of a cleaner living environment, more green space, and a more forward-thinking approach to urban development.

Glimmers of Success

While the challenges in Hong Kong are growing, there have been successes. MTR Corporation, Hong Kong's first privatized rail and metro company, has thrived by integrating railway infrastructure with urban development. Rather than relying solely on advertisements and fares from riders, the company has worked with government to plan rail systems and stations in conjunction with other properties in the vicinity, including shopping malls, residential towers, office spaces, and hotels. MTR’s ability to develop this real estate has allowed it to thrive as a transit system.

AECOM’s Tang points to a similar example in government transportation policy that took a holistic approach. “The Octopus Card,” an IT-enabled smart payment card, can be used for fares and retail purchases, which Tang said “has transformed public transportation in Hong Kong through intermodal transport and consumer purchases.”

Another example of progress is the voluntary business initiative the Fair Winds Charter, which encourages ocean carriers to switch to lower-sulfur fuels while at the port. The initiative has evolved into a public-private partnership, with the government lowering port fees for participating companies. While the initiative will need sustained political will to keep going (there are some doubts if that will happen amid government red tape), the scheme is a model for collaboration among NGOs, government, and business.

Swire Properties, one of Hong Kong’s largest developers, is at the center of the city’s challenges and opportunities. According to Cary Chan, Swire’s general manager of technical services and sustainability, when operating in one of Asia’s most dynamic cities, “It’s always challenging to strike a balance between economic development and the environmental impact.” Despite this, Swire Properties sees the business value of undertaking efforts to improve energy, air, and water impacts. “There is an increasing appreciation from our tenants to be more environmentally friendly and transparent,” he added. “They also turn to us for sustainable practices to enhance their businesses.” In 2008, the company became the first Hong Kong property developer to provide free energy audits for office tenants.

Swire is also making engagement an important part of its strategy, participating in initiatives with government and industry to lead change, using its portfolio as a “living laboratory” to measure the environmental impact of buildings and promote a more integrated design approach.

Rachel Fleishman, director of the Climate Change Business Forum at Hong Kong’s Business Environment Council, believes this type of public awareness, supported by business, could change political priorities to accelerate the adoption of existing technologies for energy efficiency.

“Hong Kong has historically lacked the political will and public commitment to embrace energy efficiency,” she said. “Electricity prices are low by global standards, and pale in comparison to the price of land. This weakens the case for building energy efficiency. But that may be changing. People are starting to connect the dots between energy use and air quality, given the predominance of coal in Hong Kong’s electricity fuel supply. Everyone wants cleaner air.”

Fleishman also pointed out that projected electricity tariff hikes will increase the financial reward for energy efficiency, and the government’s new demand-side management to curb energy use should also have a positive effect.

“Frankly, Hong Kong has the money, the technology, and the intellectual capital to become the greenest city in Asia,” Fleishman said. “What we need now is a sense of urgency, unity of purpose, and political capital, to achieve it.”

A Holistic Approach

On paper, the city’s approach to incorporating sustainability considerations into development—its environmental impact assessment—looks sound and has been cited as a leading example of mitigating potential environmental impacts. But it has also been criticized for neglecting to consider social issues and for failing to look beyond a single project at systemwide or regional planning.

AECOM’s Tang said the private sector must take a more holistic view to address these gaps. “The CSR models that companies use out here is different than the CSR model that companies use in the West,” he said, highlighting the needed shift from philanthropy and community giving to one that recognizes the strategic aspects of CSR.

It is also striking that most conversations about Hong Kong’s infrastructure development completely ignore what will happen in 2047, when the “one country, two systems” approach will end. The implied uncertainly should affect long-term decisions, given that planning for basic infrastructure—for transportation, water, and energy—is likely to cover this time frame and beyond.

Given what has worked in Hong Kong and the looming challenges the city faces, the private sector is well-positioned to provide leadership in creating a more holistic view. At BSR, we know that when business engages proactively with stakeholders, rather than waiting for government directives, it can decipher the operating environment in ways that highlight opportunities, manage trade-offs, and make the business case for more sustainable infrastructure development. In the case of Hong Kong, sustainable development must be led by new business models that may be achieved by stepping out with broader insights from a wider set of stakeholders.

A Tale of Two Possible Cities

Many of the right pieces seem to be in place for making Hong Kong a sustainability success story: an engaged and educated population, financial success, population density to create economies of scale, and access to advanced and efficient technologies.

Hong Kong may be a model for sustainable growth, but it will first need to deal with looming questions and attainable opportunities. There may be two routes for this city in flux: one that clings to past glory and fails to mobilize in new, collaborative ways, or one that looks inward and finds the political will to address the potentially runaway demographics. The latter path will require meaningful stakeholder engagement—between government, civil society and the private sector—to dig out of a deepening lack of trust, and put the city squarely on the path to sustainable growth.

For more information about BSR’s stakeholder engagement experience, see our stakeholder service website. For more on BSR's work on sustainable cities, read part one of our sustainable cities series and see the executive summary from the BSR Conference 2012 session on "Mega-Cities and Urbanization."