Market News

 June 11, 2009
HSBC: Putting its money where its mouth is?

 HSBC’s latest sustainability report reveals a growth in the bank's direct emissions alongside climate commitments on lending

HSBC is one of the largest financial services companies in the world with a market capitalisation of $114 billion, at the end of 2008. The bank is present in 86 countries and has more than 100 million customers worldwide. It was also the first of the biggest banks to go carbon neutral, back in 2005. With accolades for its sustainability credentials from NGOs such as CERES, Accountability and Rainforest Alliance it has often been ahead of its competitors with respect to climate change issues.

Its 2008 Sustainability Report was released last month – has HSBC’s early move on climate change continued and evolved to make a real impact?

With over 325,000 employees working in 9,500 offices worldwide HSBC has a sizeable direct carbon footprint. Arguably, however, HSBC’s biggest influence on climate change comes through its lending policies. It’s heartening therefore to see that the Chairman’s introduction mentions climate change as being one of three dominant issues that will be included in the bank’s lending policies.

Looking back at HSBC’s 2008 commitments “Improvement of climate risk in lending decisions” is first on the list and progress towards this is ongoing.

A key action in 2008 was to adopt the Climate Group’s Climate Principles – “a voluntary global framework for the financial services sector to guide its response to climate change and the move to a lower carbon economy”. HSBC is one of only three banks and two insurance companies to adopt the principles and should be commended for doing so.

The principles are fairly broad and, although the aim is positive, the effect they will really have is debatable. Indeed BankTrack (a global network tracking the financial sector’s social and environmental impact) found the principles “contain vague or aspirational procedural provisions where substantive, outcome-oriented standards are required…”

The Principles focus on a risk-based approach to climate change, so it is somewhat difficult to see how they will lead to substantially different lending practices - risk management is inherent to any financial lending process.

Another priority for 2008 (that is ongoing) is in relation to customers - HSBC are aiming to launch a “suite of climate change related insurance products”. It has already launched some consumer insurance products that are linked to forest protection and clean air initiatives in certain countries. This is an area in which some insurance companies are also moving.

To really assess whether HSBC is helping to tackle climate change through its lending decisions would require some sort of measure of the carbon intensity of its loan portfolio. The footprint of HSBC’s loans to the energy company E.ON (that will build the first new coal-fired power station in the UK for 30 years at Kingsnorth in Kent) might not be so favourable in this respect.

Of HSBC’s 10 point action plan for 2009 climate change is included in 7 actions ranging from “review energy sector policy” to others that will affect the direct carbon footprint of the company. Interesting to note however is that, despite its efforts, HSBC’s carbon footprint has increased by 44% since 2005 to a huge 954,000 tonnes in 2008. Even when looked at on a per person basis it has increased by a quarter from 2.47 tonnes per person in 2005 to 3.05 tonnes per person in 2008.

In the “Priorities for HSBC” section climate change is mentioned from both an adaptation and mitigation perspective. In 2007 the Climate Change Centre of Excellence was launched to identify risks and opportunities that climate change presents. The centre focuses on identifying the economic risks and opportunities of climate change, for example, it has estimated that governments around the world have allocated more than US$430 billion in fiscal stimulus packages to key climate change investment themes.

The report contains a statement from Lord Stern commending the centre’s contribution to policy analysis and recommendations in the run-up to Copenhagen. He also comments that “HSBC is playing an important role in identifying and shaping key drivers for low-carbon economies.”

HSBC has been a leader within the financial community in acknowledging and addressing climate change. Whether it will continue to lead in this area, by taking more radical action in its lending portfolio and really driving forward a low carbon economy remains to be seen. Let’s hope Lord Stern is right.