Environmental aspect

Peer companies

With the impact of the global climate change growing more apparent, banks have come
under increasing pressure to stop financing environmentally damaging activities such as
coal power projects. Climate change is being increasingly recognised as a major
emerging risk to the financial stability. Climate change may result in physical and
transition risks which can have system-wide impacts on financial stability and may
adversely affect macroeconomic conditions. Climate change could upend the financial
system because physical threats such as rising sea levels, as well as policies and carbon-
neutral technologies aimed at slowing global warming, could destroy trillions of dollars
of assets. It is reasonable to expect that banks like HSBC, Standard Chartered and Citi
group pretend to be climate leaders, but in fact, they are still among the world’s top 10
lenders to coal plant developers.

In 2020, HSBC has been one of Europe’s biggest supporters of fossil fuels, investing
£17.3bn into this field. Despite its commitment last October to cut financed emissions to
net zero by 2050, it has since helped Saudi Aramco, the world’s most polluting company,
raise £10.3bn and Qatar Petroleum raise £9.2bn to fund the expansion of the world’s
largest gas field. In 2021, HSBC has a policy to stop providing direct finance to new coal
power stations but with the exception of the Southeast Asian Nations, such as,
Indonesia, Bangladesh and Vietnam. Those countries combined account of one fifth of
the world’s total coal plant pipeline. Barclays made a similar commitment to carbon
neutrality in March this year, and JP Morgan has recently expanded its investment in
clean energy.

But, as for HSBC, that is not a non-coal policy. That what should and should not be
financed in the fossil fuel sector is still being debated frustrates many in the sustainable
finance sector. HSBC is also supposed to join the other international banks which have
already done, just like, French corporate and investment bank, Credit Agricole, one of
the world’s leading commercial banks, which announced in May 2015 its decision to stop
financing coal mining and fossil fuel operations. Crédit Agricole restricts corporate
finance for companies that derive more than 25 % of revenues from thermal coal. In
April 2015, three French banks (BNP Paribas and Société Générale) went further,
committing to refrain from financing either mining projects in the Galilee Basin or
associated infrastructure. 

From 2007 to 2009, Bank of America is one of the largest investors in the coal mining and
has lent billions of dollars to firms who are seeking to build coal-fired power plants. The
firms’ clients include players in the power and utility industry. It has also financed
companies that practice mountaintop removal coal mining, a technique that blasts off
the tops of mountains to reach the underlying coal deposits. But Bank of America
unveiled a new global coal mining policy in May, 2015 committing to reduce exposure to
coal mining companies. We acknowledge the responsibility that the financial sector
bears for supporting and profiting from the fossil fuel industry and the climate chaos it
has caused. They also acknowledge the risk that future regulation and competition from
natural gas pose on the industry to fund renewable energy and energy efficiency
projects.

As for the gaps, HSBC ESG report focuses on the material, cement which is only
beneficial to their future investment rather than the environment. They should pay more
attention on using the sustainable materials within the organization.

For example, they could replace plastic with recycled materials when issuing new cards.
Also, they could make changes to printing techniques to reduce its carbon footprint
while improving the internal recycling circuit for expired cards. They can consider to stop
using virgin plastic to manufacture physical cards and will instead use recycled (R-PVC) or
biodegradable (PLA) materials with a lower environmental impact instead. HSBC has
worked with global cards manufacturer to introduce new R-PVC cards gradually across its
locations, including Australia, Canada, Indonesia, Macau, Malaysia, Mexico, Sri Lanka,
UAE, UK and US, by end of 2021. In Singapore, HSBC will introduce new R-PVC credit and
debit cards to its customers progressively from the second half of 2021. To preserve the
life of customers’ existing cards for as long as possible, R-PVC cards will be issued when
their old cards naturally expire. It is definitely a good way to make all of its operations
carbon neutral by 2030 and to reaching net zero carbon emissions across its entire
customer base by 2050 at the latest.

There are numerous benefits to pursuing an environmental finance strategy. In

particular, environmental finance products can be used to raise funds for a company’s
ESG initiatives or create financial incentives for ESG performance. Environmental
financing may also provide an opportunity to broadcast an ESG commitment to
investors, lenders, customers and other stakeholders, providing tangible credibility for
ESG initiatives that could give a company an edge over industry competitors that have
not developed clear ESG strategies. Keep things digital and minimize the use of materials
whenever possible, do not use unnecessary amounts of paper. Implement the use of
recycled materials such as recycled paper whenever possible. Workers could try to bring
lunch and using reusable containers. Because it cannot only save unnecessary waste but
costs. It can also minimize waste of small individual packaging.

A disorderly transition to a low-carbon economy could have a significant effect on the

performance, future cash flows and thus the credit risk of banks' corporate borrowers.
HSBC is currently legally obliged to produce a low-carbon transition strategy and it
expressly mentions being science-based and aligned with the Paris climate agreement. It
is really good but to be lobbying counter to that behind the scenes rings alarm bells
because that is not aligned with what they’ve told shareholders and the public and their
customers about what they intend to do.
References:

Bontempi E (2017) A new approach for evaluating the sustainability of raw materials
substitution based on embodied energy and the CO2 footprint. J Clean Prod 162:162–
169

Silva RV, Neves R, De Brito J, Dhir RK (2015) Carbonation behaviour of recycled aggregate
concrete. Cem Concr Compos 62:22–32

Jondeau, E., Mojon, B., and Monnet, C., (2021): “Greening (runnable) brown assets with
a liquidity backstop”, BIS Working Papers, No. 929, March 2021.

Delis, M.D., de Greiff, K., Iosifidi, M., and Ongena, S., (2021): “Being stranded with fossil
fuel reserves? climate policy risk and the pricing of bank loans”, Swiss Finance Institute
Research Paper, No. 18-10.