(Thursday 17th March, London) HSBC has today made several new commitments on climate change following engagement with a coalition of investors co-ordinated by ShareAction. The bank has agreed to phase down financing of fossil fuels in line with limiting global temperature rise to 1.5C, as well as to update the scope of its oil, gas, and thermal coal policies by the end of 2022.
Importantly, HSBC has pledged to update the scope of its fossil fuel targets to cover capital markets activities by Q4 2022. The omission of capital markets activities was a key point of contention in HSBC’s recently published climate targets. Research from ShareAction found that 60 per cent of HSBC’s financing to top upstream oil and gas companies is in the form of capital markets underwriting.
Catherine Howarth, CEO at ShareAction, said: “Today’s commitments are an important step for HSBC that showcase the impact of shareholder engagement. The focus must now be on ensuring that these are implemented in a way that is robust and science-based. As Europe’s largest provider of financing to top oil and gas expanders, HSBC must act decisively.”
These updated commitments come after years of extensive engagement with investors on the issue of climate. In March 2021 shareholders filed and then withdrew a climate change resolution at the bank, leading to the publication of a coal phase out policy later in the year.
ShareAction, alongside 11 institutional investors and retail shareholders, filed a second resolution in February 2022 calling on the bank to close its fossil fuel policy loopholes. This was preceded by disappointments in the coal phase out policy published in December, which failed to meet the red lines previously set out by investors.
This resolution has now also been withdrawn, following HSBC’s new pledges. But the shareholder coalition has indicated it will take further action in 2023 if unsatisfied with the bank’s implementation of its commitments.
In a letter sent to HSBC’s CEO, Noel Quinn, and Chair of the Board, Mark Tucker, on Tuesday 15th March, the investor group set out its expectations for the bank to act on going forward, including:
- Close the loopholes in its coal phase out policy;
- Identify phase out dates for for unconventional oil and gas (oil sands, fracking, and ultradeep water) and Arctic oil and gas;
- Update its definition of the Arctic in line with the Arctic Monitoring and Assessment Programme (AMAP);
- Publish a public set of core red lines and decarbonisation expectations for the assessment of the transition plans for major oil and gas producer clients
- Set out a clear escalation plan to outline the steps that HSBC will take if clients fail to meet the minimum thresholds for their transition plans with an established deadline in place;
- Cease financing for any new oil and gas projects.
Laura Chappell, CEO at Brunel Pension Partnership said: “In the area of climate change, we welcome HSBC’s willingness to engage constructively with shareholders and are encouraged by its recent commitments, including its decision to ask its major oil and gas clients to have transition plans in place by the end of the year. We now want to see the bank establish clear red lines and decarbonisation expectations for these, with clear, time-bound consequences for clients that fail to meet them. The bank must lead its clients by example, and commit to curtailing support for new oil and gas projects which could compromise its commitment to the goals of the Paris Agreement.”
According to RAN, HSBC poured over US$111 billion into fossil fuels from 2016-2020. Over the same time span, ShareAction research showed that the bank provided US$59 billion to top oil and gas expanders – the most support from any European bank.
The bank’s financing provided to the fossil fuel industry has increased year-on-year since 2016, the year the Paris Agreement was signed. This makes it the third largest financier of the fossil fuel industry in Europe over this period.
As a systematically important bank, HSBC’s financing and investment decisions exert a large influence over whether the 1.5C goal of the Paris Agreement will be met.
HSBC’s peers have already started taking ambitious steps to align their fossil fuel financing with the Paris goals. For example, BNP Paribas has committed to no longer support companies planning developments in the coal sector, and requires clients to provide them with coal phase out strategies in line with their own 2030/2040 commitments by the end of 2021.
In parallel, La Banque Postale has announced a strategy to exit the oil and gas sector entirely by 2030, and both Intesa Sanpaolo and Nordea have committed to a phase out of exposure to select unconventional oil and gas activities.
Investors expect the bank to bring its fossil fuel policies in line with these leading practices, and argue that failure to do so could leave HSBC exposed to important financial, regulatory and reputational risks.
Colin Baines, Investment Engagement Manager at Friends Provident Foundation said: "HSBC took a massive step forward last year when it announced its commitment to phase out from coal by specific dates last year. We believe it should now do the same with oil and gas, starting with unconventionals. The review and update of its current oil and gas policy presents the bank with a key opportunity to do so."
Jason Mitchell, Co-Head of Responsible Investment at Man Group, said: “As shareholders, we welcome HSBC’s updated net zero commitment – in particular, the agreement to publish a Transition Plan in 2023 detailing its net zero effort; the updated fossil fuel policies; and the publication of financial emissions targets covering its capital markets activities. Our dialogue with HSBC represents the strength of collaborative engagements where investors, management and civil society work constructively together. We encourage HSBC to continue to drive ambitious forms of climate action forward, for example through meeting or even going beyond existing leading practice in the sector.”