When HSBC chief executive Noel Quinn announced a “net zero by 2050” commitment in October, he was presumably expecting a positive response from investors – or, at least, to quieten those accusing the bank of heel-dragging on energy.
Alas, the days when vague promises of vast sums for transition and phrases about applying “a climate lens” to financing decisions would win plaudits are long gone.
As the shareholder climate resolution recently filed at HSBC demonstrates, asset managers and owners are scrutinizing firms’ climate commitments ever more stringently – and are ready to take public action against laggards and obfuscators.
It is no longer enough merely to pledge to achieve net-zero emissions in 30 years’ time. Investors want to know how banks plan to get there.
They want to see a credible pathway with short- and medium-term goals. They also want to know that banks will stop funding environmentally sensitive sectors such as thermal coal and oil sands – and they want to be sure it will happen now, not at some point during the next five or 10 years.
Bigger challenge
An even bigger challenge for some of the world’s biggest banks could be on the horizon. There are signs that investors are starting to turn their own climate lenses not just on project finance and direct corporate lending but also on investment banking.
To date, outside the sustainable bond universe, free-wheeling debt and equity capital markets bankers have largely managed to avoid being held to any but the lightest sustainability standards.
In theory, a number of investment banks subject all transactions to a corporate and social responsibility (CSR) assessment. In practice, a quick look at the leads on Saudi Aramco’s IPO – an A-Z of global banks, including HSBC – suggests that in most cases revenue still easily trumps sustainability.
The banks in question invite scrutiny when they position themselves as champions of sustainability
Whether banks will be able to continue touting their green credentials at the same time as funnelling financing to the fossil-fuel industry, however, is open to question.
It is notable that ShareAction, the activist NGO behind the HSBC climate resolution, took the bank to task in October for providing $1.8 billion to fossil-fuel firms in the third quarter of last year. Of the five transactions highlighted, three were bond issues on which HSBC acted as bookrunner.
Similarly, in its influential annual report on fossil-fuel finance, the Rainforest Action Network includes capital-markets activities in its annual estimates of banks’ funding to the sector – which is one of the reasons why JPMorgan and Citi regularly end up topping the league table.
Adverse attention
And in the first week of January, the role of investment banks – again, including HSBC – in arranging a $600 million bond for State Bank of India attracted adverse attention due to speculation that the lender was planning to finance Australia’s controversial Carmichael coal mine.
It may seem tough to blame investment banks rather than bond or equity buyers for such transactions – but the banks in question invite that scrutiny when they position themselves as champions of sustainability.
From now on, any bank making climate commitments will face more rigorous scrutiny of its track record, policies and strategy. Those unprepared to respond will not be treated kindly.
