HSBC Asset Management has announced that it will take steps to cut coal investments from its portfolio in line with the 1.5°C trajectory stipulated by the Net Zero Asset Managers initiative to which it is a signatory. It comes after much pressure but the asset management arm is ready now to carry through net zero commitments through transparency frameworks and build up its Alternatives Business instead.
- HSBC Asset Management announces move away from coal by 2030 in EU and OECD, and 2040 globally.
- Shareholder and NGO pressure forced a resolution in 2021 that this strategy carries out and may signal similar action from other banks’ asset management arms exposed as having high fossil fuel investment.
- As a counterweight, funding will flow into climate technology solutions.
Net Zero action had holes
HSBC AM’s strategy is broadly two-pronged in a combination of exclusion and engagement. The first is to exclude thermal coal companies by 2030 in the EU and OECD; and globally by 2040 in its active funds. The other is to encourage transition within the companies it holds with coal operations, and if the said transition plans are not robust enough, then it will act accordingly.
If the companies it funds do not “show credible plans” to drop coal by the above time frames, then it will either vote against the reappointment of board members or, ultimately, divest.
As a member of the Net Zero Asset Managers initiative, such a policy is necessary. HSBC among other banks were pressured earlier this month by a global coalition of NGOs, to step up to the demands of the NZAM in an open letter to the UN Environment Program Finance Initiative (UNEP-FI) and the Net Zero Banking Alliance (NZBA).
HSBC AM said “Today’s announcement is an important step towards the bank achieving its net zero ambition, contributing further to the Group-wide announcement to phase out coal-fired power and thermal coal mining.”
In May 2021 a management-proposed resolution committing the company to phase out finance for the coal industry by 2030 in the OECD and by 2040 worldwide was passed by 99% of shareholders. The resolution came about from NGO pressure led by ShareAction.
Coal finance exposed
An investigation conducted and reported by Reclaim Finance put HSBC as the third largest supporter of coal development among UK investors after Schroders and Prudential with $537 million. HSBC as a bank gave US$ 15.2 billion through lending and underwriting to the coal industry between October 2018 and October 2020, including US$ 4.1 billion to companies with coal power expansion plans.
According to another report, Banking on Climate Chaos, HSBC invested over $111 billion into fossil fuels from 2016-2020.
Whilst HSBC’s new energy finance policy in 2018 announced a disengagement from offshore oil and gas projects in the Arctic and new tar sands projects, it kept somewhat of an open door policy on coal. It pledged to end financing for new coal plant projects globally but reserved the option to finance coal plant investments in Bangladesh, Indonesia and Vietnam, up to the end of 2023.
Nicolas Moreau, CEO, HSBC Asset Management said in this announcement that the firm has already stopped direct investments in new or existing thermal coal projects.
Science-based targets to be followed
When HSBC announced its net zero transition in March this year, doubts were cast on its credibility.
This transition plan from the asset management division brings science based targets into the fold. HSBC intends to use engagement with its companies as the first approach but Moreau said “we are clear that we will need to walk away from companies who don’t or won’t take active credible steps to reduce emissions.”
HSBC AM will not vote for the re-election of chairs of listed issuers with more than 10% revenue exposure to thermal coal which do not provide Task Force on Climate-related Financial Disclosures (TCFD) or equivalent reporting. It will also vote against chairs whose company’s transition plans remain inadequate following engagement.
On the active portfolios, by the end of 2030, HSBC AM will not hold listed securities of issuers with more than 2.5% revenue exposure to thermal coal in EU / OECD markets and globally by 2040 across its actively managed portfolios.
On the passive portfolios, there will be no new Exchange Traded Funds (ETFs) or index funds with more than 2.5% exposure to thermal coal issuers. The only exception, would be if an ETF or index fund’s strategy has specific Paris-aligned 1.5°C objectives and / or clear divestment pathways.
Venture capital for climate technology stands to benefit
HSBC AM will substitute investment in alternative energy for its coal investment. “These include climate technology venture capital and investment in sustainable infrastructure projects.”
HSBC AM also mentioned its Climate Asset Management arm, a joint venture with Pollination, to “enable investment in nature-based solutions to both reduce emissions, and protect and restore biodiversity.”
