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Banks ramp up plans to tackle carbon emissions

HSBC has announced a plan to prioritise financing and investment that supports the transition to a net zero global economy. The bank is committing to align its financed emissions - the carbon emissions of its portfolio of customers - to the Paris Agreement goal to achieve net zero by 2050 or sooner. The bank says it has both the scale and global reach to play a leading role in guiding its customers through this transition and helping them to achieve this ambitious goal. The bank also aims to be net zero in its operations and supply chain by 2030.

HSBC pledged to work with its customers in all sectors to develop tailored solutions to reduce emissions. The bank will increasingly prioritise financing and investment that contributes to the low carbon transition and will apply a climate lens to financing decisions. HSBC’s ambition is to support customers with between US$750bn and US$1 trillion of finance and investment by 2030 to help with their transition. There are three key pillars to the overall plan:

Becoming a net zero bank

To become a net zero bank, HSBC aims to align its financed emissions to the Paris Agreement goal to achieve net zero by 2050 or sooner. It will use the Paris Agreement Capital Transition Assessment Tool (PACTA) to develop clear, measurable pathways to net zero. The bank says it will make regular, transparent, Task Force on Climate-related Financial Disclosures (TCFD)-aligned disclosures to communicate its progress, and encourage its customers to do the same.

As well as the internal work, the bank says that it will also work with its peers, central banks and industry bodies to mobilise the financial system around a globally consistent, future-proofed standard to measure financed emissions, and a functioning carbon offset market. The bank also aims to achieve net zero in our operations and supply chain by 2030 or sooner.

Supporting customers to thrive through transition

HSBC will work with its portfolio of customers to support them on their journey to lower carbon emissions, bringing together a dedicated ESG Solutions team, products, and experts across the bank to develop tailored solutions for our customers.

The bank says it will prioritise financing and investment that supports customers in all sectors to transition to lower carbon emissions. The ambition is to provide between US$750bn and US$1 trillion of financing and investment for this purpose over the next 10 years.

There are also plans to increase its portfolio of transition finance solutions to help enable even the most heavy-emitting sectors to progressively decarbonise, while helping to ensure a just and stable transition to maintain economic stability. Additionally, the bank says it will apply a climate lens to financing decisions, taking into account the unique conditions for its clients across developed and developing economies.

Unlocking next-generation climate solutions

To proactively address climate solutions, HSBC says it will build one of the world’s leading natural capital managers - to mainstream natural capital as an asset class, and invest in activities that preserve, protect and enhance nature over the long-term. For this purpose, the bank has created HSBC Pollination Climate Asset Management.

It will also set up a dedicated unit and tailored proposition to support CleanTech innovation companies and target US$100m CleanTech investment within its technology venture debt fund.

HSBC says it will launch a philanthropic programme to donate US$100m to scale climate innovation ventures, renewable energy, and nature-based solutions between now and 2025. Additionally, it aims to help transform sustainable infrastructure into a global asset class, and create a pipeline of bankable projects, leading the FAST-Infra initiative together with the OECD and the World Bank.

Reporting on climate goals

Stating goals for the next three decades is one thing, but having a robust and transparent reporting system in place to document progress towards more sustainable finance is essential if it is ever going to amount to anything. Last week, for example, ING published its second progress report on Terra, the bank's approach to steer its €600bn lending book in line with the well-below two-degree climate goal of the Paris Agreement.

The progress report presents ING’s pathway towards climate alignment in the nine sectors in its portfolio most responsible for climate change: power generation, fossil fuels, shipping, cement, steel, residential real estate, automotive, aviation, commercial real estate. 

Furthermore, targets for all nine sectors are presented to ultimately align the portfolio with the Paris climate goals. ING aims to do this by supporting and engaging with existing clients to shift their investments more towards low-carbon technologies and by shifting its own capital allocation choices more towards low-carbon technologies and away from high-carbon. This includes reducing financing of sectors that require a decline in production over time to meet the Paris goals, such as coal and upstream oil and gas, while financing more renewables.

This is the first year that the Terra progress report includes the oil and gas sector, including a target. ING aims to reduce financing to upstream oil & gas by 19% by 2040 from 2019 levels. ING says it will align this portfolio by decreasing exposure and by engaging with clients to facilitate their transition to low-carbon technologies. This includes a relatively sharper decline for oil, while gas as a bridging fuel will more gradually decrease, after an initial increase. The bank says it will steer its client base and lending exposure towards low-emissions leaders. Following the Paris-aligned pathway for oil and gas, this target is also in line with the IEA Sustainable Development Scenario (SDS). If a revised SDS transition pathway requires a greater decline in oil and gas production, at a faster rate, that scenario will guide the direction that ING will take.

Giving investors what they want

Investor appetite for ESG labelled instruments is high, and banks are keen to offer products that satisfy the demand and help drive funds to more sustainable causes. The latest example of this comes from Swedbank Robur, which has launched a fund focusing on energy transition.

In late September, Swedbank Robur's Råvarufond was turned into a new thematic fund with a focus on solar, wind and energy transition. As part of the fund provider's ongoing implementation of its climate strategy, Transition Energy will invest worldwide and focus on solar, wind and solutions for a sustainable energy system. The holdings will be a mix of established companies with proven business ideas and new faster growing companies.

“It is important that investors dare to be an active part of sustainable change and support companies and industries in this transition," said Robert Slorach, portfolio manager at Swedbank Robur. "The ambition is that Transition Energy's composition and global focus will provide a good balance between risk and potential, with portfolio companies that help contribute in driving the energy system in a more sustainable direction.”

The Swedbank Robur Transition Energy fund can primarily be linked to the following five of the UN's global Sustainable Development Goals: 

  • #7: Affordability and clean energy.
  • #9: Industry, innovation and infrastructure.
  • #11: Sustainable cities and communities.
  • #12: Responsible consumption and production.
  • #13: Climate action.

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