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HSBC chairman: Transition financing needed to achieve 2050 'net zero' climate goals, divestment not the answer

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HSBC chairman Mark Tucker on Monday defended the need to provide transition financing to clients to spark environmental change and reach the lender's goal of being "net zero" in terms of carbon emissions by 2050.

Speaking at the Asian Financial Forum, Tucker said climate change is probably "the most urgent and serious threat" faced by the global community and the lender has an obligation to tackle that, but it will not be achieved by stepping away from clients, particularly in emerging markets.

"Divestment is not the best option for the environment or for the people and the communities that rely on these traditional industries," Tucker said. "Ninety-five per cent of energy needs are still met by fossil fuels. The renewable market is still in its infancy.

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"There's not a current proven way to help energy supply meet the demand if there's mass divestment. Fossil fuel dependency is more widespread than energy. They're also used in the production of steel, cement, packaging, etc"

The bank, Europe's biggest by assets, announced in October that it planned to reduce financed emissions from its portfolio to net zero by 2050 or sooner, including providing up to US$1 trillion in financing and investment by 2030 to help clients achieve that goal.

There's also a "significant business opportunity" in providing that transition financing, Tucker said.

HSBC, however, is facing pushback from a group of investors over its continued financing of the fossil fuel industry.

ShareAction, a UK-based responsible investment charity, organised a group of 15 institutional investors with a combined US$2.4 trillion in assets under management this month to file a shareholder resolution seeking that the bank outline its strategy on how it plans to reduce its exposure to fossil fuel assets.

The group, which has previously targeted HSBC and other lenders over environmental issues, claims HSBC is the second-largest financier of the fossil fuel industry in Europe and 12th largest globally, providing US$86.5 billion in financing to fossil fuels companies since the Paris climate agreement was signed in 2016.

Mark Tucker, HSBC's chairman, said transition financing to higher carbon industries was a necessary step to achieving its climate goals. alt=Mark Tucker, HSBC's chairman, said transition financing to higher carbon industries was a necessary step to achieving its climate goals.

"We believe that banks should introduce robust project finance exclusions and corporate financing restrictions for companies that are heavily exposed to some of the most carbon-emitting sectors - such as coal," Wolfgang Kuhn, ShareAction's director of financial sector strategies, wrote in a January 10 blog post.

Tucker said that emerging markets are "most dependent" on fossil fuels globally and Asian economies should play a large part in the discussions at the UN Climate Change Conference, known as COP26, in November. He called it a "key moment" in unlocking low-carbon goals globally.

London-based HSBC generates most of its profit in Asia and is making a big bet on future growth in the region as part of a massive restructuring announced last year, which will see it shift capital from the US and Europe into higher growth businesses.

"If you just divest, the risk is it effectively increases energy, poverty and economic instability," Tucker said. "Just because we, as a bank, and others of the big banks divest, means that it will just force heavy fossil fuel users to go elsewhere, thereby just moving the problem."

Tucker said the bank wants to help all of its customers to "decarbonise", while assisting in the development of new low-carbon technology.

"This is the most significant contribution that HSBC can make to the fight, and the most effective way is to help the global economy get to net zero," Tucker said.

"There is a transition. We're going to [undertake] every element to speed up the transition, but going overnight into things like divestment will make things worse, not better."

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.