Special-purpose HSBC fund arm strengthens thermal coal policy to combat climate change Reuters


© Reuters FILE PHOTO: The HSBC logo is seen on a branch of the bank in the financial district in New York, U.S., August 7, 2019. REUTERS/Brendan McDermid/File photo


By Simon Jessop and Sinead Cruz

LONDON (Reuters) – HSBC Holdings PLC (LON: ) told Reuters on Thursday it would immediately operate from funds it actively manages to finance expansion of thermal coal, accelerating a broader commitment it made last year.

Thermal coal, widely used in Asian markets where many of HSBC’s customers are located, is one of the fossil fuels most responsible for climate-damaging emissions.

The banking sector has delayed its commitment not to finance the production of oil. HSBC’s rival Standard Chartered (OTC: ) said earlier this year it would end direct coal deliveries to customers by 2032.

HSBC announced last December that it would cut its thermal coal financing across all businesses, including asset management, by 25% by 2025 and at least 25% by 2030 and 50% by 2030. Going global by 2040.

In the new 10-point plan, HSBC Asset Management, which oversees about $600 billion in assets, said it would immediately stop investing in the listing or primary debt issuance of any company involved in thermal coal expansion.

HSBC estimates that there are more than 300 oil-related companies globally that account for more than 10% of revenue. The Global Coal Exit Index, which tracks financial firms’ exposure to the coal sector, said HSBC’s fund arm had exposure to $3.4 billion at the end of November.

Erin Leonard, head of sustainability at HSBC Asset Management, said in an interview that so far only a relatively small number of companies in the bank’s investment portfolio have confirmed plans to expand their exposure to thermal coal.

HSBC said it will participate in an actively managed portfolio of all listed companies with more than 10% revenue from thermal coal in the coming year.

In the year By the end of 2030, the group’s active portfolios will not hold any listed securities of companies with more than 2.5% of revenues dependent on coal in the EU or OECD markets. And it will expand to all markets by 2040.

By 2025, HSBC aims to start linking up with more than 10% of the companies it owns, including those held in mutual funds, Lennard said.

For companies with more than 10% of their revenue exposed to thermal coal, all initial public offerings and primary debt will be subject to “intense due diligence” as the company plans to move to net-zero, according to HSBC.

HSBC said in its 2021 annual report that the bank’s exposure to thermal coal loans was $1 billion, or 0.2 percent of its total wholesale loan book.

In terms of accounting for boards of companies with high thermal coal exposure, HSBC said its fund arm will oppose the selection of board chairs by companies that plan to expand thermal coal production and use.

Chairs in companies with more than 10% revenue exposure and who do not provide acceptable reporting on climate risk, or whose transition plans are weak after some time, will face opposition when seeking re-election.

“This is a more public signal to the companies we invest in about our purpose and how we vote,” Leonard said.

A spokesperson for ShareAction, a non-profit that advocates for sustainable business, welcomed HSBC’s announcement and called for it to set temporary milestones in its relationship with companies.

HSBC also said it would stop launching index funds with more than “de minimis” exposure to thermal coal, which the group described as more than 2.5% of the company’s revenue.

It will work with clients to transition to greener options for all existing passive funds, which account for a sixth of HSBC’s total assets, and work with index providers to create more indexes without exposure to hot coal.

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