HSBC, one of the biggest banks in the world, has set bold climate change ambitions — and its sustainability aspirations are now being replicated in New Zealand.
The bank, based in London after being established in Hong Kong in 1865, believes there is a landmark opportunity to build a thriving, resilient future for society and businesses by prioritising financing and investment that supports the transition to a carbon zero global economy.
HSBC, with assets of nearly US$3 trillion (NZ$4.29t), operates in 64 countries and has 40 million personal banking customers and 1.4m business clients. The bank is prepared to work with all of them to develop tailored solutions to reduce greenhouse gas emission. It is also applying a climate lens to financing decisions.
The bank has established two main goals:
● Align its financed emissions — the carbon emissions of its portfolio of customers — to the Paris Climate Change Agreement to achieve net zero by 2050 or sooner;
● Target net zero in its own operations and supply chain by 2030, and encourage its suppliers to do the same.
Burcu Senel, chief executive of HSBC New Zealand, says sustainability is a multiple stakeholder game — government and its regulations, society, consumer and clients — and financial institutions really sit in the middle of these sustainable capital flows because everything ultimately boils down to the financing of capital.
"HSBC has become quite a global leader in sustainable financing. We actually work with clients to really put their sustainability goals and the challenges they face at the centre of discussion.
"Rather than just trying to create products off the shelf, we've worked around their goals and the discussion leads into a lot of innovation — and I would say first of its kind. There's definitely an advocacy role we play in the market, as well as financing."
HSBC helped create a sustainable supply chain finance programme with multi-national retailer Walmart and sports brand Puma. They were ground-breaking, and Senel was part of the development.
Prior to arriving in her new role in March this year, Turkish-born Senel was the global head of sustainable finance for global trade and receivables, based in London. She has worked for HSBC for 16 years and held senior management roles in corporate strategy and business development across Europe and Britain.
Before joining HSBC she was a senior analyst with JP Morgan Chase, and completed an MBA in corporate finance and investment banking at Virginia Tech.
Senel says HSBC has developed three pillars to its climate change and sustainability ambitions:
● Becoming more sustainable and achieving net zero in its operations.
● Supporting clients and as they have a better sustainable business model expand the bank's portfolio.
● Innovation through providing a spectrum of support and making sure the bank creates impact rather than just specialising in one. It has, for instance, set up a dedicated unit to support CleanTech innovation companies and target US$100m CleanTech investment in its technology venture debt fund.
Senel says HSBC New Zealand's priorities completely align with the global group's three pillars. "What we are focusing on is the things that we can actually control, and then we can influence our group with New Zealand's thinking.
"It's potentially less probable for us to innovate a solution in New Zealand, but it could happen. We are having those conversations with clients where we can. It's almost like it's both ways.
"We can provide a solution that's been done elsewhere to help clients on a transition journey. But if there's some innovation required in certain sectors, then we can bring in the expertise.
"The probability is bringing the breadth of expertise to New Zealand and scale the sustainability solution. There really is a spectrum of experience in our group all the way from bonds to transactional banking," says Senel.
HSBC New Zealand is part of the Aotearoa Circle's Sustainability Finance Forum.
Senel is impressed by the lead New Zealand is taking on TCFD reporting — it could be the first country to make it law.
The Task Force on Climate-related Financial Disclosures (TCFD) is designed to improve and increase reporting of climate-related financial information and risks so they can be integrated into business and investment decisions.
The External Reporting Board is developing standards, and the comply or explain approach to climate-related disclosures will be mandatory for listed companies, Crown financial institutions, large insurers, registered banks and investment fund managers with more than $1 billion in assets.
These reporting disclosures could be required in 2023.
Senel says HSBC has made a contribution to the consultation and has formed a working group to develop a clear plan and make sure the bank is TCFD compliant when required.
"Our role in New Zealand is to bring the best of HSBC in order to support our clients transitioning to sustainability and opening up a world of opportunity," she says.
Transitioning to sustainability
HSBC will support customers with between US$750 billion and $1b (NZ$1.43b) of finance and investment by 2030 to help with their sustainability transition. The bank had already committed US$100b of sustainable finance by 2025, and has launched a number of award-winning products.
Another of its commitments is to phase out financing coal-fired power and thermal coal mining by 2030 in the European Union and OECD, and by 2040 in other markets.
During the first quarter of this year, HSBC raised a record US$68b for its clients through green, social, and sustainable bonds, which pay for green projects and new technology to reduce gas emissions.
HSBC's own journey has ranged from installing solar panels in its car park in Oman to reducing energy, paper and water consumption worldwide, and cutting its operational emissions by almost half.
It has launched a philanthropic programme to donate US$100m to scale climate innovation ventures, renewable energy and nature-based solutions between now and 2025.
HSBC is also collaborating with peers and industry bodies to mobilise the financial system to take action on climate change and develop globally relevant common standards to gauge progress on sustainability.
How Walmart gets a passport to better financing terms
HSBC partnered with Walmart, the world's biggest retailer, in the roll-out of a supply chain finance programme that aligns a supplier's financing rate with its sustainability performance.
The partnership allows suppliers to obtain improved financing terms for short term working capital from HSBC if they demonstrate progress in Walmart's Project Gigaton or Sustainability Index programme.
Project Gigaton, started in 2017, is Walmart's initiative to remove one billion metric tonnes (a gigaton) of greenhouse gases from the global value chain by 2030 through supplier commitments.
Walmart's Sustainability Index programme collects and analyses information across a product's life cycle and thus measuring and improving the sustainability of consumer goods.
Through the Project Gigaton platform, suppliers report emissions reductions related to the improvements in energy, waste, packaging, agriculture, forests, product use and design.
HSBC believes that supply chains are one of the most important levers for financial institutions and businesses to create a positive sustainable effect on the world.
According to management consulting firm McKinsey, a typical consumer company's supply chain creates far more social and environmental costs than its own operations, accounting for more than 80 per cent of greenhouse gas emissions and more than 90 per cent of the impact on air, land, water, biodiversity and other natural resources.
At Walmart for instance, more than 90 per cent of its carbon footprint was embedded within the products it purchases and sells.
HSBC says the procurement standards of a buyer are a huge driver for sustainability. Investing in sustainability can not only lead to higher productivity and cost savings for suppliers but can drive their business growth as they make a positive contribution to the world.
Burcu Senel, chief executive of HSBC New Zealand, said Walmart had a very clear set of targets to remove gas emissions from the supply chain.
"We worked with Walmart to get a list of all their suppliers, and in conjunction with an external rating agency ranked the suppliers based on sustainability performance.
"As they move up in their performance, they get better access to improved pricing and financing.
"That's a typical supply chain finance structure but the tiering was done based on sustainability performance, and there are different ways of doing it — even between Walmart and Puma.
"One was that a supplier can opt into the programme but can also choose to opt out.
"Another was that if you want to be a supplier of that buyer, you have to be part of the programme.
"You can nuance the programme, but the structure was basically tiering the suppliers based on their sustainability performance to enable them to promote the right behavior for them to become more sustainable and then just move up in the ranks to get improved pricing."
Senel said after HSBC developed the programme, it served as a magnet for having multiple conversations with anchor buyers around the world.
"One of the challenges we picked out was that suppliers still needed capex or some funding to make those investments become more sustainable.
"So we extended the proposition. Rather than making it a sustainable supply chain in finance, we extended it to how can HSBC support your sustainability ambitions to make your supply chain more sustainable.
"We created other propositions to support the suppliers with their capex requirements and sustainable journey, and to get better access to terms and conditions within the programme," Senel said.
● HSBC is a sponsor partner for the Sustainable Business report.