On Nov. 21st HSBC invited to one of its „Sustainable Finance Briefings 2017“ at Duesseldorf. The bank draws a crystal-clear picture for the financial industry: Sustainability is the sector’s business case. While emerging credit and investment risks from climate change and energy transition have by far passed their inflection points, financing sustainable development defines the future for credit and investment activities. ESG criteria are important to look at, but not sufficient to assess viability of business opportunities.
Grafic: HSBC
22. November 2017
Dr. Ralf Breuer
Climate change and sustainable finance taking the centre stage
At HSBC strategy development and sustainability are jointly headed by Daniel Klier. Within 45 minutes he provided a crystal-clear picture why a bank has to focus on sustainability for the sake of its own survival.
With perspective for the next 10 to 15 years there are substantial credit and investment risks emerging from climate change and energy transition. As renewables will become more competitive, not only energy generation high-carbon technologies will become obsolete. This affects far more than power plants, even some industries as a whole can be in question, such as automotive suppliers without products relevant for electric cars.
On the positive side, energy transition opens substantial opportunities, in particular with regard to green buildings, transport, energy production and grids.
HSBC’s clear commitments
As a global bank, HSBC has a worldwide view on changing infrastructure, especially in Asia. The bank acknowledges that topics related to sustainability and to climate change in particular are not only important, but also very urgent issues. On Nov. 6th the bank renewed and broadened its‘ commitments with new ambitions: HSBC makes new sustainability pledges
- HSBC has pledged to provide USD100 billion in sustainable financing and investment by 2025. The goal is one of five new commitments that HSBC is making to tackle climate change and to support sustainable growth in the communities it serves
- Source 100 per cent of its electricity from renewable sources by 2030, with an interim target of 90 per cent by 2025. By signing long-term agreements with suppliers, HSBC objective is to support the development of new renewable power facilities
- Reduce its exposure to thermal coal and actively manage the transition for other high-carbon sectors. This includes discontinuing financing of new coal-fired power plants in developed markets and of thermal coal mines worldwide
- Adopt the recommendations of the Task Force on Climate-related Financial Disclosures to increase transparency. In its next two annual group reports, HSBC will elaborate more detailed on its approach to climate-related risks and opportunities
- Lead and positively influence the debate about sustainable finance and investment. This includes promoting the development of industrywide definitions and standards
Building liquid markets, mitigating risks from energy transition and improving transparency are considered to be key. As the global development goals are complex and interlinked, progress in benchmarking appears to be urgent.
Sustainability from investors‘ and issuers‘ point of view
Different panels discussed the current state of sustainable finance. While institutional investors already moved into responsible investing to a great extent, the participants saw a lack of standardization in order to cover retail investors sufficiently.
Climate-related bonds and green bonds in particular were discussed with regard to the fact, that standards and transparency have fuelled the impressive market development. Given the strong momentum in this segment there is hope that further standards could mobilize more private (institutional) funds for other sustainable development purposes than climate as well.
Legislation and regulators have a crucial role as some changes seem necessary as preconditions for a more sustainability-oriented financial sector, in particular with regard to reporting and regulation. But as there are already so many initiatives under way the question is rather when than whether changes will take place.
ESG is not enough sustainability
The financial industry in general and investment funds in particular have already widely adopted criteria for ecological, social and governance aspects (ESG). In the final panel Ralf Frank, Secretary General and Managing Director of DVFA (the German association of investment professionals), raised the question, whether this already provides the necessary framework for targeting sustainable goals successfully.
Clearly it turned out, that the application of ESG criteria – e.g. based on external sustainability ratings – cannot be sufficient. On the contrary, investors should stronger focus on the SDGs. Simultaneously the view should be focus on diverse goals in order to explore additional investment opportunities and to mobilize the urgently needed additional private funding
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