HSBC tells clients it won't blacklist major polluters

Anthony Kwan/Bloomberg

(Bloomberg) --HSBC Holdings is planning to stick with clients in some of the world's highest-emitting sectors, as the bank rejects blacklists it says don't help the wider economy.

"The end game is real world emissions reductions, not just our portfolio getting there as quickly as possible, because then we could have all sorts of unintended consequences," Celine Herweijer, chief sustainability officer at HSBC, said in an interview. "And I think sometimes that gets forgotten."

The UK bank, which has a large client base in Asia, is the latest to articulate the shifting zeitgeist among financial heavyweights who are increasingly pushing back against calls to shun the fossil fuel industry. Their view is that jettisoning high-emitting clients from balance sheets won't make those emissions disappear from the real economy, and that bankers therefore need to work with polluters to help them decarbonize.

"The narrative can often be over-simplistic about the role of the financial sector in the transition," Herweijer said. "It's really critical that stakeholders understand the complexity of what lies ahead for us, for customers across industries and for those financing and investing in those customers."

Climate activists have rejected such arguments. They say that the continued bank-rolling of high-emitting sectors is a key reason why emissions are still rising at a dangerous pace. And a growing number are now taking their grievances to the courts. BNP Paribas, for example, has stepped up restrictions on fossil fuel clients since climate nonprofits brought a lawsuit against it last year. 

Herweijer, a former partner at PwC with a PhD in climate modeling and policy from Columbia University, said HSBC is willing to continue working with high-emitting clients, even if doing so complicates its own path to net zero.She spoke shortly after the London-based bank published its first ever transition plan, in which it mapped out the changes it sees as necessary to decarbonize the big emitters it finances.

"The easiest way for us to meet our power and utility sector target is basically to move our portfolio from East to West, because the grid in the West has already moved much more to renewables and has moved away from coal," Herweijer said. "The reality is we have a heavy footprint supporting some of the large national power producers across Asia, and their ability to transition will make or break the world's ability to transition."

HSBC has outlined some restrictions, including halting the financing of new oil and gas fields, in line with recommendations by the International Energy Agency. And it's also said it wants to phase out the financing of thermal coal by 2040.

In 2022, the UK bank announced it was targeting a 75% reduction in the carbon intensity of its power and utilities loan book by 2030. This week, the bank said meeting that target "will require the accelerated deployment of solar and wind, the retirement of thermal coal-fired power plants, and the delivery of grid infrastructure and technologies that support the balancing of supply and demand." Progress in the sector "has been encouraging," but stronger policies are required "to get on track with the 1.5C-aligned pathway for net zero by 2050," it said.

Chief Executive Officer Noel Quinn said in the transition report that HSBC's approach to becoming a net zero bank by 2050 depends "on the pace of decarbonization in the real economy and on our customers' ability to transition their business models."

Herweijer noted that some high-emitting sectors probably won't be able to reach current emissions reductions targets unless new technologies are introduced — or existing ones dramatically scaled up — between now and the end of the decade. One such example is cement, she said.

"They might not get there because the technologies they're betting on at the moment are very, very nascent," said Herweijer. "Even though they've made that commitment, we might be sitting here in 2028 and they might not get there. And then what happens? Do we pull away from those clients because they haven't got there, even though they intended to, because technologies haven't scaled?"

In its transition report, HSBC noted that cement, which accounts for about 7% of greenhouse gas emissions, has four potential decarbonization solutions. These are carbon capture, using clean energy such as green hydrogen to heat kilns, reducing or substituting clinker (the main component of cement), and developing cement substitutes.

Herweijer also said HSBC's stance on financing the early retirement of coal may mean its own emissions metrics will initially look worse.

"We want to find ways to finance early retirement of coal, even if in the short term, it looks like our coal-related emissions will go up," she said. "Because that leads to emissions reduction in the real world."