On Thursday, HSBC Holdings mentioned it would stop funding thermal coal expansion from its actively managed funds. This is an acceleration of broader commitments made last year.
Thermal coal is a widely available and cheap source of energy in the Asian market, where many of HSBC’s customers are based, and is one of the fossil fuels most responsible for climate-affecting emissions. The banking sector was slow to pledge to stop funding fuel production.
HSBC competitor in emerging markets, Standard Chartered, announced earlier this year that it would end all direct coal financing to customers by 2032. HSBC said last December that it would cut its exposure to thermal coal financing across its businesses, including asset management, by at least 25% by 2025 and 50% by 2030, funding global phase out by 2040.
HSBC Asset Management, which manages about $600 billion in assets, said in a new 10-point plan that it will immediately stop investing in listings and major debt issuances by companies involved in expanded trading in thermal coal.
HSBC estimates that worldwide it has more than 300 companies that tie more than 10% of their revenues to fuel. HSBC’s capital exposure was $3.
billion at the end of November, According to the Global Call Exit List, which tracks financial institutions’ ties to the coal sector.
In an interview, HSBC Asset Management sustainability chief Erin Leonard said that “relatively few” companies in the bank’s investment portfolio have confirmed plans to increase their exposure to thermal coal.
HSBC said it will work with all publicly traded companies in its actively managed portfolio, which accounts for more than 10% of thermal coal revenues by next year. By the end of 2030, the Group’s active portfolio will not include listed securities of coal-dependent companies representing 2.5% or more of their revenues in the European Union or OECD markets. And it will be expanded to all markets by 2040.
HSBC aims to start working with all companies whose stake exceeds the 10% threshold, including those holding passive funds, by 2025, he said.
According to HSBC, all his IPOs and primary debt issuances for active fund companies whose thermal coal earnings interest exceeds 10% will be subject to the company’s plan to move to net zero “enhanced subject to due diligence.
In its 2021 annual report, HSBC said some time that the bank’s exposure to thermal coal loans is $1 billion, or 0.2% of its total wholesale loans.
When it comes to holding the boards of companies with significant thermal coal exposure to account, HSBC’s fund’s division voted against electing a CEO for a company planning to expand thermal coal production and use.
“CEOs from companies with revenue risk greater than 10% will be opposed if re-elected if they fail to provide adequate reporting on climate risk and transition plans remain inadequate after engagement for a period of time will be faced with re-election.
“This is a more public signal to the companies we invest in about our intentions and how we vote,” Leonard said.
A spokesman for ShareAction, a nonprofit dedicated to promoting sustainable business, welcomed HSBC’s announcement and urged it to set milestones for its engagement with businesses.
HSBC also said the group would suspend the issuance of index funds with more than minimal thermal coal exposure, defined as more than 2.5% of corporate earnings.
Working with clients to switch to greener alternatives and working with index providers to create indices with no thermal coal exposure for all of their existing passive funds, which comprise one-sixth of HSBC’s total assets, will create more.