HSBC

HSBC states that senior leadership considers climate change as a key priority in its strategy, and in October 2020, it announced its net-zero ambitions. There are clear processes in place to ensure the board is informed and monitor the progress of climate-related issues and have oversight of climate-related risks. The organization has also assigned clear climate-related responsibilities to management-level committees.

HSBC has clearly defined the climate-related risks it considers relevant to its business over different time horizons as well as what it considers to be short, medium and long term time horizons. It has defined some of the processes used to determine which risks and opportunities could have a material financial impact on the organization and is transparent about its approach to assessing transition risks.

It has provided some examples of how it has considered the impact of climate-related risks and opportunities on its corporate strategy planning, such as how its supporting customers in the transition to a net zero economy. However, some of these references appear to only apply to small subsets of the organizations, are in the pilot stage, or lack detail.

HSBC has conducted stress testing on six portfolios most exposed to climate risk using NFGS scenarios as well as a physical risk analysis on retail mortgage protfolio. HSBC’s asset management arm appears to have comprehensively tested the resilience of equity valuations across various climate scenarios. It states that it plans to develop its scenario testing in the next two years in its 2020 CDP response.

The organization has some disclosure around the processes used for identifying and prioritizing climate-related risks. For example, in 2019, the organization developed a new approach to transition risk, that is now in the pilot phase. HSBC incorporates climate-related risks into risk assessments for wholesale credit and retail credit risk, reputational risk, resilience risk and regulatory risk.

HSBC has some disclosures around the use of processes for managing climate-related risk. In November 2020, it developed plans to integrate climate-related risk into its group-wide risk management framework which includes aligning climate risk with its three lines of defense to ensure robust oversight of climate risk. It has also provided all staff members involved in risk management with tailored sustainability training.

The organization is transparent about the key metrics used to measure and manage climate-related risks. However, these metrics are largely focused on operational emissions, waste, and water usage. It has, however, incorporated the management of material climate-related risks into senior management remuneration policies and it has disclosed its wholesale loan exposure to transition risk sectors.

The organization discloses Scope 1, Scope 2 emissions data and has some relevant Scope 3 emissions which include its lending exposure to high transition risk sectors. HSBC's 2020 CDP disclosure includes disclosures around the carbon footprint of its asset management portfolios and pension fund, and a pilot study exposure analysis of its bank lending activities. HSBC has committed to disclosing financed emissions using the PCAF methodology.

In October 2020, HSBC announced its ambition to become a net-zero bank, including a commitment to reach net-zero emissions for its operations and supply chain by 2030 or sooner. It has since joined the Net Zero Banking Alliance, and a management backed resolution focusing on this commitment passed at its 2021 AGM. This resolution included a commitment to publish, by the end of 2021, further detail on this approach, starting with the Oil & Gas and Power & Utilities sectors, and including methodology, scenarios, treatment of negative emissions and core assumptions used. In February 2022, HSBC outlined its 2030 targets, setting a 34% reduction in absolute on-balance sheet financed emissions for the oil and gas sector and a 75% reduction in the on-balance sheet financed emissions intensity for the power and utilities sector.

The organization's coal policies are partially aligned with IPCC guidance on the role of coal in the energy mix. At HSBC's 2021 AGM, a management backed resolution passed that commits HSBC phase out thermal coal mining by 2030 in the EU and OECD countries, and globally by 2040. In December 2021, HSBC updated its thermal coal policy, outlining how it expects clients to publish a transition plan compatible to its Net Zero by 2050 target by the end of 2022 for EU/OECD markets and 2023 for all other markets. It intends to reduce thermal coal financing exposure by at least 25% by 2025 and 50% by 2030 and will not provide new finance for clients whose revenues from thermal coal are greater than 40% of total revenues. However, this threshold only applies to EU and OECD markets and it is not setting materiality thresholds for non-EU/OECD markets before the exit date of 2040.

With regard to natural gas, HSBC has set exclusionary policies that limit financing of certain activities within the Arctic; however, the organization appears to otherwise participate in unabated natural gas financing. It has suggested that the long-term role for natural gas in the energy mix is desirable without placing clear conditions on the deployment of CCS or methane abatement measures.

The organization appears to have a similar position on oil investments. The entity has established oil financing exclusion policies for specific activities like Arctic drilling or tar sands but appears to otherwise finance expanding oil infrastructure.

Additionally, HSBC supports nuclear financing, but it is unclear how this relates to the wider energy transition and IPCC guidance regarding transitioning to a zero-carbon energy system by 2050.

In March 2022, it published details on the next steps it is taking to reach net zero, which includes scaling down its fossil fuel financing and expanding its targets to include capital market activities later in 2022, and publishing a bank-wide Climate Transition Plan in 2023.