Reacting to pressure from a $2.4tn investor coalition led by ShareAction, HSBC’s board has tabled a resolution for its AGM committing the bank to phase out financing of thermal coal mining and coal power by 2030 in the EU and OECD and by 2040 worldwide. This commitment will need to cover all coal companies and be completed by the immediate exclusion of all coal developers to be credible.

HSBC’s new commitments in the resolution include the following measures, which will become binding if it is passed by more than 75% of shareholders:

  • Set, disclose and implement a strategy with short and medium-term targets to align its provision of finance across all sectors, starting with Oil & Gas and Power & Utilities, with the goals and timelines of the Paris Agreement.
  • Publish and implement a policy to phase out the financing of coal-fired power and thermal coal mining by 2030 in markets in the European Union / Organisation for Economic Cooperation and Development, and by 2040 in other markets. Financing is defined as project finance, corporate finance and underwriting. The policy will be published by the end of 2021.

The extracts of the supporting statement published also include key facts such as this one: “However, although thermal coal is currently used widely as a source of power generation in many markets, we recognise that the expansion of coal-fired power is incompatible with the goals of the Paris Agreement.”

Lucie Pinson, Reclaim Finance founder and director, comments: “This coal phase-out commitment and this statement on coal plant developers are a major step forward for the UK bank, given both its financial and political support to coal particularly in developing countries. But tabling this vote is only half the story – with COP26 looming, HSBC should commit to exit coal regardless of how its shareholders will vote. Campaigners and climate-conscious investors will be watching to make sure HSBC delivers a strong policy that includes an immediate exclusion of all companies with coal expansion plans” .

Three measures will strongly determine the quality of a coal exit policy:

  • A key element of the phase-out commitment will be the definition used of “coal mining” and “coal power” companies. A real phase-out from these sectors must cover all companies deriving 0% or maximum 5% of their revenues, and not EBITDA [1], from thermal coal;
  • Such a phase-out commitment by these relevant deadlines will be credible only if it comes with the immediate exclusion of all coal developers (those companies still planning to expand the coal industry);
  • It will finally be crucial for the bank to require from the remaining coal companies to adopt an asset-based detailed closure plan of their coal assets by the relevant deadlines by the end of 2022.

It will also need to be completed by the immediate exclusion of companies deriving at least 20% of their revenues or power generation from thermal coal, producing more than 10 Mt of thermal coal annually or with at least 5 GW of coal capacity. These exclusion thresholds will then need to be gradually reduced to target a full exit from the sector by the deadlines mentioned above.

Today’s announcement represents an important change for HSBC regarding coal. It took several years and strong pressure from NGOs and shareholders for the UK bank to end all direct financing to new coal projects, including in Vietnam, Indonesia and Bangladesh where HSBC were allowing support to new coal plants until 2020.

HSBC has also been very vocal in defending this policy with several public statements in the past years, and again recently such as with this one from Mark Tucker, HSBC chairman: “Divestment is not the best option for the environment or for the people and the communities that rely on these traditional industries.” A coalition of 20+ Asian NGOs recently published an open letter refuting his claim.

HSBC provided more than $15bn to 66 coal companies between October 2018 and October 2020, including $4.1bn to coal plant developers, making it one of the top 30 “Dirty lenders and underwriters” of the industry, so it will be important to closely follow the process leading to the adoption of the updated coal policy in the coming months.

Notes:

[1] EBITDA is not the right metric to use to depict the relative size of a company’s coal-related operations because it only indicates how profitable a company’s coal operations are compared to its other business activities. This metric has only been adopted so far Standard Chartered.

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