Paris, December 14th 2021 – HSBC has finally published the updated coal policy it promised to its shareholders at its last AGM in the spring. Indeed, HSBC doesn’t put a hard stop to its financing to the expansion of the coal sector and will still be able to finance companies with coal expansion plans.
Between October 2018 and October 2020, the UK bank channeled $4.1bn to companies planning new coal plants worldwide, and $15bn to the whole coal industry, making it one of the top 30 “dirty lenders and underwriters” of the industry.
Yann Louvel, Senior Policy Analyst at Reclaim Finance, said: “Despite its repeated commitment to exit the coal sector, HSBC will still continue to support the expansion of the highly polluting industry. Financial institutions who are serious in their net-zero commitments should instead blacklist all coal developers, without exception. It really is that simple.”
1. What’s new
HSBC published on December 14th, 2021, its updated coal policy which contains the following new measures:
- HSBC will seek to withdraw any financing and advisory services with a client that makes a new commitment to, or proceeds with, thermal coal expansion after 1 January 2021, unless such expansion was contractually committed or under construction before that date;
- HSBC intends to reduce its thermal coal financing exposure by at least 25% by 2025, with an aim of 50% by 2030, to seek a full phase out from the sector by 2030 in the EU/OECD and 2040 worldwide.
- HSBC will exclude clients deriving more than 40% of their revenue from thermal coal in EU/OECD countries, with some exceptions for the financing of clean technology or infrastructure.
2. Our analysis: failing the litmus test of credibility
The pressure from AGM shareholders in the lead up to its last AGM and from civil society groups such as ShareAction and Reclaim Finance led HSBC to adopt a resolution setting an important deadline: a commitment to phase-out from the coal sector by 2030 in the EU and OECD, and 2040 elsewhere. Such a commitment is a vital feature of a robust coal policy, already adopted by more than 60 financial institutions worldwide.
Phasing out coal on time requires conditioning financial services to companies’ adoption of a Paris-aligned asset-based coal exit plan. HSBC does not require its clients to adopt such a plan but says it will engage with them and expect them to adopt “transition plans that are compatible with HSBC’s NZ50 Target”. HSBC only lists several overall criteria and fails to specify the minimal efforts to be met by its clients. It’s unclear to what extent a company that fails to commit to specific dates of closures for its existing coal assets will be assessed by the UK bank.
Failure to fully stop financing coal expansion
The first immediate step to support the phase-out of the coal sector should be to stop supporting the expansion of the industry, which is led by the 503 coal developer companies publicly identified in the Global Coal Exit List. Yet, HSBC fails to fully tackle expansion through its corporate financing.
Most of the financial support to the expansion of the coal industry is not direct but rather indirect, through the provision of general corporate finance, lending or underwriting, as opposed to support for specific projects. This is why the full exclusion of companies still planning to expand the coal industry worldwide with new coal mines, coal plants or coal infrastructure project, is essential.
This is precisely where HSBC’s updated policy fails the test and ruins the credibility of its new approach. The measure adopted by HSBC regarding coal developers is strewn with loopholes:
- It makes some exceptions for “expansions contractually committed or under construction before 1 January 2021”. This raises the precise definitions used for “contractually committed” or “under construction”;
- The exclusion only applies at the client level, not at the group level. This means that some coal companies raising their financing through their parent company or specific financing subsidiaries will not be affected by this exclusion.
To cite a few examples of the new policy’s lack of impact on coal companies recently financed by HSBC, here are three concrete examples of coal developers that HSBC will be able to continue to support at the group level because of the loopholes in its policy:
- Adaro: The Indonesian company Adaro is a case in point. It still plans new thermal coal mines as well as 2GW of new coal power in the country. But the expansion plans come from the subsidiaries PT Bhimanesa Power Indo and PT Adaro Power, and not from the group level financed by the UK bank, PT Adaro Energy Tbk. HSBC channeled $27m in the group between October 2018 and October 2020.
- Glencore: Despite a recent commitment to cap its coal production, the global mining conglomerate still plans new coal mines in Australia ($546m). But the expansion plans come from its Australian subsidiaries and not from the group level or its financing subsidiaries supported by HSBC.
- KEPCO: The South Korean power utility is involved in several new coal plants in South Korea, Indonesia, Vietnam, adding up to 8640MW of new capacity ($736m). But the expansion plans come from its subsidiaries rather than at the group level which has also been financed by HSBC.
HSBC indicates that it will require its clients not to use any financial services for coal expansion inside a group, but recent examples like the Indian group Adani with its Carmichael coal mine in Australia prove that this remains inadequate. In a Reuters investigation article several years ago, bankers recognised anonymously that the financing of such groups still helps indirectly to finance coal expansion plans.
These loopholes will limit the impact of the policy on HSBC’s coal portfolio. These exceptions go against the text in the AGM resolution itself which included the following sentence: “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”. Climate science is very clear that any new coal plant around the world is incompatible with our climate budget to keep the 1.5°C objective within reach.
Weak exclusion thresholds
The updated coal policy adopted by HSBC restricts financing to companies deriving more than 40% of their revenues from thermal coal, but only for the EU/OECD, which is higher than the threshold adopted by many other banks such as Crédit Agricole (25%) or Natwest (15%). HSBC remains silent in terms of coal clients based outside the OECD. Other measures were adopted but they only apply to new clients and not existing one, another gaping policy loophole.
Finally, another giant loophole in HSBC’s updated coal policy lies in the fact that this exclusion of some coal developers does not cover its investment branch. HSBC Global Asset Management, with its more than $600bn of assets under management, adopts the coal deadlines of 2030 and 2040 but without any immediate exclusion measure, it is still lagging far behind its own group and many of its peers, such as AXA IM.
Our conclusion
HSBC clearly missed an opportunity to transform its AGM resolution into a robust coal policy. It stopped half way and refused to adopt immediate exclusions of all coal developers, the first immediate obvious step to make. The group must now close the loopholes in its policy, adopt other stricter exclusion thresholds, and apply these measures to all of its activities including its asset management branch.