Exclusive-HSBC Fund Arm Toughens Thermal Coal Policy To Curb Climate Change

The HSBC logo at a branch in New York's financial district
The HSBC logo is seen at a branch in the Financial District of New York, the United States, on August 7, 2019.

HSBC Holdings plc told Reuters on Thursday it would immediately stop funding thermal coal expansion from its actively managed funds, marking an acceleration of a broader commitment it made last year.

Thermal coal, a cheap energy source widely used in Asian markets where many of HSBC’s clients are located, is one of the most climate-damaging fossil fuels.

The banking industry has been slow to commit to no longer funding fuel production. Standard Chartered, HSBC’s emerging-market rival, said earlier this year it would end all direct coal financing to customers by 2032.

HSBC said in December that it would reduce exposure to thermal coal financing by at least 25% by 2025 and 50% by 2030 across all businesses, including asset management, but not by EU or non-OECD sources. Customers may receive financing until global phase-out by 2040.

In a new 10-point plan, HSBC Asset Management, which oversees about $600 billion in assets, said it would immediately stop investing in any listed or tier 1 bond offerings of companies engaged in thermal coal expansion.

HSBC estimates that more than 300 companies worldwide have more than 10% of their revenue related to fuel. The Global Coal Exit List, which tracks financial firms’ ties to the coal industry, said HSBC’s funds sector exposure was $3.4 billion at the end of November.

Erin Leonard, head of sustainability at HSBC Asset Management, said in an interview that the number of companies in HSBC’s portfolio that have so far confirmed plans to expand their thermal coal business is “relatively small.”

HSBC said that by next year, all listed companies in its actively managed portfolio would have more than 10% of their revenue from thermal coal.

By the end of 2030, the group’s active portfolio will not hold listed securities of coal-dependent companies with revenues above 2.5% in the EU or OECD markets; by 2040, this will expand to all markets.

HSBC aims to start working with all companies it holds above the 10% threshold by 2025, including those holding its passive funds, Leonard said.

HSBC said that for companies with more than 10% exposure to thermal coal revenue in its active funds, all initial public offerings and junior debt issuances will be subject to “enhanced due diligence” in the company’s transition plan to net zero.

In its 2021 annual report, HSBC said the bank’s thermal coal loan exposure was $1 billion, or 0.2% of its total wholesale loans.

In holding the boards of companies with significant thermal coal exposure to account, HSBC said its funds arm would vote against electing board chairs in companies planning to expand production and use of thermal coal.

Chairs of companies with more than 10% revenue exposure and no acceptable climate risk reporting or transition plans that remain weak after a period of engagement will also face opposition when seeking re-election.

“It’s a more public signal for the companies we invest in about our intentions and how we’re going to vote,” Leonard said.

A spokesman for ShareAction, a nonprofit advocating sustainable business, welcomed HSBC’s announcement and called on it to set interim milestones in its work with the company.

HSBC also said it would stop launching index funds with more than “minimal” exposure to thermal coal, which the group defines as more than 2.5% of a company’s revenue.

For existing passive funds, which account for one-sixth of HSBC’s total assets, it will work with clients to transition to greener alternatives and with index providers to create more indices without exposure to thermal coal.

Workers load coal on trucks on the outskirts of Jammu
Workers load coal in a truck on the outskirts of Jammu on March 16, 2012.

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