Both public and private institutions are pledging to become carbon neutral. Nearly one third of the world’s 2000 largest listed companies have net-zero targets in place, suggesting that it is already a mainstream corporate strategy1. Going forward, the challenge will be turning these ambitious goals into reality.
Financing net zero
The financial industry has a key role to play in realising these sustainability targets, as decisions relating to how capital is allocated can promote change across the entire economy. But banks, asset managers, and other financial institutions will only be able to drive this change if they understand the environmental, social, and governance (ESG) needs of their clients.
“At HSBC, we have adopted an integrated approach, embedding sustainability into our main business,” said Zhang Hui Feng, Head of Corporate Sustainability, Asia Pacific, HSBC. He was speaking at ReThink HK 2021– an event focused on accelerating change towards a sustainable future.
Last year, HSBC announced its own ambitious plan to prioritise financing and investment that supports the transition to a net-zero economy. HSBC’s goal is to reduce financed emissions from our portfolio of customers by 2050, all in line with the goals of the Paris Agreement. This is backed by an ambition to provide USD750 billion to USD1 trillion of finance by 2030, which will be used to encourage sustainable ways of doing business.
Realising net zero requires a change in mindset to look beyond the next quarterly financial report towards long-term benefits that become manifest over the medium term.
“Companies need to be more forward looking when investing in sustainable projects,” said Mr. Zhang. “It might not appear economically viable over the short term, but after a few years, it could be making a real contribution to the business.”
Creating sustainable supply chains
Some of the world’s largest and most influential companies are already using finance to realise sustainability goals. Mr. Zhang cited HSBC’s work with US retail giant Walmart, as an example of a financial innovation that aims to have a positive ESG impact.
This sustainable supply chain finance programme is designed to help support suppliers go green – across a wide range of metrics that include everything from energy efficiency to the amount of packaging used. It is part of Walmart’s Project Gigaton, which aims to remove one billion metric tonnes of greenhouse gases from its global value chain by 20302.
Launched in 2019, the programme works by tying a supplier’s financing rate to its sustainability standards. Suppliers that perform well receive improved financing terms from HSBC. In late 2021, the initiative was enhanced via a collaboration with the Carbon Disclosure Project to raise the reporting standard and incorporate science-based targets so that suppliers can ensure their operations accord sustainability objectives3.
Since Walmart’s supply chains stretch across the world, the programme is a case study of how the actions of one large corporate can have a global impact. More than 3,100 suppliers have signed up to Project Gigaton, reporting more than 186 million metric tonnes of CO2 emissions avoided4.
“It’s a way to help shift a traditional supply chain into a more sustainable supply chain over time,” said Mr. Zhang. “It’s very successful, and we’re already providing this service to other multinationals.”
Sustaining the blue economy
Sustainability is a broad concept, and it means more than just reducing carbon emissions. One area of increased focus is biodiversity – namely how we protect the ecosystems and the natural capital that supports life on the planet.
The complex relationships governing the natural world are apparent in what is known as “the blue economy”. This is a relatively new field that explores how we can sustainably make use of the ocean’s natural resources, with a focus on fishing, maritime transport and renewable energy.
“Between the oceans, the land and the atmosphere, any activity that happens in one of them will have an impact on the others,” said Jonathan Drew, Managing Director, ESG Solutions, Global Banking, HSBC.
HSBC is already actively involved in preserving marine ecosystems. For example, we drove a milestone initiative in Australia to accelerate the issuance of blue bonds, with money raised used to fight climate change in coastal regions5.
Another blue economy project is the HSBC Clean Waterways Programme, which uses solar-powered boats to reduce the plastic waste that pollutes the waters around Hong Kong6. The boats operate every day, with the ability to collect more than 2,500 litres of floating plastic per load.
The financial industry is already funding support for the oceans via blue bonds – a sustainable debt instrument where the proceeds can be used on projects such as aquaculture, sanitation and shipping. Although blue bonds are still relatively new, there have been a number of high-profile issues: including the Asian Development Bank, Bank of China and the Republic of Seychelles7.
“Anything that a financial institution supports ultimately affects, positively or negatively, the oceans and therefore has a critical impact on our achievement of our overall sustainability objectives,” said Mr. Drew.
The recent United Nations Climate Change Conference (COP26) ended with a new international agreement on climate change. Taken together with the growing number of corporate commitments to net zero, there is clearly growing impetus to protect the world we live in. The role of the financial industry will be to provide funds to sustainability projects that can make a difference.
But as we focus more on sustainability, the scale of the challenges we face become more apparent. Not only do we need to decarbonise our economies, we must protect the complex natural ecosystems that connect life on land to creatures in the ocean. The solutions must therefore be as multi-faceted as the problems. Only if governments, corporates and financial institutions work closely together, will we be able to realise a sustainable future.
To find out more, speak to your HSBC Relationship Manager.
This material does not constitute Investment Research. It has not been prepared by HSBC’s Research Department. This material represents the best estimates or approximation as at the time of compilation and is not a recommendation. Investors must make their own determination and investment decisions.