Climate change-linked events are gaining increased attention, from tropical cyclones to forest fires. The recent Intergovernmental Panel on Climate Change (IPCC) SR15 report1 provided a sharp reminder of the consensus scientific view that climate change could have a hugely detrimental impact on both ecosystems and economies, and the clear benefits of limiting temperature increases to 1.5 degrees above pre industrialisation levels. But 1.5 degrees is notably lower than the Paris Agreement’s two degree target, and the IPCC SR15 research suggests we are very likely to move beyond the threshold that would enable us to limit temperature by that much in the near term.
This, alongside other recent events, has driven a shift in mind-set. All participants in the Global economy are starting to more strongly analyse their impact on the environment, what changes are needed, and the investment and financing needed to support that. The participants could be as wide ranging as consumers becoming increasingly conscious about the impact of their diets and the products they are buying, governments implementing policies to limit CO2 emissions, or corporations using more efficient machinery and reducing waste.
A result of the awareness and study of climate change is the huge opportunities that are emerging from the efforts to address the problem. In 2018, we saw various milestones achieved by both the private and public sectors, such as the use of ground-breaking technology and innovative business methods and the accelerating progress of the transition away from fossil fuel-based economies towards a greener economy.
In the energy sector corporations which have traditionally been associated with high volumes of CO2 emissions are taking steps to reduce their carbon impact, and are making senior management responsible for the implementation. In 2018 Royal Dutch Shell, a company whose business was built around the fossil fuel industry, implemented a new policy linking senior remuneration to the net carbon footprint of its energy products. The company has set the ambition to reduce its net carbon footprint by approximately 20 per cent by 2035, and 50 per cent by 2050.
There will need to be a much greener, sustainable financial system, and corporates in all sectors are working with banks to establish how they can transition their businesses to be more financially sustainable
In the autos space, hybrid and electric vehicles are starting to become more commonplace on roads around the world. They are a key feature in making urban development more sustainable. Shenzhen in China is a leading light in this regard. Having evolved from a fishing village of 30,000 residents in the 1970s to a city of over 12.5 million in 2018, Shenzhen has embraced technology and green transport as a means to develop the city, while maintaining a quality environment. During 2018 the Shenzhen government managed to complete the transition of all 16,000 of the city’s public buses to being electric-powered. The city now plans to convert all 17,000 of the cities taxis to electric power by 2020.
Underpinning this development, there will need to be a much greener, sustainable financial system, and corporates in all sectors are working with banks to establish how they can transition their businesses to be more financially sustainable. This stretches from the way companies raise finance, to the green credentials of their supply chains.
In the finance sector we have seen banks, encouraged by regulators, increasingly focussed on assessing the sustainability risks on their balance sheets, and investors looking at their exposure to high carbon in their portfolios. As a consequence, we have seen huge growth in the markets for financial products that connect capital to sustainable investment in the real economy.
With the UN suggesting that USD100 trillion dollars needs to be invested to transition the economy to limit temperature increases to two degrees, there is still a long way to go before we start celebrating any successes. However, with continued public and private sector cooperation and action, there will be progress and reason for hope. But if there is one message the research is telling us, it is that we need to move fast. The future is now.
Disclosure and disclaimerMore, collapsed
This document is issued by HSBC Bank plc ("HSBC"). HSBC is a member of the HSBC Group of companies ("HSBC Group"). Where this document refers to "you" it refers to you or your organisation.
The sales and trading department of HSBC may make markets in instruments or products to which this material relates. Accordingly, recipients should not regard this document as an objective or independent explanation of the matters contained herein.
This document has not been prepared in accordance with regulatory requirements designed to promote the independence of investment research and is not subject to the same prohibitions relating to dealing ahead of the dissemination of investment research. Information contained herein should not be regarded as investment research for the purposes of the rules of the Financial Conduct Authority or any other relevant regulatory body.
HSBC has based this document on information obtained from sources it believes to be reliable but which have not been independently verified. Opinions expressed may differ from the opinions expressed by other divisions of HSBC, including its research department. Opinions and estimates expressed are our present opinions only and may change at any time without notice. In addition, the analysis provided is not sufficient to inform an investment decision. Any charts and graphs included are from publicly available sources or proprietary data. Where information is from public sources, HSBC accepts no responsibility for its accuracy.
Any indicative trade details provided should not be regarded as complete or as representing the actual terms on which HSBC may trade. Figures included in this document may relate to past performance or simulated past performance (together "past performance"). Past performance is not a reliable indicator of future performance.
Reproduction of this document, in whole or in part, or disclosure of any of its contents, without prior consent of HSBC, is prohibited. This document is not intended for distribution to, or use by, retail clients as defined in the Financial Conduct Authority rules, or any person or entity in any jurisdiction or country where such distribution would be contrary to law or regulation. HSBC is under no obligation to keep current the information in this document.
This document is for information purposes and convenient reference. You are solely responsible for making your own independent appraisal of, and investigation into, the products, investments and transactions referred to in this document and you should not regard any information in this document as constituting investment advice. Neither HSBC nor any of its affiliates is responsible for providing you with legal, tax or other specialist advice and you should make your own arrangements in respect of this accordingly.
The issue of this document shall not be regarded as creating any form of adviser/client relationship, and HSBC may only be regarded by you as acting on your behalf as financial adviser or otherwise following the execution of an engagement letter on mutually satisfactory terms. Except in the case of fraudulent misrepresentation, neither HSBC nor any of its affiliates, officers, directors, employees or agents accepts any liability for any loss or damage arising out of the use of all or part of this material.
This document is a "financial promotion" within the scope of the rules of the Financial Conduct Authority Issued and approved for publication to Professional Clients and Eligible Counterparties only by HSBC Bank plc.
Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority Registered in England No. 14259 Registered Office: 8 Canada Square, London, E14 5HQ, United Kingdom Member HSBC Group DISC1015MCTIUK.