HSBC’s funds division strengthens thermal coal policy to curb climate change

HSBC Holdings Plc told Reuters on Thursday that it will immediately stop funding thermal coal expansion from its actively managed funds.

Thermal coal is a widely used and cheap source of energy in the Asian market, where many of HSBC’s customers are based, and is one of the fossil fuels that contributes the most to negative climate emissions.

The banking sector was slow to commit to no more financing fuel production. HSBC’s emerging markets competitor Standard Chartered (STAN.L) announced earlier this year that it would end all direct coal financing to customers by 2032.

HSBC said in December last year that it would reduce its exposure to thermal coal financing by at least 25% by 2025 and 50% by 2030 across all businesses, including asset management, but it will also reduce its exposure to non-EU or non-OECD based clients. can also provide funding. Until global abolition by 2040.

HSBC Asset Management, which oversees about $600 billion in assets, said in a new 10-point plan it would immediately stop investing in listings and major bond issuances of companies involved in thermal coal expansion.

HSBC estimates that more than 300 companies worldwide tie more than 10% of their revenues to fuel. His exposure to HSBC’s funds division was $3.4 billion at the end of November, according to the Global Call Exit List, which tracks ties between financial institutions and the coal sector.

Erin Leonard, head of sustainability at HSBC Asset Management, said in an interview that “relatively few” companies in the bank’s investment portfolio have so far confirmed plans to increase their exposure to thermal coal. said.

HSBC said it plans to engage with all publicly traded companies in its actively managed portfolio with 10% or more of its revenues from thermal coal by next year.

By the end of 2030, the Group’s active portfolio will no longer hold listed securities of companies that rely on coal for more than 2.5% of their revenues in the European Union or OECD markets. And it will be extended to all markets by 2040.

By 2025, HSBC aims to start engaging with all companies with stakes above 10%, including those held in passive funds, Leonard said.

For active fund companies with more than 10% earnings exposure to thermal coal, all initial public offerings and primary debt issuances are subject to “enhanced due diligence” in the company’s net-zero transition plan, according to HSBC. subject to .

HSBC said in its 2021 annual report that its thermal coal loan exposure is $1 billion, or 0.2% of its total wholesale loans.

When it comes to holding the boards of companies with high thermal coal exposure to account, HSBC said the funds department would vote against electing a chairman for the boards of companies planning to expand their production and use of thermal coal. said to throw.

Chairs of companies with revenues above 10% that have not provided adequate reporting on climate change risks or whose transition plans remain inadequate after a period of engagement should seek re-election. may also be opposed.

“This gives a more general signal to the companies we invest in about our intentions and how we vote,” Leonard said.

A spokesperson for ShareAction, a nonprofit advocating for sustainable business, welcomed HSBC’s announcement and called for it to set an interim milestone for its engagement with the company.

HSBC also said it would stop launching index funds with more than “negligible” thermal coal exposure, which the group defined as more than 2.5% of company earnings.

For all existing passive funds, which comprise one-sixth of HSBC’s total assets, we are working with our clients to move to greener alternatives and with our index providers to develop more sustainable assets without thermal coal exposure. Create many indexes. HSBC’s funds division strengthens thermal coal policy to curb climate change

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