According to several recent news reports, global banking giant HSBC has announced it would no longer fund fossil fuel projects, including Arctic drilling, tar sands development, the construction of new coal plants, and hydroelectric projects that are not consistent with guidelines set by the World Commission on Dams.
“Our updated energy policy reflects HSBC’s ambition to help our customers make the transition to a low-carbon economy in a responsible and sustainable way,” said Daniel Klier, Group Head of Strategy and Global Head of Sustainable Finance, HSBC in a public statement. “We recognize the need to reduce emissions rapidly to achieve the target set in the 2015 Paris Agreement to limit global temperatures rises to well below 2°C and our responsibility to support the communities in which we operate.”
One organization applauding HSBC’s move is Genus Capital Management, a British Columbia-based investment firm that includes environmental organizations, foundations and indigenous communities as clients.
“It looks as though HSBC wants to be a leader rather than a laggard in the global transition to a low carbon economy,” said Mike Thiessen, Genus' manager of sustainable research, during an email exchange with TriplePundit.
But despite the public stances on fossil fuels taken by financial titans such as ING, BNP Paribas and BlackRock Investments, many financial institutions are still resisting the growing calls to extract themselves from carbon-intensive investments.
According to Genus, such moves – or the lack thereof - indicate that those banks are not considering the significant risks of stranded assets, as in coal or oil deposits left in the ground out of necessity or decreased demand. Banks are also exposing themselves to more risk, due to the increased pace of regulation from governments that see the need to take on climate change.
In addition, from the point of view of Genus and activist investors, litigation seeking compensation for infrastructure costs linked to dealing with climate change filed by several North American cities against fossil fuel companies should be another sign that banks need to rethink their lending practices. Finally, changing cultural shifts, along with shifting client desires that the investment community has been witnessing, show that the handwriting is on the wall.
“Many of our clients are moving their accounts to financial institutions that have divested, because they don't want to be contributing to the acceleration of climate change,” explained Thiessen. “Resistance to divestment likely indicates that a bank doesn't stand to benefit as much from the low carbon economic transition.”
The question then arises: so, what can individual investors do, if anything?
“It's really not that difficult to align your portfolio with your values,” replied Thiessen. “If you invest in an oil company, you are funding that oil company. The divestment movement will make it more difficult for oil companies to get funding and, therefore, harder to start new carbon-intensive projects.”
And there’s a flip side, noted Genus. By investing in companies that make a positive impact on the world, you are funding them, and making it easier for them to raise capital and expand their businesses. After all, more individuals are aligning their food purchases, transportation, and clothing with their values — why not their investments?
“Like other movements, if enough people do it, it will make a difference. Investing in any industry that is harmful to the environment or people will have additional financial risks and our research shows divesting does not hurt your returns in the long run,”Thiessen said as the company wrapped up its email exchange with 3p.
HSBC apparently got the memo. The bank first announced it would “restrict its support” for coal-fired power plants in 2011. Now it has halted the finance of them altogether – with the exception of projects in Bangladesh, Vietnam and Indonesia. The exception, HSBC explained, is necessary “in order to appropriately balance local humanitarian needs with the need to transition to a low-carbon economy.”
Image credit: Arby Reed/Flickr
Leon Kaye has written for TriplePundit since 2010, and became its Executive Editor in 2018. He's based in Fresno, CA, from where he happily explores California’s stellar Central Coast and the national parks in the Sierra Nevadas. He's worked an lived in South Korea, the United Arab Emirates and Uruguay, and has traveled to over 70 countries. He's an alum of the University of Maryland, Baltimore County and the University of Southern California.