HSBC to hold vote on phase-out of fossil fuel funding, but is the proposed plan good enough?

The bank has significantly ramped up its climate change commitment, averting a potential shareholder revolt. HSBC has acceded to investor pressure by tabling a shareholder vote on new plans to phase out the bank’s financing of the coal industry by 2040.

The resolution will be put to a vote in May at HSBC’s AGM Earlier this year, investors with a combined $2.4trn in assets under management filed a resolution at HSBC, calling on the bank to publish a strategy that outlines efforts to reduce exposure to fossil fuel assets.

The ShareAction coalition has since encouraged HSBC’s board to table a resolution that will phase-out this financing in the European Union and OECD by 2030 and globally by 2040.
The resolution will be put to a vote in May at HSBC’s AGM. If the new resolution receives more than 75% of votes, HSBC would be required to publish a strategy and intermittent targets that would reduce exposure to fossil fuels.

ShareAction’s senior campaign manager Jeanne Martin said: “Today’s announcement shows that robust shareholder engagement can deliver concrete results and sets an important precedent for the banking industry. Net-zero ambitions have to be backed up with time-bound fossil fuel phase-out and today HSBC has taken an important step in that direction.
“Our focus now turns to ensuring it delivers on these commitments. HSBC must ensure that its coal phase-out policy, to be published before the end of the year, includes a clear commitment to stop financing coal developers and top coal companies and to ask its clients to publish their own coal-phase out plans by 2023 at the latest.”

The resolution would commit HSBC to set, disclose and implement short and medium-term targets to align its financing with the goals of the Paris Agreement. The bank would also have to publish a policy committing to the phase-out of financing of coal-fired power and thermal coal mining for the specified dates. The policy will be published by the end of 2021.
HSBC would also be required to report annually on progress against the strategy.

According to ShareAction, the commitment is likely to see the bank “use science-based scenarios that follow 1.5 degrees Celsius warming pathways, and which are not overly reliant on negative emissions technologies, to assess alignment of [its] financing activities”. ShareAction claims this makes HSBC the first mainstream bank to take such a stance on negative emissions, with some reports, including the flagship IPCC special report noting that reliance on carbon removal technologies is a risk in the short-term.

In October, HSBC committed to reaching net-zero financed emissions by 2050 and outlined plans to finance at least $750bn of low-carbon activities within a decade. However, ShareAction claims that in that HSBC funnelled $1.8bn into fossil fuel companies in the build-up to the announcement.
The bank has committed to reaching net-zero across its own operations and supply chains by 2030 and to ensuring that all projects it finances are generating no net emissions by mid-century. It has outlined plans to report in line with the Taskforce on Climate-Related Financial Disclosure’s (TCFD) recommendations and to encourage its business customers to follow suit.

To reach the latter of these aims, HSBC will use the Paris Agreement Capital Transition Assessment Tool (PACTA) to develop a methodology for shifting its portfolio. The tool was jointly developed by BBVA, BNP Paribas, ING, Standard Chartered and Societe Generale following a commitment at COP24 and was recently open-sourced following initial trials.

However, HSBC has reportedly provided $87bn in financing to fossil fuel companies since 2015. The bank has also faced criticism from investors for financing coal firms and businesses with known links to deforestation in recent years.

HSBC also faced criticism from investors and campaigners for making no commitment to reduce funding for fossil fuels, in particular coal, which has risen each year since 2016.