Why we are calling out HSBC on its climate response

Today, ClientEarth lawyers wrote to HSBC’s board members calling on the bank to implement a strategy to reduce its exposures to fossil fuel assets in line with the Paris Agreement.

The letter supports demands laid out in a shareholder resolution coordinated by responsible investment campaigners ShareAction last month, and urged HSBC’s directors to recommend shareholders vote in its favour at the bank’s upcoming annual general meeting.

HSBC is Europe’s second largest fossil fuel financier. We strongly believe that, despite its recently announced ambitions of reducing financed emissions to net zero by 2050, the bank needs to show how it plans to reduce its fossil fuel financing.

Our lawyers argue that supporting the action is in line with board members’ legal duties to promote the success of HSBC, which involves taking progressive action on climate change. We have therefore reminded board members of their obligations as they consider their position.

Jamie Sawyer, a lawyer in ClientEarth’s Climate Finance team, said: “It is not enough to declare net-zero ambitions; HSBC must explain how they will achieve them. The directors have both legal and moral duties to consider the bank’s impact on the environment and mitigate the risks of climate change.

“Inaction will not only jeopardise HSBC’s own financial health, but will exacerbate the systemic impacts the crisis will inflict on the entire economy. We urge board members to show real leadership in responding to the climate emergency and support the resolution.”

What does the resolution call for?

ShareAction’s resolution, filed together with over 100 institutional and private co-filers in January, called on HSBC and its directors to set and publish a strategy with short, medium and long-term targets to reduce its exposure to fossil fuel assets, starting with coal.  It said the bank must do so on a timeline aligned with the goals of the Paris Agreement.

The best available science indicates that in order to limit warming to 1.5⁰C and achieve the goals of the Paris Agreement, global emissions must reach net zero by 2050.

Why should HSBC directors support the resolution?

For one, we believe it falls under their legal obligations. Directors are required under the UK Companies Act to promote the success of HSBC, which involves taking progressive action on climate change.

But the implications of inaction stretch further than legal risk. Major financial vulnerabilities could also result, and are not limited to stranded assets or short-term shocks to HSBC’s own balance sheet; failing to align with the Paris Agreement goals urgently could come at a huge cost to the global economy – causing irreversible systemic impacts and trillions in damages.

Then there is reputation. Institutions that seem to be dragging their feet on climate change are losing customer confidence. A recent survey by Deloitte found that almost half of UK banking customers would move their money if they found out their bank was financing fossil fuels, and more than three fifths would switch providers if it was linked to any social or environmental harm.

Time for action, not promises

As a customer of HSBC ourselves, we want to see the bank go much further than stating net zero ambitions. We want to see a strategy, targets and transparent reporting – so that we, its investors and other stakeholders can hold the bank to account over the steps it takes to limit its environmental impact and mitigate its climate change-related risks.

HSBC is lagging far behind the industry standard in its response to climate change.  It must use this resolution as an opportunity to show real leadership in the push for a climate neutral economy.

Sawyer added: “Around the world, governments, investors, businesses and the public are rapidly raising their ambitions on climate action – HSBC’s response falls below the benchmark.

“If it is serious about transitioning to net zero emissions then it must move quickly to address the current gap and implement a Paris-aligned strategy supported by targets in line with emerging market practice.”