Institutions urge HSBC to cut exposure to fossil fuels as shareholder climate activism accelerates

coal

A group of 15 leading institutional investors including Amundi, Man Group, and Brunel Pension Partnership have filed a shareholder resolution with HSBC, targeting the bank’s financing of coal assets. 

HSBC drew criticism from investors and campaigners after it announced plans in October to become a net zero bank by 2050 at the latest, without committing to reduce the banking group’s funding for fossil fuels, in particular coal.

The latest climate change resolution, co-ordinated by responsible investment group ShareAction, calls on HSBC to publish a strategy and timeline targets to reduce its exposure to fossil fuel assets, starting with coal, on a timeline consistent with the Paris climate goals.

ShareAction’s analysis shows that in the four months leading up to its announcement, the bank pumped an additional USD1.8 billion into fossil fuel companies, including those constructing new infrastructure for coal and tar sands. 

“The message from the resolution is clear: net zero ambitions by top fossil fuel financiers are simply not credible if they fail to be backed up by fossil fuel phase-out plans,” says Jeanne Martin, senior campaign manager at ShareAction. 

“Five years after the Paris agreement was signed, HSBC continues to pour billions into the coal sector, a behaviour that is at odds with limiting global warming to 1.5°C. If HSBC is serious about its net zero ambition, it will support this resolution.”

If the resolution receives more than 75 per cent of the votes at HSBC’s annual general meeting in April 2021, the bank will have to publish a strategy along with short, medium, and long-term targets to reduce its exposure to fossil fuel assets.

In response to the shareholder resolution, an HSBC spokesperson says that the banking group is “strongly committed to addressing climate change”.

“We are a leader in sustainable finance and expect to provide between USD750 billion and USD1 trillion in finance by 2030 to support our customers in all sectors to progressively decarbonise. As we work to set out the detail of our roadmap to net zero, we continue to positively engage with our customers, shareholders and ShareAction,” says the spokesperson. 

The institutional investor group that filed the resolution has a combined USD2.4 trillion of assets under management. It also includes La Banque Postale Asset Management, Folksam, Friends Provident Foundation, Islington Pension Fund, Jesuits in Britain, Marmot Charitable Trust, Merseyside Pension Fund, Rathbone Investment Management, Trinity College Cambridge and The 1970 Trust.

“Climate change represents a systemic risk. The financial sector has a key role to play in supporting the switch to a low carbon economy and the alignment with the Paris Agreement. Engaging with companies on the energy transition and decarbonisation of their activities is one of our key priorities,” says Caroline Le Meaux, head of ESG research, engagement and voting at Amundi. “Amundi thus fully backs this resolution, as part of our more global commitment to banks on their energy transition policy in general and their coal policy in particular”.

Asset management firm Sarasin & Partners says it decided to co-file the resolution “in light of the urgency of the climate crisis”.

“In the end, increasing financing for green activities only gets us halfway; the Board must be clear on its intent to withdraw financing of harmful emissions. The sooner the Board sets out its strategy for delivering this, the less disruptive the transition. And – above all – the greater the chances that HSBC helps to build, not destroy, our collective capital,” says Natasha Landell-Mills, head of stewardship at Sarasin & Partners.

Jens Munch Holst, CEO of participating institution AkademikerPension, also draws attention to the bank’s international portfolio: “HSBC’s strong presence in Asia will be critical in encouraging a much-needed transition away from coal dependency in that region, while at the same time increasing HSBC’s own resilience to climate risk.” 

Holst continues: “We urge HSBC to listen to its shareholders by introducing robust fossil fuel project and corporate finance restriction criteria and publishing a 1.5°C-aligned engagement policy for its clients in high-carbon sectors.”

According to Rainforest Action Network (RAN), HSBC is Europe’s second largest financier of fossil fuels, after Barclays. 

Pressure on financial institutions from their investors has been growing in recent years, as governments and regulators examine the funding of climate change, in a bid to meet the aims of the Paris Agreement.

Back in January, ShareAction filed a climate resolution with Barclays, the first of its kind to receive backing from institutional investors at a major European bank. 

Barclays responded to that resolution by tabling its own and becoming the first mainstream bank to commit to net zero by 2050 at the latest.

Among the investors calling for more scrutiny on financial institution’ environmental impact, Netherlands-based asset manager Robeco recently listed banks as a main area for engagement in 2021. The firm has resolved to reach net-zero on all assets under management by 2050.  

“We know that many banks are still lending to high-carbon emitters without gaining any commitment from them to change to lower-carbon business models,” says Carola van Lamoen, Robeco’s head of sustainable investing.

“Ultimately, we expect the financial sector to have profound insight into the climate risks and opportunities, and have a strategy to manage portfolios which are fully aligned with the Paris Agreement.”

Other European banks have started to take notice, with institutions including Unicredit, Credit Agricole, and BNP Paribas recently committing to phasing out, or excluding, their exposures to firms in the fossil fuels industry. 

NatWest Group has also asked its oil major clients to publish credible transition plans by the end of 2021, without which the bank says it will gradually phase out support for these companies.