For responsible investors, banks pose a unique challenge. Whereas other companies provide plenty of information about themselves, an investment bank’s activities are so extensive (and its loan book so impenetrable) that investors can often have little idea of what exactly they are funding.
Instead, they scrutinise a bank’s policies to see whether its activities align with their own values and priorities. But a recent investigation suggests that may not be enough.
At the World Economic Forum in Davos this year, ITV News chased HSBC’s chief operating officer around an inflatable igloo asking if the bank’s latest oil and gas policy was “greenwash”.
The policy in question was hailed as groundbreaking when it was announced in 2022. Here was a major investment bank, with huge interests in the oil-rich Middle East, saying it would not raise finance for new oil and gas fields or associated infrastructure.
And HSBC made clear its reasons for bringing in this policy: scientists have agreed we cannot develop any oil and gas fields approved after 2021 if we are to keep global heating below 1.5 degrees. HSBC – along with all the major western banks – has committed to aligning its business with this crucial climate target.
So why the accusations of greenwashing? Well, it turns out HSBC’s policy only prohibits direct finance for specific projects, but not for the companies carrying out those projects. In fact, in the year since making its groundbreaking pledge, HSBC has helped raise almost $50bn for companies that are developing new oil and gas fields – the very thing the bank promised not to finance. This alarming loophole was revealed in a joint investigation by the Bureau of Investigative Journalism and ITV News.
Sending a signal
HSBC’s policy was praised for sending “a strong signal” to fossil fuel giants that the appetite to invest in their sector is waning. But maybe the signal wasn’t that strong after all. The expansion plans of some of the companies funded by HSBC last year dramatically overshoot the limits set by scientists that are needed to meet the goals of the Paris Agreement.
A stronger signal would be to stop funding companies altogether unless they agree to stop developing new oil and gas fields.
HSBC denied that its policy allowed for funding that clashes with scientists’ pathways to net zero. The bank’s argument is that net-zero scenarios require a continued but declining investment in fossil fuel supply in order to maintain energy security.
If you cut off funding for companies developing new oil and gas fields, the argument goes, then you will cut off funding for oil and gas companies overnight.
But banks have in the past said they would not fund companies expanding the production of thermal coal. The result? Companies changed their behaviour in order to maintain their access to finance.
Responsible investors have told banks that they don’t want their money to be invested in the destruction of the climate. They have pushed them on this vital issue and some of the more progressive banks have responded by introducing new policies to limit fossil-fuel funding.
Now it is time to ensure that policy translates into practice. That means some hard decisions from the banks. It means walking away from key clients. For investors, it means scrutinising not only what policies rule out, but what they don’t rule out. And keeping the heat on banks by continuing to ask the difficult questions.