‘Writing on the wall’ for new fossil fuels as HSBC stops funding

Other banks need to follow suit or face shareholder action

HSBC’s plans to stop financing new oil and gas fields sends a clear signal to other banks to follow suit for the minimum levels of net-zero ambition, according to sustainable investment commentators.

The banking giant and one of the biggest financers of fossil fuels has announced an updated energy policy in which it states it will no longer finance new oil and gas fields as part of its net-zero strategy – it has committed to decarbonising the business by 2050.

The news come after the UK’s Advertising Standards Authority (ASA) banned HSBC’s climate advertisments in October for misleading consumers. The regulator said consumers seeing the ads around how they are planting trees and transitioning to net zero would not expect the banks to also be providing £14bn (as at end of 2021) in financing to fossil fuels businesses.

Prior to that, ShareAction research in February found that European banks provided over $400bn to 50 leading companies expanding oil and gas production between 2016 and 2021, with HSBC, Barclays and BNP Paribas the worst offenders.

HSBC’s updated energy policy said it will no longer provide new lending or capital markets finance “for the specific purpose of projects pertaining to new oil and gas fields and related infrastructure when the primary use is in conjunction with new fields”.

It will also accelerate the bank’s activities to support clean energy deployment and pledged to engage on transition plans, while promising to withdraw funding if a transition plan is not produced after “repeated engagement”. In September, HSBC Asset Management also announced it will phase coal-fired power and thermal coal mining out of its listed holdings by 2030 in the EU and OECD and by 2040 globally.

Jeanne Martin, head of banking programme at ShareAction, commented: “HSBC’s announcement sends a strong signal to fossil fuel giants and governments that banks’ appetite for financing new oil and gas fields is diminishing. It sets a new minimum level of ambition for all banks committed to net zero.   

“We urge major banks like Barclays and BNP Paribas to follow suit.”

Tony Burden, CEO at Make My Money Matter, agreed more banks should be taking this route.

“HSBC’s announcement is another nail in the coffin of fossil fuel expansion. By cutting off direct funding to new oil and gas projects, HSBC is taking important first steps to align with the science, respond to public demands, and create a new minimum benchmark for global financial institutions.  

“We hope this commitment sends a clear signal to other UK high street banks like Barclays who staggeringly continue to directly finance new oil and gas projects. Because if even HSBC – one of the world’s biggest financiers of the climate emergency – can see the writing on the wall for new fossil fuels, it’s just a matter of time before the rest follow suit.”

Bank execs ‘need to step up’

However, ShareAction’s Martin (pictured left) said the bank is still not going far enough and the banking industry as a whole needs to take more drastic action. HSBC’s updated energy policy said it will continue to provide finance to maintain supplies of oil and gas “in line with current and future declining global demand”. Research published earlier this week by ShareAction also showed European banks are not moving fast enough to halt climate change.

“HSBC’s announcement only applies to asset financing, and doesn’t deal with the much larger proportion of finance it still provides to companies that have oil and gas expansion plans,” she said. “We expect to see HSBC come forward with new proposals that will address this as soon as possible.   

“The public and investors expect the banking sector to play its part in tackling climate change. If the bank’s executives don’t step up, they can expect concerned shareholders to force them to act.”

Burdon added: “HSBC must build from this commitment by adequately addressing their broader corporate financing for oil and gas expanders, which we know makes up the majority of banks’ support for the industry, and by setting clear red-lines on expansion when assessing clients’ transition plans. Only by taking these steps can they – and other leading UK banks – truly begin to break their dangerous relationship with the fossil fuel industry.”

Avatar

Natalie Kenway

Natalie is global head of ESG insight for ESG Clarity and has been an investment journalist for 16 years. She won Editor of the Year at the Aviva Investors Sustainability Media Awards 2021, and was Winner...