October 6, 2022

The HSBC logo is seen on a bank branch in New York's financial district
The HSBC logo is seen at a branch of the bank in the financial district in New York, the United States, on August 7, 2019.

HSBC Holdings Plc told Reuters on Thursday it would stop financing thermal coal expansion from funds it actively manages with immediate effect, marking an acceleration of a broader commitment it made last year.

Thermal coal, a low-cost energy source widely used in Asian markets where many of HSBC’s clients are based, is one of the fossil fuels most responsible for climate-damaging emissions.

The banking sector has been slow to commit to no longer financing fuel production. Standard Chartered, HSBC’s emerging market rival, said earlier this year it would end all direct coal financing for clients by 2032.

HSBC said last December that it would reduce exposure to thermal coal financing, across its businesses, including asset management, by at least 25% by 2025 and 50% by 2030, although non-EU or OECD clients could be financed by global phase-out by 2040.

In a new 10-point plan, HSBC Asset Management, which oversees about $600 billion in assets, said it would immediately stop investing in the listing or primary debt issuance of any company involved in thermal coal expansion.

HSBC estimates that there are more than 300 companies worldwide with more than 10% of their revenues related to fuel. The Global Coal Exit List, which tracks financial firms’ ties to the coal sector, said the HSBC fund’s exposure stood at $3.4 billion at the end of November.

HSBC’s head of sustainability Erin Leonard said in an interview that the number of companies in the bank’s investment portfolio that have so far confirmed plans to expand their exposure to thermal coal is “relatively small.”

HSBC said that by next year it will come on board with all listed companies in its actively managed portfolios with more than 10% revenue from thermal coal.

By the end of 2030, the group’s active portfolios would not hold securities of companies that rely on coal for more than 2.5% of revenues in the European Union or OECD markets; and this would be extended to all markets by 2040.

HSBC aims to start cooperation with all companies in which it has stakes above the 10 percent threshold, including those in passive funds, by 2025, Leonard said.

For companies in its active funds with more than 10% revenue exposure to thermal coal, all initial public offerings and primary debt issuance are subject to “enhanced due diligence” of the company’s plan to move to net zero, according to HSBC.

HSBC said in its 2021 annual report that the bank’s exposure to thermal coal loans was $1 billion, or 0.2% of its total wholesale loan book.

When it comes to holding boards of companies with significant exposure to thermal coal accountable, HSBC said its fund arm will vote against electing board chairs at companies that plan to expand production and use of thermal coal.

Chairmen at companies with more than 10% revenue exposure and failing to provide acceptable climate risk reporting, or where transition plans remain weak after the engagement period, would also face opposition when seeking re-election.

“This is a much more public signal to the companies we invest in about our intentions and how we will vote,” Leonard said.

A spokesman for ShareAction, a non-profit organization that advocates for sustainable business, welcomed HSBC’s announcement and urged it to set interim milestones in its engagement with companies.

HSBC also said it would stop running index funds with more than “de minimis” exposure to thermal coal, which the group defined as more than 2.5% of the company’s revenue.

For all existing passive funds, which make up a sixth of HSBC’s total assets, he would work with clients to switch to greener alternatives and with index providers to create more indices without exposure to thermal coal.

Workers load coal onto trucks on the outskirts of Jammu
Workers load coal onto trucks on the outskirts of Jammu on March 16, 2012.

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