Two years ago, HSBC permitted itself to continue lending to new coal projects in emerging markets. Now, it has tightened its energy policy, but experts worry the bank could continue to back coal through other means than project finance.
The Hongkong and Shanghai Banking Corporation (HSBC) on April,24th announced it would no longer finance new coal power stations anywhere globally, closing loopholes enshrined in its previous energy policy that allowed the London-headquartered lender to bankroll coal projects in certain developing nations.
Responding to shareholders’ questions online amid the ongoing coronavirus crisis, the finance group stated it had amended its policy aimed at phasing out coal support, removing the previous exemption of Bangladesh, Indonesia and Vietnam, which was slammed by activist groups in 2018 as experts warned no new fossil fuel power plant could be built if climate change was to be kept at bay.
HSBC said while its now obsolete energy guidelines had permitted loans to coal projects in these emerging markets to “balance local humanitarian needs with the need to transition to a low carbon economy”, it had not financed any new coal projects anywhere since.
The new policy means the bank will cease its involvement in funding Long Phu 1, a planned coal project in Vietnam for which it was acting as global coordinator, and follows a decision earlier this year to withdraw from Vinh Tan 3, another major coal power station in Vietnam.
Coal’s days numbered
The move comes as an increasing number of financial institutions cut ties with coal, the world’s dirtiest fossil fuel. Last December, Standard Chartered Bank, one of HSBC’s major rivals with a significant presence in Asia, said it would pull out of three coal projects in Southeast Asia, while three major Japanese lenders exited coal in April alone.
“HSBC’s decision to update its energy policy to slap a global ban on coal power funding is another unmistakable sign the industry’s days are numbered everywhere,” said Jack Bertolus, research coordinator at Australian non-governmental organisation Market Forces, which has been campaigning for Asian banks to drop coal.
A report by BankTrack, Urgewald and 350.org published late last year revealed HSBC to be among the United Kingdom’s biggest coal financiers, with $7.9 billion poured into coal developers from January 2017 to September last year.
“New coal power is fast running out of options when it comes to finding finance, not just because of the obvious environmental concerns, but also because it is unable to compete with clean renewable energy,” Bertolus told Eco-Business.
Tim Buckley, director of energy finance studies, Australasia at Institute for Energy Economics and Financial Analysis, said: “Banks know coal is by far the world’s most emissions-intensive source of power and the one most easily replaced by alternative, low-emissions technologies. Coal is the first one to throw under the bus.”
He said most coal power projects in recent years had relied heavily on government subsidies to reduce risks for other lenders to come on board, and with more nations walking away from the fossil fuel, sources of coal finance could soon dry up.
A case in point is South Korea and Japan, both among the world’s biggest providers of subsidised government capital for coal power development. Following its landslide victory in the recent election, South Korea’s ruling party is set to phase out coal power lending as part of a newly announced green new deal, while Japanese government-run bank JBIC has already turned off the taps on coal finance.
Buckley observed that beyond ditching coal, banks had also begun ceasing support for other climate-harming activities, such as Arctic oil exploration and deep-sea drilling ventures, while at the same time ratcheting up renewable energy investment targets.
In its previous policy, HSBC already pledged to no longer lend to new offshore oil and gas projects in the Arctic as well as new greenfield oil sands projects. With coal phase-outs alone insufficient to deliver the Paris climate deal, such commitments were crucial, Buckley said.
More commitment needed
HSBC has made strides, but it still has further to go. Bertolus said: “Achieving the aims of the Paris Agreement means so much more than ruling out direct project finance for coal plants. At a minimum, it means withholding financial support for the expansion of the fossil fuel industry, covering institutional investment, fixed income and corporate lending.”
He added that HSBC also had yet to withdraw its support for the dredging of Payra Port in Bangladesh, which would import up to 20 million tonnes of coal each year for eight proposed and under-construction coal power plants with a capacity of 10 gigawatts. Over their lifetimes, these power stations would collectively emit more than three times as much carbon dioxide as the United Kingdom did in 2018.
“Banks know coal is by far the world’s most emissions-intensive source of power and the one most easily replaced by alternative, low-emissions technologies. Coal is the first one to throw under the bus.”Tim Buckley, director of energy finance studies, Australasia, Institute for Energy Economics & Financial Analysis (Australia)
In its latest statement, HSBC conceded that a proportion of its global asset management funds included coal companies, confirming the findings of a recent study by campaign group Market Forces that HSBC continues to back the coal industry through the ownership stakes it holds in firms building new coal capacity.
HSBC stated: “Most large companies have legacy operations that cannot simply be ‘turned off’ immediately, as well as new or planned developments and activities. Our approach creates the opportunity to support customers in their transition by directing finance to the right areas, while supporting the overall business.”
There is reason for optimism. Buckley said many banks, in response to global pressure, now updated their policies annually, tightening them incrementally. American global investment management corporation BlackRock, for example, recently pledged it would no longer invest in companies that generated more than 25 per cent of their revenue from thermal coal production, down from 30 per cent previously.
“If you look at the policies in isolation, they are nowhere near sufficient; they are not watertight. But they are indicative of the direction we are going in, and they are getting tighter every year,” Buckley told Eco-Business. He added: “HSBC is on a journey, and the end destination of the journey is consistency with the Paris Agreement.”