HSBC sets a precedent by withdrawing support for oil and gas

HSBC has become the latest bank to announce it will no longer finance new oil and gas fields, raising the possibility that the banking sector can accelerate the transition to renewable energy.

Europe’s biggest bank is following in the footsteps of UK high street bank Lloyds, which announced a similar withdrawal of funding back in October. HSBC is considered to be the largest bank to date to draw a line under oil and gas financing.

It follows the precedent set by the insurance industry, with some of the world’s largest insurance companies voluntarily agreeing to no longer insure new coal projects. The group that lobbied for the change – Insure Our Future – believes that large coal installations are now virtually uninsured. Speaking to InsurTech Magazine in July, the group’s program director, Peter Bosshard, said he still feels moments of despair when new coal installations come online, usually financed by specialty insurers based in the Bahamas.

Last week, the British government was criticized for having approved a new coal mine in the north of England, which will produce coking coal for use in steel production. As much as 90% of the coal can be exported to steelmakers outside the UK, and the new coal plant has been roundly criticized – including by the government’s own climate committee. Just a month ago, at the COP27 climate conference, Britain’s Alok Sharma warned other countries that there can be no “backsliding” on environmental commitments.

HSBC decision ‘sends a strong message’ about oil and gas

Speaking about HSBC’s decision to withdraw funding from oil and gas fields, Becky Jarvis from campaign group Bank on our Future said: “HSBC’s announcement today is a big signal to the oil and gas industry that their time is up. This is the result of years of hard work by the climate justice movement. It’s far from perfect, but it’s a sign that the dominoes are falling and confirms our unstoppable momentum. All eyes will now be on Barclays and the giant North American fossil fuel banks like Citi & RBC to catch up.”

The policy is likely to put pressure on insurance market Lloyd’s of London (no relation to the bank), which is being asked to adopt a similar ban on underwriting oil and gas. Lloyd’s was this week the focus of protests after a rumor that a syndicate in the London market was underwriting a controversial Australian coal project.

Insure Our Future’s European Coordinator Lindsay Keenan says: “HSBC’s new oil and gas exit policy sends a strong message to the whole of the City of London. Like HSBC, Lloyd’s of London has signed up to a net zero commitment and must adopt an oil and gas exit policy for its insurance market without further delay.”

And Lucy Porter of Money Rebellion says: “Lloyds need to get real about climate breakdown, take real action and stop squeezing every last bit of profit they can from fossil fuels.”

“Funded emissions” are the biggest problem for the banks

HSBC’s voluntary action is a sign that big banks can have a positive impact on the decarbonisation of the industry. As banks become increasingly frugal in city centers and banks increasingly move online, the direct emissions associated with the banking sector are relatively low – especially for banks such as HSBC, which have adopted net-zero pledges and are switching to renewable energy, such as solar energy, at its offices and data centers.

Instead, the main cause of emissions in the financial sector is “financed emissions” related to capital such as loans, investments and underwriting. According to the Carbon Disclosure Project, these funded emissions are typically 700 times higher than the Scope-1 and Scope-2 emissions generated by activities such as heating, cooling and powering office buildings.

In an upcoming issue of FinTech Magazine, Mambu director of sustainability Anna Krotova says: “Progress in measuring and managing these funded emissions has been slow. Recently, the World Benchmarking Alliance (WBA) released a benchmark in which they assessed 400 major global financial institutions on their transparency and sustainability commitments. Of these, 37% have disclosed long-term net-zero targets, but only 2% of these commitments have been translated into sub-targets used across the institution’s funding activities.

“This represents a significant blind spot in global carbon footprint accounting and poses a serious risk to climate change mitigation efforts, as we have no basis for taking corrective action and holding financial institutions to account.”

With climate change higher on the consumer agenda than ever before, now is not the time for banks to let go of their environmental commitments. HSBC’s decision could prove to be a catalyst that prompts other major banks to follow suit.