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HSBC will begin disclosing off-balance sheet emissions in its annual report later this month after investors pressured the bank to stop ignoring big data in its climate calculations.
The change means the UK's largest bank will now include emissions in relation to capital raisings on which it advises fossil fuel companies – an area that investors have previously seen as a climate blind spot for banks.
Banks typically include a portion of their customers' emissions in their carbon footprint based on their lending to the company. However, this calculation tends to include only lending and not issuances related to capital market transactions, where a bank helps its customers raise funds, for example by organizing stock or bond issues.
Banks “have a habit of sweeping their actions and impacts under the carpet,” said an asset manager who raised the disclosure issue with HSBC. “When we discuss carbon emissions in the context of finance, we have a habit of avoiding facilitated emissions, which is worrying.”
According to an analysis by the Anthropocene Fixed Income Institute, while HSBC performs relatively well for the proportion of green deals it facilitates compared to fossil fuel deals, it has maintained ties to companies that pump and transport fuel from new oil and gas fields and sell a commitment to no longer directly finance them.
Last year, HSBC worked on a $3 billion raise for Greensaif Pipelines Bidco, which holds a 49 percent stake in Saudi Aramco's gas pipelines, and was among the banks that provided a $3.3 billion revolving credit facility US dollars for the Italian company Eni, which is also expanding its oil and gas production capacity. The bank declined to comment on those relationships but said it wanted to “prevent a night-time exit from banking oil and gas producers.”
The difference in the way banks account for their emissions is due to banks' more reserved role in capital markets compared to lending, Céline Herweijer, group chief sustainability officer at HSBC and a member of the bank's executive committee, told the Financial Times.
“This matter sometimes takes hours, days or weeks for us,” said Herweijer. “Just like the corporate lawyer is involved in this transaction or one of the big four accounting firms is involved.” . . They make the transaction easier. That’s actually not our funding.”
It was “always the intention” that HSBC's climate targets would eventually include facilitated emissions disclosure, she added.
Other banks, including NatWest and JPMorgan, are already publishing their so-called facilitated issuances. But only a handful, including Barclays and Wells Fargo, take credit and capital markets activity into account in their aim to reduce their carbon footprint in the oil and gas sector on an absolute basis, as HSBC is expected to do.
HSBC published facilitated emissions once in 2022 after an activist campaign showed its capital markets activities for oil and gas customers were linked to carbon and equivalent gas emissions of 29.5 million tonnes in 2019, compared to 35.8 million tonnes when granting loans.
Only a relatively small portion of facilitated emissions from the oil and gas sector is expected to end up on HSBC's books. The bank has said it will support an accounting methodology agreed by an industry standards-setting group led by Barclays and Morgan Stanley. This agreed in December that banks can assume responsibility for all or only a third of the emissions associated with capital market transactions.
Activists like ShareAction say this fails to recognize the critical role banks play in the energy transition. HSBC fully appreciates the deals and counts progress toward its goal of delivering up to $1 trillion in clean energy and other green deals by the end of the decade.
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