The HSBC is committed to working with clients to develop valid, science-based transition plans to understand — sector-by-sector and client-by-client— how it will move to net zero by 2050.
These transition plans, and the targets within them,must be predicated on the science relevant to the individual sectors. The bank will use them as a basis for further engagement and decision making, including how it drives change within its portfolios.
As part of this process, HSBC is today announcing how it intends to realign its portfolio within two emission–intensive sectors — Oil and Gas, and Power and Utilities.
Reducing the greenhouse gas emissions of these sectors is critical to achieving an effective transition. The interim targets that HSBC published on Wednesday for reductions in financed emissions in these sectors therefore constitute an important step in relation to the bank’s ambition to become a net–zero bank by 2050 or sooner.
The targets are aligned to the pathway set out by the International Energy Agency’ (IEA) ‘Net–zero emissions by 2050’ scenario, calculated to limit global warming to within 1.5°C.
The HSBC is targeting a reduction of 34% in absolute on-balance sheet financed emissions by 2030 for the oil and gas sector. The bank’s on-balance sheet financed emissions for oil and gas in 2019 were 35.8m tonnes of carbon dioxide equivalent (‘Mt CO2e’). This target is equal to the percent reduction that the IEA indicates in its scenario for global sector emissions to 2030 from a 2019 baseline.
The bank’s target setting methodology is aligned with industry guidance on assessing portfolio alignment, including from the Net–Zero Banking Alliance (NZBA) and the Financial Services Task Force (FSTF).
For the oil and gas sector, HSBC has focused on upstream companies and integrated or diversified energy companies. Its assessment of this portfolio included scope 1, 2, and 3 greenhouse gas emissions of financed counterparties. In doing so, the bankbelieves its methodology accounts for the majority ofemissions across the sector.
For the power and utilities sector, the HSBC is targeting an on-balance sheet financed emissions intensity of 0.14m tonnes of carbon dioxide equivalent per terawatt hour (‘Mt CO2e/TWh’) by 2030, which would constitute a 75% reduction from its 2019 baseline.
This target covers upstream industries, such as power generation, with scopes 1 and 2 emissions included, as the HSBC believes that power generation is where the majority of sector emissions occur through the use of fossil fuels as a source of energy.
The choice to adopt an emissions intensity metric for power and utilities reflects the need to reduce global greenhouse gas emissions from power generation while also meeting growing electricity demand.
The HSBC is scaling up its investment and financing for renewable and other low emission sources of electricity, and recently pledged $100m to Breakthrough Energy Catalyst to support decarbonisation of high-carbon sectors via investments in four climate critical technologies —direct air capture, clean hydrogen, long-duration energy storage, and sustainable aviation fuel.
These technologies are expected to be crucial to the future of sectors such as power generation, transportation, and heavy industry — all of which will need to be addressed to progress towards net–zero.
HSBC Group Chief Executive Noel Quinn commented that “partnering and engaging with customers in the transition to net–zero is at the heart of our approach. We are supporting clients to evolve their business models and replace old technology with new, greener alternatives. We will request and review science-based client transition plans and use them as the basis for further engagement.”
Group Chief Sustainability Officer Celine Herweijeradded that “the science is clear that global emissions must significantly be reduced this decade to limit global warming to 1.5 degrees. Our interim targets for these high emissions sectors will be embedded into business decision-making. The targets are science-based and highlight to our customers the level of decarbonisation we need to see across our portfolio by 2030. Active dialogue around a company’s transition plan will now be at the centre of our engagement with customers. We want to support those who take an active role in the energy transition; this is where we can have the greatest impact in making net zero a reality.”
This marks the first time HSBC is disclosing its financed emissions, fulfilling its Partnership for Carbon Accounting Financials (PCAF) requirements. The targets are set as part of the commitment in the climate change resolution passed at the bank’s AGM in May 2021.
In its 2022 Annual Report and Accounts (to be published in 2023), HSBC plans to disclose targets for further sectors, including coal mining, aluminium, cement, iron and steel, and transportation — including automotive, aviation, and shipping.
HSBC’s own climate transition plan, which it plans to publish in 2023, will bring together how it plans to embed net–zero targets into its strategy, processes, policies, and governance.