London-based financial services giant HSBC has announced that it will cease financing all new coal-fired power plants around the world with three exceptions — Bangladesh, Indonesia, and Vietnam.
HSBC, which is the biggest bank in Europe, published an update to its energy policy on Friday which contained the new decision to cease financing new coal-fired power plants around the world — deepening a 2011 commitment to restrict support for new coal-fired power plants and effectively ceasing support in 78 developed countries. As part of its new energy policy, HSBC will also no longer provide financial services for either new offshore oil and gas projects in the Arctic, or new greenfield oil sands projects.
The only exception to HSBC’s new policy is a targeted and time-limited one focused on three countries — Bangladesh, Indonesia, and Vietnam — justified by HSBC as seeking to “appropriately balance local humanitarian needs with the need to transition to a low-carbon economy.” Further, and giving weight to the bank’s claims of supporting “a transition to a low-carbon economy,” any potential support for new coal-fired power plants in these three countries will be assessed on a case-by-case basis, and only where a carbon-intensity target is met and independent analysis discovered that there is no reasonable alternative in meeting the country’s energy needs.
“Our updated energy policy reflects HSBC’s ambition to help our customers make the transition to a low-carbon economy in a responsible and sustainable way,” said Daniel Klier, Group Head of Strategy and Global Head of Sustainable Finance at HSBC. “We recognise the need to reduce emissions rapidly to achieve the target set in the 2015 Paris Agreement to limit global temperature rises to well below 2 degrees Celsius and our responsibility to support the communities in which we operate.”
The move is a strong one for HSBC and one which comes in a long line of commitments to support the transition to a low-carbon economy. In the span of two days in November of 2017, the banking giant pledged $100 billion in sustainable financing and investment by 2025 seeking to combat climate change and support sustainable growth in local communities. A day later, the bank joined the RE100 initiative and committed to sourcing 100% of its electricity from renewable energy sources by 2030.
“For more than a decade, HSBC has helped clients break new ground in the green bond markets in Europe and Asia, and to finance some of the biggest climate-friendly infrastructure projects in the world,” said Group Chief Executive Stuart Gulliver at the time. “The $100 billion commitment that we are announcing today acknowledges the scale of the challenge in making a transition to a low-carbon future. We are committed to being a leading global partner to the public and private sectors as they make that transition.”
It’s also worth noting the value in the three exceptions HSBC have made in its new policy affecting Bangladesh, Indonesia, and Vietnam. There are those of the belief that companies and banks like HSBC must cut all ties, immediately, to any and all form of fossil fuel generation. There is of course value in this course of action, but if not handled correctly there can also be disastrous harm caused — both for humanitarian reasons and financial concerns.
The obvious downside is the immediate impact to however many thousands or millions of people who need reliable electricity. Not every country has the ability to double-down on solar or wind energy — though we wish they would, or that developers and other nations around the world would support such action. Cost reductions for these technologies are not always available at the same scale in every corner of the globe, and what might be ridiculously affordable in Europe may not necessarily be as affordable in Asia.
Additionally, banks and companies that cut all ties with fossil fuel companies or development immediately lose all further input into their future actions, and thus the ability to moderate decision-making. HSBC, by making these three exceptions and putting strict caveats on their involvement, have given themselves an opportunity to steer the direction of fossil fuel development in those three countries.