HSBC Holdings plc is setting out a detailed policy to phase out the financing1 of coal fired power and thermal coal mining by 2030 in EU and OECD markets, and worldwide by 2040.
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In recognition of the rapid decline in coal emissions required for any viable pathway to 1.5°C2, the policy will mean HSBC phasing out finance to clients whose transition plans are not compatible with HSBC’s net zero by 2050 target.
It builds on current HSBC policy that prohibits finance for new coal fired power plants and new thermal coal mines; broadening the approach to drive the phase out of existing thermal coal.
The thermal coal phase out policy, which will be reviewed annually based on evolving science and internationally recognised guidance, is a key part of executing on the bank’s October 2020 ambition to align its financed emissions the greenhouse gas emissions of its portfolio of clients to net zero by 2050 or sooner.
HSBC also intends to reduce its exposure to thermal coal financing by at least 25% by 2025 and aims to reduce such exposure by 50% by 2030, using its 2020 Task Force on Climate Related Financial Disclosures (TCFD) reporting as its baseline.
Thermal coal financing remaining after 2030 will only relate to clients with thermal coal assets in non EU OECD markets, and will be completely phased out by 2040.
The bank will work with impacted clients and will expect them to formulate and publish transition plans by the end of 20234 that are compatible with HSBC’s net zero by 2050 target.
Client transition plans will be assessed annually, based on a range of factors including: level of ambition to reduce greenhouse gas emissions; clarity and credibility of transition strategy including any proposed abatement technologies; adequacy of disclosure and consideration of the principles of ‘just transition’.
If no transition plans are produced, HSBC will need to assess whether to continue to provide financing for that client, as there will be no basis on which to assess alignment with HSBC’s commitment to phase out coal financing.
HSBC will decline to provide new financing (including refinancing) and advisory services to any client that, in the view of the bank, fails to engage sufficiently on its transition plan, or where plans are not compatible with HSBC’s net zero by 2050 target.
In addition, HSBC will seek to withdraw any financing or advisory services with any client that makes a commitment to, or proceeds with, thermal coal expansion after 1 January 2021.
Given the nine year timetable to phase out coal in EU OECD markets, new finance to clients in these markets will be declined where thermal coal makes up more than 40% of a client’s total revenues (or more than 30% of total revenues by 2025), unless the finance is explicitly for the purpose of clean technology and infrastructure.
HSBC is not applying these criteria in non EU OECD markets, as they will evaluate client transition plans according to their alignment to HSBC’s net zero by 2050 target and worldwide coal phase out date of 2040.
Given the bank’s substantial footprint across Asia, with the region’s heavy reliance on coal today and its rapidly growing energy demand, HSBC recognises it has a critical role to play in helping to finance the region’s energy transition from coal to clean.
HSBC will expect its clients to lay out credible transition plans for the next two decades to diversify away from coal fired power production to clean energy, and from coal mining to other raw materials, including those vital to clean energy technologies. ■