The bank making a trillion-dollar investment in sustainability

02/12/2020 Climate change has ruinous effects on the environment and is increasingly understood to be a major threat to economic stability. Financial institutions around the world, in response, are taking action by offering investment and lending products linked to clients’ sustainability credentials and achievements. In a recent interview with Mazars, Zoë Knight, Group Head of the HSBC Centre of Sustainable Finance shared her views on how the bank is helping clients achieve a net-zero carbon future and ensuring greenwashing does not derail the sustainability transition. Full video interview below.

Momentum around sustainable finance has steadily grown in the last decade, notably with the signing of the Paris Agreement in 2016, which reaffirmed the role of finance in mitigating greenhouse-gas emissions.

To achieve the agreement’s goals, financial institutions cannot simply support the decarbonisation of the power system but need to work across industries, says Zoë Knight, Group Head of Centre of Sustainable Finance at HSBC. “We need to work alongside our clients to help them determine how their decarbonisation roadmaps will look in the future. If you are an industrial company, you might need to invest in new areas like carbon capture and storage to capture emissions or build new hydrogen networks to change processes in the industry.”

Ambitious investment vision

The bank is ambitious in its vision and its investment – committing between $750 billion and $1 trillion in sustainable finance to clients. Knight explains how that investment works in the market: “We help suppliers by providing them with sustainability-linked lending, where the rate of interest is directly correlated to a sustainability-linked KPI. We have also launched specific products like green loans and applied them to smaller entities. It helps bring transparency to the financial flows that are supporting the true transition.”

In the interview with Leila Kamdem-Fotso, Partner, Mazars, Knight notes how large carbon-intensive corporates are not the only market segments that need major investment to transition. Global supply chains are increasingly impacted since larger corporates are being pushed by shareholders to account for emissions through the supply chain.

Despite progress being made there are still concerns that companies will ‘greenwash’ and obscure their real sustainability impact. “One way of countering that,” says Knight, “is transparency in the use of proceeds of capital. Therefore, the transition-labelled finance area is one to watch closely to see how fast the financial industry is helping drive the transition through its capital allocation.”

Difficult data questions

That leads to difficult questions around collecting and measuring emissions data. As Knight points out: “For a global bank like HSBC, assessing areas like physical risk related to real estate in a particular region needs different data requirements than measuring emissions from climate impact industries. To tackle this, we try to engage with our customers quite early on to see how we can operationalise the risks related to climate. Going forward, we have to move as a coalition rather than relying on leaders to take this forward and the rest to follow.”

Policies that speed up change

While businesses have a central role to play, regulatory authorities and government policies are key to drive developments in the field: “The quicker governments implement the signals with policies that they are committed to decarbonisation, the faster investors and financial market participants will believe that change is about to happen and then adapt business models, financing and risk-reward profile accordingly,” advises Knight.

Returning to the role of business, Knight says banks and other financial institutions should help their clients become more sustainable by constantly learning about market best practice. “[Clients] might introduce new products, so they might need advice on the markets that are better positioned due to government policy or regulatory drivers. It could also be that your clients want to know more about the different investor initiatives that are driving change. We need to understand how well-placed our clients are, thinking about opportunities related to sustainability, as well as any different risks that they might face.”

Click here to read ‘Tackling climate change’ report on the role of banking regulation and supervision, produced by Mazars and the Official Monetary and Financial Institutions Forum.

To find out about Mazars’ sustainable finance services, go here.