HSBC Sustainability

When the giant US-owned corporation Hewlett-Packard first signed up to the principles of corporate global citizenship way back in 1957, ‘climate’ and ‘change’ had yet to be linked, while ‘sustainable’ was a long way off becoming one of the most-used words in the English language.

When the giant US-owned corporation Hewlett-Packard first signed up to the principles of corporate global citizenship way back in 1957, 'climate' and 'change' had yet to be linked, while 'sustainable' was a long way off becoming one of the most-used words in the English language.

Even those early pioneers who understood the implications of sustainable business behaviour hadn't quite grasped the transformational impact it would eventually have on share value and investment decisions. Many still haven't.

"Initially, when we thought about sustainability we thought about things we had to do ourselves, (to) make our company better, and shift from doing less bad to doing more good," says Dr John Frey, Senior Technologist responsible for IT Efficiency and Sustainability at Hewlett Packard Enterprise.

It took the company a while to realise that the scale of the impending environmental global challenge, articulated in the United Nations Framework Convention on Climate Change (most notably by the 2016 Paris Accord) demanded a more fundamental rethink of its business model.

Speaking at HSBC's Tech Connections event in San Francisco, Dr Frey said: "What we recognised is many of these global challenges take more than one company to solve. So our approach has shifted to what I call 'catalytic collaboration'. Customers started coming to us saying, 'can you help us get better?'. That drove new revenue opportunities (and) it changed our relationship to more of a partnership. All in all, our business has grown dramatically."

One of those partnerships was with HSBC bank, which recycled what it learned from HPE, and others who had embarked on a similar journey, and used it to make its own customers aware of the positive impact that behaving sustainably has on competitiveness, future-proofing, profitability, brand equity and loyalty. The bank recognises that becoming more sustainable requires alignment across a diverse set of internal stakeholders and this can make it challenging for companies of all sizes.

The impetus for change, however, is clear. According to McKinsey, more than one-quarter of the $88 trillion assets under management globally are now being invested with regard to environmental, social, and governance (ESG) factors.1 And many companies are already responding by shifting from a linear to a more inclusive way of doing things, mindful of what stakeholders perceive a company's impact to be on both the planet and society.

Mark Hillhouse, HSBC's SVP & Market Executive for Atlanta & Miami, observes: "There are constituents that are becoming more and more focused on sustainability, and investors have become very interested over the past few years. Their own constituents are a lot of pension funds and a lot of endowments have those things very high on their lists. The employees, especially the millennial generation, are also a much more socially-minded generation. There are a lot of different things going on."

While McKinsey revealed the scale of sustainable investing markets differ markedly from region to region, the volume of sustainably-managed assets grew significantly faster outside Europe than it did in it between 2014 and 2016. It's something the European Commission plans to address through its Action Plan on Sustainable Finance, launched in March 2018, which aims to make sustainability a key component of the financial sector.2 

Under the Plan, Europe will come up with a "common language" for sustainable finance, create EU labels for green financial products and improve transparency in corporate reporting of climate risks. Crucially, the Commission hopes such steps will stimulate investors to provide the projected €180billion needed every year between now and 2030 for the EU to meet its climate target of reducing greenhouse gas emissions by 40 per cent.

Dr Pippa Malmgren, a former presidential economics advisor and founder of UK-based H Robotics, believes the sustainability agenda is now unstoppable. But she's looking to the Middle East for inspiration.

Malmgren points to the new 'post-oil' city state of Neom, emerging from the Saudi Arabian desert near Tabuk, where pioneering low-carbon technology and sustainable finance models meet. 

"It is going to be roughly 33 times the size of Manhattan and 17 times the size of New York, but entirely powered by anything other than hydrocarbons. Neom will be at the cutting edge of the physical implementation of sustainability," says Malmgren.

The Saudi vision is indeed staggering: to create an independent economic zone and a blueprint for sustainable living. It's civilisation, but not as we know it.

Compared to the scale of Neom, swapping plastic for paper cups in the office water cooler, giving tax incentives for staff to buy pedal bikes, and encouraging conference calls to reduce your corporate carbon footprint, seems like a drop in the ocean, but every little helps. Transitioning your business to a point where environmental, social and governance (ESG) factors start creating real sustainable value and attracting investors (and even preferential corporate credit rates) is within the old world's grasp, according to Liu Shuang, Director of the Low Carbon Economic Growth Programme at Energy Foundation China.

She believes there is a window of opportunity for financial institutions to translate government policy implications and climate change science into their decision-making matrix.

"It's worth them paying more attention to them now because how they will be profiting in the next 10 years will matter to them," she recently told the BBC World Service.3

HSBC has already picked up that baton.

A £13m facility that HSBC recently extended to a crops-for-energy company, Yelspa Ltd, in the UK was part of a commitment to provide US$100 billion of financing and investments by 2025 to develop clean energy, lower-carbon technologies, and projects that contribute to the delivery of the Paris Climate agreement and the UN Sustainable Development Goals. That includes developing new financial products for those businesses, such as green bonds.

It has adopted the recommendations of the Task Force on Climate-related Financial Disclosures report 2018 and established a Centre of Sustainable Finance to provide thought leadership on climate change and the role of the financial services sector.

The bank's investors and investment managers are increasingly applying ESG criteria to financial decisions and it's leveraged the weight of its £1.85billion UK pension scheme by transferring it into a new fund that excludes companies that fail to meet minimum environmental standards.

As Malmgren says: "I think everybody cares about sustainability these days. It's the number one priority for businesses and their employees, and for consumers."

FACT CHECKING AND REFERENCES

'33 times the size of Manhatten' – corroborated by a promotional video of Neom:
https://www.news.com.au/travel/world.../c222397b57aaa1229a4bfadeaedfcf6d

  1. 2017 McKinsey Report: From Why? To Why Not?: Sustainable Investing As The New Normal www.mckinsey.com/industries/private-equity-and-principal-investors/our-insights/from-why-to-why-not-sustainable-investing-as-the-new-normal
  2. European Commmission Action Plan On Sustainable Finance https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance_en
  3. BBC World Service Real Story: Extreme Heat: The New Normal? https://www.bbc.co.uk/programmes/w3cswkdh

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