Celine Herweijer, Group Chief Sustainability Officer, HSBC
Our financed emissions targets
As you may have seen in our annual results announcement, HSBC has – for the first time – published interim, science-based targets for greenhouse gas (GHG) emissions reductions in two emissions-intensive sectors: Oil and gas, and power and utilities. This is a really important step for the bank, but it’s a new, complex and evolving area, and naturally people have questions about what we’re doing. Here, I set out our thinking in more detail:
Why did HSBC target absolute emissions, and include scope 3, for oil and gas?
‘Absolute financed emissions’ means what it says – the emissions produced by a company or project we bank. We believe that for oil and gas, an absolute target is critical as the science requires us to drive down emissions in this sector at speed and scale.
We’re targeting a 34% reduction in absolute financed emissions by 2030, compared with our 2019 baseline (we chose 2019 as a baseline, given the pandemic makes 2020 an anomaly year in terms of economic output).
The standard way to measure greenhouse gases produced by businesses is through three ‘scopes’:
- Scope 1 covers the direct emissions from a company’s operations – such as heating buildings, running vehicles, or gas flaring, in the case of oil production
- Scope 2 covers indirect emissions from the use of purchased energy or electricity
- Scope 3 covers indirect emissions from a value chain, including emissions from when the product is used (or burned in this case), such as those from a vehicle’s exhaust pipe
Because the majority of emissions from the oil and gas industry arise when crude oil or gas is burned – around 80% of total emissions – Scope 3 emissions are the most critical from a global warming perspective. Leaving them out would mean we wouldn’t have as clear a picture of the total emissions-footprint related to HSBC’s financing, and we wouldn’t be able to work with our clients to decarbonise as effectively.
Why did HSBC follow a different approach for power and utilities?
This sector is a bit of an exception to the absolute rule, at least in the near-term. Why? Well, the latest science, including the International Energy Agency (IEA) Net Zero 2050 report, focuses on the critical role of electrification – in transport, industry, and buildings – to drive the emissions reductions needed for a net zero future.
The innovation that enables electrification, like electric vehicles, will drive up electricity demand over the decades ahead. In fact, the IEA projects a doubling of demand from 2020 to 2050. As the energy mix in the grid becomes cleaner, absolute emissions will decouple and start to come down, but this takes time. An intensity target in the short term enables us to recognise the critical need for electrification to go hand in hand with decarbonisation through increasing clean energy and energy efficiency.
For power and utilities, we’re aiming to reduce financed emissions intensity by 75% by 2030. We will also measure absolute emissions from power and utilities, and our longer term net zero target for the Bank’s overall portfolio is absolute.
What is HSBC doing about capital markets?
This February, we set interim, science-based targets for our on-balance sheet emissions, but have not yet done so for capital markets activities (often referred to as ‘facilitated emissions’). We hope to soon, once the industry standard for financed emissions – the Partnership for Carbon Accounting Financials (opens in new window) (PCAF) – has launched its methodology for accounting for capital markets activities later this year.
For now, we’re measuring and reporting emissions for finance we help our clients access through capital markets to create transparency around where we are today. We will be engaging with all clients who are major oil and gas producers – regardless of on- or off-balance sheet funding – on their client transition plans. Financed emissions is now something we need to consider for all financing – capital markets included – as we expect to have a target here too, later this year.
Why did HSBC choose to align with the IEA Net Zero scenario?
The IEA’s Net Zero Emissions by 2050 scenario is increasingly seen as best practice in terms of scenario selection for portfolio alignment. It’s what bodies such as the Science Based Targets Initiative (SBTi) and Net Zero Banking Alliance (NZBA) recommend.
We chose it as it has “no overshoot” or “low overshoot” of 1.5C, and low reliance on negative emissions technologies, which remain nascent in development. We believe it’s the most scientifically credible choice for HSBC’s net zero by 2050 ambition.
What happens next?
It’s important to stress that we’re at the start of a long journey. We don’t have all the answers yet, the science and accounting around how to do all of this will evolve, and we want to work with our peers to ensure coherence and robust approaches across the whole financial industry. That’s why we’re taking an active role in global partnerships like the Glasgow Financial Alliance for Net Zero (opens in new window) and the Financial Services Taskforce (opens in new window) .
Over time, we expect greater standardisation in how banks calculate, report and reduce emissions from their financed portfolios. We’ll work with clients as we roll out the asks for information on their transition plans, and we’ll work with leading expert bodies to help define what credibility looks like.
In the next 12 months, we’ll release further emissions reduction targets for different sectors, focusing particularly on those that are emissions intensive and hard to abate. The science clearly tells us that we need to set ambitious interim targets now to drive rapid decarbonisation in the next one to two business cycles, if we are to successfully tackle the climate crisis and transition to net zero in time.