{"id":8616,"date":"2016-11-03T17:03:05","date_gmt":"2016-11-03T21:03:05","guid":{"rendered":"https:\/\/digital.hbs.edu\/platform-rctom\/submission\/hsbc-role-of-banks-in-sustainable-financing\/"},"modified":"2016-11-03T17:07:03","modified_gmt":"2016-11-03T21:07:03","slug":"hsbc-role-of-banks-in-sustainable-financing","status":"publish","type":"hck-submission","link":"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/hsbc-role-of-banks-in-sustainable-financing\/","title":{"rendered":"HSBC: Role of Banks in Sustainable Financing"},"content":{"rendered":"<p><strong>Sustainability\u00a0in the Banking Industry<\/strong><\/p>\n<p>Banks have been slow movers in adopting long-term sustainability efforts compared to other industries. As other industries have taken measures to account for climate change in the past 20 years, banks have generally felt that they are relatively environmentally friendly in terms of waste, emissions, water and resource usage. However, they can play a larger role in accounting for climate change by incorporating sustainability practices into their core business activities. \u00a0Initiatives that more strongly integrate sustainability into a bank\u2019s policies, strategies, products, services and processes are necessary to bring long-term impact on climate change. Beyond social responsibility, as the effects of climate change become more pronounced, banks that have considered environmental risk in diversifying their business activities are likely to be more shielded from the accompanying adverse financial effects.<\/p>\n<p>There are two main types of initiatives that banks and financial institutions can practice to promote sustainability and account for climate change; the first is related to the institution\u2019s internal operations, and the next is related to its core business activities\u2014more specifically, its investment and credit businesses. [1]<\/p>\n<p><strong>Internal Operations Initiatives<\/strong><\/p>\n<p>Bank sustainability efforts that focus on reducing energy and resource (particularly paper) consumption, increased use of renewable energy, and increased recycling \/ improved waste management activities related to day-to-day operations.<\/p>\n<p><strong>Core Business Initiatives<\/strong><\/p>\n<ul>\n<li>Investment business: efforts focused on increasing investment in sustainable projects, sustainability funds, and sustainable pioneer companies.<\/li>\n<li>Credit business: efforts that can include utilization of environmental rating or scoring of loans, increased lending to sustainable companies and projects, and connection of credit pricing to sustainability performance of the debtor. [2]<\/li>\n<\/ul>\n<p><strong>HSBC as Sustainability Leader<\/strong><\/p>\n<p>The first type of initiative, related to a bank\u2019s internal operations, is widely practiced today in large global financial institutions such as HSBC. For example, HSBC has reduced its carbon emissions by 22% from 2011 to 2015 and has increased the percentage of renewable energy consumption (wind and solar sources) to 9%, with a target of 25% by 2020. [3]\u00a0See below for highlights from HSBC\u2019s 2015 Strategic Report.<\/p>\n<p>But the more impactful change for banks would fall under the second category\u2014integrating sustainability practices into their core business activities. Changes to investment and credit decisions would impact the cost and availability of funding for companies and subsequently shift company incentives towards sustainable practices. One caveat to this is that the practicality of this change for financial institutions relies on cooperation from political and regulatory bodies of the country. HSBC is one of the leading large global banks to take strides in the direction of sustainable banking. It was among the first global banks to agree to implement the International Finance Corporation (IFC) Equator Principles, which constitute a risk management framework, adopted by financial institutions, for determining, assessing, and managing environmental and social risk [4] [5]. HSBC also has a dedicated Climate Change Research group that focuses on sustainable financing, and has developed and implemented industry-specific sustainability risk policies with over 70 sustainability risk managers across its credit risk function. [6]<\/p>\n<p><a href=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/sustainability-highlights.png\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-8585\" src=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/sustainability-highlights.png\" alt=\"HSBC 2015 Sustainability Highlights\" width=\"801\" height=\"292\" srcset=\"https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/sustainability-highlights.png 1368w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/sustainability-highlights-300x109.png 300w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/sustainability-highlights-768x280.png 768w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/sustainability-highlights-1024x374.png 1024w, https:\/\/d3.harvard.edu\/platform-rctom\/wp-content\/uploads\/sites\/4\/2016\/11\/sustainability-highlights-600x219.png 600w\" sizes=\"auto, (max-width: 801px) 100vw, 801px\" \/><\/a><\/p>\n<p>According to its 2015 Strategic Report, HSBC has pledged to invest $1bn in a portfolio of green, social or sustainable bonds and has raised $554m to fund customers and projects in the following sectors: renewables, energy efficiency, sustainable waste and water management, sustainable land use, climate change adaptation, and clean buildings and transportation [7]. Although this is a promising start, this remains a fraction of HSBC investment and credit businesses.<\/p>\n<p><strong>Additional Efforts Needed<\/strong><\/p>\n<p>As banks are intermediaries between sources and consumers of funding, they play an important role in pricing the risk involved with lending and borrowing activities. Because of this, it is important for banks like HSBC to develop the ability to price environmental and climate change risks of their clients in the long-term. This will make it possible for banks to protect against the effects of climate change. By investing in and lending to clients who are taking appropriate measures to prepare for the effects of climate change, the bank will be effectively be exposed to less risk. Although HSBC is a leader in its industry for sustainable funding, it should continue to make investments in research to develop capabilities to price environmental and climate change risks and push for more investment in and lending activities to green projects, funds, and clients.<\/p>\n<p>[Word count 717]<\/p>\n<p><strong>Sources<\/strong><\/p>\n<p>[1] Jeucken, M, &amp; Bouma, J 1999, &#8216;The Changing Environment of Banks&#8217;, Greener Management International, 27, p. 21, Academic 性视界 Premier, EBSCOhost. <a href=\"http:\/\/ezp-prod1.hul.harvard.edu\/login?url=http:\/\/search.ebscohost.com\/login.aspx?direct=true&amp;db=aph&amp;AN=3068483&amp;site=ehost-live&amp;scope=site\">http:\/\/ezp-prod1.hul.harvard.edu\/login?url=http:\/\/search.ebscohost.com\/login.aspx?direct=true&amp;db=aph&amp;AN=3068483&amp;site=ehost-live&amp;scope=site<\/a><\/p>\n<p>[2] Weber, O. (2005). Sustainability benchmarking of european banks and financial service organizations. Corporate Social &#8211; Responsibility and Environmental Management, 12(2), 73-87. Retrieved from <a href=\"http:\/\/search.proquest.com.ezp-prod1.hul.harvard.edu\/docview\/213902921?accountid=11311\">http:\/\/search.proquest.com.ezp-prod1.hul.harvard.edu\/docview\/213902921?accountid=11311<\/a><\/p>\n<p>[3] HSBC UN Global Compact Communication on Progress 2015 <a href=\"http:\/\/www.hsbc.com\/~\/media\/hsbc-com\/our-approach\/sustainability\/reports-and-documentation\/communication-on-progress-global-compact-2015.pdf\">http:\/\/www.hsbc.com\/~\/media\/hsbc-com\/our-approach\/sustainability\/reports-and-documentation\/communication-on-progress-global-compact-2015.pdf<\/a><\/p>\n<p>[4] Global Banks as Global Sustainability Regulators?: The Equator Principles <a href=\"https:\/\/www.researchgate.net\/profile\/Cynthia_Williams5\/publication\/228128581_Global_Banks_as_Global_Sustainability_Regulators_The_Equator_Principles\/links\/0912f5148963fbde1d000000.pdf\">https:\/\/www.researchgate.net\/profile\/Cynthia_Williams5\/publication\/228128581_Global_Banks_as_Global_Sustainability_Regulators_The_Equator_Principles\/links\/0912f5148963fbde1d000000.pdf<\/a><\/p>\n<p>[5] Sustainability at IFC <a href=\"http:\/\/www.ifc.org\/wps\/wcm\/connect\/Topics_Ext_Content\/IFC_External_Corporate_Site\/IFC+Sustainability\/Partnerships\/Sustainable+Banking+Network\/\">http:\/\/www.ifc.org\/wps\/wcm\/connect\/Topics_Ext_Content\/IFC_External_Corporate_Site\/IFC+Sustainability\/Partnerships\/Sustainable+Banking+Network\/<\/a><\/p>\n<p>[6] HSBC Sustainability Finance <a href=\"http:\/\/www.hsbc.com\/our-approach\/sustainability\/finance\">http:\/\/www.hsbc.com\/our-approach\/sustainability\/finance<\/a><\/p>\n<p>[7] HSBC Holdings plc Strategic Report 2015 <a href=\"http:\/\/www.hsbc.com\/~\/media\/hsbc-com\/investorrelationsassets\/hsbc-results\/2015\/annual-results\/hsbc-holdings-plc\/hsbc-holdings-plc-strategic-report-2015.pdf\">http:\/\/www.hsbc.com\/~\/media\/hsbc-com\/investorrelationsassets\/hsbc-results\/2015\/annual-results\/hsbc-holdings-plc\/hsbc-holdings-plc-strategic-report-2015.pdf<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Role of banks to adopt long-term sustainability initiatives in their core business activities. HSBC as an example of a leader in sustainable finance practices, but more still needs to be done by financial institutions in developing capabilities to price environmental and climate change risks of clients.<\/p>\n","protected":false},"author":1977,"featured_media":8620,"comment_status":"open","ping_status":"closed","template":"","categories":[385,1350,1351,510],"class_list":["post-8616","hck-submission","type-hck-submission","status-publish","has-post-thumbnail","hentry","category-banking","category-financial-services","category-hsbc","category-world-bank-group"],"connected_submission_link":"https:\/\/d3.harvard.edu\/platform-rctom\/assignment\/climate-change-challenge-2016\/","yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>HSBC: Role of Banks in Sustainable Financing - Technology and Operations Management<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/d3.harvard.edu\/platform-rctom\/submission\/hsbc-role-of-banks-in-sustainable-financing\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"HSBC: Role of Banks in Sustainable Financing - Technology and Operations Management\" \/>\n<meta property=\"og:description\" content=\"Role of banks to adopt long-term sustainability initiatives in their core business activities. 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