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HSBC: Big profits boost from fragility and thinking climate

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The giant global bank HSBC has just done that. It surprised the market with an 80% increase in profits to $5.8bn. This was helped by releasing $400m originally held back to settle bad debts.

But how did the bank achieve this given the global economic stress created by COVID-19? How is HSBC folding expectations around ESG into its plans to ensure similar profitability in future? How is it preparing for the next, fast approaching existential crisis – the Climate Emergency?

We publish here the lightly edited remarks of HSBC Group CEO Noel Quinn to the FII Institute virtual summit The Neo Renaissance: Mobilising ESG For a Sustainable Future on 15 April 2021.

COVID threw the whole world into a state of disarray. Everyone had to react extremely fast to a set of circumstances that I don’t think any of us in the world were fully prepared for.

But I’m really pleased with the way my colleagues - 230,000 people in 60 countries around the world - responded to that challenge. They provided great support to our customers.

In total last year we were involved in nearly $1.9 trillion of lending or fundraising activity on behalf of clients across the world. They supported each other tremendously well. They had to adapt their own personal lives, and to adapt the way they worked.

Within the space of two weeks we had 90% of our colleagues around the world having to work from home and they didn’t miss a beat. They did really well.

But it’s been a challenge for customers in particular: their business models have been radically changed over the past 12 months.

Confronting new economic fragility

I think the COVID situation was a wake up call to us all and particularly myself. It proved to us just how fragile the global economy is.

We’ve had a massive shock with COVID. Fortunately vaccines are on the horizon. They’ve been rolled out, and all credit to the scientists and the health workers that got us to that situation.

[But] we may not be so lucky with the climate crisis. I think that’s the wake up call.

A climate crisis may not be reversible. And that’s why I think banks, financial services more widely, but also customers have to take on board the need to make rapid progress and catch up on the work that’s needed around sustainability.

That’s why we published our own quite ambitious target to be Net Zero by 2050. Not just as a bank, but through our customer activity and our financed emissions. We will be there in 2030 as a bank. I want to be there as a portfolio of customer activity by 2050.

It’s central to everything we do now.

Ensuring Net Zero is achievable

The real job for us now is to take the words Net Zero and turn them into a definitive framework of what that means for us in the banking sector particularly.

How do we translate Net Zero into an ambition for tangible action, into targets in the next five years, 10 years and 15 years?

[Then] how do we report against those targets? How do we report in a consistent manner, so that when one bank reports it looks similar to the way another bank reports. But we’re not double counting, or we’re not omitting relevant information?

That’s the work. I’m also fortunate to be chairing the taskforce of the financial services sector. [It is] looking at exactly that - how to build the operating methodologies and the framework and the architecture to give transparent, consistent, meaningful reporting into the market, not only of our own activities, but of the activities of our customers.

What is our carbon footprint today and how is it going to move over time?

We’re aiming to publish essentially a White Paper of how we as a banking sector turn the ambition into a framework of reporting.

We’re aiming to do that by the middle of the year as a White Paper that will set out the what we believe to be in working title terms, the practitioners guide of how you move from an ambition and Net Zero into tangible reporting every quarter and every year.

Making finance genuinely sustainable everywhere

We’ve operated for 155 years in over 60 countries of the world. Each of those countries have very different economics, politics, cultural norms.

As an international bank you have to respect all of the markets in which you operate in. You’ve got to recognise you’re a guest in all of those countries that you operate in.

[So] first and foremost what you have to do is to respect the laws of those countries. So you cannot choose which laws to follow or which laws not to follow. What you try to do is to operate for the good of the communities in which you serve.

So we’re serving the communities in all of the markets in which we operate in. We’ve tried to make sure we’re doing good for our customers, that we’re working with the communities and helping them develop.

We’re trying to foster economic development. And we’re trying to foster particularly international trade, because we know how important international trade is to the economic development of a country.

So, it’s a challenge. It can be very challenging at times, and you would argue it’s quite challenging at the moment. But I do believe what we are doing is good in the communities in which we operate in.

Managing ESG ‘high emitting’ sectors.

The high emitting sectors are a great topic, because on the one hand you would say: the banking sector needs to transition away from the high emitting sectors.

But my argument on that is - that doesn’t solve the problem. That doesn’t help the high emitting sectors invent the new technologies to bring down their carbon footprint, to transition their existing business models, whether it’s power generation or transportation, to change the way they do business.

What the banking sector should do is to help those sectors transition from their existing technological base, their existing business models on to business models and technologies that are more compatible with the Paris Accord goals.

The banking sector should be there to help finance that transition. Because that transition is needed for the world as a whole. Walking away from the old sectors does not necessarily achieve transition. It doesn’t achieve the goal of the Paris Accord.

That’s why I think we have a very material role to play in providing the finance for the infrastructure that needs to be built to transition industries and businesses from to.

We published some targets around sustainability three and four years ago. They were five year targets. And I’m pleased to say we’ve already exceeded that target. So, in that regard, what we committed to three, four years ago, we’ve already done it.

Targets must be even more ambitious

But I also know those targets are not enough. We have to go further. And that’s what the next strategy, phase of our strategy is all about.

There’s a huge amount of infrastructure to be financed. I see it as a huge opportunity for the financial services sector.

I’ve quantified that for our own business in the next 10 years. Somewhere between 750 billion and a trillion of financing activity needs to be performed to help companies who are customers of HSBC transition their business models from current technology to new technology.

I look at it as a huge opportunity. And that’s what I now want to move on to, to get that business plan on the way as we did the last one.

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