Green Financing: How to Get HSBC to Lend to You

Financial giant HSBC is also one of the global pioneers in corporate sustainability and responsibility. Ranked top of the Hang Seng CSR Survey, the bank has put sustainability at the center of its business. Teresa Au, head of corporate sustainability for HSBC in Asia Pacific, explains its CSR practices and green financing products to Julie Yoon-Hussey of The Green Channel, a sister publication of CFO Innovation owned by Questex Media. Excerpts from the interview:  

Please give us a brief background of sustainability in HSBC.
Back in 2003, HSBC Group set up a corporate social responsibility committee to try to look at the relationship between CSR and the business. Over the last few years, we have evolved CSR into sustainable business development, into a wider scope, going beyond social responsibility. In October 2005, we became the world’s first major bank to become carbon neutral, ahead of our target of achieving this by the end of 2006.
Our regional corporate sustainability office was set up in 2007 and in fact by me. I was appointed into this position to look at how we can integrate sustainability with the business.
Under our scope of responsibility, we look at community investment, doing good for the community in both the environmental side and also in the social side. We also covered looking at risk management, which means we would define the lending policy so that we will help our customers to better manage their own risk and the risk they pass on to us through our financing, for example, for some sensitive sectors like forestry, financing of forestry infrastructure.
For mining, metals or even chemicals, where there will be large pollutions, waste being produced—we would be very careful in our financing decisions. We would like to support our customers to improve their practices so that they can meet international standards on environment and also on the social side.
I think that helps them to become more sustainable in this way. In fact, a number of customers initially thought that the bank is very tough. Why are we advising them against some practices or to invest more on some practices that will help them to reduce their pollutions or reduce energy usage?
At the end of the day, they find that because of our support and advice, they have become profitable companies and they have been able to expand their business. Having said that, we do walk away from customers and partners who are unable to fulfil our sustainability guidelines.
We also look at sustainable business development. I think climate change, and some sort of social development, has provided the laws of opportunity and change in customer needs also.
For example, under this carbon-constrained economy, many countries are looking at how to generate more renewable energy. So, certainly, financing the renewable energy sector is something that we need to tap into.
We also need to look internally into how we develop our own people. Employees’ wellbeing and diversity is one of the areas under us also because employees are our major stakeholders internally.
Externally, we look at non-profit, NGO partners, government organizations, academics, and customers. And of course we have to produce the economics in product development and risk management.
That’s quite a big scope. Which would be a higher priority than others?
It is essential that we help our customers to understand the risk of climate change and at the same time to see and capture the business opportunities. Not many customers understand this because many of them just run their old business continuously.
Sometimes they want to make a change but they don’t know how. If you look at the major manufacturers, I think many of them are already aware of the urge and understand that it is essential for them to invest in operations to ensure that they are ahead of the game, that they meet and comply and perhaps become a leader in the industry in complying with government regulations on environment, which are increasing.
Many of the smaller companies or the traditional companies see this as very difficult to change because they don’t have the funds, but first of all they don’t know what to do to change the process.
In the last 18 months, we have put in place a platform we call the “Climate Change Corporate Partnership Program” (CCCPP), which was launched here in Hong Kong. It is a platform where we would provide information and stimulus to our corporate customers to help them to understand how they can adopt a low-carbon management practice.
We have fully funded the development of a low-carbon office tool with WWF, which we would be happy to provide for free and help [clients] green their offices and manufacturing operations.  They need money to invest in equipment in order to change their process. So we have come up with a “green equipment finance” to help customers to procure equipment so they can operate in a more eco-friendly manner. We also have “green financing,” providing them with working capital finance to enable them to change their whole process of operation.
What’s surprising to our customers is that, normally they would expect the banks to come up with the financing solutions. But under this umbrella, we come up with financing and non-financing solutions. We give them the tool to help them operate in a more eco-friendly manner and at the same time we provide them with financing to enable them to make the change easier.
We also provide seminars to customers to share with them some best practices.
It sounds like HSBC is also becoming a consultant in the green area. Do you have the internal expertise for this or do you partner with experts?  
We do not provide one-to-one consulting. What we do is to provide platforms, we share ideas and we provide some tools with support from our partners who are specialized in green area. It’s more of a mass communication move, some 200 customers in a seminar where we disseminate all this information.
In major projects like project financing, such as wind farm financing, we provide advisory services to that particular project. We do have a green tech and project financing team which is specialized in providing this kind of service. They are the experts.
But in general during business forums, we see ourselves as providing more of community education rather than one-to-one consulting. If our customers want that, they would have to get industry business consultants to look into their own specific business details. But we do provide the tools, and even our partners like WWF and the Business Environment Council, they will be happy to provide some general advice. We do share best practices.
We have a lot of green product innovation. I would like to see a lot more in the coming years. I think it’s essential that we support our customers whether corporate or individual consumers to see how they can change their lifestyles and business philosophy and management to enable that. We all have roles in providing an acceptable environment for the next generation.
Being the first bank to be carbon neutral, how does that give HSBC a competitive advantage?  
HSBC is seen as a leader in sustainability because probably a lot of these innovations and new products we have introduced into the market. We have been cited as No. 1 in a CSR survey of all Hang Seng stocks for the last two years already. And lately we have been included in the Hang Seng sustainability index.
You will notice that in many developing countries, even in China, not many people look at financing in a more sustainable manner. They are just hungry for business. But we have set a model for the financial institutions and many banks want us to share our lending guidelines and principles although sometimes they would be selective in what to follow because they have to look at their own business.
Do you find that the market is slow to adapt to your trailblazing? 
Three years ago when we first set up this office, when I started to talk about climate change, nobody would answer me, they just give me a blank look. “What is it? Where are you from? Are you a scientist?” They only look at air pollution here in Hong Kong, they never thought about climate change. But three years down the road, climate change as a topic is a staple for newspapers.
And certainly people on the street start to understand what is meant by climate change and how is has impacted them because people feel it already because of the global warming effect and the unpredictable weather change. And the subject of climate change has reached business as well as the community because of its effects.
Which of your sustainability measures do you think provide the most impact?  
Tough question. I think that would be providing the right products to our customers. It is important that as an organization or a business, people come to us because they like our services and products. And if that is so, we can help them to become more sustainable, and then we would have probably achieved our aim.
So I would say the innovations of green financing under the climate change corporate partnership program is one of the programs that create the biggest impact to our customers, for the time being. Because it provides customers the pull and the push to become more environmentally conscious in viewing their business.
Do you enforce your own standards on your suppliers?  
We do because as a bank we procure from a lot of suppliers. We have lately put in place a procurement contract in which we have incorporated sustainability requirements. We do ask our suppliers, we audit also, to ensure that they practice in a socially responsible manner.
We require the suppliers to tell us, in the bidding process, why they think they are socially responsible organizations. And if we have agreed to procure from them, we will do some sampling on the larger suppliers to ensure that what they tell us is true in terms of their labor practice, sourcing requirements and manufacturing process.
Is there any specific country that is particularly interesting for HSBC in terms of sustainability?  
In Asia, I think the two most important countries in terms of sustainability, and they probably in certain ways they are the most affected by climate change, are China and India. They have the largest populations, they are both developing countries and are most affected by either poverty or climate change.
In the case of China, they have overtaken the US as the world’s largest carbon emitter. They have become the largest market for wind farms. They are also the largest manufacturer of solar panels. China has become a large-opportunity area for foreign investments in green technology. And they themselves are pretty keen to reduce their carbon footprint in totality.
A lot of provinces are taking this quite seriously in the sense they have come up with regulations to reduce carbon footprint, pollutions, and improve energy efficiency. It’s a big market over there in terms of opportunity. One should not lose sight of this market.
Which segment of your customers is most impacted by the need to become more sustainable?  
That would be the large corporations, but they have more resources to make any changes. And they face government regulations to do that anyway. I think the major challenge is the medium-sized and small-sized corporations. They lack resources and expertise, and they are in the supply chain so they need to meet requirements of their buyers.
They would be more affected by climate change and some of them will have to change their business or face their demise because they are unable to comply with the changing requirements. They have to see the opportunity and they have to prepare themselves – but many people are too much set in their own way of thinking and they can’t make the change.
How do you market your new services to your customers?
With green financing, just like the many other products, we do publicity through marketing brochures and all those things. But the most important is we run seminars, invite existing customers or potential customers to come to attend. We share with them some of the best practices and the business cases. If they see the business cases, they will come to us for help and we provide them with financial solutions.
In fact, since the launch of our green financing, our portfolio has grown a lot. A lot of our customers are very interested in this. Within 18 months, the overall loan portfolio of green financing has exceeded HK$1 billion (US$128 million) here in Hong Kong. This is mostly targeted at medium and small-sized companies
Banks and green financing - how do you see the future for this?  
Financing institutions must first manage their own footprints. In fact, it is essential for all organizations. You have to walk the talk. Secondly they have to look at their own products and services to come up with solutions for their customers.
Thirdly, employees are our champions. We should look at how to engage our employees to help our customers. We have to educate our employees, otherwise they would not know how to educate our customers or in some ways to help our customers.
We have our HSBC climate champion programs in the region. We have a climate change field center in China, in Gutianshan in Zhejiang province, where more than hundred of our employees join a two-week training program each year. There they work with scientists from the Chinese Academy of Sciences to help research climate change and forestry and learn about climate change issues.
In the morning they would do some field work. Climb the mountains, take measurements from the forest and do some other scientific research work. In the afternoon and in the evening they would discuss and learn about climate change and how it relates to our business.
Two weeks later, they come back from training and they will pioneer business projects which are related to sustainability within their business groups. And they become our climate champions. This pool of people is important because they have developed a deep understanding of climate change and they will have to spread the message to their colleagues.
These are the things that we do to engage our employees but there are other programs to help our employees go green and take care of the environment. We have volunteers to go to parks to become eco-guides. And sometimes we go to schools to increase the students’ awareness.
I think it’s essential for all companies to look into their own agenda, too look at how they treat their customers and how they engage their employees.



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