HSBC shows strong preparedness to navigate climate-related disruptions – S&P

HSBC Holdings PLC is well positioned to navigate potential future disruptions associated with climate change, with its board and management deemed to have strong preparedness to negotiate geopolitical, economic, environmental and societal complexities associated with its large footprint in Europe and Asia, S&P Global Ratings said in a report.

Ratings assigned HSBC an environmental, social and governance evaluation score of 76 out of 100, reflecting the U.K.-based banking group's increasing level of development and integration of ESG considerations into its operations, according to its ESG Evaluation report published Jan. 24. The rating agency's ESG evaluation comprises an assessment of a company's ESG profile and preparedness, and is an analysis of a company's strategy related to ESG and its ability to prepare for potential future risks and opportunities.

HSBC, one of the largest banks by assets and market capitalization in Europe and a global systemically important financial institution, scored 62 out of 100 in its environmental profile on the back of its commitment to achieve net-zero carbon emissions in its lending portfolio by 2050 at the latest. In 2021, the group launched a new climate strategy, including a complete coal phase-out commitment, following pressure from investors with $2.4 trillion in AUM to align its financing policy closer to the Paris Agreement on climate change.

HSBC's supply chain and direct operations take into account environmental considerations, while financing decisions concentrate on larger customers with higher environmental footprint, Ratings noted. The lender also requires suppliers to operate in line with its goal to reduce the environmental intensity of its operations and suppliers.

HSBC attained scores of 69 and 81 out of 100 in its social and governance profiles, respectively. The bank has a diverse workforce and Ratings expects an increase in HSBC's proportion of women and ethnic diversity in senior leadership roles over the next several years through programs that address these issues. Customer engagement is also a strength for the lender, with support provided for clients to help them make "a just and stable transition" to more sustainable practices.

In terms of governance, HSBC's board and management has a strong governance structure and oversight of its global operations, Ratings said. The group's financial and nonfinancial disclosures are also deemed more comprehensive than the industry and its code of conduct and values have evolved over the years, with some of the biggest changes being in response to significant conduct breaches, including money laundering. Furthermore, the bank has exerted significant efforts to address misconduct and minimize its occurrence.

S&P Global Ratings views HSBC's preparedness as strong with a scoring impact of (+5), saying the lender is well positioned to handle potential climate change-related disruptions as well as those associated with increasing digitization of services and cultural complexities arising from its geographic and operational diversity. The group has also adapted its traditional risk management tools, including scenario planning, to better understand the materiality of ESG risks.

The rating agency also previously released ESG Evaluation reports on Dutch banking group ING Groep NV and French payment services provider Worldline SA, each with an ESG evaluation score of 83. Meanwhile, Sweden's Swedbank AB (publ) and Sberbank of Russia were assigned ESG evaluation scores of 75 and 67, respectively.