“Looking at the region as a whole, it’s not just about clean energy. It’s about a different way of operating, a different normal, and that’s why our business model and commitment as an organization has dovetailed so well with the economic and social transformation of this region.”

In this piece with Sabrin Rahman, Regional Head of Sustainability, HSBC MENAT, we hear about the growth opportunity in green banking, and the key impediments which, if removed, can accelerate the transition to a world envisioned by the Paris Accord.  Tim Nixon, Managing Editor of Sustainability at Thomson Reuters.

Tim: How does the movement towards decarbonisation help HSBC in the Middle East region?

Sabrin: Banks are the main intermediary between businesses, governments, investors and the public and as such, we have a responsibility to direct the flow of capital and help manage the transition to a low carbon society.

In this region, there is a strong mix of government and private sector perspectives which allows for more creative thinking towards potential solutions around decarbonisation. Through our roots in the region and collaborations that promote the exchange of knowledge between large institutions and SMEs, we are very well placed to steer the movement towards decarbonisation.

Tim: What kind of finance qualifies for hitting your $100 billion sustainable finance target by 2025?

Sabrin: The $100bn commitment will support the development of sustainable capital markets by promoting sustainable investment products for our customers – namely in retail banking and private banking – and by helping to manage risk for our customers who are making the low carbon transition.

We are a leading bank for green, social and sustainability bond issuance globally. We have continued to drive market expansion with inaugural green bond issuances and product innovation, including the first sovereign green Sukuk (Republic of Indonesia) and first ever ‘transition bond’ (Capco).  In 2018 alone, we provided nearly USD20bn of sustainable finance through access to capital markets, advisory, direct lending and investments.

Tim: How important are concessions on the cost of borrowing to achieving your goal?

Sabrin: Globally, we are on track to achieve our sustainable finance goals much faster than anticipated. We have at times used certain concessions, such as preferential lending terms for green loans, but the key impetus for concessions has been to signal to the market and our clients our commitment to sustainable business practices, and help foster sustainable investments. In our key markets, our ‘green’ labelled products and services are today a well-established part of HSBC’s core business and the market does not need concessions from us to act.

Tim: What would accelerate the rate of investment in sustainable finance?

Sabrin: Everyone has a role to play. First, policy makers in the region should look towards increasing sustainability standards and regulations to help develop the market conditions for sustainable investments by the private sector. This can include everything from a price on carbon and removing energy subsidies, to targeted regulatory changes in sectors such as waste management, transport and logistics. Without policy support, the Middle East region risks falling behind in managing the transition to a low carbon, sustainable future, since the market imperatives for inducing private sector investments is low.

Second, both public and private sector companies and organizations in the region need to increase their awareness of global industry best practices, and begin investing in sustainable initiatives in their respective industries. They should not simply wait for policy and regulatory changes, which can be slow. If they do not act now, they risk falling behind their international peers on efficiency and competitiveness over time.

Third, Banks in the region need to meet the financing needs of sectors willing to invest in sustainability. Even now, many regional banks do not have the risk appetite to finance sustainable investment needs of their clients, and one of the key reasons is a lack of awareness and experience in sustainable finance. Financial institutions in this region need to do more to develop the right banking products and solutions to address the sustainable investment needs of their clients.

Tim: How has HSBC made its own lending portfolio more focused on sustainable impact? Any divestment?

Sabrin: We have an internal taskforce of cross business colleagues who work with our risk department to understand what our solution is to high-carbon sectors, to understand emissions per region, to clarify exposure. Understanding our client base and our exposure is the first step in addressing our decarbonisation and our direct impact, and this is ongoing.

The aim is to plan a meaningful transition away from carbon dependent practices for our customers by investment in new production, reducing dependencies on existing practices, or restructuring financial models to rebalance away from carbon dependent industries.

We’re committed to working with government entities to build up the concept and practice of sustainable finance and to promote discussion across sectors. At the 2019 World Future Energy Summit, we became a co-founding signatory of the Abu Dhabi Sustainable Finance Declaration, which advocates sustainable finance and investments and to foster positive, economic, social and environmental impacts for the long-term well-being of the UAE’s economy.

Tim: Does it make sense for a climate impact investor to invest in a carbon intensive business which is decarbonising in line with the Paris Accord targets?

Sabrin: Yes it can make sense. To meet the decarbonising targets set in the Paris Agreement, every industry and sector will need to change. For climate impact investors, some of the most attractive (and obvious) investment priorities will be ‘deep green’ industries such as renewable energy and recycling, and clear no-go businesses like coal and tar sands. Yet there are many carbon intensive sectors that are vital for the functioning of the modern global economy, such as chemicals, aluminum and cement to name a few, which need financial support to become more efficient, and develop more efficient products. To meet the Paris Accord targets, these sectors must also be supported.

Tim: What is one of the most exciting opportunities for HSBC’s sustainability initiative in the Middle East?

Sabrin: We have one of the youngest populations in the world here in the Middle East. Almost 50 per cent of the population are under 30. It’s incredibly exciting and it makes us future looking.  We need to have more progressive ideas that are future proof and serve the needs of a very young population.

Looking at the region as a whole, it’s not just about clean energy. It’s about a different way of operating, a different normal, and that’s why our business model and commitment as an organization has dovetailed so well with the economic and social transformation of this region.