ESG Financing House: HSBC

IFR Awards 2022
8 min read
Julian Lewis

Ubiquitous leader
2022 saw HSBC move beyond its traditional strengths in ESG bonds and loans to successfully focus on equities, convertibles and derivatives too. A key player in the vital transition regions of Asia and the Middle East and with new momentum in the Americas, HSBC is IFR’s ESG Financing House of the Year.

ESG Financing House

In the face of new ESG bond volumes declining for the first time in the market’s decade-long history and much work on financing frameworks failing to translate into new issues, the breadth and consistency of HSBC’s 2022 ESG financing performance was notable.

Across ESG bonds and loans in EMEA, the Americas and Asia-Pacific, HSBC racked up an unmatched five top 10 league table rankings out of six available, according to Refinitiv data.

This suggests a level of emphasis on sustainable finance that remains uncommon even as ESG attracts ever more attention. “We are top five globally, which we're pleased with, and really we think of ourselves as one of three houses where our market share in sustainable bonds and loans is leading but also significantly higher than our overall share,” said Alexi Chan, head of global banking sustainability at HSBC.

He emphasised that the bank is the only member of this trio with a global presence that includes large emerging markets with significant transition challenges.

“We believe that we need to focus on those growing markets and bring that level of disclosure to the bond market through ESG labels,” said Anjuli Pandit, head of sustainable bonds for EMEA and the Americas.

She cited HSBC’s top ranking in Middle East sustainable finance (including ESG sukuk) via deals such as the region’s first green project bond (a US$700m transaction for Sweihan PV Power), as well as its third place in Asian ESG bonds (the bank ranks third on Refinitiv league tables if Chinese bookrunners are excluded and seventh if not).

Pandit also stressed that while 2022’s volatility delayed many transactions, the pause enabled HSBC to work with borrowers to raise their frameworks’ ambition level. Of the 47 frameworks it completed during the year but have yet to launch, two-thirds incorporate science-based targets.

Jonathan Drew, head of global banking sustainability for Asia-Pacific, said the bank demanded tougher sustainability targets on financings than local banks would have required and often dissuaded potential issuers from issuing labelled bonds. “It is most important to get the story right,” he said.

Equity stories

At the same time, HSBC sought to place new emphasis on less traditional ESG financing products. This effort saw it rack up equity capital markets, mergers and acquisitions and venture capital roles. These ranged from serving as ESG structuring agent for two huge IPOs from the Gulf – Dubai Electricity and Water Authority’s US$6.1bn transaction and Borouge’s record US$2bn offering in neighbouring Abu Dhabi – to private capital raises such as US$170m for Nexeon to industrialise its silicon anode technology.

Significant M&A roles included advising on the US$1.4bn sale of decentralised solar photovoltatic producer GreenYellow to Ardian Infrastructure.

“We're working across equity capital markets and M&A, supporting companies to bring their sustainability financials and transition stories to the forefront of their equity stories,” said Farnam Bidgoli, global head of ESG solutions.

This effort also saw it lead two rare green convertible bonds. It was joint ESG structuring agent and global coordinator for independent renewable producer Neoen’s €300m deal and joint bookrunner for geothermal energy generator Ormat Technologies' US$432m transaction.

Bidgoli, whose cross-product ESG solutions advisory group grew significantly over the year, described this as “embedding sustainability into every instrument clients could consider for their financing”.

“Many of our competitors seem to be very focused just on the labelled products, pushing out a green bond or sustainability-linked loan,” said Chan, highlighting the value in applying insights from ESG debt markets to “very long-burn and intensive strategic transactions” in ECM and M&A.

The bank is also connecting ESG financing with private capital. “There'll be about a trillion [dollars] a year that's needed for decarbonisation which will fall outside of the risk appetite of public markets. It will need to happen through private capital – be that infrastructure funds, private equity or venture capital,” Bidgoli said.

HSBC has also ramped up its leading edge ESG derivatives activity. While sustainability-linked derivatives remain a fledgling field, usually tied to sustainability-linked bond or loan transactions, this area also includes ETFs, structured products and securities financing/repo.

“We think we are a market leader and well placed in this market,” said Patrick Kondarjian, global head of sustainability for markets and securities services.

Significant transactions include a sustainability-linked repo with Gulf International Bank and a green bond repo with Saudi Investment Bank (each totalling US$100m), as well as total return swaps on ESG stock baskets and indices with BlackRock, BMO Asset Management and Schroders. Structured trades in South Korea and Taiwan highlight its reach in Asia.

Resilience and momentum

Some of the bank’s most notable successes during the year came in two contrasting regions: Asia and the Americas.

High-profile assignments included advising Singapore on its debut green bond and Hong Kong on its inaugural green retail issue, as well as the fifth successive green sukuk for Indonesia and a raft of green loans.

HSBC’s progress in the Americas was underscored by its ascent in the US league table for public ESG bonds, rising from a modest 22nd place in 2021 to eighth in 2022 after more than doubling its volume.

Canada was a particular bright spot with advisory mandates for debut green bonds from the sovereign and the Public Sector Pension Investment Board, as well as Ontario Municipal Employees Retirement System’s first sustainable bond and net-zero internal taxonomy.

In Latin America it brought notable social and sustainable bonds for Banobras and Comision Federal de Electricidad, both of Mexico. But its highlight was to be joint structuring agent and bookrunner for Uruguay’s landmark sustainability-linked bond – only the second sovereign SLB and the first to incorporate a coupon step-down alongside the standard step-up.

Mining negativity

HSBC also attracted sharp criticism for some financings. Its participation (alongside 25 other banks) in €5.4bn of loans to RWE was particularly controversial as the German utility has demolished multiple villages in expanding a lignite coal mine. Although originally involving a sustainability-linked tranche, the bank does not categorise its commitment as an SLL or count it towards its US$750bn–$1trn sustainable finance target.

“We reviewed the transaction as part of our standard approval processes and were satisfied that this met the parameters of our coal policy, including no net increase in thermal coal mining tonnage, and planned coal phase-out by 2030,” an HSBC spokesperson said.

HSBC also in August advised on RWE’s acquisition of Poland’s Alpha Solar – a concrete step in the utility’s shift towards renewables.

“We feel that we have a very significant role to play with our clients driving the transition,” said Chan, citing “detailed, sophisticated and nuanced” policies (including on coal) with climate science input as well as “real-world pragmatism”.

Bidgoli said the bank differentiates itself by its focus on “the outcomes that matter”. She highlighted “channelling finance into the decarbonisation of heavy industry and the hard-to-abate sectors, scaling up renewable energy, financing the breakthrough solutions across transport, agriculture and real estate that are actually going to get us to net zero”, as well as building more sustainable capital markets.

HSBC also pointed to its targets to cut its financed emissions – oil and gas by 34% in absolute terms and utilities by 75% in intensity, both by 2030. Targets for industrials, mining, real estate and agriculture will follow this year.

The bank has also said it would decline to finance companies that fail to produce credible transition plans.

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