UK banking sector ups green commitments, but there’s more to do

Barclays, HSBC and Lloyds have all announced plans to either boost sustainability financing or stop funding new oil and gas projects. This will help drive their carbon-free ambitions, but there’s more work to be done by the banking sector as a whole.

- Barclays increases its sustainable financing target to $1trn by end-2030

- HSBC’s plan to stop funding new oil and gas projects “sends a strong signal to fossil fuel giants”

- The Avantis Responsible International Equity ETF holds Barclays, HSBC and Lloyds

Just weeks after the COP27 climate conference, Barclays [BARC.L] and HSBC [HSBA.L] have both upped their green commitments, following a similar move by Lloyds [LLOY.L] earlier in the Autumn.

The moves by the UK banking heavyweights have been welcomed with cautious optimism, but the banking sector as a whole still has much to do, particularly when it comes to setting net-zero targets for 2030.

Barclays announced that it is lifting its sustainable finance target to $1trn by end-2030 in order to facilitate the transition to a low-carbon economy.

“We are helping to drive the transition and drive financing to where it's really needed, both to decarbonise high-emitting sectors and to scale up the next wave of climate technologies that are going to be required to decarbonise industries and create green jobs,” Barclays’ global head of sustainable finance Daniel Hanna told Reuters.

Meanwhile, HSBC has promised to no longer provide lending or capital markets finance “to new oil and gas fields and related infrastructure.”

Lloyds abandoned financing for oil and gas projects back in October in what was an industry first.

A strong signal to fossil fuel giants

The pace at which banks have been committing to sustainability has come under investor pressure this year.

A fifth of Barclays shareholders rejected Barclays’ climate strategy at its March AGM, seemingly because it lacked ambition. In this light, the recent move has been welcomed.

Barclays’ $1trn pledge is more than a fivefold increase on the $150bn it had planned on spending by 2025 to fund renewable energy and green mortgages for affordable housing.

Meanwhile, with HSBC having reportedly poured $8.7bn into oil and gas projects in 2021, Jeanne Martin, head of banking standards at responsible investment campaign group ShareAction, told BBC News that its decision “sends a strong signal to fossil fuel giants and governments that banks' appetite for financing new oil and gas fields is diminishing.”

The caveat with the HSBC announcement is that it only relates to future financing, and doesn’t take into account the project financing it already provides in the oil and gas sector.

“It's not no new fossil fuel investment as of tomorrow. The existing fossil fuel energy system needs to exist hand-in-hand with the growing clean energy system,” Celine Herweijer, HSBC's Chief Sustainability officer, told Reuters.

Only 26% of banks have 2030 emissions targets

Of the 54 major lenders, 75% have agreed to align their lending portfolios to net zero targets by 2050, including Barclays, according to research by Bloomberg Intelligence published in October. However, only 26% have set targets for 2030.

There’s more work to be done, especially when it comes to Scope 3 emissions.

A company’s emissions are divided into three categories: Scope 1 covers direct emissions, Scope 2 indirect emissions, and Scope 3 all other emissions the firm is responsible for in its ‘value chain’, including those produced by its investments.

“In short, banks’ disclosure is yet to match their carbon ambitions,” said BI’s director of research for the Americas, Eric Kane.

“Limited emissions reporting from portfolio companies is a stated obstacle for banks to calculate financed emissions. However, those that are committing to reach net zero should make financing conditional on these disclosures.”

Funds in focus: Avantis Responsible International Equity ETF

Barclays, HSBC and Lloyds are all held by the Avantis Responsible International Equity ETF [AVSD], with weightings of 0.43%, 0.48% and 0.16% respectively. The fund is designed to offer investors exposure to sustainable finance — companies are screened for their Environment, Social and Governance metrics. It’s down 12.49% year-to-date through 16 December, but down 00.6% in the past month.

Another ETF holding the three banks is the Dimensional International Value ETF [DFIV], which is down 8.48% year-to-date, and up 0.60% in the past month.

Barclays and HSBC are also held by the SPDR MSCI ACWI Low Carbon Target ETF [NZAC], with weightings of 0.03% and 0.08%, respectively. The fund is down 23.11% year-to-date but up 2.11% in the past month.

Barclays’ shares have fallen 17.01% year-to-date through 16 December and are up by just 0.01% in the past month. HSBC shares have risen by 9.27% and 3.46% in the same time periods, while Lloyds shares are down 16.11% but up by 4.64%, respectively.