Global banks under pressure to set more specific sustainable finance targets

Shareholders are pressuring global banks like HSBC, JPMorgan and Citi to be more transparent around their sustainable finance activities and to set targets to increase the ratio of green to fossil fuel financing.

HSBC shareholders worth US$892 billion in assets under management asked the bank at its AGM to disclose how exactly it plans to use the US$1 trillion it has dedicated to sustainable finance by 2030, in an effort to increase transparency and ensure impact.

Sustainable finance targets ‘too broad and vague’

Like many other banks, HSBC has established a target of providing US$750 billion to US$1 trillion of sustainable finance and investing by 2030, but the investor coalition, represented by NGO ShareAction, believes the target is too vague. 

“Investors don’t have enough information about how exactly this will be spent to know if the bank is really on the path to net zero and contributing its fair share of financing to address climate finance gaps,” said Jeanne Martin, Head of Banking Programme at ShareAction.

“The target as it currently stands is too broad and vague. It gives the impression the bank is scaling up its efforts on green finance without demonstrating the difference it will make, or whether it is financing the green activities that are most needed.”

One of the shareholders’ requests is to clarify how the green finance target will be spent across environmental and social themes, and formulate a specific target for renewable energy financing.

Citi sustainable finance disclosures

If it decides to comply with the demand, HSBC could disclose its sustainable finance activities similarly to Citi – which recently announced that it has reached US$441.2 billion towards its own US$1 trillion sustainable finance goal.

In its latest ESG report, published last week, the US-based bank breaks down the specific criteria used to allocate sustainable finance, with renewable energy representing 15% of the 2023 total, for example. Since 2020, Citi’s sustainable finance has gone mainly to projects with environmental benefits (68%), led by sustainable transportation and renewable energy. Another 18% of the total went to social projects such as affordable housing or education.

Clean energy financing ratio disclosures

Despite this breakdown of sustainable finance activities, Citi is also under pressure to go further in its disclosures: in March, it became the latest US bank (after JPMorgan) to agree to disclose the ratio of clean energy to fossil fuel financing it provides, after the New York City Comptroller submitted a shareholder resolution requesting it.

“Clean-energy-to-fossil-fuel financing ratios have emerged as a key metric for assessing progress in financing the clean energy transition,” said the shareholder, asking Citi to “set time-bound ratio targets aligned with its net zero commitment”.

According to BloombergNEF, financing for low-carbon energy was 73% of that for fossil fuels in 2022 – yet to meet the world’s net zero targets, it should reach a minimum of 4:1 by 2030. 

In 2022, Citi allocated US$123.5 billion to sustainable finance, including US$17.3 billion for renewable energy projects – while providing US$33.94 billion to fossil fuel clients. 

The bank has calculated that it could face US$10.3 billion in losses over the next 10 years if climate action accelerates to meet the world’s decarbonisation targets. In its sustainability report, it recognises that its approach to “supporting client decarbonisation in a gradual and orderly way, while promoting energy security, may lead to both continued exposure to carbon-intensive activity and increased reputation risks from stakeholders with divergent points of view”.