HSBC aims to achieve carbon neutrality this year. As well as a drive to reduce its CO2 emissions, it will consider offsets such as emissions trading, which has the potential to become a free-standing investment market. Jules Stewart reports.

It is not often that a bank makes the news as a champion of the environment. But HSBC, the world’s second-largest bank, has taken on that role with the aim of becoming the world’s first major bank to commit to going carbon neutral.

This basically means reducing energy use, buying green electricity from alternative energy sources, planting thousands of trees and then offsetting the remaining carbon dioxide (CO2) emissions by investing in carbon credit or allowance projects. Banks are not generally seen as altruistic institutions, so what are the benefits for HSBC?

“We take our environmental responsibilities very seriously and this initiative is one of the key components of the group’s corporate social responsibility response,” says Francis Sullivan, HSBC’s adviser on the environment. His role was created almost a year ago to tackle the issue of what the bank can do to help address the problem of climate change. “To make this commitment real, the bank agreed an environmental action plan last July, with the support of both the chairman and CEO, and we are increasingly staffing up to manage our direct and indirect impacts on the environment.”

Environmental impact

HSBC’s “direct impacts” include its role as a major employer and user of property in the world: in other words, the impact that the business has directly on the environment. “Indirect impact” refers to the business operations and their effect on the environment.

“The carbon neutral initiative focuses primarily on our direct impact and covers the area where we believe we can be most effective, meaning with regard to climate change. The focus is on energy, as we have an impact in terms of water and paper use and we produce waste.”

This is where sceptics will find answers to their “yes, but” questions. The carbon neutral project is expected to represent a significant cost saving, over time, compared with the $7m that it is expected to cost in the first year. Mr Sullivan says that it will also improve HSBC’s image and motivate its staff.

“We’re following the principle that if a company or organisation is responsible for polluting the planet, it has the responsibility to do something about it,” he says. “We looked at various options of what we could do about the climate change issue, and carbon neutrality is the right one for us, focusing on our direct emissions of CO2 caused by us as a user of electricity, natural gas, fuel oil and business travel.”

Energy efficiency

In 2003, HSBC produced just over 550,000 tons of carbon dioxide; the estimate for 2004 is about 700,000 tons. The process that the bank is looking at will be implemented through its Carbon Management Plan. The aim is to become as energy-efficient as possible, buying new bits of kits to ensure that offices are used more efficiently with a higher consumption of “green electricity” from renewable sources, such as wind, wave and hydroelectric power. HSBC plans to offset the balance of its CO2 emissions, and is the only major organisation to do so apart from Swiss Re. Swiss Re recently made its own commitment to carbon neutrality.

HSBC expects to achieve carbon neutrality in 2005. This entails offsetting its CO2 emissions through a range of measures that need to be “credible, incremental and cost-effective”, according to Mr Sullivan. The bank will look at four broad areas of carbon offsets. The first and best known option is tree planting. Although this is one of the most emotive gestures, it is not necessarily the most effective.

Emissions allowances and offsets

Through the EU Emissions Trading Scheme (EUETS), which came into force last month, there will be legally verified offsets to be measured in the form of the Capital A allowances that are awarded to major polluting businesses across Europe. Under the scheme, a particular site, such as a power plant, will be given a certain number of allowances. The site will then be required to operate within that cap. If it is able to keep emissions below the cap at the end of the year, it can trade the difference; but if its emissions exceed the cap, it will have to offset the excess with other people’s emissions or pay a fine of €40 per ton. The allowances are currently trading unofficially at €9 per ton.

“We could join that option voluntarily,” says Mr Sullivan. “If we had to find a market for 700,000 tons of CO2, we could do this through the EUETS where it would cost us €6.3m.”

The offsets are real reductions somewhere within plants or companies in the EU, or through the Clean Development Mechanism, which offers the opportunity to buy into real reductions outside the EU through a verified system. A new mechanism called joint implementation comes into effect after 2008. This will allow for trading of allowances between developed countries. HSBC is also considering trading outside the system and looking at exchanges. There are now five greenhouse gas trading exchanges in operation. The best known is the Chicago Climate Exchange, which is trading carbon emissions at $2 per ton. But there the participation is effectively on paper rather than within a specific project that is working to reduce emissions.

The EUETS will place a real value on carbon, particularly for severely capped businesses like Europe’s large-scale steel industry, which has to make substantial reductions in its emissions levels or face the prospect of heavy penalties. Through the EUETS, it is possible to buy a piece of paper that is an IOU for 700,000 tons of carbon dioxide and that will have a tradable value because somebody might want to buy it at a different price.

“This could become a liquid market with sufficient volume and people will start to look at it as an investment vehicle,” says Mr Sullivan. “Our 700,000 tons may seem a lot of CO2 to find a home for but one has to bear in mind that the allowances across the EU will be 2.2 billion tons. In any case, HSBC is not a big polluter by world standards. For example, the bank’s 700,000 tons compare very favourably with BP’s 80 million tons of CO2 emissions a year.”

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