HSBC Asset Management (HSBC AM) will phase out coal-fired power and thermal coal mining from its listed holdings and, it says, actively work with company boards to support the transition away from thermal coal in the European Union (EU) and Organization for Economic Cooperation and Development (OECD) markets by 2030, and globally by 2040.
Those companies that do not show credible plans to transition away from thermal coal within the timeframe will lose the support of HSBC AM or, ultimately, will be divested. The policy is in line with the Net Zero Asset Managers initiative of which the asset manager is a signatory.
The main highlights of the new policy include:
- Engagement with active and passive holdings – If engagement has not been successful the company will not vote for the re-election of chairs of listed issuers with more than 10% revenue exposure to thermal coal that do not provide Task Force on Climate-related Financial Disclosures or equivalent reporting. It will also vote against chairs whose company’s transition plans remain inadequate following engagement.
- Strengthened engagement with these issuers; with the option of divesting over time from companies whose transition plans are considered incompatible with HSBC AM’s net-zero objective.
- Active portfolios - By the end of 2030, the company will not hold listed securities of issuers with more than 2.5% revenue exposure to thermal coal in EU and OECD markets and globally by 2040 across its actively managed portfolios. This is applicable to all portfolios where it has investment discretion and funds where it has significant control.
- Starting now, actively managed portfolios will not participate in initial public offerings (IPOs) or primary fixed-income financing by issuers engaged in thermal coal expansion.
- For all other issuers with more than 10% revenue exposure to thermal coal, participation in IPOs or primary fixed-income financing will be subject to enhanced due diligence of transition plans to ensure alignment with HSBC AM’s net-zero objectives.
- Passive - There will be no new exchange traded funds (ETFs) or index funds with more than 2.5% exposure to thermal coal issuers. The only exception would be if an ETF or index fund’s strategy has specific Paris-aligned 1.5 degree Celsius objectives or clear divestment pathways. The company will work with index providers to extend the range of indices and passive products that do not have exposure to thermal coal on the expectation that thermal coal exposure will decrease.
HSBC AM will also review other investment strategies (e.g., alternatives and liquidity) and will publish interim emission reduction targets and progress against them for assets identified as being managed in line with net zero by 2050 or sooner.
“This is a determined step to phase out thermal coal,” says Nicolas Moreau, CEO of HSBC AM. “Global emissions will only be reduced if there is concerted collaboration to meet the goals of the Paris agreement, and we are committed to playing our part.
“We have already stopped direct investments in new or existing thermal coal projects. And we are working on two fronts: coal phase out will go hand-in-hand with pioneering new investment solutions in our alternatives business to scale sustainable infrastructure investment and venture capital for critical climate technology solutions.”