1 Feb 2022

HSBC invests in green tech yet deepens ties with Saudi Arabia, and the true cost-benefit of going green

Go for Green is our weekly blog – where we share and analyse some of the most fascinating and fury-inducing stories from the last seven days.

This week, we look at the McKinsey Institute’s forecasted costs of going green, and why it is actually a bargain compared to the inevitable cost of inaction. We also examine HSBC’s substantial investment in Catalyst, part of Bill Gates’ Breakthrough Energy network – and contrast it to their recent announcement of a £10 billion partnership with Saudi Aramco, one of the world’s worst polluters. So much for the E in ESG.

Going green is a bargain

As reported by the BBC, last week the McKinsey Institute has recently estimated the global expected cost of going green. The annual cost of getting to net zero, when emissions are completely reduced or offset – will be £6.8tn.

The world is already spending $5.7tn a year on sustainability efforts and renewables, but we need $3.5tn more every year from 2021 to 2050 to limit global warming to 1.5 degrees, it said. That is the equivalent of half of all corporate profits in 2020, one quarter of all tax revenue, or 7% of household spending.

This, understandably, may cause a reaction of panic. After all, we constantly hear about record levels of government debt and the cost of living and energy skyrocketing. In a stunning example of short-sightedness, it has even led some particularly-myopic politicians, such as a new Conservative Party faction ‘the Net Zero Scrutiny Group’, to react with abject terror; insisting that we can’t afford it now, and should focus on extracting, using and selling as many polluting substances as possible.

We won’t discuss the social, environmental and cultural damage non-action will cause – as these are well documented and common sense. Instead, it seems more appropriate to mention the economic costs of climate change.

As reported in The Times, issues like increased flooding, heat-related health conditions, food supply problems, and damage to transport, water and energy infrastructure could combine to cost the UK economy £20 billion a year by 2050. This doesn’t begin to include climate change’s impact on global GDP – which could be some 37% lower by 2100 according to a research paper published in Environmental Research Letters.

Furthermore, fighting climate change and transitioning to cleaner and more sustainable technology brings a raft of economic potential. The Climate Change Committee estimated that savings from no longer having to buy gas and oil alone could save the UK some £50 billion every year, which is suitably almost the entire cost of the £50bn-a-year investment that’s needed in low-carbon power, transport and home heating across the next three decades. This doesn’t even mention the many opportunities for new innovations and jobs – which will of course lead to new forms of income for investors, governments and businesses.

Whether you look at what would have to be spent to fix immediate problems, the economic potential to be found in going green, or the reduced economic productivity of a dying earth, it is clear that moving to net-zero is the economically sound decision. This doesn’t even begin to consider the human cost, which is reason in itself.

HSBC backs Bill Gates’ green tech projects

As reported in FinExtra, HSBC is to allocate $100 million to funding green technology projects as part of the Breakthrough Energy Catalyst network. Catalyst, an initiative within the larger Breakthrough Energy network founded by Bill Gates, supports decarbonisation via four vital technologies – direct air capture, clean hydrogen, long-duration energy storage, and sustainable aviation fuel. In addition to its $100m investment, HSBC will join the leadership council – helping secure transition opportunities in some of its biggest markets, notably in Asia and the Middle East.

This is a notable investment, and should help speed up the quest to find a miracle-cure for our energy needs. However, green technologies, particularly ones that still require a huge amount of research and development, aren’t a solution yet. They are a vital piece of the puzzle – but we cannot put all our hopes, dreams, and capital into something that isn’t yet viable or scalable.

HSBC deepens ties with Saudi Arabian oil

Yet, every silver lining has a cloud. On Thursday, City AM reported that HSBC has agreed to finance a $10bn revolving credit facility to one of the world’s biggest polluters, the Saudi Arabian Oil Company ‘Saudi Aramco’.

Saudi Aramco is no ally in the fight against climate change. It has plans to increase its production of oil and gas equivalent to 27 billion tonnes of carbon dioxide by 2030, which is 4.7% of the entire world’s carbon budget to stay under 1.5ºC. Furthermore, since 1965, it is believed to be responsible for 4% of the entire world’s greenhouse emissions. HSBC, through this partnership, shows it is not serious about its commitment to sustainability, and is putting the ‘E’, in ‘Environmental and Social Governance’ into serious question.

HSBC’s ties with Aramco is nothing new. In 2019, Financial News discussed how the bank landed the oil-rich opportunity of a lifetime – and became the only global lender with responsible for Aramco’s IPO alongside two local Saudi banks.

This follows years of efforts to invest in and build partnerships with the controversial kingdom. On 2nd October 2018, Jamal Khashoggi, a columnist for The Washington Post, former editor of Al-Watan and former general manager and editor-in-chief of the Al-Arab News Channel, was assassinated by agents of the Saudi government at the Saudi consulate in Istanbul. He was lured to the consulate building, before being ambushed, suffocated, and dismembered by 15 Saudi agents loyal to Prince Mohammed bin Salman, the crown Prince.

In a bid to restore the confidence of the global community and investors following this state-sanctioned murder, the British bank helped arrange a $12bn bond deal for Saudi Aramco, which attracted $100bn in orders and cooled any talk of investor boycotts.

This clearly shows HSBC has no desire to care for the environment or the social impacts of their work – and we just hope investors and regulators respond accordingly.