Why HSBC’s Recent Response To Greenpeace Really Is A Very Big Deal

21 July 2017 | Some on the left will tell you we can only meet the climate challenge by jettisoning capitalism and replacing it with utopia. Some on the right (at least those who aren’t denying the reality of climate science) insist the market alone will fix the mess once investors realize that environmental bad boys are also financial bad risks.

Those of us in the middle know that it’s never that simple, in part because bad actions only become big risks when someone – a government, a consortium of NGOs, or a union of consumers – holds companies accountable for their actions, as Greenpeace did in January when it pointed out that banking giant HSBC was part of a collection of banks lending billions to six companies that were accelerating climate change by turning rainforests into palm oil plantations.

What happened next would have been unthinkable just three years ago, when major companies started making ambitious climate pledges ahead of the Paris Climate Talks – prompting the emergence of initiatives like Supply Change, which environmental NGO Forest Trends created to track the progress that companies report towards meeting their commitments. As a result, it’s easier than ever to see which companies are behaving badly and which are doing good, and it’s harder than ever for companies to plead ignorance when caught doing something bad.

“Evidence that these companies were responsible for unacceptable activities is in the public domain,” wrote Greenpeace in January. “They have been subject to Roundtable on Sustainable Palm Oil (RSPO) complaints or suspension, been cited by the Indonesian government for unrestrained fires and/or been the subject of numerous critical reports from social and environmental non-governmental organizations (NGOs).”

More on Bionic Planet

We discussed many of these issues in Episode 29 of the Bionic Planet podcast, which is available at Bionic-Planet.com, as well as on iTunes, TuneIn, Stitcher, and pretty much anywhere you access podcasts. You can also listen on this device here:

Palm oil, I should note, is used in everything from soaps and snacks to biofuel, but roughly 60 percent of it comes at the expense of forests, which is why it’s so important for companies to publicly disclose the progress they make towards keeping their promises to change their business practices. In March, Supply Change identified 447 companies that have made 764 individual pledges to reduce their impact on forests, and it found that companies that belong to organizations like the RSPO, which Greenpeace alluded to above, are more transparent that companies that don’t.

RSPO is a global network of palm-oil companies and NGOs aimed at reforming the way palm oil is harvested. The RSPO not only certifies sustainably-harvested palm, but it has become a forum for airing grievances against bad actors – who, again, are easier than ever to identify, as Greenpeace made so clear:

Why?

Partly because certification came to those sectors first through organizations like the RSPO, which is a global network of palm-oil companies and NGOs aimed at reforming the way palm oil is harvested. The RSPO not only certifies sustainably-harvested palm, but it has become a forum for airing grievances against bad actors – who, again, are easier than ever to identify, as Greenpeace made so clear:

“Even the most basic due diligence on these companies should have set alarm bells ringing, which raises the question: is HSBC failing to apply its policies altogether, or just failing to apply sufficient scrutiny when assessing whether current or prospective customers comply?”

It was classic Greenpeace provocation, yet HSBC’s response was anything but classic: instead of trying to deny or defend the indefensible, it came clean and immediately announced a strict new lending policy.

Then, in June, Greenpeace and the Environmental Investigation Agency (EIA) called the company’s bluff by sending letters to HSBC and three other banks (ABN Amro, ING, and Rabobank) that were underwriting a major bond for commodities giant Noble Group.

Noble, it turns out, was one of the six companies that had already gotten HSBC in trouble, and the letter warned that the new bond would not be used to finance sustainable palm oil, but instead to grind 18,000 hectares of Indonesian rainforest into pulp and replace it with a palm oil plantation.

HSBC responded by formally asking RSPO to investigate Noble – an act that could cost Noble dearly, as another palm oil bad boy, IOI Group, learned last year when RSPO suspended its sustainability certification.

This, too, is informative: IOI, like Noble, had joined all the right clubs and said all the right things, but other RSPO members accused it of playing dirty as far back as 2010. Then, in 2015, Amsterdam-based AidEnvironment charged that IOI was not only clearing peatlands illegally, but running roughshod over customary landowners and chopping trees in a protected area.

Rather than come clean like HSBC did, however, IOI pulled a Kellyanne Conway – denying the undeniable, defending the indefensible, and provoking a massive fight among RSPO members (which this piece from Chain Reaction Research lays out in detail).

Tensions escalated, and this time there were consequences – because unlike in 2010, now hundreds of companies around the world have pledged to remove deforestation from their supply chains, and most have done so at least in part by choosing to buy products certified under organizations like RSPO, according to analysis by Supply Change.

That puts a premium on certification, and when RSPO revoked Noble’s certification last April, 27 corporate buyers that had made deforestation pledges – including household names like Kellogg’s, Colgate Palmolive, and Marks & Spencer – stopped buying from them. The company reported a $15 million loss after taxes, and its shares plunged.

IOI initially threatened to sue RSPO, but then quickly learned that the game had changed. In the end, it threw in the towel, made nice with AidEnvironment, and set the stage for HSBC’s decision to act on the tip from Greenpeace and EIA.

Obviously, the system still needs a lot of work: some will view HSBC’s action as inadequate, while the formal reactions of ABN Amro, ING, and Rabobank have been non-existent (although ABN told Chain Reaction Research they had quietly raised the issue within the RSPO). What’s more, the financial sector has been slow to make the kinds of binding, verifiable, commitments that companies like Unilever and even Walmart have made.

That’s particularly disturbing, because if the financial sector continues to reward bad actors with big money, the good guys will continue to operate at a disadvantage. Now, more than ever, we need banks to step up and do the right thing – which, of course, may require us all to make sure that doing the bad thing has consequences.

Resources For You

As Greenpeace pointed out, it’s easier than ever to find out which companies are behaving properly and which aren’t. Here are some resources to help you separate the good from the bad – and to help you purge your portfolio of companies that are exposed to deforestation risk.

You can check the Supply Change web site to see what promises companies have made and what they’re doing to keep them. You can check the Supply Change web site to see what promises companies have made and what they’re doing to keep them. Company profiles are updated every 6 to 12 months, and the group publishes a monthly newsletter which you can subscribe to here.

You can read the Engage the Chain, which overviews the environmental and social risks and impacts of eight agricultural commodities that drive deforestation – namely, beef, corn, dairy, fiber-based packaging, palm oil, soybeans, sugarcane and wheat.

You can also explore SPOTT, which is a tool that can help inform decisions about whether or not to invest in agricultural producers.

You can subscribe to Chain Reaction Research, which provides weekly updates on risks related to deforestation.