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Energy Systems of the Future
18 Plays4 years ago
Join Kim Hallwood, Head of Corporate Sustainability for HSBC Bank Canada for a conversation with Zoe Knight, Global Head, Centre of Sustainable Finance with HSBC Bank plc. Zoe shares her global insights and perspectives on the emerging trends, evolution and transformation in energy and solutions for a net zero future. This conversation was recorded in June 2021.
This episode is part of HSBC’s Business Plan for the Planet podcast mini-series, which focuses on ESG insights. Hear from experts whose work is at the heart of sustainability-linked trends and opportunities, as well as from businesses that are delivering change for a better future for us all.
To find out more about HSBC’s Business Plan for the Planet, click here, and to know more about the programme in Canada click here.
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Transcript
Introduction to HSBC Global Viewpoint and Business Plan for the Planet
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This is HSBC Global Viewpoint, your window into the thinking, trends and issues shaping global banking and markets.
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Join us as we hear from industry leaders and HSBC experts on the latest insights and opportunities for your business.
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A heads up to our listeners that this episode has been recorded remotely, therefore the sound quality may vary.
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Thank you for listening.
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Welcome to the Business Plan for the Planet podcast, a series centered around ESG insights.
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In these episodes, you'll hear from experts whose work is at the heart of sustainability-linked trends and opportunities, as well as from businesses that are delivering change for a better future for us all.
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Join us as we shine a spotlight on their commitment to a sustainable future.
Introducing Kim Holwood and Zoe Knight
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Hello everyone, and thank you for joining us today.
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My name is Kim Holwood.
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I'm the head of corporate sustainability for HSBC Bank Canada.
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I am absolutely thrilled to be joined by Zoe Knight, managing director and group head of HSBC's Centre of Sustainable Finance, which is leading and shaping the debate around sustainable finance and investment.
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Zoe is an internationally recognized expert on climate and the transition to net zero.
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We hope today brings you new insights and perspectives, particularly as we think not only about our impact in Canada, but how we can come together globally to address climate change.
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Zoe, it's always such a pleasure to have you sharing your insights.
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Thanks, Kim.
Momentum in Climate Change Commitments
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I just want to reiterate the momentum that is in place in relation to climate change and addressing climate change in particular, and actually the role that the financial community can play in delivering climate-aligned outcomes.
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What we're seeing is, despite COVID, we've seen an abundance of new corporate commitments, stakeholder commitments such as government pledges,
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financial sector commitments, ourselves included, but alongside others, who are all really focused on delivering a successful economy that can limit temperature rises to less than one and a half degrees Celsius.
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And that's the aim and the key outcome of the Paris Agreement that was signed in December 2015.
HSBC's Role in Net-Zero and Industry Plans
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One of the areas that HSBC is particularly forward on is the Glasgow Financial Alliance for Net Zero and the Net Zero Banking Alliance.
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We've really been leading the charge of banks to be part of this initiative.
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And it's about working out what is sensible for the financial industry as a whole by the industry.
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So that means looking at what climate plans are doing, figuring out what the investment opportunities are, thinking about how we're going to record that.
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and look at moving that forward as an industry as a whole so that we don't have a proliferation of ideas and different approaches to thinking about how we best support our customers.
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Thank you so much, Zoe, for your insights on net zero and the energy transition.
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What is the impact of these commitments on our collective action to drive down emissions?
Bridging the Ambition-Outcome Gap in Net-Zero
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Are they going to be enough to halt the rise in global temperatures?
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So as it stands, the collective ambition doesn't translate into that net zero outcome.
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Key measurement of this is around country planning and country contribution as they move forward into the climate talks at the end of the year, COP26.
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And the objective there is to get all countries committing to a net zero framework or a net zero outcome by 2050, which is a bit of a stretch for many countries.
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So the critical mission from a climate point of view is that the 2020s decade is the decade of urgency that we create market incentives for this shift.
Challenges in Carbon Offsets and Technological Solutions
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Great.
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And can you talk a little bit about the role of technology and offsets in companies meeting their net zero commitments?
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So offsets is a really interesting and difficult challenge.
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We do need to get to a framework where we're actually taking emissions out of the atmosphere that we're already historically responsible for.
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So from a year on year perspective, companies that want to be carbon neutral on an annual basis need offsets to be able to get to that position because you can make power clean and renewable, which will take your emissions down.
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You can try and use electric vehicles, but there are inevitably going to be some things that you just can't avoid, i.e.
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the plastic casing in your iPhone or whatever it might be that you have in your home that is going to be made by an industrial process.
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And so if you really want to get ambitious about the climate approach, you can start offsetting.
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The problem with the offsetting market at the moment is the credibility of offsets and the price of them and where they all come from.
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Now, there's a lot of work going on to create a blueprint of what a good voluntary carbon market would look like.
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And that's under consultation at the moment.
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And then there's other initiatives around setting up carbon markets more effectively and using the learnings from the compliance market, i.e.
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industrial companies that are regulated and have allowances and trade to work out how we can best utilize those learnings for consumers and other companies that aren't regulated by those schemes.
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The technology side around direct air capture and CCS is also critically important.
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And
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What it would be really great to see is a kind of impact curve where if you want to deploy a significant volume of investment for carbon reduction, then you can look at those technologies.
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If you're a consumer that might just want to buy a couple of carbon credit and not need so much volume, you can look at a different end of the kind of credit curve.
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and be able to get involved in whichever way works for you.
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Great.
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And certainly the role of technology and offsets is going to be very important for Canada for us to get to our net zero commitments.
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You talk about stakeholder expectations of companies when it comes to sustainability.
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Obviously, those have been increasing, especially over the last year with regulators and investors applying more pressure to the financial sector to address climate change.
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Can you speak a little bit more to some of the global drivers of financial sector action?
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Yeah.
Broadening Accountability in Climate Risk Management
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Now, this is the sort of heart of the matter for the financial system.
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So, whereas...
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Before the Paris Agreement, the emphasis was very much around absolute emission reduction, taking account of your direct emissions, what you can control and manage.
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What's happened since then is this shift of thinking towards a broader spectrum of accountability of emissions.
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So,
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We've moved from the so-called scope one, scope two thinking direct to scope three, which is where it's the knock-on effect of how you're using the products that may well be burning fossil fuel.
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For the financial system as a whole, in the past 12 months, the banks in particular have
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are being asked to manage their climate risk and alignment more effectively, which means looking at the activities that we finance and figuring out how much of our portfolios might be related to the emissions in the activities that those companies that we're supporting are responsible for.
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Now, this is a massive shift in the way that the financial system has to operate.
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It's not straightforward.
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There isn't a robust methodology right now.
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And there are all sorts of problems around the double counting of emissions.
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If, for example, an industrial company is accounting for operational emissions here and we're accounting for finance emissions here and it's the same bucket of emissions that we're looking at.
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Nonetheless, this kind of thinking isn't going to disappear because the whole movement of addressing climate change is now on turbocharge.
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So there are all of these confluence of drivers where for us, it's our shareholders, our regulators, our customers that we serve, our industrial clients that we're thinking about.
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Essentially, the whole economy is facilitated by a bank.
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And so moving forward with how we think about this is a really big challenge.
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And one of the issues that we have to do to get a sensible way forward rather than a fragmented approach across the industry is really partner with and have dialogue with all of those sets of stakeholders, whether it's companies that are going to be delivering the transition in the real economy, whether it's our regulators that are worrying about climate risk and how well our capital and liquidity positions are to manage that risk.
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Whether it's our retail customers and other stakeholders that want to see a faster move in the climate.
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So I think what we're seeing is this whole wave of reset around dialogue and thinking that is trying to get us all on a sensible basis.
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pathway of thinking about these issues.
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One thing that I would say is that the increasing use of labelled financial products is hugely helpful to the system as a whole.
Growth of the Green Bond Market
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And that's because it demonstrates that
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the financial actions of today, so investment pipelines, capital committed to different activities, is moving in a direction that is going to deliver that economy-wide shift over the next five to 10 years.
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And so what I found particularly interesting is that the green bond market reached over a trillion in the last year in 2020.
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But not only that, the sustainability linked
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bond market has grown in prominence.
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And that means that a wider range of companies can get involved.
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So you don't necessarily have to be deploying capital for a green activity.
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You can be deploying capital for an activity and have a different sustainability metric associated with that activity.
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And that allows a wider range of industrial related companies to be visible on achieving their climate ambitions.
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Great.
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I completely agree with you around that signal to market.
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And HSBC just late last week was named as one of the lead structuring advisors on the government of Canada's green bonds.
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So I see that now really taking off here in Canada.
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I know you've been very involved in the lead up to COP26 at the end of the year.
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I'd love to hear from you three things that you'd like to see come out of the Conference of the Parties.
Desired Outcomes from COP26
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Wow.
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Yes.
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So it is a critical one because it's the one that should be really addressing this finance issue.
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A lot of the climate negotiation has stumbled around responsibility and how you carve up the responsibility of historical emissions versus future emissions and how that works in the global landscape.
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Finance is the glue that is going to make that shift happen.
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And so the three things that will really help are...
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Net zero, having everybody working towards a net zero outcome by 2050, sort of unanimity around that will help signal that there's seriousness of intent, which will free up capital flows.
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The building in resilience and adaptation to the impacts that we're going to fill.
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So I think the resilience agenda, building in infrastructure that helps with tackling future temperature rises is
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and the vulnerabilities of population.
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So making sure that communities are looked after, that people are looked after if they are transitioning into different jobs, et cetera.
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That's a critical factor.
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And then the mobilization of finance piece.
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And this mobilization narrative is around looking at infrastructure.
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It's around scaling up renewables, as I talked about, and pulling every single lever that you can to create a new market,
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for the types of solutions that we need to get full pelt on in the next decade.
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So those are the three things that they're pushing for and that would be great outcomes.
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Great.
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Thanks, Zoe.
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So cost of production of green versus fossil fuels.
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Can you speak a little bit to that, Zoe?
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I think if you look at the way that the cost curves have progressed, what's really important is the location specifics, because clearly that's what drives down the cost.
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I think, though, the most important thing
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piece to note is the importance of renewables prices coming down as a key driver for the hydrogen market scaling up.
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So that's why I keep talking about the levelized cost of production and the cost curves in different regions.
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Great.
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And then what is the role of nuclear in getting to net
Shifting Energy Solutions: Nuclear vs Renewables
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zero?
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From a scientific perspective, it's part of the mix.
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In many places, it's not economically viable anymore because of the cost of decommissioning and the cost of building the facilities.
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So from a scientific point of view, it's part of the modelling.
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What I would say is a lot of people are looking at the reliability of wind and solar.
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Hydrogen as a storage facility also helps with that reliability argument, as does the growth of batteries.
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So hydrogen.
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Clearly, on a location-by-location basis, there are going to be different solutions that are going to work better in that market and just simply for the geographical facilities and the local weather patterns are going to have an influence.
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I think the point of how different countries and different corporates and different investors are trying to think about this is let's really drive hard on the competitiveness that works in a particular region and
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That's still not going to be enough.
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So we need to figure out what that residual piece is going to look like.
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And that's where carbon capture and storage comes in, the carbon offset market comes in, and the efficiency piece comes in as well.
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Great.
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And I know we've talked about the journey to net zero and all the complexities of that.
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When our clients look at all the talk about net zero, how should they be thinking about it?
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there's a variety of things to address.
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One is measuring climate impacts to start off with.
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So understanding the positioning, understanding a little bit about end markets.
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So, you know, a lot of this discussion five, 10 years ago was about your own climate impacts.
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Like what are you responsible for in terms of how much power you use, how much travel you are part of, how much paper you're looking at?
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The conversation has really shifted now to the
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What is the disruption going to be on your end market?
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How are you going to deliver value for shareholders in the future?
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How are you going to pay back
Encouraging Climate Strategy Transparency
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your loans?
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How are you going to keep your employees with a wage?
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And how are you going to grow and generate future prosperity if your end market gets disrupted by these climate factors?
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And that's a really tricky question to address, right, because nobody knows that.
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Nobody can see perfectly in a crystal ball into the future.
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But what we can do is take a signal from what other countries are doing, how people are thinking about the shift and the emergence of new markets.
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What the truly credible pathway is around net zero, and also the cost of delivering your product.
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Does it stand up to the commercial realities that may well play out because of climate?
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And these are commercial realities that have played out in history through any number of things, right?
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The Industrial Revolution was one.
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The Digital Revolution, the birth of the internet, all of these disruptive factors have happened before and will happen again in some way, shape or form.
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The trick with climate or the difficulty with climate is that, one, it's this global externality, but it's been treated locally.
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We have to solve the problem locally.
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And that is just the most difficult factor.
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So the most important thing is demonstrating how the climate plan is credible.
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Does it really make sense for how the business will be able to operate in the future?
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And what are the risks associated with that?
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And actually, honesty about...
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and transparency about actually, we're not sure about this, but we're working with this, this and this and thinking about this strategy.
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And that is how we're approaching the problem.
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And the government support that can be helped for high climate impact sectors should be welcomed as well.
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Exactly.
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We're all in this journey together.
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And I know we're working on our plan right now.
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So it's ambition plus action plus credible plans, right?
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All right.
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So we're coming to the end of our time.
HSBC's Sustainable Finance Commitment and Closing Remarks
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Many of you will be aware that HSBC last year launched an ESG solutions team, which provides advice, expertise and financing ideas to our clients.
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We also recently appointed our first head of sustainable finance and commercial banking in Canada.
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So as the world's largest international bank in Canada and one of the world's largest banks globally, we have our own role to play in this.
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That's why we've committed to become a net zero bank, both for our own operations and our financed emissions.
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We've also committed to support our customers to transition to net zero through providing between $750 billion and $1 trillion of financing and investment by 2030.
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Sustainable finance is not new to HSBC.
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It has and continues to be one of our top priorities.
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And as the only major financial institution in Canada who is a founding member of the Net Zero Banking Alliance, we are well placed to tackle this climate challenge together with our customers, our communities and our people.
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And with that, I want to say a huge thank you to Zoe for joining us.
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Thanks, Kim.
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It's been an absolute pleasure.
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This has been a special podcast in the Business Plan for the Planet series.
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More episodes will follow shortly, so please do keep an eye out for those.
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For more information on the programme, visit business.hsbc.com forward slash sustainability.
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Thank you for listening today.
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This has been HSBC Global Viewpoint Banking and Markets.
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For more information about anything you heard in this podcast or to learn about HSBC's global services and offerings, please visit gbm.hsbc.com.