HSBC is one of the first global financial institutions to become transparent on the carbon footprint of its financial holdings. I sat down with Pat Burke, President & CEO of HSBC USA to learn about this global financial institution’s approach to sustainability, disclosure and risk management across its business model.
Tim Nixon: How would you characterize the importance of sustainability in the financial markets today?
Pat Burke: We are at an early stage, with meaningful beginnings in bonds, trade, supply chain finance, equity investments, and infrastructure. A key role for banks is in how capital gets allocated. At HSBC, we are often on both sides of potential deals, and in that capacity, we can and do encourage parties to be transparent on all aspects of risk, including environmental, social and governance (ESG) risk factors. In this way, we can be a catalyst for more holistic thinking and encourage commercial parties to consider both the risks of non-disclosure, but also the benefits of leadership on material sustainability factors.
Nixon: Will HSBC decline a business opportunity, or advise a client not to engage in a deal if there is insufficient transparency or performance related to sustainability factors?
Burke: Yes. And just about every industry is approaching finance for investment. From renewable energy to apparel makers, what HSBC can and does do is to make businesses aware of the very real reputational, operational and investor risks emerging with poor ESG performance. HSBC has and will turn down business when, for example, deforestation of important ecosystems is a part of new venture. Similarly, we will advise our clients to do the same.
Nixon: It sounds like HSBC is in a position to catalyze new thinking across the global financial landscape?
Burke: We are in three ways. One, we encourage transparency around risk of all kinds, including ESG risk. Two, we advise our clients on all sides of a deal to expect disclosure and performance on sustainability factors. And three, we help make a market for responsible actors, by connecting them together to evaluate business opportunity. This is simply good financial stewardship from our perspective. One example where we are implementing these principles is with our investment in a new fintech partnership with Tradeshift that will allow clients to manage their supply chains and working capital requirements digitally. Tradeshift connects 1.5 million companies in over 190 countries.
Nixon: How do you handle instances where you encounter insufficient leadership on an issue?
Burke: We are not in the naming and shaming business, and capital is fungible, with many of the larger entities in global commerce possessing very significant capital bases of their own. Our role is to encourage leadership and demonstrate the ensuing financial benefits.
As this approach is implemented across global financial markets generally, new standards of transparency and responsible business will emerge. The net result of that paradigm is greater potential for long-term value creation across the global economy, which is also a goal of HSBC.
Nixon: What are a couple key drivers for integrating sustainability into commerce going forward?
One driver is reducing the complexity of different rating systems for what is “good” performance. I think that as standards emerge and are accepted on how to measure and manage leadership, then we will see increased momentum more generally on sustainability and related global goals. Consumers and investors are also drivers, where there is clearly increasing awareness of good and poor performance across supply chains, the environment, corporate governance, and many other important areas. And a third is the ongoing increase in transparency, which won’t happen overnight in a uniform way, but high quality financial and non-financial disclosure is increasingly important in global commerce. And that is a trend which is good for everyone.
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