"HSBC’s secretive loan to a coal company bulldozing a village", 11. January 2023

HSBC made a secretive multimillion-dollar loan to an energy company that is bulldozing a village in western Germany to expand a huge coal mine, just three months after the bank pledged to stop funding coal.

HSBC, which claims it is “helping to lead the transition to a more sustainable world”, approved the $340m deal with energy giant RWE after internal discussions in which senior figures at the bank recommended that its involvement should not be publicised.

Violent clashes broke out at the site of the mine on Wednesday as riot police tried to drag away protesters to make way for the bulldozers under the glare of the world’s media. Hundreds of environmental activists have set up camp in Lützerath, the last of several villages to be sacrificed for the 35 km2 Garzweiler mine, which is owned by RWE, one of Europe’s largest energy companies.

HSBC bankers raised concerns about the expansion of the mine and the demolition of the villages but ultimately greenlit the deal. The disclosure of the loan will mark a further blow to the bank, which has raised at least $2.4bn in so-called “sustainable finance” for companies worsening the climate crisis and recently had a series of adverts banned by UK regulators for greenwashing.

According to data from Refinitiv, RWE borrowed a total of $5.4bn in loans arranged by a group of 25 banks including HSBC, Barclays and Santander. All three have committed to aligning their financing and investments with net zero by 2050.

At COP27 last year the UN secretary general, António Guterres, said that it was reprehensible to use “bogus net-zero pledges” to cover up “messy” fossil fuel expansion. “It is rank deception,” he added. “This toxic cover-up could push our world over the climate cliff. The sham must end.”

“We’re saying, ‘Here are the funds and please don’t tell anyone’” – HSBC banker

HSBC told the Bureau: “Details of this [deal] and all its participating banks are in the public domain, as is normal. We have processes to ensure our financing aligns with our policies, which include an expectation on clients to produce and implement credible transition plans.”

Barclays declined to comment on the RWE loan but said it is phasing out financing of thermal coal mining and coal-fired power generation. Santander declined to comment.

[...]

An HSBC banker, who asked to remain anonymous, said of the deal: “We’re saying, ‘We don’t want our name to be associated with it, but here are the funds and please don’t tell anyone that we gave you the funds.’ I acknowledge that this approach is questionable.”

The deal was initially structured as a sustainability-linked loan, meaning its terms include a commitment from RWE that it will hit certain climate targets by 2025. But the penalty it would face for failing to do so is a tiny increase in the interest it pays on the loan. This would come to $86,700 a year for a company whose most recent annual revenues were $26bn.

Sustainability-linked loans are meant to encourage polluters to transition to more environmentally friendly operations, but companies that raise funds through the loans do not face any restrictions on how that money is used.

The HSBC banker said: “There is no guarantee that the [RWE loan] won’t be used to help pay a supplier, or pay salaries of contractors involved in the coal mine project.”
[...]

The showdown between the authorities and occupying activists escalated on Wednesday as riot police armed with batons moved in to evacuate the area, hauling out protesters and making arrests as fires burned in the streets of the village.

Just a few hundred metres away, one of the world’s largest land vehicles continues to carve away at the earth, bringing the edge of the mine ever closer to Lützerath.

Meaningless targets

In order to secure the loan, RWE committed to reducing its carbon emissions per unit of power generated, across all its energy sources. This means that, as long as it adds enough wind and solar power into the mix, the company could in fact increase its emissions from coal – and its planet-warming emissions overall.

It also committed to increasing the proportion of energy it generates from renewables and the amount it is investing in sustainable energy.

The penalty if RWE fails to meet all three targets is an increase in the interest it pays on the loan of less than 0.03 percentage points.

“It’s almost meaningless,” said Tariq Fancy, BlackRock’s former chief investment officer for sustainable investing. “Because the only thing that really changes behaviour in financial markets is when you change incentives. And you can’t change incentives with something so miniscule.” [...]

“By continuing to provide sizeable corporate loans to companies involved in fossil fuel expansion such as RWE, HSBC is not just damaging the environment and displacing communities, they’re undermining their own climate targets.”