A handful of snacks for the sustainable investor.
Siemens Energy and Siemens Gamesa have teamed up to create an offshore wind turbine that can produce hydrogen via electrolysis. The use of hydrogen fuel is generally considered clean, but the production of hydrogen can be quite an energy-intensive exercise. The production of hydrogen by electrolysis involves using electricity to split water into hydrogen and oxygen. The reason hydrogen is considered a ‘grey’ fuel (as opposed to green or brown) is because non-renewable fuels are often used to generate the electricity required for electrolysis. That has made hydrogen a less than ideal as a renewable fuel. However, if a renewable source of energy is used to generate the electricity – such as wind energy – green hydrogen can be produced. The Siemens Energy / Siemens Gamesa project is a breakthrough for doing so at scale.
Because of the ‘greyness’ of hydrogen, excitement around it has fallen behind other efforts to progress the energy transition, particularly the electrification of energy consumption. As long as the electricity on the grid is produced using renewable fuels, then anything that gets its energy by plugging into the grid – such as electric cars – is also considered to be using renewable fuel. But some sectors in the economy are extremely hard to electrify, such as cement-making, steelmaking and chemicals manufacturing. For these ‘hard-to-abate’ sectors, the use of combustible fuels is more difficult to get away from. Hydrogen could play an important role in helping these sectors improve their environmental footprint. The technology is still at an early stage, however, so there is some way to go before hard-to-abate sectors can stop using brown fuels.
Major shareholders including Amundi – Europe’s largest asset manager – brought forth a resolution to force HSBC – Europe’s largest bank – to set clearer and stricter targets around lending to fossil fuel companies. HSBC has already pledged to reach ‘net zero’ carbon emissions by 2050, but the group of shareholders deems this target – and the (lack of) details that underlie it – not ambitious enough. The resolution will be voted on at HSBC’s annual general meeting in April and will need a 75% majority to pass. The group of investors is led by ShareAction – the sustainable investment campaigner – which brought forward a similar resolution against Barclays last May and gained 24% of votes, meaning it failed to pass but put significant pressure on Barclays.
In their report on ‘Banking on a Low-Carbon Future’ published in April last year, ShareAction ranked HSBC joint 4th out of 20 of Europe’s largest banks, which is pretty good. In contrast, Barclays ranked 11th. You can see their full report here.
The two main sources of funding for any company are debt and equity. For the sustainable investor, withdrawing or withholding your capital from a company via equity markets involves selling – or not buying – their stock. If they’re not a listed company, then your only means to deprive the company of capital is to not privately invest in it. These actions tend not to impact the company’s cost of funding much, and so they don’t change the way the company behaves. As an equity investor, the more effective route is to actually own the stock, and then engage with the company to encourage them to change. That’s what the ShareAction group of shareholders is doing to HSBC.
The bigger point we want to make here is that withholding or withdrawing debt capital from a company more directly impacts their cost of funding. This could influence their behaviour to a significant extent. HSBC’s decision to lend – or not lend – to companies therefore has a considerable impact on the behaviour of the companies it lends to, and therefore the aggregate impact those companies have on the environment and society. That explains why banks have a key role to play in the shift towards a more sustainable world.
Sustainability digest is a weekly newsletter highlighting a handful of interesting issues facing the sustainable investor.
To the pound 