HSBC Holdings Plc has abandoned plans to build a carbon credits desk, according to people familiar with the matter, as Europe’s biggest bank cools to a market rocked by repeated allegations of greenwashing.
The decision means the bank is no longer working to build a dedicated unit focused on trading credits in the voluntary carbon market or on financing project developers who sell into the VCM, according to the people who asked not to be named discussing private information.
A spokesperson for HSBC declined to comment.
HSBC’s carbon-desk plans were relatively short-lived. The bank explored moving into the market a couple of years ago, just as it peaked, seeking new hires to build a trading book and offer liquidity to clients. Then in 2023, the voluntary carbon market shrank by almost a quarter to roughly US$1 billion ($1.35 billion) as greenwashing concerns prompted companies keen to offset their carbon footprints to back away.
The HSBC bankers assigned to the desk have since been allocated other roles.
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A carbon credit is supposed to represent 1 metric ton of emissions that have been avoided, reduced or removed from the atmosphere. Carbon credits are sold by project developers, often in developing economies, that invest in areas such as reforestation. The companies buying the credits then claim to have compensated for their emissions. In practice, however, studies have uncovered widespread instances of projects issuing more credits than they merit.
Companies including Delta Air Lines Inc., Alphabet Inc.’s Google and EasyJet Plc — once among the biggest corporate buyers of offsets — have moved away from the market. Many are now focused on the more expensive task of reducing their own emissions.
And last week, Bloomberg reported that Shell Plc is looking to sell a majority stake in its portfolio of nature-based carbon projects. The portfolio, which covers dozens of projects, was launched in 2018. The oil major also was the world’s largest publicly disclosed buyer of carbon credits last year, according to BloombergNEF.
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The voluntary carbon market has “dropped considerably over the last two years” and “it’s been pretty awful for those involved,” Abyd Karmali, managing director, environmental business advisory at Bank of America Corp., told Bloomberg last month.
Karmali said Bank of America has been treating the voluntary carbon market with a degree of caution due to its lack of liquidity.
HSBC’s decision to back away from carbon trading and finance predates a move by Chief Executive Officer George Elhedery to push through major changes. Elhedery replaced Noel Quinn as CEO in September, and announced plans to simplify HSBC’s organization last month.
The bank’s latest transition plan, published in January, indicates it will continue to buy credits to “remove” emissions from operations that it’s been unable to reduce outright. The plan also mentions HSBC’s work to build a pipeline of new credits through Climate Asset Management, a joint venture between the bank’s asset management division and climate advisory firm Pollination.
Last week, negotiators at the United Nations’ climate summit in Azerbaijan, COP29, ushered through a deal to advance a new market allowing countries to trade carbon reductions with other nations and corporations, under a framework known as Article 6.4. Karmali said ahead of COP29 that such an agreement has the potential to revive the wider market for offsets.
A shifting regulatory backdrop also is spurring demand as compliance programs, particularly in the Asia-Pacific region, increasingly open their doors to the credits. Meanwhile, new quality criteria set out by the Integrity Council for the Voluntary Carbon Market, an industry watchdog, are also intended to bolster confidence in the credibility of offsets.
