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The Actuary The magazine of the Institute & Faculty of Actuaries

Soapbox: Francis Sullivan: The business end of climate change

Climate change is the biggest single environmental, social and economic challenge facing the business community in this century. In 2005, HSBC became the world’s first major bank and first FTSE 100 company to achieve carbon neutrality; it serves as a useful example of how financial institutions can benefit from an enlightened approach to green issues, running a more sustainable business while reducing its impact on the environment.

Four main steps
The bank is not a big emitter of carbon dioxide when compared to a major manufacturer or energy company yet, as a global organisation with more than 330 000 employees and 10 000 offices, the process of becoming carbon neutral is not something that happened overnight. Four main steps were involved:

1 Measuring the carbon footprint. Energy usage and carbon dioxide output from the offices were measured and reported publicly as part of the bank’s environmental reporting system.

2 Reducing energy consumption. Challenging energy reduction targets were set and initiatives implemented to achieve them, such as installing video-conferencing technology in more offices around the world to reduce the need for employee business travel.

3 Buying green electricity. Electricity produced from clean or renewable energy resources such as wind, solar and hydropower is used wherever possible.

4 Carbon offsetting. Emission reductions are purchased around the world in the form of carbon-offset projects covering a range of technologies, as verified by accepted market standards of best practice.

Challenging targets were set in 2005 to reduce carbon dioxide emissions, energy usage, waste and water consumption, while new ones have been set for the next four years. It is important to realise that carbon neutrality is an ongoing process.

Efficiency programme
In 2007, a global environmental efficiency programme was launched to ensure that best practice drives all operations from purchasing decisions to IT initiatives, the construction of new buildings and the management of existing ones.

All new structures, whether head offices or data centres, are built to environmentally sound specifications. Photovoltaic panels have also been installed on the roof of HSBC’s London headquarters.

Why does a bank need to go to such lengths to improve its environmental credentials and why does climate change matter so much? A commitment to environmental best practice is as much enlightened self-interest as it is an acknowledgement of a wider responsibility as a major business, employer » Financial institutions should and will play an important role in the shift to a low-carbon economy « and financial institution. The impact of climate change will affect global operations as well as employees, shareholders, business partners and, ultimately, the products and services offered to customers.

A key driver behind the decision to become carbon-neutral was a need to understand better the implications and impact that an increasingly carbon-constrained economy will have. It is expected that the cost of carbon will increase as a result of regulation and carbon taxes and, therefore, financial institutions should and will play an important role in the shift toward a low-carbon economy.

Last year, Lord Nicholas Stern was appointed by HSBC to advise it on the economics of climate change; the bank has engaged in international debates in this area from Bali to Davos and, looking forward, to Copenhagen.

Far-reaching message
A corporate-sustainability department has been established to define the bank’s strategy in financing renewable energy projects in order to manage the environmental and social risks of lending activity and maximise the opportunities presented by a low-carbon economic future. This function is also responsible for ensuring that the message reaches all bank employees around the world, encouraging them to engage on these issues. Central to the department’s remit is a five-year environmental programme undertaken in conjunction with four leading environmental charities: The World Wide Fund for Nature, The Smithsonian Tropical Research Institute, The Climate Group and Earthwatch Institute.

The programme aims to inspire action by individuals, businesses and governments on climate change and has targets to improve access to water, clean up rivers, drive down pollution in cities, preserve the world’s forests and create ‘climate champions’ across the globe that will be involved in research and spread their knowledge and experience of the issues and the lessons that they have learned.

Becoming carbon neutral is not a short-term stunt: by developing a business of this type and an understanding of the environmental challenges presented, financial institutions can respond to the impact of climate change and assist clients in realising their own ambitions in the emerging low-carbon economy.

Francis Sullivan is HSBC’s adviser on environmental affairs.