In the Campos basin off the south-east coast of Brazil, two ships contracted by a major energy corporation will be used to mine vast quantities of oil in a project that could generate more than 1 billion tonnes of CO2 emissions.
In east Africa, an engineering company is preparing to start work on the construction of an environmentally devastating oil pipeline that threatens to derail vital targets set out in the Paris Agreement. And in the north of India, one of the world’s largest cement companies – which last year emitted more CO2 than Greece – has applied to clear a large swathe of forest less than a kilometre away from a wildlife sanctuary.
All these companies’ operations have not only been facilitated by HSBC – which claims it is “helping to lead the transition to a more sustainable world” – but have benefited from deals that the bank has labelled sustainable finance.
HSBC has committed to contribute up to $1 trillion in sustainable financing and investment by 2030. However, the Bureau can reveal that billions of dollars being counted towards this target are in fact helping to fuel the climate crisis.
Central to the issue is a relatively new financial product known as a sustainability-linked bond (SLB). SLBs are an ostensibly green type of debt, designed for companies to raise money to fund their transition to more sustainable activities.
Companies that raise funds through SLBs do not face tight restrictions on how that money is used; instead they agree to certain targets related to sustainability. But these targets are often remarkably weak and the penalties for failing to meet them can be paltry – leaving SLBs as a way for companies to give the appearance of environmental concern while continuing to worsen the climate crisis.
For instance, the cement company applying to clear woodland in India is UltraTech, which has faced strong opposition in the country over environmental damage caused by its operations and was recently fined for breaching air pollution limits. HSBC has helped UltraTech borrow $400m via an SLB, according to data provided by Refinitiv, with a target for the company to cut emissions by 22% per tonne of cement produced by March 2030.
But should UltraTech fail to meet that target, the penalty would be an increase in the rate of interest on the bonds of less than 1%. And because the assessment date is just six months before the debt is due to be repaid, the total sum would be just $3m – or 0.05% of the company’s revenues last year.
An analysis of the bonds HSBC counts towards its sustainable finance target found at least $2.4bn worth of deals for companies that are worsening the climate crisis. Whether in the form of “green bonds” or SLBs, the bank is helping raise money to fund the expansion of fossil fuels, air travel and deforestation – and labelling it as sustainable finance.
Explainer: Green bonds and SLBs
What is a green bond?
A company can borrow money by issuing bonds, which investors buy and receive regular interest payments on. A bank will manage the bond issue for the company: preparing documents, setting the price and interest rate, and finding investors. When a company issues a “green bond” it must spend the money on green projects.
What is a sustainability-linked bond?
When a company issues a “sustainability-linked bond”, it can spend the money it has raised on anything. Instead of earmarking the funds for green projects, it accepts a penalty – most often an increased rate of interest – if it fails to meet certain predetermined targets to improve its environmental performance.
The company chooses its own targets and penalties for missing those targets, often with help from its banks. It then hires a second-party opinion provider to assess the targets against a set of market principles.
A spokesperson for HSBC said: “Like many other financial institutions, HSBC is playing an important role in the nascent SLB market.” The bank said it expects standards to evolve as the market matures and it will continue to work with industry bodies, regulators and peers to help SLBs drive and incentivise robust science-based decarbonisation.
The bank added: “In structuring bonds, banks like HSBC follow an industry standard … and bonds are subject to independent review and validation, enabling businesses to be transparent about climate or social impact targets while incentivising progress.”
In recent years, money has been flowing into so-called green funds. With strong demand and a larger pool of investors, companies will often pay a lower rate of interest on green or sustainability-linked bonds than they would have to pay on regular bonds.
Sean Kidney, chief executive of the non-profit Climate Bonds Initiative, told the Bureau that companies find SLBs particularly attractive because they are easier to issue than green bonds: “Treasurers will try anything that reduces their cost of capital,” he said, adding that the SLB market is “deeply compromised” and bank targets for sustainable finance are “flaky as hell”.
HSBC is already under pressure over greenwashing after a series of adverts about the bank’s environmental initiatives was banned by the UK advertising watchdog. The Advertising Standards Agency said HSBC had misled customers and had to ensure that any future claims did not “omit material information” about its contribution to the climate crisis.
Ulf Erlandsson, chief executive of the Anthropocene Fixed Income Institute, a research body, said sustainable finance is used like a “papal indulgence you buy for your sins”.
He added: “You might subsidise the sustainable part of your business and push on that for your green statements while continuing to be involved with a large oil corporation.” He points to HSBC’s longstanding relationship with Saudi Aramco, the world’s most polluting company, for which the bank is reported to have facilitated billions of dollars in loans.
Destroying the environment in India
As well as its heavy carbon emissions, UltraTech has been repeatedly criticised for its impact on the local environment. People living near its mines in Gujarat say dust from the operations have damaged their crops. Some houses are just 50 metres from UltraTech’s stockyard, which is piled high with surplus cement.
The company’s permit requires it to settle the cement dust with water but local residents say this rarely happens. Those who live closest to the plant sweep up mounds of dust every day and have noted a rise in cases of lung disease in recent years.
UltraTech told the Bureau all of its cement manufacturing units are operating in full compliance with all applicable environmental norms and regulations.
Razing reserves in east Africa
Another bond HSBC counts towards its sustainable finance target was raised by Worley, which does most of its business in fossil fuels and petrochemicals. Worley borrowed more than $600m via a sustainability-linked bond last year with the help of HSBC. Under the terms of the bond, Worley has committed to cutting the emissions of its operations and its energy suppliers. But this pales in comparison to the emissions the company facilitates through its work expanding oil and gas production and coal mining.
For example, the company is the engineering contractor for the East African Crude Oil Pipeline (EACOP) – an environmentally ruinous project that will slice through elephant and giraffe habitats and is expected to generate 33m tonnes of CO2 each year. EACOP is expected to pump 216,000 barrels of oil per day from new oil fields in Uganda, a country at the frontline of the climate crisis.
“Climate change is really a major concern when you look at a project like EACOP,” said Diana Nabiruma from the Africa Institute for Energy Governance, an NGO focused on promoting clean energy. “We are already experiencing climate change and we are one of the least prepared countries to address its impacts.”
More than half a million people are starving in Karamoja, in the north-east of Uganda, a famine that experts blame in part on the harsh drought and damaging floods that have battered the region. Ugandan MP Faith Nakut broke down when describing a recent visit. “A whole family died because they had no food,” she said. “So I came back really heartbroken because … I never imagined we would be at the level where people die because they were lacking food.”
EACOP’s 1,400km route crosses a number of nature reserves and one third of the pipeline runs alongside the vast Lake Victoria, which more than 40 million people depend on for their livelihoods. An Oxfam-commissioned review of its environmental assessment warned that oil spills “will occur” as a result of the project. Erlandsson said he would be wary of any sustainable finance product linked to EACOP because it is so controversial.
Worley, which did not respond to our request for comment, is working on several other projects expanding fossil fuels around the globe. One is the Nigeria-Morocco gas pipeline that will extend to Europe – an estimated $25bn project due to be completed in 2046, just four years before the world is supposed to achieve net-zero emissions according to the Paris Agreement.
The International Energy Agency has said that for global emissions to fall to net zero by 2050, and to limit global heating to 1.5C, new investments in oil and gas need to stop now.
A ‘carbon bomb’ in Brazil
That message has not filtered through to Yinson, a Malaysian company that contracts out FPSOs – vast ships converted into floating oil rigs. It has leased two of its ships to Brazil’s state-controlled energy group, which is amassing the world’s largest fleet of FPSOs, to mine the Campos basin – a project that has been described as a “carbon bomb”. Yinson raised $240m with an SLB arranged by HSBC with targets to reduce the carbon emitted by these ships and increase its production of renewable power.
If it fails to meet these targets, the maximum penalty Yinson will face is just $600,000 – or 0.07% of last year’s revenues. What’s more, the agreement covers the carbon emitted by the ships – but makes no mention of the vast increase in emissions from burning the oil that the vessels will help extract. Yet the money will still be labelled by HSBC as sustainable finance and counted towards its green goals.
Gustavo Pimentel, chief executive of NINT, an ESG research and advisory company, said calling this debt “sustainable” is greenwashing. “Somehow the market converged to call everything ‘sustainability-linked’ and I think this does a poor job of informing investors and society in general of what each transaction actually contributes to society,” he said.
A large part of the problem with SLBs lies in the fact that the second-party opinion providers, which assess the bonds’ sustainability credentials, are hired by the very companies issuing the bonds.
The consultancy hired by Yinson to assess its bonds, ISS, found the targets to be “relevant, core and material”. ISS came to this conclusion despite noting that Yinson’s “decarbonisation roadmap” appears to involve the company providing FPSOs for oil and gas production until 2050, while the International Energy Agency has called for major reductions in oil and gas production much earlier than that.
Yinson declined to comment.
HSBC’s sustainable finance target can also be met with green bonds, some of which are fuelling the climate crisis and would be considered greenwashing by one of its own senior bankers.
“For me, greenwashing is an issuer [of a green bond] financing an initiative that’s ultimately not aligned with the Paris Agreement,” Farnam Bidgoli, then head of HSBC’s sustainable bonds group in Europe, told Capital Monitor last year. “The assessment shouldn’t just be on the use of proceeds, but the whole company profile. It’s much more about the holistic issuer strategy.”
HSBC, however, helped the Airport Authority of Hong Kong raise $1bn via a green bond that can be used to fund the expansion of the airport. The proceeds can be put towards various ostensibly sustainable projects – such as developing “green buildings” – but the deal fails to account for the dramatic increase in carbon emissions from the extra flights that will result from the airport’s near doubling of capacity.
HSBC also helped Etihad Airways raise $600m with an SLB, with targets for the company to reduce the CO2 it emits per flight. The second-party opinion provider – paid for by the airline – said Etihad Airways’ 2025 targets were not in line even with the less ambitious 2C scenario target set by the Paris Agreement, but approved them anyway.
Etihad Airways told the Bureau: “By issuing a sustainability-linked [bond], Etihad is voluntarily adding to its existing commitments.” It said the proceeds of the bond will be used to fund investments in its transition to becoming a net-zero company by 2050. Vigeo Eiris, which evaluated the target, said the bond aligned with international standards and that the assessment was accurate at the time it was published.
Other bonds that HSBC puts towards its sustainable finance target include those raised by energy giants Enel, which is expanding the capacity of its gas-fired power stations; and Repsol, which was responsible for an oil spill that has been called Peru’s worst ever environmental catastrophe. Proceeds of the green bond raised by Engie, a French energy company, can be used to convert two power plants from burning coal to burning wood instead. Many scientists say power stations that burn wood add two to three times as much carbon dioxide to the air as those burning fossil fuels.
Enel told the Bureau its overall electricity output is expected to grow but that the proportion generated by burning gas and other fossil fuels will decrease by 2024, in line with its path to net zero by 2040. Repsol declined to comment. Engie disputes the scientists’ analysis of emissions from burning wood for energy compared with fossil fuels.
Elsewhere, HSBC helped raise $600m via an SLB for a financing arm of John Deere, which provides credit lines for buyers of its own heavy machinery. This has been linked to the illegal deforestation of the Amazon, according to a recent report.
John Deere told the Bureau: “We do not condone the use of our machinery in illegal activities on protected or preserved land. Such activity violates John Deere’s values and policies which aim to create sustainable solutions for all customers. John Deere Financial in Brazil meets and/or exceeds all federal regulations for reviewing and approving financing applications.”
HSBC also worked with China Construction Bank (CCB) to raise an SLB with a target that it may have already reached at the time the bond was issued. CCB last year helped thermal coal companies raise $34bn, according to the Global Coal Exit List.
The Beijing-based Asian Infrastructure Investment Bank (AIIB), meanwhile, issued several bonds that will go towards HSBC’s sustainable finance target. AIIB has pledged not to support coal-related infrastructure but in practice the bonds could be used to fund any of its ongoing projects. These include the upgrade of a major coal transport route in Bangladesh that uprooted hundreds of homes and businesses, and the development of a floating offshore gas carrier to be contracted out to BP.
Neither CCB nor AIIB responded to our requests for comment.
Kidney of the Climate Bonds Initiative said so-called sustainable finance warrants serious scrutiny from media and NGOs. “We’ve got to put up more guidance and more rule sets, then we’ll start shooting people down more aggressively, including the banks. So in a year’s time, HSBC will find it much harder to put in crap bonds. It is, at the moment, an absolute mess.”
Header image: Alamy Stock
Reporter: Josephine Moulds, Meenakshi Kapoor and Marcus Leroux
Environment editor: Robert Soutar
Impact producer: Grace Murray
Global editor: James Ball
Editor: Meirion Jones
Production editor: Alex Hess
Fact checker: Simon Lock
This reporting is funded by The Sunrise Project. None of our funders have any influence over the Bureau’s editorial decisions or output.