Of all the millions of hours and pages expended on regulating sustainable finance in the past five years, some of the most influential may be the time spent by the UK’s Advertising Standards Authority considering whether HSBC committed greenwashing with two advertisements proclaiming its efforts towards sustainability.
The case was triggered by a little known grassroots NGO, Adfree Cities, far from the capital markets. But it will shake the banking and financial industry — and the wider business world.
Up to now, companies of all kinds have trumpeted their green products, investments or initiatives, eager to win customer support and tell the world they are doing their bit.
HSBC has been doing so for years, with ads very commonly seen in airports, for example.
The HSBC ads banned by the ASA this week contained only true statements: it plans to invest $1tr to help companies transition, and, more modestly, to plant some trees in the UK.
But the regulator agreed with the NGO’s complaint that the ads gave a misleading impression that HSBC was a sustainable bank — misleading, because it has also channelled $130bn of financing to fossil fuel companies in the six years since the Paris Agreement was signed. Seeing the ads, consumers would not expect this to be the case, the regulator found. Information about the emissions financed by HSBC “should have been made clear in the ads”.
The ruling only came out on Wednesday. But, at least in the UK, it appears to have ruptured the way companies advertise their environmental performance forever.
No longer can companies feel safe in publicising only the good they are doing. The implication of the ASA ruling is that they need to give a fair picture of the company’s “overall environmental contribution”.
The ASA has not specified how this could be satisfied. One can imagine a statement at the bottom of an advertisement stating, for example, the quantity of fossil fuel financing a bank has done, as well as the amount of green financing.
This would not be particularly informative, but would at least show the bank was active on both sides of the climate problem.
There is an unmistakable parallel with green finance markets. The whole green bond movement is based on the idea of singling out and highlighting the good an organisation does — making investors look at it and feel they are supporting that alone.
More traditional environmental, social and governance investing — and arguably sustainability-linked finance — looks at the organisation as a whole.
It was always a fallacy that green bond investors were not also supporting the issuer’s bad activities.
Transposed to the financial market, the ASA view would equate to saying: if you issue a green bond, you ought to declare what harm you are doing to the environment, too.
Many may have sympathy with HSBC. It has put a lot of corporate effort into sustainability over many years, and the new ads are no different from its old ones, or those of thousands of other companies.
If businesses cannot seek and gain public credit for green activities, is there not a danger of killing part of the incentive for them to make green choices?
And if HSBC could not advertise itself as green, would that not also weaken the message conveyed to the public sphere that banks can and should be green?
These are real and weighty policy issues. If unintended consequences were to occur, they would be grave and almost impossible to detect.
Nevertheless, on balance the effect of what is to all intents and purposes new law is likely to be salutary.
Despite HSBC’s good intentions, it truly is still pumping money into the climate-destroying economy.
If it had, as green campaigners have been arguing for many years, speeded up its efforts to calculate and publish its overall carbon financing footprint, HSBC might be able to show that it genuinely had reduced emissions. As things stand, it is only beginning to publish partial information.
Full figures, when they come, will give a better idea of how HSBC has really weighed the claims of planet and profit.
The ASA’s decision is likely to impel financial firms to produce this information more quickly and to publicise it more.
That HSBC still funds dirty old industries might be, as many in capital markets would argue, simply reality. Banks cannot go green much faster than the real economy. Fleeing to the green niches will not help to make the steel, cement or shipping industries sustainable.
But reality should not just be for the suits in boardrooms who make the tough decisions, while the outside world sees the green highlights. The public deserve to be shown reality, too.