The framework ensures that these projects are developed and operate in accordance with good international environmental and social standards. HSBC voluntarily adopted the Equator Principles when they were first launched in 2003.
The Principles were originally drawn up to address the sustainability impact of project finance. This is a long-term method of financing where lenders are repaid primarily through revenues generated by a specific project – typically large and complex installations such as power plants or mines.
Following an update in 2013, financial institutions that have signed up to the Equator Principles are now required to apply the standards to project-related corporate loans and project-related bridge loans, as well as advisory mandates. HSBC had always voluntarily applied the Principles beyond pure project finance to other types of loans for projects and we therefore welcomed the changes.
We continue to voluntarily extend our application of the Equator Principles beyond the new requirements. For example, the Principles only apply to bridge loans that the customer intends to refinance via project finance or a project-related corporate loan; however HSBC includes all bridge loans for projects.
One of the obligations under the Equator Principles is to report on how we implement them and the following sections provide details and figures of the transactions undertaken by HSBC.
HSBC’s procedures for applying the Equator Principles are included in its credit risk policies. For transactions that fall under the scope of the Equator Principles, our global businesses must complete the appropriate implementation template, including the requirements for each applicable Principle, and conduct a risk analysis and recommendation through the credit risk process. We have more than 75 Sustainability Risk Managers – working in the Risk function across the bank – to assist our global businesses on Equator Principles requirements where appropriate. Global businesses must refer high-risk Category A projects, as well as some Category B projects, to Group Sustainability Risk for guidance and approval. The Group Sustainability Risk team is required to approve or decline any transaction that is deemed to be high-risk under the Equator Principles.
The Group Sustainability Risk team is also responsible for the development and management of the Equator Principles policy, which outlines our internal processes for applying the Equator Principles. The Equator Principles policy is approved by the Risk Management Meeting, a sub-committee of the Group Management Board.
2016 Equator Principles reporting
As part of our commitment, we are required to report the number of transactions we have reviewed using the Principles, with breakdowns by sector and by region. This is shown in the table below. HSBC has reported on project-related corporate loans – now a requirement of the Principles – for a number of years and continues to do so. We also provide data on the number of loans that were independently reviewed, showing we go above the minimum requirement to review Category A and select Category B projects only.
HSBC voluntarily continues to report on a number of aspects beyond what is required. This helps our stakeholders to understand our implementation of the Equator Principles. For example, we provide three-year trends and report on the value of loans, on project-related bridge loans, and on loans for renewable energy projects.
Supporting higher standards on infrastructure projects globally
Since 2003, HSBC has applied the Equator Principles to nearly 900 transactions, ensuring high environmental and social standards were met. This included:
In 2016, a greater proportion of our project finance lending under Equator Principles was for developments in emerging market countries, and a higher concentration was in Asia. These deals were across multiple sectors including mining, infrastructure, oil and gas. Half of all loans under the Principles in 2016 were for projects with potentially high sustainability impacts, requiring closer management, a higher proportion than in previous years.
Two-thirds of our power-related deals in 2016 and more than 50 per cent of our total power sector lending under the Principles in 2016 was for renewables, including hydro, solar and wind assets, the majority in the United States. Total lending to renewables under the Principles was USD526 million, up more than 30 per cent compared to the previous year. The remaining power deals focussed on nuclear and gas. In addition, two infrastructure deals were mass rail transport projects.
HSBC’s approach changed slightly in 2016, resulting in fewer deals under the Principles in 2016. We completed a total of 27 compared with 48 last year.
Once again, for the third year in a row, we had all project finance loans independently reviewed, going beyond the requirements of the Principles.