Introduction
The global move to incorporate ESG characteristics and principles into the decisions made by businesses represents a necessary and significant change for the long-term sustainability of our world. At HSBC, we are committed to building a business for the long term, developing relationships that last. We want to be a well-managed organization that people are proud to work for, has the trust of our clients and the communities we serve and minimizes its impact on the environment.
The Malaysian context
As intermediaries of capital, we as Islamic banking, finance and investment professionals have to recognize the impact we have on the economy, the people and businesses we serve and the planet we share. In Malaysia, we can be proud to say that Islamic financial institutions have been pioneers in this regard.
The foresight of our regulators — Bank Negara Malaysia and Securities Commission Malaysia — has spearheaded the move toward sustainability in line with the Maqasid Shariah or its ultimate intent with regard to the attainment of benefit and prevention of harm. This has resulted in the formulation
of guidance, co-developed with the industry, that has established the foundations for a vibrant and progressive Islamic financial ecosystem that has embedded sustainability characteristics into its fundamental conduct. This can be seen in the collective guidance of value-based intermediation (VBI), the Climate Change and Principles Based Taxonomy and the SRI-linked Sukuk Framework, among others.
HSBC and sustainability
At HSBC, we have an ambition to become a net-zero bank. We aim to:
• Align our financed emissions — the carbon emissions of our portfolio of customers — to the Paris Agreement goal to achieve net zero by 2050 or sooner.
• Use the Paris Agreement Capital Transition Assessment Tool to develop clear, measurable pathways to net zero.
• Make regular, transparent disclosures to communicate our progress in line with the Taskforce on Climate-Related Financial Disclosures (TCFD) guidelines, and encourage our customers to do the same.
• Work with our peers, central banks and industry bodies to mobilize the financial system around a globally consistent, future-proofed standard to measure financed emissions, and a functioning carbon offset market.
• Achieve net zero in our own operations and supply chain by 2030 or sooner.
• We are supporting our portfolio of customers to thrive through transition. We aim to:
o Support our customers on their journey to lower carbon emissions, bringing together our dedicated ESG Solutions team, our award-winning products and experts across the bank to develop tailored solutions for our customers
o Prioritize financing and investment that support our customers in all sectors to transition to lower carbon emissions
o Increase our portfolio of transition finance solutions to help enable even the most heavy-emitting sectors to progressively decarbonize, while helping to ensure a just and stable transition to maintain economic stability, and
o Apply a climate lens to our financing decisions, taking into account the unique conditions for our clients across developed and developing economies.
• We have an ambition to provide customers between US$750 billion and US$1 trillion of finance and investment by 2030 to help them achieve this goal.
• In line with our ambition, we have also announced targets for reducing financed emissions in two carbon-intensive sectors — oil and gas, and power and utilities — by 2030.
HSBC Amanah’s sustainability journey
HSBC Amanah as a leading international Shariah compliant bank in Malaysia leverages the global expertise of HSBC combined with local insights, combining capabilities toward providing best-in-class solutions. This way, HSBC Amanah facilitates and provides financial solutions that leverage on HSBC’s knowledge and experience of ESG from a global perspective and the Shariah structuring and VBI advocacy inherent to HSBC Amanah’s approach to doing business. In support of HSBC’s move to sustainability, we began our journey toward embedding sustainable practices in our business via our participation — alongside other Islamic financial institutions — as a founding member of the VBI Community of Practitioners in 2017.
Since that time, HSBC Amanah has been an active proponent of VBI and has played an active role in the formulation of the VBI Sectoral guides for the industry and is developing new products to deliver value- outcomes, including HSBC Amanah’s issuance of the world’s first UN SDG Sukuk in 2018 and the ESG charity feature enabling credit card holders to donate their points toward charities and non-profits that deliver positive impact. Most significantly, in order to ensure a meaningful and significant contribution as a value-based intermediary and facilitator of sustainable finance, HSBC Amanah launched Project Cocoon in 2020.
Project Cocoon
Project Cocoon — a 24-month transformation initiative — was launched in order to truly embed sustainability into the business of HSBC Amanah. This was undertaken from the perspective of ensuring a comprehensive approach toward delivering sustainable outcomes as an organization — encompassing financial solutions, capacity-building and advocacy, cultural transformation and external disclosures. These thrusts were headlined by the key objective of achieving 51% of our financing and advances to be triple bottom line (TBL) or TBL assets.
In order to meet the key objective of Project Cocoon, HSBC Amanah has developed a TBL Framework in order to create a deliberate focus on delivering positive impact with regards to the environment, community and the economy. In short — the 3Ps of ‘Planet, People and Prosperity’.
The TBL Framework
Guided by VBI, HSBC Amanah’s TBL Framework is a comprehensive approach to classification, governance and process implementation in relation to financing assets that originate from and are managed by HSBC Amanah. The TBL Framework was formulated with reference to authoritative sources, namely the collective VBI guidance parameters from Bank Negara Malaysia, HSBC’s sustainability policies and prevailing regulatory and policy directions for Islamic financial institutions in Malaysia.
HSBC Amanah’s TBL Framework enables the establishment of baseline parameters for the future via a robust framework of assessment and classification that can be applied to financial activities. The TBL Framework has been developed toward ensuring integrity both in conceptualization and practical application.
A second-party opinion by United Nations Global Compact Malaysia and Brunei (UNGCMYB) with regard to the TBL Framework found that “the process that has been undertaken to develop HSBC Amanah’s TBL Framework is a detailed, methodological and verifiable approach that aligns towards meeting the targeted SDGs”.
TBL classification
Our TBL classification methodology is applied both at the customer and transaction levels across HSBC Amanah’s lines of business, which encompass wealth and personal banking and wholesale customers (commercial banking and global banking and markets businesses).
For wealth and personal banking — a positive impact lens based on the UN SDGs is applied for consumers, who are assessed both from a customer profile and a use of proceeds level. Customers are identified from the perspective of predefined positive impact segments along with screening undertaken at the transaction level to ensure financing provides positive outcomes. These include utilization of financing for basic needs, health, first homeownership and education, among others.
For wholesale customers, we take a view on the companies we finance based on externally and internally sourced data including ESG rating thresholds, client interviews and assessments based on a predetermined questionnaire to ensure a company can be assessed as TBL.
In addition, and in line with our agenda and commitment to finance the transition toward green, social and sustainable aims — we do look at transactions which meet internationally accepted standards in assessing whether a client is aligned to the TBL — such as Green or Social Loans Principles.1
Thus the TBL Framework enables a structured and ambitious context to materialize our ambition of having 51% TBL assets.
Toward sustainable outcomes
In addition to achieving the key objective of 51% TBL assets and the TBL Framework, HSBC Amanah is committed to driving a paradigm of sustainable outcomes from our activities and business. In line with this, and spearheaded via the headline ambition, HSBC Amanah via Project Cocoon has undertaken various approaches toward sustainability in the four areas of financial solutions, capacity-building and advocacy, cultural transformation and external disclosures.
Financial solutions
HSBC Amanah has spearheaded the drive toward providing sustainable finance as an originator of many firsts for Malaysian Islamic banking and capital markets. We have worked with clients to deliver a range of landmark sustainability solutions including:
• The world’s first sovereign US dollar sustainability Sukuk issuance — government of Malaysia’s US$800 million 10-year sustainability Sukuk and US$500 million 30-year Sukuk — joint lead manager and joint bookrunner and joint sustainable development goals structuring agent (sustainability Sukuk)
• The first Islamic international bank in Malaysia to link a charity feature to credit cards. All cards we issue, including HSBC Amanah Debit and Credit Cards, will now be made from 100% recycled plastic
• Malaysia’s first sustainability linked financing — RM200 million (US$42.41 million) sustainability-linked financing for Yinson — where HSBC Amanah was the sole sustainability structuring bank
• Malaysia’s first sustainability-linked Sukuk — Yinson’s issuance of a RM1 billion (US$212.07 million) five-year sustainability-linked Sukuk Wakalah facility pursuant to its Islamic medium-note program of up to RM1 billion in nominal value — sole principal advisor, lead arranger, lead manager and Shariah advisor for the Sukuk Wakalah program and sustainability structuring agent for the framework
• Green financing to Ikano Centres to boost sustainable development of its retail hub in Malaysia — Ikano Centres is part of Ikano Retail, which operates IKEA stores in five countries and shopping centers that IKEA anchors
• Malaysia’s first green trade financing facility for sustainable cocoa sourcing in Malaysia — the green trade financing facility for Guan Chong Cocoa Manufacturer
• Lowest-ever coupon and weighted average cost of financing among ‘AA3/AA’- solar power project financing Sukuk in the Malaysian ringgit market — Leader Energy’s debut ASEAN Green SRI Sukuk issuance, and
• HSBC’s first Social Loan Principles (SLP)- based financing in Southeast Asia for the real estate sector — supported affordable housing through HSBC Amanah’s SLP- based financing for Jayyid Land.
Cultural transformation
HSBC Amanah continuously engages stakeholders from across the financial services ecosystem and beyond via its engagement through forums and talks undertaken by various ministries and stakeholder groups. We have focused our efforts on upskilling key employees in Malaysia with professional qualifications and up-to-date information on sustainability through capacity-building initiatives and standards development in collaboration with London Business School, Frankfurt School and the Cambridge Institute for Sustainability Leadership.
Supported by group resources and these additional capacity-building initiatives, our Malaysia relationship managers are able to identify opportunities as well as structuring and execution expertise for our clients from various sectors, and across businesses and corporates, toward financing their sustainable business activities and facilitating Malaysia’s transition toward a low-carbon economy.
HSBC Amanah also spearheads internal engagement toward cultural transformation and sustainable living, supporting HSBC’s overall net-zero ambitions. This includes a network of advocates comprising sustainability champions across various lines of businesses and functions, institutionalizing our net-zero ambitions via sourcing energy from 100% renewable sources for HSBC Amanah offices in Malaysia, introducing flexible and hybrid working practices towards work–life balance and advocacy for gender equality and empowerment with targets for representation at senior levels of the firm.
Capacity-building and engagement
HSBC Amanah has fostered engagements with stakeholders from across the financial ecosystem to enable the transition of business to more sustainable outcomes. Toward developing the platform to enable meaningful transition toward a sustainable business, HSBC Amanah was invited to become an official member of the United Nations Global Compact (UNGC) via UNGC’s local chapter, UNGCMYB .
HSBC Amanah also collaborated and supported UNGCMYB to launch the ‘Malaysia Businesses Sustainability Pulse Report 2022’. The report is a multi-collaborative effort to address the private sector sustainability data gap and shed light on current sustainability trends within the Malaysian business ecosystem. The report acts as a guide for decision-makers to pave the way and
craft effective policies toward improved sustainability performance within the market.
Since 2020, HSBC Amanah is also the Steering Committee 4 Chair of the ‘Capacity Building and Engagement’ stream of the Bank Negara Malaysia- and Securities Commission- chaired Joint Committee on Climate Change to pursue collaborative actions toward building climate resilience and sustainability into the Malaysian financial services industry. Numerous training and awareness programs have been organized for the financial industry (comprising banking, capital market and insurance players) comprising topics such as climate scenario analysis, key to net zero and TCFD workshops.
In February 2022, HSBC Amanah and Bursa Malaysia entered into an MoU to collaborate on #financing4ESG, an initiative aimed at improving the ESG adoption practices of Malaysian public listed companies (PLCs). Under this MoU, the exchange collaborates with HSBC Amanah in developing sustainability-linked Islamic financial products as well as ESG solutions aligned to the FTSE4Good ratings model and datasets for eligible PLCs.
Disclosures
HSBC Amanah released the Malaysian Islamic financial services industry’s maiden Task Force for Climate-Related Disclosures (TCFD) Report for 2020 and a second iteration for 2021. HSBC Amanah continues to be the first amongst banks in the country to issue such a report, ahead of a mandatory release for banks in 2024. HSBC Amanah has also submitted its 2nd Communication of Progress as a member of UNGCMYB.
