Taking the long view on climate data
HSBC’s analysts have been collecting climate data since 2007. Piers Butler and Ashim Paun explain the banks approach, how the data is used, and what comes next.
Environmental Finance: HSBC’s Climate Solutions Database is one of the longest running corporate climate datasets in the market. Can you explain its genesis?
Piers Butler, head of global research direct: The bank has long recognised the threat posed by climate change, and the responsibility of the finance sector to play its part in addressing it. We established the Climate Change Centre of Excellence in 2007 and, in the same year, HSBC Global Research launched the HSBC Climate Solutions Database in 2007.
We screen listed companies of all market caps across all global markets for climate revenue exposure. The database is run jointly by the ESG and Equity Strategy teams, and it involves a year-round process of manual gathering of relevant climate data.
EF: What is unique about the database, and how is it used by your clients?
Ashim Paun, global co-head, ESG research: The database offers a toolkit that enables identification of climate change-themed investment opportunities. Its long history of curated data shows how themes, corporate activity in climate technologies, and country- and regional-level cleantech industries have developed over time.
Our taxonomy is detailed. The database currently includes 21 climate themes, which are further divided into more than 80 sub-themes and over 100 product categories. From a starting universe of around 14,000 companies, just over 3,000 are currently found to have some climate revenue and enter the database for a detailed analysis.
The raw data can help signed-up clients to identify opportunities, integrate climate change into investment management processes and determine the climate exposure of their portfolios.
We also publish related research notes. These may include analysis of market trends in climate themes – i.e. which look fundamentally more attractive than others. We also publish baskets of companies which give revenue exposure to policy changes, country and regional markets, or to trends, such as the clean transport transition and climate-smart cities.
EF: Its focus on climate-linked revenues is similar to the approach taken by the EU Taxonomy - how aligned are the two approaches?
AP: Almost all the climate themes and technologies in our framework are covered in the EU Taxonomy, including solar, wind, geothermal, marine, hydro, bioenergy, building efficiency, and transport efficiency. The six environmental objectives of the EU Taxonomy – climate mitigation, adaptation, sustainable water use, transition to circular economy, pollution, prevention and ecosystem protection – are all also covered, to a considerable extent, by our framework.
However, the two approaches are somewhat different, with the EU Taxonomy also addressing negative ESG impacts, which our Climate Solutions database does not currently do. However, we continually enhance our process, methodology and framework, and this is something we are examining.
EF: Presumably such a broad and long-running dataset generates some useful insights into how the climate theme is evolving – what signals is it sending?
PB: We’ve seen a substantial increase in the number of companies which our database picks up as generating climate-related revenues – up around four-fold since 2008. There have been particularly sharp rises in companies from emerging regions – LatAm, MENA and Asia.
The total amount of climate revenues generated by companies globally has also been increasing, up by one sixth in the last five years of data. We’ve also seen a growing number of themes and products as the industrial response to demand for economy-wide decarbonisation has grown and evolved. One we’re watching particularly closely is the rise of the hydrogen economy: we see an ecosystem of clean hydrogen production emerging to meet demand from across the economy, ranging from transport, heavy industry as well as domestic heat.
EF: What plans do you have to develop HSBC’s sustainability-related data offering?
AP: Our ESG Database, a new proprietary offering, includes 10 key environmental, social and governance metrics for companies under HSBC coverage. This includes around 1,900 companies globally, with half in Asia Pacific. Data collection is based on publicly available information and undergoes a rigorous normalisation process. The database has a three-year history from 2016-18.
The 10 key metrics were selected to give a broad indication of the status of ESG information disclosure at companies covered by HSBC Global Research. Using this disclosure as a starting point, our equity analysts look in more detail at sector-specific ESG issues and work towards integrating ESG into their financial analysis.
Our Fragile Planet series of notes and underlying framework of metrics is an additional proprietary offering. It explores climate change vulnerability and resilience across 67 developed, emerging and frontier markets. In our most recent cut, we use 54 datapoints which explore transition risks associated with fossil fuel use and economic dependence, cleantech and industrial innovation potential, physical climate risks and aspects of climate governance. We publish reports each year in which we update the methodology and provide the underlying data to clients.
For more information, please see: www.gbm.hsbc.com/solutions/sustainable-financing/climate-research
