HSBC mulls private-sector development bank for green infrastructure

The bank suggests it may help green equity investing

HSBC has said it is looking at launching “a private-sector multilateral development bank” to make equity investments into climate finance.
Speaking at the European Commission’s conference on sustainable finance on Tuesday, James Chew, Global Head of Regulatory Policy at HSBC Holdings, told the audience: “In addition to our work around debt, we’ve been looking at the power of equity to unlock debt capacity and to mobilise projects. And what we’ve been thinking about and what we’re looking at is how we can bring together some of the ideas which we see employed in other areas and bring them together to help the green finance space.”

RI understands it could be modelled on the existing Business Growth Fund that is backed by HSBC and other leading UK banks.

He said there were two particular options being considered. “One is the effect of [having] a very large, commercially driven body such as the Green Investment Bank that happened in the UK, to mobilise finance around particular projects,” he explained. The UK’s GIB was recently sold entirely to Macquarie in a controversial move by the UK Government.
“The second is for banks to come together and create what I would call a multibank investment company – effectively a private sector multilateral development bank,” he said. The banks would focus on climate finance projects and “attack the sector at scale” in order to create a diversified portfolio of investments. “This would allow the banks to reassess how they look at it for risk management purposes. And within existing regulations under the European Union, [they] can actually take a much more progressive approach to this,” Chew said. “By creating a multilateral institution which has a diversity of shareholders and which has a diversity of projects, we can actually begin to move the banks into the provision of equity, and at large scale; and then we can begin to unlock a series of projects.”The projects would not be the larger ones, he pointed out, which find it easier to get investment already, but the smaller and more localised green projects that need financing to meet the goals of the Paris Agreement.
Chew said it needed banks and other players to take a long-term view more suited to equity investing, and to share sovereignty with other banks – which he said was “always difficult”.
The remarks were made at the first formal event to discuss the findings of the European Commission’s High Level Expert Group on Sustainable Finance. One of the early recommendations made by the group is to create a body within Europe that helps municipalities and governments to structure green and sustainable infrastructure projects in a way that makes them attractive to investors, in order to stimulate a stronger infrastructure pipeline to help meet the region’s climate commitments.
A combination of regulatory requirements and in-house investment strategies mean that many asset owners in Europe are keen to invest in infrastructure debt rather than equity. Guy Miller, Chief Market Strategist at insurance giant Zurich, told RI that it was important to overcome this challenge, and that a key role of the proposed body should be to encourage projects that provided viable debt opportunities. “We keep hearing questions about how to unlock the capital from pension funds’ and insurance companies’ balance sheets [for green infrastructure], and yet when you look at some of the projects that are being forthcoming, there are simply not enough suitable ones. We find far too little of the debt element coming forward, so we’re all after the same projects and that’s reflected in the price. Issuers need to consider the full capital spectrum for project financing to attract the most funding, from the debt space through to equity.”