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125: Banking on Net Zero with Noel Quinn

This week, we’re joined by Group Chief Executive of HSBC, Noel Quinn.

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About this episode

The way to Net Zero is through the bank.

One of the major questions at COP26 is, “How are we going to finance the transition to Net Zero?” From shifting investments away from fossil fuels, to boosting the speed and scale of green companies bringing forward the necessary solutions to creating a sustainable future for people and planet.

... and profit.

This week, we’re joined by Group Chief Executive of HSBC, Noel Quinn. He recently committed HSBC, with an impressive $3 trillion balance sheet, to have a completely Net Zero portfolio by 2050, and have their own supply chain and operations Net Zero by 2030. All the while significantly expanding their investment in green finance, creating a philanthropic program and clean technology venture fund.

We are also joined this week by guest co-host Kelly Clark, Director of Finance & Capital Market Transformation at The Laudes Foundation. Her day job is reimagining our current economic system and redefining value to go beyond shareholder interest.

It’s a fascinating conversation and essential to bring about the radical systems change we need to see. Join us!

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Full Transcript

Tom: [00:00:24] Hello and welcome to Outrage and Optimism, I'm Tom Rivett-Carnac.

Christiana: [00:00:26] I'm Christiana Figueres.

Paul: [00:00:28] I'm Paul Dickinson.

Kelly Clark: [00:00:29] I'm Kelly Clark.

Tom: [00:00:30] This week we are coming to you from Glen House in Scotland, where we are at the most remarkable finance retreat. Just ahead of COP26 today, we will be reflecting on what we've learned here, looking forward to the COP and bringing you an interview with Noel Quinn, Group CEO of HSBC. Thanks for being here. Ok, so we are here at Glen House, known to many of us of course, as the home of Tessa Tennant, the late Tessa Tennant.

Paul: [00:01:04] The late great Tessa Tennant, who is very much missed and everyone's been talking about like in every meeting and dinner, people are holding up classes to Tessa and her and her achievements, and it feels so rich to be here. 

Tom: [00:01:15] Absolutely. And we're here just ahead of COP26 at the most remarkable retreat of incredible people from the finance world that has been pulled together by our good friend, Kelly. Kelly, welcome to Outrage and Optimism. It's great to have you.

Kelly Clark: [00:01:24] Oh, thank you. I'm so pleased to be here.

 

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Tom: [00:01:26] So, Kelly, why don't you set out for the listeners who have not been fortunate to join us here, what you were intending to do by getting some of these amazing people together just before the COP and we're very privileged to be joining you.

Kelly Clark: [00:01:38] Oh, thank you, Tom. Well, we all know that there's been an amazing flurry of commitments towards net zero for this COP, and that's very, very important. But the day that COP is over is the day that we need to start radically and quickly implementing those commitments. And so this retreat was really about understanding how we're going to work together to collectively meet those commitments. And we have to remember nobody's ever done this before. So we had to find new ways to come together and new strategies. And most of all, we had to find ways to collaborate.

Tom: [00:02:12] You said no one's ever done this before, like nobody's ever really kind of mapped the global financial system. No one's ever mapped the global situation. No one's ever put up big diagrams of the global financial system, except for you, Kelly, who's been doing it for about 10 years and going around from conference to conference with bigger and bigger maps of the whole financial system. So, yeah, how do you map the financial system, Kelly?

Kelly Clark: [00:02:31] Well, I've had a lot of time to think about this and a lot of help, but basically we have to figure out how all of the interdependencies can be sort of looked at, leveraged, how we can understand and actually make it less complex so that we can break through. I think the really important thing is for systems to change. We need lots and lots of actors to come together. We need the financial institutions and the banks and the big businesses and the climate activists on the street and the voters and the consumers to all move with intention towards the future we want to see.

Paul: [00:03:09] Thank you so much for saying that, by the way, Kelly, because people have said, you know, if we just leave it up to kind of corporations and investors, we won't get there. But you said the activists on the street, the citizens, the voters, civil society basically are intrinsic to that. And of course, they're here, right?

Kelly Clark: [00:03:22] They are here, absolutely. And you know, the thing is our good friend Rachel Kyte, she calls for a new kind of multilateralism. And I'm so inspired by this because the kind of multilateralism we need for the 21st century is where every voice counts, but especially the voice of youth, of indigenous people, of a marginalised people who are being so affected and have so much inherent wisdom. So that's the kind of multilateralism I hope we're going to really see take flight and soar in at COP and beyond.

Tom: [00:03:52] It's really interesting. I mean, just one reflection in the last couple of days is, you know, we've all been around many of these conversations that are coordinated by youth over the last few years. And what they actually tend to look at is, look, some of the world now has this commitment to net zero by 2050. We're not completely convinced that we're on the path to do that. How do we fill the gap between here and there? And what's been really inspiring to me about these last few days, this is the same conversation, but seen from a different perspective. And I actually think just the seeds of deep collaboration between different types of players in the space have become so evident to me in the last few days and how we should be working together.

Christiana: [00:04:24] You know, I've been thinking about this collaboration piece, Kelly, and here's a little challenge for you. So innately, I think we would all agree that we need more collaboration in order to go quicker, faster, further. Now, is that a symphony or is that jazz? Because I am not completely convinced that we can shoehorn everyone into a role that either they are filling or that we would like them to fill, and that they will be having lateral vision to. You know, who's doing what, where and be totally orchestrated by it. I actually feel more that this is jazz that looks for improvisational opportunities within a long term and very, very clear intent with a lot of attention. But is it not more like jazz?

Kelly Clark: [00:05:32] I think it's absolutely more like jazz, and I think even more like improv, right? Everybody has to take the moment and improvise and dance and have a beat and to quote from somebody who spoke last night, if the whole world is a stage, who's your audience? Well, maybe we're all playing the jazz and as long as we find the current or the beat we have a chance of getting there.

Paul: [00:05:59] The whole world is a stage and what was it?

Kelly Clark: [00:06:01] If the whole world is a stage, who's your audience?

Paul: [00:06:04] Well, everyone is in the audience. In fact, no, no, I think it was the comedians last night saying, Where's the audience? Where does the audience sit? Fair question. Very fair question. And also, they said, if you write a book on failure and then it doesn't sell well, is that success which I'm going to spend the rest of my life trying to work out? But look, what I've picked up from here is just the most enormous sense of excitement. You know, we all know that extreme weather and demonstrations have sort of created an environment where it feels like absolutely anything is possible right now in almost any sphere. Everyone, I think, is talking about carbon taxes and regulation. You know, we all know about The science based targets movement, but I can sense a sort of science based policy movement growing up with increasing strength. And then the final thing just to mention is this incredible GFANZ coalition led by Mark Carney. I'd love to get your view on that. You know, there's going to be a lot of that. The Glasgow Financial Alliance for Net Zero, you know, 160 firms, it says on the UN website. With 70 trillion other people have said 100 trillion. What's it going to do and do you think, what are your hopes for GFANZ?

Kelly Clark: [00:07:05] I think it's great. The term that I heard was 130, the number I heard.

Paul: [00:07:09] Nearly doubled in just well, the last five minutes, actually.

Kelly Clark: [00:07:13] Let's see. Let's see. But what I am very hopeful about it is that we've got the commitment, we've got the directionality. And now I think it's a really important role for civil society to play, to keep those financial institutions accountable. And I think that what it means, it must immediately is each and every one of them needs to have a short term climate action plan that can be reviewed and ratcheted up on an intra year basis. And with that, we get real movement. But GFANZ provides the basis for that level of accountability to be held across the piece and to be held with real third party verification. And I think that's how we get the inside and the outside working towards genuine decarbonisation.

Paul: [00:07:59] The question I had for all three of you also in addition to this is just how you've noticed this issue of equity showing up because you know, this financial Glasgow Financial Alliance for Net Zero feels like this highly technical group of banks and asset owners and insurance companies. And that's brilliant. But I just wondered, you know, in their conversations and in the work how equity is showing up.

Kelly Clark: [00:08:20] I think it shows up in so many different areas. One thing specifically that we've spent a lot of time on this weekend is making sure that capital flows are able to go to low and middle income countries, and that the mechanisms for making sure that that capital flows at the right level and is derisked and is actually affordable and suited towards the repayment or the equity capacity of each and every local market. And I think that's critical. And frankly, we have work to do on that. We have a lot of work to do on that. But I think that there's a great deal of capital to be flowing and I think there's a great deal of expertise that can be applied.

Christiana: [00:08:58] So before we have to close and go to our interview, I just wanted to say, Kelly, that one of the things that I have learned here, hosted by you – thank you very much for including us – is especially looking at all of your very sophisticated and very insightful maps of how this system works or attempts to work together. I have learned how many different acupuncture points there are along the connecting channels of all of these players, but also how many acupuncture points there are in each of the players and in the way the system works, that we have actually not tapped yet. And that can be tapped either individually or sometimes in consonance with each other in order to make these capital flows flow faster. And what is amazing to me about that is the realization sorry, if I'm saying something that everybody already knows, which is what I usually do,

Tom: [00:10:10] But that you do very well and to know it for the first time.

Christiana: [00:10:16] This is the first time to quote Paul. This is the first time that the finance system, because I'd rather call it a system rather than a sector, right? Because I think that's what we're trying to do. Move the system. That the finance system has a higher purpose than its very own existence and has a higher purpose than profit. And nobody's arguing that they should not have profit, right? But this is the first time that of their own volition, sort of pushed and shoved by public opinion, by, you know, policy, by many different forces. But this is the first time that the finance system represented by these 130 trillion have actually begun to draw the curtain open on the idea because I think it's still an idea for them that in addition to profit, they actually, as a system, need to have the triple bottom line. They need to have people, they need to have a planet, added to their profit bottom line. Now that's a completely different entrepreneurial exercise than what they had done before. But what is amazing is that because they're all into this GFANZ $130 trillion, they're actually looking now no longer at, are we going to do this, but they're all looking at the how. And so it's very difficult to find any financial institution that is still digging their heels in. There may be a few, but still digging their heels in, possibly because they just don't want to be left alone on the sinking boat. But isn't it amazing? Honestly, I would not have thought even just a year ago, let alone two or three or five when we were in Paris, that we would have the entire financial system having, in theory, accepted that there is a higher purpose for them and then poised to figure out how. And that's where the collaboration comes in, right? That's where we learn from each other, et cetera, et cetera. But, you know, I think we should just take a little breath here and celebrate this amazing, amazing new world that we're in.

Paul: [00:12:37] Yeah, I know. I mean, the GFANZ is incredible, as you said, Christiana, I think you put it beautifully. The environment and people, you can't separate them up. It's kind of like the same thing. And you know what, just actually today, I think in the Financial Times, well, three days ago for listeners, Mark Carney actually says not only all the good things GFANZ is going to do, but he calls out those who are not in GFANZ. He says, does your bank insurer, mutual fund manager or pension fund? Are they part of this? You know, your money matters, he says. So I actually do see him as a very interesting kind of political leader inside the financial sector. That's something new.

Kelly Clark: [00:13:14] And we need a lot more of that, Paul. I mean, it's it's so critical and it's wonderful and we need more of it because I mean, I think what we all know and what we really need to remember in both sides of our brain is this is coming about in part because we're in an emergency, but it's also the greatest economic opportunity that we've seen and will see this century. So, you know, it's got both a carrot and a stick, and it's really important that we understand the opportunity side, too.

Tom: [00:13:46] I don't want to put a dampener on any of that because I completely agree with you, Christiana. I'm also aware that we're recording this on Sunday, and there is a significant proportion of those who are at COP who are very angry with chief hands because they feel it is not sufficiently robust that it's letting in entities that are still financing fossil fuels. That actually the transformation isn't complete. And I think we on this podcast would all feel that momentum is how you transform the system. So therefore we would applaud the momentum that's been built on GFANZ. But it's also just worth characterizing the fact that at COP, where we're going to be next week and maybe already by the time this podcast comes out, there are some quite loud voices that have quite different perspectives on what's going on. So it'll be interesting to dig into that in the future. 

Paul: [00:14:26] Yeah, I mean, I certainly wouldn't suggest any of us are foolish enough to imagine that all the many financial institutions involved in GFANZ are all, you know, kind of Gandhi. It doesn't work like that.

Kelly Clark: [00:14:35] But what I am optimistic about is the fact that if they've committed, they've given us an accountability mechanism or a tool and in to hold those institutions to account. And I think that, regardless of, and I agree with you, Tom, I don't think they should be members and funding fossil fuels, but that mechanism in that accountability is greater than if they hadn't joined.

Tom: [00:15:02] Right. The question is, is it speed and scale?

Kelly Clark: [00:15:04] It's about how we as bankers, as insurers, as asset owners, as asset managers, as activists and civil society change makers? How do we, the day COP ends, really work on implementing these commitments across the piece, at a societal level, at an institutional level, at a macro level, at a systemic level. And we know it's not going to be easy, but it's an imperative. And you know, one of the things that I just want to say is it hasn't been done before, and it's going to take everything we have. And that's also an opportunity. Yeah, that's what we're here to do. Yeah, it's critical.

Tom: [00:15:44] Ok, so Paul, you have been a student of the financial system for a long time and in particular, HSBC have a lot of friends inside the system. Would you like to introduce Noel Quinn?

Paul: [00:15:52] Yeah. My great pleasure to introduce our fantastic interview with Noel Quinn, the group chief executive of HSBC Group. And that is the most enormous financial institution with a three trillion dollar balance sheet. So I think you'll enjoy the conversation.

Tom: [00:16:05] Here we go. We'll be back afterwards.

Christiana: [00:16:25] Noel, thank you very much for joining us on Outrage and Optimism, especially in these very, very hectic times, just a few seconds before we all go to COP and there are so many preparatory meetings and panel discussions and momentum building, it's all actually quite exciting. We thought we might take just a moment before we all go to Glasgow to take a look from your perspective at what we are moving forward here. And you know, most often when we talk to banks, to other actors in the finance sector, in fact to other corporations, we go through a conversation and we finally end up in, well, what is the role of governments? So we thought this time we would actually turn that around and start with that. The role of government, since they're going to be front and centre in Glasgow and obviously from your perspective, the role of governments would be taxation regulation, price on pollution, price on carbon. Is it not really true that if we had a global price on pollution, a global price on carbon, if we had a regulation in at least the G20 countries, if we had much more taxation that goes into cutting down on this, wouldn't it be easier for those who are in your shoes? Wouldn't we actually have almost automatic or at least much accelerated green finance? Wouldn't it be easier for you? And where do you see the difficulties of that?

Noel Quinn: [00:18:10] Christiana, thank you, and I suppose I'm going to come back and answer that in a number of parts. First, I think absolutely, governments have a role in setting objectives and in setting ambition for the economies that they're responsible for, but to go beyond just objectives and ambition. It's important, then, to set the market conditions. And as you quite rightly say, one way of setting market conditions is if all the governments of the world were able to agree a carbon pricing methodology that allowed us to really incentivise and penalise the good and the not so good behaviour. But I think there's more that can be done even in the absence of a global carbon pricing methodology. That would be a great solution. But even in the absence of that, there are signals that can be sent by governments that can help shape markets and create market conditions to make the change become a reality. And let me give you an example, sustainable aviation fuel is a solution to providing a lower carbon footprint from the airline sector. That capability exists in concept. Today, the technology exists. The fuel has been refined on a test basis. It's worked in airplanes. It's available, but it's not available at scale. So how do we get the governments of the world and the countries of the world to send the market signals that we need to invest in the capacity to create the refineries, to create the fuel that will have an impact on the carbon footprint of the airline sector? And that's where I think it is important that even in the absence of a carbon price, there is the ability for governments to send a very clear signal. And the UK Government made a statement to that effect just a few days ago. At least 10 percent of the fuel mix for airplanes should be SAF alongside kerosene by 2030, and that creates a demand signal that then allows the financial sector and the oil and gas sector and the and the industries to then create the capacity to produce the fuel. And if we get the 10 percent done, then we can move on to a much higher mix of SAF and kerosene over time. Signals have been sent in the automotive sector with respect to the combustion engine. Signals have been sent in the housing sector with respect to boilers and insulation. There's more that can be done in the absence of a global carbon pricing methodology, but ultimately that would be the best solution.

Christiana: [00:20:54] Well, we totally agree with you. And of course, as people who are pushing for decarbonising as quickly as possible, we would agree with your very realistic approach that while we are working toward carbon pricing methodology that has to be agreed by governments, let's move on the realistic levers that we can move right now. So those signals, we would totally agree with you now just to push into that a little bit further. If both of us, you and I, get into the shoes of governments, I think you would see that from one corner, we're getting these kinds of requests, for example, from you for much stronger signals to decarbonize, whether it be fuels or energy, transport, agriculture, whatever sector we're talking about. But on the other side, Noel, governments are also getting lobbied in the opposite direction by the incumbents to not move forward, so they sit actually smack in between. How do they get out of that very difficult position?

Noel Quinn: [00:22:04] Christiana, that's an important observation, and I must confess the dialogue I am having with industry and my clients and the industry players in the UK and globally is, I don't sense that degree of pushback to the way that you've articulated it. I am sensing over the last year, and maybe COVID has really accelerated this debate. Maybe it is because we all had a wake up call about how fragile the world is and the economic world is to a natural event. And I sense a huge urgency now building amongst all industry players for change to take place and to find the new technological solutions for industries today to transition from where they are to where they need to be. For new business models to be created. They are not carbon heavy, they are not polluting the world the way it has been. So I'm optimistic that actually there's a sense of urgency building and there is a commitment to change. But I think the most powerful change is when government and the private sector, whether that's private sector finance or private sector industry, work together to address this challenge and the opportunities that are before us. And I am energized by what I'm hearing, seeing and experiencing in the dialogue I'm having with clients.

Paul: [00:23:28] It's super good, Noel, to hear that mood is changing because that's tremendously important. Can I get into some really quick, practical questions? You know, I'd like to talk about the practitioner's guide that you've been working on for banks setting a net zero strategy. Just at the level of our listeners, we have listeners all around the world. Are banks actually going to be more willing to give loans to businesses that are expanding low or zero carbon activities?

Noel Quinn: [00:23:53] Yeah, I do believe they are and I can speak for myself. Paul, we've been around as an organization, as a financial services organization for 156 years, you know, in the 156 years, thankfully I've not been around for 156 years yet, but you know, we've seen the industrial landscape of the world changed dramatically in that 156 years. And I honestly believe in the next five to ten years, we're going to see a similar radical change to the industrial landscape emerge, and it has to be on that time scale now. What do I mean by that? Industries are going to reshape the technology based that they're currently working with, whether it's the oil and gas sector or it's the automotive sector or it's aviation or shipping. And I sense that the creativity that exists in the world is being now applied to the urgent need to build the new technologies that will provide us with a sustainable future. Now we all, our bank included, has got to be able to get our head around those new technologies, understand them, understand the potential of them, understand the business models that will emerge from those technologies, the future cash flows, the future opportunities and risks. And we have to embrace that change, but we have to do it in a short order. If I look at it from my point, I got, you know, over 200,000 people in 60 countries in the world, stretching all through the supply chain of the world. And I know that I've got to re-educate, retrain the bankers that have been used to the technologies of today in understanding the technologies of the future and being willing to bank them and invest in them.

Paul: [00:25:43] And it's not just those 220,000 people, it's a sort of three trillion odd balance sheet, which is really going to help a lot.

Noel Quinn: [00:25:50] It's nice to have a three trillion balance sheet, but I've got to put it to use.

Paul: [00:25:55] Yeah, so you can help your customers decarbonizing. But I've got to ask you a tough question. Forgive me. And by the way, I'm involved with share action, so thank you for your positive comments about them helping you. But I mean, how can you push the fossil fuel industry to decarbonize? I mean, is it about making them diversify or shrink? You know, do you think you, or HSBC’ss continued investment in fossil fuel companies is aligned with the IEA report that we all know came out this year? What was your feeling?

Noel Quinn: [00:26:21] Well, I think, you know, we all realize that fossil fuels has to play a much smaller part of the future. But the fossil fuel, what the fossil fuels currently energize and power today needs to be energized and powered by different technologies. And therefore, those companies that have been providing the source of energy for the past are having to find new technologies, new methodologies to provide the source of energy for the future. And they're going to need to invest heavily in that transition. And we're going to need to help them with financing in the investment that they have to undertake in those new technologies, those new capabilities building the SAF refineries as opposed to building the oil and gas refineries. You know, building the wind farms, building the electricity supply distribution capability that the world is going to need is as it electrifies even more. That's going to require huge amounts of money and no government in the world as big as their budgets are, will want to or can do that alone. So it's about leveraging private sector finance such as ourselves, such as the banks that have been involved in the 11 banks involved in the task force that I chair. Leveraging their balance sheets alongside the government balance sheets and providing public and private sector finance to make this future investment become a reality. And that's why I'm optimistic. I'm energized. You know, I look at it because I see commercial opportunity there, but I also see resolution to some of the problems we currently face.

Paul: [00:27:57] And the public are going to want you to use your influence as much as possible to try and meet those goals set out by the IEA. So I'm sure you will do your best. Just a final question for me on this fantastic practitioner's guide to how to, you know, setting a net zero strategy. And you know, you've been involved with corralling 11 huge banks in that. And then this is even part of the greater GFANZ network. Is this a small kind of politics with a very small p non-party politics? But is there a kind of global consensus building? You know, I've noticed that the global corporations actually did manage to lead over previous decades in kind of ending discrimination or helping to end discrimination against people on grounds of their sexuality, for example. Do you see a kind of new kind of, not government, but a kind of civil service developing amongst financial institutions that will kind of support global decarbonisation.

Noel Quinn: [00:28:53] I'm not sure I'd put it quite like that, but I do see a coalition of the willing and I do see a group of banks that have like minded interests, like minded views of the future. I think if I think about the 11 banks that have worked on this and it's been a great collaboration over the past 12 to 18 months. Why have we done it? I think we're realists as well. We're realists in that. If I put out a statement or the other bank CEOs put out a statement that we're helping our customers transition to net zero, we're going to be net zero by 2050. They're easy words to say. The hard words to execute, and they're hard words to believe, if they might, people may just look at that and say, Well, that's just a bank CEO standing up with a strap line in order to buy some time. And they're saying the things that people want to hear. It could be viewed that way. Now what we've tried to do in 11 banks is to say, how do we put definition behind that statement? How do we allow people to decompose those fine words into measurable actions that we're taking and allow transparent, consistent disclosure at sufficient level of detail that the readers of our statements can say, All right, I understand what they're going to do to achieve it. I understand how they're going to set targets. I understand how they're going to finance the transition. And I can see how I can measure progress against it. And if I look at Bank one or Bank two, they're doing it in a consistent manner. So there's deduplication. There's consistency. There's, you know, we're not trying to, you know, in bank one, you get capital markets included, but in Bank two, you don't. In Bank three, you get some of capital markets included, but not all of it. What we're trying to do is to be credible, bring definition, transparency, consistency, and is that politics? I don't think so. I think it's just common sense.

Christiana: [00:31:03] So let's get a little bit deeper into that from the perspective of HSBC, Noel, because if you look at the energy world as a whole, I think you can divide it up into three buckets. One is the bucket of energies. Let's call them of the future, where traditional renewable energies of wind and hydro and solar have already come up in their rewards and gone down in their risk, gone down in cost, and are actually quite interesting investments. The same, I think one could say, for semiconductors, the same for some of the battery and storage opportunities. So I would say that is a bucket that perhaps with straight credit, but sometimes with blended finance, banks such as HSBC can go into. Fine. Then there is on the other side, a bucket that HSBC, for example, has a shareholder decision not to go further into, which is coal. So now you have the two extremes. However, what happens to the bucket that sits in the middle, the much more difficult bucket, namely the bucket of oil and gas? I hear countless times that oil and gas CEOs tell us quite convincingly that in order for them to transition, in order for them to put more of their balance sheet into bucket number three, into renewable energies, that they actually need to use the capital that comes from their cash flow, that comes from their traditional investments, namely oil and gas. When you get that argument from an oil and gas company and you get a request to continue to invest into, what by now is actually stranded assets, frankly, of oil and gas, new infrastructure, new explorations. How do you react to that?

Noel Quinn: [00:33:08] It's a great question. And, listen, when I look at companies. Not just the oil and gas sector, but companies in all sectors, whether it's an auto manufacturer or it's an airline or it's a shipping company or it's an oil and gas company or it's a power power generation company. There are some companies. There are very easy to categorize, you know, a company that was formed purely to do wind and solar. You know, you can easily create a green label over that company and you can give it the credentials of being compliant with a net zero future. There are then the other companies that exist for the vast majority of today's industrial landscape, which don't fall into that category. They're complex organizations with some elements of green and many elements of the old industrial and technological landscape, and oil and gas is a classic. Automotive is another, shipping is another where that corporate over time is going to change their portfolio mix of activities. They're not suddenly going to move from being non-green to green. They're going to go through a journey over the next five, 10, 15, 20 years where they're progressively going to change their portfolio mix off of the old technological base onto the new technological base. And if you want to put a label on them, they're greening, they're not green. They're not green now. And they're going to transition over time. Now what they're quite right in saying and the oil and gas CEOs and I've spoken to many of them, they can't just switch off the old technologies because there isn't the new technological base there to replace that lost energy source. It isn't there today. It's got to be developed. It's got to be invested in. It's got to be built and it's got to be scaled and it's got to be globalized. So we've got to help them. I've got to help them fund that future investment and if I just cut off the funding and say to them, well, I'm not going, I'm going to stop funding all of the old technology, oil, gas combustion engines. Then I cut off the supply of finance to them for the existing business. They won't have the affordability to invest in the new technologies. So how do I satisfy my conscience? Having made a statement, I want to transition to net zero. How do I satisfy myself?

Christiana: [00:35:46] That's the question. Here we go. Here we go.

Noel Quinn: [00:35:51] I need to see. I want to see. I want to understand their transition plan client by client, not industry by industry alone, but client by client. Show me how you're going to change your current portfolio mix of technologies and businesses from two, and if the client is presenting a credible plan of how they're going to move their business forward and we test that plan against the science for that industrial sector, then I should believe I have a responsibility to support them on that plan. If a client turns around me and says no, all well and good, but I'm staying with today's business model because I don't believe the science or I don't want to go on that journey, then I have a different conversation. I have a different decision to make. And that is, do I withdraw from that client because eventually they're going to become a stranded asset and a credit risk for me. But I start the dialogue with a desire to help them transition. Unfortunately, there aren't today enough pure green companies in the world to replace the existing technologies of the world. You know, they have to be created, they have to be invented, they have to be scaled, they have to be, you know, I'd love every airline to be on SAF today, 100 percent of their fuel mixes to be SAF. Unfortunately, there aren't any refineries in the world capable of producing that amount of stuff at scale, and there won't be in the next 10 years.

Paul: [00:37:25] There is some good news, and that is that the group chief executive of HSBC actually told me that they're interested in really lending to companies that are trying to scale those technologies, so there's hope on the horizon.

Noel Quinn: [00:37:35] Were you listening to a conversation I was having this morning? Because I'm just talking to somebody on that very thing, I said, I want to be the person providing the funding for your first plans. I want to be that bank.

Paul: [00:37:48] Oh, there are quite a few. I mean, and I mean hundreds, possibly thousands of carbon billionaires already, and there's going to be a lot more. But just actually, if I can play back to you what I heard, you just say, you are in a position to have the most phenomenal influence on industrial decarbonisation. So I mean, you could respond to that. But I've also got a question. Maybe you're going to mix them up. Maybe you could answer separately. But bearing in mind all that technological change, what kind of corporate citizen might HSBC be in 2050?

Noel Quinn: [00:38:25] I'd like to think that we always try to be a responsible corporate citizen who is helping shape the future. I mean, you know what energizes me and you know, I'm custodian of HSBC today. Not that I'm planning on going anywhere, by the way. Don't misread that comment.

Paul: [00:38:44] Markets plunge or rise on statement.

Noel Quinn: [00:38:48] One hundred and fifty six years, I'm the current custodian as group CEO and I know I've got a legacy of predecessors who have helped shaped entrepreneurs, their businesses, the futures, and I want us as a management team today, over the next five to 10 years to shape the next 50 years, not only of HSBC but of the industrial landscape, and we've got a footprint that is credible in that. You know, we are a trade bank with a strong footprint in the supply chain of the world, a strong footprint across Asia and the Middle East and the Western markets. I think it is a responsibility of us to try and make that become a reality. But I'm also commercial. I think it's also a huge commercial opportunity.

Paul: [00:39:42] Hmm.

Christiana: [00:39:43] Well, it seems to me I'm delighted that you keep referencing several times in this conversation, you’ll reference five to 10 years for the change that you foresee. We have five or 10 years, by 2030, we have to be at one half emissions. And I think I could summarize what you've been indicating to us with the well-known saying that change seems to happen slower than we needed to and then faster than we ever thought possible. And I think we may be actually on the verge of seeing that happen. You know, as they say, inshallah, because we definitely need that to be the case. But Noel, as we sadly come to the end of this conversation, we have a little tradition here on the podcast of asking our distinguished guests to place them along a range of between outrage that it has taken us so long to get here and optimism that we still have a fighting chance of truly making the difference that is necessary before 2030. So could you place yourself slash HSBC into that range and where would that be?

Noel Quinn: [00:41:06] Well, I tend to be a forward looking person. The past is the past. We are where we are now, and let's look forward. Therefore, in looking forward, I'm an optimist and I'm an optimist, not out of naivety. The conversations I'm having, the experience I've had over the past year, 18 months working with fellow banks, working with clients, I'm optimistic that there is a change about to happen and therefore I put myself. I'm not a naive optimist. I'm not 10 out of 10, but I'm certainly, you know, midway between five and 10 on optimism because I do think there's a change happening and I'd like to look forward more than I look back.

Christiana: [00:41:45] Fantastic. Noel Quinn, thank you so much for joining us and we hope to see you at COP.

Noel Quinn: [00:41:50] Thank you so much. I'll be there. Bye bye.

Tom: [00:42:01] So what a fantastic opportunity to talk to Noel Quinn, CEO of such a large and consequential financial organization. What did you leave that discussion with? I mean, he seemed like a, you know, a genuine character. The show stopper for me was him saying that HSBC is going to evaluate the transition plans of every company that they bank. Pretty much. And if those transition plans don't meet up to what's required, you know, then then they may well, you know, stop that banking relationship. Now, you know, if they can hold up to that, that is the most phenomenal power in the global system that could drive decarbonisation at the most massive scale. Now, many listeners will be saying, you know, isn't this the government's job? Isn't that what governments are meant to do? And I would say, Yeah, absolutely. But where on earth is government? You know, I think we're kind of like Hansel and Gretel. We've been kind of left in the woods by the government. And I mean, I don't believe it. Just HSBC is the wicked witch. I mean, they might be, but I'm sure they're not. They're a big global brand. They can be held to account by civil society. And I think we need to look for any system of power and influence that's able to accelerate decarbonisation. So I found that very inspiring. But yes, to those people who listen to this podcast who think that I'm slavishly supportive of global corporations, naturally, HSBC have got to be held accountable for delivering on that promise because the potential is so exciting. We actually can't do without it. I don't know what other people thought.

Christiana: [00:43:35] Well, I do think, Paul, I agree with you that that was a very important interpretation of the banker's role in this transformation. And hopefully one that all bankers will take on. I wanted to just put this into a little bit of a context because, you know, as we are at the beginning of the conversation, so thrilled with this GFANZ thing. Just let's remember that that is actually subdivided into all of the different sectors right of the financial community. And so HSBC is part of the banking alliance, the net zero banking alliance. And it is really quite impressive that now, of the largest banks in each region, 10 of the largest in North America are signed in to a net zero banking alliance, 10 out of the 10 largest in Europe I've signed in. Wow. Are you ready now for the not so good news?

Tom: [00:44:43] The Costa Rican Group? 

Christiana: [00:44:45] There you go. You got it. I knew Tom was going to bring it up.

Tom: [00:44:46] 11 out of the 10.

Christiana: [00:44:48] No, no, no, no, no, no. Sadly, six of the 10 largest in Latin America. Come on. So come on Latin America, where are you? But I still think this is extraordinary, right? And if every single bank takes on that interpretation of the role that we heard from Noel, we have an impact that goes way beyond the bank itself. And that's the whole point. The whole point is to use your leverage, your influence, your capital in this case, to actually decarbonize all sectors that are adjacent by one or two or three degrees from you. That's the point, because nobody can do it by themselves. And so if everyone is getting quote on quote helped by everyone else, we can, actually, that is the point at which we go from linear to a much more accelerated path, that goes exponential and because we're running out of damn time, that's why it has to be exponential.

Tom: [00:45:58] Kelly, I mean, as we were listening to that interview, I sort of felt it feels new, right? I mean, what he's committing to, what Christiana just laid out. I mean, is it as new as it feels to those of us who aren't as deep into this as you are these types of commitments, these types of levels of participation with a commitment to transformation.

Kelly Clark: [00:46:16] So I think that the scale of the commitment, I mean literally the transition plans of all companies that are being banked, I mean, that's on public record now that is big and it would represent a significant portion of the economy. And for me, as much as anything, it's about the market signals. So if you are evaluating the transition plans of every company, what that implies is that the mechanism and the tools and the science and the methodology and the standards for which those transition plans are being put together and held to account are also going to improve. And what we need now to happen is that iteration and that improvement cycle to be much more quick, happened much more quickly than it has in the past. So I think that is really critical. But speaking of market signals, there's something else that's really important. 

Christiana: [00:47:07] Drum roll.

Kelly Clark: [00:47:12] What announcements like this do is they change the cost of capital. Right? And that's when you start to see really systemic shifts when something that is perceived as high carbon or dirty or less less competitive than than peers, actually more risky,

Paul: [00:47:34] Hold on a minute. What does cost of capital mean?

Kelly Clark: [00:47:38] Well, it's how you access money to either go public or to raise debt. And if it's cheaper for you to borrow money, then obviously you can expand more quickly.

Paul: [00:47:51] Lower interest rate?

Kelly Clark: [00:47:51] Exactly. Yeah. And also, who's willing to lend to you? And this applies to credit ratings as well. Right. So if we all of a sudden see a dramatic shift in the way in which the finance industry is acknowledging good business, then the way in which capital flows actually go to those companies changes and it becomes more expensive, and that is a genuine sign of systemic change.

Paul: [00:48:17] Just one small thing. I think HSBC does bank a certain number of kind of sweet shops and, you know, people who are, you know, do needlework and stuff. And I don't think everyone's going to have to do the transition plans like straight away or whatever. It's going to be like the significant industry. And I think that's Noel Quinn is committing to.

Tom: [00:48:33] It's just a small net zero needlework and sweet shop alliance.

Kelly Clark: [00:48:39] Yeah, I think I mean, this is the thing, right? Very small proportion of very, very big companies are the ones that we really want to look at and make sure that they're on the path, so to speak, rather. Let me take that back. A large proportion of the large multinational companies are the ones that really count.

Paul: [00:48:57] Systemic intervention points.

Paul: [00:49:00] Ok, so this has been great, Katie. It's been so fun to have you on the podcast right and in person, and to support us and make this podcast possible. Thank you.

Kelly Clark: [00:49:08] Thank you. It's a pleasure to be here. Thank you.

Tom: [00:49:10] And listen, I hope you have enjoyed this conversation. This is a very consequential moment. This has been a great discussion. The finance discussion is really where the future is currently being created, and we will be back with you tomorrow with a discussion on what's happened so far at COP. So thanks for joining us. See you tomorrow!

Christiana: [00:49:27] Bye.

Kelly Clark: [00:49:29] Bye, everyone.

Clay: [00:49:42] Yes. Another episode of Outrage and Optimism out in the world, and it's only Tuesday. Thank you to Dan. The big DC, Dan Curtis, for holding it down while I was away last week. Now I listen to the credits and I was shocked to hear that my voice was described as I've written down here, dulcet American tones. And this is shocking for two reasons. Number one, this podcast has a strict no saying American policy when it comes to the exclusionary descriptions of United Statians. And number two, I don't know what dulcet means. And at this point, I'm too afraid to ask. So despite all this, Dan, great job. You should do this more often. Ok, thank you to Noel Quinn for making the time to be our guest this week and thanks to the team at HSBC for making it happen. And of course, a huge shout out and thank you to Kelly Clark from the Laudes Foundation for co-hosting. Links to both Noel and Kelly's LinkedIn in the show notes. So if you're like me and sadly you're not at COP26 this year, I have great COP26 events streaming live on YouTube. Talks, panels, musical performances, films, actually a really surprising amount of stuff. So tune in from wherever you are. Shout out to our one listener in Greenland. Link to the COP26 YouTube channel in the show notes. Ok, thanks for listening! Another episode coming your way tomorrow. See you then.

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