HSBC is holding confidential discussions with UK banks about climate risk exposure
HSBC hosted a closed-door meeting with senior figures from the UK’s biggest bank as regulators and investors stepped up calls for clearer reporting on climate-related risks within the lender’s loan portfolio, the Financial Times reported citing unnamed sources.
The report said representatives from HSBC, Barclays, Santander, NatWest and Lloyds met at HSBC’s offices in Canary Wharf last week to discuss how to meet expectations about financial disclosure.
Three people familiar with the talks told the FT that the discussions focused on compliance with stricter reporting standards.
Several investors were also present, along with the Institute of Chartered Accountants in England and Wales.
The ICAEW confirmed its presence but did not comment further, the FT said.
The meeting, which includes accounting and risk experts from the banks, took place ahead of HSBC’s annual meeting, where the lender defended its move to loosen financing restrictions for fossil fuel businesses.
Major banks have repeatedly warned that climate-related events such as floods, wildfires and rising sea levels could lead to more bankruptcies for households and companies.
Broader economic changes, including rising inflation and interest rates, may also reduce banks’ ability to withstand such losses.
UK banks and insurance companies have until next month to review whether they meet revised weather risk management standards issued last year by the Prudential Regulation Authority (PRA).
Under those requirements, banks must clearly show climate risk in financial statements through “expected credit losses”, an accounting measure used to estimate potential losses when borrowers fail to repay.
In 2024, PRA chief executive David Bailey warned CFOs at the UK’s leading banks about flaws in the way lenders identify borrowers and sectors most exposed to climate-related risks.
He also pointed to banks’ decisions not to report any “model adjustments” related to climate risk.
Other investors, including UK asset manager Sarasin, Denmark’s AkademikerPension and UK pension scheme Nest, have written to the Financial Reporting Council asking it to examine whether HSBC’s accounts and PwC’s audit underestimated climate risks that were important to the bank’s finances.
Banks in the UK and EU have begun to disclose such risks, although the level of detail varies.
ING said in its latest accounts that the International Financial Reporting Standard for expected credit losses did not fully reflect some of the “new” risks posed by climate change. The bank made a selective provision of €47mn for expected credit losses.
HSBC disclosed this year that climate change had led to less than $50m of expected credit losses, although that disclosure appeared outside of its audited financial statements.
NatWest states in its accounts that it excludes physical and dynamic risks from climate change in its expected credit loss forecast, without taking into account potential UK policy conditions in its macroeconomic outlook.
One person at the meeting told the FT that investors saw a “mismatch” between their assessment of the risks of severe weather and how banks factor those risks into loss models.
“HSBC holds independent talks with UK banks on climate risk disclosure” was originally developed and published by Retail Banker International, a product of GlobalData.
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