HSBC Holdings Plc has abandoned its plans to establish a carbon credit trading desk, according to sources familiar with the matter, marking a retreat from the voluntary carbon market (VCM) amid mounting concerns over greenwashing. The decision signals that Europe’s largest bank is stepping back from its earlier efforts to develop a specialized unit focused on carbon credit transactions and financing carbon offset projects.
The bank’s carbon desk initiative, which began a few years ago during the market’s peak, aimed to facilitate carbon credit trading and provide liquidity to clients. HSBC had also sought to recruit staff for this venture. However, in 2023, the VCM contracted by nearly 25%, shrinking to approximately $1 billion, as allegations of greenwashing prompted companies to scale back their carbon offsetting activities. Consequently, the bank reassigned the employees initially designated for the carbon desk to other roles.
HSBC declined to comment on the matter.
A carbon credit is meant to represent one metric ton of carbon emissions that have been reduced, avoided, or removed from the atmosphere. These credits are typically issued by project developers, often in developing nations, that fund initiatives like reforestation. Corporations then purchase these credits as a means to offset their own emissions. However, reports have surfaced revealing that many projects have issued more credits than they were entitled to, undermining the credibility of the market.
Several major corporate buyers, including Delta Air Lines, Google, and EasyJet, have significantly reduced their involvement in the VCM, shifting focus towards more direct efforts to cut their own emissions. Recently, Shell Plc also signaled its exit from the market by seeking to sell a majority stake in its nature-based carbon projects portfolio, which it launched in 2018.
The voluntary carbon market has faced significant challenges in recent years. Abyd Karmali, Managing Director of Environmental Business Advisory at Bank of America, noted that the market has struggled with liquidity issues and a sharp decline in activity. He also indicated that Bank of America has approached the market with caution, given the volatility and ongoing concerns surrounding its integrity.
HSBC’s pullback from the carbon trading space comes as part of broader organizational changes led by CEO George Elhedery, who replaced Noel Quinn in September. As part of HSBC’s transformation strategy, Elhedery announced plans to streamline the bank’s operations. Despite stepping back from active participation in carbon trading, HSBC will continue to purchase carbon credits to offset emissions from operations it has been unable to eliminate entirely. The bank is also working through its joint venture, Climate Asset Management, to develop a pipeline for new credits.
At the United Nations climate summit in Azerbaijan last week, negotiators advanced a new framework for countries to trade carbon reductions, known as Article 6.4, which could help revitalize the broader market for carbon offsets. The changing regulatory landscape, particularly in the Asia-Pacific region, alongside new standards set by the Integrity Council for the Voluntary Carbon Market, could also help restore confidence in the market’s credibility and sustainability.
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