The Hongkong and Shanghai Banking Corporation (HSBC) is turning trade finance into a vehicle for sustainable change. Adding to its green financial offerings, the bank has performed its first sustainability-tied trade finance transaction for Hong Kong-based multinational manufacturing powerhouse Epic Group.
“More companies have set supply chain sustainability as a key corporate goal, focusing on the environmental and social impacts of their product life cycles,” said Frank Fang, head of commercial banking, Hong Kong, at HSBC. “We are delighted to arrange the first sustainability-linked trade facility in Hong Kong and extend the range of our green finance solutions. As Epic Group’s banking partner for more than 40 years, it is our pleasure to offer further support to their net-zero transition journey.”
This facility for Epic incentivizes sustainable action by tying the pricing to the manufacturing group’s environmental performance, with the proceeds going toward Epic’s working capital and trade cycle. HSBC worked with Epic to determine the three benchmarking areas of focus for the initiative: carbon emissions, freshwater use and the Higg Facility Environmental Module (FEM). All of these targets reflect the manufacturer’s environmental, social and corporate governance (ESG) goals.
“As these targets are directly related to the amount of water and energy used during the course of production, by achieving these targets we believe the client will make a positive environmental impact,” an HSBC spokesperson told Sourcing Journal.
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HSBC’s aim was “ambitious” goals that were also of “high strategic significance” for Epic. Among the group’s sustainable plans announced in 2020 are a 40 percent reduction in freshwater use by 2023 and a 20 percent reduction in greenhouse gas emissions, with both goals using 2017 figures as a baseline. Another of Epic’s targets is surpassing a Higg FEM rating of 75 in all of its facilities. The tool from Higg provides a standardized assessment of manufacturers’ ecological impact across aspects like energy and water use and chemical and waste management. Epic’s average FEM score of 33 in 2018 rose to 52 by 2020.
“HSBC has been a strong supporter and partner since our inception. It gives us great pleasure to partner with HSBC on the sustainability-linked trade initiative, as sustainability is the core and helm of our operations,” said Ranjan Mahtani, founder and group chairman of Epic Group, whose clients include Walmart, Uniqlo, Amazon and Kontoor. “This facility will propel us even further to enhance our relentless aspiration mission of achieving sustainability leadership and making the world a better place.”
This environmentally-linked trade finance transaction is another facet of HSBC’s sustainable products and services, which include capital markets, lending, transaction banking, advisory services and investments. HSBC has also been active in green bonds.
Green bonds, along with sustainability bonds, have been growing as a means to fund environmental or social projects. With these solutions, companies raise money by selling debt to investors, with the money borrowed earmarked for improving sustainability. For instance, last year Amazon raised $1 billion to support initiatives such as purchasing renewable energy and deploying new electric vehicles. Also in 2021, Walmart closed a $2 billion green bond as it works toward goals including using 100 percent renewable energy by 2035.
Epic Group’s trade facility was the first of its kind from HSBC, but the bank sees the potential for more of this type of solution.
“Sustainability-linked trade finance is a tailored solution that aligns with customers’ sustainability efforts and investments,” the HSBC spokesperson said. “We see many opportunities to both apparel and non-apparel corporates; this is a growing model for trade financing as more companies are keen to set ambitious ESG targets.”