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HSBC, Cathay going clean and green

Corporate heavyweights among first movers to pay for environmental sins

Going green is good for your corporate image, especially if you are not forced to do it by law.

One of the key recommendations in the Stern Report released last month was that the world must shift to a 'low-carbon global economy' through measures such as taxation, regulation of greenhouse gas emissions - and carbon trading.

Among companies that have chosen to reduce and offset their contribution to global warming through voluntary carbon credit programmes are HSBC and Cathay Pacific Airways.

As these companies are not subject to Kyoto Protocol emission caps - Hong Kong comes under China's status as a developing country - they can buy carbon credits in parallel but much cheaper non-UN-certified markets. The credits, although validated by industry experts, may not be tradable on the big international carbon markets.

HSBC last year decided it would be the first global bank to go 'carbon neutral' by reducing its carbon emissions, buying renewable energy when it can, and purchasing carbon credits to offset the remaining emissions. Some 75 per cent of the bank's global emissions come from electricity use, making this the focus for much of its clean-up project. Eight per cent of its emissions come from corporate travel.

'To us it's clear focusing on renewable energy is very important,' said Jon Williams, head of HSBC's sustainable development.

HSBC has 705,000 tonnes of annual carbon dioxide emissions to manage and it spent some US$750,000 buying credits in the fourth quarter of last year, its first attempt to negate the impact its operations have on the globe.

The bank is going a step further and linking its carbon credit trading and sourcing operation with its lending business to produce credits from new projects that it finances.

An example is the new fleet of buses Santiago, Chile, bought with HSBC financing last year. The capital city replaced its bus fleet with lower-emission vehicles and installed a management system that reads traffic trends and sends buses to where they are needed most. This reduces the number of buses needed and the amounts of fuel used and carbon dioxide emitted.

'Since there's a fair degree of certainty of the (credit) output from that project, we can then build that cash flow into the project financing. In a project finance situation you'd have equity, you have non-recourse project finance debt, and that's typically it. What we can do is put a layer of capital between debt and equity, backed by the carbon credits, and form a third level of financing, which reduces the ... capital or debt required by the sponsor,' Mr Williams said.

Cathay Pacific is also working on cleaning up its act. Aviation is to blame for only 3 per cent of global carbon emissions, but with air traffic predicted to rise about 6 per cent a year in Asia in the next four years, it promises to be a growing problem. Cathay says it alone produced 10 million tonnes of carbon dioxide last year.

The airline is considering a programme allowing passengers, when they buy tickets, to also buy carbon credits to offset the impact of their personal trip on the environment.

With European governments considering an emission cap for airlines - they are now exempt - it is in Cathay's best interest to get an early start before regulators move in.

But for now Cathay is starting small, says Linden Coppell, Cathay's environmental manager, and its early experience has shown that paying for one's environmental sins takes time and effort. She is trying to find a carbon credit project in the Pearl River Delta to voluntarily offset the emissions produced by the airline's recent conference in Hong Kong. 'It has been a lot more complicated than I'd expected. I found I had to work and work to get my head around this if I wanted to do our own project,' Ms Coppell said.

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