Last Updated 16 Jun 2020

Cost of capital investment

Category Capital
Essay type Research
Words 1160 (4 pages)
Views 386

Parry (2003) says that nowadays people and the society care about environment friendly products, so if a business could have positive image in this area, they are more likely to benefit themselves by gaining more loyalty and reputation from the environmental reputation. AME (2012) states that HSBC is one of the sponsors of the Earth Hour 2012 programme. On 31st March 2012, all lights and non-essential appliances were switched off in all HSBC branches and offices for the hour between 8:30pm – 9:30pm.

"We have been part of Earth Hour activities for over 3 years in Qatar to demonstrate our involvement in environmentally friendly actions. Through these actions we are part of a global united community that wants to protect the planet and its resources. This year our senior managers participated in the global "I will if you will" campaign and through their pledges challenged employees and customers to become more aware of their own actions and habits. (AME, 2012)"

Abdul Hakeem Mostafawi, CEO of HSBC in Qatar This allows customers to think that HSBC is a green bank that helps the world to protect the environment. It also allows HSBC to have a positive corporate image in the market and helps banks to improve their demand by attracting more customers. Furthermore, looking at the HSBC news Archive (2007), it says ‘HSBC has come top in the second annual ethical reputation rankings published by Geneva-based consultancy Covalence’. This increases the reputation and so allows HSBC to retain their customers, as well as, increasing their revenue and the level of their sustainable profits.

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Differentiation from competitors According to Business Green (2009) ‘HSBC becomes 100th firm to secure Carbon Trust seal of approval’. HSBC has won many awards for such activities. It was the first global bank to go “carbon neutral”, meaning it buys credits for its carbon emissions (South China Morning Post, 2007). Also, they received the Institute of Customer Services (ICS) Satisfaction Award.

Although, these awards improve the bank’s reputation, they also certainly lead to positive publicity and word-of-mouth. It might attract new employees and increase demand thus increasing profit margin. The bank’s reputation has led the company to be a well-known global bank, and this allows HSBC to innovate more services, i.e. the Premium Personal Account, so that customers are attracted to invest more capital or increase their savings with HSBC.

Developing and enhancing relationships with stakeholders According to HSBC News Archive (2007), they are the world’s first major bank to become natural and have committed a further US$90 million over five years to reduce the bank’s impact on the environment through innovation and technology, which include introducing renewable energy technology, water and waste reduction programmes and employee engagement.

The Global Environmental Efficiency Programme will enable HSBC offices worldwide to showcase environmental innovation and share best practice to help the bank achieve its environmental reduction targets. This will be reviewed annually to consider the success of trials, emerging technology, innovation and business needs (HSBC, 2012). “HSBC is determined to develop a sustainable business. Our shareholders, customers and employees consider these issues to be important – and this clearly demonstrates our continuing progress in placing sustainability at the very core of how we do business (HSBC, 2012)”.

Simon Martin, HSBC Head of Group Sustainability and Corporate Responsibility The approach of this programme has attracted interest from stakeholders, brought value to staff and increased contact and communications with customers (Article 13, 2007). The following disadvantages of HSBC’s approach to CSR are: Failing to manage reputation risk Crane and Matten (2010: 34) say that the triple bottom line represents the idea that business does not have just one single goal – namely adding economic value – but that it has an extended goal set which necessitates adding environmental and social value.

According to the HSBC media briefing (2003) it says that HSBC directors are failing on all three aspects of the triple bottom line: financial, social and environmental performance. HSBC claims to regularly update their policies and procedures to safeguard against such risks and in their recent 2002 Annual Report, they claim that “the HSBC Group has always operated to the highest standards of conduct and, as a matter of routine, takes account of the reputation risks of its business”. The bank claims to be reviewing its policies that cover environmental, social and ethical issues and its operational procedures in all areas of reputation risk including environmental impact, anti-corruption and employee relations.

Friends of the Earth have asked for these copies of the new policy, but the request was refused. Also, HSBC have refused to provide any evidence that they have refused loans or used financial influence to minimise the risk of serious environmental, social or ethical impacts from a potential or existing corporate client (HSBC, 2003).

Friends of the Earth welcome genuine attempts by companies towards corporate social and environmental sustainability. But HSBC failed to make significant changes to its core business activities. This makes it difficult to see how HSBC can square its failure to put a system in place that ensures its investments don’t damage people or the planet with its social and environmental principles. Also, HSBC not only continues to put short term profits above all else, it is also funding environmentally and socially damaging companies around the world (HSBC, 2003).

HSBC would need costs to develop the CSR. According to ASRIA (2009) ‘HSBC has raised €117 million ($156 million) of a targeted €500 million into its Environmental Infrastructure Fund’. This fund is managed by HSBC Specialist Investments and they will invest in the development and construction of infrastructure, using proven commercial technologies in renewable energy, water treatment and waste management.

The impact of these associated costs will be the possible negative perception of HSBC’s shareholders. The company would have to ensure that their investment is successful enough to satisfy the financial expectations of company owners with the social and environmental requirements of other stakeholders. However, some shareholders may not approve of the aforementioned expenses of operating under CSR guidelines (IEA, 2001).

Conclusion

HSBC are more likely to benefit from HSBC although costs may be involved, even though they will reap rewards. As a global bank, reputation and corporate image are very important to the company because they determine the demand of customers worldwide that would like to join HSBC.According to HSBC 3rd Quarter 2012 reports, their profits dropped by 25% in 2012 at $11,931m than 2011 at $15,283m, reason being because they had a lower income and greater operating expenses. This would dissatisfy shareholders because they are experiencing a lower rate of return. However, their customer accounts rose by 2.6% as in 2012, they had 1,312,136 compared to 2011, they had 1,278,489.

This may show that more customers are willing to join HSBC due to brand loyalty. Therefore, CSR has an impact in various ways to ensure future success. In the long-term, HSBC should consider more about their environmental responsibility. According to the Sustainability Report 2011, they have reduced 29% of waste consumption, and so this could decrease expenditure and strengthen their positioning as being a leader in bank’s CSR and ethical ranking.

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Cost of capital investment. (2018, Jul 13). Retrieved from https://phdessay.com/cost-of-capital-investment/

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