HSBC’s new Google Cloud tool to help manage climate change-related risk across trading portfolio

By Gaia Lamperti

Finance can no longer ignore the impact of climate change, to the point that the risks related to the climate emergency are now being included on the trading book.

To help investors assess multiple “what if” scenarios and test corporate readiness for ‘a 2°C world’, HSBC launched a new product, the HSBC Risk Advisory tool in partnership with Google Cloud. The analytics tool will help to manage credit and climate risk more efficiently across the banks’ trading portfolio leveraging Cloud technology capabilities.

Harnessing the power of Cloud computing, where billions of data points are generated and results are delivered in minutes, HSBC traders and risk managers will be able to identify capital requirements necessary to cover potential rating downgrades and default risk of credit products, such as corporate bonds, and therefore better manage trading portfolios on an intraday basis.

“The computing power of Google Cloud makes it much quicker to run complex simulations for many different ‘what if’ scenarios, providing a more holistic risk picture of trading for optimum decision-making,” said Ajay Yadav, Global Head of Fixed Income & Digital Strategy for Traded Risk at HSBC. “HSBC’s digital development team built this innovative capability in less than five months in collaboration with Google Cloud. The focus now is to take the HSBC Risk Advisory tool and integrate climate risk into it as a proof of concept, which we are aiming to make available in the next few months.”

The HSBC Risk Advisory tool will be taking into account rating agencies’ ESG scores to create a more holistic risk picture of trading, assessing where trading portfolios may be more susceptible to climate change risk, and ensuring optimum decision-making.

Adrian Poole, Director, Financial Services, UKI, Google Cloud, commented on the announcement: “Through our continued partnership, we are bringing the best of our cloud capabilities to help HSBC develop innovative data and analytics solutions in evolving risk areas. It’s exciting to see how financial services organisations like HSBC are embracing cloud technologies and building powerful solutions to empower faster and more informed decision-making, including for climate change-related risks.”

HSBC’s market risk digital development team is now looking to build on this innovation to include the impact of climate risk on the trading book. The announcement is in line with HSBC’s key strategic pillar of at-scale digitisation across its international market network, using technology to create better customer experiences, make the bank more efficient, and open up new growth opportunities.

Earlier this year the asset management arm of the bank also launched a new venture capital investment strategy focused on FinTech and aimed at giving clients exposure to companies that will participate in “the transformation of financial services”.