HSBC's Sustainable Finance Momentum Amid Profit Slump: A Contrarian Opportunity?

In the first half of 2025, HSBC reported $54.1 billion in sustainable finance deals—a 19% year-on-year increase—while its pre-tax profits fell by 25% compared to the same period in 2024. This paradox raises a critical question for investors: Is HSBC's pivot to sustainable finance a long-term value creator or a red flag in a bank already grappling with strategic inconsistencies?

The Sustainable Finance Surge

HSBC's $54.1 billion in sustainable finance deals—spanning loans, underwriting, and investments—marks a 19% jump from 2024 and brings its cumulative total since 2020 to $447.7 billion. While this progress is notable, it still falls short of the bank's 2030 target of $750–$1 trillion. The deals span sectors like renewable energy, green infrastructure, and climate-resilient projects, aligning with HSBC's stated goal of supporting the net-zero transition. However, the lack of sector-specific breakdowns in the bank's disclosures leaves room for skepticism.

The bank's exit from the Net-Zero Banking Alliance (NZBA) in 2025 has further muddied its climate credibility. This move, coupled with a delay in its 2030 emissions reduction targets to 2050, has drawn sharp criticism from environmental groups and clients like British green energy firm Ecotricity. HSBC's ESG ratings have also declined, with Sustainalytics reclassifying it as a “medium risk” with a score of 20.4, ranking it 207th out of 1,025 global banks.

Profit Decline and Shareholder Returns

Despite the profit slump, HSBC's Q1 2025 results showed a 317% quarter-on-quarter jump in pre-tax profit to $9.48 billion, driven by its wealth and corporate banking divisions. The bank has responded with a $3 billion share buyback program and a $16.57 billion capital reclassification to boost shareholder returns. These moves have propped up its stock, which surged 21% in 2025, outpacing rivals like JPMorgan.

Yet, the profit decline—driven by macroeconomic headwinds, trade tensions, and restructuring costs—raises questions about the sustainability of these gains. HSBC's CET1 ratio of 14.8% as of March 2025 provides a buffer, but $1.8 billion in restructuring costs through 2026 could pressure capital if earnings growth stalls.

Contrarian Case for HSBC

For contrarian investors, HSBC's sustainable finance push offers a compelling angle. The bank's 80% profit concentration in Asia—a region with surging demand for wealth management and green infrastructure—positions it to capitalize on long-term trends. Its partnerships with the World Resources Institute and World Wildlife Fund to accelerate climate solutions could also drive future revenue streams.

Moreover, HSBC's P/TB ratio of 1.07X is well below the sector average of 2.32X, suggesting potential undervaluation. The 5.2% dividend yield in a low-yield environment adds appeal for income-focused investors. If the bank can navigate its ESG challenges and maintain its capital ratios, the buyback program could boost EPS by 2% annually.

Historical data also suggests a pattern of positive short-term performance following earnings releases. Since 2022, HSBC has delivered a 78.57% win rate in the 3 days after earnings and an average return of 1.01% over that window. While longer-term results are less consistent (e.g., a 50% win rate in the 10-day period), these short-term dynamics could reinforce the case for a disciplined buy-and-hold approach, particularly if the bank's earnings continue to meet or exceed expectations.

Risks to Consider

However, the risks are significant. HSBC's NZBA exit and weakened climate targets have eroded trust among sustainability-focused clients and investors. Regulatory scrutiny in the U.S. and Europe—where anti-ESG sentiment is rising—could amplify reputational and legal risks. For instance, its 2023 loan to a German coal mine and 2024 Indian steel deal contradict its sustainability narrative, inviting backlash.

Additionally, HSBC's strategic reallocation to Asia exposes it to regional vulnerabilities, including China's economic slowdown and geopolitical tensions. While wealth management is a high-margin growth area, it's also cyclical and sensitive to global economic shifts.

Investment Outlook

HSBC's sustainable finance strategy is a work in progress. The $54 billion in 2025 deals signal momentum, but the bank's inconsistent climate commitments and ESG missteps remain a drag. For investors, the key question is whether HSBC can reconcile its financial and environmental goals without compromising either.

A cautious approach might involve dollar-cost averaging into the stock, given its undervaluation and buyback-driven EPS inflation. However, those prioritizing ESG integrity should scrutinize HSBC's actions more closely. The Q2 2025 earnings report, due on July 30, will be a critical test of the bank's ability to balance profit and purpose.

In conclusion, HSBC's sustainable finance momentum is real but comes with execution risks. While the bank's capital returns and Asian exposure offer long-term potential, its climate credibility remains under siege. For contrarians willing to bet on its ability to navigate these challenges, HSBC could present an asymmetric opportunity—but only if its actions align with its rhetoric.