HSBC Corporate Social Responsibility Report 2005 · The theme of this year’s report is climate...

future history

future history

HSBC Corporate SocialResponsibility Report 2005

Key Facts

H S B C H O L D I N G S P L C

General (at 31 December) 2005 2004

Number of countries and territories with HSBC offices 76 77Number of customers 125 million 110 million

FinancialIncome received for supply of products and services US$92.8b US$75.3bProfit before tax US$20,966m US$18,943mDividends US$7,750m US$6,932mTotal shareholder return against peer index over 1 year— HSBC 111.3 105— benchmark 120.8 110

EconomicTaxes to governments US$6.2b US$5.7bDistributions to shareholders and minority interests US$8.5b US$8.3bEmployee remuneration US$15.1b US$13.6bSpending for premises and procurement US$11.1b US$9.7b

SocialEmployees— total (including part-time) 284,000 253,000— full-time equivalent 268,471 243,333Women as proportion of senior management grades 19% 17%Corporate charitable donations US$81.4m US$69.2mWorking hours spent by employees in the community 280,000 237,000

EnvironmentalOperations covered by environmental reporting system 94% 91%Environmental data quality (internal assessment, scale 1-10) 7.8 7.7CO2 emissions per employee 2.6 tonnes 2.7 tonnes

BenchmarksBusiness in the Community Environment Index ranking 117/145 130/168Dow Jones Sustainability Index (since 2001) member memberFTSE4Good (since 2001) member memberAccountAbility rating of the Fortune ‘Global 100’ 4th 45thInterbrand top 100 brands (value) 29th (US$10.4b) 33rd (US$8.7b)

Cover photographs

The use of energy and its link to climate change is an increasingly important issue for governments, companies and consumers. In 2006,HSBC will issue an energy sector guideline to help the shift to a low carbon economy. The photographs of a wind farm and a nuclearpower station illustrate two possible solutions to our energy needs. Depending on your point of view — using HSBC’s current ‘a differentpoint of view’ advertising concept — each energy source represents either a future solution or one that is history.

Wind turbines: © Douglas Peebles/Corbis; nuclear power station: © London Aerial Photo Library/Corbis

1


About This Report

For HSBC, ‘corporate social responsibility’ (CSR) is defined as managing our business responsibly and sensitively for long-term success, by working withour customers, shareholders, colleagues, communitiesand other stakeholders. We have adopted the 1987Brundtland Commission’s definition of ‘sustainabledevelopment’: ‘Development that meets the needs ofthe present without compromising the ability of futuregenerations to meet their own needs.’

This report is intended for those with an interestin HSBC’s progress in managing its corporateresponsibilities as an integral part of its business.

We have made some changes to this report to reflectthe views of a number of our constituencies since thelast edition was published in April 2005. We have:

• Included a Global Reporting Initiative (GRI)index in both the printed and online versions ofthe report;

• Adjusted our CSR reporting to reflect better our‘Managing for Growth’ strategic plan; and

• Included a table tracking progress during 2005 oncommitments we made in last year’s report, aswell as providing our commitments for 2006.

The theme of this year’s report is climate change.You will find examples of HSBC’s leadership in thisimportant area, including our commitment to carbonneutrality and our carbon neutral pilot project.


HSBC Corporate Social Responsibility Report 2005

Contents

1 About This Report

2 HSBC Worldwide

4 Group Chairman’s Introduction

5 Frequently Asked Questions

7 About HSBC

7 Our Values

7 Regulatory Environment

7 Compliance Framework

7 Corporate Governance

8 Corporate Social Responsibility Committee

8 Corporate Social Responsibility Executive Steering Group

9 Managing for Sustainable Growth

9 Strategic Plan 2004-08: ‘Managing for Growth’

9 Group Sustainable Development Strategy

12 Equator Principles

12 Microfinance

13 Personal Financial Services (including Consumer Finance)

14 Commercial Banking

16 Corporate, Investment Banking and Markets

17 Private Banking

17 Our People

20 Economic Impacts

22 Direct Environmental Impacts

22 Improvements in Environmental Reporting

22 Consolidated Reduction Targets

24 Supply Chain

25 Summary Assurance Statement:Environmental Indicators

26 Community

26 Facilitating Donations to the Community

26 Education

27 Environment: ‘Investing in Nature’

28 Stakeholder Engagement

28 Customers

28 Colleagues

29 Investors

29 Government

30 Non-Governmental Organisations

30 Special Interests

30 Reporting

31 Our CSR Commitments

34 Global Reporting Initiative Index

36 Independent Assurance Statement

‘…climate change represents the largest single environmental challenge this century. It will have an impact on all aspects of modern life. It is, there-fore, a major issue for our customers and our staff, as well as for every organisation on the planet, no matter how large or how small.’

Sir John Bond, HSBC Group Chairman, speaking at the launch in April 2004 of the Climate Group, aninternational non-governmental organisation

2


The BusinessHeadquartered in London, HSBC Holdings plc is one of the largest banking and financial services organisations in the world. The Group Chairman and Group Chief Executive, as well as key Group functions such as credit and risk, finance, legal and compliance, and information technology, are based at HSBC’s Group Head Office. We organise our businesses around customer groups which are based on a geographical structure with regional offices, all of which receive overall strategic and functional direction from Group Head Office.

Our main centres of employment are the UK with 55,000 employees, the US 49,000, Brazil 28,000, the Hong Kong SAR 26,000, Mexico 22,000, India 20,000 and France 14,000.

HSBC Worldwide

Customer Number of Key products/services 2005 pre-group customers tax profit

Personal 120 million Current, cheque and US$9.9Financial savings accounts; billionServices loans and home (including finance; cards; Consumer payments; insurance; Finance) investment services;

and HSBC Premier.

Commercial 2.5 million Payments and US$5 Banking cash management, billion

trade services, loans, wealth management services, insurance and e-banking.

Corporate, 3,800 Global Markets, US$5.2 Investment Global Investment billionBanking and Banking, Corporate Markets and Institutional Banking,

Global Transaction Banking, Private Equity and Group Investment Businesses.

Private 90,000 General banking US$912 Banking services; investment million

services; solutions to preserve and protect existing wealth; andspecialist advisoryservices regarding tax, charities and foundations.

Customer Groups

3

Global ResourcingGroup Service Centres (GSCs) play a key role in helping HSBC to remain competitive in the global financial services market. Almost 20,000 employees in our 11 GSCs in five countries — China, India, Malaysia, the Philippines and Sri Lanka — support customers in Europe, North America and Asia-Pacific with account administration, credit card payments, mortgages and telephone enquiries. Our GSCs enable us to harness a diverse range of skills, knowledge and languages and to avoid being overly dependent on any one region or economy. By creating jobs in emerging markets, we believe HSBC is making a positive contribution to social and economic development.

Competitive EnvironmentWe face strong competition in all the markets we serve worldwide from a wide range of financial institutions: commercial banks, consumer finance companies, savings and loan associations, credit unions, retailers, brokerage firms and investment companies.

4

H S B C H O L D I N G S P L CH S B C H O L D I N G S P L C

Group Chairman’s Introduction

If anything, the debate about corporate socialresponsibility has intensified during the last 12months. Given the challenges, as well as theopportunities, presented by globalisation and therange of social, ethical and environmental issuesinvolved in the conduct of international business, thisis not surprising.

HSBC’s position is clear. We have alwaysmaintained that a company’s first socialresponsibility is to be successful. Success allows us toinvest in new products and services for ourcustomers. It enables us to pay the dividends whichform such an important part of the long-term savingsand pension plans of our shareholders. It allows usto contribute to public services through the taxes wepay to governments. It creates jobs for our colleaguesand suppliers.

That is not to say that profits should be pursuedwithout concern for a company’s wider socialobligations. Far from being incompatible, long-termsuccess and good corporate behaviour are linkedinextricably. For a company like HSBC, which in2005 celebrated 140 years of aspiring to the higheststandards of conduct, corporate social responsibilityhas been a vital ingredient in our success.

Guided across a spectrum of complex issues byour Corporate Social Responsibility Committee ofthe HSBC Holdings plc Board, we continued to makeprogress during 2005 in developing andimplementing CSR policies and programmesappropriate to a fast-changing world. For example:

• Having made a public commitment to do so fromJanuary 2006, we became the world’s first majorbank to achieve carbon neutrality — threemonths ahead of schedule. Climate changeremains a critical challenge that will require ourcontinuous effort in working collaborativelywithin the banking sector and in the broadercommunity. As the theme of this report, you willfind examples of our leadership in addressing this challenge.

• We issued new environmental risk guidelinesgoverning lending to the freshwater infrastructureand chemicals industries. We shall introducefurther sector guidelines in 2006.

• We have reviewed all our philanthropic activitiesand renewed our commitment to supportingeducation at the primary and secondary levels forunderprivileged children, and the environment.

Our CSR Report 2005 uses the Global ReportingInitiative guidelines to illustrate our progress andperformance, including how we honour ourcommitments to support the UN Global Compactand the Equator Principles. We have compiled it afterconsultation with those who follow HSBC closely.We welcome the dialogue we have with our variousstakeholders and we welcome your comments on this report.

Sir John Bond, Group ChairmanHSBC Holdings plcApril 2006

ww

w.r

oyril

ey.c

o.uk

5


Frequently Asked Questions


These questions, covering a wide range of CSR issuesof interest to our stakeholders, have been selected onthe basis of the frequency of their recurrence ininvestor questionnaires and profiles, in shareholdercommunications and in the media. Many other issues are covered elsewhere in the report or on ourweb site.

1. HSBC’s profits are enormous. Are you profiting

at the expense of your customers and society as a

whole?

HSBC is a commercial organisation and our governingobjective is to provide a satisfactory return onshareholders’ capital. At the same time, we recognisethat our commercial duties go hand in hand with ourbroader obligations to society. We conduct ourbusiness with high standards of professionalism andintegrity, and are determined to play our full part in thelife of the communities we serve. We are proud of ourcontribution to wealth creation. We know that HSBC'scommercial success helps to pay for the retirementincome of millions of people around the world.

Our duty to our customers is to look after theirfinancial affairs with expertise, fairness andtransparency. Our duty to our staff is to provide a safeand pleasant place to work, competitive pay andopportunities for advancement in an internationalmeritocracy. We also believe it is our duty to share oursuccess with the less fortunate members of societybecause economic success and social deprivation areincompatible in the long term. A strong sense ofresponsibility runs throughout our history. Thetradition of ‘capitalism with a conscience’ can betraced back to HSBC’s earliest days.

Later in this report, we detail how HSBCcontributes to the economy through remuneration foremployees, taxes to governments, and payments tosuppliers (see page 21). We also describe how HSBCspends some of its profits on good causes, especiallyeducation for the underprivileged and theenvironment (page 26).

2. Levels of debt are becoming unsustainable in

some of your major markets. Are you allowing

people to carry more debt than they can bear?

One of the fundamental reasons for a bank’s existence— and a primary source of our income — is to enablepeople to borrow money in order to pay forimprovements in their lives or livelihoods. As one ofthe world’s leading banks, we are also a leading lender,with over US$427 billion in loans, including residentialmortgages, to personal customers in 2005. Inherent inevery loan is an element of risk. To the bank, there isthe risk of default; to the customer, the risk of beingunable to repay the loan, incurring further charges.

We take very seriously our responsibilities tomanage our lending prudently. For example, in the UKwe were the first major bank to share positive as wellas negative credit data with our competitors. Thismeans that other potential lenders will be better ableto assess an individual’s ability to repay debt (seepage 13).

HSBC’s consumer finance business has acommitment to fair and ethical lending practices, andto clear communications with our customers. We willcomply strictly with the letter and spirit of regulationscovering disclosure, charging limitations and policychanges. And, most importantly, we train ouremployees to offer products that will provide thecustomer with a true financial benefit.

3. What are you doing to help protect your

customers from fraud and e-crime?

Increased customer awareness is essential in thebattle against fraud, and HSBC continues to invest ininitiatives to help customers understand the risks andavoid becoming victims of fraud. We publish adviceon our primary web site, www.hsbc.com, and on ourlocal language web sites around the world, outliningthe measures taken by HSBC to protect customersfrom e-crime, and the steps that our customersshould take to protect themselves.

During 2005, we installed ‘anti-skimming’ devicesin a large number of our ATMs in the UK, which havesignificantly reduced card fraud affecting ourmachines. We are now working with other banks toencourage the wider use of these devices in the UKfinancial services industry, as well as introducingthem in other businesses around the HSBC Group.

Following the introduction of ‘two-factorauthentication’ for personal internet banking in HongKong and in other parts of Asia last year, ‘phishing’ —whereby fraudsters pretending to be from a legitimateorganisation send misleading e-mails requestingpersonal and financial details from unsuspecting people— in the region has been virtually eliminated. We areinvestigating the feasibility of employing this securityfeature in other markets. ‘Two-factor authentication’was also introduced for business customers in anumber of markets in 2005 (see page 15).

4. What are you doing to limit the adverse effects

of businesses you finance?

We believe that sound business management musttake into account the effects of our businesses on theenvironment. Environmental factors are assessed aspart of our normal credit and risk procedures, whichtake full account of the Equator Principles (see page 12)and our own guidelines covering certain high-risksectors (see page 10). These voluntary guidelines helpHSBC to address the environmental and social issuesthat arise in project finance.

Our cautious approach applies not only toenvironmental risk but also to controversial issues,such as the financing of defence equipment sales,where we apply strict internal controls and ensure thatall necessary government licences and approvalsrelating to the transaction are in place. However, wedecided some time ago to withdraw progressivelyfrom financing the manufacture and sale of weaponryand defence equipment. As a result, we advise ourcustomers and potential customers that weaponryand defence equipment are not areas of business inwhich we wish to be involved.

6

Frequently Asked Questions (continued)


5. What are you doing to uphold human rights in the

countries where you operate?

HSBC operates in 76 countries and territories, some ofwhich — including those in the developed world — are thesubject of human rights concerns. We consider ourselvesas guests, respecting the local cultures and traditions, andwe understand that reform, where needed, takes time. Westrive to conduct our business in an ethical way andconsistently uphold global standards, such as the UNUniversal Declaration of Human Rights, the UN GlobalCompact and the Global Sullivan Principles.

We believe that personal freedom is best nurtured inan environment of economic growth and economicfreedom. Economic development has improved the livesof millions of people around the world, whereas restrictingtrade or other economic ties can slow a country’sprogress to the detriment of its people. Our observation isthat oppressive regimes, for example, are moresusceptible to change through interaction with the rest ofthe world — through trade, finance, politics and the media— than from within. As a peaceful means of influence,interdependence will often exert more pressure forchange than isolation.

We have, on occasion, withdrawn from countrieswhere conditions were no longer conducive to business

but, where we are able to manage the risk, we do so whileremaining conscious of our responsibilities to customerswho rely on us for their financial needs.

6. How do you justify the salaries paid to senior

executives?

We accept that, compared with a great many people,HSBC’s executives are well paid. It is HSBC's policy topay its staff fairly, whatever their role within the company,from the newest recruit to the Group Chairman. We haveto be aware of the pressures of the employment marketand be able to attract and retain the best people.

We pay market rates at all levels of the organisationand in all the countries and territories where we operate.We recognise that HSBC is operating in an internationaland highly competitive market-place for human talent.Where executive Directors and other top managementare concerned, our policy is to match base salaries ataround the mid-market for UK and European banks, andto match bonus and long-term incentive awards againstthe upper quartile of these banks.

We are, of course, aware of the sensitivitiessurrounding executive pay in the world's largestcorporations, and we respond by being as transparent aspossible in our own remuneration policy.

7

Our Values

HSBC’s statement of Business Principles and Valuescommits us to high standards of corporatebehaviour, which are integral to HSBC’s strategy. Ourvalues commit us to long-term, ethical clientrelationships, the pursuit of excellence andproductivity through teamwork, prudence and aninternational outlook and character. Our values are fundamental to our business conduct and policyon sustainability.

Regulatory Environment

Our worldwide operations are regulated andsupervised by some 490 central banks and regulatoryauthorities whose role is to ensure that commercialbanks have sufficient capital to operate efficientlyand that the interests of their depositors areprotected. In 2005, we spent some US$635 million tomeet our regulatory obligations. HSBC complieswith all lawful requests for information fromgovernments or regulatory agencies with jurisdictionover our businesses. We firmly believe that regulatorsshould exercise effective supervision of financialservices institutions for the good of the industry andof its customers.

Compliance Framework

Group Compliance policy requires employees in allour offices to adhere to both the letter and the spiritof relevant laws, rules, regulations and standards ofgood market practice. Some 2,000 complianceemployees worldwide support line managers to helpensure all activities comply with external regulatoryrequirements and any additional standardsdemanded by Group policies. The adequacy andeffectiveness of compliance resources are overseen bythe Group Compliance department and the GroupAudit Committee of the HSBC Holdings plc Boardthrough an annual compliance planning process.

Anti-money laundering policiesMoney laundering poses a significant risk to ourbusiness and to wider society. All HSBC Groupbusinesses are required to uphold the higheststandards of customer identification, to monitortransactions, to report suspicious transactions, andto provide appropriate training to employees.

Whistle-blowing policiesEmployees are encouraged by line management andin procedures manuals to report concerns aboutcorporate wrongdoing without fear of reprisals.Employees can report anonymously on theCompliance Disclosure Telephone Line, in writing orby e-mail. Reportable disclosures can include thebreach of a legal or regulatory requirement, fraud oraccounting malpractice. This process is overseen byour Group Compliance function.

Corporate Governance

HSBC Holdings plc BoardOn 28 November 2005, we announced the retirementat the Annual General Meeting in May 2006 of ourGroup Chairman and his succession by our GroupChief Executive. HSBC’s Annual Report and Accounts2005 addresses the current corporate governanceguidelines, including the UK Financial ServicesAuthority’s Combined Code provisions (see pages 200-201). The Annual Report also includes information onother aspects of corporate governance, such as how‘independence’ and the expertise required of Boardmembers are determined.

The Board has appointed a number of committeesconsisting of Directors and Group ManagingDirectors.

The statement appears in full on our web site: www.hsbc.com/values

About HSBC


Group AuditCommittee

NominationCommittee

RemunerationCommittee

Corporate SocialResponsibility

Committee

HSBC Holdings plc Board of Directors

• 5 executive Directors

• 15 non-executive Directors

(13 are independent and 3 are women)

Group Management Board

• 5 executive Directors• 7 Group Managing Directors

8

Corporate Social Responsibility Committee

Formed in September 2003, the CSR Committee ofthe Board (see chart) oversees the Group’s CSR andsustainability policies and advises the Board,committees of the Board and executive management.It meets at least four times yearly.

Corporate Social Responsibility Executive

Steering Group

The objective of the Executive Steering Group is tooversee the implementation of our CSR policies,performance evaluation and communications.Comprising executives from business functions thatinfluence our overall CSR performance, the steeringgroup also acts as a conduit for keeping the CSRCommittee of the Board informed.

Group Corporate Affairs co-ordinates externaland internal communications, and stakeholderengagement. Working groups have also been formedin France, Brazil, Hong Kong and the Middle East toco-ordinate CSR at national and regional levels.


About HSBC (continued)

William Fung Sharon Hintze Sir Mark Moody-Stuart

HSBC non-executive Directors External members

Gerry Davis Elizabeth Diggory

Lord May

Lord Butler

Case study: Carbon Management Plan and

task force

On 6 December 2004, HSBC made a commitment tobecome the world’s first major bank to achieve carbonneutrality, by 2006. To take this forward, we put inplace a Carbon Management Plan consisting of threeparts: to manage and reduce our direct emissions; toreduce the carbon intensity of the electricity we use bybuying ‘green electricity’ where feasible; and to offsetthe remaining emissions in order to achieve carbonneutrality. Our offsets need to be credible, genuinelyincremental and cost-effective.

In July 2005, HSBC announced its commitment toreducing CO2 emissions by 5 per cent by 2007compared with 2004 across the Group. To co-ordinatethe implementation of the plan, HSBC has set up aCarbon Management Task Force spearheaded by theGroup Chief Executive. This comprises HSBC’sCorporate, Investment Banking and Markets’ ProjectFinance, and Energy and Utility Sector teams; GroupSustainable Development; Corporate Real Estate; andGroup Corporate Affairs.

The task force is advised byThe Climate Group andICF Consulting, an international consultancy. As a ‘dryrun’, HSBC has offset its Group-wide emissions for thelast quarter of 2005. Allowing for a 5 per cent marginof error, the total emissions amount to 170,000 tonnesof carbon dioxide. To offset these emissions, HSBChas bought 170,000 tonnes of carbon offset creditsfrom four offset projects around the world. Theaverage price per tonne of offset amounts to US$4.43.Details of the projects are set out on page 11.

Strategic Plan 2004-08: ‘Managing for Growth’

We aim to become the world’s leading financialservices company, seeking to increase our rate ofrevenue growth by building a world class, ethical salesand marketing culture. The main objective of ourstrategy is to ensure that shareholders get a betterreturn from HSBC than they would from investing inother financial services companies. However, ourgoal has never been profit at any cost. Financialsuccess over the long term requires a sustainableapproach, which includes addressing the expectationsof our customers, colleagues, and those whorepresent the interests of various communities, thewider society and the global environment.

Group Sustainable Development Strategy

The HSBC Group’s sustainable development strategy,‘From Risk to Opportunity’, was launched in August2005, with the key objective of incorporatingsustainability further into HSBC’s operations, bothfrom risk and business development perspectives.

In 2005, we established a new head officefunction, Group Sustainable Development, toimplement the ‘From Risk to Opportunity’ strategy,ensuring that sufficient focus is given to managingboth sustainability risks and opportunities. The unitreports directly to the Group Chief OperatingOfficer, giving it Board-level representation.

During 2005, HSBC:

• Issued two new sector guidelines covering thefreshwater infrastructure and chemicals industriesto supplement the 2004 Forest Land and ForestProducts Sector Guideline;

• Appointed Environmental Risk Managers in 10regional credit risk management functions,reporting to the local Chief Credit Officers andfunctionally to Group Sustainable Development.This regional structure is being developed graduallyto include additional resources at a country level;

• Developed an environmental and social riskassessment tool, to be implemented in 2006, thatenables lending executives to analyse risks atproject and client levels:

• Included environmental risk issues in core trainingprogrammes, such as the Chairman’s StrategicForum and the Senior Risk ManagementWorkshop, our most senior leadership developmentand risk management programmes, respectively.

We are aware that banks can, indirectly,contribute to ecological damage by providing financeto companies operating in sensitive areas but,equally, they can undermine economic developmentand the opportunity to contribute to sustainabledevelopment if they withdraw from these areas.

The Group’s Environmental Risk Strategy,approved and endorsed by the Group ChiefExecutive and CSR Committee in 2004, comprisesthree broad areas of work:

• Issuing guidelines for high-risk sectors;

• Developing processes and tools to enable effectiveimplementation of the guidelines; and

• Rolling out a programme of training and educationto ensure environmental and social risk assessmentforms part of our core business processes.

Sustainability risk Our approach to lending reflects our businessprinciples and values, our sensitivity to society’sexpectations as well as, fundamentally, an assessmentof risk. We seek to ensure the sustainability ofactivities to which we lend, addressing the need foreconomic development while managing theenvironmental and social impacts.

9


Managing for Sustainable Growth

‘Managing for Growth’ strategic imperatives

As the ‘Managing for Growth’ strategy is core to ourapproach to business, we have used the plan’sstrategic imperatives to structure our reporting of theintegration of CSR into our business.

• Make HSBC one of the world’s leading brands forcustomer experience and corporate socialresponsibility;

• Personal Financial Services (including ConsumerFinance): drive growth in key markets, includingexpanding our business with existing customers andpenetrating new consumer finance markets and,through the right channels, make HSBC the strongestglobal player in personal financial services;

• Commercial Banking: make the most of ourunrivalled customer base internationally througheffective customer relationship management andproduct offerings;

• Corporate, Investment Banking and Markets:accelerate growth through enhanced capital marketsand advisory capabilities focused on the client;

• Private Banking: serve the highest value individualand family clients around the world, following theinvestments we have made in recent years;

• Attract, develop and motivate our people,rewarding success and rejecting mediocrity; and

• HSBC will concentrate on growing earnings overthe long term at a rate which will place itfavourably when compared with its peer group. Itwill also focus on investing in its deliveryplatforms, its technology, its people and its brandto support the future value of HSBC as reflectedin its comparative stock-market rating and totalshareholder return.

10

Sector guidelines Issue date International standards referenced

Forest Land and Forest Products May 2004 Forest Stewardship Council or equivalent

Freshwater Infrastructure May 2005 World Commission on Dams Framework

Chemicals Industry August 2005 Rotterdam Convention, StockholmConvention, Montreal Protocol, ResponsibleCare Programme, EU’s Registration,Evaluation and Authorisation of Chemicals

Energy Due 2006 Under review

Metals and Mining Due 2006 Under review

The guidelines prohibit any involvement with companies that have projects in UNESCO World Heritage Sites, Ramsar Wetlands, or certainother sensitive ecosystems such as primary tropical moist forests. We will not finance illegal logging or projects that would cause a significantdegradation of a critical natural habitat.

Managing for Sustainable Growth (continued)


More than half of our loan book is personallending, with the biggest commercial sectors being financial institutions and governments,manufacturing and commercial real estate.

Sector guidelinesHSBC’s relationship managers manage large-scaleinvestments and advance credit to global clientsinvolved in most business sectors. Businessopportunities are usually accompanied by someenvironmental or social risk. Our sector guidelinesdescribe internationally accepted standards to befollowed when we lend to or invest in companies orprojects operating in the sectors concerned, andspecify areas where involvement is prohibited.

We believe HSBC can make a bigger contributionto sustainable development if we remain engagedwith clients operating in such sectors and supportthem, including financially where it makes goodbusiness sense, as they work to improve theenvironmental and social impacts of their businesses.

The guidelines are drafted by Group SustainableDevelopment in collaboration with the appropriatesector team within Corporate, Investment Banking

and Markets (CIBM), usually following consultationwith certain customers and non-governmentalorganisations. Prior to issue, the guidelines arereviewed by the CSR Committee of the Board andfinally approved by our Risk Management Meeting.We review our sector guidelines annually to ensurethey remain current and relevant.

Communication and trainingEmployees in CIBM and Commercial Bankingreceive training on sector guidelines relevant to theirbusiness area when each guideline is issued. Forexample, training on the Forest Land and ForestProducts Sector Guideline involves a video or DVD, apresentation on key issues, and on-the-job coaching.We continue to work with the Tropical Forest Trustto develop our training.

In May 2005, we held the first HSBCEnvironmental Conference at our GroupManagement Training College in Hertfordshire, UK.Attended by senior management from across theGroup, the meeting was designed to communicateour progress on implementing the HSBCEnvironmental Action Plan and to identify areas forimprovement. HSBC’s ability to analysesustainability risks in lending was featured at theconference. Delegates agreed a sustainability riskaction plan which is now being implemented.

Our Asia-Pacific region hosted its ownenvironmental risk conference in Kuala Lumpur in June.

Developing sustainable businessSince Group Sustainable Development wasestablished in late 2005, it has begun to identifybusiness development opportunities by geography,industry sector and customer group, and supportsbusiness units in taking advantage of them. It alsoevaluates inbound business referrals, alerting theappropriate business unit to those with merit.

HSBC’s total loan book by sector 2005

%Residential mortgages 29.2

Other market sectors 9.1

Energy 1.2

Retail 2.4

International trade 2.1

Transport 2.1

Service/Hotels 5.0

Financial institutions,governments 9.6

Manufacturing 6.8

Commercial and other real estate 9.2

Personal lending 23.3

Total 100.0

11

Case study: HSBC’s carbon neutral pilot project

In the last quarter of 2005, we offset our Group-widecarbon dioxide emissions of some 170,000 tonnes bypurchasing an equal amount of credits from four projectsaround the world. An external assessment of theseprojects appears on page 25.

Project 1:Te Apiti wind farm, North Island, New Zealand

Carbon reduction: 125,000 tonnes

Fifty-five turbines, with a capacity of 1.65 megawattseach, generate enough electricity for 45,000 average-sizehomes. This is one of the first projects validated by theGold Standard, which ensures both additionality and thegreatest sustainable development benefits.

Project 2: Organic waste composting,Victoria, Australia


By composting organic waste using aerobic methods,harmful methane gas is replaced by the less harmfulcarbon dioxide, thus minimising the global warmingpotential. The emission reduction credits are issued by theAustralian Greenhouse Friendly scheme, with anindependent party approved by the AustralianGreenhouse Office verifying the carbon offset.

Project 3: Sandbeiendorf agricultural methane capture,

Gemany


Fresh manure from cattle and pigs is fed into a biogasplant (picture) instead of being stored in open tanks orlagoons. An attached combined heat and power generatorconverts it into heat and electricity, reducing methaneemissions by some 90 per cent.

Project 4: Vensa Biotek biomass co-generation, Andhra

Pradesh, India


The project generates electricity from agriculturalbiomass for the local industry which produces liquidglucose and starch. The result is a reduction ingreenhouse gas and particulate emissions and ashgeneration associated with the burning of coal, a majorfuel used in the state electricity industry. Any surpluspower generated is fed to the state grid, improving thereliability of the power supply and stabilising the voltage.

Find out more about the HSBC Partnership in Environmental Innovation at www.hsbc.com/pei

The unit focuses on climate change, particularlylow-carbon energy, water infrastructure, sustainableforestry and related agricultural commodities. It actsas a catalyst and co-ordination point, with much of the subsequent business development beingundertaken within the customer groups themselves.

We seek to identify low-carbon projects globally,but especially in our key emerging markets of China,India, Brazil and Mexico. By funding or investing inthese projects, we will secure carbon credits to offsetour own carbon emissions, and ensure they areenvironmentally credible, incremental and cost-effective. We will maintain our carbon neutralitythrough our core business of lending and investment(see case studies on HSBC’s carbon neutralitycommitment in this report).

Group Sustainable Development works with ourcustomer groups, particularly Project and ExportFinance, Resources and Energy Sector, PrivateEquity, Investment Banking, Equity Research andTrade Services in CIBM; Commercial Banking;Group Investment Businesses and their sociallyresponsible investment funds; and Private Banking’sethical funds and foundations. As our strategy

progresses, it will also support Personal FinancialServices, including Consumer Finance, byincorporating sustainability into retail lending andinvestment products.

In 2004, we began a three-year, £650,000 (US$1.2 million) collaboration with the universities of Newcastle-upon-Tyne and East Anglia — the‘HSBC Partnership in Environmental Innovation’.This global programme is researching climate change and other major forms of environmental damage,and society’s awareness of the issues. It will alsodevelop technologies to overcome some of theproblems identified.

In November 2005, the University of Newcastle-upon-Tyne research team, sponsored by HSBC, won aQueen’s Anniversary Prize for Higher and FurtherEducation for a pioneering project to clean upcontaminated water flowing from an abandoned mine.

Cou

rtes

y of

San

dbei

endo

rf p

roje

ct

12



Equator Principles in practice 2005 2004Number Value (US$m) Number Value (US$m)

Transactions approved: 67 4,601 46 3,528by category

Category A 5 809 1 170Category B 38 1,917 34 2,435Category C 24 1,875 11 923

by type of facilitySolely commercial 39 1,995 29 2,091Solely export credit 21 2,075 13 997Commercial/Export credit 7 531 4 440

Transactions declined 7 n/a 12 n/a

Key:Category A: projects with significant adverse impacts which may affect an area broader than the project site.Category B: projects whose impacts on human populations or environmentally important areas are less adverse.Category C: projects with little or no environmental impact.

Find out more about our implementation of the Equator Principles at www.hsbc.com/equatorprinciples

Equator Principles

The Equator Principles are a set of voluntaryguidelines developed to address the environmentaland social issues arising from financing projects.Adopted by HSBC in 2003, the principles are a core part of our wider approach to managingsustainability risks in lending and investment.

We have continued to implement the principlesacross the Group, building on the training weundertook in 2004, with workshops in Asia and theMiddle East. Training has been extended beyond ourproject finance teams to include staff involved inmanaging relationships in industries with potentiallyhigh environmental and social risks. We are alsodeveloping a decision support tool to enable projectfinance executives to assess environmental and socialrisks in a consistent and structured way, and areupgrading our systems to report on those risks inmore detail.

We continue to monitor the number and value ofour transactions where the Equator Principles havebeen applied. The increase in volume and value oftransactions reflects growth in our project financingbusiness, with the majority of deals in the lower riskcategories (B and C). We also record the number oftransactions we have declined where failure tocomply with the principles was a contributoryfactor. We believe the lower number of transactionsdeclined during 2005 reflects improvements inHSBC’s training, as well as internal and externalrequirements for compliance with the EquatorPrinciples.

During 2005, we were active in various publicforums involving the Equator Principles. HSBC haschaired the Equator Principles Working Group and,together with a number of other financialinstitutions, we have played an important role in

assisting the International Finance Corporation withits Safeguard Policy Review. We have also beenactively involved in redrafting the Equator Principlesto reflect the new International Finance Corporationperformance standards, and to take account offeedback from various stakeholders over the past two years.

The Equator Principles mainly affect the work ofCIBM. To ensure that the principles and theirimplications are understood at all levels of thiscustomer group, employees undergo formal andpractical on-the-job training.

Microfinance

Our approach to microfinance is to concentrate onour strengths and to work with others to create self-sustaining, stable financial services to help people outof poverty. In 2005, HSBC hosted a United Nations(UN) discussion forum on microfinance to addressthe issues of financial services provision for peoplewho do not qualify for conventional bankingservices. It was one of a series of internationalforums organised by the UN in the first officiallydesignated ‘Year of Microcredit’. Supportingmicrofinance is one of the ways in which financialinstitutions can support the UN MillenniumDevelopment Goal of eradicating extreme poverty.

Since 2004, HSBC has been piloting a number ofmicrofinance projects around the world, varying fromwholesale lending and credit lines to project support,cash management and foreign exchange handling.

13

IndiaHSBC in India is currently working with sixmicrofinance institutions across four states toprovide microfinance to over 70,000 poor householdsin both rural and urban areas. Over US$5.5 millionin credit facilities has been approved to date. A debtfinancing programme called eMFI has been createdto support small and promising microfinanceinstitutions. Two emerging microfinance institutionshave already been provided with credit facilitiesunder this programme.

MexicoHSBC works closely with Compartamos, one ofMexico’s largest microfinance institutions with aportfolio of loans of US$200 million and part of theAccion network. We permit Compartamos’s clients toreceive their loans and make payments in HSBCbranches. This relationship is particularly beneficial toCompartamos’s 450,000 customers since HSBC has1,400 branches in Mexico, compared withCompartamos’s 60.

PhilippinesOpportunity International UK and HSBC areworking on a pilot project to help Philippine workerssend money they earn abroad back to their familiesin the Philippines more cheaply. If the project issuccessful, it will be introduced in other countries.

We are currently reviewing proposals forcommercial funding from three microfinanceinstitutions in the Philippines.

USAWe structured a US$20 million loan guarantee fundon behalf of Opportunity International. This will beused to secure letter of credit facilities to enableOpportunity International’s partners in variouscountries to obtain local currency funding.

RussiaWe provided credit facilities of US$2 million to Fund Opportunity Russia against a guarantee ofUS$1 million provided by the OpportunityInternational Loan Guarantee Fund.

BrazilPlans to work with the Inter-American DevelopmentBank to provide wholesale funding to Banco daFamilia have not progressed because of regulatoryissues. We remain committed to microfinance inBrazil and are investigating further opportunities.

Personal Financial Services (including

Consumer Finance)

To achieve our strategic imperative of making HSBCthe strongest global player in personal financialservices, we have identified the following priorities:

• Link prices to costs in order to treat ourcustomers fairly;

• Provide a wide range of banking services to suitthe evolving needs and expectations of ourcustomers; and

• Focus investments particularly on key emergingmarkets where size or growth potential will enableHSBC to be a leading player.

1. Treat customers fairlyWe aim to make our products easy to understand forboth our employees and our customers. In the UK,for example, we recently simplified the range ofproducts on offer, from a total of 200 down to 80.This makes it easier for people to choose the rightproduct for their needs.

All our products and services are designed aroundcustomer needs and we take into consideration thefinancial awareness, risk appetite and personalcircumstances of the customer. Credit approval andinterest rates are based on the borrower’s ability to repayand credit profile, and the loan product concerned.

In August 2005, HSBC was the first major bankin the UK to start sharing positive as well as negativecustomer details on all personal credit productsthrough the country’s three main credit referenceagencies, making it easier for lenders to assess anindividual’s ability to repay debt.

In the US, HSBC’s consumer lending businesses,HFC and Beneficial, employ industry-leadinglending practices and consumer protections whichbenefit all their customers. For instance, we haveinvested heavily in establishing systemic controls toensure compliance with mortgage lending practices,including a one-page outline, key terms, fees andpayments, lower rates for prompt payers and a 10-day cancellation guarantee. These practices havebeen endorsed by third-party audits, which weshare with US state regulators and attorneysgeneral as part of our commitment to transparency.

We continue to be ready to demonstrate ourcommitment to regulators who question it. Insummer 2005, a court filing in New York Statealleged ‘substantial racial disparities in interest ratescharged by various banks on their New York Stateloans’, based on lending data obtained under the USFederal Mortgage Disclosure Act. HSBC compliedwith all requests to submit evidence in this case.

14



2. Meet the needs and expectations of ourcustomers Customers are increasingly looking for flexiblebanking services to suit their lifestyles. In 2005, ourcustomers conducted 183 million transactions online,an increase of 17 per cent over 2004. Online sales roseby 65 per cent and total online revenues by 71 percent. To protect our customers, HSBC is involvedwith internet-specific initiatives, such as the UK’s‘Get Safe Online’ campaign, a partnership betweengovernment departments and the private sectordesigned to raise public awareness of the risks ofdoing business online and how they can be mitigated.We will continue to respond to changes in customerbehaviour and tastes, while at the same time helpingour customers to protect themselves.

In 2005, HSBC published the ‘Future ofRetirement’, a global study into changing attitudestowards ageing and longevity. HSBC has also formeda strategic alliance with Oxford University’s Instituteof Ageing, the renowned international policy andresearch institute. Over the next five years, HSBCand the institute will work to produce the world’smost comprehensive study into ageing, initiallyinterviewing some 24,000 people in 20 countries.Our long-term aim is to build a leading researchdatabase on ageing, which will support ourretirement businesses as well as provide informationabout this issue to public policy makers, corporationsand individuals.

In a number of countries, we are working tocomply with the legal requirements on accessibilityfor our customers. We continue to improveaccessibility to our premises where possible. Sixty percent of branches in the UK, 82 per cent in the US, 96per cent in Canada and 64 per cent in Hong Kong areaccessible by wheelchair. In the US and the UK, wesupport our disabled and senior citizen customersthrough the provision of text phone, induction loopand telecommunication devices, as well as signlanguage interpreters (by appointment) for ourhearing-impaired customers.

We continue to offer our customers in the US aproduct designed to deal specifically with growingtrends in e-crime. Focusing on identity theft,preventive education and online tools, the IdentityProtection Plan comprises a comprehensive softwaresuite that includes firewall software, identitytheft/hacker alerts, a monthly newsletter, and a round-the-clock lost and stolen credit card service. To date,561,000 customers have subscribed to the scheme.

3. Focus on emerging marketsIslamic financial services prohibit the payment ofinterest and advocate equitable distribution of riskand reward, as specified by shariah (Islamic law).

Marketed under the name HSBC Amanah, we offerMuslim customers products to address their financialneeds without compromising on their values. HSBCAmanah’s ethical screening prohibits investment insuch sectors as gambling, alcohol and arms.

At year-end 2005, HSBC Amanah had offices in eightcountries, more than 290,000 customers worldwide,and US$5.6 billion in assets under management.

HSBC has developed a wide range of remittanceproducts to meet a range of customers’ needs. HSBCCredit Centres in the US enable customers to remitfunds, which can be picked up at various locationsthroughout Latin America for a fee as low as US$3per transfer.

We also offer ‘Envio Fácil’ (‘Easy Send’), the firstfree money transfer product to be rolled out in theUS. Through this, a savings account is linked to apersonal account and an ATM card is sent to thebeneficiary who can access funds in the savingsaccount instantly and for free at any HSBC ATMaround the world.

HSBC México and HSBC North America arecollaborating to launch an innovative cross-bordermortgage product that will help Hispanics who workin the US, but reside in Mexico, to qualify formortgages with their US income. As HSBC México isunable to verify income and conduct credit bureauchecks for income earned outside the country, HSBCCredit Centers in the US will conduct the appropriatechecks and pass the information to HSBC Méxicowhich then underwrites the loans.

Commercial Banking

To achieve our strategic imperative of making themost of our unrivalled commercial customer baseinternationally through effective customerrelationship management, we have identified thefollowing priorities:

• Focus on our e-channels to provide an extendedrange of solutions to our customers; and

• Explore the potential of our existing customer baseand provide proactive solutions for our customers.

1. Focus on e-channels We encourage customers to conduct transactions andmake enquiries using paperless channels, for exampleby using internet banking or HSBCnet, our global

Find out more about the full range of personal and commercial banking services offered by HSBC Amanah at www.hsbcamanah.com

15

e-banking platform for corporate and middle marketcustomers offering cross-border banking services on one site, including payments, and trade andtreasury services. In 2005, we launched a web-basedglobal customer referral and tracking system, GlobalLinks, connecting nearly 4,000 managers across 52countries. It provides better customer service andimproves communications within our business.

Automated document production aims to improvecustomer service and operational efficiency whilereducing paper usage significantly. We have alreadyconsolidated numerous leaflets and brochures in Asia-Pacific into eight core online documents with a print-on-request function, and plan to do so in the UK in2006. We continue to look at other ways ofstreamlining credit processes elsewhere by utilising ourglobal capabilities, especially for small and medium-sized enterprises (SMEs).

To help protect our commercial customers fromfinancial crime, we have continued to investsignificantly in new internet banking securitytechnology. ‘One-time password’ security forBusiness Internet Banking was introduced during2005 in several countries and territories including theUS, Hong Kong, mainland China, Singapore andCanada. The key-ring-sized device produces arandom, single-use security code which, when used inconjunction with a user name, enables internetbanking access from anywhere in the world. It isconsidered more robust than ‘single factorauthentication’, which typically requires only apersonally chosen password.

2. Provide proactive solutions for our customersIn 2004, we launched ‘Living Business’ in HongKong with the support of the Business EnvironmentCouncil. ‘Living Business’, available to customersand non-customers alike, creates opportunities for usto do business while reinforcing our commitment tothe communities in which we operate.

It is designed to help small and medium-sizedenterprises (SMEs) become more competitive andproductive by implementing socially andenvironmentally responsible business practices. InHong Kong, SMEs constitute more than 98 percent of business establishments and employaround 60 per cent of the entire private sectorworkforce.

The programme has since been launched inSingapore and Malaysia, with the potential toextend it to other countries and territories. Some 150people from around 130 companies have benefitedfrom our free seminars as part of the ‘LivingBusiness’ programme.

Case study: Reducing CO2 through high

performance buildings

We have invested significantly in design modificationsin the construction of HSBC México’s new head officebuilding in Mexico City (see picture), with the aim ofachieving a certification under the ‘Leadership inEnergy and Environmental Design’ system managedby the US Green Building Council.

Car-pooling

The building will have a total of 1,129 parking spaces,180 of which will be allocated to those who share cartravel to work. It is estimated that 360 fewer cars willbe driven to work as a result of the initiative.

Waste management

During construction, 75 per cent of waste includingwood, glass, steel and debris, was either recycled orreused. Waste bins will be provided on each floor forsorting recyclable waste into glass, plastic, paper,cardboard, aluminium and organic waste, resulting ina reduction of 180 metric tonnes of CO2 per year.

Energy-efficient lighting system

A high-efficiency lighting system, called Lutron, willsave energy by sensing levels of daylight anddimming indoor lighting accordingly, and by shuttingdown lights automatically when offices are empty.This will reduce CO2 emissions by about 205 metrictonnes per year.

Water

Rainwater will be collected and treated together withgreywater, reducing by 28 per cent the conventionaldemand for the building. Waterless urinals and water-saving toilets have been installed to achieve anexpected overall reduction of 64 per cent in potablewater demand.

For more information on ‘Living Business’, see www.hsbc.com.hk/livingbusiness

16



Corporate, Investment Banking and Markets

To achieve our strategic imperative of acceleratinggrowth through enhanced capital markets andadvisory capabilities, we have identified the followingpriorities:

• Build strong relationships with clients byunderstanding fully their strategies and bankingrequirements; and

• Build a team of sector-based senior relationshipmanagers organised on a global basis to managetop-level relationships, offering a market-led suiteof services.

1. Build strong relationships In addition to a New Zealand wind farm projectwhich forms part of our own carbon neutralityprogramme, we have helped some clients fund theirown projects in this area, including two wind farmsfor Fred Olsen Ltd which are among the UK’s largestonshore wind farm developments to date. We see thefunding of wind farm projects and advising clients oncarbon neutrality as having the potential for long-term business development.

2. Build a team of sector-based seniorrelationship managersCIBM’s specialists in Project Finance and in theEnergy and Utilities Sector work with our clients toensure adherence to internationally recognisedstandards, such as the Equator Principles. CIBMrelationship managers must use our sector-specificguidelines (page 10) and our Group Credit and Riskprocedures or the Equator Principles in assessingpotential business, whichever is the more stringent.

Within Group Investment Businesses, we have adedicated Socially Responsible Investment (SRI)team based in Paris. Globally, we manage almostUS$1.4 billion in ethical and SRI assets, less than oneper cent of HSBC Investments’ total assets undermanagement. We do not systematically apply social,ethical or environmental research to our other assetsunder management.

In December 2005, HSBC Investments launched amajor new product — the HSBC SustainabilityLeaders Fund — in collaboration with LEAD, aninternational not-for-profit organisation. The fund’sobjective is to provide consistent returns in the longrun from investment in companies considered to beleaders in the field of sustainable development. Tosupport LEAD’s work in fostering sustainabilitypractices worldwide, HSBC has committed tosharing with the organisation a significant part of thefees earned from the management of the HSBCSustainability Leaders Fund.

We have started a comprehensive review of ourglobal SRI activity, with the aim of strengthening itand extending our product range.

As part of our investment brokerage business,which provides research and trading services toinstitutional and pension clients, we have developed aglobal research model which integrates withinindividual research teams an understanding of thegrowing importance of sustainable development tobusiness, in particular climate change and relatedlow-carbon technologies.

Case study: Offsetting CO2 using renewable

energy certificates

HSBC in the US last year purchased 68,000megawatt-hours of renewable energy certificates,with the aim of offsetting 30 per cent of its carbonemissions. Certificates from the High Winds EnergyCenter in Solano County, California, have offset some24,000 tonnes of carbon dioxide (CO2). The projectgenerates enough energy to power 75,000 homes.

We won the 2005 ‘Green Power Leadership Award’sponsored by the US Department of Energy and theCenter for Resource Solutions — a recognition of ourcommitment to purchasing renewable energy.

To mark Canadian Environment Week in June 2005, HSBC Bank Canada purchased 11,000megawatt-hours of renewable energy certificates forthe production of clean electricity generated by newwind resources in Alberta (see picture). Therenewable energy certificates were used to offset 100per cent of the CO2 emissions from our branches andtechnology centres in British Columbia, our majoremployment centre in Canada. A total of 11,000tonnes of CO2 has been offset as a result —equivalent to the amount of CO2 emitted after driving48 million kilometres.

Visi

on Q

uest

Tra

nsal

ta’s

Win

d B

usin

ess

Private Banking

To achieve our strategic imperative of serving highnet worth individual and family clients around theworld, we have identified the following priorities:

• Focus on enhancing our products and services torespond to the evolving demands of our clients;and

• Manage onshore and offshore businesses carefullyin the interests of clients and wider society.

1. Enhance our product rangeOur customers are becoming increasingly aware ofethical investments. Investment advisers within ourPrivate Bank Investment Group operate in keymarkets, including New York, London, Hong Kongand Switzerland, advising clients on SRI funds aswell as on mainstream funds. The group alsoevaluates third-party and proprietary funds.

Private Banking works with internationalconsulting intermediaries and not-for-profitorganisations, fuelled by increasing client interest inphilanthropic activities, to provide bespokecharitable trusts overseas. We have developed thisproduct to reflect client demand for cross-borderphilanthropy.

Private Banking has offered private placements —raising capital privately rather than by publicplacement — to clients who have an interest ininvesting in socially or environmentally progressivebusiness projects.

One client has arranged €20 million (US$24.8million) in seed funding and small businessfinancing schemes in the Palestinian territories,supported by a European multilateral institutionand local commercial banks. We continue toevaluate opportunities for business owner/managerclients to commercialise sustainable businesspropositions.

2. Manage our businesses in the interests ofclients and wider societyPrivate Banking takes appropriate measures toprevent the use of its operations for criminalpurposes and co-operates with the relevantauthorities to prevent financial crime.Comprehensive policies and procedures are in placeto prevent the use of our banks as vehicles for moneylaundering, terrorist financing or other criminalactivities. To ensure that these measures remaineffective, our anti-money laundering policies aresubject to thorough reviews by both our own internalaudit function and by local financial industryregulators.

Our procedures and policies require PrivateBanking, as well as all other customer groups, toknow its customers. We thoroughly check theidentity of a client and seek to understand his or hertrue financial situation prior to opening an account.We also consult a commercial database to check ifthe customer has a criminal background.Automated systems are used to monitor accounts toenable us to identify suspicious transactions moreeffectively and to meet our internal andgovernmental standards. Policies and proceduresare regularly updated to reflect regulatory changeand evolving best practice.

Annual money laundering prevention training isprovided to all Private Banking client contactemployees, traders, operations personnel andmanagement. Additional training is given wheneverthere are changes to local laws and regulations or toour own practices. The adequacy of our moneylaundering training programmes is audited internallyand inspected by external regulators.

We also recognise that certain categories ofcustomer — for example, public officials who openaccounts outside their home countries —potentially pose a greater risk of laundering theproceeds of illegal activity, such as corruption, andthat in such cases more stringent controls areneeded. The approval process for such clientsinvolves the local compliance officer, a seniormanager of the bank, the Global MoneyLaundering Control Officer and the Chief MoneyLaundering Control Officer.

Our People

A key objective of our ‘Managing for Growth’strategic plan is to attract and motivate talentedpeople. The breadth of the communities and marketswe serve means we can harness a wide range of skillsand perspectives.

DiversityThe ‘Diversity Toolkit’, reported in last year’s report,has been well-received by our managers who adoptbest practice for developing diversity strategies locally.We now need to expand the content to provide morecommercial case studies to show clearly the businesscase for diversity and to make the content accessibleto all our employees. In 2006, we will redesign thediversity intranet to support the Toolkit, and willprovide an update in next year’s report.

In Hong Kong, HSBC launched an interactivediversity competition on its employee intranet toincrease awareness of the issue and develop adatabase of business and cultural etiquette.

17

18



GenderIn 2005, HSBC launched ‘Accelerating GroupStrategy’, HSBC’s first Global Women’s Summit.The summit was a direct result of our 2004commitment to address findings that more senior-level women than men believed that gender was abarrier to career progression. Thirty-seven femalebusiness leaders from across the Group took part in‘virtual’ work groups to develop recommendationsfor presentation to the Group Chief Executive. Weare working to develop other ways of ensuringprogress in this vital area. In 2006, we will run a pilotof a cross-industry consortium of senior executivesworking on common strategic issues.

Last year, we made a commitment to increase thenumber of women in our Group ‘talent pool’, whichconsists of individuals identified as HSBC’s globalleaders of the future. Such individuals are highperformers, and typically have internationalexperience and/or are internationally mobile.Although there has been no change in the 17 per centreported for 2004, we remain committed to the long-term aim and will continue to review our assessmentprocesses and secondment policy. In 2005, weintroduced a pilot mentoring programme aimed attalented senior female executives. We will review itsprogress in 2006.

DisabilityWe are evaluating our branch and cash machinelocations in many countries to ensure that disabledpeople have access. HSBC offices and branches inHong Kong, India, Sri Lanka, Taiwan and Thailandare in the process of building ramps and otherfacilities for physically handicapped employees.

Working environment

Anti-discrimination

Specific employee policies are determined by theregion and by legislation and cultural norms. Allemployees are responsible for treating colleagueswith dignity and respect and for creating anenvironment free from discrimination, harassment orvictimisation. Breaches of policy may be subject todisciplinary procedures.

Flexible working

In today’s society, we need to give employees theflexibility to enjoy a healthy and productive work-lifebalance. A flexible working pilot project is beingdeveloped at Group level to re-evaluate our existingoffice working practices and to take advantage oftechnological innovations — both within and outsideour offices. We aim to increase productivity, makeourselves more responsive to our customers’ needs, and

to increase employee satisfaction. The findings of thepilot project will be summarised in next year’s report.

The Group’s Human Resources, IT and CorporateReal Estate departments have collaborated to developflexible working in a number of locations, for examplein Taiwan, where employees with particular family,personal health and development needs are eligible to apply.

In response to the 2004 employee survey, a newchildcare scheme was introduced in the UK. Wesubsidise nurseries and provide childcare vouchers tohelp employees pay for the care of children up to theage of 16. Almost 1,000 employees now use thisscheme. Our child day-care centre in Hong Kong wasset up in 1990 and is also very popular.

Health and safety

We attach prime importance to ensuring a safeworking environment, with measures in place todeal with risks ranging from terrorist threats andnatural disasters to fire, disease and accidents. Weencourage our employees to accept health andsafety as part of their individual responsibilities.The Group’s health and safety procedures were

Profile of HSBC’s employees 2005 2004 2003% % %

Total employees:Male 45 45 44Female 55 55 56

Senior management grades:Male 81 83 83Female 19 17 17

Junior/Middle management grades:Male 56 53 59Female 44 47 41

Group ‘talent pool’:Male 83 83 n/aFemale 17 17 n/a

Workforce by main geographical area: % of totalUK 20 23 n/aUS 17 19 n/aAsia-Pacific 26 29 n/aBrazil 10 12 n/aOther areas 27 17 n/a

Employment type: % of totalFull-time 92 90 n/aPart-time 7 9 n/aTemporary 1 1 n/a

Figures for 2005 have, for the first time, been collatedautomatically instead of manually by Group Human Resources,which will provide more comparable figures in the longer term.

19

revised during 2005 to ensure that they are risk-focused and that responsibilities are clearly defined.

Health, safety and fire co-ordinators areappointed in every country where we operate tooversee the implementation of procedures specific toeach risk. The adoption of a Group-wide safetymanagement system provides the framework for astructured approach to assessing risks, monitoringimplementation of procedures, and reviewing oursystems and performance continually.

Accident reporting and reduction targets

Accidents are recorded, reported and investigated ata local level in each country. Serious incidents arereported to Group Fire and Safety, encompassing thekey requirements of the International LabourOrganisation’s Code of Practice.

Following our significant progress in reducingaccidents in the UK since 2001, we are collating moredetailed global accident data this year. Our target is a10 per cent reduction over five years in the Group-wide rate of accidents resulting in more than threedays’ absence, based on figures for 2006.

Reportable injury rates in the UK increased in2005 due to the use of a new improved monitoringsystem. This ensures that any accidents that may nothave been recorded in the past are now included, soworking days lost are now properly compiled.

Avian flu

In late 2005, the Group Management Board endorseda Group Response Plan for an avian flu pandemic.Consequently, all country managers were instructed tostart a local contingency planning process to preparefor a pandemic. We are assuming a worst-case scenario

of 50 per cent of our workforce at any one time beingunable to perform their roles because of sickness,caring for family members or transport disruption.

Learning and development Learning and development is essential in a fast-changing industry so we regularly revise our trainingprogrammes. In 2005, we invested an average ofUS$800 per employee on training programmesdelivered by our 16 major training centresworldwide. In Hong Kong, an average of 36 hoursper employee was spent on classroom and e-trainingprogrammes. In the UK, almost 173,000 delegate-learning days were recorded, with some 33,000employees attending face-to-face training courses.

Corporate social responsibility and complianceform a core part of the training for relationshipmanagers working in Commercial Banking andCorporate, Investment Banking and Markets.Delivered by our Group training function to ensureconsistency across our customer groups, the coursescover reputational risk, living brand values andmeeting strategic imperatives.

In 2005, 120 of our Commercial Bankingrelationship managers received training in CSR and,in the UK, all newly recruited managers received thistraining. More than 235 CIBM executives, including125 graduate trainees, received CSR training duringthe year.

In 2005, HSBC México undertook a generalemployee training initiative, ‘El Mundo HSBC, UnaNueva Actitud’ (‘The World of HSBC, A NewAttitude’) aimed at improving customer service skills.Every day, an average of 125 employees participatedin an activity-based mobile road show visitingvarious Mexican cities.

HIV/AIDS educationWe operate in a number of countries particularlyaffected by HIV/AIDS. Over the past two years, thesteepest increases in HIV infections worldwide haveoccurred in East Asia, Central Asia and EasternEurope. We are focusing on addressing HIV/AIDSissues among our 20,000 employees in the 11 GroupService Centres (GSCs) in China, India, Malaysia,the Philippines and Sri Lanka.

Employee ethnicity

in HSBC’s main Asia-

geographical areas UK US Pacific Brazil

% % % %Asian 6 9 68 1Black 2 17 0 0White 83 62 4 0Hispanic 0 12 0 0Latin American 1 0 0 99Unknown/Other 8 0 28 0

2006 2001

Workplace fatalities and accidents target 2005 2004 2003 baseline

Number of workplace fatalities (worldwide) 0 1 0 0 n/aAccidents involving more than three days’ absence (worldwide) n/a 381 356 406 n/aReportable injuries per 100,000 employees (UK only) 133 162 151 177 205Working days lost from work-related injury per 100,000 employees (UK only) 2,188 3,249 1,839 2,574 n/a

In 2005, a contractor died while working on a construction project in Hong Kong. We deeply regret this loss of life.

* Previous results, including the baselines and targets, were revised in 2004 to reflect improvements in the provision of human resourceinformation. Statistics exclude fatalities or injuries related to terrorism.

***

20



Find out more information about our people management, see www.hsbc.com/people

An HIV/AIDS awareness campaign was launchedin 2005 across all of our GSCs aimed at preventingnew infection and reducing stigma. The campaignincludes fund-raising activities, the proceeds of whichare channelled towards local community initiatives tocombat HIV/AIDS. Some 2,000 of our GSCemployees, sporting red ribbons, engaged in fund-raising activities in support of World AIDS Day.

Launched in 2005, the GSC intranet has enabledthe effective sharing of policies, including our anti-discrimination policy on HIV/AIDS.

A GSC in India piloted a series of healthawareness workshops for employees, includingHIV/AIDS as a topic. As a result of the pilot’ssuccess, the workshops will be extended to all theGSCs in India and Sri Lanka, and become part ofthe induction for new employees.

Since joining the Global Coalition on HIV/AIDStwo years ago, HSBC has been working withcoalition partners to develop policies for thetreatment of its employees and customers, and mayexpand HIV/AIDS education programmes, such asthose in Asia, for both staff and customers.Employees are required to familiarise themselveswith our policy on HIV/AIDS so they can foster anenvironment of non-discrimination.

The increasingly critical nature of the epidemicmeans there is still much work to be done. In 2006,we will appoint a senior human resources manager todevelop our Group policies on HIV/AIDS.

Pay and reward We undertook a comprehensive equal pay analysis ofsenior executives in Brazil, France, Hong Kong,Mexico, the United States and the UK. Resultsindicated no systemic gender or policy bias. Weconcluded that, at career entry level, there is nodifference in the base salaries offered to men andwomen although specific organisational levels anddifferent countries show discrepancies. Our GroupChief Executive has stressed to all business heads theurgent need to identify and address any specific casesof gender pay inequality.

We want to reward colleagues fairly for theirefforts and our performance management system is akey tool for measuring this. Setting agreed objectiveswith regular reviews ensures that colleaguesunderstand their goals, make progress towardsachieving them, and are rewarded for their efforts.

In December 2005, we contributed £1 billion(US$1.7 billion) into our UK pension funds. Thetop-up of £700 million (US$1.2 billion) from HSBCHoldings plc and £300 million (US$523.8 million)from HSBC Bank plc nearly halved the £2.1 billion

(US$3.7 billion) shortfall. Previous additionalcontributions include £500 million (US$806.8million) in February 2003 and a further £84 million(US$135 million) in August 2003.

Economic Impacts

Our ‘Managing for Growth’ strategy aims to buildupon our record of profitable growth achieved underour previous strategic plan, ‘Managing for Value’(1999-2003). Our success under ‘Managing forGrowth’ will be measured by benchmarking ourabsolute performance against a peer group of

Creating environmental champions

HSBC volunteers from our businesses around theworld participate in activities with a positive impacton the environment. Here are just a few examples:

Hong Kong: Wayfoong Green Ambassadors

Wayfoong Green Ambassadorssupport the bank’s environmentalinitiatives and promote activitiesco-ordinated by local environ-mental organisations in HongKong. More than 150 registeredemployee members participatedin ‘green’ visits, road shows and

seminars — including a dolphin conservation seminar —held throughout the year.

France: ‘Je sors, j’éteins!’ (‘I leave, I switch off’)

In June 2005, duringSustainable DevelopmentWeek, a national eventsponsored by the Frenchgovernment, HSBC Francelaunched an internal

campaign providing employees with stickers to beplaced by exit doors, on their workstations and onprinters reminding them to turn off electricity-consuming devices when not in use.

Mexico: Cuida tu Ambiente (‘Look after your

environment’)

Ecolo-Guias (‘eco champions’)in Mexico receive environmentaltraining through an innovativeprogramme that reinforcesleadership, and communicationand team-working skills. During

2005, more than 200 employees received training,implemented 20 projects within their own businessareas, and encouraged their colleagues to get involvedin environmental activities organised by the bank.

21

financial institutions over a three-year rolling period,as well as looking at comparative total shareholderreturn — defined as the increase in share price andthe value of dividends reinvested.

We estimate that over 15 million people in the UKalone have an interest in HSBC shares, either directlyor through pension schemes or savings plans.

In 2005, HSBC achieved a pre-tax profit ofUS$20,966 million. The government’s 2005 valueadded scoreboard shows that HSBC contributes£14.5 billion (US$26.3 billion) a year to the UKeconomy through wealth creation — an increase of51 per cent over four years.

Economic value added 2005 2004Creation of value added US$b US$bReceived by HSBC for supply of products and services 92.8 75.4Returns on investments 2.2 3.2Servicing of finance (36.7 (27.0Payments to suppliers (premises and other) (11.1 (9.7Total 47.2 41.9

Distribution of value added

Employees (remuneration for their services) 15.1 13.5Government (taxes and social security) 6.2 5.6Corporate social investment 0.1 0.1Shareholders (cash dividends and minority interests) 8.5 8.3Retained for investment 17.3 14.4Total 47.2 41.9

)

)

))

22

Direct Environmental Impacts


HSBC’s Environment and Sustainability team isresponsible for developing and implementing anEnvironmental Management System (EMS) tomanage the direct environmental impacts of ourproperty portfolio. The EMS identifies areas forimprovement through monitoring, measuring andassessment.

In 2005, our achievements were as follows:

• Developed Group Environmental Design Guide-lines for the management and reduction of carbondioxide emissions produced by our buildings;

• Achieved a rating of ‘Excellent’ for HSBC’sGroup Head Office from the Building ResearchEstablishment Environmental AssessmentMethodology;

• Developed and rolled out the first test phase of areporting tool across the Group to facilitateenvironmental data collection, consolidation andtarget tracking;

• Established three-year (2005-07) direct environ-mental impact targets for our major operations;

• Reduced our direct carbon dioxide emissions byimproving our carbon management practices,investigating opportunities to use renewabletechnologies, and purchasing energy-efficient,cost-effective products; and

• Implemented a project in the US to reduce paperreports and related non-value added work in localretail branches.

Improvements in Environmental Reporting

We implemented a new global environmentalreporting tool that tracks, consolidates and reportson energy and water consumption, waste production,carbon dioxide emissions and business travel acrossthe Group. The system currently covers 94 per cent ofthe Group’s full-time equivalent employees in 41countries and territories, with four more countriesexpected to be added in 2006.

The tool allows us to assess implementation of theEMS and our progress towards adopting theprinciples of ISO14001. The EMS will be used to setpriorities for the roll-out of training, thedevelopment of operational procedures, and thereview of Group-wide strategies.

Consolidated Reduction Targets

In July 2005, HSBC announced direct environmentalimpact reduction targets for our buildings around theworld. We will report on these targets on our web sitein July 2006.

Scope of reportingWe report our energy and water usage, wasteproduction and CO2 emissions for 32 of the 76countries and territories where HSBC has offices,which represent 94 per cent of our full-timeequivalent employees. However, our current datagathering system does not enable us to account for100 per cent of the employees in each reporting unit.As seen in the table on page 23, the environmentaldata coverage and quality score 7.4 and 7.8 respectively.In addition, we do not report quality or coveragedata for a number of our companies in the US, Armenia, Greece, Luxembourg and India(Hyderabad and Babukhan).

EnergyIn 2005, our energy consumption per person droppedto 6,367 kilowatt-hours (kWh) from 6,797 kWh in2004, due to initiatives to improve the efficiency oflighting, heating and cooling of our offices and to therenewal of IT equipment. In addition, we improvedthe management and operation of equipment,installed energy-saving devices for automatic switch-off and power-down, and improved metering.

Planned reduction

targets Energy Waste Water CO2

% % % %UK 9 13 10 2France 2 4 9 1USA and Canada 7 5 9 7Mexico 7 23 10 6Argentina and Brazil 11 2 5 3Asia-Pacific 4 2 4 4Average reductions 7 8 7 5

For more information about our reduction targets, see www.hsbc.com/environment

Total energy consumption (000 kWh)

Total energy consumed per person (000 kWh/full-time equivalent)

200520042003

8

6

4

2

0

2,000,000

1,500,000

1,000,000

500,000

0

HSBC’s energy consumption 2003-05

Waste figures refer to waste to landfill. CO2 figures refer toemissions from energy use. The above figures represent 90%of HSBC’s property portfolio by full-time equivalent.

23

Environmental Reporting System Units 2005 2004 2003Total Group employees Full-time equivalent 268,471 243,333 222,719Environmental reporting coverage Full-time equivalent 252,914 220,055 152,436Coverage as % of Group 94% 91% 68%Total floor area covered thousand m2 6,002 5,243 3,653Floor area per person m2 23.73 23.83 23.96Environmental data quality Internal assessment scale 1-10 7.8 7.7 5.2Environmental data coverage Internal assessment scale 1-10 7.4 7.9 n/a

Resource efficiency

Total energy consumption gigawatt hours 1,610 1,496 1,155Energy consumed per person MWh/full-time equivalent 6.37 6.80 7.58Energy consumed per m2 kWh/m2 268 285 316

Total waste produced kilotonnes 54 47 38Total waste produced per person tonnes/full-time equivalent 0.21 0.21 0.25Waste to landfill kilotonnes 30 27 22% waste to landfill 55% 57% 58%Waste recycled kilotonnes 24 20 16% waste recycled 45% 43% 42%

Total water consumption thousand m3 4,041 3,629 2,703Water consumption per person m3/full-time equivalent 16.00 16.49 17.73

Total business travel million km 849 626 370Business travel per person km/full-time equivalent 3,360 2,846 2,427

Greenhouse gas emissions

CO2 emissions from energy kilotonnes 539 497 510CO2 emissions from business travel kilotonnes 124 88 55Total CO2 emissions kilotonnes 663 585 565

CO2 emissions per person from energy tonnes 2.13 2.26 3.35CO2 emissions per person from business travel tonnes 0.49 0.40 0.36Total CO2 emissions per person tonnes 2.62 2.66 3.71Total CO2 emissions per m2 tonnes 0.11 0.09 0.14

WasteThe total amount of waste produced per employeeremained constant at 0.21 tonnes during 2005.However, improved waste management resulted in a2 per cent increase in recycling.

WaterWater consumption per employee fell from 16.5 cubicmetres in 2004 to 16 cubic metres in 2005 as a resultof initiatives such as the installation of water-savingdevices, efficiency campaigns and improved metering.

Waste to landfill (tonnes)

200520042003

0.28

0.24

0.20

0.16

0.12

0.08

0.04

0

60,000

50,000

40,000

30,000

20,000

10,000

0

Waste recycled (tonnes)

Waste produced per person (tonnes/full-time equivalent)

HSBC’s waste production 2003-05

Total water consumption (000 m3)

Water consumption per person (m3/full-time equivalent)

200520042003

20

15

10

5

0

5,000

4,000

3,000

2,000

1,000

0

HSBC’s water consumption 2003-05

24

Direct Environmental Impacts (continued)


Carbon dioxideOur total carbon dioxide emissions per employeedecreased from 2.66 tonnes in 2004 to 2.62 tonnes in2005. Our total reported emissions increased due tobusiness travel, expanding reporting coverage, andimproved data capture.

Supply Chain

Management overviewHSBC incurs an annual expenditure of over US$7billion for purchasing a wide range of products andservices, including IT hardware and software,telecommunications, transportation, energy andpaper. The largest expenditure is on IT equipmentand services at US$2.7 billion per annum. Ourprocurement network consists of around 430 peoplein 56 countries and territories. Suppliers range fromlarge multinationals to small local businesses. Ouruse of e-procurement systems is designed to meetboth local and global business needs.

In 2005, we committed all heads of purchasing inthe Group to incorporate specific reference to CSR intheir annual objectives. This target was achieved,ensuring proactive implementation of CSR strategyin the supply chain and effective management ofsupplier risk.

E-procurementOur ‘BuySmart’ e-procurement system has beenextended to the Middle East, Australia, NewZealand, China, Thailand, Malaysia, Indonesia andIndia.

E-procurement helps reduce costs and our impacton the environment. In 2005, we increasedsignificantly the volume of purchase orders andinvoices despatched electronically to 587,000 and112,000 respectively.

Supplier contractsWe look for suppliers who share our commitment toCSR and stipulate environmental criteria in tenders.HSBC’s ‘Request for proposal’ process requiresconfirmation of adherence to socially responsibleand sustainable business practices from any third-party supplier and forms a key part of anycontractual arrangement.

Our ‘Ethical Code of Conduct’ for suppliers,which is reviewed on a regular basis, spells out ourexpectations of suppliers’ environmental practicesand employment conditions, including child labourand discrimination issues. Prospective suppliers areasked to provide their corporate policies relating toCSR for us to assess, and existing suppliers areexpected to audit and monitor their practices toensure compliance with the code of conduct. Therewere no dismissals of suppliers last year for breach ofthis code.

Working with suppliersIn Thailand, we recently participated in the ThailandGreen Purchasing Network to exchange informationon ‘green purchasing’ and to promote themanufacture of environmentally friendly products.We have also been working with our internal caterersto introduce more environmentally friendlyinitiatives, for example, the use of biodegradableplastic bags. Through our purchasing requirements,such as specifying Forest Stewardship Councilcertification, HSBC also indirectly influences theenvironmental impacts of our suppliers.

Colleagues in London and Asia-Pacific workedtogether with certain third-party specialists to assessthe latter’s manufacturing sites, even though these maynot supply HSBC directly. Our recommendations werenot only aimed at ensuring that goods supplied toHSBC are manufactured in an acceptable manner, butthey also assisted our suppliers to improve on currentprocesses.

Environmentally friendly purchasing

Electricity

In the UK, we obtain all of our electricity from arange of non-fossil fuel sources. While this meanselectricity is purchased at a premium, the UKgovernment’s climate change levy provides a subsidyfor such environmentally friendly action. In the US,HSBC contracted in 2005 to purchase ‘green’electricity, which helped us to win an award for ‘greenpower leadership’ (see page 16).

CO2 emissions from energy (tonnes)

200520042003

4

3

2

1

0

800,000

700,000

600,000

500,000

400,000

300,000

200,000

100,000

0

CO2 emissions from travel (tonnes)

Total CO2 emissions per person (tonnes/full-time equivalent)

HSBC’s carbon dioxide emissions 2003-05

For more information, visit www.hsbc.com/supplierscode

25

Paper and printing

HSBC is a major consumer of paper. We continue tomeasure our usage and switch to more sustainablesources. In 2005, we expanded the scope of ourmeasurement to cover paper used for marketing purposes.

We have made progress in Argentina, Australia,Canada, Malaysia, Malta, Mexico, the Philippines,Singapore, Sri Lanka and Thailand. We have more workto do in these countries and in others to ensure that allour paper is of Forest Stewardship Council (FSC) orequivalent standard. Most of the copier and printerpaper used in HSBC’s UK operations — approximately300 million sheets per annum — is now FSC-certified.We are starting to use FSC-certified paper for stationerysuch as letterheads and compliments slips.

In 2005, a print supplier in Hong Kong, one inFrance and another in Luxembourg became one ofthe first printers in their respective locations toobtain FSC certification.

Duplex printers and copiers, which print on bothsides of a sheet of paper, are now used in Australia,

Canada, China, France, India, Hong Kong, Brazil,Turkey and the UK, as well as in some of our GroupService Centres. Furthermore, recycled tonercartridges are used in Argentina, Canada, Malta,Hong Kong, the Philippines, Thailand and the UK.

Vehicles

Use of environmentally friendly ‘hybrid’ vehicles isencouraged in Hong Kong, Bangladesh, the UK,Brazil and Mexico. HSBC México has purchasedthree hybrid cars for corporate use, making it the firstbank in the country to do so.

Supplier engagementIn-depth discussions with major suppliers, includingMicrosoft, DHL, Sodexho, British Airways andCathay Pacific, have increased awareness of theimportance of CSR within the supply chain, allowedtransfer of best practice, and enabled HSBC toachieve environmental targets through collaboration.In many cases, HSBC has been the first customer toapproach suppliers proactively to discusscollaboration on CSR issues.

Summary Assurance Statement:Environmental Indicators

Supplier engagementHSBC Holdings plc (‘HSBC’) engaged Det Norske VeritasCertification BV (’DNV’) to conduct an external verificationof the environmental indicators: CO2 equivalent emissions,waste production, and energy and water consumption asindicated within its Corporate Social Responsibility Report2005 (‘the Report’). In addition, DNV has reviewed andassessed the quality of the four selected carbon reductionprojects and generated amount of emission reductionsclaimed. In this respect, DNV has applied a pragmatic andconservative approach, ensuring that offsets contracted canbe seen as credible in the eyes of the public.

HSBC is responsible for the collection and presentation ofinformation within the report. Our responsibility inperforming this work is to the management of HSBC only andin accordance with terms of reference agreed with them. DNVexpressly disclaims any liability or responsibility for anydecisions, whether investment or otherwise, based upon thisassurance statement. For information about the scope ofassurance and verification methodology, please see DNV’s fullstatement on HSBC’s web site: www.hsbc.com/dnv2005.

Principal findingsHSBC is to be commended on its ongoing commitment tocontinuous improvement in reporting its environmentalperformance. The introduction of the new reporting tool for2006 data is, in this respect, an example of enhancingreporting performance and quality. The 2005 reportingboundaries cover 41 reporting units, including eight GroupService Centres, in 32 countries and territories out of the 76where HSBC has offices. In comparison with 2004 reporteddata, the overall quality of the 2005 data has improved as wellas the data coverage which introduces limitations to thecomparability of the data. Additionally, new reporting unitshave been included within the 2005 reporting boundaries.Deviations have been observed within the data coverage, datasets reported and completeness among the various reporting units.

RecommendationsWe recommend that HSBC:

• continues to improve the quality of the data managementand reporting processes; and

• continues to improve the completeness and accuracy of thereported data.

ConclusionBased upon the above, in our opinion nothing has come to ourattention that causes us to believe that the selected quantitativeindicators listed above and set out in the CSR Report 2005 arenot fairly stated.

Carbon neutral pilot projectBased upon the assessment of the four carbon offset projects(see page 11), it is our conclusion that the Te Apiti wind farmproject in New Zealand meets the highest quality standards.This project has achieved Gold Standard. Both the projects inSandbeiendorf and in Victoria can be considered of a goodquality. Emission reductions for 2004 and 2005 have beenverified and considered fairly stated and sufficient to meet theneeds of HSBC. Based upon the information provided to date,it has been observed that the additionality of the proposedsmall-scale CDM Vensa Biotek project is consideredquestionable. However the project is currently undergoing thevalidation process. Overall the Te Apiti, Sandbeiendorf andVictoria project(s) are capable of providing sufficientvoluntary emission reduction units to meet the needs ofHSBC's carbon neutral project.

Sven Starckx Luc LarmuseauLead Verifier Management Representative

Det Norske Veritas Certification BVRotterdam20 April 2006

26

Community


HSBC supports the communities in which we operateboth through the involvement of our employees andthrough donations. We also support local effortsaround the world through such schemes as payrollgiving, matched donations and time-off forvoluntary work.

Our Group-wide policy on philanthropy is to focuson education and on the environment, with a target of75 per cent of our community giving being allocated tothem. We believe specific themes in education and theenvironment have the potential to benefit individuals,communities and the planet — and also enhance ourbusiness in the long term.

Facilitating Donations to the Community

We offer our staff and customers in a number ofcountries the opportunity to make donations to theirlocal communities via cash machines, and viatelephone and internet banking.

In 2006, we plan to develop, through our globalinternet banking platform, a service that will allowcustomers in all our major markets to makedonations through internet banking.

Education

In education, we concentrate our efforts on:

• Primary and secondary education;

• Financial education;

• Disadvantaged children;

• Projects promoting international understanding;and

• Teaching languages, particularly Asian languageswhere they are not indigenous in English-speaking countries.

We also favour projects that encourage employeeinvolvement. For example, in the last two yearsHSBC supplied more school governors in the UKthan any other company.

Projects promoting international understandingThe Global Teachers Programme, supported by theHSBC Education Trust, has enabled 38 teachers fromthe UK to spend their summer holiday in SouthAfrica and Uganda, living under basic conditions,teaching and sharing their expertise with localschools and communities.

We support a wide variety of projects to promoteinternational understanding. For example, wesupport the teaching of Mandarin in schools,funding 35 teachers from China to teach in the UK in2005 and supporting a Mandarin-speaking andperformance competition for UK schoolchildrenorganised by the British Council.

Country Facility provided Amount donated 2005

Mexico Donations via ATM provided since 2002 and via internet banking since2004. We ran two emergency campaigns in 2005 after the Asian tsunami and hurricanes Stan and Wilma.

MXP19m (US$1.7m)

Hong Kong Donations to nominated charities via ATM and telephone banking usingbill payment functions, and via internet banking.

HK$4.67m (US$600,000)

Brazil Using ‘Solidarity’ credit card guarantees a monthly donation of R$10 to a local NGO, Pastoral da Criança, which supports disadvantagedchildren and their families. A percentage of card purchases and benefitpoints can also be donated to nominated charities.

R$328,000 (US$135,000)

UK Donations to selected charities through personal internet banking and ATMs.

£64,000 (US$116,000) (since November 2005)

Turkey To encourage use of e-statements, HSBC donates money to localeducational charities for every customer who signs up to receive e-statements instead of paper statements.

(Started early 2006)

HSBC’s community donations by region 2005

Total 100.0 81.4

Europe (includes global donations) 38 30.6

North America 49 40.1

South America 4 3.1

Asia, Middle Eastand Africa 9 7.6

% US$m

For more information on HSBC’s philanthropic activities, see www.hsbc.com/community

Facilitating customers’ community donations

27

In 2005, we signed a memorandum ofunderstanding with the Chinese Ministry ofEducation to promote educational and culturalexchange between China and the UK.

Financial educationThe HSBC Financial Literacy Programme, a US$3million commitment over three years and our firstglobal programme in education, was launched duringthe year, initially in 27 countries. The programmeaims to encourage financial literacy, with anemphasis on young people aged 16 to 25, and womenentrepreneurs. It was developed by our Corporate,Investment Banking and Markets customer group inconjunction with the HSBC Education Trust andStudents In Free Enterprise (SIFE). SIFE is a non-profit organisation that mobilises university studentson more than 1,000 university campuses in over 40countries. In 2005, the programme provided funds toaround 300 SIFE universities that ran a total ofnearly 350 projects. SIFE estimates that more than2,850 students were involved and that over 169,000individuals benefited directly from their efforts inlocal communities.

This global programme is complemented byHSBC’s continuing support — in terms of financeand employee time — for the schools programme ofJunior Achievement and Young Enterprise in NorthAmerica, the UK and Asia-Pacific. Another exampleof our support for financial education is a pledge byHSBC Amanah of US$150,000 for the IslamicFinance Project at Harvard Law School, whichfocuses on academic issues in the field of Islamicfinance.

Nurturing talentHSBC has provided talented young people withfinancial support in a number of countries. A US$1million grant to the United Negro CollegeFund/HSBC Corporate Scholars Program providesstudents with funding for college tuition as well aspaid summer internships at HSBC offices in the US.The Hongkong Bank Foundation committedHK$7.6 million (US$900,000) towards variousscholarships, bursaries and other developmentprogrammes during 2004-05 for more than 400students from 10 local institutions. To promoteinternational diversity, a further HK$910,000(US$100,000) is being donated in 2005-06 to fundnew programmes for students from mainland Chinaand overseas to study in Hong Kong. The foundationalso awards up to 40 scholarships each year tostudents to study at three universities in China. In2005, through the HSBC Scholars’ scheme 183 youngpeople in the UK were given the opportunity to studyat independent schools, and HSBC in Malaysiafunded 37 university scholarships.

Environment: ‘Investing in Nature’

The linchpin of HSBC’s worldwide support for theenvironment is our US$50 million, five-year‘Investing in Nature’ programme, launched in 2002and involving three partners: Botanic GardensConservation International (BGCI), WWF andEarthwatch.

Protecting plant biodiversityOur work with BGCI aims to protect 20,000 plantspecies from extinction. To this end, HSBC’s supporthas enabled over 440 botanic gardens from 81countries to take on key conservation roles asparticipants in the International Agenda for BotanicGardens in Conservation.

During 2005, an increasing number of botanicgardens made a formal commitment to work withBGCI to implement the International Agenda forBotanic Gardens in Conservation, which isrecognised by the Convention on Biological Diversityas a major contribution towards the implementationof the Global Strategy for Plant Conservation.

Conserving freshwater ecosystemsWWF is working with HSBC to breathe new life intothree of the world’s major rivers. Work on theYangtze, Amazon and Rio Grande concentrates ondeveloping sustainable river management involvingstakeholder groups at a national and a local level.

The Yangtze Forum was established by WWF inApril 2005 to act as a precursor to a Yangtze RiverBasin Commission. The Forum is responsible fordeveloping a programme for the management of theriver and, for the first time, for co-ordinating theactivities of the numerous government ministries andprovincial governments to ensure that the Yangtzebasin’s natural resources are sustainably managed.Development will impact directly on the well-beingof the 400 million people living in the basin, and on the ecology and long-term prosperity of the basin itself.

Environmental education and engagementAlthough integral to the programmes of all three ofour environmental partners, employee involvement isthe main focus of our work with Earthwatch. Todate, 1,510 HSBC employees from 54 countries andterritories have joined Earthwatch scientists in thefield, contributing nearly 77 years’ worth of vitalenvironmental research to 88 projects.

Earthwatch and HSBC have also trained morethan 153 scientists in developing countries, providingthem with the research skills necessary to tackle localenvironmental issues.

28

Stakeholder Engagement


Stakeholder engagement is a fundamental part ofour approach to CSR:

• It helps us to understand the expectations peoplehave of our business from the perspective offinancial performance and corporate socialresponsibility;

• It ensures that our business is transparent to ourstakeholders, which we believe to be essential tomaintaining trust; and

• It provides fresh insights that can help ourbusiness to continue to flourish.

In recent years, we have broadened the range ofstakeholders with whom we engage. Our stakeholderengagement remains relatively informal in itsapproach and structure. However, we are currentlyreviewing our engagement strategy.

Customers

Customer satisfaction and our brandPromoting good customer relations is a vital part ofour business. We generally seek to respond within 48hours to customer complaints and use them asopportunities to learn and improve.

Regular surveys are conducted to monitorcustomer satisfaction in most of our areas ofoperations. This information is used to measure staffperformance and determine individual rewards foremployees in our larger businesses.

We also conduct research in 16 markets to trackcustomers’ perceptions of our brand, including CSRissues. Below are highlights from our key marketscompared with the average scores of a sample group offinancial institutions and other international companies.

Financial literacyHSBC-North America’s ‘YourMoneyCountsTM’ pro-gramme features online customer surveys covering

issues such as personal money management, credit,savings and identity theft. The survey results are usedto tailor our education programmes to the evolvingneeds of our customers. For example, in 2005 theresults highlighted identity theft as a primary concern:82 per cent of respondents were worried they wouldbecome victims of identity theft and 37 per cent saidthey had no idea what to do if they became victims. Asa result, HSBC’s Centre for Consumer Advocacylaunched several campaigns to educate the publicabout identity theft and incorporated the informationinto its new workshop curriculum.

Colleagues

Engaging our colleaguesHSBC-North America gave more than 100,000 hoursto community service in 2005. HSBC-NorthAmerica’s ‘YourMoneyCountsTM’ programme pro-vides opportunities for our colleagues to assist othersin their communities. In 2005, 78 volunteers weretrained to teach the ‘YourMoneyCountsTM’curriculum and facilitate workshops on severalfinancial education topics. HSBC employeesworldwide spent a total of 280,000 hours working intheir communities.

HSBC in the US uses surveys to measure the valueof such volunteering initiatives undertaken byemployees. Survey results in 2005 revealed that morethan 93 per cent of managers who participated in acommunity service project at the General Robert EWood Boys’ and Girls’ Club in Chicago classified thecommunity outreach opportunity as ‘outstanding’ or‘exceeded expectations’.

Customer perceptions 2005 UK USA Hong Kong Brazil

HSBC: % % % %is part of the local community where it operates 12 19 44 22— average community score 13 25 32 29

has high ethical standards and practices 19 19 47 36— average ethical standards score 18 26 37 37

has programmes which support education 8 14 23 49— average education score 10 22 20 34

believes in protecting the environment and is involved in positive environmental practices 7 11 23 44— average environment score 8 17 19 33

For more information on the programme, see www.yourmoneycounts.com

The percentages for HSBC indicate interviewees who either ‘strongly agree’ or ‘agree’ with the four statements shown. These results measureperformance in each market and are not intended as a comparative study across countries/territories due to the different methodologies used.

29

Surveys and forumsAll staff in HSBC’s main entities are given theopportunity to complete an employee survey every12-18 months. The results are important to us inestablishing and adapting to the evolving needs ofthose who contribute to the success of our business.Key surveys completed in 2005 included those inHong Kong, the UK and in our Group ServiceCentres (GSCs).

We use the surveys to measure ‘employeeengagement’, which is made up of three components:job satisfaction, intention to stay at HSBC, and awillingness to recommend HSBC as a great place towork. The results are segmented by region whichhelps us to formulate regional engagement plans.External benchmarks indicate that our employees’level of engagement is comparatively strong,although there was no change during 2005 in the 68per cent score of the previous year.

Monthly focus groups are also used to gainfeedback in the UK. In 2005, these focus groupshighlighted the increasing importance of a work-lifebalance, and employees identified as their mainmotivators the opportunity to do what they do bestand feeling valued.

Union representation and dialogueIn the event of significant organisational changewhich directly impacts on employees, we consultthem and their representative bodies, includingunions, works councils and forums. Where roles aretransferred to one of our Group Service Centres, it isour policy to redeploy employees and avoidredundancy wherever possible. We estimate that 40per cent of our staff globally are represented by tradeunions. We respect the right of freedom ofassociation and value the social dialogue.

In the UK, Amicus represents less than 40 percent of our UK clerical workforce. In May 2005,around seven per cent of Amicus members tookindustrial action for one day in a dispute over payincreases. The dispute was resolved throughnegotiation and a three-year pay deal was reachedlinked to increased flexibility in working hours in ourUK branch network.

How our people view CSR We continue to survey our employees worldwide ontheir understanding of, and attitudes towards, CSRat HSBC. A survey involving 869 employees in Brazilenabled us to measure the success of initiatives and togather ideas for increasing employee engagement.This interaction has had a positive impact on thenumber of employee volunteers, including the settingup of a new intranet site for the exchange ofvolunteer opportunities and knowledge.

Results such as these have confirmed widespreadsupport among our employees for CSR, but generallylow levels of understanding about its importance toHSBC and its scope. We aim to improve awarenessand understanding by:

• Encouraging line managers to incorporate CSRinto employee objectives; and

• Employing a CSR communications managerwithin our Group Corporate Affairs function.

Investors

We have around 200,000 registered shareholders in some100 countries and territories. They include pensionfunds, mutual funds and insurance companies, whichprovide millions of people with a financial interest in thesuccess of our business. Our senior management Group-wide leads our engagement efforts with the investmentcommunity. The forms of communication used are theHSBC Holdings Annual Report and Accounts and theAnnual Review; the Annual General Meeting and theinformal meeting of shareholders held in Hong Kong;the investor relations section on our web site, and livewebcasts of financial results, presentations and AGMs;and an extensive programme of institutional investormeetings around the world.

Our increased engagement with investors reflectsa significant growth in the number of group meetingswe are hosting. In 2005, we held meetings withalmost 50 per cent more investors than in 2004.Investor demand for meetings in Asia has beenparticularly strong and, in 2006, we will continue totarget those markets showing the greatest potentialfor investment in HSBC.

We conducted a series of meetings specifically forsocially responsible investors during the year. Feedbackfrom these meetings is relayed twice a year to the CSRCommittee, and plays a vital role in improving thequality and relevance of this report and of our CSRweb site. To facilitate more direct dialogue, the CSRCommittee invited nine institutional shareholders tomeet representatives of the Committee and the CSRExecutive Steering Group in late 2005.

Government

In keeping with our long-standing policy, we madeno donations to any political parties ororganisations in 2005. While we do not generallylobby politicians or legislatures, in the US it isessential to work with state and federal law-makersin order to manage business risk. Our USGovernment Relations department advocatesresponsible public policy positions and helpslegislators to frame laws that are fair to consumers,society at large, and the finance industry.

30

Stakeholder Engagement (continued)


In the UK, we responded to a number of inquiriesby the Financial Services Authority, the Office ofFair Trading and the Treasury into various aspects ofthe financial services market, covering fees for creditcards, alleged mis-selling of payment protectioninsurance, and excessive lending.

Non-Governmental Organisations (NGOs)

We are in regular contact with various special interestgroups and non-governmental organisations (NGOs).We acknowledge the need for transparency in ourproducts and services, such as lending, and seek theright balance between this and protecting ourcommercial and customer interests. We will investigate,and take action relating to, possible social orenvironmental impacts of any projects financed by us.

Certain NGOs have been consulted in the reviewof our sector guidelines prior to their implementationto ensure we consider impacts on the wider world.

HSBC’s partnership with the Mexican AmericanOpportunity Foundation in California has helped usto understand better the needs of people moving tothe US from Latin America. The partnership hashelped HSBC to develop specially tailored productsand services for Latin American customers and toinvest in social projects with the foundation, such asthe HSBC Financial Literacy Centre in California.

Special Interests

Many areas of CSR provide opportunities tocollaborate with other financial servicesorganisations to establish best practice.

Human rightsAs a supporter of the Global Sullivan Principles, theUN Universal Declaration of Human Rights and theUN Global Compact, we expect the higheststandards of ourselves and of our suppliers in theobservance of human rights.

Sustainability issuesWe support the Climate Group, the CarbonDisclosure Project and the Extractive IndustriesTransparency Initiative.

At an industry level, we are increasing ourparticipation in the United Nations EnvironmentProgramme (UNEP) Finance Initiative and, inOctober 2004, we participated in the climate changesession at the initiative’s Global Roundtable. We area member of the UNEP Finance Initiative’s AssetManagement and Climate Change working groups.

The Group Chief Executive is a member of theBlue Ribbon Panel which advised on the revision of theInter-American Development Bank’s environmental

policy. We also operate secondment programmes witha number of Chinese banks, which include sharing ourown experiences in implementing our sustainabilityrisk policy framework.

Bribery and money launderingIn 2004, we issued a Group-wide policy on counteringbribery and corruption. The policy reflects oursupport for initiatives such as the UN GlobalCompact, the OECD Convention on CombatingBribery of Foreign Public Officials in InternationalBusiness Transactions, the International Chamber ofCommerce Rules of Conduct to Combat Extortionand Bribery, and the relevant provisions of the revisedOECD Guidelines for Multinationals. We have alsoexpressed our support for the Wolfsberg Principles,which provide guidance for financial institutions incombating terrorist financing and money laundering.

Reporting

We have worked with a number of other banks andinsurers in the UK as part of the FORGE group, avoluntary organisation seeking to develop commonapproaches to issues of relevance to the financialservices industry. We also participate in the LondonBenchmarking Group.

Key CSR issues

By working with stakeholders, especially investorsand NGOs, and through industry working groups, wehave identified a number of key CSR issues, which arebroken down by customer group below.

Personal Financial Services (including Consumer

Finance)

• Financial inclusion and consumer debt;

• Secure and convenient delivery channels; and

• Customer satisfaction.

Commercial Banking

• Sustainability risk needs to be managed carefullyto minimise environmental and social damageindirectly caused by financing; and

• Emerging markets pose certain regulatory andethical risks.


• Social, environmental and financial risks andopportunities of major capital projects.

Private Banking

• Money laundering and financial crime; and

• Determining the legitimacy of the source of anindividual’s wealth.

For more information on how HSBC is addressing these key CSR issues, see www.hsbc.com/csrissues

31

Our Contribution to Sustainable Development

Commitments for 2005 Status Commitments for 2006

Seek views from a wider range ofstakeholders.

Progress made. Reviewed stakeholderengagement activities in major markets.

Raise ‘environment’ and ‘education’perceptions in the UK and US.

Review approach to assurance and verification.

Progress made. Appointed new assurance provider for this report andcontinued to review assurance approach.

Develop a plan to raise employeeawareness and understanding of CSR.

Consider full compliance with AA1000for our CSR Report 2005.

Progress made. As part of 2006commitment to produce a stakeholderengagement strategy, AA1000compliance to be addressed.

Appoint a manager with specificresponsibilities for stakeholderengagement and reporting.

Produce a stakeholder engagementstrategy.

Review assurance and verification anddevelop long-term plan, includingAA1000 compliance.

Stakeholder Engagement


Install ‘anti-skimming’ devices in UK and consider their use in HongKong, Brazil.

Achieved. Card fraud involving HSBCmachines has decreased significantly.

Work with other banks to encouragegreater use of these devices in UK, andintroduce them in other HSBC businesses.

Launch ‘two-factor authentication’internet banking technology in Hong Kong.

Achieved. ‘Phishing’ activity in theregion has been virtually eliminated.

Negotiate Group-wide contract forprovision of 3DSecure service, which provides enhanced authentication of‘Card not present’ internet transactions.

Expand reporting of customeraccessibility initiatives in HSBC operations worldwide.

Progress made. We have included Hong Kong and Canada.

Personal Financial Services

Our CSR Commitments



Provide training for the Forest Land and Forest Products Sector Guideline.

Achieved. Training DVD produced anddistributed. Worked with Tropical Forest Trust on country-specific training.

Extend sustainability risk training toinclude upgrading for the new EquatorPrinciples and International FinanceCorporation performance standards.

Develop staff training programme forthe new Freshwater InfrastructureSector Guideline.

Progress made. Case study built intoEquator Principles workshop. Regionaltraining under way and training DVD inproduction.

Upgrade systems to standardiseassessment and approval of sustainability risks and expandreporting.

Participate in initiatives to ensure moresustainable expansion of economicallyimportant soy industry in Latin America.

Progress made. Participated in industry-led initiative and attended soy round table.

Engage more closely with microfinanceinstitutions, offering possibility oftechnical support, capacity building andcapital.

Continue to develop Equator Principlesreporting in line with accepted industrystandards.

Achieved. Reporting covers relativelywide range of statistics. Supportedintroduction of minimum reportingstandards in line with SRI investorrecommendations.

Agree targets to enable monitoring andreporting on implementation of sectorguidelines across Group’s loan portfolio.

Pilot three microfinance projects andevaluate further engagement based onthe results.

Progress made. Expanded to includeprojects in Mexico and Russia.

Consider wholesale microfinance loansand securitisations, microfinance funds,micro remittances, micro insurance.

Sponsor recognition programme formicrofinance industry.

Progress made. Hosted UN-organiseddiscussion forum in March 2005.

Issue Energy and Metals and Miningsector guidelines.

Expand sustainable businessdevelopment, focusing on climatechange, low carbon energy, waterinfrastructure, sustainable forestry andrelated agri-commodities.

32

Our CSR Commitments (continued)



n/a n/a Grow HSBC’s ‘Living Business’programme.

Develop an SME mentoring programme for start-up businesses.

Commercial Banking


Develop clear SRI strategy for HSBC Investments.

Progress made. Full review of SRIcompleted in December 2005.Developing new strategy.

Launch an index tracking SRI Fund inBrazil.

Secure more CSR champions to leadcountry-specific initiatives.



n/a n/a Increase CSR elements in Private Banklearning and development programmes.

Private Banking

Work with UK ATM manufacturers to consider needs of disabled users.

Progress made.

Improve accessibility of UK personalinternet banking site to WAI ‘AA’ standard.

Progress made. Due to technical delays,‘AA’ status not yet achieved.


Increase the proportion of women inGroup ‘talent pool’.

No progress made. To continue to focus on this issue, but seek to avoid positive discrimination andmaintain meritocracy.

Redesign and expand Diversity Intranet,and enhance Diversity Toolkit withfurther case studies aimed at all employees.

Develop a plan for perceived and actualpay differentials between men andwomen.

Achieved. Form a Group Diversity ManagementCommittee to increase dialogue ondiversity issues.

Ensure all employees have opportunityto participate in survey during 2004-05.

Achieved. Communicate best practice andlearning points of Group flexibleworking pilot project.

Raise the average level of employeeengagement.

No progress made. Our globalemployee engagement score remains at 68 per cent.

Further develop Group policies onHIV/AIDS and ensure connection withdiversity and CSR.

Review target for working days lost toensure it is set appropriately.

Achieved. Adoption of an AIDS home to promoteHIV/AIDS awareness through employeevolunteering.

Set targets for reportable injuries and working days lost for countriesoutside UK.

Achieved. Set also for France, HongKong, USA, Brazil, Argentina.

Improve accident reporting proceduresto ensure consistent global approach.

Our People

Personal Financial Services (continued)

33


Continue development of energycommittees in Asia-Pacific, North America.

Progress made. Energy commiteeestablished in the US.

Increase use of energy-efficienttechnology and renewable energy(wind and solar).

Roll out the EMS across Group,establish benchmarks and report on its performance.

Progress made. Launch of EMSmeasurement and tracking tool inreporting countries.

Launch a new Group-wide programmeto reduce direct impacts onenvironment.

Expand measurement of paperconsumption to more countries.

Progress made. Increase in reportingcoverage.

Continue working with transportsuppliers to offset CO2 emissions.

Publish global environmentalperformance targets online byJuly 2005.

Achieved. Targets can be found atwww.hsbc.com/environment

Maintain carbon neutral status.

Direct Environmental Impacts


Roll out e-procurement system in Asia-Pacific, Europe, Middle East.

Achieved in Middle East, Australia, New Zealand, China, Thailand, Malaysia, Indonesia, India.

Continue to roll out e-procurement system.

Ensure all heads of purchasingdepartments have specific reference toCSR in annual objectives.

Achieved. Reduction of paper usageand management of supplier risk.

Add a full-time resource to increasesupplier contact and promote CSR in business practices.

Place 25% of qualified purchasingspending with minority-owned andwomen-owned businesses by 2009 aspart of US supplier diversity programme.

Progress made: 5% achieved. 2009target will be re-validated during 2006.

Supply Chain


Establish better database for employeevolunteering in work time.

No progress made. Unable to complete this during 2005, but expect to make progress in 2006.

Recruit a Community InvestmentManager to measure giving as set byLondon Benchmarking Group model.

Develop a strategy for philanthropicpolicy.

Progress made. An internal StrategicReview of Philanthropy was givenBoard approval in November 2005.

Set up HSBC Amanah Foundation tosupport educational projects in low-income Muslim countries and zakatdonations (annual charitable contributionrequired of Muslims) to poverty anddisaster relief, and to widows and orphans.

Community

Conduct an employee opinion surveyin all GSCs.

Achieved. Results in line with globalemployee engagement score.

Achieved.

Introduce dedicated GSC intranet tocomplement existing communicationchannels.

Achieved. Launched in September, used as an information andcommunication tool among GSCs.

Achieved.

Our People (continued)

34

Global Reporting Initiative Index


Vision and strategy Page

1.1 Contribution to sustainable development 9

1.2 Group Chairman’s Introduction 4

Profile

2.1 Name of reporting organisation 22.2 Major products and/or services 22.3 Operational structure 22.4 Major divisions, operating

companies, subsidiaries 2-32.5 Location of operations 2-32.6 Nature of ownership 72.7 Nature of markets served 22.8 Scale of the organisation 2-32.9 List of stakeholders, key attributes

and relationship 28

Report scope

2.10 Contact person inside back cover2.11 Reporting period inside back cover2.12 Date of most recent

previous report inside back cover2.13 Boundaries/scope of report NR2.14 Significant changes in size, structure,

ownership or products/services NR2.15 Basis for reporting on joint ventures NR2.16 Restatements of information n/a

Report profile

2.17 Application of GRI principles NR2.18 Criteria/definitions used in any

accounting for costs and benefits NR2.19 Significant changes in

measurement methods NR2.20 Policies and internal practices

to enhance assurance of accuracy, completeness and reliability NR

2.21 Policy and current practice re independent assurance 36

2.22 Obtaining additional information and reports inside back cover

Governance structure and management systems

3.1 Governance structure 7-83.2 Percentage of independent,

non-executive directors 73.3 Process for determining expertise board

members need for strategic direction NR3.4 Board-level processes for

identification and management of risks and opportunities NR

3.5 Link between executive compensation and organisation’s financial and non-financial goals NR

3.6 Organisational structure for oversight, implementation and audit of policies 8

3.7 Mission and value statements, internal codes of conduct 7

3.8 Mechanisms for shareholders to providerecommendations to board NR

The Global Reporting Initiative (GRI) is a set of guidelines for sustainability reporting that is supported by anumber of our institutional investors and is increasingly being adopted by leading companies. We acknowledgethe initiative’s value in aiding transparency and have continued to use the guidelines for a second year.

Stakeholder engagement

3.9 Basis for identification and selection of major stakeholders 28

3.10 Approaches to stakeholder consultation 283.11 Type of information generated by

stakeholder consultations 303.12 Use of information resulting from

stakeholder engagements NR

Overarching policies and management systems

3.13 How the precautionary principle is addressed 9

3.14 Externally developed, voluntaryset of principles or other initiatives 30

3.15 Memberships in industry and businessassociations and advocacy organisations 30

3.16 Policies and/or systems for managing upstream and downstream impacts 5, 13-17, 24, 28

3.17 Approach to managing indirect impacts 9-10, 12

3.18 Major decisions regarding the location of or changes in operations n/a

3.19 Programmes and procedures pertaining to performance 9-12, 22

3.20 Status of certification systems NR

GRI content index

4.1 GRI report contents table 34

Economic performance indicators

EC1. Net sales inside front coverEC2. Geographic breakdown of markets 2-3EC3. Cost of all goods, materials and

services purchased inside front coverEC4. Percentage of contracts paid in

accordance with agreed terms NREC5. Total payroll and benefits

broken down by countryor region inside front cover

EC6. Distributions to providers of capital inside front cover

EC7. Increase/decrease in retained earnings at end of period NR

EC8. Total sum of taxes of all types paid broken down by country NR

EC9. Subsidies received broken down bycountry or region NR

EC10. Donations to community 26

Social performance indicators

LA1. Breakdown of workforce 18-19LA2. Net employment created

and average turnover inside front coverLA3. Percentage of employees represented by

independent trade union organisations 29LA4. Policy and procedures over changes

in operations 29LA5. Practices on recording occupational

accidents and diseases 19LA6. Formal joint health and safety committees 19

NR not reporting n/a not applicable

35

LA7. Injury, lost days and absentee rates, and work-related fatalities 19

LA8. Policies or programmes on HIV/AIDS 20LA9. Average hours of training 19LA10. Equal opportunity policies or

programmes and monitoring systems 17-18LA11. Diversity of senior management

and corporate governance bodies 7, 18

HR1. Human rights management 30HR2. Consideration of human rights as part of

investment and procurement decisions NRHR3. Evaluating and addressing human rights

performance within the supply chain NRHR4. Global policy for preventing

discrimination in operations 17-18HR5. Freedom of association policy

and extent to which it is applied 29HR6. Policy excluding child labour 24HR7. Policy to prevent forced and

compulsory labour NR

SO1. Policies to manage impacts on communities in areas affected by activities 9-16

SO2. Policy addressing bribery and corruption 30SO3. Policy for managing political lobbying

and contributions 29

PR1. Policy for preserving customer health and safety during use of products and services 5,13-15

PR2. Policy related to product information and labelling 13-15

Social performance indicators —

Financial Services Supplement 2002

CSR1. CSR policy 1, 9-21, 30CSR2. CSR organisation 8CSR3. CSR audits NRCSR4. Management of sensitive issues 5-6CSR5. Non-compliance NRCSR6. Stakeholder dialogue 28-30INT1. Internal CSR policy 17-20, 28-29INT2. Staff turnover and

job creation inside front coverINT3. Employee satisfaction 29INT4. Senior management remuneration NRINT5. Bonuses fostering sustainable success NRINT6. Female-male salary ratio NRINT7. Employee profile 18-19SOC1. Charitable contributions 26SOC2. Economic value added 21SUP1. Screening of major suppliers 24SUP2. Supplier satisfaction NRRB1. Retail banking policy 5-6, 9-16RB2. Lending profile 10RB3. Lending with high social benefit 12-13IB1. Investment policy 16-17IB2. Customer profile NRIB3. Transactions with high social benefit 10-11AM1. Asset management policy 16-17AM2. Assets under management with high

social benefit 16AM3. SRI-oriented shareholder activity NRINS1. Underwriting policy NRINS2. Customer profile NR

INS3. Customer complaints NRINS4. Insurance with high social benefit NR

Environmental performance indicators

EN1. Total materials used other than water, by type 23

EN2. Percentage of materials used that is waste NR

EN3. Direct energy use segmented byprimary source 23

EN4. Indirect energy use n/aEN5. Total water use 23EN6. Land owned, leased, or managed in

biodiversity-rich habitats NREN7. Description of the major impacts

on biodiversity 9-11EN8. Greenhouse gas emissions 23EN9. Use and emissions of ozone-depleting

substances NREN10. NOx, SOx, and other significant air

emissions by type NREN11. Total amount of waste by type

and destination 23EN12. Significant discharges to water by type n/aEN13. Significant spills of chemicals,

oils and fuels n/aEN14. Significant environmental impacts of

principal products/services n/aEN15. Percentage of weight of products sold

that is reclaimable n/aEN16. Incidence of fines for non-compliance NR

Environmental performance indicators —

Financial Services Supplement 2005

F1. Environmental policies applied to core business lines 9-12

F2. Assessing screening environmental risks in core business lines 9-17

F3. Threshold(s) at which environmental risk assessment procedures are applied NR

F4. Processes for monitoring clients’ implementation of risk assessment environmental aspects NR

F5. Process(es) for improving staff competency in addressing environmental risks/opportunities 10

F6. Audits of environmental risk systems and procedures related to core business lines NR

F7. Interactions regarding environmental risks/opportunities 10

F8. Companies held with which the reporting organisation has engaged on environmental issues NR

F9. Assets subjected to positive, negative and best-in-class environmental screening 16

F10. Voting policy on environmental issues for shares NR

F11. Assets under management with the right to vote shares or advice on voting NR

F12. Value of environmental products and services by core business lines NR

F13. Value of portfolio for each core business line broken down by specific region and sector 2

NR not reporting n/a not applicable

36

Independent Assurance Statement


URS Verification Ltd (URSVL) was commissioned by HSBCto provide independent assurance of its corporateresponsibility. This statement provides a summary of ouropinion; our full statement on HSBC’s web site(www.hsbc.com/urs2005) gives more information on our scopeof work and opinion on specific areas of HSBC’s performance.

The objectives of this assurance were to:

• Comment on strategic direction and corporate socialresponsibility policies by Group functions and customergroups.

• Verify HSBC’s non-financial impact data, except directenvironmental impact data, which has been verifiedseparately.

Responsibilities of HSBC and URSVLThe information contained in this report is the soleresponsibility of the Directors of HSBC.

URSVL is a leading provider of independent assurance tothe AA1000 standard. It is part of URS Corporation, aninternational company providing environmental, socio-economic and engineering services to companies andgovernments worldwide.

Our independence to provide our robust views isimportant. None of the URSVL team has worked for HSBCor been involved in the development of this report or anyassociated systems that would represent a conflict of interest.

URSVL’s assurance statement is not intended to be used asadvice or as the basis for any decisions including, withoutlimitation, financial or investment decisions.

OpinionHSBC has undergone considerable change in recent years,becoming increasingly open in a way which reflects its brandposition to be ‘the world’s local bank’. The Corporate SocialResponsibility Committee of the Board and Executive SteeringGroup provide a clear governance structure, through which itnow develops corporate responsibility policies and can monitorperformance.

HSBC has well-defined codes of business principles, ethicsand conduct, with associated internal systems and controls,backed up by functional communication networks. Togetherthese provide a clear mechanism by which the policies,guidelines and procedures developed at Group level can beimplemented. HSBC’s policies have been strengthened bytaking advice from external experts and it has adopted aleadership position in several areas, particularly onenvironmental issues, such as carbon neutrality.

HSBC has invested in developing its Group sustainabledevelopment strategy, and training senior management andexecutives on the Equator Principles during 2005. The sectorguidelines and decision support tools should, with continueddevelopment and implementation across the whole business,help to manage HSBC’s sustainability risk.

HSBC values diversity in its people and businesses. It hasadvanced its understanding of potentially hidden barriers andways to increase the proportion of women in seniormanagement.

Materiality and responsiveness: Has HSBC applied an effectiveprocess to identify material risks? Has it engaged actively onthese issues with key stakeholders?

HSBC has clear instructions for identifying, assessing andmanaging operational risk, although these do not explicitlydefine how environmental, social and economic risks andstakeholders’ issues are identified and fed into this process.

The views of external stakeholders, such as internationalnon-governmental organisations, are taken into account asHSBC develops its policies, for example on sector guidance.However, HSBC does not have a systematic process foridentifying its key stakeholders and their issues. We believe thatthe information in this report on some issues, such asinvestment risk, personal indebtedness and informationsecurity, may not reflect the level of stakeholders’ interest inthese issues.

Completeness: Does HSBC’s report provide a complete, fair andbalanced representation of its material issues?

This report provides a fair and balanced account of thecorporate responsibility activities, programmes andachievements in 2005. We commend HSBC for the first timetracking progress during 2005 against commitments made lastyear, and providing commitments for 2006 across the customergroups.

Key performance indicators have been developed in someareas. Systems to manage risk and track performance on socio-economic issues, such as labour practices, human rights andoccupational health, are less well integrated into all areas of thebusiness. Going forward, it will be important that HSBCassesses and further develops indicators relating to emergingpolicies, and how performance is monitored, ensuring that theyreflect the risks and impacts of the business.

RecommendationsWe offer the following suggestions to HSBC to improve itscorporate responsibility performance:

• Encourage customer groups to set meaningful and robustcommitments towards corporate responsibility as part oftheir strategies and business plans;

• Develop advice for Group functions and customer groupsto identify and engage with key stakeholder groups andassess issues raised as part of risk management processes;and

• Review management and performance indicators for socio-economic issues, such as labour practices and human rights,to assess that their scope and coverage is appropriate to andreflects the business.

Belinda Howell, Assurance DirectorURS Verification LtdLondonApril 2006

Contacts

Nigel PateSenior Manager Corporate Social ResponsibilityGroup Corporate Affairs

Marni RobinsonManager Stakeholder Engagement and ReportingGroup Corporate Affairs

HSBC Holdings plcLevel 368 Canada SquareLondon E14 5HQUnited Kingdom

E-mail: [email protected]: www.hsbc.com/csr

The HSBC Corporate Social Responsibility Report ispublished annually. Our last report was published inApril 2005. To obtain copies, [email protected]

© Copyright HSBC Holdings plc 2006All rights reserved

No part of this publication may be reproduced, stored in a retrievalsystem, or transmitted, in any form or by any means, electronic,mechanical, photocopying, recording, or otherwise, without theprior written permission of HSBC Holdings plc.

Designed by Group Public Affairs, The Hongkong and ShanghaiBanking Corporation Limited, Hong Kong, and typeset byCustomer Propositions, HSBC Bank plc, London.

Printed by Butler and Tanner Limited, Frome, Somerset, UK,on Revive Special Silk paper using vegetable oil-based inks.Made in Spain, the paper comprises 60% virgin fibre, 30% de-inkedpost-consumer waste and 10% mill broke. Pulps used are elementalchlorine-free.

The FSC logo identifies products which contain wood from well-managed forests certified in accordance with the rules ofthe Forest Stewardship Council.

Mixed SourcesSGS-COC-1722© 1996 FSC A.C.

Stock number 98566-3. MCP25860 04/06

Issued by HSBC Holdings plc

Group Corporate Affairs

8 Canada Square

London E14 5HQ

United Kingdom

Telephone: 020 7991 8888

Facsimile: 020 7992 4880

Web: www.hsbc.com

HSBC Corporate Social Responsibility Report 2005 · The theme of this year’s report is climate...

Documents

Transcript of HSBC Corporate Social Responsibility Report 2005 · The theme of this year’s report is climate...