HSBC Holdings plc Environmental, Social and Governance (ESG) Update April, 2017 Cover image: A rice farmer at harvest time in north-east Vietnam – joint overall winning shot in an HSBC Group-wide employee photography competition held in 2016. Photography: Huynh Nguyen Minh Thu, HSBC Bank (Vietnam) Ltd Contents

1 About this Document 4

2 Introduction 5

3 Customers 6

4 Employees 12

5 Financial Crime Risk Management 18

6 Human Rights 20

7 Sustainable Operations 22

8 Sustainability Risk Management 24

9 Sustainable Finance 26

10 Embedding Sustainability 29

11 Further Information 30

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 3 About this Document

The purpose of this document is to provide information to stakeholders about HSBC’s approach to key Environmental, Social and Governance (‘ESG’) issues.

It complements our Annual Report and Accounts 2016 (‘ARA’), which contains details of our organisational structure, global footprint, governance, strategy and financial performance and risk management. It should be read in conjunction with our Annual Report and Accounts. Where appropriate, we have provided links to further details set out in our Annual Report and Accounts and on www.hsbc.com throughout this document. In this document, we have chosen to focus on the issues which we consider are material to our stakeholders. These issues are identified through our ongoing programme of investor, analyst and NGO engagement. We have included as much data as possible based upon our Annual Report and Accounts 2016 showing our ESG performance.

Certain defined terms: Unless the context requires otherwise, ‘HSBC Holdings’ means HSBC Holdings plc and ‘HSBC’, the ‘Group’, ‘we’, ‘us’ and ‘our’ refer to HSBC Holdings together with its subsidiaries. Within this document, the Hong Kong Special Administrative Region of the People’s Republic of China is referred to as ‘Hong Kong’. When used in the terms ‘shareholders’ equity’ and ‘total shareholders’ equity’, ‘shareholders’ means holders of HSBC Holdings ordinary shares and those preference shares and capital securities issued by HSBC Holdings classified as equity. The abbreviations ‘$m’, ‘$bn’ and ‘$tn’ represent millions, billions (thousands of millions) and trillions of US dollars, respectively.

4 Environmental, Social and Governance (ESG) Update HSBC Holdings plc Introduction

Stuart Gulliver Group Chief Executive

Photo credit: Charles Best Charles credit: Photo April 2017

As a global financial institution seeking to connect Global Compact, and we are pleased to reaffirm customers to opportunities, we place a high value our commitment to the Compact’s 10 principles. on gathering the right information. It helps us We have a good record in a number of areas. make better decisions about who we do business In 2016, for example, we received the highest with, and where we lend and invest. grade in a global index run by CDP, a not-for-profit Like our clients and shareholders, we are organisation that rates companies on their work interested in not just the financial performance of to mitigate climate change. We are increasing prospective partners, but also their attitudes to the ambition of our targets to further mitigate the legal, social and environmental obligations. Strong impact of our own day-to-day activities on the relationships with customers, employees and environment, in part because of the rapid progress wider communities are key to sustainable success, we have already made. I am also proud of our and any business that overlooks its wider impact success in making HSBC a more diverse and on people and the planet is unlikely to succeed inclusive workplace which welcomes and supports over the long term. people of all backgrounds. HSBC, therefore, supports calls for improved In other areas, we are moving in the right direction non-financial disclosure. In particular, we have but have further to go to meet the targets we been among the most prominent international have set ourselves, and that our shareholders voices calling for better disclosure of climate- and others expect us to deliver. Being open about related performance. We are also helping our this and giving an honest account of our rate customers improve their understanding and use of progress is the right thing to do. That is why of environmental, social and governance (ESG) this is the first of a series of updates to increase information. In 2016, HSBC Global Research and improve the data we disclose, and we will expanded its coverage of ESG factors to give our continue to publish new information on clients the information they need to inform their www.hsbc.com as it becomes available. investment decisions. In line with our values of being open, dependable This ESG Update is our contribution to more and connected, the key performance indicators meaningful and comprehensive non-financial that we have used in this report take account disclosure. It includes metrics that we have of the views of our stakeholders, including published before in various forms, but it also shareholders, customers, employees and non- contains new disclosures that we have never governmental organisations. We will continue previously released. These include more detailed to listen to make these disclosures as useful information on customer complaints and the way as possible, and will incorporate any feedback that we manage them, as well as the way that as appropriate in our next ESG Update, due by we interact with our employees and take account November 2017. of their views and concerns. It also meets our I hope you find this Update both helpful and reporting obligation under the terms of the UN informative.

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 5 CUSTOMER COMPLAINTS

Complaint types (RBWM)

Product Product features fees and and policy charges Customers 24% 11 % HSBC CONFIDENTIAL CASES Other by global business & function [check wording] product related complaints 31% 34%

We aim to be the world’s FIGURE 1 GLOBAL BUSINESSES: KEY DATA 369 40 69 615 9 leading international bank and 33% 4% 6% 56% 1% strive for excellence4 when it Number of Adjusted Adjusted Customers Profit Before Revenue comes to the quality of service Tax ($m) ($m) 1,102 and experiences6 offered to TOTAL 100% customers. Our goal is to Retail Banking and Wealth Management 36m 5,333 18,925 56 connect them to opportunities approx that fulfil their1 hopes and Commercial Banking 2m 6,052 12,887 Global Banking & Markets realise their ambitions. Commercial Banking 33 Global Banking & Markets 4,100 5,597 14,919 Retail Banking & Wealth Management We do this by getting100 to know our approx Private Bank customers, supporting them when they Global Private Bank 50k 289 1,757 Other need us most, listening to understand their evolving needs, and addressing For further detail, see Annual Report and Accounts 2016, (page 43 and 48). their concerns. It’s an ongoing process based on continuous dialogue with our behave, design products and services, Suitability Forum of senior managers customers. train and incentivise employees, and acts as quality control for this process They have made it clear how important interact with customers and each other. and ensures all relevant information is disclosed. transparency and openness is to them Senior leaders have ultimate and we acknowledge there are ways 2m responsibility for customer service We also support the 6%UN Principles56% in which we can always improve. standards and monitor these through for Sustainable Insurance and believe Our customers are at the heart of key metrics aligned to performance it is important to offer products and everything we do and we are working objectives. These include how services that whenever possible do to make things simpler, faster and customers feel about recommending not discriminate against our customers better for them. us, and the speed and quality of due to any point of personal difference, complaint handling. The targets for ensuring the products we offer Understanding our customers each of these metrics are carefully are relevant to different customer Our customer base ranges from set and managed to instill the right circumstances. We aim to make better individuals to large, international behaviours among our employees. products and services that reflect the corporate clients. Our Retail diverse society and the diverse needs Having a strong focus on fair outcomes Banking and Wealth Management of our customers. (‘RBWM’) business supports 36 for customers is central to our long- million customers worldwide, while term success. The non-executive In 2016, teams in various countries Commercial Banking (‘CMB’) serves Directors of the Board, through the have been reviewing their existing approximately two million customers Conduct & Values Committee, oversee insurance products against a in 54 countries and territories. Our the ways in which we conduct our diversity and inclusion framework, two largest markets, based on business and ensure we align with while working within their legal and value of customer accounts, are the our values. regulatory requirements. In Hong United Kingdom and Hong Kong, Kong, we launched a new high end with more than $361bn and $462bn, Products designed with customers medical product which offers a family respectively (see ARA page 43). We in mind discount to married couples, same sex focus this section on our RBWM and Too many options are confusing. partners and de facto relationships. In CMB customers and on the top ten This is why we provide a carefully Mexico, we expanded the definition markets for our RBWM analysis. selected range of solutions, aligned to of children to more broadly cover our customers’ needs. Products and financial dependants which will enable Taking responsibility for pricing changes are assessed against adopted children to be beneficiaries the experiences we deliver a global customer focused framework, for our term and protection policies. We have clear policies, frameworks and are only available to those with the Further product changes have been and governance in place to protect appropriate needs, level of knowledge, identified in other countries and will be customers. These cover the way we experience and understanding. A Sales progressed throughout 2017.

6 Environmental, Social and Governance (ESG) Update HSBC Holdings plc Customers

Supporting customers FIGURE 2 Our conservative and consistent RBWM CUSTOMER SATISFACTION approach to risk ensures we protect There are 4 main touchpoints in which customer satisfaction is measured: at the branch, via their funds and lend responsibly their call centre experience (Contact Centre), for Premier customers with their interactions to help safeguard their financial with their relationship managers, and for their online banking experience. Results for the 10 futures. Ongoing training is provided largest markets are below: to employees so they can better Contact Relationship Online Branch understand our customers’ diverse Centre Manager Banking* range of needs. 2016 2015 2016 2015 2016 2015 2016 Within RBWM in the UK, for example, United we partnered with the Alzheimer’s 86% 84% 71% 74% 75% 74% 82% Society and Alzheimer Scotland to Kingdom make HSBC a dementia-friendly Hong Kong 83% 81% 96% 95% 71% 64% 63% business and are developing our digital channels to improve accessibility to France 74% 70% 74% 72% 68% 61% 75% all with British Sign Language video interpretation. In Hong Kong, we United 85% 84% 63% 60% 80% 77% 66% have set up special counter branches States to better serve elderly and disabled Canada 84% 84% 73% 73% 86% 85% 56% customers.

We help CMB customers achieve their Mexico 89% 89% 81% 83% 93% 93% 82% business goals by using our expertise and experience to guide their expansion Singapore 63% 63% 87% 87% 62% 56% 54% into new markets. We help them understand current events and trends Malaysia 69% 69% 70% 73% 67% 64% 63% that may affect their businesses. (See spotlight on Brexit). Similarly, our global China 91% 89% 96% 95% 77% 77% 60% research team provides reports on a variety of topics for CMB and Global UAE 69% 70% 71% 67% 62% 62% 70% Banking and Markets (‘GB&M’) clients. (Refer to section on Sustainable % of customers % of customers % of customers % of customers providing an 8 or providing a 4 or providing an 8 or providing an 8 or Finance, Research for more details). above score out of 10 above score out of 5 above score out of 10 above score out of 10

* In 2016, we started to capture digital insights, based on our digital transformation programme, to track the progress being made in the eyes of our customers SPOTLIGHT ON BREXIT Kong, we launched a mobile branch The best way to improve is by listening so communities in remote areas can to customers, especially when we After the UK referendum result, access our services, while basic bank fail to meet their expectations. The 94% of customers impacted looked accounts are offered in markets such dedicated teams within Customer to HSBC for guidance. as the UK, Canada and Hong Kong Insight, Customer Experience, and We conducted nine webcasts from for those new to the country or Complaints monitor how we are July 2016 to February 2017 and excluded by traditional products. In doing, while external benchmarking continue to support our customers the US, we provide affordable and customer surveys provide regular with monthly webcasts planned mortgage products and collaborate snapshots on our performance. This throughout 2017. with community partners to offer is complemented by research panels, We have had more than 12,000 affordable housing programmes. focus groups and social media analysis viewers to date, with an average In India, we participate in priority to ensure we are sensitive to customer per episode viewership between sector lending schemes to increase needs and address issues in real time. 900 – 1000. We were named credit availability for low-income “Best bank for Brexit guidance” by groups, agriculture and small-scale How we listen to our Greenwich Associates in ‘The Post RBWM Customers Brexit Hangover report’. industries. We collect feedback from our Communicating with our customers customers in their own words and use Communicating with customers is a sophisticated speech analytics to obtain continuous two-way conversation. It a deeper level of understanding on all Financial inclusion is important for us to listen, to provide aspects of their experiences. This can We work closely with regulators the appropriate channels to share their be broken down to individual branches to promote financial inclusion and opinions, feedback and complaints, and contact centres, empowering accessibility across our markets, within and to communicate with them in a employees to make changes that directly the limits of our local presence. In Hong straightforward manner. improve the customer’s experience.

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 7 Customers

FIGURE 3 FIGURE 4 RBWM COMPLAINT REASONS 2016 RBWM ANNUAL COMPLAINT VOLUMES

Process and Procedure : 36% Complaints per 1000 Fees and Charges : 12% customers per month Service : 27%2016 2015 2016 36% United Kingdom* Product Features511,826 and Benef636,107ts : 3% 3.5 3% 27% Others : 22% Hong Kong 43,316 37,634 0.7 12% 22% France 63,913 75,689 6.6

United States 47,001 29,215 2.6

Process and Procedures Canada 16,935 10,128 1.8 Service Others (Including PPI complaints in the UK) Mexico 252,395 267,105 3.8 Fees and Charges Singapore 6,594 3,283 0.9 Product Features and Benefits Malaysia 9,980 7,137 0.8

15% longer than 6 days China 3,492 2,209 0.8 14% 14% between 2 - 5 days UAE 32,104 26,907 7.8 66% 71% More than two-thirds of CMB of RBWM complaints resolved within * Based on Financial Conduct Authority definitions and including first direct. complaints now resolved at same day or next working day A ‘complaint’ is defined as ‘any expression of dissatisfaction, whether up-held or not, from (or on behalf of) a former, existing or 10% prospective customer relating to the provision of, or failure to provide, a specific product or service activity’. the first point of contact, an (excluding PPI complaints) improvement of 9% compared with 2015 In 2016, we surveyed more than Premier relationship managers FIGURE 5 1.6 million of our personal customers Customers are more satisfied with their RBWM CUSTOMER based on their interactions with us and Premier relationship managers, with RECOMMENDATION INDEX We improved the speed and quality of how we handle complaints with , an improvement of 9% compared with 2015. [GRAPH] received the following feedback. (See improved scores in the majority of our Figure 2): % of customer markets. This is due to improving the * quality and frequency of our interactions recommending HSBC Branches with customers. Relationship Managers Customers told us that they had an 2016 2015 were supported by integrated wealth improved experience when visiting platforms, available across Asia, UAE 74%our branches, providing higher United Kingdom 50% 51% and the US, and extended to the UK, satisfaction scores in five of our France and Canada in 2016. These help Hong Kong 39% 36% larger markets, and highlighting the Relationship Managers plan savings helpfulness and friendly approach of and protection needs, as well as France 47% 48% employees. In the rest of our markets, tracking goals and investments. we have largely maintained our United States 52% 50% satisfaction scores. Online Banking Canada 49% 42% With the number of customer Contact centres interactions continuing to grow Customers in five of our larger markets 56% Mexico 84% 84% through our digital channels, we have have told us their experience of dealing significantly increased our investment with contact centres has improved, Singapore 52% 50% in our customer facing digital DIFFERENCE with our employees seen as helpful capabilities. We are focused on making Malaysia 79% 75% and able to resolve their queries. 2015 2016 our products and services easier to However, customers’ satisfaction with use for our customers to improve their China 91% 89% our contact centres declined in UK, experience of banking with us. For Mexico and Malaysia with waiting UAE 79% 80% example, we have now launched a times being raised as a common simplified password process across all concern. So we have added more staff, * % of customers providing an 8 or above score out of 10 of our digital channels that improves

C 67 C 67 C 59 C 2 C 58 C 63 C 0 simplified our processes and policies M 41 M 12 M 8 M 31 M 38 M 66 M 70 Y 10 Y 38 Y 84 Y 75 Y 28 Y 7 Y 67 ease of access while maintaining K 15 K 19 K 34 K 5 K 27 K 13 K 2 #547da7 #269792 #588942 #edb343 #677b88 #716196 #e54d58 and are introducing new services such strong security. Recognising that as Voice ID to make things easier for all our customers increasingly prefer to customers. bank with us on their mobile devices,

8 Environmental, Social and Governance (ESG) Update HSBC Holdings plc 2500

2000

1500

1000

500

0

1,102 TOTAL 100% Customers

we have significantly increased the FIGURE 6 FIGURE 7 functionality available through mobile CMB ANNUAL COMPLAINT VOLUMES CMB COMPLAINT REASONS 2016 banking, including new payment innovations such as Apple Pay and 2016 2015 Samsung Pay. United Kingdom* 37,797 47,622 Customer Recommendation Index – RBWM 37% Hong Kong 3,196 1,781 8% 25% Over the last eight years, an external firm has provided an independent Asia Pacific 1,235 1,632 10% 10% benchmark of our customer advocacy 10% levels in comparison to other banks in Europe 6,564 9,963 our largest markets. In 2016, 10,000 Middle East surveys of our RBWM customers 2,475 2,703 and 30,000 surveys of competitors’ and North Africa customers were conducted to prepare Others Latin America 1,200 4,060 this Customer Recommendation Index. Operations (See Figure 5). United States 915 556 Fees, Rates and Charges How we listen to our Branch Canada 788 275 CMB Customers Contact Centre We talked to more than 60,000 of our * Volumes for the UK are received complaints and are Internet banking CMB customers in 2016 to understand aligned to the current FCA reporting requirements for eligible (Excluding HSBCnet and Connect) complainants. All other volumes and complaint reason their views, moving to an ‘always breakdowns and commentary are based on total volumes of on’ approach that measures client resolved complaints. satisfaction 22.7with% the key interactions that our customers have told us are Penetration among the largest focus on logging complaints which most important. European corporates. HSBC is Share has250 0increased volumes in UAE, US, 23.6% 24.5%Leader for Asian Large25.4% Corporate Canada, Singapore and Hong Kong. Analysing information22% and trends Cash Management with 32% Market (See Figure 4) means we can focus on fixing and Penetration2. 2000 improving these areas, as well as In the UK, we saw a 20% reduction in developing leading propositions Making it better when things go complaints from 2015. Complaints of excessive wait time and inadequateADD TOTAL LINE that enable us to help commercial wrong for our customers – RBWM 1500 customers achieve their growth and CMB resources were addressed by an strategies. We know that sometimes things go increase in hiring at our contact centre, wrong which is why we ensure our process improvements and the launch We currently benchmark our 1000 customers’ complaints are always of Voice ID. competitive position in Global Trade understood and recorded. We aim and Receivables Finance and Global In France, we have seen a 18% to learn from our mistakes and make Liquidity and Cash Management downward500 trend due to better things better. through external syndicated surveys. customer communication on fees In 2016, Greenwich Associates We use complaint insights to drive and charges, branch staff training and named HSBC Share Leader for Asian improvements and address issues process0 improvement. In Mexico, the JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC Large Corporate Trade Finance with through a root cause analysis Financial Services Consumer Protection 41% Market Penetration and Quality framework. This allows us to inform our Bureau (CONDUSEF) ranked HSBC Leader, along with Citi for Asian Large streamlining, re-engineering, conduct as the best bank for quality of service Corporate Trade Finance. HSBC ranks and investment activities. Our staff are and complaints resolutions among the Tied 3rd for European Large Corporate supported by extensive guidelines and larger banks. Trade Finance with 26% Market training to ensure correct outcomes are Spotlight on Payment Protection Penetration1 and ranks Tied 4th for achieved. Complaints are monitored Insurance (‘PPI’) – RBWM UK US Large Corporate Trade Finance and reported to governance forums and We have a well-developed, specialist with 26% Market Penetration.1 HSBC senior executives are measured against PPI Complaint handling process in ranked 5th in US Large Corporate complaint figures. place that is designed to ensure fair Cash Management with 32% Market In 2016, RBWM resolved 987,000 outcomes for our customers. Our Penetration in 2016. complaints in our top ten markets staff are supported by extensive In 2017, for Cash Management, with a 10% decrease in volume from guidance and are fully trained to Greenwich Associates ranked HSBC 2015, and complaints as a percentage consider the specific circumstances 2nd for European Large Corporate of customer base also reduced from of each complaint to ensure the right Cash Management with 36% Market 3.9% to 3.5%. We resolved 71% of outcome is achieved. Our commitment all complaints within the same day or to continual improvement means we 1 HSBC is tied 2 HSBC is tied for #1 next working day. We have a renewed are responsive to feedback from our

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 9 Customers

customers, the Financial Ombudsman customers respond to the by the UK, 11% by France, and 6% Service and the Financial Conduct announcement of the deadline. by Hong Kong. Complaints showed Authority (FCA), making changes as a 21% reduction when compared to In support of the awareness campaign, needed, and regularly reviewing the 2015 and complaints as a percentage of we are enhancing our website quality of our decisions. customer base also reduced from 3.6% content and guidance and are working to 3.1%. (See Figure 6). With the recent FCA announcement closely with the FCA to support their of a deadline for new PPI complaints, communications activity. Further details Reduction in CMB customer complaints an awareness campaign is being run on PPI may be found in our Annual related to fees, rates and charges, by the FCA to provide details on the Report and Accounts 2016, pages 243 accounted for 61% of the annual two year timeframe. We expect to and 244. decrease, driven by the introduction of see an increase in complaint volumes a text alert service advising customers In 2016, CMB handled a total of 54,100 in the first half of 2017 as our when they were going to enter informal complaints, with 70% being generated overdraft status in the UK.

WHAT CUSTOMERS ARE TELLING US

In 2016, our CMB and RBWM customers told us there were three main issues that we needed to focus on to improve their experience of our products and services.

Accessibility

Customers across all of our channels have provided feedback on length of queues in branches, call waiting and handling time in our contact centres, the length of appointments with our Relationship Managers, or the complexity of logging on to our online and mobile banking.

WE HAVE: WE ARE:

- Increased capacity in our contact centres - Using biometrics to make it easier for customers to authenticate - Introduced new multi-channel appointment booking tools themselves using their unique voice or digital fingerprint - For our Commercial Customers, we have simplified our - Enabling customers to self-serve or speak directly to the best processes and introduced digital enhancements such as Core person to answer their query via the intelligent telephone menu Docs and Vizolution to improve their on-boarding experience - Facilitating customers to connect with specialists via video, online chat, or face- to-face

Complexity

Customers are telling us our processes and procedures are too complicated which impacts the quality and length of time required to service our customers day-to-day.

WE HAVE: WE ARE:

- Delivered training to 20,000 employees globally to use plain - Educating our customers on why we need additional information and straightforward language in communicating with our due to regulations and to better improve their access to information customers about the products and services they are buying. (See Educating our - For our Commercial Customers we have simplified options on employees and customers, p18) their online platform, HSBCnet - Reviewing our processes across all of our channels, starting with those that have the biggest impact on our customers, such as account opening. For example, we now have a fully online paperless credit card application process in China, and are using electronic signatures in the US and France - Creating applications that simplify and reduce time to support complex services including Staff Front End, HSBC Live Sign (electronic signature) and HSBC Live Share (share pages with HSBC employee)

Fees and Charges

Our industry can be complex, and our customers can find it difficult to understand when and why they will be charged for our services.

WE HAVE: WE ARE:

- Introduced real time text message notifications for our - Working to improve our communication of fees to our customers, customers in the UK to let them know they are close to going with additional support and training for our employees overdrawn on their account; and in Hong Kong to provide application status and account servicing updates. These changes have helped a significant number of our customers to better manage their accounts, and hence to avoid incurring charges

10 Environmental, Social and Governance (ESG) Update HSBC Holdings plc Customers

Reduction in CMB customer more engaging experience - and our Intelligent telephone menu system complaints related to operations also employees with access to the most is available across all contact centres contributed to 27% of the overall relevant and tailored information to in the UK, Hong Kong, France and the reduction, driven by resolution of support them in serving our customers. US. It enables customers to self-serve issues relating to the migration to the or speak directly to the best person global payments platform in France. Digitally enhanced branches who can answer their query, thus HSBC Live Connect Branch Video reducing wait times. A training module on complaint offers customers real time video handling and the importance of dealing Staff Front End is a new application access to a wide variety of specialists with complaints effectively has also that is consolidating many existing at their local branch with significantly been implemented. This focuses our staff applications, simplifying and more available appointments. This is staff on doing the right thing. reducing time to support increasingly currently available in selected branches complex service and sales contacts as in the UK, France and Hong Kong, A digital transformation customers adopt digital. Our customers are becoming with further roll outs in 2017 in the US increasingly digitally oriented in and Canada. A more intuitive banking experience their everyday lives. This means Multi-Channel Appointment Booking Bio-metric mobile banking enables their expectations of us – and their allows customers to use the channel our customers to quickly and easily behaviour towards HSBC as a brand - of their choice to book a variety of log-on to digital banking using their are changing. appointments, including face-to- fingerprint. face meetings in branch, HSBC Live Over the past three years, an additional HSBC Live Chat supports customers Connect Branch Video meetings, or 1.5 million customers have started with their digital experience and calls with a specialist. This is currently to use our digital banking services. has been introduced on the public available in branches in the UK, France In the UK, more than 90% of our website and online banking. This helps and the US. A further roll out is planned customers’ contact with the bank takes customers ‘chat’ in real-time with for Mexico in 2017. place through smartphones, on the an HSBC employee. We have had internet, or by telephone, while 97% Video Teller Machine offers a 1.5 million ‘chats’ in the last twelve of cash withdrawals are made at an convenient, one-stop solution for new months. ATM. Globally, customers using our customers to open a current account. HSBC Live Share enables customers mobile app have increased by more Using video chat, an employee guides to share their internet banking screens than 220% over the last three years. the customer through the account with a HSBC employee, who can The strength of our digital capabilities opening process and helps them then ‘be on the same page’ to resolve is now a significant influence on our register for our digital banking services. issues and answer any questions. This customers’ view of our services and Once complete, the Video Teller is available in Hong Kong and France, the HSBC brand. Machine issues the customer’s new with roll out planned for the US, the UK debit card and security key, so that the Customers are now using branches and Canada. less often. Over the past five years, customer is immediately able to use the number doing so in larger markets, their new bank account. In February Payments innovation such as Apple such as the UK, has fallen almost 2017, we launched our first Video Teller Pay in the UK, Hong Kong, Singapore 40%. In the future, we will have Machines in China. and the US; Android Pay in UK, Hong Kong and the US; Samsung Pay in the fewer - but better – branches, with Digitally enhanced contact centres more empowered front line employees US; and our own HSBC EasyPay and using a greater range of technology to Voice biometrics is improving PayMe in Hong Kong. accessibility and security, enabling support all our customers’ needs. HSBC Live Sign enables customers to customers to authenticate using their electronically sign documents without We are also developing new digital voice rather than remembering multiple the need to visit a branch or mail in tools and technology to provide our passwords. HSBC is one of the first wet signature documents. This is customers with a simpler, quicker, and large-scale global voice biometrics now live in the US and France, and users, with over 700,000 UK Voice rolling out in 2017 to the UK, Hong ID enrolments so far. This service has OVER THE LAST THREE YEARS... Kong and Canada. Over the last three years... been launched in 2017 in Hong Kong and in the US.

220% 220% increase in customers using increase in customers using our mobile app our mobile app over the last three years We have also launched a research and development lab in partnership with the government in Hong Kong to promote technology development for the financial

1.5 million services sector, and are continually exploring how we can work with fintech firms customers started to use our to deliver better banking for our customers. Our initial areas of focus include cyber 1.5 m customers started to use our digital banking services digital banking services. security, biometrics, data analytics and internet finance.

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 11 Employees

At HSBC, we recognise that our employees are the key to success for our business. From giving them a voice to developing their skills, we are focused on getting the very best We employ from our staff and helping them achieve their goals. We want 235, 175 our employees to feel that they are contributing to our purpose people* around the world and believe the organisation supports them to do this. *The number of employess expressed in full-time equivalent staff (’FTEs’) HSBC operates in a complex and employee insight is informing decisions all employees (61%) are seeing the evolving regulatory environment, at all levels of HSBC and that actions positive impact of HSBC’s strategy. including significant bank reform in can be taken at both global and local Pride and company recommendation key markets. Adapting our operations levels on any areas of concern. Reports have also increased: Three quarters and processes to meet new regulations include trend analysis on important of all employees (76%) feel proud to impacts our employees. Therefore, ongoing issues and insight on emerging work for HSBC, and around two thirds EMPLOYEES (FTES) monitoring employee insight and themes. (63%) would recommend the company by region well-being is a material consideration as a great place to work. Areas for Results indicate that employee for HSBC. continued focus include colleague sentiment on certain key topics has trust in senior leadership, which has Employee insight become more positive over the past remained broadly flat over the past year. In 2016, confidence in the We understand the importance of 12 months, and the low proportion business had risen by more than 12 using employee feedback to inform of colleagues (58%) who state that points to 69%, while a majority of leadership decisions. To address this, conditions in their job allow them to be we have created a strategic Employee fully productive. Insight function that consists of FIGURE 8 POSITIVE IMPACTS OF EXCHANGE NOT professional researchers with skills ATTENDED in survey design, qualitative analysis, EXCHANGE ethnography, and behavioural science. Where I work, constructive The team was recognised as market criticism is appreciated leading by the Communications Executive Board awards in 2016 ASIA for Strategic Employee Research Conditions in 73% and Insight. my job allow me 63% I am seeing the to be about as positive impact Our monthly employee survey – productive as of HSBC's

Snapshot – tests the views of a I can be strategy representative sample of colleagues on topics such as our strategy, regulation, 10% 62% 66% EUROPE culture, and customer experience. 54% 56 % Results are presented to the Group 8% 10% Management Board and relevant DIFFERENCE executive committees of the global 26% functions and businesses, regions 7% 10% and countries. This ensures that the LATIN AMERICA I believe Senior I would Leaders make Most questions asked colleagues to select a choice recommend 67% 61% decisions that from an agreement scale of 1 (Strongly disagree) to 5 this company 60% 51% take people like (Strongly agree). Reported percentages represent the 9% proportion responding positively (i.e. ‘Agree’ or ‘Strongly as a great me into agree’). Neutral responses to the questions after attending place to work consideration exchange were as follows, Where I work, constructive NORTH criticism is appreciated 17%, I would recommend this AMERICA company as a great place to work 20%, I am seeing the Attended Exchange Not Attended Exchange positive impact of our strategy 22%, Conditions in my job allow me to be about as productive as I can be 16% and I believe that Senior leadership in my area make decisions * Data from HSBC Snapshot survey (Q4 2016) in answer to the question ‘Have you attended an Exchange meeting in that take people like me into consideration 22%. the past three months?’ 7% MIDDLE EAST AND NORTH 12 Environmental, Social and Governance (ESG) Update HSBC Holdings plc AFRICA

5%

C 67 C 59 C 2 C 58 C 63 M 41 M 8 M 31 M 38 M 66 Y 10 Y 84 Y 75 Y 28 Y 7 K 15 K 34 K 5 K 27 K 13 #547da7 #588942 #edb343 #677b88 #716196

C 0 M 70 C 67 Y 67 M 12 K 2 Y 38 #e54d58 K 19 #269792 Employees

Exchange: Giving employees a voice Since 2012, we have been hosting “There are three things that really make a bank: “ HSBC Exchange to give employees a voice. (See Figure 8). Exchanges are the people, the capital and the systems. The meetings with no agendas, where most important by far are the people. managers are participants, rather than Stuart Gulliver, leaders. It’s an innovative approach Group Chief Executive that provides a safe forum for people to share their views on any issue.

Insight from Snapshot indicates FIGURE 9 that Exchange participants respond EMPLOYEE RETENTION positively by 11% more than others when asked if there is honest, two- Employee retention declined primarily as way communication where they a result of reductions as part of strategic EMPLOYEE programmes. work, RETENTIONwhile 84% of all employees believe Exchange allows them to talk freely about issues that are important 2015 2016 to them. In 2016,81.7% Transparency International UK commented that Exchange ‘indirectly incentivises ethical 84.1% 81.7% behaviour and creates an opportunity for risk factors to be discussed and dealt with before they become a bigger problem’. 84.1% In 2016, we created new research However, there is further to go. It’s to measure employee well-being. our intention that every employee Based on external best-practice has the opportunity to take part in research from the37% OECD and UK an ExchangeEXCHANGE meeting each quarter. Office of National8% Statistics,25% the survey MEETING includes questions on employees’ During the third quarter of 2016, 10% 10% INSIGHTS mental, physical and financial health, around half (45%) of employees 10% % of employees who as well as their perception of HSBC’s reportedbelieve they Exchang had attendede one within the previousallows them three to months.talk commitment to well-being. The freely about issues survey was issued to all employees in Employeeimportant well-being to them) November 2016 and we received more Our employee well-being programme than 76,000 responses. offers free, confidential counselling to Correlation of data from the well-being help address personal issues at home survey and Snapshot suggests that or work. the behaviour of line managers is a Our goal is to provide a working strong influencing factor on positivity environment where colleagues can about employees’ career prospects talk openly about well-being issues, and mental well-being. Employees including anxiety and stress. Such who state that their manager values measures are particularly valuable their well-being are more than twice as amid the demands of multiple change likely to feel able to develop at HSBC. programmes and financial crime Conversely, colleagues who state remediation initiatives. For example, that their manager does not take their in 2016 our global employee TV well-being into account report higher channel, HSBC Now, ran a series of levels of stress and strain, and are programmes featuring employees who significantly more likely to state that have managed or overcome different they plan to leave the company within mental health issues. the next two years.

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 13 Employees

FIGURE 10 Findings from both Snapshot and the EMPLOYEES (FTES) BY REGION well-being survey have been included in HSBC’s new people manager curriculum, and we are continuing to conduct focused research on manager

behaviours and team effectiveness EUROPE 26% in 2017. MIDDLE EAST Employees who have been at HSBC for AND NORTH five years or more are also allowed to 5% AFRICA NORTH apply for a sabbatical. 7% AMERICA Diversity and inclusion We believe that a diverse and inclusive ASIA 53% workforce is critical to running a sustainable and successful business. LATIN AMERICA 9% Our approach looks to increase and leverage diversity of thought to drive greater innovation, better identify and manage risks, enhance collaboration, and improve workforce agility. FIGURE 11 We are aiming to build a connected EMPLOYEES (FTES) BY GLOBAL BUSINESSES and collaborative global workforce that reflects the customers we serve and the communities in which we Retail Banking and Wealth Management 124,810 operate. We have also set out a plan to attract, develop, retain and deploy a Global Banking and Markets 46,659 more diverse workforce to effectively 3% 53% anticipate and address the expectations Commercial Banking 44,712 5% 20% of our key stakeholders. 19% Our seven global employee resource Global BankingPrivate Bank and Markets 8,054 groups play a critical role in achieving our diversity and inclusion ambitions, and focus on gender, age, ethnicity, Corporate Centre 10,940 LGBT+, faith, working parents and carers, and ability. We also have Total 235,175 common interest groups, such as our military/veterans group or our Chinese community group. There are more than 70,000 participating FIGURE 12 employees in these groups around GENDER DIVERSITY STATISTICS MALE FEMALE the world. Together, they play a key role in engaging employees and are an HOLDINGS BOARD GROUP MANAGEMENT BOARD important feedback channel for more creative business solutions. 70% 2016 30% 92% 2016 8% 14 6111We encourage our employees to talk about diversity and inclusion challenges 11 8131and opportunities, to break down 58% 2015 42% 93% 2015 7% stereotypes, challenge the status quo, and share solutions to inclusion barriers. Employee videos around SENIOR EMPLOYEES ALL EMPLOYEES diversity and inclusion topics are 75% 2016 25% 48% 2016 52% made publicaly available via our social 6,551 2,230 116,077 125,230 media channels on YouTube, Twitter, Facebook, LinkedIn and Instagram. 6,937 2,235 127,586 139,357 Our Commitment 76% 2015 24% 48% 2015 52% At HSBC, we are committed to building an inclusive culture where people are valued, respected and supported, and where the richness of ideas,

14 Environmental, Social and Governance (ESG) Update HSBC Holdings plc 6060% 1010% 4040% 6262% Call out box 3 – Percentage of Snapshot+ survey respondents, by gender, which believe ‘the senior leadership in my area 2015 2016 makes decisions that take people like me into consideration’. % % % % % 79% 2020 1010 6060 6060 5050 Branch 78% ALL EMPLOYEES 74% 48% 2016 52% Relationship Manager* 71% 116,077 125,230

Employees 127,586 139,357 Contact Centre 78% 78% 48% 2015 52%

backgrounds, styles and perspectives FIGURE 13 are actively sought out with informed FEMALE SHARE OF SENIOR LEADERSHIP* HEADCOUNT AT HSBC 2012-2016 LABEL empathy to create business value. % Aperi ut id 26% 100 USA 26.026 maionsequnt que sus 100 100 Building a more inclusive culture is part moluptate coribust re of everyone’s role: 25%25.525 praessi mporum • Each member of our Group 80 25.025 80 80 Management Board is accountable for diversifying their senior leadership 24.524 population and ensuring their 84.1% 60 60 respective succession plans draw 60 24.0242 on the Group’s broad workforce 23.5233 diversity. LABEL 40 25.4% 23.0223 40 40 • Our Values-aligned Behaviour 22.0% 22.7% 23.6% 24.5% Aperi ut id Asia maionsequnt que sus Guide clearly sets out the expected 22.522 moluptate coribust re behaviours for all employees in praessi mporum 20 20 demonstrating openness to different 20 75% 22.022 ideas and cultures. This involves 21.521 listening to colleagues, treating them 21% 0 0 fairly, being inclusive and valuing 0 21.0221 different perspectives. Our People 2012 2013 2014 2015 2016 Managers are also expected to attract and develop diverse talent, foster an inclusive environment, and LABEL seek to understand and address DIVERSITY AND INCLUSION AWARDS Aperi ut id maionse- biases which might impact decisions quunt que sus 2011 2012 2013 2014 2015 2016 Europe they make about people. Individual Our efforts have been recognised • HSBC employees recognised as moluptate coribust re performance against our Values- across the globe. LGBT+ role models in the Financial 50% praessi mporum aligned Behaviour Guide is assessed • N amed in The Times Top 50 Times’ OUTstanding List (2015 in our year-end review process. Employers for Women (2015 and 2016) and 2016) • HSBC employees recognised in • Our Diversity and Inclusion Policy • Achieved Top Global Employer status the Financial Times’ inaugural makes clear the responsibility of UPstanding 100 Leading Ethnic all employees and workers to treat in Stonewall’s Global Workplace Equality Index (2015 and 2016) Minority Power List (2016) colleagues with dignity and respect, and to create an inclusive culture free from discrimination, bullying, harassment and victimisation, We use HSBC’s Snapshot and well- and employees, as well as those irrespective of age, colour, disability, being surveys to understand the views who work with us. We aim to always ethnic or national origin, gender, of our colleagues by demographic meet the minimum health and safety gender expression, gender identity, group. Data shows that efforts on standards required by law, wherever marital status, pregnancy, race, gender diversity have led to positive we operate, and where reasonably religion or belief, or sexual orientation. shifts in sentiment, with women practical, to exceed them. The chief Our Board Diversity Policy also sets more positive than men on a number operating officers in each region have out our commitment to boardroom of measures, including feeling senior overall responsibility for ensuring that diversity and inclusion. leaders make decisions that take the correct policies, procedures and them into account. Scores from safeguards are put into practice. Oversight of our global diversity and other demographic groups are lower, inclusion agenda, and related activities, In 2016, we ran projects to improve suggesting there is still further to resides with the Global Diversity and our understanding of the risks we go to translate organisational intent Inclusion department of the Global HR face, educate and inform our staff, into changes in employees’ day-to- function. We also operate governance and improve the buildings in which day experience. Findings from our forums covering diversity and inclusion we operate, including a survey of employee surveys are used to help at a global, regional and country level. earthquake resilience, asbestos shape our diversity and inclusion surveys and fire risk assessments strategy, communications and activities Gender balance in senior leadership of our buildings around the world. across the Group. As part of our ongoing focus on For more detail and performance improving gender balance in senior Health and safety data including accident rate go to the leadership* across the Group, by the Annual Report and Accounts 2016, HSBC is committed to providing a safe end of 2017 we are aiming for 26.3+% page 151. physical environment for our customers of our senior leadership to be female. (See Figure 13). *Senior leadership refers to employees performing roles classified as 0, 1, 2 or 3 in our Global Career Band Structure.

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 15 Employees

HSBC values own emotions. Nearly 100,000 ensures that performance is judged on As individuals from different employees attended it during the what is accomplished, as well as the backgrounds, genders and year, while 18,000 managers received way in which it has been achieved. perspectives, we recognise the similar training. Exceptional conduct is recognised as importance of having a strong culture. As part of our recruitment process, we a portion of an individual’s variable pay As well as guiding our interactions and do a values assessment of new joiners at the end of the year. Employees are day-to-day decisions, it can help us so they are aligned to the HSBC values. also encouraged to set objectives that address the challenges we face. connect business, team and individual Access to training Our values define who we are as an goals – all guided by the expected Employees attended a wide variety of organisation and make us distinctive. behaviours aligned to our core values. training to encourage positive behaviour In addition, HSBC’s Global Recognition OPEN and equip them with the skills required to perform in their roles. Programme, which is available in more We are open to different ideas, than 50 countries, allows employees cultures, and value diverse They completed a combined 11 million to recognise one another for perspectives. hours of training in 2016, with more demonstrating our values throughout than half the courses concentrating on the year. Employees receive points CONNECTED professional and personal development, that can be redeemed in a catalogue. We are connected to our customers, such as leadership skills. In 2016, around 600,000 ‘recognitions’ communities, regulators, and each were made, with a total value of $8.1m. Almost three million instances of global other. We care about individuals and mandatory training occurred during the their progress. year, which included topics such as Training hours completed

DEPENDABLE anti-money laundering and bribery and 2016 We are dependable, stand firm for corruption. what is right, and deliver on our In addition, financial crime controls, 11, 014 , 232 commitments. including customer due diligence, Definition: this is the total hours of were covered by compliance related training undertaken by FTE in 2016 Supporting positive behaviour courses. These enable staff to detect and deter criminal activity, which Training days per FTE Our Charter is a framework for good 2016 decision-making. It helps employees protects customers and the reputation apply our purpose and values to of the bank. 5.5 days the decisions we make through a We also have graduate and simple decision framework. By using apprenticeship programmes in place Definition: this is the total number of examples from the bank’s history, across the Group. training days undertaken per FTE in 2016 it illustrates the benefits of building long-term relationships, as well as Rewarding the right behaviours Instances of training courses We believe it’s important to recognise + 29% going above and beyond the minimum 2016 standards required. the right behaviour – and reward it Increase in both financially and by peer-to-peer comparison to The ‘At Our Best’ training programme recognition. All employees receive 8 m illion 2015 (6.5m) reinforces the habits required for a a behaviour rating that is based on Definition: this is the instances of strong culture, such as asking for their adherence to HSBC values. This training undertaken in 2016 feedback and being mindful of one’s Instructor Lead Training + 25% Total completions 2016 Increase in “Many of the decisions we make at HSBC aren’t easily comparison to 622,221 2015 (499,439)

answered by a single rule, process or value. Some of the

Definition: this is the instances of instructor lead decisions we make are incredibly difficult. That’s why we training undertaken in 2016 wanted to create something that makes your lives easier “ - something that can give us all more confidence to make E-Learning + 22% Total completions 2016 decisions we can be proud of. Increase in comparison to Stuart Gulliver, Group Chief Executive 5.5 mi l l i o n 2015 (4.5m) (upon release of the Charter) Definition: this is the instances of E-learning training undertaken in 2016

16 Environmental, Social and Governance (ESG) Update HSBC Holdings plc Employees

FIGURE 14 FIGURE 15 HSBC CONFIDENTIAL CASES HSBC CONFIDENTIAL CASES by global business & function by theme

369 40 69 615 9 684 237 131 50 33% 4% 6% 56% 1% 62% 21% 12% 5%

TOTAL 1,102 TOTAL 1,102

Global Banking & Markets People Commercial Banking Security and Fraud Retail Banking & Wealth Management Compliance Private Bank Other Other, including functions

Employees and managers are HSBC Confidential is overseen by our encouraged to hold frequent Group Conduct and Values Committee conversations to explore alternative and Group Audit Committee, and ways to stay connected outside the subsequent investigations are carried regular performance management out thoroughly and independently, cycle. This includes a range of informal drawing on the expertise of a variety and formal discussions on topics such of departments, including compliance, Find out more as development and well-being. human resources, legal, fraud, information security, and audit. Message from Birgit Neu, Whistleblowing Global Head of Diversity and We work hard to create an environment HSBC does not condone or tolerate Inclusion – ‘Supporting an Inclusive Working Culture’ in which people feel able to speak up any acts of retaliation against anyone with ideas or issues, but understand who reasonably believes that the Board Diversity Policy that some circumstances require more concern that they have raised is true. Diversity and Inclusion Policy We consider any retaliation in those discretion. Health and Safety Policy circumstances as a disciplinary matter. Remuneration Practices and Governance In 2015, we simplified our The making of malicious or false claims whistleblowing procedures by is also incompatible with our values. Tax Transparency establishing HSBC Confidential - a Our Charter More than 1,100 cases were raised platform that enables employees to Whistleblowing Policy raise concerns on any issues, outside during 2016. (See Figures 14 and 15). their normal reporting or escalation Of these, 34% were substantiated Further information is included in our channels, in confidence and without fear following independent investigation and Annual Report and Accounts 2016 and of retaliation. (See Figures 14 and 15). appropriate action was taken, including Strategic Report consequence management and Diversity and Inclusion It is available to every employee, past disciplinary actions. Common themes (HSBCNow on YouTube) and present, in all global Businesses, included issues with staff behaviour, Disability (ARA p151) Functions and entities across the allegations of fraud by employees, and Health and Safety (ARA p151) world, including secondees, external weaknesses with information security. consultants, contractors and agency Remuneration (Strategic Report p28) employees. There are multiple ways Taxes Paid (Strategic Report p25) to raise issues, such as telephone Whistleblowing hotlines, online and email. (ARA p24, 69, 140, 144)

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 17 Financial Crime Risk Management

HSBC’s purpose is to connect people with opportunities. With at Board level to ensure appropriate this purpose comes the responsibility to protect our customers, visibility, governance and executive our communities and the integrity of the financial system. support for our ongoing cybersecurity programme. HSBC operates in many countries We understand how important it is to In 2016, we spent around the world and that global protect our clients’ finances and this footprint gives us the opportunity is why we have invested in a number to be at the forefront of fighting $3bn of key areas. For example, in 2016, on regulatory programmes and financial crime. we enhanced our internet and mobile compliance, including investment We also have a moral and legal in our financial crime risk programme banking platforms in several key markets, obligation in this area – and this is why including the UK and Hong Kong. safeguarding against financial crime is provides a forward-looking perspective We also launched innovation labs one of our ten strategic actions. As on financial crime risk, as well as cyber around the world dedicated to the part of our commitment to the UN and information security. In 2016, the application of artificial intelligence, data Global Compact, we work against FSVC assumed responsibility from management and improvements in corruption in all its forms, including the Conduct and Values Committee cybersecurity. These labs, together with extortion and bribery. (‘CVC’) for oversight of controls our fintech partnerships, will help us Protecting HBSC and the global relating to anti-bribery and corruption use technology to deliver better banking financial system from financial (‘AB&C’). Throughout the year, the for our customers. (See section on crime FSVC received regular reports from Customers, Digital Transformation). country chief executives on the actions Consistent with HSBC’s Deferred being taken by management to address Mitigating cyber crime Prosecution Agreement (‘DPA’) with local financial crime risk issues and We continue to strengthen and the United States Department of vulnerabilities, and also received reports significantly invest in our ability to Justice (‘DoJ’) and other settlement on specific issues. prevent, detect and respond to the ever- agreements, progress has already been increasing and sophisticated threat of made towards putting an effective Unfortunately, as the world becomes cyber attacks. Specifically, we continue and sustainable anti-money laundering more connected and moves at a to enhance our capabilities to protect (‘AML’) and sanctions compliance faster pace, there are many more against increasingly sophisticated programme in place. opportunities for criminals to misuse the malware, denial of service attacks and global financial system. We have built a strong financial crime data leakage, as well as enhancing compliance system, designed with a HSBC is taking a number of steps, security event detection and incident global footprint, and have a dedicated such as training employees. We have response processes. Financial Crime Risk (‘FCR’) team. We invested in training employees so they We participate in intelligence sharing have invested heavily in training and understand the role that they play in with both law enforcement and communication for all employees, and combating financial crime. In addition, industry schemes to help improve our our risk appetite has been set formally we have put processes in place to understanding of - and ability to respond – details including information on our deal with such instances quickly and to - the evolving threats faced by us and DPA, can be found in the Risk section of effectively. We have also invested our peers within our industry. the Annual Report and Accounts 2016. heavily in systems to increase their We now have a consistent approach sophistication in terms of monitoring the Educating our employees to managing exits of customers for transactions to identify any indicators of and customers financial crime reasons and promote financial crime. Training and communication on FCR information sharing within the bank and issues in the bank today is extensive. with regulators. Details of our approach Protecting customers and customer information We have put in place a programme of and policies are available on formal training, including mandatory The systems of public and private www.hsbc.com/our-approach/risk-and- training for all employees, specialised organisations continue to be the targets responsibility/financial-crime-risk. training for certain groups of employees, of increasing - and more sophisticated The Group Head of FCR attends and role specific training. In 2016, – cyber attacks, which can disrupt the Financial System Vulnerabilities we delivered more than 3.1 million customer services. Committee (‘FSVC’), which reports to hours of targeted training on financial the Board on matters relating to financial Unsurprisingly, this is a priority area crime to employees. There is frequent crime and financial system abuse, and for the bank and is regularly reported communication within the bank from

18 Environmental, Social and Governance (ESG) Update HSBC Holdings plc Financial Crime Risk Management

the CEO and other executives on the FCR programme and the importance of all employees doing their part to fight SPOTLIGHT ON FIGHTING HUMAN TRAFFICKING financial crime. A series of three videos were HSBC branch employees are being relevant local authorities. The bank is trained to help law enforcement also using advanced analytics to scan published to educate our customers on agencies combat crimes such as large amounts of data to help detect safeguarding data and financial crime. human trafficking. illegal activity, according to Jennifer We felt it was important to explain to Calvery, its Global Head of Financial our customers the measures we are Cashiers are taught to look for warning Crime Threat Mitigation. taking and how they can help us by signs that may indicate a person providing relevant information. is being used for sexual or labour “HSBC is committed to doing its part exploitation.These include customers to address human trafficking, including The following videos were created not being in possession of original sharing information that informs law to educate our customers about data copies of their own identification, enforcement and security services,” protection and financial crime. These with companions – or translators - she told an event on tackling the issue, videos can be found on YouTube under presenting them on their behalf. Other hosted by UK think-tank The Royal red flags include shared address, United Services Institute.The bank HSBC Safeguard: telephone number of employment also wants to play its part in deepening • Why do I need to provide more information, as well as bruises or other cooperation between private and public information about my business to signs of physical abuse. sectors around the world, with robust HSBC? sharing of information to tackle crime. Staff are particularly vigilant where • What is financial crime and why customers come from areas known for “We all benefit from sharing ideas and should I be concerned? human trafficking, with any suspicious techniques that help us best achieve • How does proving where my behaviour being reported to the this important objective,” she added. money comes from help HSBC make banking safer? • Targeted role-based bespoke training Foreign Corrupt Practices Act (‘FCPA’) Implementing a global anti-bribery to staff, including those in high risk and the Hong Kong Prevention of and corruption programme roles, covering over 30,000 staff globally Bribery Ordinance (‘POBO’). We have developed a global AB&C • Regular communications and guidance The “HSBC Group Anti-Bribery and programme which focuses on to staff, such as festive season Corruption Policy Statement”, which is consistency and standardisation: setting reminders and latest case updates, published on www.hsbc.com, states strategy, standards, education, planning including all-staff policy reminders that HSBC does not tolerate the giving or and providing oversight. This has • The promotion of a culture of regular, receiving of bribes, including the making included developing a global AB&C risk open discussions between staff and of facilitation payments. The statement assessment, enhancements to current management sets out clear anti-bribery principles on policies & processes and independent key issues such as our relationships We also maintain clear whistleblowing monitoring & testing, assurance and with associated persons, gifts and policies and processes to ensure audit activities. entertainment, recruitment, charitable that individuals can confidentially giving and political contributions. During 2016, HSBC continued to invest report concerns and to ensure that in technology systems to support such concerns are investigated and the automation of key controls and remediated appropriately. (See section consistency of record keeping, while on Employees-Whistleblowing). further focusing on developing local expertise to implement and embed the HSBC’s Anti-Bribery & Corruption Policy global AB&C enhancement programme gives practical effect to global initiatives and provide local legal and regulatory such as the Organisation of Economic knowledge, cultural understanding, and Cooperation and Development (‘OECD’) language skills. This has been supported Convention on Combating Bribery of by an AB&C communication strategy Foreign Public Officials in International that includes: Business Transactions, and Principle 10 Find out more • An e-learning mandatory training of the United Nations Global Compact. Message from Colin Bell, course for all staff that provides a The global Anti-Bribery and Corruption Group Head of Financial Crime Risk – comprehensive level of knowledge, programme is informed by our ‘Detecting, deterring and protecting against financial crime’ available in 14 languages membership of various organisations; including the B-20, Madison Group and Anti-bribery Principles In 2016, we delivered more than Wolfsberg. Anti-Money Laundering Policy

Conduct We have risk-based global policies for 3.1million hours our third parties which include principles Modern Slavery and Human Trafficking of targeted training on Public Policy Engagement financial crime to employees in relation to anti-bribery and corruption, focusing on the UK Bribery Act, the Sanctions Policy

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 19 Human Rights

The key trends impacting the global economy present huge opportunities for social and economic development, as well as risks, including those related to human rights.

These trends include urbanisation HSBC is a signatory to - or has expressed public in emerging markets, the need for support for – the following: investment in infrastructure, an ageing global population, an increasing number The Global Sullivan Principles; of newly affluent citizens, and the The OECD Guidelines for Multinational Enterprises; accompanying strain on the world’s scarce natural resources. The UN Global Compact; HSBC is guided by the International The UN Principles for Responsible Investment; and Bill of Human Rights and supports the The UN Principles for Sustainable Insurance. UN Universal Declaration of Human Rights and the principles concerning fundamental rights set out in the Modern Slavery International Labour Organisation’s We have issued our first statement Declaration on Fundamental Principles as required by the UK’s Modern and Rights at Work. Slavery Act, which can be found at In line with the UN Guiding Principles’ www.hsbc.com. Protect, Respect and Remedy The Act requires HSBC to state what framework, HSBC recognises the actions it has taken during the financial duty of states to protect human rights year ending 31 December 2016 to and the role played by business in ensure that neither slavery nor human respecting them. In our Statement on trafficking (together, ‘Modern Slavery’) Human Rights, published in September was taking place in its operations or 2015, we also recognised ‘that human supply chains. Although not expressly rights issues are complex and that the required under the Act, this statement roles and responsibilities of business also considers the steps HSBC takes and other stakeholders are the subject to ensure that Modern Slavery does of a continuing international dialogue. not take place through its lending We are open and willing to engage in or project financing. Further, this this dialogue, where appropriate and statement also examines some of the constructive’. ways in which HSBC works with the HSBC’s Conduct and Values wider financial community and law Committee enforcement agencies to act against HSBC’s CVC oversees the development Modern Slavery. of our human rights commitments and Employees policies. Executive responsibility rests HSBC applies human rights with the Group Management Board, considerations directly as they affect all which has primary accountability for employees; treating all employees with the businesses or functions relevant to dignity and respect in an environment particular human rights issues. that is free from discrimination and We always investigate credible harassment. HSBC’s commitment to allegations of human rights violations as respect human rights in the workplace they are reported to us via engagement is manifested in our HSBC Values and with stakeholders. Serious issues are human resources policies and practices - reported to the Group Management all of which promote a safe, diverse and Board. inclusive workplace.

20 Environmental, Social and Governance (ESG) Update HSBC Holdings plc Human Rights

In all countries and territories where Customers and clients one exists, HSBC operates the legal HSBC has sustainability risk policies More than minimum wage. In countries and incorporating specific social standards, territories where there is no legal they are described in the Sustainability 240 of our largest suppliers minimum wage, HSBC negotiates with Risk and Policies section of this update. have accepted our Ethical and the individual in line with market rates. Social risks refer to unacceptable Environmental Code of Conduct impacts on people and include abuses Supply chain of human rights such as slavery. HSBC has had an Ethical and Environmental Code of Conduct for The policies apply to the main Suppliers since 2005. As articulated financing products HSBC provides, in this code, HSBC requires suppliers such as loans, trade finance, and debt to respect the human rights of their and equity capital market services. employees and the communities HSBC’s sustainability risk policies in which they operate, as well as to on agricultural commodities, energy, comply with all relevant legislation, forestry, freshwater infrastructure, regulations and directives in the mining and metals and project finance countries and communities in which all make specific reference to human they operate. Suppliers must prohibit rights considerations. These include the use of forced labour and child labour, – either directly or via their underlying respect labour rights including non- standards - issues such as forced discrimination and the right to freedom labour, harmful or exploitative child of association, and give workers, labour, trafficking, land rights, the rights whether local or migrant, the right and of indigenous people such as “free the ability to leave employment when prior and informed consent”, workers’ they choose, to the extent possible rights, and the health and safety of under local law. communities. Project finance is subject to the Equator Principles, which utilises HSBC updated the Ethical and the International Finance Corporations’ Environmental Code of Conduct for Performance Standards on issues Suppliers with further amendments such as forced labour, child labour and in 2016 to take account of revised trafficking. legislation on disability rights, Modern Slavery and human rights. More than When necessary, we engage with 240 of our largest suppliers have already customers to support them in moving accepted this code. Suppliers have towards good practice, which is to respect the code’s employment the most significant contribution requirements for all staff employed we can make to implementing or sub-contracted across all HSBC’s change. However, we close banking offices and branches in all countries we relationships with customers where operate in. their activities in these sectors are – and are likely to remain – non-compliant with Find out more our risk policies. Statement on Human Rights Statement on Modern Slavery and Human Trafficking Statement Ethical and Environmental Code of Conduct for Suppliers

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 21 Sustainable Operations

We recognise that cutting Our 10-point strategy How we manage our global carbon dioxide emissions to reduce emissions operational impacts Making the transition to a low-carbon Each of the ten strategic goals is is a critical challenge for economy is something we take ‘owned’ by an executive sponsor society - and we have been very seriously, which is why we put who is responsible for the target addressing our own impact on together a strategy to manage our own being achieved. These ‘goal owners’ the environment for more than operations in 2012. (See Figure 16). are part of our Operations, Services, and Technology function, and include The strategy covers reducing energy 10 years. global heads of Corporate Real Estate, use, and waste and paper consumption, Procurement, IT, and Operations. while increasing the proportion of These teams work across regions and our paper that is sustainably sourced, collaborate with our suppliers to make meeting the highest standards for green sure projects get off the ground and buildings, making our data centres initiatives are implemented. more efficient, and procuring renewable electricity. We also engage with our Goal owners are members of the Group supply chain on such issues and Chief Operating Officer Sustainability support innovative projects via our Committee, which meets quarterly to eco-efficiency fund, which is an annual discuss progress against goals. It is $5m allocation to support projects chaired by our Group Chief Operating proposed by employees. Officer, who has ultimate responsibility for achieving both our carbon emissions reduction target and our 2020 goals that support this reduction. (See page 27).

FIGURE 16 In 2016, our efforts resulted in us UPDATED 10-POINT STRATEGY TO BE DELIVERED BY 2020 scoring the highest grade (A) in a (based on 2011 baseline) global index run by CDP, a not-for-profit organisation that rates companies and Reduce annual CO emissions per employee (FTE) Overall Goal 2 governments on how they are tackling from 3.5 tonnes to 2.0 tonnes the climate change challenge. Encourage employees to deliver our operational sustainability targets, Sustainability We have also signed up to the Science training 2000 of our leaders in residential programmes and encouraging engagement active engagement across HSBC Based Targets Initiative run by the UN Global Compact in partnership with Supply chain Work with our supply chain to deliver services sustainably and manage CDP, World Resources Institute, and collaboration ethical risk We Mean Business. We look forward to the guidance on the methodology for HSBC Eco- Allocate $5m annually to trial, test and develop sustainable innovation efficiency Fund the financial sector.

Energy Reduce annual energy consumption per employee (FTE) by 1.2MWh What we have accomplished Since 2011, we have succeeded in Waste Reduce waste by 75%, and recycle 100% of our office and electronic waste cutting total energy consumption (MWh) by 26%, and achieved a Renewables Increase electricity consumption from renewables to 40% 57% reduction in total waste. Power purchase agreements are also in place Green Design, build and run energy-efficient, sustainable buildings to the highest buildings international standards - or signed - to provide 23% of our electricity from renewables. We have Data centres Achieve an energy efficiency (power usage effectiveness) rating of 1.5 also reduced our paper purchased by 62%, and 94% of all paper used was Paperless banking available for all retail and commercial customers, reduce Paper certified sustainably sourced (Read paper use by 66%, and buy 100% sustainably sourced paper more on our Paper Sourcing Policy). Water (new Reduce water consumption by 50% For 2016, our annual per employee as of 2017) carbon dioxide emissions were 2.63

22 Environmental, Social and Governance (ESG) Update HSBC Holdings plc 25.4%

24.5%

23.6%

22.7%

22% Sustainable Operations FY12 FY13 FY14 FY15 FY16

tonnes. (See Figure 17). By the end of FIGURE 17 2016, we had surpassed many of our CO2 EMISSIONS (TONNES) 2020 targets. 4.00 991,000 Due to the results we have achieved 1,000,000 4.00 963,000 Total CO emissions in the UK, Mexico and India, we have 2 CO2 per FTE been able to increase our renewable 3.43 3.61 CO2 emissions per m2 electricity target. In the UK, we have 3.25 900,000 3.40 3.08 3.25 been able to reach 70% renewable 2.97 electricity and entered into three 889,000 sleeved power purchase agreements 2.63 795,000 2.50 supporting wind and solar projects. 800,000 771,000 2.50 In Mexico, we signed agreements in 2016 that would0.15 allow us to reach 0.20 50% renewables, while in India we We have now committed to cutting our annual carbon emissions per employee from 3.5 tonnes in 2011 to 2.0 tonnes by 2020 [Graphic]. 700,000 Our new 2020 targets include increasing the amount1 .of75 from 25% to 40%, and increasing our reduction targets for waste and paper from 50% to 75% and 66%, respectively. [Graphic for new goals] 1.75 have on site solar projects that support 20% of our consumption. All these 617,000 projects were new to the market, 1.00 0.20 hence supporting additional renewable 0.19 0.19 0.19 1.00 electricity entering the grid. When 0.18 0.17 0.17 0.172011 0.172020 possible, our renewable strategy goes 0.17 Baseline Target beyond purchasing green tariffs or 0.16 0.15 0.15 environmental certificates. Our strategy Annual carbon is to make sure additional renewable 2011 2012 2013 2014emmissions2015 2016 per FTE power is being added to the grid. (tonnes) 3.53.52.2.0 FIGURE 18 23.6% Our24.5 paper% sourcing policy25.4% continues to 2020 TARGETSTARGETS 22% ensure the paper we use for our own Participants embed sustainability into purposes meets the same standards decision-making and project delivery Original New 2500 we expect of our customers under our 963,000 2020 Targets 2020 Targets in the businesses and functions where set in 2012 set in 2017 Forestry Policy. (Learn more on our 1000 991,000,00 they work. The programme is now 3.43 Forestry Policy). focusing on engaging senior leaders 2000 electricity to In 2015, we updated and issued our within HSBC’s Global Businesses as come3.08 from 2.97 Ethical and Environmental Code of well as the operational sustainability renewables ADD TOTAL LINE 900 3.61 % % 1500 agenda. 2525 4040 Conduct for Suppliers and worked 3..4 with Sedex to assess the human rights We continue to operate our eco- x.x 889,000 and sustainability risk arising from the efficiency fund that supports projects waste 1000 relationships we have with our 300 reduction 800proposed by employees to reduce our % % biggest suppliers. Sedex is a global 5050 7575 environmental footprint. Projects have not-for-profit membership organisation included LED lighting trials, photovoltaic 500 that provides a collaborative platform 795,000 panel installations, organic waste paper 771,000 for sharing responsible sourcing data 7composting00 pilots, energy management reduction xxx,000, on supply chains. We continue to system pilots, and a number of 5050%6666% 0 JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC work with Sedex to embed a review of initiatives that have increased efficiency ethical and environmental risk into our in our Group data centres. Applications standard procurement processes for all 600are assessed on their potential to reduce new or updated supplier relationships. carbon dioxide2011 emissions,201 provide2 a 2013 2014 2015 2016 We prefer to engage with suppliers return on investment, and contribute to who are on a credible path to meeting our operational sustainability goals. our standards, but where a supplier is unable or unwilling to do so we will New 2020 targets set in 2017 Find out more end the relationship as soon as At the beginning of 2017, we decided Message from Andy Maguire, contractually possible. to revise some of our 2020 targets. Group Chief Operating Officer – We have now committed to cutting our ‘Simpler, Better, Faster’ In addition, we have trained 1,300 annual carbon emissions per FTE from Ethical and Environmental Code of senior managers through HSBC’s 3.5 tonnes in 2011 to 2.0 tonnes by 2020. Sustainability Leadership Programme Conduct for Suppliers since 2009. The programme is a mix Our new 2020 targets include increasing Key Facts of hands-on learning and leadership the amount of electricity we want to get (External benchmarks, Community development sessions, and is from renewables to 40% and increasing investment and Environmental figures) aligned to HSBC’s values-based our reduction targets for waste and PwC Assurance Report leadership curriculum. paper to 75% and 66%, respectively. Paper Sourcing Policy

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 23 Sustainability Risk Management

We strive to manage sustainability risk, principally via industry players, along with several non-governmental organisations implementation of our policies put in place to protect the (NGOs), agreed on important environment, society and supporting customers through the definitions regarding forests and transition to the low-carbon economy. climate change impacts, allowing wider and more consistent implementation of NDPE commitments. We define sustainability risk as the Palm oil In January 2017, Greenpeace risk that financial services provided to HSBC has received both praise and commenced an activist campaign customers by the Group indirectly result criticism for its approach to palm oil against HSBC on deforestation in the in unacceptable impacts on people or over the last year. palm oil sector. Greenpeace alleged the environment. Palm oil is the world’s main vegetable that we broke our existing policy on How we manage sustainability risk oil, with 60 million tonnes produced palm oil and demanded that we improve Group Sustainability Risk, which annually. Of this, 80-90% comes from our policy to include NDPE standards. is part of the Global Risk function, Indonesia and Malaysia. The sector has While we do not believe we broke our is responsible for managing our improved living standards in producer policy, we did recognise the potential sustainability risk policies and our countries, giving economic benefits, to improve our policy and have now application of the Equator Principles. and is efficient in that palm oil’s yield done so. HSBC will not agree financing Our sustainability risk policies cover per hectare can be five-nine times facilities to customers in the sector who agricultural commodities, chemicals, greater than other vegetable oils. have not made NDPE commitments. defence, energy, forestry, freshwater However, if not managed responsibly, infrastructure, mining and metals, Progress to Date oil palm plantations can have adverse UNESCO World Heritage Sites, and At the end of 2014, we reported we impacts on people and on the Ramsar-designated wetlands. The had 176 palm oil customers globally, environment, including deforestation, Equator Principles provide a framework with 104 customers at the time unable habitat destruction, social conflict, and for banks to assess and manage the or unwilling to meet the standards we haze from burning. Indirectly, these social and environmental impact of large required. Two years on, we have 108 impacts can compound the detrimental projects to which they provide finance. customers, with 28 of these designated effects of climate change. to be closed. Although some of these Group Sustainability Risk also approves HSBC has progressively raised the 28 are those identified to be closed in or declines relationships or transactions sustainability standards it applies to 2014, a previously committed long- where sustainability risks are assessed the palm oil sector since it introduced term loan means we can’t close them to be high, and reviewed more than its first forestry policy in 2004. Our immediately. Some are customers 750 of these in 2016. Our operating ongoing improvements resulted in that have struggled to meet our companies assess similar risks of a our 2014 agricultural commodities certification requirements since 2014. lesser magnitude. We have a global policy which requires customers to The remaining 80 customers meet or network of 75 sustainability risk gain independent certification by the are expected to meet our policy. managers with regional or national Roundtable on Sustainable Palm Oil responsibilities for advising on - and It is often difficult to decide how long to show that their business operates managing - environmental and social we continue to engage with customers sustainably. Since launching the policy, risks. In 2016, we created a new in order to allow them time to meet we have been recognised as a leader in training module for risk and relationship the Forest 500 ranking, an independent our policy. We do allow some time, as managers globally on our sustainability analysis of companies, investors and long as any interim negative impacts risk policies and their responsibilities governments on their commitment to are not known to be material. However, to ensure consistent implementation. preventing deforestation, an analysis we are not willing to wait indefinitely Our employees are taking this training carried out by a UK-based for our policy, which has set deadlines, module in 2017. think tank. We were again recognised to be met. The trends we have seen over the last two years fall within our Sustainability risk is monitored quarterly in 2016 with a top score. expectations. We have closed many by the Risk Management Meeting Since 2015, a growing number of major relationships – and we will undoubtedly of the Group Management Board, palm oil industry players have enhanced close some more. Nevertheless, we with interim updates as required. The their sustainability policies by adopting believe HSBC has played a major role Conduct & Values Committee of the “No Deforestation, No Peat and No in supporting customers to operate HSBC Holdings Board also monitors Exploitation” (NDPE) commitments. sustainably and achieved a good these risks quarterly. In November 2016, these palm oil balance in its approach.

24 Environmental, Social and Governance (ESG) Update HSBC Holdings plc Sustainability Risk Management

Coal Mining and Climate Change FIGURE 19 The mining and metals sector is TRANSACTIONS COMPLETED UNDER THE EQUATOR PRINCIPLES, 2014-2016 essential in extracting and processing minerals that are necessary for many of 2014 2015 2016 society’s basic needs. However, if not Summary No. $m No. $m No. $m managed responsibly, these activities can have unacceptable adverse impacts Project Finance Loans 16 2,646 19 3,744 16 1,506 on people and on the environment. In Project-Related Corporate Loans 13 1,203 11 1,186 7 939 particular, coal, when burned, is a key cause of climate change. Project-Related Bridge Loans 5 565 2 277 1 60 All Loans 34 4,414 32 5,207 24 2,505 Climate change represents an urgent and potentially irreversible threat to Project Finance Advisory Services 10 n/a 16 n/a 3 n/a human societies and the planet. This Totals 44 4,414 48 5,207 27 2,505 was recognised by the 184 countries that signed the 2015 Paris Agreement The full table showing the detail of the 2016 transactions under the Equator Principles, on climate change. If HSBC is to and further information about our implementation of them, is available at www.hsbc.com/sus-risk. successfully help people fulfil their hopes and realise their ambitions, it has an important role to play in combating guarantees to customers dependent climate change and supporting the Since 2003, HSBC has applied the on coal mining, i.e. customers where transition to the low-carbon economy. Equator Principles to nearly half or more of total turnover is HSBC supports, and is building into associated with coal mining. It also its business, the aims of the Paris 900 transactions includes lending and guarantees to Agreement. ensuring high environmental large, diversified mining companies, and social standards were met. With that in mind, we issued an where proceeds are known to be used This included: updated mining and metals policy for coal mining operations or provided • Finance for 697 loans totalling approximately $67.6bn in 2016. It responds to increasing to subsidiaries or owned businesses concerns regarding climate change by dependant on coal mining. • Advisory services on 200 deals addressing thermal coal mining, and also provides more details on how Equator Principles in 2016 Once again, for the third year in a we deal with human rights issues in In 2016, a greater proportion of our row, we had all project finance loans the sector. In effect, this prohibits the project finance lending under Equator independently reviewed, going beyond financing of new thermal coal mines and Principles (‘Principles’) was for the requirements of the Principles. new customers dependent on thermal developments in emerging market coal mining. HSBC acknowledges that countries, and a higher concentration The full set of data behind the trends existing coal mines will be needed for was in Asia. (See Figure 19). These described above can be found at power - coal generates around 40% of deals were across multiple sectors, www.hsbc.com/our-approach. The the world’s electricity – as well as steel including mining, infrastructure, oil table above provides summary level production, for which metallurgical coal and gas. Half of all loans under the statistics only for the past three years. is required. However, new thermal coal Principles in 2016 were for projects with mines would lock in additional – and potentially high sustainability impacts, avoidable – greenhouse gas emissions requiring closer management, a higher for decades. proportion than in previous years. This builds on our Energy Sector Policy, Two-thirds of our power-related deals where HSBC was the first major in 2016, and more than 50% of our international bank to restrict finance total power sector lending under the for coal-fired power plants. We do not Principles in 2016, was for renewables, including hydro, solar and wind assets, finance new coal-fired power plants Find out more that do not meet specific carbon the majority in the United States. Total intensity standards. Our Statement on lending to renewables was $526m, Message from Stuart Gulliver, Climate Change provides further detail up more than 30% compared to the Chief Executive Officer – ‘Revised on our approach to climate change. previous year. The remaining power Agricultural Commodities Policy: deals focussed on nuclear and gas. In Palm Oil’ As of 31 December 2016, our total addition, two infrastructure deals were Environmental Policy exposure to the mining and metals mass rail transport projects. Equator Principles sector was $16bn, equivalent to 1% of the Bank’s total wholesale lending. HSBC’s approach changed slightly in Introduction to Sustainability Risk Policies Of this $16bn, coal mining accounted 2016, resulting in fewer deals under List of Sustainability Risk Policies for $0.9bn, or 6%, of this lending. the Principles in 2016. We completed a Statement on Climate Change This includes all lending and bank total of 27 compared with 48 last year. Sustainability Risk (ARA p84)

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 25

Training hours completed

2016 11,014,232

Training days per FTE 2016 HSBC has committed to invest $1 billion in high-quality liquid assets covering a range of low-carbon initiatives 5.5 days

Training courses + 29% 2016 Increase in comparison to [GRAPHIC8,000 About, 00054% of 2015 (6.5m) Sustainable Finance the global population live in Instruct or Lead Training cities today: by 20 50, 66% + 25% Total completions 2016 will] Increase in comparison to 622,221 2015 (499,439) Reducing global carbon dioxide emissions is a critical challenge for everyone. We recognise its importance and seek to be E-Learning + 22% Total completions 2016 a leader in managing climate change risk while developing Increase in comparison to opportunities with – and for – clients. 5.5m 2015 (4.5m) 2050 About 54% 66% of the global 2017 population The Paris Agreement of December bodies to drive strategic initiatives that live in cities 2015, where political leaders agreed will increase green business globally. 54% today: by on action to restrict climate change 2050, 66% to 2 degrees Celsius or less, marked The SFU acts as a central point of will a turning point on this issue. It also coordination, working hand in hand recognised the essential role of private with HSBC’s product and sector teams. In 2016, cities highlighted a total of finance in tackling the problem. This Under the guidance of the CBC, it is 720 climate change-related projects development creates an opportunity for working with the global businesses worth a combined2020 720 banks like HSBC to help finance the new to help establish targets for sectors, Female infrastructure, technology and products countries and products, as well as $26bn 57% needed. KPIs for developing and tracking that they want to work on with performance. the private sector. How we manage sustainable finance (Source: CDP 2016) Our Climate Business Council (‘CBC’), established in 2010, is an internal strategic committee whose role is to SPOTLIGHT ON SMART CITIES coordinate across the bank, identifying and developing products and services C 67 C 67 C 59 C 2 C 58 C 63 C 0 M 41 M 12 M 8 M 31 M 38 M 66 M 70 to meet clients’ sustainable finance A Smart City is one where residents various elements of Smart Cities to be Y 10 Y 38 Y 84 Y 75 Y 28 Y 7 Y 67 enjoy a high quality of life and natural introduced or ‘retro-fitted’ by national K 15 K 19 K 34 K 5 K 27 K 13 K 2 needs. The CBC supports clients #547da7 #269792 #588942 #edb343 #677b88 #716196 #e54d58 who are transitioning to a low-carbon resources are well managed as a and local governments. result investments in human and social economy. It also pursues opportunities Cities’ spending will be focused mainly C 87 C 80 C 62 C 7 C 68 C 82 C 9 capital, transportation, information M 63 M 24 M 20 M 39 M 53 M 78 M 90 for collaboration across customer on low-carbon transport, energy, Y 10 Y 48 Y 90 Y 89 Y 42 Y 7 Y 78 and communications technology, and K 38 K 33 K 66 K 25 K 54 K 30 K 43 groups and products to support water, waste, telecommunications, infrastructure, thus fuelling further #1a4875 #00716c #32511b #bd871d #454e55 #464379 #8f1a22 and infrastructure in the coming years. integrated climate related initiatives, sustainable economic development. An estimated $57tn in investment such as smart cities, and sharing best This is one of the areas which HSBC is required between now and 2030 practices with clients on opportunities believes it can make a difference, by to finance these improvements. An to increase energy efficiency and arranging financing for Smart Cities. investment of this magnitude can only reduce carbon emissions. As a sustainable and resilient solution be delivered through collaboration to increasing urbanisation in both with private sector businesses and In December 2016, we established a developed and emerging markets, we investors. In 2016, cities highlighted expect the number of Smart Cities to new dedicated team, the Sustainable a total of 720 climate change-related increase over the coming years. Finance Unit (‘SFU’). Reporting projects, worth a combined $26bn that to the CBC, it is dedicated to the The biggest opportunities will be they want to work on with the private business opportunities surrounding in emerging markets in Asia, Latin sector. (Source: CDP 2016) sustainable financing and investment. America and Africa, with the largest In 2016, the UK and Chinese The team’s roles include product number of new Smart Cities being governments agreed to work created in China and India. Almost all innovation, driving business strategy together to better enable UK cities global cities have plans to be ‘smarter’ and thought leadership, working and businesses to join together with and more sustainable. with existing business, sectors and their Chinese counterparts to tackle products on clients’ engagements, In the developed world, Europe and global urban challenges through the and educating the bank’s front line the US are key markets to focus on. development of Smart Cities. HSBC relationship managers. The team will City and country green bonds are is one of the two key partners in the leverage funds from the Green Climate becoming more common. For example initiative and is working with Chinese Fund and from the global sustainable Paris and Poland have recently issued government agencies to create a UK- investor community, and also link with bonds. There is funding available for China Smart City hub. governments, think tanks and industry

26 Environmental, Social and Governance (ESG) Update HSBC Holdings plc Sustainable Finance

In 2015, HSBC committed to invest

SPOTLIGHT ON LATIN AMERICA’S BIGGEST GREEN BOND SALE $1bn in high-quality liquid assets covering In September 2016, HSBC was the sole green structuring advisor and joint a range of low-carbon initiatives global coordinator on the sale of $1bn 10-year and $1bn 30-year notes. The $2bn raised will fund Mexico City’s new international airport building, which aims to achieve the US Green Building Council’s top rating by being carbon neutral – using solar power, waste management and water recycling facilities. which we operate has sustainability Our Debt Capital Markets and Infrastructure team in New York, Mexico and embedded within it to incentivise London worked together to structure the deal. HSBC acted as global coordinator, flows of private finance into long-term sole green structuring advisor and billing and delivery agent. investments and the new green sectors This deal won a number of awards, including: Latin Finance Deals of the Year; of the economy that are required. Best Syndicated Loan; New International Airport of Mexico City ($3bn) and We are engaged in the development Best Structured Financing: New International Airport of Mexico City green of this operating framework through bond ($2bn). membership of key organisations, think tanks and expert groups. Group Chief Executive Stuart Gulliver is a member Its work includes supporting green Corporation), the first green high yield of the New Climate Economy, WEF initiatives such as financing Smart corporate from China (Modern Land), CEO Climate Leaders Alliance, World Cities (see Spotlight on Smart Cities) the first sovereign green bond (Poland), Bank’s Carbon Pricing Leadership and it is already working with the UK and first Italian corporate benchmark Coalition, and the Energy Transition and Chinese government in this space, (Enel). HSBC is one of the leading Commission. as well as working with the key NGOs green structuring advisors, structuring Within these groups we have focused and cities. 73% of the new to market issuances on a number of priorities. These include we work on globally, showing our Green bonds supporting the work of the G20, appetite and expertise in both notably the Financial Stability Board To demonstrate our ambition to broadening and deepening the green, (‘FSB’) Task Force on Climate-Related grow green finance, we issued our social and sustainability bond market. Financial Disclosure and engaging own €500m green bond in 2015 and industry in the implementation of its committed to investing twice that In recognition of this work, HSBC has recommendations; supporting and amount into Green Bond Principles recently been announced as winner of ensuring momentum on carbon pricing (‘GBP’) aligned green bonds. In the Environmental Finance Green Bond to address market failure; and providing 2016, we published a report on our Award 2017 Best Underwriter – Bank. thought leadership on the issue of own green bond to communicate In addition to our underwriting work, how the public and private sectors to investors how the proceeds had we take a high profile role at the Green can share risk, in order to leverage the been allocated and report the impact Bond Principles Executive Committee; maximum amount of private capital into they were creating. This report will chairing two of the five working groups sustainable investment. be updated annually and is publicly (new markets and index & database), available on our green bond page. and being an integral contributor to Supporting clients in the transition In 2016 to April 2017, HSBC was the a third (Social Bonds) after having to a low-carbon economy third-ranked bookrunner by Dealogic been one of the founding writers of In 2016, we completed a number of for green, social and sustainability the Social Bond Guidance, released transactions that helped lower carbon bonds, demonstrating our consistent by the International Capital Markets dioxide emissions in areas, including performance in further developing the Association at the GBP Executive infrastructure and renewable energy, market. We have underwritten nearly Committee in June 2016. for our global banking and commercial banking clients. 100 green, social and sustainability Engagement and advocacy bonds from issuers across the world, A key element in our focus on green Rather than abandoning existing ‘high- including the first social bond from and sustainable finance has been to carbon’ clients, HSBC’s approach is Spain (Instituto de Crédito Oficial), work with policymakers and regulators to engage and support them through the first green bond from India with a on the transition to a low carbon the transition. We are training our Green Bond Framework and External economy. We do this by seeking relationship managers to have these Review (National Thermal Power to ensure the policy framework in discussions with clients.

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 27 Sustainable Finance

OUR NEW 2020 TARGETS We are also working with Climate Funds the carbon footprint of our clients’ investment portfolios as part of this (e.g. Green Climate Fund,2020 Catalytic Finance Initiative) for the benefit of commitment. our clients and we have a pipeline of We have joined the Cambridge clean energy, sustainable transport and Institute of Sustainability Leadership – green infrastructure projects that we Investment Leaders Group – a global are discussing with the ClimateWe have Funds now committed to cutting our annual carbon emissions per employee from 3.5 tonnes in 2011 to 2.0 tonnes by 2020 [Graphic]. Our new 2020 targets include increasing the amount of from 25% to 40%, andnetwork increasing of pension our reduction funds, targets insurers for waste and paper from 50% to 75% and 66%, respectively. [Graphic for new goals] spread across Asia, Africa and the and asset managers committed to Americas. advancing the practice of responsible investment. Global Asset Management We recognise the impact customers can have through2011 how they 2020 invest HSBC’s Climate Change their money – and are committed to Centre is no 1 ranked in Extel Annualeducating carbon and informing them about 1st HSBC’s Climate Change Centre is no 1 emmissionssustainable per investments. ranked in Extel and its analysts are individu- employee (tonnes) ally ranked 1, 2 and 4 for integrated climate HSBC Global 3.53Asset. 5Management2.2.0 change. has increased its range of socially responsible investment funds in Europe 1 2 3 4 and is launching three new cross- border investment strategies with the Analysts are individually ranked 1, 2 and 4 for integrated climate change intent of reducing greenhouse gas emissions, water usage, waste, and air pollution. Our activities have been strengthened Global Research 40% % in the following areas: Our award-winning,25 dedicated Climate Change Centre of Excellence has • Environmental, Social and published 60 reports in the last 12 Governance (ESG) Integration: It’s months, extensively covering the one of the four pillars of our equity 50% 75 % ratification and implications of the investment philosophy and a critical Paris Agreement. Reports have component of our credit research covered issues including climate risk process. assessment, green bonds, China’s 13th % % • We currently have about $410m 5-year plan,50 adaptation66 issues, water invested in green bonds. scarcity around cotton production and G20 climate vulnerability. • Investment Strategy Development: Our own factor betas are now Collaboration with analysts from across combined with third party data to HSBC Global Research results in customize solutions for institutional multi-asset research that covers risks customers. and opportunities from different angles and geographies. Members of the Find out more • Stewardship: We collaborate with climate team speak regularly on panels industry groups and support climate Message from André Brandão, with representatives of governments, change resilience shareholders Group General Manager and Chair of United Nations bodies and not-for-profit the Climate Business Council – ‘Climate resolutions at Annual General organisations. HSBC’s Climate Change Change: Risks and Opportunities’ Meetings. Centre is no 1 ranked in Extel and its HSBC’s Green Bond Report • Policy: We have published our analysts are individually ranked 1, 2 and Global Asset Management Climate own Climate Change Policy that 4 for integrated climate change. Change Policy articulates our approach to climate- Since 2015, HSBC has expanded its Global Asset Management Responsible related disclosures. broader environmental, social and Investing • Transparency: We have expanded governance offering with analysts Global Equity Portfolio our carbon footprint related research joining to specifically cover social and Carbon Footprint (Montreal Pledge) providers to continue to improve our governance drivers, through thematic, Global Banking and Markets reporting commitments related to the multi-asset and company-specific notes, Sustainable Financing Montreal Carbon Pledge. and to cover the fast-growing green Global Research / Climate Change bond market. Centre of Excellence Since 2015, HSBC Global Asset Management has been a signatory to Our Statement on Climate Change Statement on Climate Change the Montreal Pledge. We measure and provides a summary of our approach UN Principles of Responsible Investment publicly disclose on an annual basis and initiatives. UN Principles of Sustainable Insurance

28 Environmental, Social and Governance (ESG) Update HSBC Holdings plc Embedding Sustainability

Our Sustainability function advises, collaborates and partners with the global Businesses and Functions as they look to embed sustainability in their products and services.

The below chart summarises such initiatives and the primary governance forums responsible for implementation. Objectives relating to sustainability are reflected in leaders’ scorecards with the Sustainability function acting as an assessor to their work. For example, this includes the scorecards of Group Chief Operating Officer, Chief Executive Officer Asia Pacific and Chief Executive Officer, Global Banking and Markets. Please refer to the Annual Report and Accounts 2016 for details on the specific 2017 scorecard measures for the Executive Directors.

FIGURE 20 SUSTAINABILITY INITIATIVES AND RESPONSIBILITIES

Initiatives Description Primary governance forums

Supporting clients in • Develop resources and capabilities to support business development • Climate Business Council transition to a low-carbon opportunities related to the transition to a low carbon economy • Global Business Executive economy • Pursue opportunities for collaboration across customer groups and Committees products to support integrated climate related initiatives such as smart cities • Share best practices with clients on opportunities to increase energy efficiency and reduce carbon emissions

Managing climate • Develop sustainability and climate related risk policies • Risk Management Meeting related risk • Establish processes to evaluate and monitor transition risks • Climate Business Council

Managing environmental • Reduce average CO2 emissions per FTE • HOST- Operations, Services impact of our own • Implement plans to support 10-point operational sustainability strategy and Technology function operations • Group Chief Operating Officer Sustainability Committee

Strengthening disclosure, • Develop management information reporting framework for tracking • Climate Business Council engagement and sustainability initiatives and engage in industry initiatives to establish a • ESG Steering Committee processes to support consistent approach to disclosure sustainability aims • Expand communication and knowledge sharing with employees on climate change and sustainability

Environmental, Social and Governance (ESG) Update HSBC Holdings plc 29 Further Information

In this section, we have provided further information on HSBC’s approach to ESG issues. It contains a quick guide to links to videos, further content, policies, and topics discussed in this document. Please visit the links to obtain a more in depth understanding of our initiatives covering the ESG issues that may be of interest to you.

Environment Social Environmental Policy Board Diversity Policy Climate Change: Risk and Opportunity Community Investment Programmes Measuring our Impact Diversity and Inclusion Policy Ethical and Environmental Code of Conduct for Suppliers Transition to low-carbon economy HSBC’s Green Bond Report Health and Safety Policy Global Asset Management Climate Change Policy Remuneration Practices and Governance Global Asset Management Responsible Investing Statement on Human Rights Global Equity Portfolio Carbon Footprint (Montreal Pledge) Statement on Modern Slavery and Human Trafficking Global Banking and Markets Sustainable Financing Tax Transparency Global Research / Climate Change Centre of Excellence Our Charter Statement on Climate Change Valuing Diversity UN Principles of Responsible Investment Whistleblowing Policy UN Principles of Sustainable Insurance Visit HSBC Now videos for stories from our colleagues around the world. Videos ‘Financing the US’s first offshore wind farm’ ‘Jennifer’s Big Day’ ‘Mexico City International Airport’ ‘Blazing the trail for African-American colleagues’ ‘Strong, smart and bold for change. Meet the next Managing Risk generation of women.’ Environmental Policy Equator Principles Governance Simpler, better, faster Anti-Money Laundering Policy Statement Sustainability Risk Policies Financial Crime Risk Introduction to Sustainability Risk Policies Sanctions Policy Statement Statement on Climate Change Statement of Anti-bribery Principles Statement on Conduct Video ‘Statement on Revised Agricultural’ Statement on Modern Slavery and Human Trafficking ‘Commodities Policy: Palm oil’ Statement on Public Policy Engagement Operational Impact Videos Ethical and Environmental Code of Conduct for Suppliers HSBC Safeguard - data protection and financial crime: Key Facts (External benchmarks and environmental figures) • Why do I need to provide more information about my PwC Assurance Report business to HSBC? Paper Sourcing Policy • What is financial crime and why should I be concerned? Sustainable Operation Result • How does proving where my money comes from help HSBC make banking safer? Awards and Recognitions Awards to date

The information set out in this document, taken together with the information relating to ESG issues detailed in our Annual Report and Accounts and the information available in the links below, aim to provide you with key ESG information and data relevant to our operations for the year ended 31 December 2016 and in order to comply with the Environmental, Social and Governance Reporting Guide contained in Appendix 27 to The Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited (‘ESG Guide’). To the extent that we have not complied with the relevant provisions in the ESG Guide it is because we have chosen to focus on the issues which we consider are material to our stakeholders and on which we can have an impact. We will continue to develop and refine our reporting and disclosures on ESG issues in line with feedback received from stakeholders and in order to comply with the ESG Guide.

30 Environmental, Social and Governance (ESG) Update HSBC Holdings plc © Copyright HSBC Holdings plc 2017 All rights reserved No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Holdings plc. Published by Investor Relations, HSBC Holdings plc, London Email: [email protected]

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