Sustainable Development at HSBC

Presentation to InvestorsBest of BritishTuesday 28th November 2006

Agenda

• Overview of HSBC and Strategy• HSBC’s approach to sustainability

• Key themes• Structure and governance• Risk management• Business development

• Climate Change• Microfinance• Progress so far• Q&A

Overview of HSBC and Strategy

Fundamental strategic thinking

A bank is a ‘leveraged’ play on the underlying economy; therefore the key challenge is to:• Select the better performing economies• Attract the most valuable clients in our chosen economies

HSBC aims to produce a blend of earnings from:• Developed mature-growth economies• Developing higher-growth economies (considered on a risk-adjusted basis)

Leveraging our internationality provides revenue generating and cost saving opportunities• Leveraging through our local presence the increasing trade and other links

between developed and developing economies• Transferring skills and best practice• Managing resources globally

Segmentation of customer groups

• 3,800 customer relationships

Corporate, Investment Banking and Markets (CIBM)

• Some 90,000 complex, wealthy clients with US$1m of liquid, investible assets

Group Private Banking (GPB)

• 3,800 customer relationships

Corporate, Investment Banking and Markets (CIBM)

• 3,800 customer relationships

Corporate, Investment Banking and Markets (CIBM)

• Some 90,000 complex, wealthy clients with US$1m of liquid, investible assets

Group Private Banking (GPB)

• Some 90,000 complex, wealthy clients with US$1m of liquid, investible assets

Group Private Banking (GPB)

• Including HSBC Premier

• Some 50m customers

Personal Financial Services (PFS)

• Some 60m customers

Consumer Finance (CF)

• Including Small & Medium-sized Enterprises (SMEs) and Middle Market Enterprises (MMEs)

• Some 2.5m customers

Commercial Banking (CMB)

• Including HSBC Premier

• Some 50m customers

Personal Financial Services (PFS)

• Including HSBC Premier

• Some 50m customers

Personal Financial Services (PFS)

• Some 60m customers

Consumer Finance (CF)

• Some 60m customers

Consumer Finance (CF)

• Including Small & Medium-sized Enterprises (SMEs) and Middle Market Enterprises (MMEs)

• Some 2.5m customers

Commercial Banking (CMB)

• Including Small & Medium-sized Enterprises (SMEs) and Middle Market Enterprises (MMEs)

• Some 2.5m customers

Commercial Banking (CMB)

HSBC’s ‘Broadbrush’ 25-year scenario

Key economic areas will be:• NAFTA led by USA• China

50% of the increase in world demand will come from developing countries:

• China, India, Mexico and Brazil

Major opportunities within the diaspora of:• Chinese, Hispanic, Indian and many other expatriate communities

HSBC’s global distribution and advantage

International network - 76 countries and territories - 9,500 offices

Tegucigalpa

Bogotá

SanSalvador

San Jose

Managua

To be added with Grupo Banistmo S.A.

Key

Key Sustainability Themes

What are our aspirations?

• Bronze - compliance, middle of the pack, no serious mistakes, doing

doing the minimum, we deal with our own environmental impact.

• Silver - sectoral leadership, leadership in dealing with specific issues,

issues, we stand out from the crowd, we make a difference beyond

beyond our suppliers and customers.

• Gold - we aspire to change our operating context, we think way

beyond compliance and make bold decisions about creating business

business opportunities as a leader. Sustainability is brand.

How “Sustainable”…….?

Environmental responsibility

Economic responsibility

Social responsibility

SUSTAINABLE DEVELOPMENT

Our sustainable development strategy

CLIMATECHANGE

WATER

BIODIVERSITY

POVERTY

RISK

MA

NA

GE

ME

NT

BU

SINE

SS DE

VE

LO

PME

NT

OPE

RA

TIO

NS

PHIL

AN

TH

RO

PY

POLICIES

PROCESSES

CARBON

WATER

FORESTRY

MICROFINANCE

BUILDINGS

TRAVEL

SUPPLIERS

IT

ENVIRONMENT

EDUCATION

Structure & Governance

Group Sustainable Development

Group Sustainable Development Risk Management

•Policies•Processes•People

•Climate Change•Microfinance•Freshwater•Forestry

•Energy•Water, waste•CO2 emissions

Indirect Im

pact

Communications around Corporate

Responsibility

Advisor on the Environment

Business Development

Sustainable Development

Advisory Team

Direct

Impact

Indirect Im

pact

Move HSBC from a mistake avoidance mindset to one centred on opportunity

Risk Management

Sustainability Risk Management

Minimising the indirect impact of our lending lending

• Objectives:• Develops policies and processes to

ensure that the Group protects its reputation and brand from and reputational risk

• Ensures that these policies and processes are mainstreamed in the risk assessment and approval process through a programme of communication and training

POLICIES

PROCESSES

PEOPLE

Evolution of Sustainability Risk

Group Environmental Policy

Equator Principles

Environmental Risk Standard

Forest Sector Guideline

Pre-1997 1997-2001 2002 2003 2004 2005 2006

Environmental Risk Structure

Freshwater Guideline

Energy Guideline

Metals & Mining Guideline

Sustainability Toolkit

Environmental Risk Clearance

Reporting

COMPLIANCE

VALUE ADDED

Advisor on the Environment

Environmental Risk Unit

Training & CommunicationCompleted

Corporate “Culture”

Member Banks’ Policies

In Progress

Chemicals Guideline

Sector Guidelines

FOREST LAND & FOREST PRODUCTS

FRESHWATER INFRASTRUCTURE

ENERGY

METALS & MINING

CHEMICALS

TIM

E

RISK

Functional Management of Environmental Risk

Jon WilliamsHead of Group Sustainable

DevelopmentGHQ GSD

Berthold MutschmannDeputy Head of

CreditGermany (HTDE)

Louie HacheyAssistant Vice President

CreditCanada (HBCA)

Charles SavageDirecteur Adjoint des Risques

de MarchésFrance (HBFR)

David Gay (CMB)/Kevin Hutchings/Richard

Martin (CIBM)Credit & Risk Management

UK & Europe (HBEU)

Sidney WangCorporate Credit

ManagerSouth America (HBBR)

Lloyd MaddockSenior Manager Corporate

Credit & RiskMiddle East (HBME)

Ruben ChavezDirector Credit Portfolio

ManagementMexico (HBMX)

Patrick K T IpChief Credit Officer

(HASE)

Eric Dettmar/Sharon WalckCredit Risk Management

USA (HBUS)

Paul NortonSenior Manager Credit & Risk

Asia Pacific (HBAP)

Sustainable Business Development

Sustainable Business Development

Capturing the opportunities• Objectives

• Focuses on key areas of business development in:

– Climate change and low-carbon technology

– Sustainable forestry– Water infrastructure– Microfinance

• Seeks to identify business development opportunities across all geographies, all customer groups, and all product groups and support business units in capturing them; and to evaluate inbound business referrals

Carbon Water

Forestry Micro

Custom

er groups

Product groups

Countries

Climate Change

Climate Change Matters...

“HSBC is working to support the transition to a low-carbon economy. As a carbon neutral company, we are proud to be investing in renewable energy technology including wind and solar power and hope that our actions will inspire other financial institutions to do the same.”

(Stephen Green, Group Chairman, HSBC Holdings plc May 2006)

We believe that climate change represents the largest single environmental challenge this century and that financial institutions will play an important role in the shift to cleanerenergy.

Climate Change: The Business Forecast...

• Climate change is happening and is urgent

• Our 125 million customers around the world will be affected by affected by climate change

• We need to support them in managing climate risks

• We can finance the shift to low carbon technologies

• Climate change can be tackled without damaging economic economic prospects

• There is a wide range of options for reducing emissions

Managing our Footprint…...

BUY RENEWABLESREDUCE

OFFSET

CREDIBLEADDITIONAL

COST EFFECTIVE

HSBC is the world’s first carbon neutral bank

We have 705,000t CO2e to manage….

Electricity74%

Air10%

Road7%

Gas (Mains)

7%

Other sources

2%

Group carbon dioxide emissions - 2005

Energy Savings = Cost Savings

Emissions ReductionTarget:

5% reduction over 3 years from 2004

Managing our Indirect Impacts….

14

7

Billion of Tons of Carbon Emitted per Year

0

Currently

projected

path

Flat path

Historicalemissions

1.9

14 GtC/y

7 GtC/y

Seven “wedges”

205520051955 2105

Our Areas of Focus….

Wind, Solar PV

Biofuels

Energy and Transport Efficiency

Fuel Switching

Carbon Capture & Storage

Landfill Gas/Methane Capture

Geothermal

Nuclear, Hydrogen

Microfinance

Microfinance - what is it?• Microcredit is the provision of small loans to the

unbanked - loans of typically less than $200 - to indiviudals (usually women) to establish or a small self-sustaining business - a

• Microfinance is the extension of this concept to include a full suite of banking products - savings, insurance and remittance services for migrant workers to send money home.

• The players:

Microfinance originated in Bangladesh in 1973

While the original Asian model was based on group lending and cross guarantees, individual lending is increasingly popular, especially in Latin America

Today there are some 3000 Microfinance Institutions (MFIs), either NGOs or regulated banks, serving 92 million clients

5 or 6 Enablers based in the US or UK co-ordinate across networks of partner MFIs. These enablers either lend directly to their affiliates or facilitate funding from donors and commercial sources

Donors and Commercial Funding

Microfinance Enablers e.g Accion

Local Affiliates e.g. Compartamos

End clients

HSBC’s current involvement

• HSBC is currently engaged with Microfinance institutions institutions in:

• India• Mexico• Philippines• Russia• Sri Lanka • USA

• HSBC Group Microfinance Strategy• Mandated by the HSBC Board to expand this business

from 5 to potentially 15 countries worldwide

• Country and Product support is critical to success

Expansion targeted in:

Priority countries:• Argentina• Brazil• China• Poland •Turkey

Next steps...• Bangladesh• Egypt• Indonesia• Pakistan• Poland • Thailand

Our Microfinance Experience and Strategy

Presently Active:IndiaMexicoPhilippines Russia Sri LankaUSA

Priority countries:• Argentina• Brazil• China• Turkey

Next steps...• Bangladesh• Egypt• Indonesia• Pakistan• Poland • Thailand

Countries with current microfinance activitiesPriority countries to be involved

HSBC Microfinance Strategy

• Mandated by the HSBC Group Management Board to expand this business

• Group Sustainable Development to assume global responsibility

• Approach is to engage with the microfinance sector on a commercially viable and sustainable basis, not as philanthropy

• Strategy centres on the need to leverage our strengths rather than try and build expertise/capacity quickly in the short/medium.short/medium.

• Business should be based on existing HSBC product and operations

How can HSBC position itself to provide value in the microfinance space?

Cash/Liquidity Management• Collections• Receivables• Currency• Remittances• Cards

Progress so far

Relative performance on sustainability

Cumulative instances of positive minus negative newsSource: Covalence EthiQuote 10 Banks 2001 - 2006

HSBC has pulled away from the pack in the past 24 months

We are making progress…..

• Fortune Global 500 Accountability Rating: up from 43rd to 4th now

leading financial institution

• F&C Asset Management - “HSBC makes a move” “...real progress in

the company's management and disclosure of environmental credit

risk….and improvements in how environmental risks are integrated

into the bank's day-to-day lending decisions”

• Both Henderson & Morley have added us to their SRI Funds. HSBC

is now rated A by Innovest, an ethical rating agency, up from BBB.

• First place in the Low Carbon Finance and Investment Leaders

category of a survey by BusinessWeek and The Climate Group

Sustainable Bank of the Year 2006

Ranked No 1Climate

Leadership Index, Banks

Recognition of progress

Sustainable Development at HSBC

Presentation to InvestorsBest of BritishTuesday 28th November 2006