HSBC 2004 Annual Report Download - page 213

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The Directors, through the Group Audit
Committee, have conducted an annual review of the
effectiveness of HSBC’ s system of internal control
covering all controls, including financial, operational
and compliance controls and risk management.
Reputational and operational risks
HSBC regularly updates its policies and procedures
for safeguarding against reputational and operational
risks. This is an evolutionary process which takes
account of The Association of British Insurers’
guidance on best practice when responding to social,
ethical and environmental (‘SEE’ ) risks.
The safeguarding of HSBC’s reputation is of
paramount importance to its continued prosperity
and is the responsibility of every member of staff.
HSBC has always aspired to the highest standards of
conduct and, as a matter of routine, takes account of
reputational risks to its business. The training of
Directors on appointment includes reputational
matters.
Reputational risks, including SEE matters, are
considered and assessed by the Board, the Group
Management Board, subsidiary company boards,
board committees and/or senior management during
the formulation of policy and the establishment of
HSBC standards. Standards on all major aspects of
business are set for HSBC and for individual
subsidiary companies, businesses and functions.
These policies, which form an integral part of the
internal control systems, are communicated through
manuals and statements of policy and are
promulgated through internal communications and
training. The policies cover SEE issues and set out
operational procedures in all areas of reputational
risk, including money laundering deterrence,
environmental impact, anti-corruption measures and
employee relations. The policy manuals address risk
issues in detail and co-operation between head office
departments and businesses is required to ensure a
strong adherence to HSBC’s risk management
system and its corporate social responsibility
practices.
Internal controls are an integral part of how
HSBC conducts its business. HSBC’s manuals and
statements of policy are the foundation of these
internal controls. There is a strong process in place
to ensure controls operate effectively. Any
significant failings are reported through the control
mechanisms, internal audit and compliance functions
to subsidiary company audit committees and to the
Group Audit Committee, which keeps under review
the effectiveness of the system of internal controls
and reports regularly to HSBC Holdings’ Board. In
addition, all HSBC businesses and major functions
are required to review their control procedures and to
make regular reports about any losses arising from
operational risks.
HSBC provides information in its Corporate
Social Responsibility Report and website
(www.hsbc.com/csr) on the extent to which it has
complied with its risk management policies. Aspects
covered include: how HSBC is implementing and
applying the Equator Principles to manage the
environmental and social risks in project finance;
employee diversity; environmental management and
health and safety. HSBC is using the guidelines of
the Global Reporting Initiative in producing its 2004
report.
HSBC’s internal risk management procedures
are supported by third party scrutiny and assurance.
A commentary by The Corporate Citizenship
Company in the Corporate Social Responsibility
Report and website includes both assurance and
forward-looking recommendations on HSBC’s SEE
reporting. HSBC also provides external assurance
through its participation in the Dow Jones
Sustainability Index and Business in the
Community’ s Environment Index (HSBC’s feedback
reports from which are included on our website) and
FTSE4Good. Further details are contained in
HSBC’s Corporate Social Responsibility Report
2004, available in April 2005.
Health and safety
The maintenance of appropriate health and safety
standards throughout HSBC remains a key
responsibility of all managers and HSBC is
committed to actively managing all health and safety
risks associated with its business. HSBC’ s objectives
are to identify, remove, reduce or control material
risks of fires and of accidents or injuries to
employees and visitors.
Health and Safety Policies, Group standards and
procedures are set by Group Fire and Safety and are
implemented by Health, Safety and Fire Co-
ordinators based in each country in which HSBC
operates.
HSBC faces a range of threats from terrorists
and criminals across the world. In particular, over
recent years the threat from international terrorism
has become significant in a number of areas where
HSBC operates. This threat has mainly manifested
itself in bomb attacks such as the one in Istanbul in
2003 in which HSBC’s Turkish headquarters
building was attacked. Despite suffering tragic loss
of life and major damage, existing security measures
and well-managed contingency procedures ensured