HSBC 2008 Annual Report Download - page 256

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Pension risk / Reputational risk / Sustainability risk / Insurance operations > Life business
254
Ultimate responsibility for investment strategy
rests with either the Trustees or, in certain
circumstances, a Management Committee. The
degree of independence of the Trustees from HSBC
differs in different jurisdictions. For example, the
HSBC Bank (UK) Pension Scheme, which accounts
for approximately 63 per cent of the obligations of
the Group’s defined benefit pension plans, is
overseen by a corporate Trustee. This scheme’s
Trustee regularly monitors the market risks inherent
in the scheme.
Reputational risk
(Unaudited)
The safeguarding of HSBC’s reputation is of
paramount importance to its continued prosperity
and is the responsibility of every member of staff.
HSBC regularly reviews its policies and procedures
for safeguarding against reputational and operational
risks. This is an evolutionary process which takes
account of relevant developments and industry
guidance such as The Association of British
Insurers’ guidance on best practice when responding
to environmental, social and governance (‘ESG’)
risks.
HSBC has always aspired to the highest
standards of conduct and, as a matter of routine,
takes account of reputational risks to its business.
Reputational risks can arise from a wide variety of
causes, including ESG issues and operational risk
events. As a banking group, HSBC’s good reputation
depends upon the way in which it conducts its
business, but it can also be affected by the way in
which clients, to whom it provides financial services,
conduct themselves. The training of Directors on
appointment includes reputational matters.
A Group Reputational Risk Committee
(‘GRRC’) has been established at which relevant
Group functions with responsibility for activities
and functions which attract reputational risk are
represented. The primary role of the GRRC is to
consider areas and activities presenting significant
reputational risk and, where appropriate, to make
recommendations to the Risk Management Meeting
and GMB for policy or procedural changes to
mitigate such risk.
Standards on all major aspects of business
are set for HSBC and for individual subsidiaries,
businesses and functions. Reputational risks,
including ESG matters, are considered and assessed
by the Board, GMB, the Risk Management Meeting,
subsidiary company boards, board committees and
senior management during the formulation of policy
and the establishment of HSBC standards. These
policies, which form an integral part of the internal
control system (see page 299), are communicated
through manuals and statements of policy and are
promulgated through internal communications and
training. The policies cover ESG issues and set out
operational procedures in all areas of reputational
risk, including money laundering deterrence,
counter-terrorist financing environmental impact,
anti-corruption measures and employee relations.
The policy manuals address risk issues in detail and
co-operation between GMO departments and
businesses is required to ensure a strong adherence
to HSBC’s risk management system and its
sustainability practices.
Sustainability risk
(Unaudited)
Sustainability risks arise from the provision of
financial services to companies or projects which run
counter to the needs of sustainable development; in
effect this risk arises when the environmental and
social effects outweigh economic benefits. Within
Group Management Office, a separate function,
Group Corporate Sustainability, is mandated to
manage these risks globally working through local
offices as appropriate. Its risk management
responsibilities include:
• formulating sustainability risk policies. This
includes oversight of HSBC’s sustainability
risk standards, management of the Equator
Principles for project finance lending, and
sector-based sustainability policies covering
those sectors with high environmental, ethical
or social impacts (forestry, freshwater
infrastructure, chemicals, energy, mining
and metals, and defence-related lending);
undertaking an independent review of
transactions where sustainability risks are
assessed to be high, and supporting HSBC’s
operating companies to assess similar risks of
a lower magnitude;
• building and implementing systems-based
processes to ensure consistent application of
policies, reduce the costs of sustainability risk
reviews and capture management information to
measure and report on the effect of HSBC’s
lending and investment activities on sustainable
development; and
• providing training and capacity building within
HSBC’s operating companies to ensure
sustainability risks are identified and mitigated
on a consistent basis and to either HSBC’s own
standards, or international standards or local
regulations, whichever is the higher.