HSBC 2009 Annual Report Download - page 266

HSBC HOLDINGS PLC
Report of the Directors: Risk (continued)
Reputational risk / Sustainability risk // Insurance operations > Life insurance business
264
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’) was established in 2008 at which Group
functions with responsibility for activities that 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. With effect
from 2010, Reputational Risk Committees have been
established in each of the Group’s regions. These
committees will ensure that reputational risks are
considered at a regional as well as Group level.
Minutes from the regional committees will be tabled
at GRRC.
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 313), 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)
Assessing the environmental and social impacts
of providing finance to the Group’s customers has
been firmly embedded into HSBC’s overall risk
management processes. 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 GMO, a separate
function, Group Corporate Sustainability, is
mandated to manage these risks globally working
through local offices as appropriate. Sustainability
Risk Managers have regional or national
responsibilities for advising on and managing
environmental and social risks.
Group Corporate Sustainability’s 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 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
consistently to either HSBC’s own standards,
international standards or local regulations,
whichever is the higher.