HSBC 2011 Annual Report Download - page 212

HSBC HOLDINGS PLC
Report of the Directors: Operating and Financial Review (continued)
Risk > Appendix – Risk policies and practices > Sustainability risk // Capital > Overview / Movement in RWAs in 2011
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A plan’s investment strategy is determined after taking into consideration the market risk inherent in the investments
and its consequential impact on potential future contributions. The long-term investment objectives of both HSBC
and, where relevant and appropriate, the trustees are:
• to limit the risk of the assets failing to meet the liabilities of the plans over the long-term; and
• to maximise returns consistent with an acceptable level of risk so as to control the long-term costs of the defined
benefit plans.
In pursuit of these long-term objectives, a benchmark is established for the allocation of the defined benefit plan
assets between asset classes. In addition, each permitted asset class has its own benchmarks, such as stock market or
property valuation indices and, where relevant, desired levels of out-performance. The benchmarks are reviewed
at least triennially within 18 months of the date at which an actuarial valuation is made, or more frequently if
required by local legislation or circumstances. The process generally involves an extensive asset and liability review.
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 varies in different jurisdictions. For
example, the principal plan, which accounts for approximately 70% of the obligations of our defined benefit pension
plans, is overseen by a corporate trustee who regularly monitors the market risks inherent in the scheme.
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 Head Office, 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 our 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 our 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 our
lending and investment activities on sustainable development; and
• providing training and capacity building within our operating companies to ensure sustainability risks are
identified and mitigated consistently to either our own standards, international standards or local regulations,
whichever is higher.