HSBC presented its approach to sustainability to investors. It outlined its strategy, governance structure, and progress in managing environmental and social risks. Key points included: 1) HSBC aims to be a sector leader in sustainability by identifying business opportunities in areas like climate change, forestry, water, and microfinance across its global operations. 2) It has established governance structures like a Group Sustainable Development advisory team to integrate sustainability into risk management, business development, and operations. 3) HSBC is a carbon neutral bank and is financing low-carbon technologies while reducing its own emissions. It is also expanding microfinance programs in priority countries. 4) The presentation highlighted HSBC's recognition as a

1. Sustainable Development at HSBC
Presentation to Investors
Best of British
Tuesday 28th November 2006

2. 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

3. Overview of HSBC and Strategy

4. 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

5. Segmentation of customer groups
Personal Financial Services (PFS)
• Including HSBC Premier
• Some 50m customers Corporate, Investment Banking
and Markets (CIBM)
• 3,800 customer relationships
Consumer Finance (CF)
• Some 60m customers
Group Private Banking (GPB)
• Some 90,000 complex, wealthy clients with
US$1m of liquid, investible assets
Commercial Banking (CMB)
• Including Small & Medium-sized
Enterprises (SMEs) and Middle Market
Enterprises (MMEs)
• Some 2.5m customers

6. 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

7. HSBC’s global distribution and advantage
International network - 76 countries and territories - 9,500 offices
Managua
Bogotá
San
Salvador
Tegucigalpa
San Jose
Key
To be added with Grupo Banistmo S.A.

8. Key Sustainability Themes

9. 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.

10. How “Sustainable”…….?
Environmental
responsibility
SUSTAINABLE
DEVELOPMENT
Economic Social
responsibility responsibility

11. Our sustainable development strategy
BUSINESS DEVELOPMENT
RISK MANAGEMENT
CLIMATE
PHILANTHROPY
CHANGE
OPERATIONS
WATER
BIODIVERSITY
POVERTY
POLICIES CARBON BUILDINGS ENVIRONMENT
PROCESSES WATER TRAVEL EDUCATION
FORESTRY SUPPLIERS
MICROFINANCE IT

12. Structure & Governance

13. Group Sustainable Development
Advisor on the Sustainable
Impact
•Energy
Direct
Environment Development •Water, waste
Advisory Team •CO2 emissions
Indirect
Impact
•Policies
Group Sustainable
Risk Management •Processes
Development •People
•Climate Change
Indirect
Impact
Communications Business •Microfinance
around Corporate Development •Freshwater
Responsibility •Forestry
Move HSBC from a mistake avoidance mindset to
one centred on opportunity

14. Risk Management

15. Sustainability Risk Management
Minimising the indirect impact of our lending
lending
• Objectives:
PEOPLE • Develops policies and processes to
ensure that the Group protects its
reputation and brand from
PROCESSES and reputational risk
• Ensures that these policies and
processes are mainstreamed in the risk
POLICIES
assessment and approval process
through a programme of communication
and training

16. Evolution of Sustainability Risk Sustainability Toolkit
Metals & Mining Guideline
Energy Guideline
In Progress
Reporting
Completed
Training & Communication
Chemicals Guideline
Freshwater Guideline
Environmental Risk Clearance
Environmental Risk Structure
Forest Sector Guideline
VALUE
Environmental Risk Unit
ADDED
Advisor on the Environment
Equator Principles
COMPLIANCE
Environmental Risk Standard
Member Banks’ Policies
Corporate “Culture” Group Environmental Policy
Pre-1997 1997-2001 2002 2003 2004 2005 2006

17. Sector Guidelines
METALS & MINING
ENERGY
TIME
CHEMICALS
FRESHWATER INFRASTRUCTURE
FOREST LAND & FOREST PRODUCTS
RISK

18. Functional Management of Environmental Risk
David Gay (CMB)/
Louie Hachey Berthold Mutschmann
Kevin Hutchings/Richard
Assistant Vice President Deputy Head of
Martin (CIBM)
Credit Credit
Credit & Risk Management
Canada (HBCA) Germany (HTDE)
UK & Europe (HBEU)
Paul Norton
Eric Dettmar/Sharon Walck
Senior Manager Credit & Risk
Credit Risk Management
Asia Pacific
USA (HBUS)
Jon Williams (HBAP)
Head of Group Sustainable
Development
Ruben Chavez GHQ GSD Patrick K T Ip
Director Credit Portfolio Chief Credit Officer
Management
Mexico (HBMX) (HASE)
Sidney Wang Charles Savage Lloyd Maddock
Corporate Credit Directeur Adjoint des Risques Senior Manager Corporate
Manager de Marchés Credit & Risk
South America (HBBR) France (HBFR) Middle East (HBME)

19. Sustainable Business Development

20. Sustainable Business Development
Capturing the opportunities
Carbon Water
• Objectives
Forestry Micro • Focuses on key areas of business
development in:
– Climate change and low-carbon
technology
– Sustainable forestry
Customer groups
Product groups
– Water infrastructure
Countries
– 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

21. Climate Change

22. Climate Change Matters...
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 cleaner
energy.
“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)

23. 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

24. Managing our Footprint…...
HSBC is the world’s first carbon neutral bank
We have 705,000t CO2e to
manage….
OFFSET
CREDIBLE
ADDITIONAL
COST EFFECTIVE
BUY
RENEWABLES
REDUCE

25. Group carbon dioxide emissions - 2005
Other
Gas sources
(Mains) 2%
Road
7%
7%
Air
10%
Electricity
74%
Energy Savings = Cost Savings

26. Emissions Reduction
Target:
5% reduction
over 3 years
from 2004

27. Managing our Indirect Impacts….
Billion of Tons
of Carbon
14 te d
Emitted per 14 GtC/y
j ec
Year
p ro
ly
nt
e
rr
Cu th Seven “wedges”
pa
Historical
7 7 GtC/y
emissions Flat path
1.9
0
1955 2005 2055 2105

28. Our Areas of Focus….
Wind, Solar PV
Biofuels
Energy and Transport Efficiency
Fuel Switching
Carbon Capture & Storage
Landfill Gas/Methane Capture
Geothermal
Nuclear, Hydrogen

29. Microfinance

30. Microfinance - what is it?
• Microcredit is the provision of small loans to the
Microfinance originated
in Bangladesh in 1973 unbanked - loans of typically less than $200 - to
indiviudals (usually women) to establish or
While the original Asian
model was based on a small self-sustaining business - a
group lending and cross
guarantees, individual • Microfinance is the extension of this concept to
lending is increasingly include a full suite of banking products - savings,
popular, especially in
Latin America insurance and remittance services for migrant
workers to send money home.
Today there are some
3000 Microfinance • The players:
Institutions (MFIs), either
NGOs or regulated banks, Donors and Commercial Funding
serving 92 million clients
5 or 6 Enablers based in Microfinance Enablers e.g Accion
the US or UK co-ordinate
across networks of
partner MFIs. These
enablers either lend Local Affiliates e.g. Compartamos
directly to their affiliates
or facilitate funding from
donors and commercial End clients
sources

31. HSBC’s current involvement
Expansion targeted in: • HSBC is currently engaged with Microfinance institutions
institutions in:
Priority countries:
• Argentina • India
• Brazil
• China • Mexico
• Poland • Philippines
•Turkey
• Russia
Next steps...
• Bangladesh • Sri Lanka
• Egypt • USA
• Indonesia
• Pakistan
• Poland
• Thailand • 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

32. Our Microfinance Experience and
Strategy
Presently Active:
India
Mexico
Philippines
Russia
Sri Lanka
USA
Priority countries:
• Argentina
• Brazil
• China
• Turkey
Next steps...
• Bangladesh
• Egypt
• Indonesia
• Pakistan Countries with current microfinance activities
• Poland Priority countries to be involved
• Thailand

33. HSBC Microfinance Strategy
How can HSBC position • Mandated by the HSBC Group Management
itself to provide value in
the microfinance space? Board to expand this business
Cash/Liquidity • Group Sustainable Development to assume
Management
• Collections global responsibility
• Receivables
• Currency • Approach is to engage with the microfinance
• Remittances
• Cards
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

34. Progress so far

35. Relative performance on sustainability
HSBC has pulled away
from the pack in the
past 24 months
Cumulative instances of
positive minus negative news
Source: Covalence EthiQuote 10 Banks
2001 - 2006

36. 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

37. Recognition of progress
Sustainable Bank of the Year 2006
Ranked No 1
Climate
Leadership
Index, Banks

38. Sustainable Development at HSBC
Presentation to Investors
Best of British
Tuesday 28th November 2006