Task Force on Climate-related Financial Disclosures ('TCFD')

The Financial Stability Board's Task Force on Climate-related Financial Disclosures ('TCFD') recommendations set an important framework for understanding and analysing climate-related risks, and we are committed to regular, transparent reporting to help communicate and track our progress. We will advocate the same from our customers, suppliers and the industry. We recognise that further work lies ahead as we develop our management and metrics capabilities.

The information set out on page 63 in this Annual Report and Accounts 2021 aims to provide key climate-related information and cross-references to where additional information can be found. In this context, we have considered our 'comply or explain' obligation under the UK's Financial Conduct Authority's Listing Rules, and confirm that we have made disclosures consistent with the TCFD Recommendations and Recommended Disclosures in this Annual Report and Accounts 2021 save for certain items, which we summarise below and describe in more detail in the information set out on page 63 and in the additional information section on page 402.

There are certain areas where we have not included climate-related disclosures, a summary of these are set out below:

-      Given that climate scenarios are mainly focused on medium- to long-term horizons, rather than short-term, we have set interim 2030 targets for on-balance sheet financed emissions for the oil and gas and power and utilities sectors. HSBC intends to review the financed emissions baseline and targets annually, where relevant, to help ensure that they are aligned with market practice and current climate science.

-      We do not fully disclose impacts on financial planning and performance (including proportions of revenue, costs and balance sheet related to climate-related opportunities), quantitative scenario analysis, detailed climate risk exposures for all sectors and geographies or physical risk metrics. This is due to transitional challenges in relation to data limitations. We expect these data limitations to be addressed in the medium term as more reliable data becomes available and technology solutions are implemented.

-      We currently disclose partial scope 3 greenhouse gas emissions. In relation to on-balance sheet financed emissions, we are disclosing our scope 3 greenhouse gas emissions for oil and gas, and the power and utilities sectors. Future disclosure on scope 3 financed emissions (customers) and supply chain emissions (suppliers), as well as related risks is reliant on both our customers and suppliers publicly disclosing their carbon emissions and related risks. We aim to disclose financed emissions for additional sectors by 2023, as set out in our  Financed Emissions - Approach and Methodology Update published in December 2021, which can be found at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.

Leading on an inaugural green bond

We were joint lead manager and bookrunner as Arab Petroleum Investments Corporation ('APICORP') in September 2021 raised $750m with its inaugural green bond. The multilateral development bank, founded in 1975 by the 10 Arab oil-exporting countries, has a strategic focus to promote the energy sector within the region to a more sustainable future. As set out in its green bond framework, APICORP will use the proceeds to finance or invest in projects focused on renewable energy, pollution prevention and control, and green buildings.

Supporting renewable projects through our operations

We are expanding our efforts to bring additional renewable electricity in the markets where we operate, as part of our ambition to source 100% renewable power across our operations by 2030. In September 2021, we signed a power purchase agreement that supported the development of the Sorbie Wind Farm project in Ayrshire, south-west of Glasgow. This agreement will create a new renewable electricity source that will benefit us, as well as our customers and the wider communities we serve.

This power purchase agreement will be our fourth project in the UK, supporting wind or solar projects, and will result in approximately 90% of our UK electricity being sourced from such renewable projects.

Responsible business culture

We have the responsibility to protect our customers, our communities and the integrity of the financial system. In this section, we outline our requirements under the Non-Financial Reporting Directive.

Employee matters

We are opening up a world of opportunity for our colleagues through building an inclusive organisation that values difference, takes responsibility, and seeks different perspectives for the overall benefit of our customers.

We want to encourage a dynamic culture where our colleagues can expect to be treated with dignity and respect. We are an organisation that takes action where we find behaviours that fall short of this aspiration. We monitor our progress through metrics that we value and have benchmarked against peers.

Listening to our colleagues is critical to the business we conduct, and is reflected in our purpose and values, which were established through the largest employee engagement programme in our history.

We continue to seek innovative ways that encourage and provide opportunities for our people to speak up. We recognise that at times people may not feel comfortable speaking up through the usual channels. HSBC Confidential is our global whistleblowing channel, allowing our colleagues past and present to raise concerns confidentially and, if preferred, anonymously (subject to local laws).

Having surpassed our 2020 target to reach 30% women in senior leadership roles (classified as those at band 3 and above in our global career band structure), we aim to reach 35% by 2025, with 31.7% achieved in 2021. 

In July 2020, we set out our early global race commitments, which included the goal of doubling the number of Black employees in senior roles over the next five years. To support our ambition, we have placed a strong focus on enhancing the quality and transparency of our ethnicity data through the expansion of our self-identification capability. We will use this data to develop market-specific goals that are connected to the communities we serve. While we know we need to do more, we have put in place important foundations in 2021 through leadership development, inclusive hiring practices and investing in the next generation of high-performing, diverse talent. 

The table below outlines high-level diversity metrics.

1 Senior leadership is classified as those at band 3 and above in our global career band structure.

For further details on how we look after our people, including our diversity targets, transformation employee metrics and how we encourage our employees to speak up, see the Employees section of the ESG review on page 70.

Social matters

We have a responsibility to invest in the long-term prosperity of the communities where we operate. We recognise that technology is developing at a rapid pace and that a range of new and different skills are now needed to succeed in the workplace. For this reason, much of our focus is on programmes that develop employability and financial capability. We also back climate solutions and innovation, and contribute to disaster relief based on need. For further details of our programmes see 'Communities' on page 77.

Human rights

Our commitment to respecting human rights, principally as they apply to our employees, our suppliers and through our financial services lending, is set out in our Statement on Human Rights. This statement, along with our statements under the UK's Modern Slavery Act, is available on www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.

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Anti-corruption and anti-bribery

We require compliance with all applicable anti-bribery and corruption laws in all markets and jurisdictions in which we operate. These include the UK Bribery Act, the US Foreign Corrupt Practices Act, the Hong Kong Prevention of Bribery Ordinance and France's 'Sapin II' law. We have a global anti-bribery and corruption policy, which gives practical effect to these laws and regulations, but also requires compliance with the spirit of laws and regulations to demonstrate our commitment to ethical behaviours and conduct as part of our environmental, social and corporate governance.

Environmental matters

For details of our climate ambition and carbon emission metrics, see the ESG review on page 45.

Engaging colleagues in future skills

Our colleagues have explored digital, data, sustainability and personal skills as part of our 'Future Skills' campaign. Colleagues engaged with various tools, assessments and industry experts over 44,000 times throughout the campaign, and learned how these skills are critical for the future of our organisation. Colleagues identified specific skills they wanted to develop and assessed them through our skills platform to shape their development plan.

We helped a number of colleagues to share their own skills with others through our partnership with Ashoka. In 2021 we launched the global Green Skills Innovation Challenge to support innovations that connect people with the skills to support a green transition. Out of 340 submissions, 12 winners were selected, each receiving a prize of up to $20,000 alongside support and mentoring from HSBC colleagues.

Board decision making and engagement with stakeholders

The Board is committed to effective engagement with all our stakeholders and seeks to understand the interests of and impacts on them when making decisions.

Section 172 (1) statement

This section, from pages 21 to 24 forms our section 172 statement. It describes how the Directors have performed their duty to promote the success of the company, including how they have considered and engaged with stakeholders and, in particular, how they have taken account of the matters set out in section 172(1)(a) to (f) of the Companies Act 2006.

Stakeholder engagement and key considerations for the Board

The Group continued to focus on its engagement with our key stakeholders, acknowledging that this engagement is core to being a responsible business. Our key stakeholders remain the same as last year, namely our customers, employees, investors, communities, regulators and governments, and suppliers. How the Group has engaged with our stakeholders more generally is explained on page 16. The Board recognises the importance of building strong relationships with our stakeholders to help broaden understanding of their needs and concerns and ultimately to help us deliver our strategy. In discharging its responsibilities, the Directors sought to understand, and have regard to, the interests and priorities of these stakeholders, including in relation to material decisions that were taken by the Board during the course of the year.

Virtual and physical meetings

During 2021, despite the ongoing logistical challenges of meeting physically as a result of the Covid-19 pandemic, the Board was determined to maintain an active engagement programme with as many stakeholders as possible. The move to virtual meetings presented new and effective opportunities to engage. The Board met virtually with one of our major suppliers of technology services on the US west coast, which provided insights into technological advances and the growing importance of data management and security. During this meeting, the participants shared their respective views on the net zero transition journey, and the Board was able to gain a clear understanding of the supplier's plans.

Several Board members were also able to connect with our global graduate community on occasion, thanks to virtual facilities. Meeting in this way meant a far broader set of views was able to be shared than if the meeting had been in person. The exchanges with the graduates gave the Directors a real appreciation of the challenges they had faced in joining and working for HSBC during lockdown conditions.

As part of the engagement programme during the year, the Board continued to meet directly with many of its other stakeholders, in particular our colleagues, regulators and investors. It was also kept informed of relevant stakeholder matters through management dialogue and reports. Where circumstances permitted, Board members gathered for stakeholder meetings in person, including at our offices in the UK and Hong Kong, with examples of these engagements detailed below.

In May 2021, HSBC was pleased to be able to host its first hybrid AGM and engage with its investors despite the challenges at the time. Following focused discussions, the Board committed to creating an opportunity to enable as much shareholder participation as possible. This event allowed shareholders to either physically attend the meeting under strict and safe conditions in line with the advice from the UK Government, or to attend virtually, together with all Board members who attended either physically or virtually. The virtual participation option offered through the hybrid solution allowed shareholders to ask questions of the Board in person, by telephone and online, as well as vote live by electronic means during the meeting. While restrictions meant, regrettably, it was not possible to hold the annual Informal Shareholders' Meeting in Hong Kong, the hybrid AGM helped facilitate the connection of our Hong Kong-based shareholders directly to the Board. Given the success of the hybrid approach, we intend to host hybrid AGM meetings in the future.

Engaging during the Covid-19 pandemic

The Covid-19 pandemic continued to underpin the need to ensure careful consideration of the interests of the Group's stakeholders. Throughout the year, the Board maintained close interaction with management on its plans for a gradual return to office working under safe conditions, and careful consideration was given to our support for colleagues' mental and physical well-being. Care was taken to include the views and opinions of our colleagues in developing new ways of working, including hybrid working solutions where appropriate. By engaging with colleagues, including graduates, the Board was able to discuss and reflect, both in and outside of the boardroom, on the learnings gained from such sessions, including on how to improve induction and ongoing employee support programmes. It was also able to give its support to management to continue these initiatives.

Doing business responsibly

Given the nature of our business, maintaining a transparent and trusting relationship with our regulators is key to helping to ensure that we do business responsibly and that we can respond to all challenges appropriately. The Group Chairman and the Group Chief Executive met with our regulators in the UK and Hong Kong on a regular basis. As part of such meetings, our regulators were kept updated on our strategic plans and progress. On certain occasions, the Group Chairman and the Group Chief Executive also met with government officials globally to foster good relations. Several Board members were - and continue to be - actively involved in climate initiatives and attend global events such as at the COP26 Summit in Glasgow. The Board also remained informed of management interaction with national governments, on matters such as forbearance schemes and climate matters.

The Board and its committees reviewed and considered regular reporting on emerging risks, performance, execution and actions being taken in response. This regular reporting and an annual programme of learning served to inform the Board about stakeholder matters and supported its decision making. For further details on the Board's activities during the year, including training, see pages 229 to 234. The impact of the Covid-19 pandemic on the Group and our stakeholders remained of material concern. The impact of the decision taken in 2020 to cancel the fourth interim dividend for 2019 and suspend dividends for 2020 was a key consideration when the Board was deliberating on its approach to distributions for 2021. The Board sought to balance emerging risks, performance and its duties to shareholders, while remaining conscious of its responsibilities to support communities and help customers manage financial challenges and changing demands. The 'Principal decisions' disclosure below includes details on how the Board took the decision to introduce dividend payments in 2021. Further details are also provided in 'Financial decisions' on page 232 and 'Dividends' on page 287.

To educate the Board on the broader impacts of the Covid-19 pandemic, the Board invited a leading immunologist to its meeting in December. Through this engagement, the Board gained valuable independent insight into what assistance may be required globally in support of the recovery to our communities, customers, suppliers and employees.

Adapting our engagement programme

As restrictions are lifted, and when safe to do so, the Board intends to meet regularly in person both as a Board, and with our stakeholders globally. In the meantime, the Board continues to remain agile in adapting its ongoing engagement programme so that it continues to be informed by a broad range of activities with stakeholders. This helps the Board fulfil its duties and support decision making as it oversees the execution of the Group strategy in line with our purpose and values and strategic plans. Examples of how the Board has engaged with stakeholders are set out below, as well as in 'Board engagement with shareholders' on page 228 and 'Workforce engagement' on page 233.

Principal decisions

The Board operates having regard to the duties of the Directors, including the relevant matters set out in section 172(1)(a)-(f) of the Companies Act 2006. Specific examples of key areas of focus and considerations affecting the Board's decision-making process during 2021 are set out below.

Acquisitions and disposals activity

Regulators, Customers, Employees, Investors

During 2021, the Board took several key decisions to acquire and divest certain businesses in support of the Group's strategic aims.

In furtherance of the Group's strategy and ambition, the Board considered several material and strategic acquisition and disposal opportunities throughout 2021. Two of these opportunities considered by the Board are highlighted below. In each case, in discussing these proposals and taking its decisions, members of the Board exercised their statutory duties including the duty to act in the way that they considered, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.

The first strategic acquisition opportunity the Board considered in 2021 concerned the purchase of AXA's insurance business in Singapore. In its meeting, the Board discussed that this was a rare opportunity for inorganic growth and a key step in helping to achieve the Group's ambition of becoming a leading wealth manager in Asia, by expanding its insurance and wealth franchise in Singapore, a strategically important scale market and a major hub for the Group's wealth business in the ASEAN region. The Board considered a number of benefits in making this investment, including synergies with the Group's asset management and private wealth solutions business, and the ability to materially scale up the Group's presence in the regional insurance market, providing an excellent platform for future growth and further opportunities for customers. The proposed acquisition was subject to a combination of discussions with and approvals from various stakeholders, including UK, Singapore and Hong Kong regulators as well as pre-notifications to local union authorities. In order to support successful integration and transformation plans, management recommended to the Board that key employee talent should be identified and secured. As part of this key talent selection process, certain important skills and qualities were taken into account, including diversity and inclusion, as well as culture, to form the right leadership team for the acquired business to succeed. In making its final decision to approve the acquisition, the Board took these relevant stakeholder considerations and other factors into account, including an assessment of the financial merits and risks of the transaction, and paid particular attention to the section 172 factors of the likely consequences of any decision in the long term and the interests of the Group's employees.

The Board subsequently considered a separate proposal for the disposal of the Group's  non-core retail banking business in France. The Board's decision to approve the disposal was aligned to the Group's strategic aim of being a leading wholesale bank in continental Europe, and took into account the impact on our shareholders and other stakeholders.

In this case, the Board considered there to be a number of benefits to the disposal, including simplifying the Group structure, helping to mitigate transformation risk of the business in Europe, and allowing management to focus on the completion of the European wholesale transformation programme. Several key stakeholders were consulted ahead of the decision. Consultation with relevant French works' councils was undertaken alongside Director and management engagement with French and UK regulators to elicit their views on the proposed disposal. The Board noted that completion of the disposal would involve engagement with additional key stakeholders, including relevant regulators and bondholders. In taking its decision, the Board considered all relevant factors including the Group's strategic goals and the benefits of the transaction, while also taking into account the loss associated with the disposal, the interests of stakeholders and alternative proposals in respect of the retail business. As a result, the Board agreed to proceed with the disposal on the basis that it considered it to be in the best interests of the company's members as a whole and would promote the long-term success of the company.

Climate agenda

Investors, Regulators, Customers, Communities, Employees

In 2021 the Board was actively and directly engaged with the Group's response to the climate change agenda, proposing a resolution and agreeing relevant policies aligned to our ambition to support the transition to a net zero global economy.

Following the announcement of the Group's climate ambition in October 2020 and ahead of the 2021 AGM, the Board received a shareholder requisitioned resolution from ShareAction, together with a number of other shareholders, in relation to the Group's climate agenda. Selected Board members and senior management engaged extensively with ShareAction, certain co-filers and other shareholders, to understand their perspectives and rationale in submitting the shareholder resolution. As a result of such engagements, the Board carried out further discussions in its meetings to consider our approach in terms of sectorial priorities and associated timelines, in order to help support the delivery of our climate ambition most effectively, while recognising our responsibilities to our customers and communities across the diverse range of markets in which we operate. Ultimately, following further engagement and discussion, the Board welcomed and agreed the decision by ShareAction, on behalf of the co-filers, to withdraw the requisitioned resolution and in its place, support HSBC's own climate change resolution at the 2021 AGM. The HSBC resolution outlined the next phase of the Group's net zero strategy, with a particular emphasis on how it would support its customers on their own transition journeys. As well as the engagement with stakeholders, in formulating the Group's climate approach including its climate change resolution, the Board took into consideration the role we seek to play in setting and leading a standard for the financial services sector, as it collectively works to tackle climate change. The Board was also mindful of the crucial importance of working with customers on their own transition and how the Group could help support this outcome. The Board's decision to propose the HSBC climate change resolution and recommendation that shareholders vote in favour of it took account of these reasons, and gave due regard to section 172 factors, in particular the impact of the decision on the environment and communities the company serves, our valuable relationships with customers and investors, and the long-term success of the company.

The climate change resolution was passed at the 2021 AGM, with 99.7% of our shareholders supporting our resolution, providing a strong endorsement of our climate plan and our commitment to support our customers on their transitions to a low-carbon future. The resolution committed us to: setting out the next steps in our transition, including through short- and medium-term sector-based targets; publishing a policy to phase out the financing of coal power and thermal coal mining by 2030 in EU and OECD countries, and by 2040 globally; and reporting annually on our progress. We also indicated that we would provide further details by the end of 2021 on our approach to assessing financed emissions and setting targets.

In December 2021 the Board approved the publication of the thermal coal phase-out policy, and further details on our approach to assessing financed emissions and setting targets. In doing so the Board took into consideration the requirements of the climate resolution and the extensive engagement with stakeholders, both before and after the 2021 AGM. In Board meeting discussions, Directors considered long-term objectives including the responsibility of helping to ensure continued and expanding access to affordable electricity in the markets we serve, many of which are presently highly reliant on thermal coal. The Board also considered the need to phase out the financing of coal-fired power and thermal coal mining in recognition of the rapid decline in coal emissions required for any viable pathway to 1.5˚C and the important role for HSBC to play in helping to finance our clients' transition to net zero. The Board noted that the policy was a key part of executing the Group's ambition to align its financed emissions to net zero by 2050 or sooner and would be reviewed annually based on evolving science and internationally recognised guidance, given the fast changing landscape. For further details on our policy and approach, see page 62.

Since publication of the thermal coal phase-out policy, stakeholder engagement has continued, including with key institutional investors to discuss with them the policy, its impacts and alignment with our ambition to help finance our clients' transition to net zero. Extensive engagement also continues to take place among employees and with clients as we implement the policy.

In their respective roles as chair of Chapter Zero and chair of the Financial Services Taskforce, both the Group Chairman and the Group Chief Executive are at the forefront of climate matters, demonstrating their leadership and commitment to understanding and collaborating on these critical matters, mirroring the Board's and the Group's commitment to the transition to net zero as a key part of delivering our strategy.

Dividend payments and share buy-backs 

Employees/Customers/ Investors/Communities/ Regulators/Governments

Following the decision in 2020 to cancel dividend payments, the Board took action in 2021 to consider dividend payments, the Group's dividend policy and share buy-backs.

Following the PRA's announcement in December 2020 that it was supportive of UK banks resuming dividend payments under certain conditions, at its first meeting in January 2021 the Board turned its attention to whether it would be appropriate to restart dividend payments. In considering this, the Board reflected on the impact on the decision it took in 2020 to suspend dividend payments and the views of stakeholders in respect of the suspension. The reactions and interests of our investors based on feedback from our external brokers and meetings with investors by individual Board members and management were key considerations for the Board in considering whether to restart dividend payments, especially given the impact of this decision on our shareholders, including those based in Hong Kong, who rely heavily on the income derived from our dividends. The Board also had regard to regulatory considerations, including the PRA's requirements for banks resuming dividends and other relevant factors such as our financial performance for 2020 and our earnings forecasts for 2021 and 2022. Having considered these factors and also taking into account its section 172 duty to consider the likely consequences of any decision in the long term, in its February meeting, the Board was pleased to approve an interim dividend for the full-year ending 2020. In that same meeting, the Board considered and approved a revised dividend policy designed to provide sustainable dividends. In considering the revised dividend policy, the Board discussed and acknowledged the need to offer good income to our investors while giving management the flexibility to reinvest capital to grow the firm. These factors are important to the long-term success of the company. During the year, engagement continued with the PRA for dividends in respect of the 2021 financial year. In August 2021, the Board also agreed to approve an interim dividend for the first six months of 2021 in line with the dividend policy, taking into account the Group's performance, market expectations and the shareholders' interests.

In addition, having indicated in the Annual Report and Accounts 2020 that the Group would consider share buy-backs over time, in October 2021 the Board approved the announcement of a share buy-back of up to $2bn. In reaching this decision, the Board considered our actual and potential financial performance during the year to date and our capital position (including in light of regulatory requirements). The Board also considered expected reactions and interests of our investors (including based on feedback from our external brokers) and peer analysis. Regulatory approvals were sought in the UK and Hong Kong, as well as views and inputs with regards to customer, employee, investor and community stakeholder considerations. Together, these inputs enabled the Board to conclude that the share buy-back would likely be viewed positively by the market and be considered to represent an appropriate balance between shareholder return and investment. The Board's assessment of our capital position took account of the company's ability to conduct its business and to support the communities in which it serves. Taking these stakeholder views and other relevant matters into account as prescribed by section 172, including our strong capital position and notwithstanding the growth opportunities available to us at the time of the decision, the Board considered that a return of capital by way of share buy-back would be in the best interests of investors as a whole having regard to the long-term success of the company and thereby approved the share buy-back.