Annual Report and Accounts 2022

HSBC Holdings plc

Annual Report and

Accounts 2022

Our ambition is to be the preferred

international ﬁnancial partner for our clients.

Our purpose, ambition and values reﬂect our

strategy and support our focus on execution.

Opening up a world of opportunity

Contents

Strategic report

2 Highlights

4 Who we are

6 Group Chairman’s statement

8 Group Chief Executive’s review

11 Our strategy

14 ESG overview

20 Board decision making and

engagement with stakeholders

(Section 172 (1) statement)

24 Remuneration

26 Financial overview

31 Global businesses

38 Risk overview

42 Long-term viability and going

concern statement

Environmental, social and

governance (‘ESG’) review

44 Our approach to ESG

46 Environmental

73 Social

85 Governance

Financial review

98 Financial summary

109 Global businesses and

geographical regions

128 Reconciliation of alternative

performance measures

Risk review

132 Our approach to risk

135 Top and emerging risks

142 Areas of special interest

142 Our material banking risks

Corporate governance report

240 Biographies of Directors and

senior management

259 Board committees

276 Directors’ remuneration report

Financial statements

313 Independent auditors’ report

324 Financial statements

335 Notes on the ﬁnancial statements

Additional information

418 Shareholder information

427 Abbreviations

HSBC Holdings plc

Annual Report and

Accounts 2022

Cover image: Opening up a world of opportunity

Our cover features Stitt, one of HSBC’s two bronze lions. Touching the lion’s

paw was said to bring good luck, and that tradition continues today. The lions,

Stephen and Stitt, designed by British sculptor Henry Poole, were commissioned

to celebrate the opening of the newly-rebuilt HSBC building on the Bund in

Shanghai in 1923. Stephen and Stitt represent the strength and endurance that

is part of our heritage. Loyal and proud, they stand guard outside our oces in

Hong Kong, London and Shanghai, and symbolise good fortune and stability.

Our approach to ESG reporting

We embed our ESG reporting and Task Force

on Climate-related Financial Disclosures

(‘TCFD’) within our

Annual Report and

Accounts

. Our TCFD disclosures are

highlighted with the following symbol:

TCFD

This

Strategic Report

was approved by the

Board on 21 February 2023.

Mark E Tucker

Group Chairman

A reminder

The currency we report in is US dollars.

Adjusted measures

We supplement our IFRSs ﬁgures with

non-IFRSs measures used by management

internally that constitute alternative

performance measures under European

Securities and Markets Authority guidance

and non-GAAP ﬁnancial measures deﬁned

in and presented in accordance with US

Securities and Exchange Commission

rules and regulations. These measures are

highlighted with the following symbol:

Further explanation may be found on page 29.

None of the websites referred to in this

Annual Report and Accounts 2022

for the year

ended 31 December 2022 (including where a

link is provided), and none of the information

contained on such websites, are incorporated

by reference in this report.

Read more on how we set and deﬁne our

environmental, social and governance metrics

on page 16.

Read more on our ﬁnanced emissions scope,

methodology and terminology on page 50,

and our deﬁnition of sustainable ﬁnance and

investment on page 57.

Capital allocation to Asia

47%

Tangible equity as a percentage of the

Group’s (excluding associates, holding

companies, and consolidation adjustments).

(2021: 42%)

Net new invested assets

$80bn

Generated in 2022, of which $59bn were in Asia.

Gross cost saves

$5.6bn

Delivered from our cost-reduction programme,

with an expected additional $1bn in 2023, and

a total programme cost of $6.5bn.

Gender diversity

33.3%

Women in senior leadership roles.

(2021: 31.7%)

Sustainable ﬁnance and investment

$210.7bn

Cumulative total provided and facilitated

since January 2020.

(2021: $126.7bn)

Net zero in our own operations

58.5%

Cumulative reduction in absolute greenhouse

gas emissions from 2019 baseline.

(2021: 50.3%)

Financed emissions targets

8 sectors

Number of sectors where we have set

on-balance sheet ﬁnanced emissions targets.

HSBC is one of the world’s leading

international banks.

We have a clear strategy to deliver revenue

and proﬁt growth, enhance customer service

and improve returns to shareholders.

HSBC Holdings plc Annual Report and Accounts 2022 1

Highlights

Financial performance reﬂected net interest income growth and cost discipline,

and we continued to make progress against our four strategic pillars.

Financial performance (vs 2021)

– Reported proﬁt before tax fell

by $1.4bn to $17.5bn, including an

impairment on the planned sale of our retail

banking operations in France of $2.4bn.

Adjusted proﬁt before tax increased

by $3.4bn to $24.0bn.Reported proﬁt

after tax increased by $2.0bnto

$16.7bn, including a $2.2bn credit arising

from the recognition of a deferred tax asset.

– Reported revenue increased by 4% to

$51.7bn, driven by strong growth in net

interest income, with increases in all of our

global businesses, and higher revenue from

Global Foreign Exchange in Global Banking

and Markets (‘GBM’). This was in part

oset by a $3.1bn adverse impact of foreign

currency translation dierences, the

impairment on the planned sale of our retail

banking operations in France and adverse

movements in market impacts in insurance

manufacturing in Wealth and Personal

Banking (‘WPB‘). In addition, fee income

fell in both WPB and GBM. Adjusted

revenue increased by 18% to $55.3bn.

– Net interest margin (‘NIM’) of

1.48%increased by 28basis points

(‘bps’), reﬂecting interest rate rises.

– Reported expected credit losses and

other credit impairment charges (‘ECL’)

were $3.6bn, including allowances to

reﬂect increased economic uncertainty,

inﬂation, rising interest rates and supply chain

risks, as well as the ongoing developments

in mainland China‘s commercial real estate

sector. These factors were in part oset

by the release of most of our remaining

Covid-19-related reserves. This compared

with releases of $0.9bn in 2021. ECL charges

were 36bps of average gross loans and

advances to customers.

– Reported operating expenses decreased

by $1.3bn or 4% to $33.3bn, reﬂecting

the favourable impact of foreign currency

translation dierences of $2.2bn and ongoing

cost discipline, which were in part oset by

higher restructuring and other related costs,

increased investment in technology and

inﬂation. Adjusted operating expenses

increased by $0.4bn or 1.2% to

$30.5bn, including a $0.2bn adverse

impact from retranslating the 2022 results

of hyperinﬂationary economies at

constant currency.

– Customer lending balances fell by

$121bn on a reported basis. On an

adjusted basis, lending balances fell by

$66bn, reﬂecting an $81bn reclassiﬁcation

of loans, primarily relating to the planned

sale of our retail banking operations in

France and the planned sale of our banking

business in Canada, to assets held for sale.

Growth in mortgage balances in the UK and

Hong Kong mitigated a reduction in term

lending in Commercial Banking (‘CMB’)

in Hong Kong.

– Common equity tier 1 (‘CET1’) capital

ratio of 14.2% reduced by 1.6

percentage points, primarily driven by a

decrease of a 0.8 percentage point from

new regulatory requirements, a reduction

of a 0.7 percentage point from the fall in the

fair value through other comprehensive

income (‘FVOCI’) and a 0.3 percentage

point fall from the impairment following

the reclassiﬁcation of our retail banking

operations in France to held for sale. Capital

generation was mostly oset by an increase

in risk-weighted assets (‘RWAs’) net of

foreign exchange translation movements.

– The Board has approved a second interim

dividend of $0.23 per share, making a

total for 2022 of $0.32 per share.

Outlook

– The impact of our growth and

transformation programmes, as well

as higher global interest rates, give us

conﬁdence in achieving our return on

average tangible equity (‘RoTE‘) target

of at least 12% for 2023 onwards.

– Our revenue outlook remains positive.

Based on the current market consensus

for global central bank rates, we expect

net interest income of at least $36bn in

2023 (on an IFRS 4 basis and retranslated for

foreign exchange movements). We intend to

update our net interest income guidance at or

before our ﬁrst quarter results to incorporate

the expected impact of IFRS 17 ‘Insurance

Contracts’.

– While we continue to use a range of 30bps

to 40bps of average loans for planning our

ECL charge over the medium to long term,

given current macroeconomic headwinds,

we expect ECL charges to be around

40bps in 2023 (including lending balances

transferred to held for sale). We note recent

favourable policy developments in

mainland China’s commercial real

estate sector and continue to monitor

events closely.

– We retain our focus on cost discipline and

will target 2023 adjusted cost growth of

approximately 3% on an IFRS 4 basis. This

includes up to $300m of severance costs in

2023, which we expect to generate further

eciencies into 2024. There may also be an

incremental adverse impact from retranslating

the 2022 results of hyperinﬂationary

economies at constant currency.

– We expect to manage the CET1 ratio

within our medium-term target range

of 14% to 14.5%. We intend to continue to

manage capital eciently, returning excess

capital to shareholders where appropriate.

– Given our current returns trajectory, we

are establishing a dividend payout ratio

of 50% for 2023 and 2024, excluding

material signiﬁcant items, with consideration

of buy-backs brought forward to our ﬁrst

quarter results in May 2023, subject to

appropriate capital levels. We also intend

to revert to paying quarterly dividends from

the ﬁrst quarter of 2023.

– Subject to the completion of the sale of our

banking business in Canada, the Board’s

intention is to consider the payment

of a special dividend of $0.21 per share

as a priority use of the proceeds

generated by completion of the

transaction. A decision in relation to any

potential dividend would be made following

the completion of the transaction, currently

expected in late 2023, with payment

following in early 2024. Further details in

relation to record date and other relevant

information will be published at that time.

Any remaining additional surplus capital

is expected to be allocated towards

opportunities for organic growth and

investment alongside potential share

buy-backs, which would be in addition to

any existing share buy-back programme.

2 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report

ESG highlights

Transition to net zero

– We have set interim 2030 targets for

on-balance sheet ﬁnanced emissions

for eight sectors. These include six

sectors for which we have reported

2019 and 2020 emissions: oil and gas;

power and utilities; cement; iron, steel and

aluminium; aviation; and automotive. We

have also set targets for thermal coal power

and thermal coal mining. We recognise that

methodologies and data for measuring

emissions will continue to evolve.

– We published an updated energy policy,

which is an important mechanism to help

phase down the ﬁnanced emissions of

our energy portfolio in line with a 1.5ºC

pathway. We also updated our thermal

coal phase-out policy with new targets

to reduce absolute on-balance sheet

ﬁnanced emissions from thermal

coal mining and coal-ﬁred power,

and extended the policy to exclude

ﬁnance for the speciﬁc purposes of

new metallurgical coal mines.

– Since 2020, we have provided and

facilitated $210.7bn of sustainable

ﬁnance and investment, an increase

of $84.2bn in the past year.

– Within our own operations, we have made

a 58.5% cumulative reduction in our

absolute greenhouse gas emissions

from a 2019 baseline. We also published

supply chain emissions as part of our

scope 3 disclosures for the ﬁrst time.

Build inclusion and resilience

– Having surpassed our 2020 target to reach

30% women in senior leadership roles, we

have made progress towards our goal

to achieve 35% by 2025, with 33.3%

achieved in 2022. We continue to make

progress towards the target we set in 2020

to at least double the number of Black senior

leaders within ﬁve years.

– We have stepped up eorts to support

customers in the face of inﬂation and

the rising cost of living, particularly in the

UK. We have focused on early intervention,

using data analysis to identify potentially

impacted customers in our WPB and CMB

businesses, signpost to relevant resources,

and provide tailored support.

– We are working to make the banking

experience more accessible in both physical

and digital spaces. We are committed to

ensuring that our digital channels are

usable by everyone, regardless of

ability. The introduction of features such

as safe spaces, quiet hours and talking

ATMs are helping to make our physical

spaces more accessible as well.

Act responsibly

– We conducted a review of our salient

human rights issues, including

stakeholder consultation with non-

governmental organisations (‘NGOs’)

and potentially aected groups.

– We aim to be a top-three bank for customer

satisfaction. While our net promoter scores

have improved in many of our key markets,

we have more work to do to improve our

position relative to peers, as some have

improved their performance more quickly.

– We have launched a sustainable

procurement mandatory procedure for

our employees and anew supplier code

of conductto help ensure our sustainability

objectives are embedded in the way we

operate and do business with suppliers.

Strategic progress

– We have made progress in implementing

our transformation programme,

establishing a platform for future

growth.

– During 2022, we took further actions to

reshape the Group. In November 2022,

we announced the planned sale of

our banking business in Canada, which

is expected to be completed in late

2023, subject to regulatory and

governmental approvals. In addition,

we are in the process of disposing of

our retail banking operations in France, as

well as exiting our businesses in Greece

and Russia, subject to regulatory and

governmental approvals.

– As part of our eorts to improve the

returns proﬁle of the Group, we surpassed

our gross RWA reduction target,

generating cumulative gross RWA

reductions of $128bn since the start

of the programme in 2020.

– Our cost-reduction programme continued

to make progress, with a further $2.3bn

of gross cost savings recognised in 2022.

Since the start of the programme in

2020, we have realised gross savings

of $5.6bn, with cost to achieve spend

of $6.5bn.While our three-year cost to

achieve programme has now concluded,

the Group-wide focus on cost discipline

remains resolute.

– We have continued to invest and grow

in the areas in which we are strongest.

In our Wealth business in Asia, we

attracted net new invested assets

of $59bn in 2022.

HSBC Holdings plc Annual Report and Accounts 2022 3

Highlights

Who we are

Our values Our values help deﬁne who we are as an organisation, and are key to our

long-term success.

We value dierence

Seeking out dierent

perspectives

We succeed together

Collaborating across

boundaries

We take responsibility

Holding ourselves

accountable and

taking the long view

We get it done

Moving at pace and

making things happen

HSBC is one of the largest banking and ﬁnancial services organisations in the world.

We aim to create long-term value for our shareholders and capture opportunity.

Our strategy Our strategy supports our ambition of being the preferred international ﬁnancial

partner for our clients, centred around four key areas.

Focus on our

strengths

In each of our global

businesses, we continue

to focus on areas where

we are strongest and

have opportunities

to grow.

Digitise at scale

We continue to invest

in our technology and

operational capabilities

to drive operating

productivity across

businesses and

geographies and to

oer better client

experience.

Energise for growth

We are building

a dynamic and

inclusive culture,

and empowering our

people by helping them

develop future skills.

Transition to net zero

We are helping the

transition to a net

zero economy by

transforming ourselves,

and supporting our

customers to make

their own transitions.

For further details on our strategy, see pages 11 to 13.

Our global reach

Our global businesses serve around 39 million customers worldwide

through a network that covers 62 countries and territories.

Our customers range from individual savers

and investors to some of the world’s biggest

companies, governments and international

organisations. We aim to connect them

to opportunities and help them to achieve

their ambitions.

For further details of our customers and approach to

geographical information, see page 108.

1 Our customer numbers exclude those acquired through

our purchase of L&T Investment Management.

Assets of

$3.0tn

Approximately

39m

Customers bank with us

Operations in

Countries and territories

We employ approximately

219,000

Full-time equivalent sta

4 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report

44% 29%

27%

Wealth and Personal Banking

Commercial Banking Global Banking and Markets

Customers Employees Investors Communities Regulators and

governments

Suppliers

Our global

businesses

Wealth and Personal Banking

(’WPB’)

We help millions of our customers

look after their day-to-day

ﬁnances and manage, protect

and grow their wealth.

Adjusted revenue by

global business

Commercial Banking

(‘CMB’)

Our global reach and expertise

help domestic and international

businesses around the world

unlock their potential.

Global Banking and Markets

(’GBM’)

We provide a comprehensive

range of ﬁnancial services

and products to corporates,

governments and institutions.

Building strong relationships with our stakeholders helps enable us to deliver

our strategy in line with our long-term values, and operate the business in a

sustainable way.

Our stakeholders are the people

who work for us, bank with us,

own us, regulate us, and live in

the societies we serve and the

planet we all inhabit. These

human connections are complex

and overlap.

Many of our employees are

customers and shareholders,

while our business customers are

often suppliers. We aim to serve,

creating value for our customers

and shareholders.

Our size and global reach mean

our actions can have a signiﬁcant

impact. We are committed to

doing business responsibly, and

thinking for the long term. This is

key to delivering our strategy.

Our stakeholders

We serve our customers through three global businesses.

1 Calculation is based on adjusted revenue of our global businesses excluding Corporate Centre, which is also excluded

from the total adjusted revenue number. Corporate Centre had negative adjusted revenue of$596m in 2022.

For further details of how we are engaging with our stakeholders, see page 15.

Our section 172 statement, detailing our Directors’ responsibility to stakeholders, can be found on page 20.

For further details, see page 31. For further details, see page 33. For further details, see page 35.

On pages 31 to 37 we provide

an overview of our performance

in 2022 for each of our global

businesses, as well as our

Corporate Centre.

In each of our global businesses,

we focus on delivering growth

in areas where we have distinctive

capabilities and have signiﬁcant

opportunities.

Each of the chief executive

ocers of our global businesses

reports to our Group Chief

Executive, who in turn reports to

the Board of HSBC Holdings plc.

HSBC Holdings plc Annual Report and Accounts 2022 5

Who we are

Group Chairman’s statement

As we signalled at our interim results, we are

committed to ensuring our shareholders share

the beneﬁts of our improved performance. The

Board approved a second interim dividend for

2022 of $0.23 per share, bringing the full year

dividend for 2022 to $0.32 per share. We are

establishing a dividend payout ratio of 50%

of reported earnings per share for 2023 and

2024, excluding material signiﬁcant items, and

we aim to restore the dividend to pre-Covid-19

levels as soon as possible. We also intend to

return to paying quarterly dividends from the

start of 2023.

Subject to completion of the planned sale

of our banking business in Canada, the

Board’s intention is to consider the payment

of a special dividend of $0.21 per share as

a priority use of the proceeds generated.

A decision in relation to any potential dividend

would be made following the completion

of the transaction, currently expected in

late 2023, with payment following in early

2024. Any remaining additional surplus

capital is expected to be allocated towards

opportunities for organic growth and

investment alongside share buy-backs,

which would be in addition to any existing

share buy-back programme.

Board operations

In 2022, the Board met in person in London,

Hong Kong, New York and Riyadh – on each

occasion also undertaking a wide range of

engagements with clients, colleagues,

government ocials and regulators. The

importance of engaging with our teams was

also underlined by the appointment of José

(Pepe) Meade as Board member with speciﬁc

responsibility for employee liaison. At the

same time as holding some in-person

meetings, the continued use of virtual

meetings enabled us to retain the beneﬁts

of greater eciency and reduced costs.

At the 2022 Annual General Meeting, Irene

Lee and Pauline van der Meer Mohr stepped

down from the Board. I am enormously

grateful to them for their important and

valuable contributions to the Board, the

committees and the subsidiary entities on

which they have served. Irene remains an

independent non-executive Director of The

Hongkong and Shanghai Banking Corporation

Limited and independent non-executive

chair of Hang Seng Bank Limited. Geraldine

Buckingham joined the Board as an

independent non-executive Director on 1 May.

Following Ewen Stevenson’s departure,

Georges Elhedery became Group Chief

Financial Ocer and joined the Board on

1 January 2023. On behalf of the Board, I

would like to again thank Ewen for all that

he has done for the bank. His leadership,

ﬁnancial expertise and operational rigour

have been invaluable to HSBC, and he

leaves with our very best wishes.

At the start of 2022, the ongoing impact

of Covid-19 was the most dominant

factor within the external environment.

While further outbreaks in Hong Kong

and mainland China signiﬁcantly

impacted economic growth, the Russia-

Ukraine war and rising inﬂation and

interest rates had an even greater impact

on the global economy in 2022. They are

also likely to continue to have a greater

economic impact than the pandemic in

2023, as we are already seeing with a

cost of living crisis aecting many of

our customers and colleagues.

Strong ﬁnancial performance and higher

capital distributions

We supported our customers through the

challenges that they faced at the same time as

executing our strategic plan. The ﬁrst phase of

our transformation is now complete. The work

that we have done has enabled us to emerge

from the pandemic a stronger bank, better

aligned to the international needs of our

customers.

Mark E Tucker

Group Chairman

The global economy remains volatile, but our strategy is

delivering improved returns for shareholders and HSBC

is well placed to compete as the economy recovers.

The reshaping of our portfolio continued with

the announcement of the planned sale of our

banking business in Canada. We continued to

develop our Wealth capabilities, especially in

Asia, and this strategy gained traction in 2022.

Our increased investment in technology has

improved the customer experience and made

our processes more ecient. Meanwhile, we

continued to support our clients to transition

to net zero, and also took further important

steps towards our ambition of aligning our

ﬁnanced emissions to net zero by 2050. Given

the urgency of today’s global energy crisis, it is

now even more important that we continue to

actively engage our clients on how they intend

to prepare their businesses for a low-carbon

future.

In 2022, reported proﬁt before tax was

$17.5bn, a decrease of $1.4bn compared with

2021 due to the $2.4bn impairment on the

planned sale of our French retail banking

operations. Adjusted proﬁt before tax was

$24.0bn, an increase of $3.4bn on last year. All

of our businesses grew proﬁts in 2022, and we

maintained our strong capital, funding and

liquidity positions.

6 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report

to individuals and companies of all sizes

whose ﬁnancial ambitions span multiple

countries and regions. Very few, if any, other

banks can rival our ability to connect capital,

ideas and people through a global network

that facilitates the international access and

collaboration required to succeed in today’s

world.

Our performance in 2022 demonstrates

that our current strategy is working and

improving returns. We are also conﬁdent

that it will deliver good returns for our

shareholders over the coming years. The

Board and management team are fully

focused on delivering it.

An uneven macroeconomic outlook

We will need to maintain this focus against

an uneven macroeconomic outlook. The

pandemic, high inﬂation and interest rates,

and the Russia-Ukraine war all have

implications for the global economy, including

volatility in markets, supply chain disruption,

pressure on small and medium-sized business

and squeezes on the cost of living. Dierent

economies also now face dierent challenges

and have dierent opportunities in 2023.

China’s reopening and package of measures

to stabilise the property market should provide

a signiﬁcant boost for its economy and the

global economy, albeit with some near-term

volatility. Our economists forecast China’s

GDP will grow 5% in 2023. The reopening of

the border means that Hong Kong, and the

entire Greater Bay Area, are likely to be major

beneﬁciaries, and I expect to see a strong

recovery.

More broadly, Asia as a whole has proven

resilient and there is the prospect of a

strong rebound later in the year. Virtually

all economies in the region have now

recovered the output losses incurred during

the pandemic and are above 2019 levels.

The Middle East economies enjoyed a strong

2022, and we expect this momentum to

continue in 2023 on the back of the important

reforms underway to transform, diversify and

grow the region’s economies. We see strong

and growing demand to connect clients in the

Middle East with Asia’s economies, and

vice versa.

In contrast, Europe, including the UK, face

challenges from higher energy prices fuelling

inﬂation and necessitating higher interest

rates, driven in part by the Russia-Ukraine

war. All of these factors are contributing to

a cost of living crisis and more economic

uncertainty. We expect that any recession,

if there is one at all, will be relatively shallow.

The US economy is proving resilient and

a hard landing appears unlikely. Some

economists believe that inﬂation may now

have peaked in the US, and there is consensus

that the US will avoid recession. I expect the

US to make an important contribution to

global GDP growth in 2023.

Overall, I am optimistic about the global

economy in the second half of 2023, but there

is still a high level of uncertainty due to the

Russia-Ukraine war and recessionary fears

may yet dominate much of the year ahead.

Navigating geopolitics remains

challenging

The geopolitical environment remains

challenging for our clients to navigate. There is

sadly no end in sight to the Russia-Ukraine

war. However, the West’s relationship with

China appears to be relatively stable. The

renewed, constructive dialogue between

President Xi and President Biden at the G20

in November was clearly important. While

further US sanctions are expected this year,

capital ﬂows between China and the West

increased during the pandemic, even with

reciprocal taris in place. China is also taking

an active approach to diplomatic engagement

with European nations, including the UK.

China’s reopening will also allow for the

resumption of face-to-face visits, which will

support greater dialogue between China and

important partners such as Germany, France

and the UK. We also naturally continue to

engage with governments around the world.

One of the key trends of the past three years

has been supply chain disruption, due largely

to a combination of geopolitics, pandemic and

war-related factors. Businesses are seeking to

build greater resilience into their supply chains,

reduce their dependence on sole suppliers or

regions, and take the opportunity to digitise. I

expect these trends all to continue throughout

2023. HSBC’s global network means we are

well placed to adapt to regional diversiﬁcation

that takes place within supply chains.

Thank you to my colleagues

Finally, my colleagues have once again shown

great dedication, energy and care in serving

our customers and working together over the

past year. They have exempliﬁed our purpose

of ‘opening up a world of opportunity’ and our

core values. While we want to achieve even

more in 2023 and beyond, I am very proud of

what they achieved in 2022 – and I am

extremely grateful to each of them.

Mark E Tucker

Group Chairman

21 February 2023

” Given the urgency of

today’s global energy

crisis, it is now even

more important that

we continue to actively

engage our clients on

how they intend to

prepare their businesses

for a low-carbon future.”

We also recently announced some changes

to the Board. Kalpana Morparia will join the

Board as an independent non-executive

Director on 1 March. Jack Tai will retire from

the Board at the conclusion of the 2023 AGM,

and will be succeeded as Chair of the Group

Risk Committee by Jamie Forese. Jack has

made a signiﬁcant and important contribution

during his time on the Board, particularly

in the strengthening of risk and conduct

governance and oversight through a period

of major change. We wish him very well in

his future endeavours.

Noel and I were delighted to meet face-to-face

with our loyal Hong Kong shareholders at our

Informal Shareholders Meeting in August. We

have always greatly valued their feedback and

engagement, and this meeting was as well

attended as ever. We were pleased to discuss

how our business has performed, our

continued support of Hong Kong, and our

commitment to growing shareholder value.

We look forward to continuing these

discussions in person in 2023.

Our strategy is working

There were reports over the course of last

year about ideas for alternative structures for

HSBC. The Board has been fully engaged in

examining these alternatives in depth, with the

beneﬁt of independent third-party ﬁnancial

and legal advice. It has been, and remains,

our judgement that alternative structural

options would not deliver increased value for

shareholders. Rather, they would have a

material negative impact on value.

For 157 years, we have followed trade and

investment ﬂows to support our customers

as they fulﬁl their ﬁnancial ambitions. We

have used our experience, expertise and

relationships to help our customers to

navigate the world.

Today, we remain steadfastly focused on

our core purpose of ‘opening up a world of

opportunity’. Our model is particularly relevant

HSBC Holdings plc Annual Report and Accounts 2022 7

Group Chairman’s statement

Group Chief Executive’s review

We have completed the ﬁrst phase of

our transformation. Our international

connectivity is now underpinned by good,

broad-based proﬁt generation around

the world. Our focus is now on continuing

to grow our core business, while also

capitalising on the new sources of

value creation that we have built.

When we embarked on our transformation

programme in February 2020, our aim was

to address the fundamental issues that had

contributed to a decade of low returns. It was

clear to me that too much of our capital was

being used ineciently, too many of our

businesses were loss-making and sub-scale,

and too many of our clients were low returning

and purely domestic in nature. Over the

last three years, while responding to the

challenges of the pandemic, we have

structurally repositioned our businesses and

operating model to achieve higher returns.

The progress that we have made over the past three years

means that HSBC is well positioned to deliver higher returns

and has a good platform for future growth.

Noel Quinn

Group Chief Executive

The most signiﬁcant changes to our portfolio

have been the exit and wind-down of

non-strategic assets and clients in the

Americas and Europe, and the investment

in technology and in organic and inorganic

growth in Asia, especially in Wealth and

Personal Banking. We have completed the

sale of our US mass market retail business,

and announced the planned exit of our French

retail banking operations and the planned sale

of our banking business in Canada. We have

also announced exits in other smaller

businesses, including Greece and Russia.

A key factor in assessing the strategic value

of our businesses has been whether they

capitalise on the distinct advantages that

we have, especially those derived from our

global network.

Our work to increase capital eciency

resulted in cumulative risk-weighted asset

savings of $128bn by the end of 2022, in

excess of our original target as we accelerated

restructuring in the US and Europe. This

enabled us to reallocate capital towards

Asia and the Middle East.

Finally, we have transformed our cost base

and restored tight cost discipline across the

organisation. Our cost to achieve programme

concluded at the end of 2022, but it enabled

us to take multiple layers of ineciency out

of the business and embed changes that we

expect to provide ﬂow-through beneﬁts for

years to come.

Building a good platform for future

growth

At the same time, we have invested in new

sources of value creation that provide a good

platform for future growth. Developing our

capabilities in Wealth, particularly in Asia, has

been a strategic priority as we have sought

to diversify our revenues. We have done

this organically through the build-out of our

Pinnacle business in mainland China, and

inorganically through the purchases of AXA

Singapore and L&T Investment Management

in India, by increasing our stake to 90% in

HSBC Qianhai Securities, and by taking full

ownership of our HSBC Life China insurance

business. The traction that we are gaining in

Wealth is reﬂected by the $80bn of net new

invested assets that we attracted in 2022,

$59bn of which were in Asia.

Return on average tangible

equity

9.9%

(2021: 8.3%)

Adjusted revenue

$55.3bn

(2021: $ 47.0b n)

8 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report

Our core purpose is ‘opening up a world of

opportunity’ and that, in essence, is what we

do by helping our personal and corporate

customers to move money between countries

and do business across borders. This is still

the best way for us to create value, and what

makes us a world leading bank for international

and mid-market customers. We are the

number one trade ﬁnance bank, and trade

revenue was up 13% in 2022, surpassing the

good level of growth in the previous year.

Trade also increased in all regions.

We are also one of the leading global foreign

exchange houses and a leading payments

company globally, with over $600tn of

payments processed in 2022. Our global

connectivity has made international our

fastest-growing revenue segment in Wealth

and Personal Banking. Products like Global

Money and our Wealth platforms are

speciﬁcally designed to meet the international

needs of our retail and wealth customers.

These customers also provide around double

the average revenue of domestic-only

customers.

The dierence compared with three years ago

is that our international connectivity is now

underpinned by good broad-based proﬁt

generation around the world. Already the

leading bank in Hong Kong, we gained market

share last year in key products including

customer deposits, insurance and trade

ﬁnance. We are also the leading foreign bank

in mainland China by revenue and are pleased

to have received seven main licence approvals

since 2020. Our business in India delivered

$0.9bn of proﬁt before tax last year and

facilitated the equivalent of around 9% of

India’s exports. In the Middle East, we

delivered $1.8bn of proﬁts and were the

number one bank in capital markets league

tables. HSBC UK delivered $5bn of proﬁts and

was the number one bank for trade ﬁnance,

while our non-ring-fenced bank in Europe

delivered $2.1bn of proﬁts and around 35%

of its client business was booked outside the

region. Our US business has now had nine

consecutive quarters of proﬁtability after its

turnaround, while our business in Mexico

delivered a return on tangible equity of 18%.

The cost savings that we have made have

been reinvested in technology, which has in

turn enabled us to change the way we operate

as a business. Technology spending was 19%

higher in 2022 than in 2019. Much of this

investment has been used to rebuild and

upgrade platforms, which we have then rolled

out globally. Our upgraded mobile banking

app is available in 24 markets and has around

13 million active users, while our upgraded

digital trade ﬁnance platform has been rolled

out in the UK and Hong Kong, ensuring that

market-leading businesses are well positioned

for the next 10 years. In 2022, we launched

HSBC Orion, our new proprietary tokenisation

platform using blockchain technology for bond

issuances. We’re also partnering with ﬁntechs

around the world to use their capabilities in

our products. Finally, we are investing in

greater automation, which we expect to

reap the beneﬁts from for years to come.

Empowering our people has underpinned

everything that we have achieved over the

past three years – and it will underpin the

next phase of our strategy too. Reducing

management layers has helped to increase

our speed and agility. In our last sta survey,

the number of colleagues who report that

work processes allow them to work eciently

was 6 percentage points above the sector

benchmark. Conﬁdence within the

organisation has also increased. 77% of

colleagues told us they are conﬁdent about

our future, which is 3 percentage points up

on 2021. We have continued to make steady

progress against our medium-term targets on

gender and ethnicity representation, while

the number of hours that colleagues spent

” The dierence

compared with three

years ago is that

our international

connectivity is now

underpinned by good

broad-based proﬁt

generation around

the world.”

learning about digital and data, and

sustainability also increased by 13% last

year, underlining the importance of these

critical future skills.

The transition to net zero will oer increasingly

signiﬁcant commercial opportunities in the

future. We have continued to make good

progress towards our ambition of providing

and facilitating $750bn to $1tn of sustainable

ﬁnancing and investment by 2030. At the end

of 2022, the cumulative total for sustainable

ﬁnancing and investment since 2020 had

reached more than $210bn. We published an

updated energy policy, which commits us to

no longer provide new ﬁnance or advisory

services for the speciﬁc purpose of projects

pertaining to new oil and gas ﬁelds and related

infrastructure whose primary use is in

conjunction with new ﬁelds. As per our policy,

we will continue to provide ﬁnance to maintain

supplies of oil and gas in line with declining

current and future global demand, while

accelerating our activities in support

of clean energy. We have also set interim

2030 targets for on-balance sheet ﬁnanced

emissions for eight sectors. These include

six sectors for which we have reported 2019

and 2020 emissions. We recognise that

methodologies and data for measuring

emissions will continue to evolve, and our

own disclosures will therefore continue to

develop as a result. In 2023, we will publish

our ﬁrst bank-wide climate transition plan.

Strong overall ﬁnancial performance

in 2022

The progress that we have made transforming

HSBC and investing in growth has helped

to drive an improved ﬁnancial performance

in 2022. A strong net interest income

performance reﬂected higher global interest

rates, but there was also good underlying

growth across the business in key areas,

particularly those linked to our international

network.

Overall, the Group delivered $17.5bn of

reported proﬁt before tax, which was

$1.4bn lower than in 2021. This was due to

a net expected credit loss charge of $3.6bn

compared with a net release of $0.9bn last

year, as well as the impairment of $2.4bn

relating to the planned sale of our retail

banking operations in France. Adjusted

proﬁt before tax was $24bn, up $3.4bn.

Adjusted revenue was 18% higher than the

same period last year, as net interest income

grew strongly in all of our global businesses.

There was also a strong performance in Global

Foreign Exchange. Our reported return on

tangible equity for 2022 was 9.9%. Excluding

signiﬁcant items, we delivered a return on

tangible equity of 11.6%.

HSBC Holdings plc Annual Report and Accounts 2022 9

Group Chief Executive’s review

There was a good performance across our

global businesses. In Commercial Banking,

adjusted proﬁt before tax was up by 24% to

$7.7bn, driven by revenue increases across all

products and in all regions, most notably Asia

and the UK. Within this, Global Payments

Solutions revenue grew by 104% on the back

of higher interest rates, while trade revenue

was up 14% with growth in all regions.

Global Banking and Markets delivered

adjusted proﬁt before tax of $5.4bn, up

8% compared with 2021. Global Payments

Solutions was again the main driver, with

119% growth in net interest income from

higher interest rates, and a strong

performance in Global Foreign Exchange.

In Wealth and Personal Banking, adjusted

proﬁt before tax of $8.5bn was 27% higher

than 2021. Net interest income growth drove a

good performance in Personal Banking, while

there was also balance sheet growth in the

UK, Asia outside Hong Kong, and Mexico.

We restricted adjusted cost growth to 1% in

2022 as a result of the signiﬁcant cost-saving

actions that we have taken. This represents

a good outcome given the high inﬂation

environment. After good capital generation in

the fourth quarter, our CET1 ratio at the end of

2022 was 14.2% and back within our target

range of 14% to 14.5%. We are able to pay a

second interim dividend of $0.23 per share,

bringing the total 2022 dividend to $0.32

per share.

Improved returns and substantial

distribution capacity

We are ﬁrmly on track to achieve our target

of a return on tangible equity of at least 12%

from 2023 onwards. We have built up a good

level of expected credit loss provisions, and

we also expect the headwinds associated with

macroeconomic uncertainty and the ongoing

challenges within the China commercial real

estate sector to subside, enabling expected

credit losses to start to normalise.

There will be no easing o at all on costs.

Our cost to achieve programme has now

ended, but we will continue to seek and

ﬁnd opportunities to create eciencies

that will deliver sustainable cost savings

in future years. We are now considering up

to $300m of additional costs for severance

in 2023. These costs will need to be reported

in our costs line. Taking this into account, we

will aim for approximately 3% cost growth

in 2023. Tight cost discipline will remain a

priority for the whole Group.

As a result of the improving quality of our

returns, we are establishing a dividend payout

ratio of 50% of reported earnings per share for

2023 and 2024, excluding material signiﬁcant

items. We will aim to restore the dividend to

pre-Covid-19 levels as soon as possible. We

also intend to revert to paying quarterly

dividends from the start of 2023. Given the

capital generation at the end of 2022, we will

bring forward the consideration of buy-backs

to the announcement of our results for the

ﬁrst quarter of 2023.

Finally, subject to the completion of the

sale of our banking business in Canada, I am

pleased that the Board will consider payment

of a special dividend of $0.21 per share in

early 2024 as a priority use of the surplus

capital generated by the transaction. We

understand the importance of dividends to

our shareholders and expect them to beneﬁt

from improved capital distributions ahead.

My colleagues are getting it done

I would like to end by thanking my colleagues

around the world. Over the last three years,

they have managed a period of substantial

change, embraced the opportunities that our

transformation has presented and gone the

extra mile to support our customers – all while

living through a global pandemic. More

recently, there have also been the Russia-

Ukraine war, the real-life ﬁnancial strains

caused by high inﬂation and the devastating

earthquakes in Türkiye for them to deal with.

We have only made the progress that we have

because of their eorts. They are exemplifying

our value of getting it done, and I am proud to

lead them.

Overall, 2022 was another good year for

HSBC. We completed the ﬁrst phase of

our transformation and our international

connectivity is now underpinned by good,

broad-based proﬁt generation around the

world. This contributed to a strong overall

ﬁnancial performance. We are on track to

deliver higher returns in 2023 and have built

a platform for further value creation. With

the delivery of higher returns, we will have

increased distribution capacity, and we will

also consider a special dividend once the

sale of HSBC Canada is completed.

Noel Quinn

Group Chief Executive

21 February 2023

In 2022, we continued to build new

sources of value creation.

We brought in

$80bn

of net new invested assets in Wealth.

We provided and facilitated cumulatively

$210.7bn

of sustainable ﬁnance and investment since

January 2020.

Future growth levers

10 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report | Group Chief Executive’s review

Strategic report

Our strategy

We are implementing our strategy across the four strategic pillars

aligned to our purpose, values and ambition.

Transformation journey

We have made progress in our transformation

in six key areas, as we start to improve

ﬁnancial performance and build a strong

foundation for future growth.

Firstly, we have retained a market leading

position in international connectivity. We

are the number one trade ﬁnance bank and

number three bank in foreign exchange

globally, based on peer analysis undertaken

by Coalition Greenwich. Across our global

businesses, international connectivity is core

to who we serve, with approximately 45% of

our wholesale client business coming from

cross-border relationships and approximately

6 million international customers banking with

Wealth and Personal Banking. International

clients remain our most attractive client base

in Wealth and Personal Banking, with revenue

around double that of domestic customers. In

addition, global transaction banking revenue,

a cornerstone of our international connectivity,

has grown 7% each year since 2019.

Secondly, we have also reshaped our portfolio

through strategic exits in continental Europe

and the Americas. We have exited our

domestic mass market retail business in the

US, and are in the process of selling our retail

banking operations in France, our banking

business in Canada, our business in Russia

and our branch operations in Greece, subject

to regulatory and governmental approvals.

We have taken actions to improve the returns

proﬁle of the Group, including generating

cumulative gross RWA reductions of $128bn

since the start of our programme, exceeding

our target of more than $110bn. We have

continued to reallocate capital to Asia, with

the proportion of our tangible equity allocated

to Asia increasing to 47% at the end of 2022,

and we remain on track with our medium- to

long-term aspiration to increase this to 50%.

We have also invested through a series of

bolt-on acquisitions in Asia, including AXA’s

business in Singapore and L&T Investment

Management in India, and we have increased

our stakes in HSBC Life China and

HSBC Qianhai.

Gross RWA reduction

$128bn

Since the start of the programme.

Target: >$110bn by the end of 2022.

Technology investment

$6.1bn

(2019: $5.1bn)

1 Based on tangible equity of the Group’s major

legal entities excluding associates, holding

companies, and consolidation adjustments.

Capital allocation

Asia

(as a % of Group tangible equity)

2022

Medium- to long-term aspiration

2021

47%

c.50%

42%

47%

Thirdly, over the last three years we have built

a broad and geographically diverse base of

proﬁt generation. We remain the leading bank

in Hong Kong across key areas including

deposits, lending and trade ﬁnance, while in

mainland China, our business contributed

$1.0bn of adjusted proﬁt before tax in 2022,

excluding the share of proﬁt from our

associate, Bank of Communications Co.,

Limited. We have also grown our businesses

in the rest of Asia, with adjusted proﬁt before

tax of $4.2bn, up 24% compared with 2019.

Outside of Asia, HSBC UK Bank plc delivered

$5.0bn of adjusted proﬁt before tax in 2022,

while our HSBC Bank plc and US businesses

have transformed into being leaner and more

internationally focused. In the Middle East

and North Africa, we are the leading bank in

capital markets, while in Mexico, the return on

average tangible equity was 18.0% in 2022.

Fourthly, we have retained our strong focus

on cost discipline. Within the past year,

notwithstanding inﬂationary pressures, we

contained adjusted cost growth compared

with 2021. As a result, excluding the beneﬁt of

a reduced UK bank levy, adjusted costs have

remained ﬂat since 2019, with a 19% increase

in technology spend oset by gross saves

within our global businesses, operations and

other costs. Since 2019, we have taken actions

to become a more ecient organisation,

reducing our oce real estate footprint by

37%, branches by 21% and operations

headcount by approximately 11%.

As we transformed, we have also built a

platform for growth and returns upon which

we will build new value creation opportunities.

We have continued to grow our balance sheet,

with our deposits growing by 4% and assets

growing by 5% each year since 2019.

Increasing fee-based revenue and growing our

Wealth and Personal Banking franchise remain

important priorities for the Group, and we have

gained traction, with Wealth revenue up 3%

and transaction banking revenue up 7% since

2019. However, given the changes to the

macroeconomic environment, together with

the implementation of IFRS 17, the metrics

‘Insurance and fees as a percentage of Group

adjusted revenue’ and ‘WPB as a percentage

of Group tangible equity’ are no longer

appropriate to measure our progress in

these areas.

We continue to view technology as a key

enabler of our growth ambitions, and

have also increased our investment from

approximately $5.1bn in 2019 to $6.1bn in

2022. During the year, we have scaled up

existing digital propositions and launched

others. Details of these can be found on the

following pages.

Fifthly, we have supported a sustainable

dividend policy with strong capital and

liquidity. Finally, the above ﬁve themes have

resulted in a strong platform for growth and

returns, upon which we will build new value

creation opportunities.

HSBC Holdings plc Annual Report and Accounts 2022 11

Our strategy

Wealth and Personal Banking

Adjusted revenue for our Wealth and Personal

Banking business was $24.4bn in 2022, up

16% compared with 2021. This was driven by

growth in Personal Banking, where adjusted

revenue was $15.9bn, up 37%. We continued

to make progress in executing our Wealth,

Asset Management and Insurance strategy,

attracting net new invested assets of $80bn,

compared with $64bn in 2021, with $59bn

coming from Asia. Our Asia Insurance value

of new business reached $1.1bn, up 24%.

We continued to grow our digital propositions

during the year. We launched Global Money in

the UK and Australia, with the proposition now

live in eight markets. This new proposition

recorded approximately $11bn of transactions

in 2022, enabling customers to make cheaper

and faster international payments. We also

signed up more than 900,000 users to our

Pinnacle ﬁnancial planning app to bring the

total user base to over 1 million.

Within our Wealth business, in partnership

with BlackRock, we launched Prism, a hybrid

advisory service to help investors make more

informed investment decisions.

$80bn

Net new invested assets in 2022.

Commercial Banking

Adjusted revenue for our Commercial Banking

business reached $16.2bn in 2022, up 29%

compared with 2021. Adjusted revenue rose in

all regions, and notably in Hong Kong, which

grew by 36%. Fee income increased by 8% to

$3.7bn, reﬂecting growth in Global Payments

Solutions and Global Trade and Receivables

Finance.

Our digital propositions have gained

signiﬁcant traction, with payments processed

on HSBCnet mobile increasing by nearly 62%

during the year. Kinetic, our digital business

banking account for SMEs in the UK, gained

approximately 29,000 customers, taking its

overall customer base to approximately

53,000. Business Go, our new global digital

platform for SMEs, has gone live and has

grown to over 95,000 users as of 2022.

In 2022, we launched our ﬁrst Banking-as-a-

Service proposition in the US with Oracle

Netsuite, embedding HSBC’s banking

products within Oracle’s Cloud enterprise

resource planning platform.

We continue to actively help our clients with

their climate transition goals, and have

completed the global roll-out of our core

sustainable product suite covering loans, trade

ﬁnance and bonds. We also launched our

enhanced HSBC Sustainability Tracker for

Business Banking customers.

$3.7bn

Fee income in 2022.

Global Banking and Markets

Adjusted revenue for our Global Banking

and Markets business was $15.4bn in 2022,

up 10% compared with 2021, driven by

strong performances in Global Payments

Solutions and Markets and Securities

Services, primarily from our Global Foreign

Exchange business. During the year, we

continued to drive eorts for cross-business

line collaboration through referrals and

cross-sell of products, with adjusted

collaboration revenue of approximately

$3.7bn in 2022, compared with approximately

$3.5bn in 2021. Our Global Banking and

Markets franchise remains an internationally

connected one, with our clients doing

business with us in multiple markets. In 2022,

our clients in Europe and the Americas drove

approximately $2.6bn of client business into

Asia and the Middle East, an increase of

approximately 30%.

We continued to develop our digital

propositions with the launch of HSBC Orion,

a new proprietary tokenisation platform to

issue digital bonds based on distributed

ledger technology.

We also extended our sustainable investment

product range, launching a biodiversity

screened equity index created in partnership

with biodiversity data specialist Iceberg data

lab and Euronext.

c.$2.6bn

Client business

booked in the

East from clients managed in

the Americas and Europe.

Focus on our strengths

In our global businesses

In each of our global businesses, we continue to focus on areas where we are strongest and have opportunities to grow.

Delivery in 2022

Our strategy centres on four key pillars: focus on our areas of strengths, digitise at scale to adapt our operating model for the future, energise our

organisation for growth, and support the transition to a net zero global economy.

1 Client business diers from reported revenue as it relates to certain client-speciﬁc income, and excludes certain products (including Principal Investments,

GBM ’other’ and asset management), Group allocations, recoveries and other non-client-related and portfolio level revenue. It also excludes Hang Seng. GBM

client business includes an estimation of client-speciﬁc day-one-trade-speciﬁc revenue from Markets and Securities Services products, which excludes ongoing

mark-to-market revenue and portfolio level revenue such as hedging. Cross-border client business represents the income earned from a client’s entity domiciled

in a dierent geography than where the client group’s global relationship is managed. ‘Booking location’ represents the geography of the client’s entity or

transaction booking location where this is dierent from where the client group’s global relationship is managed.

12 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report | Our strategy

Strategic report

Energise for growth

Empowering and energising our colleagues

is crucial for inspiring a dynamic culture. Our

Employee engagement index, our headline

measure of employee satisfaction, rose to 73%

in 2022 from 67% in 2019, our baseline year.

The participation rate of the survey also rose

from 50% to 78%.

We remained focused on creating a diverse

and inclusive environment, especially in senior

leadership roles, which are those classiﬁed as

band 3 and above in our global career band

structure. We achieved 33.3% female

representation in senior leadership positions

by the end of 2022, and are on track to achieve

our target of 35% by 2025. In 2022, we also

set a Group-wide ethnicity strategy to better

represent the communities we serve. We are

on track to meet this, with 2.5% of leadership

roles held by colleagues of Black heritage

in 2022.

We continued to help our colleagues develop

future-ready skills. In 2022, the total learning

hours spent on these future-ready skills

(digital, data, and sustainability) increased

to approximately 375,777 hours, up from

334,651 hours in 2021.

We outline how we put our purpose and

values into practice in the following ‘ESG

overview‘ section.

For further details on how we plan to energise

for growth, see the Social section in the ESG

review on page 73.

Transition to net zero

In November, we participated in COP27 to

play our part in bringing together the public

and private sector to mobilise the transition

to a net zero global economy. We also made

good progress on our ambitions, including

expanding our ﬁnanced emissions targets to

eight sectors in total, reducing our greenhouse

gas emissions, and supporting our customers

in their transition to a net zero future including

the launch of new climate solutions.

Becoming a net zero bank

We continue to pursue our climate ambition

to become net zero in our operations and

supply chain by 2030, and align our ﬁnanced

emissions to the Paris Agreement goal of

net zero by 2050. In 2022, we reduced our

absolute greenhouse emissions in our

operations to 285,000 tonnes CO

e, which

represents a 58.5% reduction from our

2019 baseline.

So far, we have set interim 2030 targets for

on-balance sheet ﬁnanced emissions for eight

sectors. We also published updated energy

and thermal coal phase-out policies during the

year, which are important mechanisms to help

phase down our ﬁnanced emissions in these

areas while supporting our customers in their

own transition plans. We plan to extend our

ﬁnanced emissions analysis to new sectors –

shipping, agriculture, commercial real estate

and residential real estate – in future

disclosures. We remain committed to setting

facilitated emissions targets, and aim to

continue to engage with industry initiatives

to produce a consistent and comparable

cross-industry approach.

Supporting customers through transition

We have made progress in our ambition to

support our customers through their transition

to net zero. In 2022, we provided and facilitated

a total of $84.2bn of sustainable ﬁnance and

investments, bringing our cumulative amount

since 1 January 2020 to $210.7bn of our

$750bn to $1tn ambition by 2030.

Unlocking new climate solutions

In 2022, Climate Asset Management, the

dedicated natural capital investment manager

formed as a joint venture with climate change

investment and advisory ﬁrm Pollination,

achieved commitments of more than $650m

across its two natural capital strategies. We

also ocially launched Pentagreen, a joint

venture with Temasek, to ﬁnance the

development of sustainable infrastructure

in south-east Asia.

For further details on our climate ambition,

see the Environmental section in the ESG

review on page 46.

Digitise at scale

We continued to invest in our technology and

operational capabilities to drive productivity

across businesses and geographies, and to

improve customer experience. In 2022, $6.1bn,

or 20%, of our overall adjusted operating

expenses were dedicated to technology,

up from $5.6bn in 2021.

Enhancing our digital propositions to improve

customer engagement and journeys remains a

signiﬁcant priority. During the year, just under

half of our Wealth and Personal Banking

customers were active users of our mobile

applications, an increase from 42.7% in 2021,

and over 75% of our Commercial Banking

customers were active on our digital

applications, an increase from 71.0%.

Furthermore, in Wealth and Personal Banking,

nearly half of sales were generated digitally.

Our customer journeys continue to be

transformed, for example, in Singapore, our

Wealth and Personal Banking customers can

now open an account even before they arrive

in their new country via their mobile phones.

To improve our operational eciency, we

continue to deploy technologies at scale in our

organisation. Our Cloud adoption rate, which

is the percentage of our technology services

on the private or public Cloud, increased from

27% to 35%.

Growth and returns

Looking ahead, we will continue to build on our areas of strength, using our international connectivity and strong geographical diversity

spanning every region. We will also continue to drive our transaction banking, wealth and digital platforms in order to grow fee income. Cost

discipline remains a priority for us, while we drive investment in technology to increase productivity and growth. As a result, we expect to

achieve more than 12% RoTE from 2023 onwards – the highest in a decade – and have substantial distribution capacity in 2023 and 2024.

HSBC Holdings plc Annual Report and Accounts 2022 13

Our strategy

We conduct our business to support the sustained success

of our customers, people and other stakeholders.

Our approach

We are guided by our purpose: to open up

a world of opportunity for our colleagues,

customers and communities. Our purpose is

underpinned by our values: we value dierence;

we succeed together; we take responsibility;

and we get it done. Our purpose and values

help us to deliver our strategy and unlock

long-term value for our stakeholders.

Our approach to ESG is shaped by our purpose

and values and a desire to create sustainable

long-term value for our stakeholders. As an

international bank with signiﬁcant breadth

and scale, we understand that our climate,

economies, societies, supply chains and

people’s lives are interconnected. We recognise

we can play an important role in tackling ESG

challenges. We focus our eorts on three

areas: the transition to net zero, building

inclusion and resilience, and acting responsibly.

Transition to net zero

The transition to net zero is one of the biggest

challenges for our generation. Success will

require governments, customers and ﬁnance

providers to work together. Our global footprint

means that many of our clients operate in

high-emitting sectors and regions that face the

greatest challenge in reducing emissions. This

means that our transition will be challenging

but is an opportunity to make an impact.

We recognise that to achieve our climate

ambition we need to be transparent on the

opportunities, challenges, related risks and

progress we make. To deliver on our ambition,

we require enhanced processes, systems,

controls, governance and new sources of data.

We continue to invest in our climate resources

and skills, and develop our business

management process to integrate climate

impacts. As we enhance our systems,

processes, controls and governance, certain

aspects of our reporting will rely on manual

sourcing and categorisation of data. Given the

challenges on data sourcing as well as the

evolution of our processes as mentioned

above, this has had an impact on certain

climate disclosures including thermal coal. In

2023, we will continue to review our approach

to our disclosures, with our reporting needing

to evolve to keep pace with market

developments.

We set out in more detail the steps we are

taking on our climate ambitions in the ESG

review on page 47.

Build inclusion and resilience

Building inclusion and resilience helps us to

create long-term value. By removing barriers

and being a fair and equitable bank, we can

attract the best talent, serve a wider customer

base and support our communities.

An inclusive, healthy and stimulating

environment for our people helps us to succeed.

We have set goals for gender and ethnic

diversity, and we focus on employee sentiment,

and support our colleagues’ resilience through

well-being and learning resources.

We strive to provide inclusive and accessible

banking for our customers. We help our

customers to build ﬁnancial resilience by

providing resources that help them manage

their ﬁnances, and services that help them

protect what they value. This is critical in

challenging times, as we continue to support

our stakeholders in the wake of Covid-19 and

in the face of a rising cost of living.

Finally, we give back to our communities

through philanthropic giving, disaster relief

and volunteering.

Act responsibly

We are focused on running a strong and

sustainable business that puts the customer

ﬁrst, values good governance, and gives our

stakeholders conﬁdence in how we do what

we do. Our conduct approach guides us to do

the right thing and to focus on the impact we

have for our customers and the ﬁnancial

markets in which we operate. Customer

experience is at the heart of how we operate.

We aim to act responsibly and with integrity

across the value chain.

On page 16, we have set out ways that we

have supported our stakeholders through a

challenging year.

ESG overview

ESG disclosure map and directory

Transition to

net zero

Our climate ambition

Read more on our approach to the transition to net zero

Page 46

Read more on our progress made against our ambition

to achieve net zero in our ﬁnanced emissions by 2050

Page 50

Read more on our progress made against our $750bn

to $1tn sustainable ﬁnance and investment ambition

Page 57

Read more on our ambition to achieve net zero in our

own operations by 2030

Page 62

Detailed Task Force on Climate-related

Financial Disclosures (‘TCFD’)

We make disclosures consistent with Task Force

on Climate-related Financial Disclosures (‘TCFD’)

recommendations, highlighted with the symbol:

TCFD

Page 68

Build

inclusion

and

resilience

Diversity and inclusion disclosures

Read more on how we are building an inclusive

environment that reﬂects our customers and

communities, and our latest pay gap statistics

Page 74

Pay gap disclosures

Page 75

Act

responsibly

How we govern ESG

Read more on our ESG governance approach and

human rights

Page 86

Page 87

Human rights and modern slavery disclosures

How our ESG targets link to executive

remuneration

Read more on our ESG targets embedded in executive

remuneration

Page 16;

Pages 282 to 287

Our

ESG Data Pack

Our

ESG Data Pack

provides more granular ESG

information, including the breakdown of our sustainable

ﬁnance and investment progress, and complaints volumes

www.hsbc.com/esg

14 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report

Engaging with our stakeholders and our material ESG topics

Engaging with our stakeholders is core to

being a responsible business. To determine

material topics that our stakeholders are

interested in, we conduct a number of

activities throughout the year, including

engagements outlined in the table below.

Disclosure standards such as the TCFD,

World Economic Forum (‘WEF’) Stakeholder

Capitalism Metrics and Sustainability

Accounting Standards Board (‘SASB’),

as well as the ESG Guide under the Hong

Kong Stock Exchange Listing Rules and

other applicable rules and regulations, are

considered as part of the identiﬁcation of

material issues and disclosures.

Supporting our customers facing a rising

cost of living

We know that many of our customers around

the world are facing increasing cost of living

pressures from higher inﬂation, and we are

committed to helping them.

Colleagues across our global businesses have

been reaching out to customers to provide

them with increased access to support, such

as free ﬁnancial health checks, as well as

proactively contacting those who we believe

could beneﬁt from additional assistance.

Proactive support

We have focused our support on our

customers in the UK, which is our largest

market to be aected by rising cost of

living pressures, using our guidelines

and procedures to help provide the right

outcomes. We also engage closely and

regularly with our key regulators to help

ensure we meet their expectations of ﬁnancial

institutions’ activities more generally during

volatile markets.

For our personal customers in ﬁnancial

diculty, we enhanced our range of digital

resources, with the launch of a new ‘Rising

cost of living hub’ on our public website. The

hub provides useful articles and tools to help

budget, manage money and gain access to

the range of support we are providing. Other

measures in 2022 included:

– conducting a review of our existing tools

and services, helping to ensure requests

for borrowing remained aordable;

– helping those most in need with temporary

support, such as reducing overdraft

borrowing costs in eligible accounts;

– providing the opportunity to mortgage

customers coming to the end of an existing

ﬁxed rate to secure a new rate earlier; and

– removing the payments of penalties for

customers in need of funds having to

close ﬁxed-rate savers accounts early.

In our CMB business, our focus has been

towards helping Business Banking clients

exhibiting signs of ﬁnancial vulnerability, as well

as participating in local government-backed

initiatives targeted at extending ﬁnancial

support to SMEs. When a customer is in need

of assistance, we review on a case-by-case

basis, with potential solutions including

repayment holidays, extending loan repayments

and oering extensions to collection periods.

Other measures in 2022 included:

– improving our customer support and

education, including through webinars and

our ﬁnancial well-being website, to guide

how best to improve ﬁnancial resilience and

forecast cash ﬂows;

– enhancing the identiﬁcation of customers

exhibiting signs of ﬁnancial vulnerability, by

using data and front-line insights provided

from relationship management teams;

– increasing the education provided to our

colleagues on the various forms of ﬁnancial

support available to clients; and

– proactively getting in touch with customers

to help ensure awareness of available

support, including communicating with over

40,000 SMEs, and increasing the number of

outbound calls in the fourth quarter of 2022

by 190%, when compared with the previous

quarter, to those displaying signs of lower

ﬁnancial resilience.

For further details on our conduct and product

responsibilities, see the ESG review on page 94.

For further details of how we are supporting our

colleagues amid rising inﬂation, see page 25.

Our stakeholders How we engage

Material topics highlighted by

the engagement

Customers Our customers’ voices are heard through our interactions with them,

surveys and by listening to their complaints

– Customer advocacy

– Cybersecurity

Employees

Our colleagues’ voices are heard through our employee Snapshot survey,

Exchange meetings, and our ‘speak-up’ channels, including our global

whistleblowing platform, HSBC Conﬁdential

– Employee training

– Diversity and inclusion

– Employee engagement

Investors

We engage with our shareholders through our AGMs, virtual and in-person

meetings, conferences and our annual investor survey

– Thermal coal policies

– Energy policies

– Becoming a net zero bank

in our own operations and

ﬁnanced emissions

Communities

We welcome dialogue with external stakeholders, including non-governmental

organisations (‘NGOs’) and other civil societies groups. We engage directly on

speciﬁc issues and by taking part in external forums and working groups

– Financial inclusion and

community investment

Regulators and

governments

We proactively engage with regulators and governments to facilitate strong

relationships through virtual and in-person meetings and by responding to

consultations individually and jointly via industry bodies

– Anti-bribery and corruption

– Conduct and product

responsibility

Suppliers

Our code of conduct for suppliers of goods and services sets out how we engage

with our suppliers on ethical and environmental performance

– Supply chain management

– Human rights

1 These form part of our ESG disclosures suite together with other requirements, and are not exhaustive or exclusive to one stakeholder group. For further details on

our disclosures, see our ESG review and

ESG Data Pack

, as well as our ESG reporting centre at www.hsbc.com/esg.

HSBC Holdings plc Annual Report and Accounts 2022 15

ESG overview

Our ESG ambitions, metrics and targets

TCFD

We have established ambitions and targets that

guide how we do business, including how we

operate and how we serve our customers. These

include targets designed to help us achieve our

environment and social sustainability goals. They

also help us to improve employee advocacy, the

diversity of senior leadership and strengthen our

market conduct. The targets for these measures

are linked to the pillars of our ESG strategy:

transitioning to net zero, building inclusion

and resilience, and acting responsibly.

To help us achieve our ESG ambitions, a

number of measures are included in the

annual incentive and long-term incentive

scorecards of the Group Chief Executive,

Group Chief Financial Ocer and Group

Executives that underpin the ESG metrics

in the table below.

We have developed a forward-looking

roadmap to consider greater use of ESG

measures in executive performance

assessment. For a summary of how all

ﬁnancial and non-ﬁnancial metrics link to

executive remuneration, see pages 282 to

287 of the Directors’ remuneration report.

The table below sets out some of our key

ESG metrics that we use to measure our

progress against our ambitions. For further

details of how well we are doing, see the

ESG review on page 43.

Financed

emissions

8 sectors

Number of sectors where we have

set on-balance sheet ﬁnanced

emissions targets.

Ambition: Achieve net zero in our

ﬁnanced emissions by 2050.

Sustainable ﬁnance and

investment

$210.7bn

Cumulative total provided and

facilitated since January 2020.

(2021: $126.7bn)

Ambition: Provide and facilitate

$750bn to $1tn of sustainable

ﬁnance and investment by 2030.

Net zero in our own

operations

58.5%

Cumulative reduction in absolute

operational greenhouse gas

emissions from 2019 baseline.

(2021: 50.3%)

Ambition: Achieve net zero in our own

operations and supply chain by 2030.

1 For further details of our approach to transition to net zero, methodology and PwC’s limited assurance reports, see www.hsbc.com/who-we-are/esg-and-

responsible-business/esg-reporting-centre.

2 See page 52 for further details on our targets for six of these sectors, which include oil and gas; power and utilities; cement; iron, steel and aluminium; aviation;

and automotive. See page 66 for further details about our thermal coal mining and coal ﬁred power targets, as well as our thermal coal phase-out policy.

3 In October 2020, we announced our ambition to provide and facilitate between $750bn to $1tn of sustainable ﬁnance and investment by 2030. For further details

and breakdown, see the ESG review on page 58. For details on how this target links with the scorecards, see page 282.

4 This absolute greenhouse gas emission ﬁgure covers scope 1, scope 2 and scope 3 business travel emissions. For further details of how this target links with the

scorecards, see page 282.

5 Senior leadership is classiﬁed as those at band 3 and above in our global career band structure. The progress for the ethnicity target is tracked from a 31 December

2020 baseline against our 2020 commitment to double the number of Black senior leaders. We have since reﬁned our approach to ethnicity by focusing on targets

by market. For further details, see the ESG review on page75. For details on how this target links with the scorecards, see page 282.

6 For further details, see the ESG review on page 77. For details on how this target links with the scorecards, see page 282.

7 The completion rate shown relates to the ﬁnancial crime ‘Take another look’ training module and conduct ‘Taking responsibility’ training module in 2022.

8 The markets where we report rank positions for WPB and CMB – the UK, Hong Kong, mainland China, India, Mexico and Singapore – are in line with the annual

executive scorecards. This represents a change from 2021, when the metric was based on all markets where benchmarking studies were run. For further details

of customer satisfaction, see the ESG review on page 89. For further details of how this target links with the scorecards, see page 282.

Gender diversity

33.3%

Women in senior leadership roles.

(2021: 31.7%)

Target: Achieve 35% women in

senior leadership roles by 2025.

Ethnic diversity

37% increase

Of Black colleagues in senior

leadership roles from 2020 baseline.

(2021: 17.5% increase)

Target: Double the number of Black

colleagues in senior leadership roles

between 2020 and 2025.

Employee engagement

73%

Employee engagement score.

(2021: 72%)

Target: Maintain 72% in the Snapshot

Employee engagement index.

Conduct training

98%

Employees who completed conduct

training in 2022.

(2021: 99%)

Target: At least 98% of employees

complete conduct and ﬁnancial

crime training each year.

Customer satisfaction

4 out of 6

WPB markets that sustained

top-three rank and/or improved

in customer satisfaction.

(2021: 5 out of 6)

Target: To be ranked top three and/or

improve customer satisfaction rank.

5 out of 6

CMB markets that sustained

top-three rank and/or improved

in customer satisfaction.

(2021: 2 out of 6)

Target: To be ranked top three and/or

improve customer satisfaction rank

Environmental:

Transition to

net zero

Social:

Build inclusion

and resilience

Governance:

Acting

responsibly

16 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report | ESG overview

Strategic report

Task Force on Climate-related Financial Disclosures (‘TCFD’)

TCFD

Connecting international investors to sustainable solutions

We are connecting investors around the world with governments to support the transition to

net zero. In May, we helped the Indonesian government raise $3.25bn in an Islamic bond,

known as a sukuk, with $1.5bn of the proceeds dedicated to be used exclusively for eligible

spending that delivers on the UN’s Sustainable Development Goals, with guidance and

support from the UNDP. We were joint lead manager and joint bookrunner, and were also

mandated as joint green structuring adviser. The order book topped $10bn, with most of the

buyers from Asia and the Middle East.

The deal demonstrated how our specialist expertise can build trusted relationships. We have

been discussing green ﬁnancing solutions with the Indonesian government since 2018 and

were previously appointed to structure both its green and sustainability ﬁnancing

programmes.

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 have set out our key climate-related

ﬁnancial disclosures throughout the

Annual

Report and Accounts 2022

and related

disclosures. In 2022, while recognising that

further work lies ahead as we develop our

management and reporting capabilities,

we made certain enhancements to our

disclosures. These include reporting relevant

quantitative results from our ﬁrst internal

climate-related scenario analysis, including

the carbon prices that we used. We also

began to incorporate climate-related

considerations into our annual ﬁnancial

planning cycle, and disclosed how

management has considered the impact

of climate-related risks on our ﬁnancial

position and forward-looking performance.

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 11

TCFD Recommendations and Recommended

Disclosures save for certain items, which we

summarise below.

– For ﬁnanced emissions we do not plan

to set 2025 targets. We set targets in line

with the Net-Zero Banking Alliance (‘NZBA‘)

guidelines by setting 2030 targets. While

the NZBA deﬁne 2030 as intermediate, we

use dierent time horizons for climate risk

management. We deﬁne short term as time

periods up to 2025; medium term is between

2026 and 2035; and long term is between

2036 and 2050. These time periods align

to the Climate Action 100+ disclosure

framework. In 2022, we disclose interim

2030 targets for on-balance sheet ﬁnanced

emissions for eight sectors as we outline

on page 18. For the shipping sector, we

chose to defer setting a baseline and target

until there is sucient reliable data to

support our work, allowing us to more

accurately track progress towards net zero.

In March 2022, we said we would set capital

markets emissions targets for the oil and

gas, and power and utilities sectors based

on the industry reporting standard from

the Partnership for Carbon Accounting

Financials (’PCAF’) once published. We

remain committed to setting facilitated

emissions targets, and aim to continue to

engage with industry initiatives to produce

a consistent and comparable cross-industry

approach. We intend to review the ﬁnanced

emissions baselines 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 from

climate-related opportunities on ﬁnancial

planning and performance including on

revenue, costs and the balance sheet,

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 including

business travel, supply chain and ﬁnanced

emissions. In relation to ﬁnanced emissions,

we published on-balance sheet ﬁnanced

emissions for six sectors as detailed on page

18. Future disclosure on ﬁnanced emissions,

and related risks is reliant on our customers

publicly disclosing their carbon emissions

and related risks. We aim to disclose

ﬁnanced emissions for additional sectors

in our

Annual Report and Accounts 2023

and related disclosures. Our approach

to disclosure of ﬁnanced emissions for

additional sectors can be found at:

www.hsbc.com/who-we-are/esg-and-

responsible-business/esg-reporting-centre.

For a full summary of our TCFD disclosures,

including detailed disclosure locations for

additional information, see pages 68 to 72.

The additional information section on

page 423 provides further detail.

HSBC Holdings plc Annual Report and Accounts 2022 17

ESG overview

Climate strategic pillars

and ambition Metrics and indicators

Progress to date

Becoming a

net zero bank

Align our ﬁnanced

emissions to achieve net

zero by 2050 or sooner

Number of sectors analysed

for ﬁnanced emissions

We have published on-balance sheet ﬁnanced emissions for six

sectors including cement; iron, steel and aluminium; aviation; and

automotive. We also continue to disclose our ﬁnanced emissions for

the oil and gas and power and utilities sectors

(see pages 50 to 56).

Be net zero in our

operations and supply

chain by 2030 or sooner

Absolute operational greenhouse gas

emissions (tonnes CO

58.5% cumulative reduction in absolute greenhouse gas emissions

from 2019 baseline (see page 62)

Percentage of renewable electricity

sourced across our operations

Increase from 37.5% in 2021 to 48.3% (see page 62)

Percentage of energy consumption

reduced

24.0% cumulative reduction in energy consumption from 2019

baseline (see page 62)

Supporting our

customers

Support our customers in

their transition to net zero

and a sustainable future

Sustainable ﬁnance and investment

provided and facilitated ($bn)

$210.7bn cumulative progress since 2020 (for further breakdown

see page58)

Unlocking new climate

solutions

Help transform

sustainable infrastructure

into a global asset class,

and create a pipeline of

bankable projects

Natural capital investment Climate Asset Management, which forms part of our goal to unlock

new climate solutions, received commitments of over $650m for its

two strategies: the Natural Capital Strategy and the Nature Based

Carbon Strategy (for further details of our approach to responsible

investment, see page 60)

Climate technology investment Achieved our initial goal to fund $100m to climate technology

companies, and subsequently raised our target to $250m (see page 60)

Philanthropic investment to climate

innovation ventures, renewable energy,

and nature-based solutions

Committed $95.8m to our NGO partners since 2020, as part of the

Climate Solutions Partnership (see page 84)

1 For further details of our approach and methodology, see our

Financed Emissions – Approach and Methodology Update

at www.hsbc.com/who-we-are/

esg-and-responsible-business/esg-reporting-centre.

2 Our disclosures for our 2019 emissions for our oil and gas, and power and utilities sectors have been revised. For further details, see page 55.

3 Our reported scope 3 greenhouse gas emissions of our own operations in 2022 are related to business travel. For further details on scope 1, 2 and 3, and our progress

on greenhouse gas emissions and renewable energy targets, see page 63 and our

ESG Data Pack

at www.hsbc.com/esg. For further details of our methodology and

PwC’s limited assurance report, see www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.

4 The detailed deﬁnitions of the contributing activities for sustainable ﬁnance are available in our revised

Sustainable Finance and Investment Data Dictionary 2022

. For

this, together with our

ESG Data Pack

and PwC’s limited assurance report, see www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.

How we measure our net zero progress

TCFD

One of our strategic pillars is to support the

transition to a net zero global economy. Our

ambition is to align our ﬁnanced emissions

to the Paris Agreement goal to achieve net

zero by 2050 or sooner. The Paris Agreement

aims to limit the rise in global temperatures

to well below 2°C, preferably to 1.5°C, above

pre-industrial levels. To limit the rise in global

temperatures to 1.5°C, the global economy

would need to reach net zero greenhouse

gas emissions by 2050.

We have set interim 2030 targets for on-

balance sheet ﬁnanced emissions for eight

sectors. These include six sectors for which we

have reported 2019 and 2020 emissions: oil

and gas; power and utilities; cement; iron, steel

and aluminium; aviation; and automotive. We

have also set targets for thermal coal power

and thermal coal mining. We remain

committed to setting facilitated emissions

targets, and aim to continue to engage with

industry initiatives to produce a consistent

and comparable cross-industry approach.

We also recognise that we require enhanced

capabilities and new sources of data, as set

out on page 47.

We continue to track our progress against our

ambition to provide and facilitate $750bn to

$1tn of sustainable ﬁnance and investment by

2030, aligned to our published data dictionary,

and our ambition to achieve net zero in our

own operations and supply chain by 2030. We

also recognise that green ﬁnance taxonomies

are not consistent globally, and evolving

taxonomies and practices could result in

revisions in our sustainable ﬁnance reporting

going forward.

In the year ahead we plan to set interim targets

for ﬁnanced emissions across additional

sectors and will continue our transformation

programme to embed the climate transition

into our core business and risk processes. We

will continue to work on our climate transition

plan, which will bring together – in one place

– our ﬁnanced emissions targets and climate

strategy, with how we plan to embed this into

our processes, infrastructure, governance and

engagement. We plan to publish this in 2023,

and update on progress annually thereafter.

We acknowledge this is a journey and

recognise that regular reassessment will be

needed to take into account climate scenarios,

better data and revisions in reporting

standards, as well as to reﬂect real world

developments and trends. Our modelling

inputs and assumptions will be impacted over

time by the evolution of external parameters,

such as policy and regulatory changes across

our markets, technology innovation uptake,

and macroeconomic events beyond our

control. As a result of this, certain metrics and

targets may need to be revised. In the following

table, we set out our metrics and indicators

and assess our progress against them.

For further details of our approach to

measuring ﬁnanced emissions, including

scope, methodology, assumptions and

limitations, see page 50.

18 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report | ESG overview

Strategic report

Responsible business culture

We have the responsibility to help 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 dierence, takes

responsibility and seeks dierent perspectives

for the overall beneﬁt of our customers.

At times our colleagues may need to speak

up about behaviours in the workplace. We

encourage colleagues to speak to their line

manager in the ﬁrst instance, and our annual

employee Snapshot survey showed that

84% of colleagues have trust in their direct

manager. 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).

We promote an environment where our

colleagues can expect to be treated with

dignity and respect. We are an organisation

that acts where we ﬁnd behaviours that fall

short. Our index measuring colleagues’

conﬁdence in speaking up increased by

1 percentage point to 76% in 2022,

signiﬁcantly above the industry benchmark.

We aspire to be an organisation that is

representative of the communities which

we serve. To help achieve this, we have set

commitments on the gender and ethnic

diversity of our senior leadership.

We have committed to achieving a target of

35% of senior leadership roles held by women

(classiﬁed as those at band 3 and above in our

global career band structure) by 2025. We

remain on track, having achieved 33.3%

in 2022.

In July 2020, we set out our early global

ethnicity commitments to double the number

of Black employees in senior leadership roles.

To date we have achieved a 37% increase

through leadership development, inclusive

hiring practices and developing the next

generation of high-performing talent. We have

made good progress, but we know there is

more to be done.

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.

As our self-disclosures improve, we can use

this data to develop market-speciﬁc goals that

are connected to the communities we serve.

All employees

52%

48%

Senior leadership

33%

67%

Holdings Board

33%

67%

Male

Female

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 of 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 74.

Social matters

We have a responsibility to invest in the

long-term prosperity of the communities

where we operate. We aim to provide people

with the skills and knowledge needed to thrive

in the post-pandemic environment, and

through the transition to a sustainable future.

For this reason, we focus our support on

programmes that help develop employability

and ﬁnancial capability. We also support

climate solutions and innovation, and

contribute to disaster relief when needed.

For further details of our programmes,

see the ‘Communities’ section of the ESG

review on page 83.

Human rights

Our commitment to respecting human rights,

principally as they apply to our employees, our

suppliers and through our ﬁnancial services

lending and investment, 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. For further

details, see the ‘Human rights’ section of the

ESG review on page 87.

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. We

set a high standard globally in our global

anti-bribery and corruption policy, which

also focuses on the spirit of relevant laws

and regulations to help 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 46.

Non-ﬁnancial information statement

This section primarily covers our non-

ﬁnancial information as required by the

regulations. Other related information can

be found as follows:

For further details of our key performance

indicators, see page 1.

For further details of our business model,

see page 4.

For further details of our principal risks and

how they are managed, see pages 38 to 41.

Equipping our colleagues with sustainability skills

We are developing a range of sustainability-related resources and initiatives to help equip our

colleagues with the skills to be able to support our net zero ambition. We expanded mandatory

training that educates all colleagues on our approach to sustainability. In October, we launched

the Sustainability Academy to equip speciﬁc colleagues with key skills to improve their

understanding of topics ranging from climate change to biodiversity. We launched an ESG-

themed recognition campaign through the ‘At Our Best’ platform that encouraged colleagues to

recognise each other’s ESG contributions. The campaign was well supported with nearly 200,000

unique recognitions made, an increase of 50% on the previous year’s Spotlight campaign.

For further details on the Sustainability Academy, see page 82.

HSBC Holdings plc Annual Report and Accounts 2022 19

ESG overview

The Board is committed to eective engagement with all our

stakeholders and seeks to understand their interests and the

impacts on them when making decisions.

Section 172 (1) statement

Board decision making and

engagement with stakeholders

This section, from pages 20 to 23 forms

our section 172(1) 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.

The Board understands its fundamental

role in formulating and overseeing the Group’s

strategy to achieve long-term success and

fulﬁl its purpose of opening up a world of

opportunity. Every scheduled Board meeting

features the Group’s strategy as an item of

discussion. When taking principal decisions,

the Directors remain mindful that the matter

for consideration should be aligned to one of

the four strategic pillars. For further details

of our purpose, values and strategy, see

pages 4 and 11 to 13.

The Board, together with senior management,

have given high priority to the format and

content of papers presented to the Board and

its committees for their consideration. The

Group Chief Executive and the Group

Chairman promote best governance practice

by requiring that materials contain appropriate

information to allow Directors to take informed

decisions in keeping with their duties. The

Corporate Governance and Secretariat team

supports the provision of relevant information

by providing governance guidance and

direction regarding the key areas for

consideration in relation to section 172 factors

in order to help the Directors to understand the

likely consequences of their decisions

long term.

The Group Chief Executive’s regular report

to the Board provides insights into key

stakeholder sentiments by highlighting the

interactions he has held with customers,

regulators, employees and other stakeholders,

and the importance of – and learnings from

– these engagements. This informs the Board as

to how the Group fosters its relationships with

stakeholders and how the Group’s business

aects the environment and the communities

it serves. Directors also participate in a variety

of stakeholder engagement events, which

support their understanding of key issues and

challenges, which can then be factored into

future decision making.

The Board recognises that to promote the

Group’s success, the right culture must exist

throughout the organisation, be clearly

understood and be consistently applied. This is

supported by HSBC’s values, which help us

succeed together by connecting, collaborating

and acting with a shared purpose. Each Board

meeting begins with a ‘cultural moment’,

which includes observations of behaviours

within the Group aligned to our purpose and

values. The Board and its committees also

receive updates on conduct issues and any

consequences for stakeholders at its meetings,

in particular from the Group Chief Risk and

Compliance Ocer and Group Human

Resources Ocer. The Group’s refreshed

conduct approach, approved in 2021, also

helps to support the consistent application of

conduct principles across the organisation,

acknowledging the importance of maintaining

a good reputation for high standards of

business conduct. For further details on

the Board’s oversight of culture, see the

‘Corporate governance report’ on page 255.

Stakeholder engagement and key considerations for the Board

The Board continued to focus on its

engagement with our key stakeholders,

acknowledging that this engagement is core

to being a responsible business and furthers

the fulﬁlment of our strategy. In discharging

their responsibilities, the Directors sought to

understand, and have regard to, the interests

and priorities of the Group’s key stakeholders,

including in relation to material decisions that

were taken by the Board during the course of

the year.

Virtual and physical meetings

During 2022, the Board was able to resume

its active engagement with stakeholders in

person following two years of Covid-19-related

restrictions. The Board met physically in

several international locations, where it was

able to carry out engagements with a wide

range of stakeholders. For further details of

how we engaged with our stakeholders,

see pages 21 and 253.

We hosted our second hybrid AGM and

engaged directly with our investors leading

up to and during the event. The Informal

Shareholders’ Meeting in Hong Kong also

resumed for the ﬁrst time since 2019 and

attracted hundreds of shareholders to attend in

person to receive an update on the Group’s

strategy and discuss the latest ﬁnancial

performance with the Group Chairman, the

Group Chief Executive and the Group Chief

Financial Ocer. We are focused on treating

our shareholders fairly, by having a consistent

approach to engagement and communication

with them, and this approach is demonstrated

by our refreshed shareholder communication

policy. Such a policy helps to support the

Board to act fairly between members of the

company.

Doing business responsibly

Maintaining a transparent and trusting

relationship with our regulators remains key

to helping us ensure that we do business

responsibly and that we are able to respond

to challenges appropriately. In addition to

continuous assessment meetings with the UK

regulator (including with Board committee

chairs), the Group Chairman, the Group Chief

Executive and the Group Chief Financial Ocer

met with our regulators in the UK and Hong

Kong on a regular basis. These included

meetings in connection with our recovery and

resolution planning, which involved several

Board members engaging directly with the UK

regulator. The Group Chairman and the Group

Chief Executive also met regularly with

government ocials globally to continue to

foster strong international relations. In addition,

certain Board members also continued to be

actively involved in climate initiatives and

attend global events such as the Group Chief

Executive’s attendance at the COP27 Summit

in Egypt.

During Board meetings, the Directors

continued to balance discussions on the

Group’s performance, emerging risks and

duties to shareholders, while remaining

conscious of responsibilities to support

communities and help customers. Feedback

from – and engagement with – stakeholders

helps inform the Board on the execution of its

responsibilities.

On pages 22 and 23, we set out four

examples that demonstrate how the Board

made certain decisions while considering

stakeholders, in accordance with the

Directors’ section 172 duties, and how the

decisions support or accelerate the delivery

of the Group’s strategy.

20 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report

Stakeholder engagement key events in 2022

Stakeholders Engagement Impact

Customers

We recognise that the greater

our understanding of our

customers’ needs, the better

we can help support them to

achieve their ﬁnancial aims

and succeed in our purpose

and strategy.

– Engagement events with customers ranging from small

businesses to multinational companies, in key markets.

– Meetings with business customers in key industries to

discuss plans regarding the transition to net zero.

– Board reporting on retail customer surveys including

net promoter scores and millennial retail customers’

satisfaction.

– By formally and informally engaging with customers

and potential customers, the Board can form a deeper

understanding of why clients do business with us and

how they contribute to achieving our purpose

and ambition.

– Meetings with clients help the Board to understand how

the Group can work to achieve its commitment to

transition to net zero.

– Customer surveys provide insights into how our

customers perceive our services and inform how

we can drive meaningful improvements.

Employees

We want to continue to be a

positive place to work and build

careers, with the success of the

Group’s strategy dependent

upon having motivated people

with the expertise and skills

required to deliver it.

– Employee events, including leadership forums,

webcasts, townhalls, global jams, o-sites and

employee Exchanges.

– Extensive interaction with employee resource groups

across multiple events in many jurisdictions.

– Several dedicated talent sessions, including with women

and other diverse talent pools.

– Next Gen gatherings for graduates, including dedicated

focus group interactive sessions.

– Meeting with colleagues across jurisdictions allowed

the Board to hear directly the employee voice on

important issues.

– These interactions helped inform the Board when it

considers people matters such as career development,

policies and business operations, including technology

needs. Engagement also helps the Board to

contextualise employee Snapshot survey results.

– The appointment of a dedicated workforce engagement

non-executive Director has created a dierent way for

the employee voice to be heard and demonstrates the

Board’s commitment to understanding what matters to

our people.

Investors

We seek to understand investor

needs and sentiment through

ongoing dialogue and a variety

of engagements with both retail

and institutional investors.

– Numerous meetings with analysts and several

roadshows to discuss interim and year-end results.

– Remuneration Committee Chair investor meetings with

top investors and proxy advisers.

– Annual retail investor events such as the AGM in the UK

and the Informal Shareholders’ Meeting in Hong Kong.

– Regular and ad hoc interactions with institutional and

retail investors allow for updates on strategy delivery,

including the transition to net zero. This in turn helps the

Board understand investor sentiment on material matters

throughout the year.

– Such engagements also serve to inform investors of key

developments so that they are well informed and able

to respond appropriately when signiﬁcant events are

communicated.

Communities

We seek to play an important

role in supporting the

communities in which we

operate through our corporate

social responsibility and broader

engagement activities.

– Forums and summits supporting ESG causes, such as

the Glasgow Financial Alliance for Net Zero, the Financial

Services Task Force of the Sustainable Markets Initiative

and the World Economic Forum.

– Visits to local community education facilities in the

UK and Dubai to promote initiatives and collaboration,

including a ‘future coders’ event and a local

sustainability project.

– The Directors’ participation at a range of community

initiatives helps them to experience ﬁrst-hand the

positive eect the Group has on local communities

as an employer, sponsor, collaborator and supporter.

– The Board recognises that the Group can inﬂuence

meaningful change in many ways, including by

educating, encouraging broader thinking, helping to

shape policy and formulating worldwide solutions,

creating safe environments and achieving net

zero ambitions.

Regulators and

governments

Maintaining constructive

dialogue and relations with

the relevant authorities in the

markets in which we operate

helps support the eective

functioning of economies

globally and the achievement

of our strategic aims.

– Various meetings across our key markets with

governmental ocials, including leaders, ministers

and ambassadors.

– Regular meetings with our many regulators, including

in the UK and Hong Kong, and elsewhere.

– Meetings with non-government bodies and

organisations including the European Central Bank,

Bank of England, Monetary Authority of Singapore,

State Bank of India, Public Investment Fund and the

Bank for International Settlements.

– Frequent and varied engagement between the Board

and government ocials and regulators provides an

opportunity for an open, two-way communication. It is

also critical in ensuring that the Board understands and

meets its regulatory obligations.

– Meeting with international ocials allows the Board to

communicate the Group’s strategy, perspectives and

insights while ensuring that Directors remain abreast of

political and regulatory trends. It also allows the Board to

share perspectives on standards of best practice across

industries and regions.

Suppliers

We engage with suppliers,

which helps us operate our

business eectively and

execute our strategy.

– Regular reports and updates from the Group Chief

Operating Ocer on supplier matters.

– Meetings with existing and prospective auditors

as part of the audit tender process.

– A meeting with customers (who are also our suppliers)

in the Middle East.

– Interactive sessions with catering and real estate

suppliers including on their net zero plans.

– Meeting with our suppliers helps Directors understand

our suppliers’ challenges and how we can work

collaboratively to succeed, particularly in achieving our

net zero ambitions.

– It is key for the Board to understand the Group’s supply

chain and how suppliers’ operations are aligned to our

purpose and values.

– This supports the Board when approving its Modern

Slavery Act Statement.

HSBC Holdings plc Annual Report and Accounts 2022 21

Board decision making and engagement with stakeholders

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. The following examples demonstrate

how these Board decisions, taken in 2022, align to each of our four strategic pillars.

The Board, together with senior management,

keep under review potential inorganic

opportunities to help accelerate the delivery of

our strategy and deliver value for shareholders.

In 2022, to further the Group’s strategy and

ambition, and following a strategic review, the

Board took the decision for the Group to sell its

Canadian business to Royal Bank of Canada.

The review considered HSBC Canada’s

relatively low market share and whether it

was in the Group’s best interests to invest

in HSBC Canada’s expansion and growth in

the context of opportunities in other markets.

It was concluded that the best course of

strategic action was for the Group to sell HSBC

Canada. The Board’s decision to approve the

sale was aligned to the Group’s strategic pillar

of focus on our strengths.

The implications of the transaction for several

key stakeholders were considered and many

stakeholders were engaged with, including

Canadian government ocials and regulators

in both the UK and Canada. Financial and

legal advisers were engaged throughout the

process to provide specialist advice to help

inform the Board’s understanding and allow

it to take a decision. Transaction terms were

carefully negotiated to provide certainty for

the Group’s employees in Canada. The Board

also acknowledged that completion of the

transaction would require engagement with

additional key stakeholders, including

employees, customers and suppliers.

The Board considered there to be a number of

beneﬁts to the disposal, including simplifying

the Group structure and helping to further the

aim of becoming a market leader in wealth

management, with a particular focus on Asia.

In addition, the transaction would unlock

signiﬁcant value for the Group and realise a

good return for our shareholders.

For the reasons set out above, in taking this

decision, the 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 long-term

success of the company for the beneﬁt of its

members as a whole.

Our strategic pillar, energise for growth,

includes a commitment to inspire a dynamic

culture where the best talent want to work.

Throughout the Covid-19 pandemic, we saw

how we could continue to deliver our work

commitments through a hybrid working model

and the value that hybrid working brings for

our clients and colleagues. Our workstyle

approach is helping us to attract and retain

diverse talent, while enabling us to reduce

our oce footprint.

We want our head oce to connect

people, drive collaboration, foster alternative

workstyles and promote well-being. With

this in mind, in September 2022, the Board

considered a proposal to review the location

of our global headquarters. While we are

committed to remain in London, the success

of hybrid working has meant our workspace

requirements are changing, creating the

opportunity to drive a new real estate model

ﬁt for a modern bank.

The views from several stakeholders helped

to shape this key decision. Employee surveys

provided evidence to support hybrid working,

which informed the decision to review the

global headquarters location. The Board

recognised the importance of taking this

decision early enough to provide sucient

notice to relevant suppliers, including the

aected landlords, to best prepare for any

changes. Our UK regulators were also

engaged with in good time to ensure that

they were informed of our intentions to

stay in London.

An important Board consideration factored

into the new oce environment review

included that it should be more digitally

enabled, so as to help us work smarter

and develop future-ready skills. The Board

also acknowledged that the new oce

environment should be designed in a

sustainable way to help meet our net zero

commitments. In taking this decision, the

Board focused on its strategic aspiration to

have a more ﬂexible and dynamic workspace

that meets the needs of everyone. The Board

took into account the section 172 factors along

with the relevant stakeholder engagement,

which informed its decision to commence the

review with a view to best promote the

success of the company for the long term.

Focus on our strengths

The Board undertook a

strategic review of the

Group’s Canada business

in support of the Group’s

strategic aims.

Energise for growth

The Board approved

a review of its

headquarters’ oce

location in London to

support its employees

in creating a more

dynamic and agile

environment in which

to work.

22 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report | Board decision making and engagement with stakeholders

Strategic report

The Board has remained focused on

its commitments, following the climate

change resolution passed at the 2021 AGM,

to support our customers on their transitions

to a low-carbon future.

In 2022, the Board approved an update to the

thermal coal phase-out policy. It also approved

the publication of an updated energy policy,

which was considered well aligned to our

strategic approach to transition to net zero.

The energy policy seeks to balance three

objectives: driving down global greenhouse

gas emissions; the need to enable an orderly

transition that builds resilience in the longer

term; and the need to support a just and

aordable transition. In developing this policy,

the Board was informed of the engagement

undertaken with several internal and external

stakeholders including: governments, major

clients, large institutional investors and leading

scientiﬁc and international bodies and industry

participants. The Board took into consideration

the active role we are seeking to play in

supporting and accelerating the energy

transition in the markets we serve and the

crucial importance of engaging with our

customers on their own transition plans. The

Board also considered the long-term impacts

of the policy on its stakeholders including the

need to balance the responsibility of

facilitating a just transition, helping to ensure

continued access to aordable energy sources

in the markets we serve, and supporting an

accelerated transition.

Since publication of the energy policy,

stakeholder engagement has continued,

including with key institutional investors to

discuss 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 begin the

implementation of the policy.

In taking the decision to approve the energy

policy and in overseeing the Group’s climate

commitments, the Board gave due regard

to the section 172 factors, in particular the

impact of the decision on the environment

and communities the company serves,

our continuing valuable relationships with

customers and investors, and the long-term

success of the company.

The Group’s digital strategy aims to ensure

that ways of working for colleagues, as

well as the experience of our customers,

are technologically advanced and ecient.

Digitise at scale means we are focused on

creating and delivering fast, easy, digital

customer experiences by partnering with

technology innovators and working together

to enable new customer beneﬁts. The Board’s

oversight of our digital strategies and policies

is important given that these are critical in

helping to ensure the Group’s resiliency and

customer security.

The Group Chief Executive regularly reports

to the Board on his engagements with – and

feedback from – customers on the Group’s

digital strategy progress. The Board has

engaged with many customers over the past

year, and is focused on ensuring that

our customers’ experiences meet their

expectations. Customer survey insights

throughout 2022 have been used to deepen

understanding of the digital landscape

challenges customers face, and to help drive

solutions. Consequently, the Group has led

several key digital customer deliveries in 2022,

with approximately 49% of customers being

mobile active and around 48% of retail sales

being performed through digital channels.

Delivery of these new initiatives improved

customer experiences across our global

markets in 2022, and supported the Group’s

eorts to execute at speed and automate at

scale – a cornerstone of our strategy.

The Board also receives updates from the

Group Chief Operating Ocer on the various

ways the Group is furthering its digital

strategy. Vision 27, which is our long-term

technology strategy, featured regularly on

the Board agenda and was launched at the

beginning of 2022. Its aim is to help transform

HSBC into a digital-ﬁrst bank over the next ﬁve

years. One of the Vision 27 initiatives is the

development of a digital technology map,

which is a bespoke tool developed to capture

all of the Group’s applications and systems

and provide insight and data points on these

including usage by businesses, regions and

entities. The Board and the Technology

Governance Working Group have also

challenged management on the prioritisation

of digital initiatives, as well as the demise of

legacy and non-strategic applications, as part

of eorts to streamline the large and complex

technology architecture. This is a key focus

in helping to improve the resiliency and

eciency of our systems for colleagues

and customers.

In taking these decisions, whether by the

Board directly, or the business through its

delegated authority, the digital needs of

customers and employees are taken into

account in order to create long-term success

of the company and become a truly data-led

organisation.

Transition to net zero

The Board remained

active and directly

engaged on the Group’s

response to the climate

change agenda,

agreeing an updated

energy policy aligned to

our ambition to support

the transition to a net

zero global economy.

Digitise at scale

The Group is committed

to creating and delivering

on fast, easy, digital

customer experiences.

HSBC Holdings plc Annual Report and Accounts 2022 23

Board decision making and engagement with stakeholders

Our remuneration

approach

Our remuneration policy supports the achievement of our strategic objectives

by aligning reward with our long-term sustainable performance.

Remuneration

We have refreshed our reward strategy and

proposition for the workforce in response to

the new or elevated challenges we are facing

as we move beyond the Covid-19 pandemic,

including the cost of living pressures many

of our colleagues are experiencing. The

commitments we make to colleagues are

critical to support us in energising for growth

and delivering sustainable performance.

For further details of what we did during 2022

to help ensure remuneration outcomes were

consistent with this approach, see page 292.

Single ﬁgure of remuneration

Noel Quinn Ewen Stevenson

(£000) 2022 2021 2022 2021

Base salary 1,329 1,288 775 751

Fixed pay allowance 1,700 1,700 1,085 1,062

Cash in lieu of pension 133 129 77 75

Taxable beneﬁts 119 95 7 3

Non-taxable beneﬁts 86 71 50 42

Total ﬁxed 3,367 3,283 1,994 1,933

Annual incentive 2,16 4 1,590 1,091 978

Notional returns 31 22 — —

Replacement award — — 1,180 754

Long-term incentive — — 436 —

Total variable 2,195 1,612 2,707 1,732

Total ﬁxed and variable 5,562 4,895 4,701 3,665

Remuneration for our

executive Directors

Notes and commentary related to this table are provided in the Directors’ remuneration report on page 284.

Our current remuneration policy for executive

Directors was approved by 96% of our

shareholders at our AGM in 2022 and will

apply for a maximum of three years until the

AGM in 2025. We made no changes to the

remuneration structure or to the maximum

opportunity payable for each element of

remuneration. Details of the policy can be

found on pages 257 to 265 of our previous

Annual Report and Accounts 2021

The table below shows the amount our

executive Directors earned in 2022. For details

of Directors’ pay and performance for 2022, see

the Directors’ remuneration report on page 282.

24 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report

Variable pay pool

($m)

2019

3,495

3,359

2022

2021

The Group Remuneration Committee

determined an overall variable pay

pool for Group employees of $3,359m

(2021: $3,495m). This followed a review

of our performance against ﬁnancial and

non-ﬁnancial metrics set out in the Group

risk framework. The Group Remuneration

Committee considered our 2022 ﬁnancial

performance, with a 17% increase in adjusted

proﬁt before tax, return on average tangible

equity of 9.9% and costs slightly up year on

year. The Group Remuneration Committee

also considered the external environment, the

challenging economic outlook and projected

outcomes across the market to ensure we

remain competitive to attract and retain talent.

The distribution of the pool was dierentiated

by business performance. Overall year-on-year

variable pay outcomes were strongest in

CMB, followed by WPB but down in GBM

to reﬂect relative performance. There

was robust dierentiation for individual

performance so that our highest performers

received meaningful variable pay increases

compared with the previous year. We have

protected variable pay for junior colleagues,

which is up on average, recognising the

inﬂationary and cost of living challenges

experienced across most of our markets.

In determining 2023 ﬁxed pay increases, we

considered the impact of inﬂation in each

country where we operate. Increases were

targeted towards more junior and middle

management colleagues as ﬁxed pay is a

larger proportion of their overall pay. Across

the Group, there was an overall increase of

5.5% in ﬁxed pay, compared with 3.6% for

2022. The level of increases varies by country,

depending on the economic situation and

individual roles. There were no ﬁxed pay

increases for most of our senior leaders,

including our executive Directors.

For details of how the Group Remuneration

Committee sets the pool, see page 276.

Remuneration for our colleagues

Supporting our colleagues during 2022

We know that many colleagues around the world are facing dierent pressures, and we are

committed to supporting them, adapting our approach according to the market.

For colleagues who are still signiﬁcantly impacted by the pandemic, for example in mainland

China and Hong Kong, we provided care packages and increased well-being sessions. In

mainland China, we also delivered food essentials and provided inconvenience allowances.

Separately, in Argentina and Türkiye, we made regular adjustments to ﬁxed pay given the

continuing inﬂationary pressures. In Sri Lanka, we made one-o payments and ﬁxed pay

increases during the year to address high inﬂation. In the UK, we provided almost 17,000

junior colleagues with a one-o payment of £1,500 to help with energy cost pressures. We

have continued to provide a wide range of resources to all our colleagues globally, including

wider support on ﬁnancial guidance, employee assistance programmes and access to

hardship funds.

For further details of how we are supporting colleague well-being, see page 80.

Remuneration for our executive Directors continued

Variable pay for our executive Directors is

driven primarily by achievement against

performance scorecards, with measures

and targets set by the Group Remuneration

Committee at the start of the year to align pay

outcomes with the delivery of our strategy and

plan. After the formulaic scorecard outcome

was determined, the Group Remuneration

Committee applied a downward adjustment

of 5% and 15% to Noel Quinn’s and Ewen

Stevenson’s 2022 annual incentive outcomes,

respectively, to take into account speciﬁc risk

matters around capital management in the

year. Further details are provided in the

Directors’ remuneration report.

Executive Directors’ annual incentive

scorecard outcome

(% of maximum opportunity)

Group Chief Executive 75.35%

Group Chief Financial Ocer 65.15%

HSBC Holdings plc Annual Report and Accounts 2022 25

Remuneration

In assessing the Group’s ﬁnancial performance, management uses a range

of ﬁnancial measures that focus on the delivery of sustainable returns for

our shareholders and maintaining our ﬁnancial strength.

Group ﬁnancial targets

Return on average tangible equity

9.9%

(2021: 8.3%)

In 2022, RoTE was 9.9%, an increase of

1.6 percentage points from 2021.

Despite increasing macroeconomic uncertainty,

the impact of our growth and transformation

programmes, together with the positive revenue

outlook, give us conﬁdence in achieving our

RoTE target of at least 12% for 2023 onwards.

Adjusted operating expenses

$30.5bn

(2021: $ 30.1bn)

During 2022, we continued to demonstrate

strong cost discipline, despite inﬂationary

pressures. We achieved 1% growth in adjusted

operating expenses compared with 2021,

relative to our target of broadly stable adjusted

operating expenses.

Our cost to achieve programme concluded on

31 December 2022. Cumulatively, since the start

of the programme in 2020, we have realised gross

savings of $5.6bn, with cost to achieve spend

of $6.5bn. We expect approximately $1bn of

additional gross cost saves from this programme

in 2023, due to actions taken in 2022.

We retain our focus on cost discipline and will

target 2023 adjusted cost growth of approximately

3% on an IFRS 4 basis. This includes up to $300m

of additional severance costs in 2023, which we

expect to generate further eciencies into 2024.

There may also be an incremental adverse

impact from retranslating the 2022 results of

hyperinﬂationary economies at constant currency.

Gross risk-weighted asset reductions

$128bn

Since the start of the programme.

At 31 December 2022, the Group had delivered

cumulative gross RWA reductions of $128bn,

relative to our target to achieve gross RWA

reductions of $110bn or more by the end of

2022. This included accelerated saves of

$9.6bn made in 2019. This programme

concluded on 31 December 2022.

At 31 December 2022, our common equity

tier 1 (‘CET1’) capital ratio was 14.2%, down

1.6 percentage points from 31 December 2021.

Having fallen below 14% during 2022, we are

back within our medium-term CET1 target

range of 14% to 14.5%. We intend to continue

to manage capital eciently, returning excess

capital to shareholders where appropriate.

The Board has approved a second interim

dividend for 2022 of $0.23 per ordinary share.

The total dividend per share in 2022 of $0.32

results in a dividend payout ratio of 44%,

relative to our 2022 target range of between

40% and 55% from 2022 onwards. In

determining our dividend payout ratio for 2022,

the impairment on the planned sale of our retail

banking operations in France, the $1.8bn

impact from the recognition of a deferred tax

asset for the UK tax group and HSBC Canada’s

ﬁnancial results from the 30 June 2022 net

asset reference date are excluded from the

reported earnings per share.

We are establishing a dividend payout ratio of

50% for 2023 and 2024, excluding material

signiﬁcant items (including the planned sale

of our retail banking operations in France and

the planned sale of our banking business in

Canada), with consideration of buy-backs

brought forward to our ﬁrst quarter results in

May 2023, subject to appropriate capital levels.

We also intend to revert to paying quarterly

dividends from the ﬁrst quarter of 2023.

Subject to the completion of the sale of our

banking business in Canada, the Board’s

intention is to consider the payment of a

special dividend of $0.21 per share as a priority

use of the proceeds generated by completion

of the transaction. A decision in relation to any

potential dividend would be made following

the completion of the transaction, currently

expected in late 2023, with payment following

in early 2024. Further details in relation to

record date and other relevant information

will be published at that time. Any remaining

additional surplus capital is expected to be

allocated towards opportunities for organic

growth and investment alongside potential

share buy-backs, which would be in addition

to any existing share buy-back programme.

Capital and dividend policy

CET1 ratio

14.2%

Dividend payout ratio

44%

Financial overview

Executive summary

Financial performance in 2022 was

supported by a rise in global interest rates,

which materially improved our net interest

income, and we maintained our strong

focus on cost discipline, despite inﬂationary

pressures and continued investment. While

our revenue outlook remains positive, there

are continued risks around inﬂation and

increasing macroeconomic uncertainty in

many of the markets in which we operate.

Reported proﬁt after tax for 2022 of

$16.7bn was 13% higher, which included

an eective tax rate charge of 4.9% due

to the beneﬁt of credits related to the

recognition of deferred tax assets. Our

return on average tangible equity (‘RoTE’)

improved by 1.6 percentage points to

9.9%. Reported proﬁt before tax of

$17.5bn decreased by 7%, which included

an impairment of $2.4bn following the

reclassiﬁcation of our retail banking

operations in France to held for sale, as

well as a more normalised charge for

expected credit losses (‘ECL’), compared

with a net release in 2021. These reductions

were mitigated by the favourable impact of

higher interest rates on reported revenue

and a reduction in reported operating

expenses, primarily due to the favourable

impact of foreign currency translation

dierences.

The Group CET1 capital ratio fell

1.6 percentage points to 14.2% at

31 December 2022. In addition, customer

deposit and lending balances both fell

compared with 31 December 2021,

reﬂecting the reclassiﬁcation to held for

sale of balances, notably from our retail

banking operations in France and our

banking business in Canada, as well

as from the adverse impact of foreign

currency translation dierences.

Notwithstanding these impacts, there

was mortgage growth in the UK and

Hong Kong, which mitigated a reduction

in term lending in CMB in Hong Kong.

26 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report

Key ﬁnancial metrics

For the year ended

Reported results 2022 2021 2020

Reported proﬁt before tax ($m) 17,528 18,906 8,777

Reported proﬁt after tax ($m) 16,670 14,693 6,099

Cost eciency ratio (%) 64.4 69.9 68.3

Net interest margin (%) 1.48 1.20 1.32

Basic earnings per share ($) 0.75 0.62 0.19

Diluted earnings per share ($) 0.74 0.62 0.19

Dividend per ordinary share (in respect of the period) ($) 0.32 0.25 0.15

Dividend payout ratio (%)

44 40 79

Alternative performance measures

Adjusted proﬁt before tax ($m) 24,010 20,603 11,6 95

Adjusted cost eciency ratio (%) 55.0 64.0 62.3

Expected credit losses and other credit impairment charges (‘ECL’) as % of average

gross loans and advances to customers (%)

0.36 (0.08) 0.87

Expected credit losses and other credit impairment charges (‘ECL’) as % of average

gross loans and advances to customers, including held for sale (%)

0.35 (0.08) 0.87

Return on average ordinary shareholders’ equity (%) 8.7 7.1 2.3

Return on average tangible equity (%) 9.9 8.3 3.1

At 31 December

Balance sheet 2022 2021 2020

Total assets ($m) 2,966,530 2,957,939 2,98 4,16 4

Net loans and advances to customers ($m) 924,854 1,045,814 1,037,987

Customer accounts ($m) 1,570,303 1,710,574 1,642,780

Average interest-earning assets ($m) 2,203,639 2,209,513 2,092,900

Loans and advances to customers as % of customer accounts (%) 58.9 61.1 63.2

Total shareholders’ equity ($m) 187,4 8 4 198,250 196,443

Tangible ordinary shareholders’ equity ($m) 149,355 158,193 156,423

Net asset value per ordinary share at period end ($) 8.50 8.76 8.62

Tangible net asset value per ordinary share at period end ($) 7.57 7.8 8 7.75

Capital, leverage and liquidity

Common equity tier 1 capital ratio (%)

14.2 15.8 15.9

Risk-weighted assets ($m)

3,4

839,720 838,263 857,520

Total capital ratio (%)

3,4

19.3 21.2 21.5

Leverage ratio (%)

3,4

5.8 5.2 5.5

High-quality liquid assets (liquidity value) ($bn)

4,5

647 688 678

Liquidity coverage ratio (%)

4,5

132 139 139

Net stable funding ratio (%)

4,5

136 N/A N/A

Share count

Period end basic number of $0.50 ordinary shares outstanding (millions) 19,739 20,073 20,18 4

Period end basic number of $0.50 ordinary shares outstanding and dilutive potential

ordinary shares (millions)

19,876 20,189 20,272

Average basic number of $0.50 ordinary shares outstanding (millions) 19,849 20,197 20,16 9

For reconciliations of our reported results to an adjusted basis, including lists of signiﬁcant items, see page 109. Deﬁnitions and calculations of other alternative

performance measures are included in our ‘Reconciliation of alternative performance measures’ on page 128.

1 Dividend per share, in respect of the period, as a percentage of earnings per share adjusted for certain items (recognition of certain deferred tax assets: $0.11 reduction

in EPS; planned sales of the retail banking operations in France and banking business in Canada: $0.09 increase in EPS). No items were adjusted in 2021 or 2020.

2 Includes average gross loans and advances to customers reported within ‘assets held for sale’.

3 Unless otherwise stated, regulatory capital ratios and requirements are based on the transitional arrangements of the Capital Requirements Regulation in force at the

time. These include the regulatory transitional arrangements for IFRS 9 ‘Financial Instruments’, which are explained further on page 208. Leverage ratios are reported

based on the disclosure rules in force at that time, and include claims on central banks. Current period leverage metrics exclude central bank claims in accordance with

the UK leverage rules that were implemented on 1 January 2022. References to EU regulations and directives (including technical standards) should, as applicable, be

read as references to the UK’s version of such regulation or directive, as onshored into UK law under the European Union (Withdrawal) Act 2018, and as may be

subsequently amended under UK law.

4 Regulatory numbers and ratios are as presented at the date of reporting. Small changes may exist between these numbers and ratios and those subsequently

submitted in regulatory ﬁlings. Where dierences are signiﬁcant, we will restate in subsequent periods.

5 The liquidity coverage ratio is based on the average value of the preceding 12 months. The net stable funding ratio is based on the average value of four preceding

quarters. The LCR in December 2021 has been restated for consistency. We have not restated the prior periods for NSFR as no comparatives are available.

HSBC Holdings plc Annual Report and Accounts 2022 27

Financial overview

These increases were partly oset by an

impairment of $2.4bn recognised following the

reclassiﬁcation of our retail banking operations

in France as held for sale on 30 September

2022, as well as losses of $0.4bn associated

with the planned sales of our branch

operations in Greece and our business in

Russia. Reported revenue included an adverse

impact of foreign currency translation

dierences of $3.1bn, and unfavourable market

impacts in life insurance manufacturing in

WPB of $1.0bn, compared with favourable

movements in 2021 of $504m. There was also

a decrease in Markets Treasury revenue, which

is allocated to our global businesses, due to

lower net interest income from the impact of

rising interest rates on our funding costs and

ﬂattening yield curves across all regions, as

well as from lower disposal gains related to

risk management activities.

Lower net fee income reﬂected a reduction

in investment distribution income in WPB

due to muted customer sentiment resulting

in reduced activity in equity markets, and

Covid-19-related restrictions in Hong Kong in

early 2022, which resulted in the temporary

closure of parts of our branch network. Since

then, restrictions have substantially been

eased. Additionally in GBM, there were lower

fees in Capital Markets and Advisory, in line

with the reduced global fee pool. In Principal

Investments, lower revaluation gains resulted

in a reduction in revenue relative to 2021.

Reported ECL

Reported ECL were a net charge of $3.6bn,

which included stage 3 charges of $2.2bn,

in part relating to the commercial real estate

sector in mainland China. We also recognised

additional stage 1 and stage 2 allowances

to reﬂect heightened levels of economic

uncertainty, inﬂation, supply chain risks and

rising interest rates, in part oset by the release

of most of our remaining Covid-19-related

allowances. This compared with a net release

of $0.9bn in 2021 relating to Covid-19-related

allowances previously built up in 2020.

For further details of the calculation of ECL,

see pages 153 to 162.

Reported results

Reported proﬁt

Reported proﬁt after tax of $16.7bn was

$2.0bn or 13% higher than in 2021, and

included a $2.2bn credit arising from the

recognition of a deferred tax asset from

historical tax losses in HSBC Holdings. It

also beneﬁted from other deferred tax asset

and uncertain tax position reassessments,

resulting in an eective tax rate of 5%.

Reported proﬁt before tax of $17.5bn was

$1.4bn or 7% lower than in 2021. The decrease

reﬂected a net ECL charge of $3.6bn in 2022,

which included stage 3 charges of $2.2bn,

in part relating to the commercial real estate

sector in mainland China, as well as from

the impact of heightened economic

uncertainty, inﬂation and rising interest rates.

This compared with a net release of $0.9bn in

2021. This adverse movement in reported ECL

was partly oset by higher reported revenue

and lower reported operating expenses.

The increase in reported revenue primarily

reﬂected higher net interest income from the

positive impact of interest rate rises on all of

our global businesses. This was partly oset

by an impairment of $2.4bn recognised

following the reclassiﬁcation of our retail

banking operations in France as held for sale

on 30 September 2022, an adverse impact of

foreign currency translation dierences and

unfavourable market impacts in life insurance

manufacturing in WPB. Lower reported

operating expenses primarily reﬂected

the favourable impact of foreign currency

translation dierences, while restructuring

and other related costs increased.

Eective 1 January 2023, IFRS 17 ‘Insurance

Contracts’ sets the requirements that an entity

should apply in accounting for insurance

contracts it issues and reinsurance contracts it

holds. IFRS 17 replaces IFRS 4 and could have

a signiﬁcant adverse impact on the proﬁtability

of our insurance business on transition. For

further details of the impact of IFRS 17 on

the results of our insurance operations,

see page 335.

Reported revenue

Reported revenue of $51.7bn was $2.2bn

or 4% higher than in 2021, primarily due to

an increase in net interest income from the

positive impact of interest rate rises, mainly

in Global Payments Solutions (‘GPS’) in CMB

and GBM, and in Personal Banking in WPB.

In GBM, Global Foreign Exchange revenue

beneﬁted from increased client activity due to

elevated levels of market volatility. In addition,

there were strong sales in our life insurance

manufacturing business in WPB, with growth

in the value of new business, while insurance

revenue also included a gain following a

pricing update for our policyholders‘ funds

held on deposit with us in Hong Kong to

reﬂect the cost to provide this service.

Reported operating expenses

Reported operating expenses of $33.3bn

were $1.3bn or 4% lower than in 2021,

primarily as foreign currency translation

dierences resulted in a favourable impact of

$2.2bn, as well as from the non-recurrence of

a 2021 goodwill impairment of $0.6bn related

to our WPB business in Latin America.

Reported operating expenses also reﬂected

the impact of ongoing cost discipline across

the Group. This helped mitigate the cost

of increased investment in technology of

$0.5bn, which included investments in our

digital capabilities, as well as the impact of

business volume growth and inﬂation.

Restructuring and other related costs

increased by $1.0bn.

Reported share of proﬁt from associates

and joint ventures

Reported share of proﬁt from associates

and joint ventures of $2.7bn was $0.3bn or

11% lower than in 2021, primarily as 2021

included a higher share of proﬁt from Business

Growth Fund (‘BGF’) due to the recovery in

asset valuations. This was partly oset by

an increase in the share of proﬁt from

The Saudi British Bank (‘SABB’).

Tax expense

Tax in 2022 was a charge of $0.9bn and

included a $2.2bn credit arising from the

recognition of a deferred tax asset from

historical tax losses in HSBC Holdings.

This was a result of improved proﬁt forecasts

for the UK tax group, which accelerated

the expected utilisation of these losses

and reduced uncertainty regarding their

recoverability. We also beneﬁted from other

deferred tax asset and uncertain tax position

reassessments during 2022. Excluding these,

the eective tax rate for 2022 was 19.2%,

which was 3.1 percentage points lower than

in 2021. The eective tax rate for 2022 was

decreased by the remeasurement of deferred

tax balances following the substantive

enactment in the ﬁrst quarter of 2022 of

legislation to reduce the rate of the UK banking

surcharge from 8% to 3% from 1April 2023.

2022 2021 2020

Reported results $m $m $m

Net operating income before change in

expected credit losses and other credit

impairment charges (‘revenue’)

51,727 49,552 50,429

Change in expected credit losses and other

credit impairment charges

(3,592) 928 (8,817)

Net operating income 48 ,135 50,480 41,612

Total operating expenses (33,330) (34,620) (34,432)

Operating proﬁt 14,805 15,860 7,18 0

Share of proﬁt in associates and joint ventures 2,723 3,046 1,597

Proﬁt before tax 17,528 18,906 8,777

Tax expense (858) (4,213) (2,678)

Proﬁt after tax 16,670 14,693 6,099

28 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report | Financial overview

Strategic report

Adjusted performance

Adjusted proﬁt before tax

Adjusted proﬁt after tax of $19.7bn was $3.4bn

or 21% higher than in 2021.

Adjusted proﬁt before tax of $24.0bn was

$3.4bn or 17% higher than in 2021, reﬂecting

higher adjusted revenue, mainly from net

interest income growth following global

interest rate rises. This increase was partly

oset by an ECL charge in 2022, compared

with a net release in 2021. The ECL charge in

2022 reﬂected stage 3 charges, as well as the

impact of heightened economic uncertainty,

inﬂation, supply chain risks and rising interest

rates. Adjusted proﬁt from associates and joint

ventures decreased, while adjusted operating

expenses increased by 1% compared with

2021, reﬂecting investment in technology

mitigated by continued cost discipline.

Adjusted revenue

Adjusted revenue of $55.3bn was $8.3bn or

18% higher than in 2021. The increase was

driven by net interest income growth of $7.7bn

following global interest rate rises, mainly in

GPS in CMB and GBM, and Personal Banking

in WPB. Global Foreign Exchange in GBM

beneﬁted from increased client activity due to

elevated levels of market volatility, and there

were strong sales in our insurance business in

WPB, with the value of new business up by

$0.2bn or 23%. In addition, insurance revenue

included a $0.3bn gain following a pricing

update for our policyholders‘ funds held on

deposit with us in Hong Kong to reﬂect the

cost to provide this service.

2022 2021 2020 2022 vs 2021

Adjusted results $m $m $m $m %

Net operating income before change in expected credit losses

and other credit impairment charges (‘revenue’)

55,345 47,020 48,848 8,325 18

Change in expected credit losses and other credit impairment charges (3,592) 754 (8,815) (4,346) >(200)

Total operating expenses (30,466) (30,104) (30,445) (362) (1)

Operating proﬁt 21,287 17,670 9,588 3,617 20

Share of proﬁt in associates and joint ventures 2,723 2,933 2,107 (210) (7)

Proﬁt before tax 24,010 20,603 11,69 5 3,407 17

Tax (4,287) (4,241) (3,274) (46) (1)

Proﬁt after tax 19,723 16,362 8,421 3,361 21

Our reported results are prepared in

accordance with IFRSs, as detailed in

the ﬁnancial statements on page 335.

We also present alternative performance

measures (non-GAAP ﬁnancial measures).

These include adjusted performance, which

we use to align internal and external reporting,

identify and quantify items management

believes to be signiﬁcant, and provide insight

into how management assesses period-on-

period performance. Alternative performance

measures are highlighted with the following

symbol:

To derive adjusted performance, we adjust for:

– the year-on-year eects of foreign currency

translation dierences; and

– the eect of signiﬁcant items that distort

year-on-year comparisons, which are

excluded to improve understanding of

the underlying trends in the business.

The results of our global businesses are

presented on an adjusted basis, which is

consistent with how we manage and assess

global business performance.

For reconciliations of our reported results to an

adjusted basis, including lists of signiﬁcant items,

see page 109. Deﬁnitions and calculations of

other alternative performance measures are

included in our ‘Reconciliation of alternative

performance measures’ on page 128.

Reconciliation of reported proﬁt before tax to adjusted proﬁt after tax

2022 2021 2020

$m $m $m

Reported proﬁt before tax 17,528 18,906 8,777

Currency translation — (1,180) (303)

Signiﬁcant items: 6,482 2,877 3,221

– customer redress programmes (39) 38 (33)

– disposals, acquisitions and investment in new

businesses

2,817 — 10

– fair value movements on ﬁnancial instruments 579 242 (264)

– impairment of goodwill and other intangibles (4) 587 1,090

– past service costs of guaranteed minimum pension

beneﬁts equalisation

— — 17

– restructuring and other related costs 3,129 2,14 3 2,078

– settlements and provisions in connection with legal and

regulatory matters

— — 12

– goodwill impairment (share of proﬁt in associates and

joint ventures)

— — 462

– currency translation on signiﬁcant items — (133) (151)

Adjusted proﬁt before tax 24,010 20,603 11,69 5

Adjusted tax charge

(4,287) (4,241) (3,274)

Adjusted proﬁt after tax 19,723 16,362 8,421

1 For a reconciliation of reported to adjusted tax charge, see page 109.

HSBC Holdings plc Annual Report and Accounts 2022 29

Financial overview

Adjusted performance continued

These increases in adjusted revenue

were partly oset by a net unfavourable

movement in market impacts in life insurance

manufacturing in WPB of $1.4bn. In addition,

lower net fee income reﬂected a reduction

in investment distribution income, as muted

customer sentiment led to reduced activity

in equity markets, and Covid-19-related

restrictions in Hong Kong in early 2022

resulted in the temporary closure of parts of

our branch network. Since then, restrictions

have substantially been eased. In GBM, there

were lower fees in Capital Markets and

Advisory revenue, in line with the reduced

global fee pool. In Principal Investments,

revenue fell due to lower revaluation gains

relative to 2021.

Revenue relating to Markets Treasury

decreased by $0.7bn due to lower net interest

income from the impact of rising interest

rates on our funding costs and ﬂattening

yield curves across all regions, as well as

from lower disposal gains related to risk

management activities. This revenue is

allocated to our global businesses.

Adjusted ECL

Adjusted ECL were a net charge of $3.6bn,

which included stage 3 charges of $2.2bn,

in part relating to the commercial real estate

sector in mainland China. The charge also

included stage 1 and stage 2 allowances to

reﬂect heightened economic uncertainty,

inﬂation, supply chain risks and rising interest

rates, in part oset by the release of most of

our remaining Covid-19-related allowances.

The net ECL release of $0.8bn in 2021 related

to Covid-19 allowances previously built up

in 2020.

Adjusted operating expenses

Adjusted operating expenses of $30.5bn were

1% higher compared with 2021, as we actively

managed the impact of inﬂation on our cost

base through ongoing cost discipline. These

reductions helped mitigate an increase from

continued investment in technology of $0.5bn,

which included investments in our digital

capabilities, as well as growth due to

business volume-related cost growth and

the impact of inﬂation. Adjusted operating

expenses also included the adverse impact

of retranslating the prior year results of our

operations in hyperinﬂationary economies

at 2022 average rates of foreign exchange.

The number of employees expressed

in full-time equivalent sta (‘FTE’) at

31 December 2022 was 219,199, a decrease

of 498 compared with 31 December 2021.

The number of contractors at 31 December

2022 was 6,047, a decrease of 145.

Adjusted share of proﬁt from associates

and JVs

Adjusted share of proﬁt from associates and

joint ventures of $2.7bn was 7% lower than

in 2021, primarily as 2021 included a higher

share of proﬁt from BGF due to the recovery in

asset valuations. This was partly oset by an

increase in the share of proﬁt from SABB.

Balance sheet strength

At 31 December 2022, our total assets

of $3.0tn were broadly unchanged from

31 December 2021 on a reported basis,

which included adverse eects of foreign

currency translation dierences of $152bn.

On a constant currency basis, total assets

increased $161bn, primarily from a growth

in derivative asset balances.

Reported loans and advances to customers

decreased by $121bn. On a constant currency

basis, loans and advances fell by $66bn,

primarily due to the reclassiﬁcation of $81bn of

balances to held for sale, notably associated

with our retail banking operations in France

and our banking business in Canada. While

our near-term outlook on lending growth

remains cautious, we expect mid-single-digit

percentage annual loan growth in the medium

to long term.

Reported customer accounts of $1.6tn

decreased by $140bn, and by $52bn on

a constant currency basis, mainly due to

the reclassiﬁcation to held for sale.

Reported loans and advances to customers

as a percentage of customer accounts was

58.9%, which was lower compared with

61.1% at 31 December 2021.

Distributable reserves

The distributable reserves of HSBC Holdings

at 31 December 2022 were $35.2bn,

compared with $32.2bn at 31 December 2021.

The increase was primarily driven by proﬁts

generated of $12.4bn and a foreign exchange

gain on the redemption of additional tier 1

securities of $0.4bn, oset by ordinary

dividend payments and additional tier 1

coupon distributions of $6.5bn, other reserves

movements of $2.3bn and $1bn related to

our share buy-back programme.

Capital position

We actively manage the Group’s capital

position to support our business strategy and

meet our regulatory requirements at all times,

including under stress, while optimising our

capital eciency. To do this, we monitor our

capital position using a number of measures.

These include our capital ratios and the impact

on our capital ratios as a result of stress.

Our CET1 ratio at 31 December 2022 was

14.2%, down 1.6 percentage points from

2021. Capital generation was more than oset

by new regulatory requirements, a fall in the

fair value through other comprehensive

income (‘FVOCI’), dividends, share buy-backs

and foreign exchange movements. RWAs

were relatively stable with growth broadly

oset by foreign exchange movements.

Liquidity position

We actively manage the Group’s liquidity and

funding to support our business strategy and

meet regulatory requirements at all times,

including under stress. To do this, we monitor

our position using a number of risk appetite

measures, including the liquidity coverage ratio

and the net stable funding ratio. During 2022,

the average high-quality liquid assets we held

was $647bn. This excludes high-quality liquid

assets in legal entities which are not

transferable due to local restrictions.

For further details, see page 205.

Total assets

($bn)

2019

$2,967bn

2,984

2,958

2,9672022

2021

2020

Common equity tier 1 ratio

(%)

2019

14.2%

15.9

15.8

14.22022

2021

2020

Balance sheet and capital

30 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report | Financial overview

Strategic report

Adjusted proﬁt before tax

($bn)

2019

$8.5bn

4.1

6.7

8.5

2022

2021

2020

Net operating income

($bn)

2019

$24.4bn

21.5

21.0

24.4

2022

2021

2020

International customers are those who bank in more than one market, those whose address is dierent

from the market we bank them in and customers whose nationality, or country of birth for non-resident

Indians and overseas Chinese, is dierent to the market we bank them in. Customers may be counted

more than once when banked in multiple countries. Customer numbers exclude those acquired through

our purchase of L&T Investment Management.

Contribution to Group adjusted proﬁt

before tax

$8.5bn

(36%)

2022 2021 2020 2022 vs 2021

Adjusted results

$m $m $m $m %

Net operating income 24,367 20,963 21,481 3,404 16

Change in expected credit

losses and other credit

impairment charges

(1,137) 213 (2,878) (1,350) >(200)

Operating expenses (14,726) (14,489) (14,536) (237) (2)

Share of proﬁt in

associates and JVs

29 34 6 (5) (15)

Proﬁt before tax 8,533 6,721 4,073 1,812 27

RoTE excluding signiﬁcant

items (%)

18.5 15.2 9.1

1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative

data have not been re-presented.

To meet our customers’ needs, we

oer a full suite of products and services

across transactional banking, lending

and wealth.

WPB continued to invest in our key strategic

priorities of expanding our Wealth franchise in

Asia, developing our transactional banking

and lending capabilities, and addressing our

customers’ international needs. Performance

beneﬁted from our product diversiﬁcation in

the context of rising interest rates mitigating

adverse movements in market impacts in

insurance and lower customer activity in

equity markets. The results included a more

normalised level of adjusted ECL charges in

2022, compared with releases in 2021.

Wealth and Personal Banking

$80bn

WPB net new invested assets in 2022,

up 25% compared with 2021.

6 million

International customers at 31 December 2022,

an increase of 7% compared with 2021.

We serve around 38 million customers globally, including

6 million of whom are international, from retail customers

to ultra high net worth individuals and their families.

Creating a seamless

digital journey for our

international customers

To deliver on our strategic focus on

better serving and growing our 6 million

international customers, we have enhanced

our proposition for customers with

international needs.

In 2022, we launched digital international

account opening in Singapore, the UK

and Australia, and made enhancements to

the existing onboarding journeys in Hong

Kong, the US, Canada, mainland China and

the Channel Islands, allowing customers

to open their accounts even before they

arrive in their new country. Global Money

Transfers oers customers an easy, quick,

and competitively priced way for foreign

currency payments, and is now live in eight

markets. In addition, a partnership-enabled

innovation allows customers in Singapore

to access their credit history from other

markets, using this information to expedite

credit card limit decisions.

Divisional highlights

HSBC Holdings plc Annual Report and Accounts 2022 31

Global businesses

Financial performance

Adjusted proﬁt before tax of $8.5bn was

$1.8bn or 27% higher than in 2021. Despite

an adverse movement of $1.4bn in market

impacts in life insurance manufacturing,

adjusted revenue increased primarily from

rising interest rates. There was also a net

adjusted ECL charge in 2022 of $1.1bn,

compared with a net release of $0.2bn in 2021.

Adjusted revenue of $24.4bn was $3.4bn

or 16% higher. Net interest income grew in

Personal Banking by $4.4bn due to rising

interest rates and balance sheet growth in

the UK, Asia, Mexico and the Middle East.

This was partly oset by lower Wealth revenue

due to adverse market impacts of $1.4bn in

life insurance manufacturing, despite strong

insurance sales and an increase in net interest

income of $0.3bn in Global Private Banking.

In Personal Banking, revenue of $15.9bn was

up $4.3bn or 37%.

– Net interest income was $4.4bn or 42%

higher due to the positive impact of rising

interest rates. This was supported by strong

balance sheet growth in the UK, Asia,

Mexico and the Middle East. Compared with

2021, deposit balances in Asia increased by

$6bn. Mortgage lending increased in the UK

by $9bn and in Hong Kong by $3bn. In

addition, unsecured lending increased in

Asia by 5% and Mexico by 18%.

In Wealth, revenue of $8.1bn was down

$0.7bn or 8%, notably from lower life

insurance manufacturing as described above.

However, our investments in Asia contributed

to the generation of net new invested assets

of $80bn during 2022.

– Life insurance manufacturing revenue was

$0.6bn or 24% lower due to a net adverse

movement in market impacts of $1.4bn.

In 2022, an adverse movement of $1.0bn

compared with favourable impacts of

$0.5bn in 2021, reﬂecting a weaker

performance in equity markets. However,

the value of new business written increased

by $0.2bn or 23%, reﬂecting the launch

of new products. In addition, there was a

$0.3bn gain following a pricing update for

our policyholders’ funds held on deposit

with us in Hong Kong to reﬂect the cost to

provide this service. We also recognised

a $0.1bn gain on the completion of our

acquisition of AXA Singapore.

– Investment distribution revenue was

$0.3bn or 9% lower, as muted customer

sentiment led to lower activity in equity

markets, which compared with a strong

2021, and as Covid-19-related restrictions

in Hong Kong in early 2022 resulted in the

temporary closure of parts of our branch

network. Since then, restrictions have

substantially been eased.

– Global Private Banking revenue was $0.2bn

or 13% higher due to the positive impact of

rising interest rates on net interest income.

This increase was partly oset by a decline

in brokerage and trading revenue, reﬂecting

reduced client activity compared with a

strong 2021.

– Asset management revenue was $19m or

2% lower, as adverse market conditions led

to unfavourable valuation movements.

This was in part mitigated by growth in

management fees from net new invested

assets of $45bn in 2022 and improved

performance fees.

Other revenue fell by $0.2bn or 38%, notably

from a lower allocation of revenue from

Markets Treasury.

Adjusted ECL were a net charge of $1.1bn,

reﬂecting a more normalised level of ECL

charges, including provisions relating to a

deterioration in the forward economic outlook

from heightened levels of uncertainty and

inﬂationary pressures. This compared with a

net release of $0.2bn in 2021 from Covid-19-

related allowances previously built up in 2020.

Adjusted operating expenses of $14.7bn were

$0.2bn or 2% higher, mainly due to continued

investments, notably in wealth in Asia

including the costs related to our AXA

Singapore acquisition, and from the impact of

higher inﬂation. These increases were partly

oset by the beneﬁts of our cost-saving

initiatives.

The reported results of our WPB business

included an impairment of $2.4bn recognised

following the reclassiﬁcation of our retail

banking operations in France as held for

sale on 30 September 2022. This impairment

is excluded from our adjusted results. At

31 December 2022, loans and advances

to customers of $52.4bn and customer

accounts of $56.6bn were classiﬁed as

held for sale, notably relating to our retail

banking operations in France and our

banking business in Canada.

2022 2021 2020 2022 vs 2021

Management view of adjusted revenue

$m $m $m $m %

Wealth 8,091 8,783 7,737 (692) (8)

– investment distribution 3,066 3,377 3,177 (311) (9)

– Global Private Banking 1,978 1,746 1,712 232 13

net interest income 946 620 661 326 53

non-interest income 1,032 1,126 1,051 (94) (8)

– life insurance manufacturing 1,914 2,508 1,838 (594) (24)

– asset management 1,133 1,152 1,010 (19) (2)

Personal Banking 15,911 11,587 12,683 4,324 37

– net interest 14,610 10,258 11,472 4,352 42

– non-interest income 1,301 1,329 1,211 (28) (2)

Other

365 593 1,061 (228) (38)

Net operating income

24,367 20,963 21,481 3,404 16

1 ‘Other’ includes the distribution (where applicable) of retail and credit protection insurance, disposal gains andother non-product-speciﬁc income. It also includes

allocated revenue from Markets Treasury (2022: $494m, 2021: $807m, 2020: $1,048m), HSBC Holdings interest expense and hyperinﬂation.

2 ’Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).

32 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report | Global businesses | Wealth and Personal Banking

Strategic report

Contribution to Group adjusted proﬁt

before tax

$7.7bn

(32%)

Adjusted proﬁt before tax

($bn)

2019

$7.7bn

1.7

6.2

7.7

2022

2021

2020

Net operating income

($bn)

2019

$16.2bn

12.9

12.5

16.2

2022

2021

2020

We help businesses grow by supporting

their ﬁnancial needs, facilitating cross-

border trade and payments, and

providing access to products and

services. We help them access

international markets, provide expert

ﬁnancial advice and oer access to

a full suite of HSBC solutions from

across the Group’s other businesses.

We continued our investment in technology,

launching new products to support customers

and make banking with us easier. With our

clients and partners we have made progress in

delivering our sustainability strategy. We act as

a trusted transition partner, seeking to provide

sustainable supply chain solutions, and aim to

capture growth opportunities as we transition

into a new low-carbon economy. Strong

performance in Global Payments Solutions

(‘GPS’) continued due to interest rate rises and

19% growth in fee income. This was partly

oset by an adjusted ECL charge in 2022

relative to a net release in 2021.

2022 2021 2020 2022 vs 2021

Adjusted results

$m $m $m $m %

Net operating income 16,215 12,538 12,889 3,677 29

Change in expected credit

losses and other credit

impairment charges

(1,858) 225 (4,710) (2,083) >(200)

Operating expenses (6,642) (6,554) (6,475) (88) (1)

Share of proﬁt in associates

and JVs

1 1 (1) — —

Proﬁt before tax 7,716 6,210 1,703 1,506 24

RoTE excluding signiﬁcant

items (%)

14.2 10.8 1.3

1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative

data have not been re-presented.

Commercial Banking

We support businesses in 54 countries and territories, ranging from small

enterprises to large companies operating globally.

Funding digital growth

and innovation

We are helping technology companies

to grow in Asia by providing them with

specialist ﬁnancing solutions. These

include Grab, a leading south-east Asian

platform, which has been on a journey

of growth over the last decade.

Based in Singapore, the company started

as a ride-hailing app in 2012, and has

since expanded to provide transport,

food delivery and digital payments

services. It has become an everyday,

multi-use platform for more than

33 million consumers every month.

19%

Growth in adjusted net fee income

in GPS, supported by repricing and

strategic initiatives.

43%

Growth in adjusted net interest income

across all CMB products, notably in

GPS (up 149%) and GTRF (up 24%).

Divisional highlights

HSBC Holdings plc Annual Report and Accounts 2022 33

Global businesses

– In Markets products, Insurance and

Investments and Other, revenue decreased

by $0.1bn or 7%, reﬂecting the adverse

eects of hyperinﬂation accounting in

Türkiye and Argentina, as well as lower

Markets Treasury and insurance revenue.

This was partly oset by an 18% increase in

collaboration revenue from GBM products,

notably Foreign Exchange.

Adjusted ECL were a net charge of $1.9bn,

compared with a net release of $0.2bn in 2021.

The charge in 2022 primarily related to stage 3

charges in Asia, mainly in the commercial real

estate sector in mainland China, and higher

charges in the UK reﬂecting heightened levels

of uncertainty and inﬂationary pressures.

This compared with a net release in 2021 of

Covid-19-related allowances previously built

up in 2020.

Adjusted operating expenses of $6.6bn

remained broadly stable (up 1%). The

continued investment in technology and

the impact of higher inﬂation were mitigated

by continued cost discipline on discretionary

spend and through hiring eciencies, as

well as from the impact of our cost-saving

initiatives.

At 31 December 2022, loans and advances to

customers of $25.1bn and customer accounts

of $22.1bn relating to our banking business in

Canada were reclassiﬁed as held for sale.

Financial performance

Adjusted proﬁt before tax of $7.7bn was

$1.5bn or 24% higher than in 2021. This was

driven by an increase in adjusted revenue

across all CMB products and in all regions,

notably in Asia and the UK, and included a

149% increase in GPS net interest income.

This was partly oset by a net adjusted ECL

charge compared with a net release of

adjusted ECL in 2021. Adjusted operating

expenses remained stable, as increased

investment spend was mitigated by continued

cost discipline.

Adjusted revenue of $16.2bn was $3.7bn or

29% higher:

– In GPS, revenue increased by $3.5bn, with

growth in all regions, particularly in Asia and

the UK, driven by higher margins, reﬂecting

interest rate rises and business repricing

actions. Revenue also beneﬁted from a 6%

increase in average deposit balances. There

was a 19% increase in fee income, notably

in cards and payments, with growth in all

regions, notably in the UK, supported by

the delivery of our strategic fee initiatives.

– In Global Trade and Receivables Finance

(‘GTRF‘), revenue increased by $0.3bn or

14%, with growth in all regions, notably in

the UK and Asia, driven by an increase in

average balances, which rose by 17%

compared with 2021 at improved margins.

In addition, fee income grew by 4%

compared with 2021.

– In Credit and Lending, revenue increased

by $0.1bn or 1%, notably in Canada and

Latin America, driven by a 3% growth in

average balances. In addition, fee income

grew by 1%.

2022 2021 2020 2022 vs 2021

Management view of adjusted revenue

$m $m $m $m %

Global Trade and Receivables Finance 2,084 1,829 1,687 255 14

Credit and Lending 5,722 5,667 5,465 55 1

Global Payments Solutions 6,839 3,354 4,040 3,485 >10 0

Markets products, Insurance and Investments and Other

1,570 1,688 1,697 (118) (7)

– of which: share of revenue for Markets and Securities

Services and Banking products

1,185 1,005 898 180 18

Net operating income

16,215 12,538 12,889 3,677 29

1 Includes CMB’s share of revenue from the sale of Markets and Securities Services and Banking products to CMB customers. GBM’s share of revenue from the sale

of these products to CMB customers is included within the corresponding lines of the GBM management view of adjusted revenue. Also includes allocated

revenue from Markets Treasury, HSBC Holdings interest expense and hyperinﬂation.

2 ’Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).

34 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report | Global businesses | Commercial Banking

Strategic report

Contribution to Group adjusted proﬁt

before tax

$5.4bn

(23%)

Net operating income

($bn)

2019

$15.4bn

14.7

14.0

15.4

2022

2021

2020

Adjusted proﬁt before tax

($bn)

2019

$5.4bn

4.6

5.0

5.4

2022

2021

2020

We are leaders in facilitating global

trade and payments, particularly into

and within Asia and the Middle East,

enabling our clients in the East and West

to achieve their objectives by accessing

our expertise and geographical reach.

Our product specialists deliver a

comprehensive range of transaction

banking, ﬁnancing, capital markets and

advisory, and risk management services.

GBM adjusted proﬁt before tax increased in

2022, reﬂecting a strong revenue performance

due to higher client activity related to volatility

and rising interest rates. This was partly oset

by adjusted ECL charges, which included a

build-up of reserves, reﬂecting heightened

levels of economic uncertainty, compared with

releases in 2021. We continued to invest in

technology to modernise our infrastructure,

innovate product capabilities and to support

our clients.

2022 2021 2020 2022 vs 2021

Adjusted results

$m $m $m $m %

Net operating income 15,359 13,982 14,696 1,377 10

Change in expected credit

losses and other credit

impairment charges

(587) 313 (1,227) (900) >(200)

Operating expenses (9,325) (9,250) (8,895) (75) (1)

Share of proﬁt in associates

and JVs

(2) — — (2) —

Proﬁt before tax 5,445 5,045 4,574 400 8

RoTE excluding signiﬁcant

items (%)

10.7 8.6 6.7

1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative

data have not been re-presented.

Global Banking and Markets

We support multinational corporates, ﬁnancial institutions and institutional

clients, as well as public sector and government bodies.

Connecting the world to

the biggest IPO in UAE

In April 2022, the initial public oering

(‘IPO’) of Dubai Electricity and Water

Authority raised $6.1bn for the

Government of Dubai, which sold shares

in the largest IPO ever to be carried out

in the UAE, and the largest IPO focused

on the utility sector in 2022. As joint

global coordinator and joint bookrunner,

we supported the state-owned utility

company through the transaction,

which attracted $85.7bn of demand.

This demonstrated the depth of interest

from international, regional and local

investors, and the capacity for growth

opportunities in the Middle East. We

supported the company to articulate

its energy transition plans to investors.

The company is a supporter of the Dubai

Clean Energy Strategy 2050, which aims

to provide 100% of Dubai’s energy

production capacity from clean energy

sources by 2050.

50%

Adjusted revenue generated in Asia in 2022.

$94bn

Cumulative gross RWA reductions since the start

of our RWA programme in 2020. This included

accelerated saves of $9.6bn made in 2019.

Divisional highlights

HSBC Holdings plc Annual Report and Accounts 2022 35

Global businesses

market volatility and the combined

macroeconomic impacts of rising inﬂation,

higher interest rates and a strengthening of

the US dollar, as well as a strong trading

performance.

– In Equities, revenue fell by $0.1bn or 13% in

the context of a strong prior year and lower

client activity in 2022.

– In Securities Financing, revenue increased

by $0.1bn or 11%, driven by client franchise

growth and a strong trading performance.

In Banking, revenue increased by $1.0bn

or 17%.

– In GPS, revenue increased by $1.4bn or

81%, driven by margin growth as a result of

the rising global interest-rate environment

and business pricing actions, together with

active portfolio management and average

balance growth. Fee income grew in all

regions from the continued delivery of our

strategic initiatives.

– Capital Markets and Advisory revenue

decreased $0.4bn or 37%, primarily from

lower fees in line with the reduced global fee

pool and adverse valuation movements on

leveraged loans, net of hedging.

In GBM Other, Principal Investments revenue

declined by $0.3bn or 85%, as 2022 included

lower valuation gains compared with 2021.

There was also a reduction in revenue

from Markets Treasury and the impact of

hyperinﬂationary accounting, which are

allocated to the global businesses. GBM

Other also included a loss of $0.1bn from

a buy-back of legacy securities.

Adjusted ECL were a net charge of $0.6bn.

This included stage 3 charges predominantly

in the commercial real estate sector in

mainland China, and in Europe, which also

reﬂected allowances due to a deterioration

in the forward economic outlook given

the heightened levels of uncertainty and

inﬂationary pressures. This compared with

the net release of $0.3bn in 2021 of Covid-19-

related allowances previously built up in 2020.

Adjusted operating expenses of $9.3bn

increased by $0.1bn or 1% as the impact

of higher inﬂation and strategic investments

were in part mitigated by our ongoing cost

discipline.

Management view of adjusted revenue

2022 2021 2020 2022 vs 2021

$m $m $m $m %

Markets and Securities Services 8,926 7, 810 8,489 1,116 14

– Securities Services

2,072 1,799 1,724 273 15

– Global Debt Markets 706 838 1,399 (132) (16)

– Global Foreign Exchange 4,215 3,158 3,917 1,057 33

– Equities 1,007 1,156 790 (149) (13)

– Securities Financing 920 827 929 93 11

– Credit and funding valuation adjustments 6 32 (270) (26) (81)

Banking 7,28 2 6,244 6,392 1,038 17

– Global Trade and Receivables Finance 742 675 668 67 10

– Global Payments Solutions 3,131 1,727 1,932 1,404 81

– Credit and Lending 2,363 2,465 2,550 (102) (4)

– Capital Markets and Advisory

748 1,18 8 1,002 (440) (37)

– Other

298 189 240 109 58

GBM Other (849) (72) (185) (777) >(100)

– Principal Investments 57 371 112 (314) (85)

– Other

(906) (443) (297) (463) >(100)

Net operating income

15,359 13,982 14,696 1,377 10

1 From 1 June 2020, Issuer Services was transferred to Global Banking. This resulted in revenue of $80m being recorded in Securities Services in 2020.

2 Includes portfolio management, earnings on capital and other capital allocations on all Banking products.

3 Includes notional tax credits and Markets Treasury, HSBC Holdings interest expense and hyperinﬂation.

4 ‘Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).

Financial performance

Adjusted proﬁt before tax of $5.4bn was

$0.4bn or 8% higher than in 2021. Growth in

adjusted revenue of $1.4bn or 10% was partly

oset by a net adjusted ECL charge in 2022 of

$0.6bn, compared with a net release in 2021

of $0.3bn, and from an increase of $0.1bn in

adjusted operating expenses.

Adjusted revenue of $15.4bn was $1.4bn or

10% higher, reﬂecting a more than 100%

growth in GPS net interest income from higher

interest rates, and a strong Markets and

Securities Services performance driven by

increased client activity and disciplined risk

management.

In Markets and Securities Services, revenue

increased by $1.1bn or 14%.

– In Securities Services, revenue grew by

$0.3bn or 15% from higher net interest

income as global interest rates rose, partly

oset by reduced fee income from lower

market levels.

– In Global Debt Markets, revenue fell by

$0.1bn or 16%, reﬂecting lower primary

issuances and challenging market

conditions.

– In Global Foreign Exchange, revenue

growth of $1.1bn or 33% reﬂected

increased client activity due to elevated

36 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report | Global businesses | Global Banking and Markets

Strategic report

Contribution to Group adjusted proﬁt

before tax

$2.3bn

(9%)

2022 2021 2020 2022 vs 2021

Adjusted results

$m $m $m $m %

Net operating income (596) (463) (218) (133) (29)

Change in expected credit losses and other

credit impairment charges

(10) 3 – (13) >(200)

Operating expenses 227 189 (539) 38 20

Share of proﬁt in associates and JVs 2,695 2,898 2,102 (203) (7)

Proﬁt before tax 2,316 2,627 1,345 (311) (12)

RoTE excluding signiﬁcant items (%)

5.4 5.6 3.1

1 Since 1 January 2021, the UK bank levy has been included in the calculation of this measure. Comparative data have not been re-presented.

Management view of adjusted revenue

2022 2021 2020 2022 vs 2021

$m $m $m $m %

Central Treasury

(77) (99) 151 22 22

Legacy portfolios (17) (31) (19) 14 45

Other

2,3

(502) (333) (350) (169) (51)

Net operating income

(596) (463) (218) (133) (29)

1 Central Treasury includes adverse valuation dierences on issued long-term debt and associated swaps of $77m (2021: losses of $99m; 2020: gains of $151m).

2 Other comprises consolidation adjustments, funding charges on property and technology assets, revaluation gains and losses on investment properties and

property disposals and other revenue items not allocated to global businesses. The reduction in 2022 related primarily to adverse revaluation gains and losses on

investment properties.

3 Revenue from Markets Treasury, HSBC Holdings net interest expense and hyperinﬂation impacts were allocated to the global businesses, to align them better with

their revenue and expense. The total Markets Treasury revenue component of this allocation for 2022 was $1,549m (2021: $2,202m; 2020: $2,699m).

4 ’Net operating income’ means net operating income before change in expected credit losses and other credit impairment charges (also referred to as ‘revenue’).

The results of Corporate Centre primarily

comprise the share of proﬁt from our

interests in our associates and joint

ventures. It also includes Central

Treasury, stewardship costs and

consolidation adjustments.

Corporate Centre performance in 2022

reﬂected a lower share of proﬁt from our

associates, an increase in hedging costs and

revaluation losses on investment properties.

These reductions were in part mitigated by

a favourable allocation of the UK bank levy

and related prior year credits.

Financial performance

Adjusted proﬁt before tax of $2.3bn was

$0.3bn or 12% lower than in 2021 due to

a reduction in adjusted share of proﬁt in

associates and joint ventures, and lower

adjusted revenue.

Adjusted revenue was $0.1bn or 29% lower,

primarily reﬂecting revaluation losses on

investment properties, compared with gains

in 2021, and an increase in costs associated

with hedging foreign exchange exposure.

The reduction also included the consideration

paid in respect of an exchange oer for

subordinated notes undertaken by

HSBC Holdings plc.

Adjusted operating expenses decreased

by $38m or 20%, reﬂecting a favourable

allocation of the UK bank levy and related prior

year credits. Since 2021, the UK bank levy and

any related credits have been allocated across

our global businesses and Corporate Centre,

primarily to GBM.

Adjusted share of proﬁt from associates

and joint ventures of $2.7bn decreased by

$0.2bn or 7%, primarily as 2021 included a

higher share of proﬁt from BGF in the UK, due

to a recovery in asset valuations. This was

partly oset by an increase in the share of

proﬁt from SABB.

Corporate Centre

HSBC Holdings plc Annual Report and Accounts 2022 37

Global businesses

Managing risk

Geopolitical tensions have resulted in an

increasingly fragmented macroeconomic,

trade and regulatory environment. The global

economic slowdown and high inﬂationary

pressures are exacerbating the risks linked to

this fragmentation.

Global commodity markets have been

signiﬁcantly impacted by the Russia-Ukraine

war, leading to supply chain disruptions and

increased prices for both energy and non-

energy commodities. This, combined with

extensive monetary policy loosening at the

height of the Covid-19 pandemic, contributed

to a sharp increase in inﬂation, creating

further challenges for central banks and our

customers. The continuation of – or any further

escalation in – the Russia-Ukraine war could

have additional economic, social and political

consequences. These include further sanctions

and trade restrictions, longer-term changes in

the macroeconomic environment, and the risk

of higher and sustained inﬂation, including

continued increases in energy and non-energy

prices. Interest rates have increased in reaction

to inﬂationary pressures and we have adapted

our interest rate risk management strategy

in response.

China’s policy measures issued at the end of

2022 have increased liquidity and the supply

of credit to the mainland China commercial

real estate sector. Recovery in the underlying

domestic residential demand and improved

customer sentiment will be necessary to

support the ongoing health of the sector. We

will continue to monitor the sector closely,

notably the risk of further idiosyncratic real

estate defaults and the potential associated

impact on wider market, investor and

consumer sentiment. Given that parts of the

global economy are in, or close to, recession,

the demand for Chinese exports may

also diminish.

We continued to focus on improving the

quality and timeliness of the data used to

inform management decisions, through

measures such as early warning indicators,

prudent active management of our risk

appetite, and ensuring regular communication

with our Board and key stakeholders.

While the ﬁnancial performance of our

operations varied in dierent geographies, our

balance sheet and liquidity remained strong.

Active risk management helps us to achieve our strategy,

serve our customers and communities and grow our

business safely.

Key risk appetite metrics

Component Measure

Risk

appetite 2022

Capital CET1 ratio – end point basis ≥13.0 % 14.2%

Change in

expected credit

losses and

other credit

impairment

charges

Change in expected credit losses and other credit

impairment charges as a % of advances: (WPB)

≤0.50% 0.24%

Change in expected credit losses and other credit

impairment charges as a % of advances:

wholesale (GBM, CMB)

≤0.45% 0.40%

1 Includes change in expected credit losses and other impairment charges and advances related to assets

that are held for sale.

Our risk appetite

Our risk appetite deﬁnes our desired forward-

looking risk proﬁle, and informs the strategic

and ﬁnancial planning process. It provides an

objective baseline to guide strategic decision

making, helping to ensure that planned

business activities provide an appropriate

balance of return for the risk assumed, while

remaining within acceptable risk levels. Risk

appetite supports senior management in

allocating capital, funding and liquidity

optimally to ﬁnance growth, while monitoring

exposure to non-ﬁnancial risks.

Capital and liquidity remain at the core of our

risk appetite framework, with forward-looking

statements informed by stress testing. We

continue to develop our climate risk appetite as

we engage with businesses on including climate

risk in decision making and starting to embed

climate risk appetite into business planning.

At 31 December 2022, our CET1 ratio and ECL

charges were within their deﬁned risk appetite

thresholds. Wholesale ECL charges increased

towards the end of 2022, with additional stage

1 and 2 allowances recorded, as a result of the

uncertain macroeconomic environment.

Monitoring of measures against our risk

appetite remains a key focus. During 2022,

we enhanced the monitoring and forecasting

of our CET1 ratio through regular reviews in

periods of high volatility.

Stress tests

We regularly conduct stress tests to assess the

resilience of our balance sheet and our capital

adequacy, as well as to provide actionable

insights into how key elements of our portfolios

may behave during a crisis. We use the

outcomes to calibrate our risk appetite and

to review the robustness of our strategic and

ﬁnancial plans, helping to improve the quality

of management’s decision making. The results

from the stress tests also drive recovery and

resolution planning to help enhance the Group’s

ﬁnancial stability under various macroeconomic

scenarios. The selection of stress scenarios is

based upon the identiﬁcation and assessment

of our top risks, emerging risks and our risk

appetite. During 2022, assessments were made

of the impact on the Group of the Russia-

Ukraine war and the consequences from

the deteriorating global economic outlook.

The results of the most recent stress test,

referred to as the solvency stress test,

published by the Bank of England (‘BoE’) in

December 2021 conﬁrmed the Group was

suciently capitalised.

The BoE’s 2022 annual cyclical scenario stress

test, originally due for submission in June

2022, was rescheduled to commence in

September 2022 in light of the uncertainty

related to the Russia-Ukraine war, and was

submitted in January 2023.

As a result of this postponement, our own

internal stress test will now be conducted in

the ﬁrst quarter of 2023, and will explore the

potential impacts of key vulnerabilities to which

we are exposed across certain key regions,

including a lower interest-rate environment,

additional macroeconomic headwinds including

lower oil prices and the introduction of foreign

exchange shocks. This focused internal stress

test will consider the impacts of the various risk

scenarios on those speciﬁc regions across all

risk types and on capital resources.

Risk overview

38 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report

Geopolitical and macroeconomic risks

The Russia-Ukraine war has continued to

elevate geopolitical instability and has resulted

in the use of signiﬁcant sanctions and trade

restrictions against Russia by the UK, the

US and the EU, as well as other countries.

In response to such sanctions and trade

restrictions, Russia has implemented

certain countermeasures.

The Russia-Ukraine war, alongside the

economic impacts that continue to result from

the Covid-19 pandemic, has contributed to

increased commodity prices, which, combined

with extensive monetary policy loosening

during the height of the Covid-19 pandemic,

has led to a sharp increase in inﬂation. In

response, central banks both in developed and

emerging markets tightened monetary policy

sharply in 2022. Inﬂation is expected to abate

in the coming months, albeit only gradually as

the ongoing Russia-Ukraine war is likely to

keep energy and food prices at high levels.

Fiscal deﬁcits are likely to remain high in

both developed and emerging markets as

further public spending is rolled out to help the

private sector manage rising prices, against a

backdrop of slower growth and higher interest

rates. This could increase the strains on highly

leveraged sovereigns, corporates and

households. While the average maturity of

sovereign debt in developed markets has

lengthened, rising interest rates could reduce

the aordability of debt and may eventually

bring into question its sustainability in some

countries. Among emerging markets, countries

that need to reﬁnance maturing US dollar-

denominated debt in the context of a strong

dollar may face increasing diculties.

Our businesses also continue to consider the

impact of the increasing cost of living on our

customers. We are engaging closely with our

key regulators to help ensure we continue to

meet their expectations of ﬁnancial institutions’

activities at a time of market volatility.

Higher inﬂation and interest rate expectations

around the world – and the resulting economic

uncertainty – have had an impact on ECL.

The combined pressure of higher inﬂation and

interest rates may impact the ability of our

customers to repay debt. We have continued

to carry out enhanced monitoring of model

outputs and the use of model overlays. This

includes management adjustments based

on the expert judgement of senior credit

risk managers to reﬂect the uncertainty in

current market inﬂation and interest rate

conditions in the forecasts from the underlying

macroeconomic scenarios. Inﬂation and rising

interest rates have been considered both

directly in certain models, and assessed via

adjustments where not directly considered.

While many of the government programmes

implemented during the Covid-19 pandemic

to support businesses and individuals have

ceased, this has impacted the level of credit

losses, which in turn may have impacted

the longer-term reliability of loss and

capital models.

The relationship between China and several

countries, including the UK and the US,

remains complex. The UK, the US, the EU

and other countries have imposed various

sanctions and trade restrictions on Chinese

persons and companies, and may continue

to impose further measures. In response to

foreign sanctions and trade restrictions, China

has imposed sanctions and introduced new

laws and trade restrictions that could impact

the Group and its customers. Further

sanctions and counter-sanctions, whether in

connection with Russia or China, may aect

the Group and its customers by creating

regulatory, reputational and market risks.

Negotiations between the UK and the EU over

the operation of the Northern Ireland Protocol

are continuing. While there are signs that

dierences may be diminishing, failure to

reach agreement could have implications for

the future operation of the EU-UK Trade and

Cooperation Agreement.

Climate risk

To support the requirements for assessing

the impacts of climate change, we have

developed a set of capabilities to execute

climate stress testing and scenario analysis.

These are used to help improve our

understanding of our risk exposures for risk

management and business decision making.

In 2021, the Prudential Regulation Authority

requested all major UK banks to run a

climate-related stress test to explore the

impacts of a set of scenarios: an early policy

action, a late policy action and no additional

policy action scenario. This was followed in

the ﬁrst half of 2022 with a second round to

explore our strategic responses to such

scenarios. We also conducted climate change

stress testing exercises for the European

Central Bank and the Monetary Authority of

Singapore, and in the second half of 2022 we

ran an internal climate scenario analysis to

identify challenges and opportunities to our

net zero strategy, as well as to inform capital

planning and risk appetite.

For further details of our approach to climate

risk stress testing, see ‘Insights from scenario

analysis’ on page 67.

Climate risk relates to the ﬁnancial and

non-ﬁnancial impacts that may arise as a

result of climate change and the move to a

greener economy. Climate risk can impact us

either directly or through our relationships with

our clients. This includes potential climate risk

arising as a result of our net zero ambition,

which could lead to reputational concerns,

and potential legal and/or regulatory action if

we are perceived to mislead stakeholders on

our business activities or if we fail to achieve

our stated net zero targets. Our most material

exposure to climate risk relates to corporate

and retail client ﬁnancing activity within our

banking portfolio. We also have signiﬁcant

responsibilities in relation to asset ownership

by our insurance business, employee pension

plans, and asset management business.

We seek to manage climate risk across all

our businesses in line with our Group-wide

risk management framework, and are

incorporating climate considerations within

our existing risk types to reﬂect our strategic

ambition to align to net zero.

For further details of our approach to climate risk

management, see ‘Climate risk‘ on page 221.

For further details of our TCFD disclosures, see

the ‘ESG review‘ on page 43.

Our operations

We remain committed to investing in the

reliability and resilience of our IT systems

and critical services, including those provided

by third parties, that support all parts of

our business. We do so to help protect our

customers, aliates and counterparties, and to

help ensure that we minimise any disruption to

services that could result in reputational, legal

and regulatory consequences. In our approach

to defending against these threats, we invest in

business and technical controls to help us

detect, manage and recover from issues,

including data loss, in a timely manner.

We have made progress with the

implementation of our business transformation

plans. We seek to manage change execution

risk so we can prioritise, manage and deliver

change initiatives eectively and safely, and

at the scale, complexity and pace required.

For further details on our risk management

framework and risks associated with our banking

and insurance manufacturing operations, see

pages 142 to 144.

Managing risk continued

HSBC Holdings plc Annual Report and Accounts 2022 39

Risk overview

Risks related to Covid-19

While the immediate impact of the Covid-19

pandemic on the global economy has largely

abated in most markets, it continues to disrupt

economic activity in mainland China and Hong

Kong despite the easing in December 2022 of

the domestic Covid-19 restrictions that have

adversely impacted China’s economy, Asia

tourism and global supply chains. The return

to pre-pandemic levels of social interaction

across all our key markets continues to vary

as governments respond dierently to new

waves of infection.

We continue to monitor the situation closely

and, given the remaining uncertainties related

to the post-pandemic landscape, additional

mitigating actions may be required.

For further details on our approach to the risks

related to Covid-19, see ‘Areas of special interest’

on page 142.

Geopolitical and macroeconomic risks continued

Ibor transition

The publication of sterling, Swiss franc,

euro and Japanese yen Libor interest rate

benchmarks, as well as Euro Overnight Index

Average (‘Eonia’), ceased from the end of

2021. Our interbank oered rate (‘Ibor’)

transition programme – which is tasked with

the development of new near risk-free rate

(‘RFR’) products and the transition of legacy

Ibor products – has continued to support the

transition of the limited number of remaining

contracts in sterling and Japanese yen Libor,

which were published using a ‘synthetic’

interest rate methodology during 2022. We are

prepared for the cessation of the publication of

these ‘synthetic’ interest rates from March

2023 and March 2024.

Additionally, prior to the cessation of the

publication of US dollar Libor from 30 June

2023, we have implemented the majority of

required processes, technology and RFR

product capabilities throughout the Group, in

preparation for upcoming market events and

the continued transition of legacy US dollar

Libor and other demising Ibor contracts.

We continue to be exposed to risks associated

with Ibor transition, which include regulatory

compliance risk, resilience risk, ﬁnancial

reporting risk, legal risk, model risk and market

risk. The level of these key risks is diminishing

in line with our process implementation and

the transition of our legacy contracts. We have

sought to implement mitigating controls,

where required, and continue to actively

manage and monitor these risks.

For further details on our approach to Ibor

transition, see ‘Top and emerging risks’ on

page135.

Top and emerging risks

Our top and emerging risks report identiﬁes

forward-looking risks so that they can be

considered in determining whether any

incremental action is needed to either prevent

them from materialising or to limit their eect.

Top risks are those that have the potential

to have a material adverse impact on the

ﬁnancial results, reputation or business model

of the Group. We actively manage and take

actions to mitigate our top risks. Emerging

risks are those that, while they could have a

material impact on our risk proﬁle were they

to occur, are not considered immediate and

are not under active management.

Our suite of top and emerging risks is subject

to regular review by senior governance

forums. We continue to monitor closely the

identiﬁed risks and ensure management

actions are in place, as required.

In August 2022, the US Inﬂation Reduction

Act introduced a minimum tax of 15% with

eect from 1 January 2023. It is possible that

a minimum tax could result in an additional

US tax liability over our regular US federal

corporate tax liabilities in a given year, based on

dierences between the US book and taxable

income (including as a result of temporary

dierences). Given its recent pronouncement,

it is unclear at this time what, if any, impact

the US Inﬂation Reduction Act will have on

HSBC’s US tax rate and US ﬁnancial results,

and HSBC will continue to evaluate its impact

as further information becomes available. In

addition, potential changes to tax legislation

and tax rates in the countries and territories in

which we operate could increase our eective

tax rate in the future.

We continue to monitor, and seek to manage,

the potential implications of all the above

developments on our customers and our

business.

For further details on our approach to

geopolitical and macroeconomic risks,

see ‘Top and emerging risks’ on page 135.

40 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report | Risk overview

Strategic report

Risk

Trend Description

Externally driven

Geopolitical and

macroeconomic

risks

Our operations and portfolios are subject to risks associated with political instability, civil unrest and military

conﬂict, which could lead to disruption of our operations, physical risk to our sta and/or physical damage to

our assets. Heightened geopolitical tensions, alongside other factors, have also disrupted supply chains globally.

Inﬂation, rising interest rates and slower Chinese economic activity may prompt a global recession that would

aect our credit portfolio.

Technology and

cybersecurity risk

We face a risk of service disruption resulting from technology failures or malicious activities by internal or

external threats. We continue to monitor ongoing geopolitical events and changes to the threat landscape.

We operate a continuous improvement programme to protect our technology operations and to counter a

fast-evolving cyber threat environment.

Evolving regulatory

environment risk

The regulatory and compliance risk environment has become more complex, in part due to heightened geopolitical

tensions. There has been increased regulatory focus on operational and cyber resilience, crypto-asset-related risks

and sanctions. These, alongside other regulatory priorities, may result in change requirements across the Group in

the short to medium term. We continue to monitor regulatory and wider industry developments closely, and

engage with regulators as appropriate.

Financial crime risk

We continue to support our customers against a backdrop of increasingly complex geopolitical, socio-economic

and technological challenges, including the Russia-Ukraine war. HSBC is monitoring the impacts of the war on the

Group, and using its sanctions compliance capabilities to respond to evolving sanctions regulations, noting the

challenges that arise in implementing the unprecedented volume and diverse set of sanctions and trade restrictions.

Ibor transition risk

We remain exposed to regulatory compliance, legal and resilience risks as contracts transition away from the

remaining demising Ibor benchmarks to new reference rates. We continue to consider the fairness of client

outcomes, our compliance with regulatory expectations and the operation of our systems and processes. The

key risks are diminishing in line with our process implementation and we are progressing well in transitioning

contracts in the remaining demising Ibors, speciﬁcally US dollar Libor.

Environmental,

social and

governance (‘ESG’)

risks

We are subject to ESG risks relating to climate change, nature and human rights. These risks have increased

owing to the pace and volume of regulatory developments globally, and due to stakeholders placing more

emphasis on ﬁnancial institutions’ actions and investment decisions in respect of ESG matters. Failure to meet

these evolving expectations may result in ﬁnancial and non-ﬁnancial costs, including adverse reputational

consequences.

Digitalisation and

technological

advances

Developments in technology and changes in regulations have enabled new entrants to the banking industry and

new products and services oered by competitors. Along with opportunities, new technology can introduce new

risks. This challenges us to continue to innovate to take advantage of new digital capabilities to best serve our

customers by adapting our products, and to attract and retain customers and employee talent, while ensuring

that the risks are understood and managed with appropriate controls.

Internally driven

Risks associated

with workforce

capability, capacity

and environmental

factors with potential

impact on growth

Our businesses, functions and geographies are exposed to risks associated with employee retention and talent

availability, and compliance with employment laws and regulations. Heightened demand for talent in key labour

markets and continuing Covid-19-related challenges have led to increased attrition and attraction challenges,

and continuing pressure on employees. We monitor hiring activities and levels of employee attrition, and each

business and function has workforce plans in place to aim to ensure eective workforce forecasting to meet

business demands.

Risks arising from

the receipt of

services from

third parties

We procure goods and services from a range of third parties. It is critical that we have appropriate risk

management policies and processes to select and govern third parties, including third parties’ supply

networks, particularly for key activities that could aect our operational resilience. Any deﬁciency in the

management of risks associated with our third parties could aect our ability to support our customers

and meet regulatory expectations.

Model risk

Model risk arises whenever business decision making includes reliance on models. We use models in both

ﬁnancial and non-ﬁnancial contexts, as well as in a range of business applications such as customer selections,

product pricing, ﬁnancial crime transaction monitoring, creditworthiness evaluation and ﬁnancial reporting.

Evolving regulatory requirements are driving material changes to the way model risk is managed across the

banking industry, with particular focus on capital models. New technologies such as machine learning are

driving changes to the model landscape.

Data risk

We use data to serve our customers and run our operations, often in real-time within digital experiences and

processes. If our data is not accurate and timely, our ability to serve customers, operate with resilience or meet

regulatory requirements could be impacted. We need to ensure that non-public data is kept conﬁdential, and that

we comply with the growing number of regulations that govern data privacy and cross-border movement of data.

Change execution

risk

Failure to eectively prioritise, manage and/or deliver transformation across the organisation impacts our ability

to achieve our strategic objectives. We aim to monitor, manage and oversee change execution risk to ensure our

change portfolios and initiatives continue to deliver the right outcomes for our customers, people, investors and

communities.

Risk heightened during 2022 Risk remained at the same level as 2021 Risk decreased during 2022

HSBC Holdings plc Annual Report and Accounts 2022 41

Risk overview

Under the UK Corporate Governance Code,

the Directors are required to provide a viability

statement that must state whether the Group

will be able to continue in operation and meet

its liabilities, taking into account its current

position and the principal risks it faces. They

must also specify the period covered by, and

the appropriateness of, this statement.

The Directors have speciﬁed a period of three

years to 31 December 2025. They are satisﬁed

that a forward-looking assessment of the

Group for this period is sucient to enable a

reasonable statement of viability. In addition,

this period is covered by the Group’s stress

testing programmes, and its internal

projections for proﬁtability, key capital ratios

and leverage ratios. Notwithstanding this,

our stress testing programmes also cover

scenarios out to ﬁve years and our assessment

of risks are beyond three years where

appropriate (see page 135):

– This period is representative of the

time horizon to consider the impact

of ongoing regulatory changes in the

ﬁnancial services industry.

– Our updated business plan covers

2023–2027.

The Board, having made appropriate enquiries,

is satisﬁed that the Group as a whole has

adequate resources to continue operations for

a period of at least 12 months from the date of

this report, and it therefore continues to adopt

the going concern basis in preparing the

ﬁnancial statements.

Based upon their assessment, the Directors

have a reasonable expectation that the Group

will be able to continue in operation and meet

liabilities as they fall due over the next three

years.

In making their going concern and viability

assessments, the Directors have considered

a wide range of detailed information relating

to present and potential conditions, including

projections for proﬁtability, cash ﬂows, capital

requirements and capital resources.

The Directors carried out a robust assessment

of the emerging and principal risks facing the

Group to determine its long-term viability,

including those that would threaten its

solvency and liquidity. They determined that

the principal risks are the Group’s top and

emerging risks as set out on page 40. These

include geopolitical and macroeconomic risks,

including rising global inﬂationary pressures,

the Russia-Ukraine war and its impact on

sanctions and trade restrictions, disrupted

supply chains globally and slower Chinese

economic activity, all of which have

increased to a heightened level during 2022.

Digitalisation and technological advances and

environmental, social and governance risks

remained at a heightened level during 2022.

The Directors assessed that all of the top and

emerging risks identiﬁed are considered to

be material and, therefore, appropriate to

be classiﬁed as the principal risks to be

considered in the assessment of viability.

They also appraised the impact that these

principal risks could have on the Group’s risk

proﬁle, taking account of mitigating actions

planned or taken for each, and compared this

with the Group’s risk appetite as approved

by the Board.

In carrying out their assessment of the

principal risks, the Directors considered

a wide range of information including:

– details of the Group’s business and

operating models, and strategy (see

page12);

– details of the Group’s approach to managing

risk and allocating capital;

– a summary of the Group’s ﬁnancial position

considering performance, its ability to

maintain minimum levels of regulatory

capital, liquidity funding and the minimum

requirements for own funds and eligible

liabilities over the period of the assessment.

Notable are the risks which the Directors

believe could cause the Group’s future

results or operations to adversely impact

any of the above;

– enterprise risk reports, including the

Group’s risk appetite proﬁle (see page 132)

and top and emerging risks (see page 135);

– the impact on the Group due to the

Russia-Ukraine war; instability in China’s

commercial real estate sector; structural

changes from the Covid-19 pandemic and

strained economic and diplomatic tensions

between China and the US, the UK, the

EU and other countries;

– reports and updates regarding regulatory

and internal stress testing. The Group

internal stress test has been delayed from

the fourth quarter of 2022 to the ﬁrst quarter

of 2023 and will include overlays applied

to the 2022 annual cyclical scenario for

HSBC-speciﬁc vulnerabilities, including

geopolitical issues (and related

macroeconomic headwinds) along with

the continued impact of Covid-19. It will

also consider the impacts of various risk

scenarios across all risk types and on capital

resources. The 2022 Bank of England annual

cyclical scenario, originally due in June

2022, was also postponed in light of the

uncertainty related to the Russia-Ukraine

war. The exercise commenced on 26

September 2022, with the submission

made to the Bank of England in early

January 2023 and the results due to be

published mid-2023. The initial results of this

exercise indicated the Group is suciently

capitalised to withstand a severe but

plausible adverse stress;

– the results of our 2022 internal climate

scenario analysis exercise. In 2022, the

Group delivered its ﬁrst internal climate

scenario analysis exercise with internal

scenarios being formed with reference to

external publicly available climate scenarios.

Using these external scenarios as a

template, the Group adapted them by

incorporating unique climate risks and

vulnerabilities to which the organisation is

exposed. No issues were identiﬁed around

the going concern status of the Group.

Further details of the insights from the 2022

climate scenario analysis are explained from

page 67;

– reports and updates from management on

risk-related issues selected for in-depth

consideration;

– reports and updates on regulatory

developments;

– legal proceedings and regulatory matters

set out in Note35 on the ﬁnancial

statements; and

– reports and updates from management on

the operational resilience of the Group.

Aileen Taylor

Group Company Secretary and Chief

Governance Ocer

21 February 2023

Long-term viability and going

concern statement

42 HSBC Holdings plc Annual Report and Accounts 2022

Strategic report

Environmental,

social and

governance

review

44 Our approach to ESG

46 Environmental

73 Social

85 Governance

Our ESG review sets out our approach to

our environment, customers, employees

and governance. It also explains how we

aim to achieve our purpose and deliver

our strategy in a way that is sustainable

and how we build strong relationships

with all of our stakeholders.

How we present our TCFD disclosures

Our overall approach to TCFD can be found on page 17

and additional information is included on pages 68 and

423. Further details have been embedded in this section

and the Risk review section on pages 221 to 230. Our

TCFD disclosures are highlighted with the following

symbol:

TCFD

HSBC Holdings plc Annual Report and Accounts 2022 43

Our approach to ESG

We are on a journey to incorporate environmental, social and

governance principles throughout the organisation, and are taking

steps to embed sustainability into our purpose and corporate strategy.

About the ESG review

Our purpose is: ‘Opening up a world of

opportunity’.

To achieve our purpose and deliver our

strategy in a way that is sustainable, we

are guided by our values: we value dierence;

we succeed together; we take responsibility;

and we get it done.

We also need to build strong relationships

with all of our stakeholders, who are the

people who work for us, bank with us,

own us, regulate us, and live in the societies

we serve and on the planet we all inhabit.

Transition to net zero

We have continued to take steps to implement

our climate ambition to become net zero in our

operations and our supply chain by 2030, and

align our ﬁnanced emissions to net zero by

2050. We have expanded our coverage

of sectors for on-balance sheet ﬁnanced

emissions targets, noting the challenge of

evolving methodologies and data limitations.

In addition, our operating environment for

climate analysis and portfolio alignment is

developing. We continue work to improve our

data management processes and are setting

targets to align our provision of ﬁnance with

the goals and timelines of the Paris Agreement.

In March 2022, we announced plans to

turn our net zero ambition for our portfolio

of clients into business transformation across

the Group. The plan involves the publication of

a Group-wide climate transition plan in 2023.

We continued our work to review and update

our wider ﬁnancing and investment policies

critical to achieving net zero by 2050, which

included publishing an updated energy policy

and thermal coal phase-out policy in

December 2022.

We are also working with peers and industry

bodies to help mobilise the ﬁnancial services

industry to take action on climate change,

biodiversity and nature.

Building inclusion and resilience

Our social pillar is centred around building

inclusion and resilience for our colleagues

and customers, as well as in the communities

we serve.

Environmental – Transition to net zero

– Since 2020, we have provided and facilitated $210.7bn of sustainable ﬁnance and investment

towards our ambition of $750bn to $1tn by 2030. We monitor developments in taxonomies

and changing market guidelines in this space.

– In December, we updated our energy policy as an important mechanism to help deliver our

ﬁnanced emissions targets and phase down fossil fuel ﬁnancing in line with our net zero

ambition, and introduced further restrictions for thermal and metallurgical coal.

– We have introduced on-balance sheet ﬁnanced emissions targets for eight sectors, noting

the limitations of evolving methodologies and data quality.

Read more in the Environmental section on page 46.

Social – Building inclusion and resilience

– In 2022, 33.3% senior leadership roles were occupied by women, with a target to achieve

35% by 2025. We have put in place important foundations to support our goal of doubling

the number of Black employees in senior leadership roles by 2025.

– Employee engagement, which is our headline measure, increased to 73% in 2022 following

a ﬁve-point increase from 2019, and was three points above benchmark.

Read more in the Employees section on page 74.

Governance – Acting responsibly

– We conducted a review of our salient human rights issues, including stakeholder consultation

with non-governmental organisations (‘NGOs’) and potentially aected groups.

– Our customer satisfaction performance, using the net promoter score, improved in many

markets in which we operate. However, we still have work to do to improve our rank position

against competitors, as some have accelerated their performance faster than us.

Read more in the Governance section on page 85.

We are committed to ensuring our

people – and particularly our leadership –

are representative of the communities that

we serve, and that we support their well-being

and development so they can learn and grow

in their careers. We are equally committed

to ensuring there are no unnecessary barriers

to ﬁnance for our customers. We have an

ambition to create a welcoming, inclusive

and accessible banking experience.

Inclusion goes hand-in-hand with resilience.

We build resilience for our colleagues by

supporting their physical, mental and ﬁnancial

well-being, and by ensuring they are equipped

with the skills and knowledge to further their

careers during a period of signiﬁcant economic

transformation. For our customers, we build

resilience primarily through education – by

helping them to understand their ﬁnances and

how to manage them eectively.

Acting responsibly

Our governance pillar focuses on

our approach to acting responsibly

and recognises topics such as human

rights, conduct and data integrity.

Our policies and procedures help us provide

the right outcomes for customers, including

those with enhanced care needs, which in

2022 took into account the current cost of

living crisis. Customer experience is at the

heart of how we operate and is measured

through customer satisfaction and customer

complaints.

We continue our journey to embed ESG

principles across the organisation, including

incorporating climate change-related risks

within the risk management framework,

training our workforce, incorporating

climate-related targets within executive

scorecards, and engaging with customers

and suppliers.

44 HSBC Holdings plc Annual Report and Accounts 2022

ESG review

How we decide what to measure

We listen to our stakeholders in a number of

dierent ways, which we set out in more detail

within the ‘ESG overview’ on page 14. We use

the information they provide us to identify the

issues that are most important to them and

consequently also matter to our own business.

Our ESG Committee and other relevant

governance bodies regularly discuss the new

and existing themes and issues that matter to

our stakeholders. Our management team then

uses this insight, alongside the framework of

the ESG Guide (which refers to our obligations

under the Environmental, Social and

Governance Reporting Guide contained

in Appendix 27 to The Rules Governing the

Listing of Securities on the Stock Exchange

of Hong Kong Limited), and the LR9.8.6R(8)

of the Financial Conduct Authority’s (‘FCA’)

Listing Rules, and other applicable laws and

regulations to choose what we measure and

publicly report in this ESG review.

Under the ESG Guide, ’materiality’ is

considered to be the threshold at which ESG

issues become suciently important to our

investors and other stakeholders that they

should be publicly reported. We are also

informed by stock exchange listing and

disclosure rules globally. We know that what

is important to our stakeholders evolves over

time and we plan to continue to assess our

approach to help ensure we remain relevant

in what we measure and publicly report.

Recognising the need for a consistent

and global set of ESG metrics, we monitor

the developments related to International

Sustainability Standard Board (‘ISSB’) and

other standard setters. In the absence of a

globally consistent set of sustainability

standards, we continued to report against

the core World Economic Forum (‘WEF’)

‘Stakeholder Capitalism Metrics’ and

Sustainability Accounting Standards

Board (‘SASB’) metrics this year.

Consistent with the scope of ﬁnancial

information presented in our

Annual Report

and Accounts

, the ESG review covers the

operations of HSBC Holdings plc and its

subsidiaries. Given the relative immaturity

of ESG-related data and methodologies in

general, we are on a journey towards

improving completeness and robustness.

For further information on our approach to

reporting, see the ‘Additional information’

section of page 422.

Assurance relating to ESG data

HSBC Holdings plc is responsible for

preparation of the ESG information and

all the supporting records, including selecting

appropriate measurement and reporting

criteria, in our

Annual Report and Accounts,

ESG Data Pack

and the additional reports

published on our website.

We recognise the importance of ESG

disclosures and the quality of data underpinning

it. We also acknowledge that our internal

processes to support ESG are in the process

of being developed and currently rely on manual

sourcing and categorisation of data. Certain

aspects of our ESG disclosures are subject

to enhanced veriﬁcation and assurance

procedures including the ﬁrst and second line

of defence. We aim to continue to enhance our

approach in line with external expectations.

For 2022, ESG data is subject to stand-alone

independent limited assurance reports

by PwC in accordance with International

Standard on Assurance Engagements 3000

(Revised) ‘Assurance Engagements other

than Audits or Reviews of Historical Financial

Information’ and, in respect of the greenhouse

gas emissions, in accordance with

International Standard on Assurance

Engagements 3410 ‘Assurance Engagements

on Greenhouse Gas Statements’, issued by

the International Auditing and Assurance

Standards Board, on the following speciﬁc

ESG-related disclosures and metrics:

– our

Green Bond Report

2022

(published

in December 2022);

– our ﬁnanced emissions for 2019 and 2020

for six sectors (see page 50);

– our progress towards our ambition to provide

and facilitate $750bn to $1tn of sustainable

ﬁnance and investment (see page 57);

– our own operations’ scope 1, 2 and 3

(business travel) greenhouse gas emissions

data (see page 63); and supply chain

emissions data; and

– our 2019 baseline for ﬁnanced emissions

covering 38% of assets under management

for our asset management business (see

page 56).

The work performed by external parties to

support their limited assurance report is

substantially less than the work performed for

a reasonable assurance opinion, like those

provided over ﬁnancial statements.

Our data dictionaries and methodologies

for preparing the above ESG-related metrics

and third-party limited assurance reports

can be found on: www.hsbc.com/who-we-

are/esg-and-responsible-business/esg-

reporting-centre.

TCFD

Our reporting around ESG

We report on ESG matters throughout our

Annual Report and Accounts

, including the ’ESG overview’ section of the Strategic Report (pages 14 to 19),

this ESG review (pages 44 to 96), and the ‘Climate risk’ and ‘Insights from climate scenario analysis’ sections of the Risk review (pages 221 to 230).

In addition, we have other supplementary materials, including our

ESG Data Pack

, which provides a more granular breakdown of ESG information.

Detailed data Additional reports Indices

ESG Data Pack 2022

UK Pay Gap Report 2022

Modern Slavery and Human Tracking Statement 2022

Green Bond Report 2022

HSBC UN Sustainable Development Goals Bond and Sukuk Report 2022

SASB Index 2022

WEF Index 2022

For further details of our supplementary materials, see our ESG reporting centre at www.hsbc.com/esg.

HSBC Holdings plc Annual Report and Accounts 2022 45

Our approach to ESG

Environmental

Transition to net zero

TCFD

We are developing new solutions to the climate crisis

and supporting the transition of our customers,

industries and markets to a net zero future, while

moving to net zero ourselves.

In this section

Transition

to net zero

Understanding our climate

reporting

To achieve our climate ambition we need to be transparent on the

opportunities, challenges, related risks and progress we make.

Page 47

Our approach to the

transition

We aim to achieve net zero in our ﬁnanced emissions by 2050, and in

our own operations and supply chain by 2030.

Page 49

Financed emissions

We aim to align our ﬁnanced emissions to achieve net zero by 2050

or sooner.

Page 50

Supporting customers

through transition

Our ability to help ﬁnance the transformation of businesses and

infrastructure is key to building a sustainable future for our customers

and society.

Page 57

Unlocking climate

solutions and innovations

We are working closely with a range of partners to help accelerate

investment in natural resources, technology and sustainable infrastructure.

Page 60

Biodiversity and natural

capital strategy

By addressing nature-related risks and investing in nature, we have an

opportunity to help accelerate the transition to net zero.

Page 61

Our approach to our own

operations

Part of our ambition to be a net zero bank is to achieve net zero carbon

emissions in our operations and supply chain by 2030 or sooner.

Page 62

Our approach

to climate risk

Managing risk for our

stakeholders

We manage climate risk across all our businesses in line with our

Group-wide risk management framework.

Page 64

Our approach to

sustainability policies

Our sustainability risk policies seek to ensure that the ﬁnancial

services that we provide to customers do not contribute to

unacceptable impacts on people or the environment.

Page 65

Insights from scenario

analysis

Enhancing our climate change stress testing and scenario analysis

capability is crucial in identifying and understanding climate-related

risks and opportunities.

Page 67

Our approach to

climate reporting

Task Force on Climate-

related Financial

Disclosures (‘TCFD’)

Our TCFD index provides our responses to each of the 11

recommendations and summarises where additional information

can be found.

Page 68

At a glance

Transition to net zero

Our net zero ambition represents one of our

four strategic pillars. At the core of it is an

ambition to support our customers on their

transition to net zero, so that the greenhouse

gas emissions from our portfolio of clients

reaches net zero by 2050. We also aim to be

net zero in our operations and supply chain by

2030. We have made good progress on our

net zero ambition, including publishing an

updated energy policy as an important

mechanism to meeting our ﬁnanced emissions

targets, and expanding our ﬁnanced emissions

targets to eight sectors in total. We aim to

provide and facilitate $750bn to $1tn of

sustainable ﬁnance and investment to support

our customers in their transition to net zero

and a sustainable future by 2030. We continue

to engage with our clients on their transition

plans and to provide them with ﬁnancing

solutions to support their sustainability goals.

Our approach to climate risk

We recognise that to achieve our climate

ambition we need to enhance our approach

to managing climate risk. We have established

a dedicated programme to develop strong

climate risk management capabilities.

We manage climate risks in line with our risk

management framework and three lines of

defence model. We also use stress testing

and scenario analysis to assess how these

risks will impact our customers, business

and infrastructure. This approach gives the

Board and senior management visibility and

oversight of the climate risks that could have

the greatest impact on HSBC, and helps us

identify opportunities to deliver sustainable

growth in support of our climate ambition.

For further details on our approach to climate risk

management, see ‘Environmental, social and

governance risk’ on page 139, ‘Climate risk’ on

page 221 and ‘Insights from scenario analysis’ on

page 226.

Impact on reporting and ﬁnancial

statements

We have assessed the impact of climate risk

on our balance sheet and have concluded that

there is no material impact on the ﬁnancial

statements for the year ended 31 December

2022. We considered the impact on a number

of areas of our balance sheet including

expected credit losses, classiﬁcation and

measurement of ﬁnancial instruments,

goodwill and other intangible assets, our

owned properties, as well as our long-term

viability and going concern. As part of

assessing the impact on our ﬁnancial

statements we conducted scenario analysis to

understand the impact of climate risk on our

business (see page 67). For further details on

our climate risk exposures, see page 145.

For further details of how management has

considered the impact of climate-related risks

on its ﬁnancial position and performance see

our ‘Critical accounting estimates and

judgements’ in Note 1 ‘Basis of preparation and

signiﬁcant accounting policies’ from page 335.

46 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

ESG review

Understanding our climate reporting

The transition to net zero is one of the

biggest challenges for our generation

We recognise that our planet urgently needs

drastic and lasting action to protect our

communities, businesses and the natural

environment from the damaging eects of

climate change.

Our ability to meet our net zero ambition –

to align the ﬁnanced emissions of our portfolio

to net zero by 2050, and to become net zero

in our operations and supply chain by 2030

– relies on the pace of change taking place in

the real economy and action among a broad

set of stakeholders, including policymakers.

This will include responsible actions from

both HSBC and our clients to address

climate change.

We acknowledge that to achieve our climate

ambition we need to be transparent on the

opportunities, challenges, related risks

and progress we make. Our reporting will

need to evolve to keep pace with market

developments and we will aim to overcome

challenges with regard to consistency across

dierent markets in which we operate. The

role of standard setters and regulators will be

important in achieving standardisation. We

have highlighted below some of the limitations

and challenges that our organisation, and the

wider industry, face with regard to climate

reporting.

Our transition will be challenging but we

have an opportunity to make an impact

Our global footprint means that many of our

clients operate in high-emitting sectors and

regions that face the greatest challenge in

reducing emissions in the critical decades

ahead to 2050. Their ability to transition

eectively will be key to reaching a global

net zero economy in time, but they are often

faced with increasingly high energy demand,

relatively new carbon-intensive assets, and

lower level of investments into clean

technologies.

Our approach is rooted in engagement

with our clients to provide them with the

capital and tools to help them transform

their business models and decarbonise. It

is also rooted in the reality that a just and

inclusive transition requires us to consider

region-speciﬁc challenges and opportunities.

Additionally, countries are moving at dierent

speeds and, given our geographical and

sectoral spread, we will naturally have one

of the most complex transitions.

Limited international alignment on green

taxonomies

Green ﬁnance taxonomies are not consistent

globally, and evolving taxonomies and

practices could result in revisions in our

sustainable ﬁnance reporting going forward.

We recognise that there can be diering views

of external stakeholders in relation to these

evolving taxonomies, and we will seek to align

to enhanced industry standards as they

are further developed. We aim to increase

transparency across the dierent types of

green and transition ﬁnance and investment

categories going forward, and plan to engage

with standard setters to help evolve

sustainable ﬁnance product standards to best

incentivise science-based decarbonisation,

particularly in high transition risk sectors.

Engagement with clients on their

transition at an early stage

Success will require governments, clients

and ﬁnance providers to work together. Stable

and strong policy environments are critical

to accelerating the energy transition. Active

engagement between public and private

stakeholders is fundamental to de-risk new

technologies and markets and establish new

business structures.

We established a new process to assess client

transition plans for our largest energy sector

clients and those involved in thermal coal to

help inform areas for further engagement and

guide business decisions. We acknowledge

that our assessment of client transition plans is

in the initial stages and our engagement with

clients on their plans and progress will need

to continue to be embedded.

In December 2022, following extensive

consultation with scientiﬁc and industry

bodies, we published our updated energy

policy and an update to our thermal coal

phase-out policy. These policies acknowledge

a need to phase down ﬁnancing of fossil fuels

while also investing at scale in climate

solutions to enable a transition to net zero.

Need for enhanced governance,

processes, systems, controls and data

Our climate ambition requires enhanced

capabilities including governance, processes,

systems and controls. We also need new

sources of data, some of which may be

dicult to assure using traditional veriﬁcation

techniques. We continue to invest in our

climate resources and skills, and develop

our business management process to

integrate climate impacts. Our activities are

underpinned by eorts and investment to

develop our data and analytics capabilities and

to help ensure that we have the appropriate

processes, systems, controls and governance

in place to support our transition.

We are taking steps to establish an ESG data

utility tool to help streamline and support

data needs across the organisation. We are

enhancing our processes, systems, controls

and governance to help achieve the required

scale to meet the demands of future ESG

reporting. Certain aspects of our reporting rely

on manual sourcing and categorisation of

data. This categorisation of data is not always

aligned with how our businesses are currently

managed. We also have a dependency on

emissions data from our clients. Given the

manual nature, enhanced veriﬁcation and

assurance procedures are performed on a

sample basis over this reporting including the

ﬁrst and second line of defence. Our models

undergo independent review by an internal

model review group, and we obtain limited

assurance on our ﬁnanced emissions and

sustainable ﬁnance disclosures from external

parties including our external auditors.

Transition to net zero

TCFD

HSBC Holdings plc Annual Report and Accounts 2022 47

Environmental

Awarded as a green lease leader

We are carrying out a programme to promote green lease clauses across our global

portfolio of leased buildings, which commit our landlords to helping us reduce our impact

on the environment. As part of this programme, in May 2022, we agreed to move our US

headquarters to The Spiral oce tower at 66 Hudson Boulevard in Manhattan, New York,

which we expect to reduce our total energy consumption by 60% compared with 2021.

The Spiral is on track to achieve industry leading LEED Gold and Fitwel certiﬁcations for

sustainability and building health. Alongside our real estate broker JLL, and our landlord

Tishman Speyer, we were recognised by the Green Lease Leaders Organisation with a Green

Lease Leaders Team Transaction Award – Platinum Level, for our collaboration to improve

the energy eciency and sustainability of buildings.

Disclosure challenges for year-end

reporting

Given the challenges on data sourcing, as well

as the evolution of our processes and industry

standards as mentioned above, there has

been an impact on certain climate disclosures:

– Thermal coal exposures: We acknowledge

that our processes, systems, controls and

governance are not yet designed to fully

identify and disclose thermal coal

exposures, particularly for exposures within

broader conglomerates. We are reassessing

the reliability of our data and reviewing

our basis of preparation to help ensure that

we are reporting all relevant thermal coal

exposures aligned to our thermal coal policy.

As a result, we have not reported thermal

coal exposures in this

Annual Report and

Accounts 2022

. We expect that our updated

thermal coal exposure dating back to

31 December 2020 will be made available

for reporting as soon as practicable in 2023,

although this is dependent on availability

and quality of data.

– Facilitated emissions: In March 2022,

we said we would set capital markets

emissions targets for the oil and gas, and

power and utilities sectors based on the

industry reporting standard from the PCAF

once published. We have chosen to defer

setting targets for facilitated emissions

until the PCAF standard for capital markets

is published, which is expected in 2023.

We had intended to disclose facilitated

emissions for 2019 and 2020 for the oil

and gas, and power and utilities sectors

for transparency, as we did last year.

However, following internal and external

assurance reviews performed during the

year, we identiﬁed certain data and process

limitations and have deferred the publication

of our facilitated emissions for 2019 and

2020 for these two sectors while additional

veriﬁcation procedures are performed. We

aim to provide these disclosures as soon as

practicable in 2023. We continue to monitor

Understanding our climate reporting continued

Capturing the full-scope of our emissions

Having set on-balance sheet 2030 emissions

targets for the oil and gas, and power and

utilities sectors, we have now expanded

our coverage to include heavy industry and

transport sectors, which are key drivers of

energy demand. These sectors cover the most

emissions-intensive parts of our portfolio.

We plan to extend our analysis to four

additional sectors – shipping, agriculture,

commercial real estate and residential real

estate – in our

Annual Report and Accounts

2023

and related disclosures.

Our initial focus has been on on-balance sheet

ﬁnancing, including project ﬁnance and direct

lending. We also have facilitated emissions

from our capital markets activities, through our

underwriting in debt and equity capital markets

and syndicated lending. We aim to update

our targets and baselines to include both

on-balance sheet and o-balance sheet

activities following the publication of the

industry standard for capital markets

methodology by the Partnership for Carbon

Accounting Financials (‘PCAF’). This should

give guidance on how to apportion the

emissions responsibility between a facilitator

and an investor within capital markets activities.

Our Asset Management business released

a coal phase-out policy in September 2022,

and made its initial emissions disclosure

in November 2022 with a portfolio

decarbonisation target for 2030 to align

investments with the goals of the Paris

Agreement. The commitment covers listed

equity and corporate ﬁxed income where

data and methodologies are most mature.

We will also consider the inclusion of

emissions on our insurance business.

the developments in industry standards

for the publication of such emissions and

associated targets, and, as mentioned

above, we will seek to align to the PCAF

standard when published. However, we will

aim to provide transparency on our 2019

and 2020 facilitated emissions for the oil and

gas, and power and utilities sectors as they

become available, which may be in advance

of the PCAF standard being available.

– Shipping ﬁnanced emissions targets: For

the shipping sector, we have chosen to defer

setting a baseline and target until there is

sucient reliable data to support our work,

allowing us to more accurately track

progress towards net zero.

Continuing to evolve our climate

disclosures

In 2023, we plan to publish our ﬁrst Group-

wide climate transition plan to provide further

details of our strategic approach to net zero

and how we plan to transform our organisation

to execute our ambition. We also aim to

publish an updated deforestation policy and

build out our ﬁnanced emissions portfolio

coverage to include agriculture, residential real

estate, commercial real estate and shipping,

and plan to update our targets for certain

sectors to include facilitated emissions once

the PCAF standard is launched.

In 2023, we will continue to review our

approach to disclosures, with our reporting

needing to evolve to keep pace with market

developments.

For details of assurance around ESG data,

see page 45.

For details of our approach to calculating

ﬁnanced emissions and the relevant data and

methodology limitations, see page 52.

For details of our sustainable ﬁnance and

investment ambition, see page 57.

For details of our approach to thermal coal,

see page 66.

48 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

ESG review

Scope 3

Indirect

Scope 3

Indirect

Scope 1

Direct

Scope 2

Indirect

Upstream activities

HSBC Holdings

Investments and

ﬁnanced emissions

(category 15)

Electricity,

steam

heating and

cooling

Company

facilities

Company

vehicles

1 HSBC-sponsored shuttles only

Our own

operations and

supply chain

See page 63

Our ﬁnanced

emissions

See page 51

Downstream activities

Purchased

goods and

services

(category 1)

Capital

goods

(category 2)

Business

travel

(category 6)

Our approach to the transition

Explaining scope 1, 2 and 3 emissions

To measure and manage our carbon emissions, we follow the Greenhouse Gas Protocol

global framework, which identiﬁes three scopes of emissions. Scope 1 represents the direct

emissions we create. Scope 2 represents the indirect emissions resulting from the use of

electricity and energy to run a business. Scope 3 represents indirect emissions attributed to

upstream and downstream activities taking place to provide services to customers. Our

upstream activities include business travel and emissions from our supply chain including

transport, distribution and waste. Our downstream activities include those related to

investments and ﬁnanced emissions.

Under the protocol, scope 3 emissions are also broken down into 15 categories, of which we

provide reporting emissions data for three related to upstream activities, which are: purchased

goods and services (category 1); capital goods (category 2); and business travel (category 6).

We also provide reporting data for one category related to downstream activities, which is

investments and ﬁnanced emissions (category 15)

For further breakdown of our scope 1, 2 and 3 emissions, see our

ESG Data Pack

at www.hsbc.com/esg.

We are committed to a net zero future. Our

global footprint means we play a signiﬁcant

role in the sectors and regions most critical to

the transition to net zero. Many of our clients

operate in the high-emitting sectors and

regions that face the greatest challenge in

reducing emissions. This means we can have

a signiﬁcant impact in helping to drive down

emissions in the real economy, but this is

a challenging process that will take time.

The Paris Agreement aims to limit the rise

in global temperatures to well below 2°C,

preferably to 1.5°C, compared with pre-

industrial levels. To limit the rise in global

temperatures to 1.5°C, the global economy

would need to reach net zero greenhouse gas

emissions by 2050. We are committed to a

science-aligned phase-down of fossil fuel

ﬁnance in line with the Paris Agreement.

We have committed to publish our own

Group-wide climate transition plan in 2023.

This plan will bring together our climate

strategy, science-based targets, and how

we plan to embed this into our processes,

policies, governance and capabilities. It

will outline, in one place, not only our

commitments, targets and approach to

net zero across the sectors and markets we

serve, but also how we are transforming our

organisation to embed net zero and help

ﬁnance the transition. Our approach to nature

and enabling a just and resilient transition

will also be incorporated into our climate

transition plan.

Our net zero policies

In December 2022, we published our updated

policy covering the broader energy system,

including upstream oil and gas, oil and gas

power generation, coal, hydrogen, renewables

and hydropower, nuclear, biomass and energy

from waste. The policy seeks to balance three

related objectives: driving down global

greenhouse gas emissions; enabling an

orderly transition that builds resilience in

the longer term; and supporting a just and

aordable transition. In December, we also

expanded our thermal coal phase-out policy,

in which we committed to not providing new

ﬁnance or advisory services for the speciﬁc

purposes of the conversion of existing

coal-to-gas-ﬁred power plants, or new

metallurgical coal mines. Our updated

energy and thermal coal phase-out policies

were drafted in consultation with leading

independent scientiﬁc and international bodies

and investors. Details on the policies can be

found in ‘Our approach to sustainability

policies’ on page 65.

Working with our customers and suppliers

We believe we can make the most signiﬁcant

impact by working with our customers

to support their transition to a net zero

global economy.

We aim to align our ﬁnanced emissions to net

zero by 2050 or sooner. We are setting targets

on a sector by sector basis that are consistent

with net zero outcomes by 2050. In assessing

ﬁnanced emissions, we focus on those parts

of the sector that we consider are most

material in terms of greenhouse gas

emissions, and where we believe engagement

and climate action have the greatest potential

to eect change, taking into account industry

and scientiﬁc guidance.

We have set interim 2030 targets for on-

balance sheet ﬁnanced emissions for eight

sectors. These include six sectors for which we

have reported 2019 and 2020 emissions: oil

and gas; power and utilities; cement; iron, steel

and aluminium; aviation; and automotive. We

have also set targets for thermal coal power

and thermal coal mining.

In 2022, we established a process to assess

client transition plans to help inform areas

for further engagement and guide business

decisions. We expect engagement with

our customers on their transition plans to form

a core part of our approach as we pursue

our targets. We acknowledge that our

assessment of client transition plans is in the

initial stages and our engagement with clients

on their plans and progress will need to

continue to be embedded.

We aim to become net zero in our operations

and supply chain by 2030. This covers our

direct and indirect greenhouse gas emissions,

known as scope 1, 2 and 3 emissions. As well

as transforming our own operations and

supply chain to net zero, we are asking our

suppliers to do the same.

The next section provides further details on

how we are measuring our progress on our

ﬁnanced emissions ambition. For further details

of the progress made to date on our own

operations and supply chain, see page 62. The

diagram below shows how these ambitions

map to our scope 1, 2 and 3 emissions.

HSBC Holdings plc Annual Report and Accounts 2022 49

Environmental

Sector

Scope of emissions Value chain in scope

Coverage of

greenhouse gases

Oil and gas

1, 2 and 3

/methane

Power and utilities

1 and 2

Automotive

1, 2 and 3

Aviation

1 for airlines,

3 for aircraft lessors

Iron, steel and

aluminium

1 and 2

Cement

1 and 2

Key:

Upstream

(e.g. extraction)

Upstream

(e.g. generation)

Midstream

(e.g. motor vehicle

manufacture)

Midstream

(e.g. ore to steel)

Midstream

(e.g. aircraft manufacturing)

Midstream (e.g clinker

and cement manufacturing)

Midstream

(e.g. transport)

Upstream

(e.g. suppliers)

Upstream (e.g. raw

materials, extraction)

Upstream

(e.g. parts manufacturers)

Upstream (e.g. raw

materials, extraction)

Downstream

(e.g. fuel use)

Midstream

Downstream

(e.g. retail)

Downstream

(e.g. construction)

Downstream

(e.g. airlines and air lessors)

Downstream

(e.g. construction)

Integrated/

diversiﬁed

Downstream

(e.g. retail)

Included in analysis

(e.g. transmission

and distribution)

Financed emissions

We announced our ambition to become a net

zero bank in October 2020, including an aim

to align our ﬁnanced emissions to net zero

by 2050 or sooner. We plan to publish initial

ﬁnanced emissions targets for 2030, and in

ﬁve-year increments thereafter. We remain

committed to working with our customers

to support their journey towards a net zero

future, and deploying capital towards

decarbonisation solutions for the most

emissions-intensive sectors.

Our analysis of ﬁnanced emissions considers

on-balance sheet ﬁnancing, including project

ﬁnance and direct lending. We distinguish

between ‘on-balance sheet ﬁnanced’ and

‘facilitated’ emissions where necessary.

Financed emissions link the ﬁnancing we

provide to our customers and their activities in

the real economy, and provide an indication of

the greenhouse gas emissions associated with

those activities. They form part of our scope 3

emissions, which include emissions associated

with the use of a company’s products and

services. We also recognise that we have more

to do to embed these targets in our business,

including enhanced capabilities and new

sources of data as set out on page 47.

In 2021, we started measuring our ﬁnanced

emissions for two emissions-intensive sectors:

oil and gas, and power and utilities. On the

following pages, we present the progress for

both sectors against the on-balance sheet

ﬁnanced emissions baseline that we now

measure ourselves against. We have also

begun measuring the ﬁnanced emissions

and setting targets for four additional sectors:

cement; iron, steel and aluminium; aviation;

and automotive. During our analysis of the

shipping sector, we noted signiﬁcant data

gaps. We have therefore chosen to defer

setting a baseline and target for this sector

until there is sucient reliable data to support

our work.

We plan to measure and report progress on an

annual basis, and plan to extend our analysis

to four new sectors – shipping, agriculture,

commercial real estate and residential real

estate – in our

Annual Report and Accounts

2023

and related disclosures. For the new

sectors, we plan to set production intensity

targets. We believe these targets are robust as

they are linked to real world production, and

allow us to deploy capital towards solutions for

progressive decarbonisation, supporting our

clients’ transition plans.

TCFD

Our approach to ﬁnanced emissions

In our approach to assessing our ﬁnanced

emissions, our key methodological decisions

were shaped in line with industry practices

and standards. We recognise these are

still developing.

Coverage of our analysis

For each sector, we focused our analysis on

the parts of the value chain where we believe

the majority of emissions are produced based

upon industry benchmarks, and to help

reduce double counting of emissions.

For aviation, we have focused on scope 1

emissions from airlines and scope 3 from

aircraft lessors as we believe the use of

lower emissions aviation fuels and dierent

propulsion systems for new aircraft is where

attention needs to be prioritised to meet net

zero targets.By estimating emissions and

setting targets for customers that directly

account for, or indirectly control the majority

of emissions in each industry, we can focus

our engagement and resources where we

believe the potential for change is highest.

With regards to the dierent types of

greenhouse gases measured, we include

and methane (measured in CO

e) for

the oil and gas sectors, and CO

only for

the remaining sectors due to data availability

and greenhouse gas emissions materiality

within each sector.

To calculate annual on-balance sheet ﬁnanced

emissions, we used drawn balances as at

31 December in the year of analysis related to

wholesale credit and lending, which included

business loans, trade and receivables ﬁnance,

and project ﬁnance as the value of ﬁnance

provided to customers. We excluded products

that were short term by design, which are

typically less than 12 months in duration,

following guidance from the Partnership for

Carbon Accounting Financials (‘PCAF’), and

to reduce volatility.

The chart below shows the scope of our ﬁnanced emissions analysis of the six sectors, including upstream, midstream and downstream

activities within each sector.

50 HSBC Holdings plc Annual Report and Accounts 2022

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ESG review

Financed emissions continued

Setting our targets

We set targets for sectors based on

decarbonisation pathways that are

constructed using the Net Zero Emissions

by 2050 scenario produced by the

International Energy Agency (‘IEA’).

Following guidance from the Net-Zero Banking

Alliance (‘NZBA’) and the Science Based

Targets Initiative (‘SBTi’) this scenario

has low reliance on negative emissions

technologies, or the possibility for the rise

in global temperatures to exceed 1.5°C before

cooling again. The scenario makes reasonable

assumptions about the potential for carbon

sequestration through nature-based solutions

and land use change.

Our approach for ﬁnanced emissions

accounting does not rely on purchasing

osets to achieve any ﬁnanced emissions

targets we set.

Meeting our targets for 2030 is dependent

on immediate and signiﬁcant deployment of

available clean technology solutions, as shown

by the IEA’s Net Zero by 2050 roadmap for the

global energy sector. Innovation in this decade

needs to be accompanied by large‐scale

construction of infrastructure to enable the

implementation of cleaner technologies. This

will require strong policy support and public

and private capital to be deployed at scale.

We also recognise that the supply and

demand side of the market need to move

concurrently. The reduction of fossil fuels in

favour of clean energy supply needs to be

matched by an increase in demand from

industry, buildings and transport to consume

clean energy. Both the supply and demand

still require signiﬁcant policy support to

enable this transition economically.

An evolving approach

We believe methodologies for calculating

ﬁnanced emissions and setting targets should

be transparent and comparable, and should

provide science-based insights that focus

engagement eorts, inform capital allocation

and develop solutions that are both timely

and impactful. We continue to engage with

regulators, standard setters and industry

bodies to shape our approach to measuring

ﬁnanced emissions and managing portfolio

alignment to net zero. We also work with

data providers and our clients to help us

gather data from the real economy to improve

our analysis.

Scenarios used in our analysis are modelled

upon allocation assumptions of the available

carbon budget and actions that need to be

taken to drive the global transition to 1.5°C

outcomes. Assumptions include technology

development and/or adoption, shifts in

the energy mix, the retirement of assets,

behavioural changes and implementation of

policy levers, among others. We expect that

scenario developers will be continually working

to improve the usability, accuracy and

granularity of pathways.

Connecting the oshore

energy industry

The global transition to a net zero

economy provides opportunities for

companies looking to create new

connections to renewable energy

sources. UK-based JDR Cable Systems,

which is part of TFK Group, links global

oshore energy sources to the land

using its subsea cable technology. As it

looks to expand its production, and with

the backing of UK Export Finance, we

helped to provide a £100m investment

loan to ﬁnance the building of a new

facility in Cambois, near Blyth,

Northumberland. The new facility,

which occupies the site of a former

coal-ﬁred power station, will help JDR

expand its product portfolio. It is

expected to complete in 2024.

Leading the electric battery charge in Indonesia

We are supporting Hyundai in its journey to produce only electrical vehicles by 2040. We

acted as a mandated lead arranger and lender towards a $711m loan to a joint venture

company between Hyundai Motor, Kia, Hyundai Mobis and LG Energy Solution. The

ﬁnancing will help fund the construction of an electric vehicle battery manufacturing plant in

Karawang, Indonesia, which would be the ﬁrst in south-east Asia. The facility will have an

annual production capacity of 10 gigawatt hours (‘GWh’)-worth of lithium-ion battery cells.

As the electric vehicle battery sector continues to grow, the facility will help establish

Indonesia as an electric vehicle supply chain hub in Asia and be a crucial contributor to

Hyundai’s net zero ambitions in the region.

HSBC Holdings plc Annual Report and Accounts 2022 51

Environmental

Financed emissions continued

Data and methodology limitations

Our ﬁnanced emissions estimates and

methodological choices are shaped by the

availability of data for the sectors we analyse.

– We are members of Partnership for Carbon

Accounting Financials (‘PCAF’), which

seeks to deﬁne and develop greenhouse

gas accounting standards for ﬁnancial

institutions. PCAF developed the Global

GHG Accounting and Reporting Standard

for the Financial Industry, which focuses

on measuring and reporting ﬁnanced

emissions. The PCAF Standard provides

guidance on assigning data quality scoring

per asset class, creating data transparency

and encouraging improvements to data

quality in the medium and long term.

– We found that data quality scores varied

across the dierent sectors and years of our

analysis, although not signiﬁcantly. While

we expect our data quality scores to

improve over time, as companies continue

to expand their disclosures to meet growing

regulatory and stakeholder expectations,

there may be ﬂuctuations within sectors

year on year, and/or dierences between

the data quality scores between sectors

due to changes in data availability.

– The majority of our clients do not yet report

the full scope of greenhouse gas emissions

included in our analysis, in particular scope 3

emissions. In the absence of client-reported

emissions, we estimate them using proxies

based on company production and revenue

ﬁgures, and validated key data inputs with

our global relationship managers. Although

we sought to minimise the use of non-

company-speciﬁc data, we applied industry

averages in our analysis where company-

speciﬁc data was unavailable. As data

improves, estimates will be replaced with

reported ﬁgures. Our 2019 emissions for our

oil and gas, and power and utilities sectors

have been revised as a result of changes to

data sources.

– Third-party data sets that feed into our

analysis may have up to a two-year lag in

reported emissions ﬁgures, and we are

working with data providers to help

reduce this.

– The methodology and data used to assess

ﬁnanced emissions and set targets are new

and evolving, and we expect industry

guidance, market practice, and regulations

to continue to change. We plan to reﬁne our

analysis using appropriate data sources and

current methodologies available for the

sectors we analyse.

– In line with the PCAF Standard, to calculate

sector-level baselines and annual updates,

our portfolio-level ﬁnanced emissions

are weighted by the ratio of our ﬁnancing

in relation to the value of the ﬁnanced

company. We believe this introduces

volatility and are assessing if portfolio

weight is more appropriate. We remain

conscious that the economic value used

in the ﬁnanced emissions calculation is

sensitive to changes in drawn amounts or

market ﬂuctuations, and we plan to be

transparent around drivers for change to

portfolio ﬁnanced emissions where possible.

– The classiﬁcation of our clients into sectors

is performed with inputs from subject

matter experts and will also continue to

evolve with improvements to data and

our sector classiﬁcation approach.

– The operating environment for climate

analysis and portfolio alignment is also

maturing. We continue to work to improve

our data management processes, and are

implementing steering mechanisms to align

our provision of ﬁnance with the goals and

timelines of the Paris Agreement.

Our methodology for ﬁnanced emissions is set

out in our

Financed Emissions Methodology

which is available at www.hsbc.com/

who-we-are/esg-and-responsible-business/

esg-reporting-centre.

Targets and progress

We have set out in the table below our deﬁned targets for the on-balance sheet ﬁnanced emissions for the following sectors: oil and gas; power

and utilities; cement; iron, steel and aluminium; aviation; and automotive. On the following pages, we provide more granular details on our ﬁnanced

emissions within these sectors.

Sector

2019 baseline 2020 progress 2030 target Unit

Target t ype Target scenario

Oil and gas 33.0 30.1 (34)% Mt CO

e Absolute IEA NZE 2050

Power and utilities

589.9 509.6 138 tCO

/GWh Intensity IEA NZE 2050

Cement 0.64 0.64 0.46 tCO

/t cement Intensity IEA NZE 2050

Iron, steel and aluminium

1.8 2.0 1.05 (1.43) tCO

/t metal Intensity IEA NZE 2050

Aviation 84.0 103.9 63 tCO

/million rpk Intensity IEA NZE 2050

Automotive 191.5 176.2 66 tCO

/million vkm Intensity IEA NZE 2050

1 Our absolute and intensity emission metrics and targets are measured based on the drawn exposures of the counterparties in scope for each sector, which is a

subset of our total loans and advances. For the oil and gas sector, absolute emissions are measured in million tonnes of carbon dioxide (‘Mt CO

e’) and intensity

is measured in million tonnes of carbon dioxide per exajoule (‘Mt CO

e/Ej’); for the power and utilities sector, it is measured in tonnes of carbon dioxide equivalent

per gigawatt hour (‘tCO

/GWh’); for the cement sector, it is measured in tonnes of carbon dioxide per tonne of cement (‘tCO

/t cement’); for the iron, steel and

aluminium sector, it is measured in tonnes of carbon dioxide per tonne of metal (‘tCO

/t metal’); for the aviation sector, it is measured in tonnes of carbon dioxide

per million revenue passenger kilometres (‘tCO

/million rpk’); and for the automotive sector, it is measured in tonnes of carbon dioxide per million vehicle kilometres

('tCO

/million vkm’).

2 Our power and utilities target units have been revised from our 2021 analysis, and the target has been revised from 0.14 Mt CO

e/TWh to 138 tCO

/GWh due to

rounding. The target value remains unchanged.

3 While the iron, steel and aluminium 2030 target is aligned with the IEA Net Zero Emissions by 2050 scenario, we also reference the Mission Possible Partnership

Technology Moratorium scenario, whose 2030 reference range is shown in parentheses.

52 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

ESG review

0.7

0.6

0.5

0.4

0.3

0.2

0.1

2019 2020 20302025

tCO

/t cement

Cement

tCO/t cemen

2020 progress

from baseline

2019 2020 20302025

MtCOe

Oil and gas

Mt COe

2020 progress

from baseline

(9)%

700

600

400

500

300

200

100

2019 2020 20302025

tCO

/GWh

Power and utilitie

tCO/GWh

2020 progress

from baseline

(14)%

On-balance sheet ﬁnanced emissions intensity

Net Zero Emissions by 2050 Scenario

ey:

Financed emissions continued

When assessing the changes from 2019

to 2020, it is important to emphasise the

long-term commitment that is needed to meet

our 2030 interim targets and how changes

to exposure and market ﬂuctuations impact

yearly updates. Movement from one year to

the next may not reﬂect future trends for the

ﬁnanced emissions of our portfolio, and as we

are at the beginning of our journey to track

and measure progress, we believe it would be

premature to infer future trends from the 2019

to 2020 progress at this stage. In addition, the

Covid-19 pandemic led to anomalies in our

portfolio’s ﬁnanced emissions for 2020.

For some sectors, our ﬁnanced emissions

baseline will be dierent from the Net Zero

Emissions by 2050 reference scenario

baseline. Where we have applied an absolute

reduction target such as for the oil and gas

sector, and the target is deﬁned as a

percentage reduction from the baseline they

will be the same. Similarly, when the sector

portfolio intensity is very similar to that of the

global average, the baselines may be

the same.

We plan to report ﬁnanced emissions and

progress against our targets annually and to

be transparent in our disclosures about the

methodologies applied. However, ﬁnanced

emissions ﬁgures may not be reconcilable or

comparable year on year, and targets may

require recalibration as data, methodologies

and reference scenarios develop.

Oil and gas

For the oil and gas sector, we cover all scopes

for upstream as well as integrated companies

to help ensure we include the vast majority of

and methane emissions created by crude

oil and natural gas extraction and consumption.

In line with the IEA Net Zero Emissions by 2050

scenario, we target an absolute reduction of

34% in on-balance sheet ﬁnanced emissions

by 2030, using 2019 as our baseline. We believe

decarbonising the energy system, and therefore

our ability to meet our targets, requires

electriﬁcation of the economy, combined with a

shift from consuming fossil fuels towards the

use of more renewable electricity and

alternative fuels.

Due to data quality and modelling

improvements, we have revised our 2019

baseline to 33.0 million tonnes of carbon dioxide

(‘Mt CO

e’). The sector’s PCAF data quality

score is 2.7 for scope 1 and 2, and 2.9 for scope

3 in 2019, indicating that we need to ﬁnd better

data sources, such as reported and veriﬁed

emissions. Many clients report scope 1 and 2,

but for scope 3 we have had to estimate many

data points using production and revenue

proxies, in line with PCAF guidance. In 2020,

absolute ﬁnanced emissions decreased 9%,

mostly as a result of changes in our portfolio

during the ﬁrst year of the Covid-19 pandemic.

Power and utilities

For the power and utilities sector, we include

scope 1 and 2, and focus on power generation

only. We also follow the IEA Net Zero Emissions

by 2050 scenario and target an on-balance

sheet ﬁnanced emissions intensity of 138

tonnes of carbon dioxide equivalent per

gigawatt hour (‘tCO

/GWh’) by 2030, using 2019

as our baseline. The power and utilities sector

is expected to expand signiﬁcantly as the

electriﬁcation of transport, heating and other

activities will drive an increase in electricity

demand. To enable this growth through

low-emission sources of electricity, we have

chosen an intensity target. We believe ﬁnancing

for renewable electricity will need to increase

signiﬁcantly to help us meet our targets,

alongside smart grids and energy storage.

Due to data quality and modelling

improvements, we have revised our 2019

baseline to 589.9 tCO

/GWh, which is higher

than the IEA global average. The PCAF score is

3.3, for scope 1 and 2 in 2019, as many of our

smaller clients are not disclosing their scope 1 to

2 emissions. These have mostly been estimated

using production or revenue, which will be

replaced when we have reported and veriﬁed

emissions from clients. In 2020, the emissions

intensity of our portfolio decreased by 14% as a

result of clients moving their generation mix to

lower emission sources and portfolio shifts.

Cement

We cover scope 1 and 2 for all companies with

clinker and cement manufacturing facilities. In

line with the IEA Net Zero Emissions by 2050

scenario, we target an on-balance sheet

ﬁnanced emissions intensity of 0.46 tonnes of

carbon dioxide per tonne of cement (‘tCO

cement’) by 2030, using 2019 as our baseline.

Some emission reductions can be achieved

through energy eciency. However, we believe

that to signiﬁcantly reduce fuel and process

emissions from cement manufacturing, and

our ability to meet our targets, large-scale

investments are required in new technologies,

such as clinker substitution, alternative fuel use

such as bioenergy, and carbon capture use and

storage. Our 2020 emission intensity stayed

level with 2019, as there were no signiﬁcant

changes to the emission intensity of our clients.

The PCAF score for the cement sector is 2.2

for scope 1 and 2 in 2019, which is higher

compared with other sectors, as we have

reported emissions data for a large portion of

our clients, and have only needed to estimate

emissions through production or revenue

proxies for the smaller clients in our portfolio.

HSBC Holdings plc Annual Report and Accounts 2022 53

Environmental

2.5

2.0

1.5

1.0

0.5

2019 2020 20302025

tCO

/t metal

Iron, steel and aluminium

CO/t metal

2020 progress

from baseline

11%

200

180

140

160

120

100

2019 2020 20302025

tCO

/million rpk

Aviation

tCO

/million rpk

2020 progress

from baseline

24%

200

180

140

160

120

100

2019 2020 20302025

tCO

/million vkm

Automotive

tCO/million vk

2020 progress

from baseline

(8)%

Financed emissions continued

On-balance sheet ﬁnanced emissions intensity

Net Zero Emissions by 2050 Scenario

Key:

MPP Tech Moratorium

Iron, steel and aluminium

We cover scope 1 and 2 for midstream iron,

steel and aluminium production. Due to the low

materiality of the aluminium sector’s ﬁnanced

emissions within our portfolio, we have

combined them with our iron and steel ﬁnanced

emissions. For the iron, steel and aluminium

sector, we target an on-balance sheet ﬁnanced

emissions intensity of 1.05 (1.43) tonnes of

carbon dioxide per tonne of metal (‘tCO

metal’) by 2030, using 2019 as our baseline.

We use the IEA Net Zero Emissions by 2050

scenario as our core target scenario, and have

included the net zero-aligned Mission Possible

Partnership Technology Moratorium as an

alternative scenario. We recognise that our

ability to meet our targets in so-called ‘hard-to-

abate’ sectors is dependent on strong policy

support to unlock widespread investment and

the scaling up of crucial nascent technologies.

We will continue to monitor the progress in the

uptake of low-carbon technologies, and assess

real economy progress against the IEA and

Mission Possible Partnership scenarios.

The emissions intensity in 2020 rose due to

increased ﬁnancing to the aluminium sector,

which has a higher carbon intensity than that

of steel. The PCAF score is 2.5 in 2019, as only

a small number of clients have reported

emissions, and for many we have had to

make estimates based on their revenue.

Aviation

In the aviation sector, we included airlines’

scope 1 emissions and aircraft lessors’ scope 3

emissions, as we believe this captures direct

emissions from aircraft as the main source of

emissions. We exclude military and dedicated

cargo ﬂights. As per the IEA Net Zero Emissions

by 2050 scenario, we target an on-balance

sheet ﬁnanced emissions intensity of 63 tonnes

of carbon dioxide per revenue passenger

kilometre (‘tCO

/rpk’) by 2030, using 2019 as our

baseline. To reach these intensity levels, and

help meet our targets, we believe the sector

needs signiﬁcant policy support investments

into alternative fuels, such as sustainable

aviation fuel, and new aircraft to reduce

emissions. Sustainable aviation fuel is currently

too costly and in limited supply, so the industry’s

decarbonisation eorts are highly dependent on

partnerships between energy companies,

airlines and aircraft manufacturers. Due to

the travel disruption caused by the Covid-19

pandemic in 2020, emissions intensity ﬁgures

increased signiﬁcantly as aeroplanes carried

fewer passengers on average. This can be

seen in the IEA numbers as well as our client

portfolio. For the aviation sector, the PCAF

score is 2.8 for scope 1 and 2, and 2.8 for scope

3 in 2019, as emissions or production data is

available for most clients, although we continue

to have a challenge with ﬁnding reported

emissions from smaller ﬁrms.

Automotive

For the automotive sector, we look at scope 1, 2

and 3 emissions from the manufacturing of

vehicles, and tank-to-wheel exhaust pipe

emissions for light-duty vehicles. We excluded

heavy-duty vehicles from our analysis, following

industry practice. We will consider including

them at a later stage of our analysis as data and

methodologies develop. We target an on-

balance sheet ﬁnanced emissions intensity of 66

tonnes of carbon dioxide per vehicle kilometre

(‘tCO

/vkm’) by 2030, using 2019 as our baseline.

This is in line with the IEA Net Zero Emissions by

2050 scenario, modiﬁed to match the share of

new in-year vehicle sales for light-duty vehicles.

We believe decarbonisation of the automotive

sector, and therefore our ability to meet our

targets, needs large-scale investments in new

electric vehicle and battery manufacturing

plants, widespread charging infrastructure, and

government policies to support electric vehicles.

Our 2020 intensity reduced by 8% as a result of

clients manufacturing more ecient vehicles,

and the increased sales of electric vehicles. The

PCAF score for the automotive sector is only

3.3 for scope 1 and 2, and 3.4 for scope 3 in

2019, as most companies only report their

scope 1 and 2 emissions. We had to estimate

scope 3 emissions using vehicle production

numbers. Increased self-reporting of

scope 3 emissions from clients would

signiﬁcantly improve data quality.

Our analysis of shipping emissions

As part of our work in 2022, we analysed ﬁnanced emissions for the shipping sector to establish a baseline. During our analysis we noted

signiﬁcant data gaps in reported emissions and data from external vendors at the company level. For scope 1 emissions, which are typically

the easiest to source, we would have needed to have made estimates using outstanding amounts rather than production or revenue indicators,

which would have resulted in the least accurate data quality scoring. We have therefore chosen to defer setting a baseline and target for this

sector until there is sucient reliable data to support our work, allowing us to more accurately set a baseline and track progress towards net

zero. We will continue to engage with strategic clients within the sector to encourage disclosure and discuss their transition plans. We believe

the shipping industry will require signiﬁcant policy support and innovation to allow for the use of lower emissions fuels in existing as well as

new ships. On the supply side, the provision of low-carbon fuels will need to increase suciently to meet this new demand.

54 HSBC Holdings plc Annual Report and Accounts 2022

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ESG review

Financed emissions

The table below summarises the results of our assessment of ﬁnanced emissions using 2019 and 2020 data.

Financed emissions continued

On-balance sheet ﬁnanced emissions – wholesale credit lending and project ﬁnance

1,2

Sector Year

Scope 1–2

(Mt CO

)

†

Scope 3

(Mt CO

)

†

Emissions

intensity

PCAF data quality score

3,†

Scope 1

and 2 Scope 3

Oil and gas

4, 5

2019 3.7 29.3 72.2 2.7 2.9

2020 3.3 26.8 71 2.7 2.9

Power and utilities

4,5

2019 12.1 N/A 589.9 3.3 N/A

2020 11.8 N/A 509.6 3.2 N/A

Cement 2019 2.2 N/A 0.64 2.2 N/A

2020 1.3 N/A 0.64 2.3 N/A

Iron, steel and aluminium 2019 3.2 N/A 1.8 2.5 N/A

2020 2.7 N/A 2 2.8 N/A

Aviation 2019 6.2 0.11 84 2.8 2.8

2020 4.9 0.08 103.9 2.6 3

Automotive 2019 0.11 4.0 191.5 3.3 3.4

2020 0.14 4.9 176.2 3.2 3.3

1 Total amount of short-term ﬁnance excluded for all sectors listed is $9.3bn in 2019 and $7.6bn in 2020

2 Total loans and advances analysed in 2019 were $38.3bn representing 1.7% of wholesale credit and lending and project ﬁnance at 31 December 2019, and in 2020

were $34.7bn representing 1.7% of wholesale credit and lending and project ﬁnance at 31 December 2020.

3 PCAF scores where 1 is high and 5 is low. This is a weighted average score based ﬁnancing for on-balance sheet ﬁnanced emissions.

4 In the

Annual Report and Accounts 2021

the units for power and utilities were reported last year as MtCO

e, and are now read Mt CO

. Oil and gas absolute

emissions are measured in MtCO

e. This year we amended the units for the power and utilities sector from Mt CO

e/TWh’ to tCO

/GWh to align to market practice.

While the target value remains unchanged this has led to a revision in the ﬁgure reported from 0.14 Mt CO

e/TWh’ to 138 tCO

/GWh.

5 Our 2019 emissions for our oil and gas, and power and utilities sectors have been revised due to changes in data impacting drawn amounts of client lending, and

amendments to the assumptions governing the in-scope client population.

† Data is subject to independent limited assurance by PwC in accordance with ISAE 3000/ ISAE 3410. For further details, see our Financed Emissions Methodology

and PwC's limited assurance report, which are available at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.

Our analysis of facilitated emissions

In March 2022, we said we would set capital markets emissions targets for the oil and gas, and power and utilities sectors based on the industry

reporting standard from the PCAF once published. We have chosen to defer setting targets for facilitated emissions until the PCAF standard for

capital markets is published, which is expected in 2023. We had intended to disclose facilitated emissions for 2019 and 2020 for the oil and gas,

and power and utilities sectors for transparency, as we did last year. However, following internal and external assurance reviews performed

during the year, we identiﬁed certain data and process limitations and have deferred the publication of our facilitated emissions for 2019 and

2020 for these two sectors while additional veriﬁcation procedures are performed. We aim to provide these disclosures as soon as practicable

in 2023.

We continue to monitor the developments in industry standards for the publication of such emissions and associated targets, and, as

mentioned above, we will seek to align to the PCAF standard when published. However, we will aim to provide transparency on our 2019

and 2020 facilitated emissions for the oil and gas, and power and utilities sectors as they become available, which may be in advance of

the PCAF standard being available.

HSBC Holdings plc Annual Report and Accounts 2022 55

Environmental

Reducing emissions in our assets under management

In July 2021, our asset management

business, HSBC Asset Management, signed

up to the Net Zero Asset Managers initiative,

which encourages investment ﬁrms to

commit to manage assets in line with the

attainment of net zero emissions by 2050.

In November 2022, HSBC Asset Management

announced its ambition of reducing scope 1

and 2 carbon emissions by 58% by 2030 for

38% of its total assets under management,

consisting of listed equity and corporate ﬁxed

income, which amounted to $193.9bn at

31 December 2019.

A baseline year of 2019 was chosen for our

calculations as it oered a more realistic

picture of the level of carbon emissions

intensity than the period after the pandemic.

Our baseline for the emission intensity of our

portfolio in 2019 was 131tCo

e/M$ invested,

which includes scope 1 and 2 emissions of

companies in our portfolio.

Our baseline represents the emissions

associated with our investing activities

in terms of emissions per dollar invested

relevant of the assets under management in

scope for this assessment. We will review

our interim target at least every ﬁve years,

with a view to increasing the proportion

of assets under management covered until

100% of assets are included. Implementation

of our net zero targets remains subject to

consultation with our key stakeholders. We

plan to stay actively engaged to help support

our investors on their own decarbonisation

goals, and continue to apply resources in

the development of climate solutions.

To support the development of HSBC Asset

Management’s climate strategy and goal to

deliver on its target, it has chosen to align to

the Institutional Investors Group on Climate

Change’s net zero investment framework,

which was created for investors to provide

a common approach around the actions,

metrics and methodologies required to align

portfolios to net zero.

The PCAF data quality score for our baseline

emissions was 2.63. Data is subject to limited

assurance by PwC in accordance with

International Standard on Assurance

Engagements 3000 (Revised) ‘Assurance

Engagements other than Audits or Reviews

of Historical Financial Information’, and with

respect of the greenhouse emissions, in

accordance with International Standard on

Assurance Engagements 3410 ‘Assurance

Engagements on Greenhouse Gas

Statements’, issued by the International

Auditing and Assurance Standards Board.

For the methodology, PwC’s limited

assurance report, and details on HSBC Asset

Management’s net zero ambition, see www.

assetmanagement.hsbc.com/net-zero.

Financed emissions continued

Embedding ﬁnanced emissions into our business

Our net zero ambition is underpinned by our

relationships with customers and collective

engagement, so that we are able to support

our customers to take action to address

climate change in their own activities.

To achieve this, we aim to embed how

we manage and assess ﬁnanced emissions

within our ﬁnancing portfolios to provide

a basis for informing client engagement

and business management decisions from

a climate perspective.

In 2022, we developed an operating model

across our Global Sustainability teams to

strengthen our processes, systems, controls

and governance. The Global Sustainability

function also established a Sustainability

Centre of Excellence, a team of sustainability

specialists with deep subject matter expertise

on new climate technologies, climate analytics

and transition planning and assessment, to

help us fulﬁl our net zero commitments and

serve our customers.

The Global Sustainability Centre of Excellence,

together with the Group Risk and Compliance,

and Global Finance functions, have continued

to develop our approach, including working to

embed ﬁnanced emissions into our business

activities and culture. We have strengthened

our climate data and analytics capability to

help inform decision making and portfolio

management, as well as expanded the

resources to support business engagement.

We are placing climate and sustainability at the

heart of our engagement with customers, and

in particular those customers with the greatest

potential to eect change. In 2022, we

requested and assessed transition plans for EU

and OECD managed clients in scope of our

thermal coal phase-out policy. We have also

requested and are assessing transition plans

for our major oil and gas clients (see page 49).

We aim to provide and facilitate $750bn to

$1tn of sustainable ﬁnance and investment

by 2030 to support our customers in their

transition to net zero and a sustainable future.

In 2022, we also started to develop an

approach for allocating ﬁnancing to scale

technologies critical to reach net zero.

Our own climate transition plan will bring

together our ﬁnanced emissions targets and

climate strategy, with how we plan to embed

this into our processes, infrastructure,

governance and engagement.

The next section provides further detail on how

we are embedding net zero considerations into

our customer engagement and unlocking

ﬁnance to support our customers on their

transition to net zero and a sustainable future.

Backing green SMEs in

the UK

Panthera Group, a family-run

construction company, launched

EnviroHoard, the UK’s ﬁrst construction

hoarding system to be veriﬁed as net

zero carbon. In March, we supported

the ﬁrm with the ﬁrst ever loan through

our $500m Green SME Fund, which we

announced at COP26 as part of our

commitment to supporting small and

medium-sized businesses in their

transition to net zero. Panthera will use

the loan to grow its business in the UK.

In 2022, Panthera reduced 446 tonnes

of carbon emissions through its

installations, and set up a partnership

with Circular Ecology and Trees for

Cities to help oset the carbon impact

of its installations.

56 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

ESG review

We understand that ﬁnancial institutions have

a critical role to play in achieving the transition

to a net zero global economy. We believe the

most signiﬁcant contribution we can make is

by mobilising ﬁnance to support our portfolio

of customers in their transition to decarbonise.

Mobilising sustainable ﬁnance for our

customers

Given our global presence and relationships

with our customers across industries, we

recognise the role we can play in catalysing

the global transition to net zero. We are well

positioned to help ﬁnance the transition

in developing and emerging economies,

mobilising capital to help enable sustainable

business models and an inclusive, just and

resilient transition.

In 2022, we continued to expand the horizons

of sustainable ﬁnance through our products,

services and partnerships to help enable

emissions reduction in the real economy:

– We launched a $5bn sustainable ﬁnance

scheme to support businesses of all sizes

to transition to low-carbon operations in

China’s Greater Bay Area, with successful

loan applicants entitled to a range of

additional services including training,

subsidised third-party assessments and

assistance from a newly formed team

with sustainable ﬁnancing expertise.

– We created a sustainable supply

chain ﬁnance programme for apparel

company PVH Corp in the US to ﬁnance

environmentally and socially friendly

production at its manufacturing facilities

(see page 97).

– We supported Panthera Group, a family-run

construction company, to ﬁnance and grow

the UK’s ﬁrst construction hoarding system

to be veriﬁed as zero carbon, (see page 56).

– We expanded our green mortgage oering

to our retail customers in Hong Kong,

mainland China, India and Türkiye, as well

as electric vehicle and energy eciency

loans to customers in Hong Kong, Egypt

and Argentina.

– We committed to working collaboratively

with the government of Egypt in its Nexus

of Food, Water and Energy programme to

identify ways to use scarce public ﬁnances

eectively and eciently, and help raise

private ﬁnance to support priority projects

from its national climate change strategy.

As part of the Just Energy Transition

Partnership, which aims to mobilise capital

towards emerging and developing economies

to support their national climate strategies, we

agreed to support the facilitation of at least

$10bn of private sector ﬁnancing for projects

in Indonesia and $7.8bn for projects in

Vietnam over the next three to ﬁve years.

In addition, we were also mandated to act on

12 ESG-related government bonds, including

inaugural issuances for the governments of

Singapore, Canada and Uruguay. In 2022,

we secured six awards at the

Environmental

Finance

Bond Awards, revealing the high

regard in the market for our structuring and

engagement work across green, social and

sustainability bonds during 2021. In the

IFR

Awards 2022, we were named ESG Financing

House of the Year. We were also recognised

Euromoney

as the Best Bank for

Sustainable Finance in Asia for the ﬁfth

consecutive year, and in the Middle East

for the fourth.

Supporting customers through transition

TCFD

Embedding net zero transition into our client engagement

In 2022, we requested and assessed transition plans for EU and OECD managed clients in

scope of our thermal coal phase-out policy. We also requested and are assessing transition

plans for our major oil and gas clients. In 2023, we expect to complete assessments for

remaining clients in scope of our thermal coal phase-out policy. Similarly, we expect to

complete assessments for major oil and gas and power and utilities clients globally as well

as other clients in EU and OECD markets in scope of our energy policy.

Our assessments consider historical emissions and disclosures, emissions reduction targets,

details of transition plans to achieve targets, and evidence of activities in line with these plans.

Our assessment framework helps us to understand our clients’ transition plans, develop an

engagement strategy to help support them on their transition journey and help us achieve our

net zero ambition. We acknowledge that our assessment of client transition plans is in the

initial stages and our engagement with clients on their plans and progress will need to

continue to be embedded.

Sustainable ﬁnance and investment

We deﬁne sustainable ﬁnance and

investment as any form of ﬁnancial service

that integrates ESG criteria into business

or investment decisions. This includes

ﬁnancing, investing and advisory activities

that support the achievement of UN

Sustainable Development Goals (‘SDGs’),

including but not limited to the aims of the

Paris Agreement on climate change.

The SDGs, also known as the Global Goals,

were adopted by all UN member states in

2015 as a universal call to action to end

poverty, achieve gender equality, reduce

inequality, protect the planet and ensure

that all people enjoy peace and prosperity

by 2030.

We have reviewed and updated these

deﬁnitions to reﬂect our updated climate

ambition, which is available at www.hsbc.

com/who-we-are/esg-and-responsible-

business/esg-reporting-centre.

$210.7bn

Cumulative progress since 2020 on

our ambition to provide and facilitate

sustainable ﬁnance and investment.

(Ambition: $750bn to $1tn by 2030)

HSBC Holdings plc Annual Report and Accounts 2022 57

Environmental

Sustainable ﬁnance summary

2022

($bn)

2021

($bn)

2020

($bn)

Cumulative progress

since 2020

($bn)

Balance sheet-related transactions provided 42.1 26.0 10.3 78.4

Capital markets/advisory (facilitated)

34.6 48.7 30.0 113.3

Investments (assets under management – ﬂows)

7.5 7.7 3.7 19.0

Total contribution

84.2 82.4 4 4.1 210.7

Sustainable ﬁnance classiﬁcation by theme

Green use of proceeds

29.0 27.1 18.8

74.9

Social use of proceeds

6.7 11.3 9.7 27.8

Other sustainable use of proceeds

3,4

12.6 11.7 8.3 32.7

Sustainability-linked

28.4 24.6 3.5 56.5

Sustainable investments – Asset Management

7.5 7.7 3.7 19.0

Total contribution

2,7

84.2 82.4 4 4.1 210.7

1 This table has been prepared in accordance with our

Sustainable Finance and Investment Data Dictionary 2022

which includes green, social and sustainability activities. The amounts provided and facilitated include: the limits

agreed for balance sheet-related transactions provided, the proportional share of facilitated capital markets/

advisory activities and the net new ﬂows of sustainable investments within assets under management. In 2022,

green liabilities were removed from the data dictionary, which resulted in $0.3bn removed from the published

2021 cumulative total.

2 The $210.7bn cumulative progress since 2020 is subject to limited assurance by PwC in accordance with

International Standard on Assurance Engagements 3000 (Revised) ‘Assurance Engagements other than Audits

or Reviews of Historical Financial Information’. For our

Sustainable Finance and Investment Data Dictionary

2022

and PwC’s limited assurance report, see www.hsbc.com/who-we-are/esg-and-responsible-business/

esg-reporting-centre.

3 For green, social and other sustainable use of proceeds, our capital markets products are aligned to either

ICMA’s Green Bond Principles, Social Bond Principles or Sustainability Bond Guidelines. Our lending labelled

products are aligned to the LMA’s Green Loan Principles, the LMA’s Social Loan Principles or our sustainable

trade instruments, which align the use of proceeds to the UN SDGs.

4 Sustainability use of proceeds can be used for green, social or a combination of green and social purposes.

5 Our sustainability-linked-labelled products are aligned to either the ICMA Sustainability-Linked Bond Principles

or LMA Sustainability-Linked Loan Principles. The coupon or interest rate is linked to sustainability key

performance indicators and the funds can be used for general purposes. Of the cumulative total of $56.5bn,

$10.1bn relates to sustainability linked bonds and $46.4bn relates to sustainability linked loans. Within the

sustainability linked loans, $13.1bn relates to lending to customers within the six high transition risk sectors

(i.e. automobiles, chemicals, construction and building materials, Metals and mining, oil and gas, and power

and utilities) as described on page 223.

6 Net ﬂows of HSBC-owned sustainable investment funds that have been assessed against the

Sustainable

Finance and Investment Data Dictionary 2022.

7 Additional detailed information in relation to our sustainable ﬁnance and investment progress can be found in

the

ESG Data Pack

Supporting customers through transition continued

Financing the transition

We aim to help our customers transition

to net zero and a sustainable future through

providing and facilitating between $750bn

and $1tn of sustainable ﬁnance and

investment by 2030. Our sustainable ﬁnance

ambition has promoted green, sustainable

and socially-focused business alongside

sustainable infrastructure and energy

systems, and enhanced investor capital

through sustainable investment.

Since 1 January 2020, we have provided and

facilitated $185.3bn of sustainable ﬁnance,

$19.0bn of sustainable investment and $6.4bn

of sustainable infrastructure, as deﬁned in our

Sustainable Finance and Investment Data

Dictionary 2022

. This included 36% where

the use of proceeds were dedicated to green

ﬁnancing, 13% to social ﬁnancing, and 15% to

other sustainable ﬁnancing. It also included

27% of sustainability-linked ﬁnancing and 9%

of net new investments ﬂows managed and

distributed on behalf of investors.

In 2022, our underwriting of green, social,

sustainability and sustainability-linked bonds

for clients decreased in line with the overall

market, although remained at 15% of our

total bond issuances. On-balance sheet

sustainable lending transactions increased

by 53%, compared with 2021. The

outstanding sustainable ﬁnance on-balance

sheet position was in excess of $24bn at

31 December 2022.

Sustainability-linked bonds are a recent

innovation in the debt capital markets, which

allow investors to manage their sustainability

strategies by linking targets, and progress

towards them, to the issuers’ ﬁnancing costs.

These products do not require deﬁnitions of

use-of-proceeds as they are linked to issuers’

broader sustainability commitments.

Issuer commitments and strategies continue

to develop and be included in medium- to

long-term sustainability plans. We expect

that sustainability-linked bonds will become

increasingly meaningful for transparency in

issuer performance against science-based

transition pathways and other sustainability

goals. We have supported customers within

the high transition risk sectors to issue

sustainability-linked bonds which support

the transition to the net zero economy and

a sustainable future.

We are working closely with industry bodies,

such as the International Capital Markets

Association (‘ICMA’), to establish a robust

set of standards for the market. The ICMA

Sustainability-Linked Bond Principles provide

guidelines on what is core, material and

relevant in terms of key performance

indicators, and provides advice on how

targets should be assessed.

Our approach to ﬁnancing net zero

In 2022, we started developing a strategy to

help us orient how we allocate our ﬁnancing

solutions and capital to support our clients’

transition to net zero and help deliver a

signiﬁcant decarbonisation impact to the

global economy. The approach, based on the

IEA’s Net Zero by 2050 scenario, identiﬁes the

infrastructure, technologies and new business

models critical for industries to transition to net

zero. We recognise that we will need to adapt

our capabilities in speciﬁc products and

sectors to capture business opportunities and

help ﬁnance the transition. In 2022, we made

several investments to play a catalytic role,

including through Pentagreen Capital, an

innovative ﬁnancing vehicle set up in

partnership with Temasek, to accelerate

sustainable infrastructure in south-east Asia,

and with Breakthrough Energy Catalyst to gain

expertise in nascent, ‘new-economy, sectors

aligned with our clients’ net zero ambitions.

Our data dictionary deﬁning our sustainable

ﬁnance and investments continues to evolve,

and is reviewed annually to take into account the

evolving standards, taxonomies and practices we

deem appropriate. Our review involves reviewing

and strengthening our product deﬁnitions, where

appropriate adding and deleting qualifying

products, making enhancements to our internal

standards, and evolving reporting and

governance. Our progress will be published each

year, and we will seek to continue for it to be

independently assured.

The detailed deﬁnitions of the contributing

activities for sustainable ﬁnance and investment

are available in our revised

Sustainable Finance

and Investment Data Dictionary 2022

. For our

ESG Data Pack

Sustainable Finance and

Investment Data Dictionary

and third-party

limited assurance report, see www.hsbc.com/

who-we-are/esg-and-responsible-business/

esg-reporting-centre.

58 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

ESG review

Supporting customers through transition continued

Accelerating growth in geothermal and recovered energy

Ormat Technologies Inc., which has been operating in renewable energy production for more

than 50 years, has developed expertise and global experience in the supply and development of

geothermal, recovered energy and energy storage solutions. We supported Ormat in June 2022

with the issuance of a $431m green convertible bond, the proceeds of which will support Ormat

grow its business and develop its renewable green energy projects.

Ormat now has a total generating portfolio of approximately 1.1 gigawatts, including a

geothermal and solar generation portfolio across the US, Kenya, Guatemala, Indonesia,

Honduras and Guadeloupe, as well as holding an energy storage portfolio in the US.

First ESG underwriting

guide for life and health

insurance

Our insurance business, HSBC Life,

co-sponsored and co-led the ﬁrst

ESG underwriting guide for the life

and health insurance sector. The guide

was published by the United Nations

Environment Programme Finance

Initiative (‘UNEP FI’) Principles for

Sustainable Insurance, a set of

principles endorsed by the United

Nations and the insurance industry.

This guide, which was published in June

2022, provides a framework for life and

health insurers to evaluate a range of

ESG risks and factors on the mortality,

morbidity, longevity and hospitalisation

risks when underwriting.

These include risk mitigation strategies

alongside best practices for insurers

to consider.

The guide was put together in

collaboration with a global team of

sustainability experts from 11 other

member companies of the UNEP FI

Principles for Sustainable Insurance.

Its purpose is to reinforce the key role

insurers need to play in helping to solve

the major ESG challenges of our time,

such as the spread of infectious

diseases, biodiversity and nature loss,

social inequality, and mental health

and well-being.

Responsible and sustainable investment

We oer a broad suite of ESG capabilities

across asset management, global markets,

wealth, private banking and securities services,

enabling institutional and individual investors to

generate ﬁnancial returns, manage risk and

pursue ESG-related opportunities.

Our Asset Management business seeks

to drive innovation at scale, and bring new

propositions to the market for investors,

including sustainable exchange-traded funds

and lower-carbon investment solutions. We

are committed to further developing our

sustainable product range across asset classes

and strategies, as well as enhancing our

existing product set for ESG criteria where it is

in the investors’ interests to do so. In 2022, we

launched 24 funds with a sustainable focus.

In our aim to support the transition to more

sustainable ways of dealing with resources

and waste, through the circular economy,

HSBC Asset Management launched the HSBC

Global Investment Fund (’HGIF’) Global Equity

Circular Economy fund.

To support its net zero ambition, HSBC Asset

Management continued to add to the range of

products aligned to Paris-aligned benchmarks,

launching two exchange-traded funds in 2022

that invest in emerging markets and Asia-

Paciﬁc. These benchmarks’ underlying assets

are selected in such a manner that the

resulting benchmark portfolio's greenhouse

gas emissions are aligned with the long-term

global warming target of the Paris Agreement.

In 2022, HSBC Asset Management’s ﬁxed

income, equity and stewardship teams held

over 1,000 meetings with companies in our

portfolios. These included discussions on

climate-related matters, with more than 60

of these having speciﬁc, targeted outcomes

with climate objectives. We continue to

engage with issuers, encouraging the

reporting of emissions data, the setting of

emissions reduction targets, the assessment

of climate risk, and the development of robust

transition strategies.

We expanded our investment oering for

private banking and wealth clients with the

launch of 22 sustainable investing mutual

funds and exchange-traded funds in 2022.

We oer a range of sustainable investment

products across other asset classes, including

equities, ﬁxed income, discretionary and

alternatives. We enhanced our ESG thematic

products oering linked to indices. For

example, we collaborated with Euronext and

Iceberg Datalab to design the ﬁrst broad-based

biodiversity screened equity index family.

At HSBC Life, our insurance business, we are

focused on ensuring our customers have more

access to ESG investment fund options

aligned to their ESG preferences. ESG funds

invest only in companies with strong ESG

credentials or in key ESG-related areas. We

increased the availability of ESG investment

fund options within our investment-linked

products. During 2022, we launched in Hong

Kong a new protection-linked plan with three

ESG fund choices now available, and we

launched our ﬁrst ESG fund in Mexico.

HSBC Holdings plc Annual Report and Accounts 2022 59

Environmental

Unlocking climate solutions and innovations

We understand the need to ﬁnd new solutions

to increase the pace of change if the world is

to achieve the Paris Agreement’s goal of being

net zero by 2050.

We are working closely with a range of

partners to accelerate investment in natural

resources, technology and sustainable

infrastructure to help reduce emissions and

address climate change.

Sustainable infrastructure

Addressing climate change requires the

rapid development of a new generation of

sustainable infrastructure, particularly for

emerging markets.

During 2022, we demonstrated our

commitment to catalysing ﬁnancing for

sustainable infrastructure projects, with the

launch of Pentagreen Capital, a debt ﬁnancing

vehicle we set up in partnership with Temasek

(see below).

We continue to take a leading role in the

FAST-Infra initiative, which we helped

conceive, working with the IFC, OECD, the

World Bank’s Global Infrastructure Facility and

the Climate Policy Initiative, under the auspices

of the One Planet Lab. Through the FAST-Infra

initiative, we helped launch in 2021 the

Sustainable Infrastructure (SI) Label – a

consistent, globally applicable labelling

system designed to identify and evaluate

sustainable infrastructure assets. The initiative

continues to grow, with the appointment in

November 2022 of a consortium with global

expertise in sustainability standards, global

ﬁnance, software and data platforms, to

manage the secretariat of the SI Label, so

the label becomes an enduring and widely

adopted standard.

Natural capital as an emerging

asset class

Climate Asset Management, a joint venture we

launched with Pollination in 2020, forms part

of our goal to unlock new climate solutions.

Combining expertise in investment

management and natural capital, Climate

Asset Management oers investment

solutions that generate competitive risk-

adjusted returns for investors, and nature-

enhancing ecosystems to help protect

biodiversity and accelerate the transition

to net zero.

In December 2022, Climate Asset Management

announced it had received commitments of

over $650m for its two strategies:

– the Natural Capital Strategy, which invests

in agriculture, forestry and environmental

assets, with the aim to deliver impact at

scale alongside long-term ﬁnancial returns;

and

– the Nature Based Carbon Strategy, which

targets nature restoration and conservation

projects in developing economies,

prioritising community beneﬁts while

generating high-quality carbon credits.

One of Climate Asset Management’s

ﬁrst investments was the Restore Africa

Programme, in partnership with the Global

EverGreening Alliance, announced in

November 2021. The programme, which

is the world’s largest community-based

land-restoration project, aims to beneﬁt

1.5 million smallholder farmers and their

communities through the restoration of up to

2 million hectares of degraded land across six

sub-Saharan countries. The programme has

started being implemented in Kenya, Uganda

and Malawi, with plans for Zambia, Tanzania

and Ethiopia to follow in 2023.

Climate Asset Management is a founding

member of the Natural Capital Investment

Alliance, whose 15-strong membership of

investment ﬁrms aims to have mobilised $10bn

towards nature-based economic themes.

Backing new technology and innovation

Addressing climate change requires

innovative ideas. By connecting ﬁnancing

with fresh thinking, we can help climate

solutions to increase in scale to support

sustainable growth.

We continue to unlock new climate solutions,

focusing on supporting innovation in critical

areas such as green technologies. In January

2022, we announced our investment of $100m

as an anchor partner in Breakthrough Energy

Catalyst, a programme that uses private-public

capital to accelerate the development of four

critical climate technologies: direct air capture,

clean hydrogen, long-duration energy storage

and sustainable aviation fuel.

Our philanthropic programme, Climate

Solutions Partnership, aims to scale up climate

innovation ventures and nature-based

solutions, as well as help the energy sector

transition towards renewable sources in Asia

(for further details, see page 84).

Our climate technology venture debt and

venture capital platforms invest in companies

that are developing innovative technological

solutions that help companies and

governments understand, track and reduce

their greenhouse gas emissions. We

expanded our venture debt platform to

support climate technology hardware and

software companies that are growing rapidly.

In 2022, we achieved our initial goal to fund

$100m to climate technology companies

through this platform, and consequently

increased our commitment to $250m. In

2022, we committed an additional $100m

to fund women and minority entrepreneurs

through our venture debt platform.

HSBC Asset Management also launched

a venture capital strategy that invests in

transformative early stage companies enabling

decarbonisation and de-pollution of industries.

The strategy invests across four investment

themes: power transformation, transport

electriﬁcation, supply chain sustainability

and climate risk mitigation. We seeded the

strategy with capital in November 2021,

and it has since invested in three start-up

companies. HSBC Asset Management

continues to actively fundraise for this

strategy, aiming to raise additional funds

from institutional and private wealth clients

over the course of 2023.

TCFD

Accelerating sustainable infrastructure in Asia

In August 2022, we ocially launched Pentagreen Capital, a sustainable infrastructure debt

ﬁnancing vehicle set up in partnership with Temasek. Pentagreen’s goal is to accelerate the

development of sustainable infrastructure in Asia by removing the barriers that can prevent

marginally bankable projects from accessing capital. With a combined $150m of seed

capital committed by the founding partners, the Singapore-based company aims to provide

more than $1bn of loans over the next ﬁve years, targeting opportunities initially in south-

east Asia. Its primary focus will be on clean transport, renewable energy and energy storage,

and water and waste management.

60 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

ESG review

Biodiversity and natural capital strategy

We recognise that achieving net zero goes

hand in hand with halting and reversing nature

loss. Nature loss, which refers to the decline

of natural capital, ecosystem services and

biodiversity, is one of the greatest systemic

risks to the global economy and the health

of people and the planet. According to The

Nature Conservancy, natural climate solutions

can provide up to 37% of the emission

reductions needed by 2030. At the same time

climate change is accelerating nature loss, and

consequently the ability for nature to mitigate

climate change impacts.

We understand we need to do more to embed

nature-related issues into our sustainability

policies and climate transition plan, and we

are committed to strengthening our risk

management approach and engaging with

our customers.

Understanding our exposure

In 2022, we made progress with

understanding how to assess and monitor

nature-related risks, as well as how to create

eective transition plans with the aim of

halting our contribution to nature loss from

our business activities:

– We conducted analysis on how reliant our

large corporate clients were on ecosystem

services, including the nature-related

beneﬁts crucial for the provision of food and

drinking water, which demonstrated that our

clients were highly dependent on water

availability.

– To improve our understanding of the

potential credit risks that nature-related risks

pose to our customers, we worked with the

Cambridge Institute on Sustainability

Leadership, by evaluating the impact of

three months of water shortage on a sample

of our customer portfolio comprising heavy

industry companies in east Asia.

– We participated in a pilot test of a draft

version of the Taskforce on Nature-related

Financial Disclosures (‘TNFD’) framework

for risk and opportunity management and

disclosure, which helped us understand its

implications and provide feedback ahead

of its release in September 2023.

– We intend to publish a new deforestation

policy, informed by scientiﬁc and

international guidance, in 2023. For further

details of our biodiversity and natural

capital-related policies, see ‘Our approach

to sustainability policies’ on page 65.

Reducing nature loss

We are making progress with the investment

and ﬁnancing of biodiversity and nature-based

solutions through client products and services

and partnerships. In 2022, these included:

– In August 2022, our asset management

business, HSBC Asset Management,

launched a biodiversity exchange-traded

fund that enables investors to incorporate

sustainable considerations within their

portfolios (see below).

– Our Global Private Banking business

launched a biodiversity strategy for our

private bank clients in Hong Kong and

Singapore, which focuses on investing

in companies that are well positioned

to harness, regenerate and protect

biodiversity through the circular and

bio-based economy.

– Through the Climate Solutions Partnership,

our philanthropic collaboration with the

World Resources Institute and WWF, we

issued two reports on the hurdles and

success factors for scaling up nature-based

solutions.

For further details of our approach to nature and

related initiatives, see our Statement on Nature in

the ESG reporting centre at www.hsbc.com/

who-we-are/esg-and-responsible-business/

esg-reporting-centre.

Our presence in environmentally

sensitive areas

As a global organisation, our branches, oces

and data centres may be located in – or near

– areas of water stress and/or protected areas

of biodiversity, as we support our customers

and communities in these locations.

Approximately 58.5% of our global oces,

branches and data centres are located in areas

identiﬁed as being subject to high and very

high water stress, accounting for 39.7% of

our annual water consumption. These are

predominantly urban or city centre locations

with large, concentrated populations. Our

industry is a low user of potable water, and we

have implemented measures to further reduce

water consumption through the installation of

ﬂow restrictors, auto-taps and low or zero

ﬂush sanitary ﬁttings.

In addition, 1.6% of our global oce, branch

and data centre portfolio lies in protected

areas and areas of biodiversity. We strive

through our design, construction and

operational standards to ensure that, where

possible, our premises do not adversely aect

the environment or natural resources in

these areas.

Building biodiversity risk awareness into ETFs

Asset owners and managers have a role to play in addressing potential transition and physical

risks. Our asset management business, HSBC Asset Management, launched the ﬁrst of its

kind biodiversity screened exchange-traded fund, which provides investors with the

opportunity to consider biodiversity risk factors in their portfolios. This exchange-traded fund

tracks the Euronext ESG Biodiversity Screened Index series, which was jointly developed by

HSBC, Euronext and Iceberg Data Lab. The Biodiversity Footprint Score excludes companies

from the index that do not suciently consider biodiversity impacts as well as those with poor

ESG credentials and/or business activities deemed harmful towards biodiversity.

HSBC Holdings plc Annual Report and Accounts 2022 61

Environmental

Our approach to our own operations

TCFD

Our environmental and sustainability management

policies

Our buildings policy recognises that regulatory and environmental requirements vary across

geographies and may include environmental certiﬁcation. The policy is supported by

Corporate Services procedures on environmental and sustainability management, ensuring

HSBC’s properties continually reduce their overall direct impact on the environment. Detailed

design considerations documented in our Global Engineering Standards aim to reduce or

avoid depletion of critical resources like energy, water, land and raw materials. Suppliers are

required to adhere to strict environmental management principles and reduce their impact on

the environment in which they operate.

Part of our ambition to be a net zero bank

is to achieve net zero carbon emissions in

our operations and supply chain by 2030

or sooner.

Reduce, replace and remove

We have three elements to our strategy:

reduce, replace and remove. We plan to ﬁrst

focus on reducing carbon emissions from

consumption, and then replacing remaining

emissions with low-carbon alternatives in line

with the Paris Agreement. We plan to remove

the remaining emissions that cannot be

reduced or replaced by procuring, in

accordance with prevailing regulatory

requirements, high-quality osets at a

later stage.

Our energy consumption

In October 2020, we announced our ambition

to reduce our energy consumption by 50%

by 2030, against a 2019 baseline, and in 2022

we achieved 24%. We plan to do this by

optimising the use of our real estate portfolio,

and carrying out a strategic reduction in our

oce space and data centres. We are using

new technology and emerging products to

make our spaces more energy ecient, such

as in the UK, where an additive to our boiler

systems helped make heating in our branches

13% more ecient.

As part of our ambition to achieve 100%

renewable power across our operations by

2030, we continue to look for opportunities to

procure green energy in each of our markets.

A key challenge remains the limited

opportunity to pursue power purchase

agreements or green taris in key markets

due to regulations.

We are tracking the impact on our emissions

from our colleagues working from home, as

they continue to embrace more ﬂexible ways

of working. We calculated the electricity used

by our colleagues working from home was 5%

of our total electricity consumption in 2022.

This only includes energy consumption from

the IT equipment and lighting. We do not

report employee home working emissions

in our scope 1 and 2 performance data.

Business travel and employee commuting

In 2022, our travel emissions remained below

50% of pre-pandemic levels in 2019, with

international travel restrictions remaining for

much of the year in key Asia markets, slowing

the return to business travel. We are closely

managing the gradual resumption of travel

through internal reporting and review of

emissions, and through the introduction of

internal carbon budgets, in line with our aim

to halve travel emissions by 2030, compared

with pre-pandemic levels. With hybrid working

embedded across the organisation, the use

of virtual working practices has reduced the

need for our colleagues to travel to meet with

other colleagues and customers. We continue

to focus on reducing the environmental impact

from the vehicles we use in our global

markets, and accelerate the use of electric

vehicles. In 2022, we reduced the company

car ﬂeet size by 24%. We are now aiming to

ensure that all new vehicles ordered are fully

electric or hybrid vehicles where possible.

Engaging with our supply chain

Our supply chain is critical to achieving our net

zero ambitions, and we are partnering with our

suppliers on this journey. In 2020, we began

the three-year process of encouraging our

largest suppliers to make their own carbon

commitments, and to disclose their emissions

via the CDP (formerly the Carbon Disclosure

Project) supply chain programme. The target

for 2022 was for suppliers representing 60%

of total supplier spend to have completed

the CDP questionnaire. In total, suppliers

representing 63.5% of total supplier spend

completed the CDP questionnaire.

We will continue to engage with our supply

chain through CDP, and through direct

discussions with our suppliers on how they

can further support our transition to net zero.

In 2022, we also formalised our supply

chain sustainability strategy through the

update of our supplier code of conduct

and the development of our sustainable

procurement procedures. The new procedures

set out the minimum requirements and

operational information required to help

ensure our sustainability objectives relating to

climate change, the environment, human

rights, and diversity and inclusion are clearly

addressed in the way that we operate and

conduct business with suppliers.

Focus on natural resources

Alongside our net zero operations ambition,

our aim is to be a responsible consumer

of natural resources. Through design,

construction and operational standards,

we strive to ensure that, wherever possible,

our premises do not adversely aect the

environment or natural resources. We have

identiﬁed speciﬁc focus areas including waste,

paper and sustainable diets, and are exploring

key opportunities to reduce our wider

environmental impact over the coming decade.

62 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

ESG review

Our approach to our own operations continued

The data we receive through our engagement

with CDP has enabled us to report our supply

chain emissions for the ﬁrst time. Our

methodology uses supplier emissions data

where we have it from 500 of our largest

suppliers, through CDP. Where we do not

have emissions data for suppliers, we use

industry average carbon intensities and spend

data to deﬁne the contribution to our supply

chain emissions. As more of our suppliers

report their emissions, we should be able

to include more accurate data and fewer

industry averages in the calculation. We

have applied a data quality score to the

sources of data we used to determine

counterparty emissions. Our initial supply

chain emission ﬁgures may require updating

as data availability changes over time and

methodology and climate science evolve.

For further details, see our GHG Reporting

Guidance.

In 2022, emissions from our supply chain

increased by 16% compared with 2019, as

a result of an increase in spend – particularly in

IT services – and a rise in the average carbon

intensity of our suppliers. The CDP-provided

industry averages rose, increasing the

emissions for our suppliers where we do not

have emissions data. However, in 2022 there

was a decrease in carbon intensity of suppliers

who disclose their emissions compared with

2021, particularly in servers and data centres.

While the carbon intensity of our supply chain

decreased, a rise in spend on services in 2022

led to a 1% increase in emissions compared

with 2021.

Emissions from our supply chain in 2022

Scope 3 categories

Year

Emissions (tonnes CO

e) Data quality score

Scope 1–2 Scope 3 Total Scope 1–2 Scope 3

Category 1 – Purchased goods and services

2, 3

2022

218,000 648,000 866,000 3.1 3.3

2021

252,000 617,000 869,000 3.0 3.3

Category 2 – Capital goods

2, 3

2022

30,000 114,000 144,000 3.1 3.4

2021

31,000 96,000 127,000 3.1 3.3

1 Data quality scores where 1 is high and 5 is low, based on the quality of emissions data. This is a weighted average score based on HSBC supplier spend and is in line

with HSBC’s ﬁnanced emissions reporting methodology

2 Supply chain emissions calculated using a combination of supplier emissions data and industry averages.

3 Data in 2019, 2020, 2021 and 2022 for scope 3 (purchased goods and service) and scope 3 (capital goods) is subject to PwC’s limited assurance report in accordance

with International Standard on Assurance engagements 3410 (Assurance Engagements on Greenhouse Gas Statements). For further details, see GHG Reporting

Guideline 2022 and third-party limited assurance report at www.hsbc.com/our-approach/esg-information/esg-reporting-and-policies.

Energy consumption in kWh in 000s

2022 2021

Total Group

797,000 833,000

UK only

222,000 227,000

Emissions from our energy and travel

in 2022

We report our emissions following the

Greenhouse Gas Protocol, which incorporates

the scope 2 market-based emissions

methodology. We report greenhouse gas

emissions resulting from the energy used in

our buildings and employees’ business travel.

Due to the nature of our primary business,

carbon dioxide is the main type of greenhouse

gas applicable to our operations. While the

amount is immaterial, our current reporting

also incorporates methane and nitrous oxide

for completeness. We do not report employee

home working emissions in our scope 1 and 2

performance data. Our environmental data for

our own operations is based on a 12-month

period to 30 September.

In 2022, we continued to decrease our

emissions from our energy consumption and

travel, achieving a 58.5% reduction compared

with our 2019 baseline. This was mainly

attributed to travel restrictions and the

reduction of usage of our buildings due to

the Covid-19 pandemic. We also implemented

over 400 energy conservation measures that

amounted to an estimated energy avoidance in

excess of 11.9 million kWh and increased our

consumption of renewable electricity to 48.3%.

In 2022, we collected data on energy use

and business travel for our operations in 28

countries and territories, which accounted for

approximately 92.4% of our FTEs. To estimate

the emissions of our operations in entities

where we have operational control and a small

presence, we scale up the emissions data from

92.4% to 100%. We then apply emission uplift

rates to reﬂect uncertainty concerning the

quality and coverage of emission measurement

and estimation. This is consistent with both the

Intergovernmental Panel on Climate Change’s

Good Practice Guidance and Uncertainty

Management in National Greenhouse Gas

Inventories and our internal analysis of data

coverage and quality.

For further details on our methodology and

relevant environmental key facts, see the

ESG

Data Pack

at www.hsbc.com/esg.

Energy and travel greenhouse gas

emissions in tonnes CO

2022 2021

Scope 1

19,000 22,000

Scope 2

224,000 307,000

Scope 3 (category 6)

business travel

42,000 12,000

Total

285,000 341,000

Included energy UK

9,000 10,000

Greenhouse gas emissions in tonnes

e per FTE

2022 2021

Total 1.30 1.52

1 Data in 2022 is subject to PwC’s limited assurance

report in accordance with International Standard

on Assurance engagements 3410 (Assurance

Engagements on Greenhouse Gas Statements). For

further details, see GHG Reporting Guideline 2022

and third-party limited assurance report at www.

hsbc.com/our-approach/esg-information/

esg-reporting-and-policies.

HSBC Holdings plc Annual Report and Accounts 2022 63

Environmental

Banking

Our banking business is well positioned

to support our customers managing their

own climate risk through ﬁnancing. For our

wholesale customers, we use our transition

and physical risk questionnaire as part of our

risk framework to understand their climate

strategies and risk. We have set out a suite of

policies to guide our management of climate

risk, including our recently updated energy

policy and thermal coal phase-out policy (see

page 65). We continue to develop our climate

risk appetite and utilise metrics to help

manage climate exposures in our wholesale

and retail portfolios. Climate scenario analysis

is used as a risk assessment tool to provide

insights on the long-term eects of transition

and physical risks across our corporate and

retail banking portfolios, as well as our own

operations (for further details, see page 67).

Asset management

HSBC Asset Management managed

over $608bn assets at the end of 2022,

of which more than $55bn were held in

sustainable investments. The majority of

the remaining assets were invested in

ESG-integrated strategies.

When assessing the impact of climate-related

risk to our portfolios, we are increasingly

considering both physical and transition risks.

As a result, we have integrated ESG and

climate analysis to help ensure that risks faced

by companies are considered throughout

the investment decision-making process.

Investment teams through portfolio

management tools assess, examine and

determine the level of potential ESG risks that

could impact the current and future value

of issuers.

One of our key approaches to manage climate

risk is through engaging with the companies

we invest in. Our HSBC Asset Management

Stewardship Plan outlines our approach to

engaging with issuers, including on the topic

of climate change.

Employee pensions

The Trustee of the HSBC Bank (UK) Pension

Scheme, our largest plan with $33bn assets

under management, aims to achieve net zero

greenhouse gas emissions across its deﬁned

beneﬁt and deﬁned contribution assets by

2050. To help achieve this, it is targeting an

interim emissions reduction of 50% by 2030,

from 2019 levels, for its equity and corporate

bond mandates. This commitment was made

in the context of wider eorts to manage the

impact of climate change on the Scheme’s

investments and the consequent impact on

the ﬁnancial interests of members.

During 2022, a framework was put in place to

assess progress towards the 2030 targets. The

Scheme, which has reported emission

reductions for the equity and corporate bond

mandates between 2019 and 2021, will

continue to report against the 2030 targets,

and aim to widen the coverage of its

assessment and reporting over time.

For further details of the HSBC Bank (UK)

Pension Scheme’s annual TCFD statements and

climate action plan, see https://futurefocus.sta.

hsbc.co.uk/active-dc/information-centre/

other-information.

Insurance

In 2022, our Insurance business, which has life

insurance manufacturing subsidiaries in eight

markets and total assets under management

of approximately $126bn, updated its

sustainability policy to align with the Group’s

new thermal coal phase-out policy. An ESG

policy on corporate underwriting was also

introduced.

Risk appetite was reviewed relating to key ESG

aspects. ESG standards were embedded into

insurance product development processes

and operational capabilities.

In response to multiple and diering ESG

regulatory initiatives and developments, HSBC’s

insurance entities in the EU have implemented

key disclosure-related regulatory requirements.

These requirements mainly impact insurance-

based investment products manufactured by

HSBC entities in the EU. Related requirements

for the UK and other jurisdictions are expected

to be introduced in the near future.

Our approach to climate risk

TCFD

Managing risk for our stakeholders

Banking

We manage the climate risk in our

banking portfolios through our risk

appetite and policies for ﬁnancial

and non-ﬁnancial risks.

This helps enable us to identify

opportunities to support our

customers, while continuing to

meet stakeholder expectations.

Employee pensions

Our pension plans manage climate

risk in line with their ﬁduciary

duties towards members and local

regulatory requirements.

We monitor climate risk exposure

internally for our largest plans

based on asset sector allocation

and carbon emissions data where

available.

Asset management

Climate risk management is a key

feature of our investment decision

making and portfolio management

approach.

We also engage with companies

on topics related to climate

change.

Insurance

We consider climate risk in our

portfolio of assets.

We have established an evolving

ESG programme to meet changing

external expectations and

customer demands.

Investors

Suppliers

Regulators and

governments

Communities

Employees

Customers

Investors

Suppliers

Regulators and

governments

Communities

Employees

Customers

Investors

Suppliers

Regulators and

governments

Communities

Employees

Customers

Investors

Suppliers

Regulators and

governments

Communities

Employees

Customers

Investors

Suppliers

Regulators and

governments

Communities

Employees

Customers

Investors

Suppliers

Regulators and

governments

Communities

Employees

Customers

Investors

Suppliers

Regulators and

governments

Communities

Employees

Customers

Investors

Suppliers

Regulators and

governments

Communities

Employees

Customers

Investors

Suppliers

Regulators and

governments

Communities

Employees

Customers

Investors

Suppliers

Regulators and

governments

Communities

Employees

Customers

Investors

Suppliers

Regulators and

governments

Communities

Employees

Customers

Climate risk

64 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

Climate risk relates to the ﬁnancial and

non-ﬁnancial impacts that may arise as a

result of climate change and the move to

a greener economy. We manage climate

risk across all our businesses and are

incorporating climate considerations within

our traditional risk types in line with our

Group-wide risk management framework. Our

most material exposure to climate risk relates

to corporate and retail client ﬁnancing activity

within our banking portfolio. We also have

signiﬁcant responsibilities in relation to asset

ownership by our insurance business,

employee pension plans and asset

management business. In the table below, we

set out our duties to our stakeholders in our

four most material roles.

For further details of our approach to climate risk,

see ‘ESG risk’ on page 139 and ‘Climate risk’ on

page 221.

ESG review

We recognise that businesses can have an

impact on the environment, individuals and

communities around them. We continue to

develop, implement and reﬁne our approach

to working with our business customers to

understand and manage these issues. We

have joined various partnerships to support

our role in this, including the World Economic

Forum’s Principles for Financing a Just and

Urgent Energy Transition.

Our policies

Our sustainability risk policies cover

agricultural commodities, chemicals, energy,

forestry, mining and metals, thermal coal,

UNESCO World Heritage Sites and Ramsar-

designated wetlands. We also apply the

Equator Principles when ﬁnancing projects.

These policies deﬁne our appetite for business

in these sectors and seek to encourage

customers to meet good international standards

of practice. Where we identify activities that

could cause material negative impacts, we will

only provide ﬁnance if we can conﬁrm clients

are managing these risks responsibly. Such

customers are subject to greater due diligence

and generally require additional approval by

sustainability risk specialists.

Our sustainability policies are aligned with

our approach to climate risk, and our net

zero ambition.

For further details on how we manage

sustainability risk, as well as our full policies,

see www.hsbc.com/our-approach/risk-and-

responsibility/sustainability-risk.

Supporting the transition

Reinforcing our ambition to support our clients’

transition to lower carbon through transition

ﬁnancing, we updated our thermal coal

phase-out policy, which we explain further

on the following page, as well as our energy

policy, which we set out below.

Governance and implementation

HSBC’s relationship managers are the primary

point of contact for our customers and are

responsible for checking whether our

customers meet applicable policies. Within

our Group Risk and Compliance function,

we have reputational and sustainability risk

specialists who are responsible for reviewing,

implementing and managing our sustainability

risk policies as well as our application of the

Equator Principles. Our global network of

more than 75 sustainability risk managers is

supported by regional reputational risk

managers across the Group who have

additional oversight responsibilities for

sustainability risk.

The Wholesale Reputational and Sustainability

Risk team also became part of Risk Strategy,

with expanded Group-wide responsibilities, to

strengthen the governance and oversight of

sustainability risk policies, and to reﬂect the

evolution of the sustainability agenda.

The Sustainability Risk Oversight Forum, made

up of senior members of the Group Risk and

Compliance function and global businesses,

continued to oversee the development and

implementation of policies that seek to

identify, manage and mitigate the Group’s

sustainability risk.

As part of our oversight of sustainability risk

policies, we operate an assurance framework

that is designed to take a more holistic view of

risks, including by:

– ESG news screening, taking a risk-based

approach, across the sustainability risk

policies;

– overseeing clients considered to be of

higher risk;

– reviewing client ﬁles across the

sustainability risk policies; and

– monitoring of the sustainability risk client

portfolio against a deﬁned set of key control

indicators overseen by the Sustainability

Risk Oversight Forum.

The framework is used to monitor the

in-scope portfolio and keep track if there

is a deterioration in the risk ratings. With

the respective risk rating assigned, our

sustainability risk specialists will agree

the necessary actions to help mitigate

unacceptable risks with the business.

Where considered appropriate, a submission

can be made to the Reputational Risk and

Client Selection Committee to agree an

appropriate course of action.

Our approach to sustainability policies

TCFD

Our energy policy

In December 2022, we published our

updated policy covering the broader energy

system, including upstream oil and gas,

oil and gas power generation, hydrogen,

renewables and hydropower, nuclear,

biomass and energy from waste. The

policy seeks to balance three related

objectives: supporting the reduction of

global greenhouse gas emissions; enabling

an orderly transition that builds resilience in

the longer term; and supporting a just and

aordable transition. Central to our approach

is our commitment to supporting clients who

are taking an active role in the transition.

In line with the policy, we will no longer

provide new ﬁnance or advisory services for

the speciﬁc purpose of projects pertaining

to new oil and gas ﬁelds and related

infrastructure whose primary use is in

conjunction with new ﬁelds. Engagement on

transition plans is a key part of our approach.

We will continue to provide ﬁnance or

advisory services to energy sector clients at

the corporate level, where clients’ transition

plans are consistent with our 2030 portfolio-

level ﬁnanced emissions targets and net zero

by 2050 commitment. If a client’s transition

plan is not produced, or if, after repeated

engagement, is not consistent with our

targets and commitments, we will not

provide new ﬁnance and may withdraw

existing ﬁnancing.

The IEA’s 2021 Net Zero by 2050 report

highlights that an orderly transition requires

continued ﬁnancing and investment in

existing oil and gas ﬁelds to maintain the

necessary output. We will therefore continue

to provide ﬁnance to maintain supplies of

oil and gas in line with current and future

declining global oil and gas demand, while

accelerating our activities to support clean

energy deployment.

As part of our previously announced ambition

to provide $750bn to $1tn in sustainable

ﬁnance and investment by 2030 to support

our customers in all sectors, we will support

critical areas such as renewable energy and

clean infrastructure.

HSBC Holdings plc Annual Report and Accounts 2022 65

Environmental

Our approach to sustainability policies continued

Our thermal coal phase-out policy

In December 2021, we published a policy to

phase out thermal coal ﬁnancing in EU and

OECD markets by 2030, and globally by 2040.

This incorporated project ﬁnance, direct

lending, and arranging or underwriting of

capital markets transactions to in-scope

clients, as well as the reﬁnancing of existing

ﬁnance facilities.

In line with our commitment to review our

policy and targets each year, taking into

account evolving science and internationally

recognised guidance, we expanded the policy

in 2022. We committed to not provide new

ﬁnance or advisory services for the speciﬁc

purposes of the conversion of existing

coal-to-gas-ﬁred power plants, unless

the client demonstrates to us its intention

to transition to abated power generation,

consistent with our targets and commitments;

and the plants do not operate in

environmentally or socially critical areas. We

also committed to not provide new ﬁnance or

advisory services for new metallurgical coal

mines. With the updated policy, we

additionally committed to:

– reduce absolute on-balance sheet ﬁnance

emissions by 70% in both the thermal coal

power and thermal coal mining sectors

by 2030;

– apply an amended deﬁnition of thermal

coal expansion as it pertains to mergers

and acquisitions activity; and

– decline new relationships with companies

that operate thermal coal assets in

environmentally and socially critical areas.

Biodiversity and natural capital-related

policies

Our sustainability risk policies restrict

ﬁnancing activities that have material

negative impacts on nature. While a number

of our sectoral policies have such restrictions,

our forestry and agricultural commodities

policies focus speciﬁcally on a key impact:

deforestation. These policies require

customers involved with major deforestation-

risk commodities to operate in accordance

with sustainable business principles, as well

as require palm oil customers to obtain

certiﬁcation and commit to ‘No Deforestation,

No Peat and No Exploitation’ (see ‘Our respect

for human rights’ on page 87). While we seek

to work with our clients to help ensure their

alignment with our policies, we have

withdrawn banking services to customers

who have not engaged, for example, in

meeting our certiﬁcation requirements.

As part of our net zero commitment, we

are reviewing our current policy protections in

this area, and aim to release a revised policy,

informed by scientiﬁc and international

guidance, in 2023.

For further details of our approach to biodiversity

and natural capital-related activities, see

‘Biodiversity and natural capital strategy’

on page 61.

Exposure to thermal coal

In our thermal coal policy published in

December 2021, we disclosed our intention to

reduce thermal coal ﬁnancing exposure by at

least 25% by 2025, and by 50% by 2030, using

our 2020 Task Force on Climate-related

Financial Disclosures (‘TCFD’) as our baseline.

Using the same methodology and data used

Asset management policy

In September 2022, our asset management

business, HSBC Asset Management,

published its own policy on how a phase-out

of thermal coal would impact on investments

it makes on behalf of clients.

The policy aligns with the commitment made

by HSBC Asset Management under the Net

Zero Asset Managers initiative to support

investing aligned with net zero greenhouse

gas emissions by 2050, or sooner.

Under its policy, HSBC Asset Management

will not hold listed securities of issuers with

more than de minimis revenue exposure

to thermal coal in its actively managed

portfolios beyond 2030 for EU and OECD

markets, and 2040 for all other markets.

The policy includes some restrictions on

investment exposure to thermal coal ahead

of these deadlines, as well as commitments

to undertake enhanced due diligence on the

transition plans of investee companies with

thermal coal exposure. Companies held in

investment portfolios that do not develop

credible plans to transition away from

thermal coal could face voting sanctions,

and ultimately a divestment of holdings.

For further details of the policy, see www.

assetmanagement.hsbc.co.uk/-/media/ﬁles/

attachments/common/coal-policy-b2b-

en-09162022.pdf.

in our baseline reporting as at 31 December

2020, we are making progress against

these targets.

Our 2020 baseline comprised thermal coal

power generation and mining exposures

within the power and utilities, and metals

and mining sectors, as deﬁned in our TCFD

disclosures. We are in the process of expanding

the on-balance sheet exposures that are

in-scope for our thermal coal policy to include

those outside of these two TCFD sectors.

Our processes, systems, controls and

governance are not yet designed to fully

identify and disclose thermal coal exposures,

particularly for exposures within broader

conglomerates. Until our systems, processes,

controls and governance are enhanced,

certain aspects of our reporting will rely on

manual sourcing and categorisation of data.

We are reassessing the reliability of our data

and reviewing our basis of preparation to help

ensure that we are reporting all relevant

thermal coal exposures aligned to our thermal

coal policy. As a result, we have not reported

thermal coal exposures in this

Annual Report

and Accounts 2022

. We expect that our

updated thermal coal exposures dating back

to 31 December 2020 will be made available

for reporting as soon as practicable in 2023,

although this is dependent on availability and

quality of data.

Thermal coal ﬁnanced emissions targets

As mentioned earlier, our ﬁnanced emissions

target is a reduction of 70% in both the

thermal coal power and thermal coal mining

sectors by 2030, using a 2020 baseline. We

now intend to publish our baseline ﬁnanced

emissions alongside our updated thermal coal

exposures as mentioned above.

66 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

ESG review

2021

2025

2030 2035 2040

2045

2050

Downside Transition Risk

Counterfactual1

Net Zero

Current Commitments

Net Zero2

Downside Transition Risk2

Modelled climate losses

How credit losses from climate risks have been modelled under dierent scenarios.

Cumulative impairments ($bn)

<1.5x

>1.5x

Insights from scenario analysis

TCFD

Scenario analysis supports our strategy by

assessing our position under a range of climate

scenarios. It helps to build our awareness of

climate change, plan for the future and meet

our growing regulatory requirements.

Having run our ﬁrst Group-wide climate

change scenario analysis exercise in 2021, we

produced several climate stress tests for global

regulators in 2022, including the Monetary

Authority of Singapore and the European

Central Bank. We also conducted our ﬁrst

internal climate scenario analysis.

We continue to develop how we produce

our climate scenario analysis exercises so

that we can have a more comprehensive

understanding of climate headwinds, risks

and opportunities that will support our

strategic planning and actions.

In climate scenario analysis, we consider,

jointly:

– transition risk arising from the process of

moving to a net zero economy, including

changes in policy, technology, consumer

behaviour and stakeholder perception, which

could each impact borrowers’ operating

income, ﬁnancing requirements and asset

values; and

– physical risk arising from the increased

frequency and severity of weather events,

such as hurricanes and ﬂoods, or chronic

shifts in weather patterns, which could each

impact property values, repair costs and lead

to business interruptions.

We also analyse how these climate risks

impact how we manage other risks within our

organisation, including credit and market risks,

and on an exploratory basis, operational,

liquidity, insurance, and pension risks.

Our climate scenarios

In our 2022 internal climate scenario analysis

exercise, we used four scenarios that were

designed to articulate our view of the range of

potential outcomes for global climate change.

These scenarios, which reﬂect dierent levels

of physical and transition risk and are varied

by severity and probability, were: the Net Zero

scenario, which aligns with our net zero strategy

and is consistent with the Paris Agreement; the

Current Commitments scenario, which assumes

that climate action is limited to the current

governmental commitments and pledges; the

Downside Transition Risk scenario, which

assumes that climate action is delayed until

2030; and the Downside Physical Risk scenario,

which assumes climate action is limited to

current governmental policies.

For further details of these scenarios, and how

they were designed to identify, measure and

assess our material climate vulnerabilities, see

‘Insights from scenario analysis’ in the ‘Climate

risk’ section on page 226.

Use of climate scenario outputs

We are starting to consider climate scenario

analysis in core decision-making processes,

including strategic and ﬁnancial planning, risk

management, capital assessment, business

decision making, client engagement, and

Group reporting. It helps to inform our strategy

and supports how we capture opportunities

while minimising risks, and enabling HSBC

to navigate through the climate transition.

We use the analysis to anticipate climate-

related impacts for our customers by

identifying new opportunities where possible,

including targeted ﬁnancing to support their

transition journey.

We have considered climate risk in our annual

ﬁnancial planning cycle. In order to do this, we

reviewed the inclusion of ECL outcomes from

our internal climate scenario analysis using the

Current Commitments scenario because we

deem it the most likely to transpire over the

planning horizon.

Next steps

We plan to continue to enhance our

capabilities for climate scenario analysis

and use the results for decision making,

particularly in respect of:

– our risk appetite, by identifying business-

critical metrics and using scenario analysis

to test, calibrate, and monitor against

thresholds;

– client engagement, by identifying the

climate opportunities – such as supporting

the growth of renewables, biomass, electric

vehicles – and vulnerabilities by engaging

with and supporting our customers; and

– strategy, by using the range of scenario

analysis outcomes to shape our strategy

across business and regions.

1 The counterfactual scenario is modelled on a scenario where there will be no losses due to climate change.

2 The dotted lines in the chart show the impact of modelled expected credit losses following our strategic

responses to reduce the eect of climate risks under the Net Zero and Downside Transition Risk scenarios.

Analysing the outputs

Climate scenario analysis allows us to model

how dierent potential climate pathways may

aect our customers and portfolios, particularly

in respect of credit losses. As the chart below

shows, losses are inﬂuenced by their exposure

to a variety of climate risks under dierent

climate scenarios.

Under the Current Commitments scenario, we

expect moderate levels of losses relating to

transition risks. However, the rise in global

warming will lead to increasing levels of

physical risk losses in later years. A gradual

transition towards net zero, as shown in the

Net Zero scenario, still requires fundamental

shifts in our customers’ business models, and

signiﬁcant investments. This will have an

impact on proﬁtability, leading to higher

credit risk in the transition period. A delayed

transition will be even more disruptive due to

lower levels of innovation that limits the ability

to decarbonise eectively, and rising carbon

prices that squeeze proﬁt margins.

Overall, our scenario analysis shows that the

level of credit losses can be mitigated if we

support our customers in enhancing their

climate transition plans.

For the full internal climate scenario analysis,

including our assessment of the impacts of climate

change on our corporate lending, retail mortgage

and commercial real estate portfolios, see Insights

from scenario analysis on page 226.

HSBC Holdings plc Annual Report and Accounts 2022 67

Environmental

Our approach to climate reporting

TCFD

Task Force on Climate-related Financial Disclosures (‘TCFD’)

The table below sets out the 11 TCFD recommendations and summarises where additional information can be found.

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, save for certain items, which we summarise below and

in the additional information section on page 423.

Recommendation Response

Disclosure

location

Governance

a) Describe the Board’s oversight of climate-related risks and opportunities

Process, frequency and training – The Board takes overall responsibility for ESG strategy, overseeing executive management in

developing the approach, execution and associated reporting. It has enhanced its oversight of

ESG matters, with a dedicated agenda item on this topic introduced for 2022. It considered ESG

at seven meetings during the year.

– Board members receive ESG-related training as part of their induction and ongoing development,

and seek out further opportunities to build their skills and experience in this area.

Page 86

and 256

Page 86

and 252

Sub-committee accountability, processes

and frequency

– The Group Risk Committee (‘GRC’) maintains oversight of delivery plans to ensure that the

Group develops robust climate risk management capabilities. The GRC also has oversight over

ESG-related initiatives and reviews these to assess the risk proﬁle. It considered ESG risk at four

meetings in 2022.

– The Group Audit Committee (‘GAC’) reviews and challenges ESG and climate-related reporting,

processes, systems and controls and considered these matters in detail at ﬁve meetings during

the year. The GAC, supported by the executive-level ESG Committee and Group Disclosure and

Controls Committee, provided close oversight of the disclosure risks in relation to ESG and

climate reporting, amid rising stakeholder expectations.

Page 272

and 275

Page 263

and 268

Examples of the Board and relevant Board

committees taking climate into account

– The Board considered whether to establish a Board committee dedicated to ESG issues, but

instead decided that the best way to support the oversight and delivery of the Group’s climate

ambition and ESG strategy was to retain governance at Board level.

– In 2022, the Board oversaw the implementation of ESG strategy through regular dashboard

reports and detailed updates including: reviews of net zero policies, ﬁnanced emissions target

setting and climate-aligned ﬁnancing initiatives.

– The Group Chairman and the Group Chief Executive met regularly with government ocials

globally to continue to foster strong international relations. In addition, certain Board members

also continued to be actively involved in climate initiatives and attend global events such as the

Group Chief Executive’s attendance at the COP27 Summit in Egypt.

Page 255

and 256

Page 255

Page 20

b) Describe management’s role in assessing and managing climate-related risks and opportunities

Who manages climate-related risks and

opportunities

– The Group Executive Committee enhanced its governance model of ESG matters with the

ESG Committee and supporting forums. These support senior management in the delivery

of the Group’s ESG strategy, key policies and material commitments by providing oversight

over – and management and coordination of – ESG commitments and activities.

– The Group Company Secretary and Chief Governance Ocer, and Group Chief Sustainability

Ocer hold joint responsibility for the ESG Committee. It oversees all areas of environmental,

social and governance issues, with support from accountable senior management in relation

to their particular areas of responsibilities. Key representatives from the functions and global

businesses attend to provide insights on the implementation of the ESG strategy across the

Group, allowing the ESG Committee to make recommendations to the Board in respect of

ESG matters.

– The Group Chief Risk and Compliance Ocer and the chief risk ocers of our PRA-regulated

businesses are the senior managers responsible for climate ﬁnancial risks under the UK Senior

Managers Regime.

Page 86

and 255

Page 86

and 251

Page 86

How management reports to the Board – The Board delegates day-to-day management of the business and implementation of strategy

to the Group Chief Executive. The Group Chief Executive is supported in his management of

the Group by recommendations and advice from the Group Executive Committee (’GEC’),

an executive forum comprising members of senior management that include chief executive

ocers of the global businesses, regional chief executive ocers and functional heads.

– Key representatives from the functions and global businesses attend the ESG Committee

to provide insights on the implementation of the ESG strategy across the Group, allowing

the ESG Committee to make recommendations to the Board in respect of ESG matters.

Page 248

and 249

Page 251

68 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

ESG review

Recommendation Response

Disclosure

location

Processes used to inform management – The ESG Committee supports Group executives in the development and delivery of ESG strategy,

key policies and material commitments by providing oversight, coordination and management of

ESG commitments and activities. We also recognise that we require enhanced capabilities and

new sources of data.

– The Climate Risk Oversight Forum oversees all global risk activities relating to climate risk

management, including physical and transition risks. Equivalent forums have been established

at regional level.

– The Sustainability Target Operating Model Steering Committee oversees the implementation

of the Group’s organisational plan for the internal infrastructure, both within the Sustainability

function and the wider Group, to help deliver our climate ambitions.

Page 86

and 251

Page 222

Page 86

Strategy

a) Describe the climate-related risks and opportunities the organisation has identiﬁed over the short, medium and long term

Processes used to determine material risks

and opportunities

– To support the requirements for assessing the impacts of climate change, we have developed a set of

capabilities to execute climate stress testing and scenario analysis. These are used to improve our

understanding of our risk exposures for risk management and business decision making. Given the

challenges on data sourcing and processes, there has been an impact on certain climate disclosures.

– Climate scenario analysis was used as a risk assessment tool to provide insights on the long-term

eects of transition and physical risks across our corporate and retail banking portfolios, as well as

our own operations.

– Our sustainable ﬁnance ambition has enabled sustainable infrastructure and energy systems,

promoted decarbonisation eorts across the real economy, and enhanced investor capital through

sustainable investment.

Page 38

and 47

Page 64

Page 58

Relevant short, medium, and long term

time horizons

– We aim to achieve net zero in our ﬁnanced emissions by 2050, and in our own operations and

supply chain by 2030.

– We aim to provide and facilitate $750bn to $1tn of sustainable ﬁnance and investment for our

customers in their transition to net zero and a sustainable future.

– We have taken these time horizons into our consideration. Our assessment of climate risks

covers three distinct time periods: short term is up to 2025, medium term is 2026 to 2035;

and long term is 2036 to 2050.

Page 49

Page 57

Page 139

Transition or physical climate-related issues

identiﬁed

– We enhanced our transition and physical risk questionnaire and scoring tool, which helps us to assess

and improve our understanding of the impact of transition and physical risk on our customers’

business models, and used it for our corporate clients in high climate transition risk sectors.

– We are supporting our customers in their transition through our sustainable ﬁnance and investment

ambition. Our sustainable ﬁnance data dictionary includes a detailed deﬁnition of contributing activities.

– In the UK, in line with our retail portfolio, the main perils that drive potential credit losses relate to

coastal, river and surface water ﬂooding, although the impacts from these perils are not expected

to cause signiﬁcant damages. Around 20% of our ﬁnanced properties are in London, and most are

protected by the Thames Barrier.

Page 222

Page 58

Page 229

Risks and opportunities by sector and/or

geography

– We identiﬁed six key sectors where our wholesale credit customers have the highest exposure

to climate transition risk, based on their carbon emissions. These are automotive, chemicals,

construction and building materials, metals and mining, oil and gas, and power and utilities.

– We continued to improve our identiﬁcation and assessment of climate risk within our retail

mortgage portfolio, with increased investments in physical risk data and enhancements to our

internal risk assessment capabilities and models. We completed detailed analysis for the UK,

Hong Kong, Singapore and Australia, which together represent 73.8% of balances of the global

mortgage portfolio.

– Opportunities include sustainable ﬁnance, sustainable investment and sustainable infrastructure. For

a detailed breakdown of our sustainable ﬁnance progress by geography, see the

ESG Data Pack

Page 223

Page 224

Page 58

Concentrations of credit exposure to

carbon-related assets (supplemental

guidance for banks)

– We report our exposure to the six high transition risk sectors in the wholesale portfolio. For

details, see the

ESG Data Pack

– Since 2020, we have rolled out the questionnaire so that it included our largest customers in the

next highest climate transition risk sectors: agriculture, industrials, real estate, and transportation.

This was done across a larger geographical scope.

Page 223

Climate-related risks (transition and

physical) in lending and other ﬁnancial

intermediary business activities

(supplemental guidance for banks)

– As a result of our climate scenario analysis, our largest and most impacted sectors – power and

utilities, construction and building materials, and chemicals – are subject to increased levels of

transition risks due to their ongoing exposure to higher carbon-emitting activities.

– HSBC Asset Management is increasingly considering both physical and transition risks. As a result,

it integrated ESG and climate analysis to help ensure that risks faced by companies are considered

throughout the investment decision-making process.

Page 227

Page 64

Task Force on Climate-related Financial Disclosures (‘TCFD’) continued

HSBC Holdings plc Annual Report and Accounts 2022 69

Environmental

Task Force on Climate-related Financial Disclosures (‘TCFD’) continued

Recommendation Response

Disclosure

location

b) Describe the impact of climate-related risks and opportunities on the organisation’s businesses, strategy and ﬁnancial planning

Impact on strategy, business, and ﬁnancial

planning

– Transition to net zero represents one of our four strategic pillars. We aim to be net zero in our operations

and supply chain by 2030 and in our ﬁnanced emissions by 2050.

– Scenario analysis supports our strategy by assessing our position under a range of climate scenarios.

It helps to build our awareness of climate change, plan for the future and meet our growing regulatory

requirements. We acknowledge that our systems, processes, controls and governance are developing.

– We continue to develop how we produce our climate scenario analysis exercises so that we can have a

more comprehensive understanding of climate headwinds, risks and opportunities that will support our

strategic planning and actions.

– We do not currently fully disclose the impacts of climate-related issues on ﬁnancial planning, and

particularly the impact of climate-related issues on our ﬁnancial performance and ﬁnancial position.

In addition, we have considered the impact of climate-related issues on our businesses, strategy,

and ﬁnancial planning, but not speciﬁcally in relation to acquisitions/divestments. Due to transitional

challenges such as process limitations, we do not disclose the climate-related impact in these areas.

We expect to further enhance our disclosure and processes in relation to acquisitions/divestments in

the medium term.

– We have considered the impact of climate-related issues on our businesses, strategy, and ﬁnancial

planning. Our access to capital may be impacted by reputational concerns as a result of climate action

or inaction. In addition, if we are perceived to mislead stakeholders on our business activities or if we

fail to achieve our stated net zero ambitions, we could face greenwashing risk resulting in signiﬁcant

reputational damage, impacting our revenue generating ability and potentially our access to capital.

Page 49

Page 48

and 67

Page 67

Page 423

Impact on products and services – We aim to help our customers’ transition to net zero and a sustainable future through providing

and facilitating between $750bn and $1tn of sustainable ﬁnance and investment by 2030.

Page 58

Impact on supply chain and/or value chain – We will continue to engage with our supply chain through CDP, and through direct discussions

with our suppliers on how they can further support our transition to net zero.

– We also have signiﬁcant responsibilities in relation to asset ownership by our insurance business,

employee pension plans and asset management business.

Page 62

Page 64

Impact on adaptation and mitigation

activities

– In October 2020, we announced our ambition to reduce our energy consumption by 50% by

2030, against a 2019 baseline. As part of our ambition to achieve 100% renewable power across

our operations by 2030, we continue to look for opportunities to procure green energy in each of

our markets. A key challenge remains the limited opportunity to pursue power purchase

agreements or green taris in key markets due to regulations.

Page 62

Impact on operations – Climate change poses a physical risk to the buildings that we occupy as an organisation,

including our oces, retail branches and data centres.

– We use stress testing to evaluate the potential for impact to our owned or leased premises. Our

scenario stress test, conducted in 2022, analysed how seven dierent climate change-related

hazards – comprising coastal inundation, extreme heat, extreme winds, wildﬁres, riverine

ﬂooding, soil movement due to drought, and surface water ﬂooding – could impact 500 of our

critical and important buildings.

Page 229

Impact on investment in research and

development

– Our Climate Solutions Partnership is a ﬁve-year $100m philanthropic initiative that aims to

identify and remove barriers to scale for climate change solutions. Working with the World

Resources Institute, WWF and over 50 local partners, our support focuses on start-up

companies developing carbon-cutting technologies, nature-based solutions, renewable energy

initiatives in Asia and the WWF-led Asia Sustainable Palm Oil Links programme.

Page 84

How we are striving to meet investor

expectations

– During Board meetings, the Directors continued to balance discussions on the Group’s

performance, emerging risks and duties to shareholders, while remaining conscious of

responsibilities to support communities and help customers.

– In 2022, the Board approved an update to the thermal coal phase-out policy. It also approved the

publication of an updated energy policy.

Page 20

Page 23

Transition plan to a low-carbon economy – We have committed to publish our own climate transition plan in 2023. This plan will outline, in

one place, not only our commitments, targets and approach to net zero across the sectors and

markets we serve, but how we are transforming our organisation to embed net zero and ﬁnance

the transition.

Page 49

c) Describe the resilience of the organisation’s strategy, taking into consideration dierent climate-related scenarios, including a 2°C

or lower scenario

Embedding climate into scenario analysis – Scenario analysis supports our strategy by assessing our position under a range of climate

scenarios. It helps to build our awareness of climate change, plan for the future and meet our

growing regulatory requirements.

– In 2022, we delivered our ﬁrst internal climate scenario analysis exercise where we used four

scenarios that were designed to articulate our view of the range of potential outcomes for global

climate change. The analysis considered the key regions in which we operate, and assessed the

impact on our balance sheet between the 2022 and 2050 time period.

Page 67

and 226

Key drivers of performance and how these

have been taken into account

– Climate scenario analysis allows us to model how dierent potential climate pathways may

aect our customers and portfolios, particularly in respect of credit losses. Under the Current

Commitments scenario, we expect moderate levels of losses relating to transition risks. However,

the rise in global warming will lead to increasing levels of physical risk losses in later years.

Page 67

and 226

70 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

ESG review

Task Force on Climate-related Financial Disclosures (‘TCFD’) continued

Recommendation Response

Disclosure

location

Scenarios used and how they factored in

government policies

– The scenario assumptionsused for our climate stress testing exercise include varying levels of

governmental climate policy changes, macroeconomic factors and technological developments.

However, these scenarios rely on the development of technologies that are still unproven, such

as global hydrogen production to decarbonise aviation and shipping. For details of the

assumptions, see the

ESG Data Pack

Page 226

How our strategies may change and adapt – The nature of the scenarios, our developing capabilities, and limitations of the analysis lead

to outcomes that are indicative of climate change headwinds, although they are not a direct

forecast.

– Developments in climate science, data, methodology, and scenario analysis techniques will help

us shape our approach further. We therefore expect this view of risk to change over time.

– We plan to continue to enhance our capabilities for climate scenario analysis and use the results

for decision making, particularly in respect of strategy, by using the range of scenario analysis

outcomes to shape our strategy across business and regions.

– We do not currently fully disclose the impacts of transition and physical risk quantitatively, due

to transitional challenges including data limitations and evolving science and methodologies.

Page 67

and 226

Page 226

Page 67

Page 423

Risk management

a) Describe the organisation’s processes for identifying and assessing climate-related risks

Traditional banking risk types considered – Our initial approach to managing climate risk was focused on understanding physical and

transition impacts across ﬁve priority risk types: wholesale credit risk, retail credit risk,

reputational risk, resilience risk and regulatory compliance risk.

Page 221

Process – We have integrated climate risk into our existing risk taxonomy, and incorporated it within the

risk management framework through the policies and controls for the existing risks where

appropriate. We also recognise that we require enhanced capabilities and new sources of data.

– We consider greenwashing to be an important emerging risk that is likely to increase over time,

as we look to develop capabilities and products to achieve our net zero commitments, and work

with our clients to help them transition to a low-carbon economy. We also recognise that green

ﬁnance taxonomies are not consistent globally, and evolving taxonomies and practices could

result in revisions in our sustainable ﬁnance reporting going forward.

– We also use stress testing and scenario analysis to assess how these climate risks will impact our

customers, business and infrastructure.

Page 47

and 221

Page 47

and 221

Page 46

Integration into policies and procedures – In 2022, we incorporated climate considerations into our UK mortgage origination process for

our retail mortgage business and new money request process for our key wholesale businesses.

We also continued to enhance our climate risk scoring tool, which will enable us to assess our

customers’ exposures to climate risk. We also published our updated energy policy, covering the

oil and gas, power and utilities, hydrogen, renewables, nuclear and biomass sectors, as well as

updated our thermal coal phase-out policy after its initial publication in 2021.

– We are integrating climate risk into the policies, processes and controls across many areas of our

organisation, and we will continue to update these as our climate risk management capabilities

mature over time.

Page 223

Consider climate-related risks in traditional

banking industry risk categories

(supplementary guidance for banks)

– In 2022, we expanded our scope to consider climate risk impacts on our other risk types

(including treasury risk and traded risk) in our risk taxonomy.

– We also analysed in our internal scenario analysis exercise how climate risks impact how we

manage other risks within our organisation, including credit risk, and on an exploratory basis:

market, operational, liquidity, insurance, and pension risks.

Page 221

and 226

Page 67

b) Describe the organisation’s processes for managing climate-related risks

Process and how we make decisions – The Group Risk Management Meeting and the Group Risk Committee receive regular updates on our

climate risk proﬁle, top and emerging climate risks, and progress of our climate risk programme.

– Our climate risk appetite supports the oversight and management of the ﬁnancial and non-ﬁnancial

risks from climate change, and supports the business to deliver our climate ambition in a safe and

sustainable way. We recognise that we require enhanced systems, processes, controls, governance

and new sources of data.

Page 222

Page 47

and 223

c) Describe how processes for identifying, assessing and managing climate-related risks are integrated into the organisation’s overall risk

management framework

How we have aligned and integrated our

approach

– Our climate risk approach is aligned to our Group-wide risk management framework and three

lines of defence model, which sets out how we identify, assess, and manage our risks.

– In February 2022, we refreshed a high-level assessment of how climate risk may impact risk

types within the HSBC taxonomy over a 12-month horizon, and how the level of risk may increase

over longer time horizons.

– We developed our ﬁrst internal climate scenario exercise, where we used four bespoke scenarios that

were designed to articulate our view of the range of potential outcomes for global climate change.

Page 221

Page 222

How we take into account interconnections

between entities and functions

– Through our dedicated climate risk programme, we continued to embed climate considerations

throughout the organisation, including updating the scope of our programme to cover all risk

types, expanding the scope of climate-related training, developing new climate risk metrics to

monitor and manage exposures, and the development of our internal climate scenario exercise.

– We updated our climate risk management approach to cover all risk types in our risk taxonomy.

– We expanded the scope of climate-related training for employees to cover additional topics, such

as greenwashing risk, and increased the availability of training to the broader workforce.

Page 135

Page 222

HSBC Holdings plc Annual Report and Accounts 2022 71

Environmental

Recommendation Response

Disclosure

location

Metrics and targets

a) Disclose the metrics used by the organisation to assess climate-related risk and opportunities in line with its strategy and risk management

process

Metrics used to assess the impact of

climate-related risks on our loan portfolio

– We continue to disclose our wholesale loan exposure to the six high transition risk sectors, which

are automotive, chemicals, construction and building materials, metals and mining, oil and gas, and

power and utilities. The wholesale loan exposure is used as a metric to assess impact of climate risk

and help inform risk management, together with our transition risk questionnaire results.

– We continue to measure climate risk in our most material mortgage market, which is the UK,

where the primary physical risk facing properties is ﬂooding. We also continue to identify the

current and potential EPC ratings for individual properties within the UK mortgage portfolio.

For further details, see our

ESG Data Pack

– Our climate risk management information dashboard includes metrics relating to our key climate

risks, and is reported to the Global Climate Risk Oversight Forum. However, we do not fully

disclose metrics used to assess the impact of climate-related risks on retail lending, parts of

wholesale lending and other ﬁnancial intermediary business activities.

Page 223

Page 224

Page 423

Metrics used to assess progress against

opportunities

– We continue to track our progress against our ambition to provide and facilitate $750bn to $1tn of

sustainable ﬁnance and investment by 2030, aligned to our published data dictionary. The breakdown

of our sustainable ﬁnance and investment progress is included in our

ESG Data Pack

– We do not currently fully disclose the proportion of revenue or proportion of assets, capital

deployment or other business activities aligned with climate-related opportunities, including revenue

from products and services designed for a low-carbon economy, forward-looking metrics consistent

with our business or strategic planning time horizons. In addition, we do not currently disclose internal

carbon prices due to transitional challenges such as data challenges. We recognise that we require

enhanced systems, processes, controls, governance and new sources of data.

Page 18

and 57

Page 47

and 423

Board or senior management incentives – To help us achieve our ESG ambitions, a number of measures are included in the annual incentive

and long-term incentive scorecards of the Group Chief Executive, Group Chief Financial Ocer

and Group Executives.

Page 16

and 286

Metrics used to assess the impact of

climate risk on lending and ﬁnancial

intermediary business (supplemental

guidance for banks)

– As part of our internal climate scenario analysis, we carried out a detailed physical risk assessment of

four of our most material retail mortgage markets – the UK, Hong Kong, Singapore and Australia –

which represent 73.8% of balances in our retail mortgage portfolio. In 2022, we disclose our loan

maturity within the UK mortgage portfolio.

– We do not fully disclose metrics used to assess the impact of climate-related risks on retail lending,

parts of wholesale lending and other ﬁnancial intermediary business activities (speciﬁcally credit

exposure, equity and debt holdings, or trading positions, each broken down by industry, geography,

credit quality, average tenor).

Page 224

Page 423

b) Disclose scope 1, scope 2 and, if appropriate, scope 3 greenhouse gas emissions and the related risks

Our own operations – We reported our scope 1, 2 and part of scope 3 greenhouse gas emissions resulting from the

energy used in our buildings and employees’ business travel. In 2022, we started to disclose our

scope 3 supply chain emissions.

Page 18

and 63

Greenhouse gas emissions for lending and

ﬁnancial intermediary business

(supplemental guidance for banks)

– We expanded our coverage of sectors for on-balance sheet ﬁnanced emissions. We also set out

the data and methodology limitations related to the calculation of scope 3 ﬁnanced emissions.

– In 2022, HSBC Asset Management started to measure scope 1 and 2 emissions of companies

in its portfolio.

– Future disclosure on ﬁnanced emissions, and related risks is reliant on our customers publicly

disclosing their carbon emissions and related risks. We aim to disclose ﬁnanced emissions for

additional sectors in our

Annual Report and Accounts 2023

and related disclosures.

Page 18

and 50

Page 56

Page 423

c) Describe the targets used by the organisation to manage climate-related risks and opportunities and performance against targets

Details of targets set and whether they are

absolute or intensity based

– One of our strategic pillars is to support the transition to a net zero global economy. To support

our ambition to align our ﬁnanced emissions to achieve net zero by 2050 or sooner, we have set

interim 2030 targets for on-balance sheet ﬁnanced emissions for eight sectors.

– For ﬁnanced emissions we do not plan to set 2025 targets. We set targets in line with the Net-Zero

Banking Alliance (‘NZBA‘) guidelines by setting 2030 targets. In 2022, we disclose interim 2030

targets for on-balance sheet ﬁnanced emissions for eight sectors.

– We do not currently disclose targets used to measure and manage physical risk, or internal carbon

price targets. This is due to transitional challenges and data limitations. But we considered

physical risk and carbon prices as an input in the climate scenario analysis exercise. We expect to

further enhance the disclosure in the medium term as more data becomes available. In addition,

we do not currently disclose a target for capital deployment. In 2022, we are internally reviewing

and enhancing the green bond framework, with further reﬁnement to be undertaken in 2023. Our

continued monitoring of evolving taxonomies and practices over time could result in revisions in

our reporting going forward and lead to dierences year-on-year as compared with prior years.

We do not consider water usage to be a material target for our business and therefore we have not

included a target in this year’s disclosure.

Page 18

Page 423

Other key performance indicators used – We also use other indicators to assess our progress including energy consumption and

percentage of renewable electricity sourced.

Page 62

Task Force on Climate-related Financial Disclosures (‘TCFD’) continued

72 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Environmental

ESG review

Social

Building inclusion and resilience

We aim to play an active role in opening up a world of

opportunity for our customers, colleagues and communities as

we bring the beneﬁts of connectivity and global economy to

more people around the world.

At a glance

Our relationships

Our purpose is opening up a world of

opportunity, and we aim to bring that

purpose to our customers, colleagues

and the communities in which we operate.

Inclusion is key to opening up a world of

opportunity. It involves a commitment to

remove unnecessary barriers to our people,

our customers and our communities in

realising their potential. Creating an inclusive

environment for our colleagues enables them

to ﬂourish, and supports the strong and

purposeful delivery of our strategy.

We are committed to ensuring our colleagues

– and particularly our leadership – are

representative of the communities that we

serve, and that we support their well-being

and development so they can learn and grow

in their careers. We do this because we know

that when we build an inclusive, healthy and

stimulating workplace for our people, the

whole Group succeeds.

We are equally committed to ensuring there

are no unnecessary barriers to ﬁnance for our

customers. Customers should not ﬁnd it more

dicult to access ﬁnance because of their

gender, their sexual orientation, their

neurodiversity or their disability. We have an

ambition to create a welcoming, inclusive and

accessible banking experience that opens up

a world of opportunity for our customers.

Inclusion goes hand-in-hand with resilience.

We build resilience for our colleagues by

supporting their physical, mental and ﬁnancial

well-being, and by ensuring they are equipped

with the skills and knowledge to further their

careers during a period of signiﬁcant

economic transformation.

For our customers, we build resilience through

education: by helping them to understand their

ﬁnances and how to manage them eectively,

and by creating propositions that simplify the

banking experience while helping wealth

to grow. We also build resilience through

products and services that protect what our

customers value – their health, their families,

their homes and their belongings.

Building inclusion and resilience can also

mean working to address gaps where we

think we can make a dierence. From working

for fair pay and representation for our

colleagues, to opening up access to ﬁnance

to underserved customer groups, to ensuring

HSBC branches and oces are safe spaces

for everyone, we are committed to fairness

and inclusivity.

Finally, we aim to give back by engaging with

our communities through philanthropic giving,

disaster relief and volunteering. We are

focusing these eorts on our priorities: the just

transition to net zero and building inclusion

and resilience.

We believe building inclusion and resilience

helps us to create long-term value and growth.

By removing unnecessary barriers and striving

to be a fair and equitable bank, we can attract

and retain the best talent, support a wider

customer base to achieve their goals over

the long term, and stimulate growth in our

communities. This is how we open up a

world of opportunity for our colleagues, our

customers and our communities.

In this section

Promoting diversity

and fostering

inclusion

Our approach to diversity

and inclusion

We value diversity of thought and we are building an inclusive

environment that reﬂects our customers and communities.

Page 74

Creating a diverse

environment

Fostering an inclusive

culture

Building a healthy

workplace

Listening to our colleagues We run a Snapshot survey and report insights to our Group

Executive Committee and the Board.

Page 77

Being a great place to work As the Covid-19 pandemic tested our colleagues, we expect the

way we work to change as the workforce meets new demands.

Page 79

Well-being Our global well-being programme is a key enabler of our people

strategy, especially as we move to a more hybrid way of working.

Page 80

Developing skills,

careers and

opportunities

Learning and skills

development

We aim to build a dynamic, inclusive culture where colleagues can

develop skills and experiences that help them fulﬁl their potential.

Page 81

Energising our colleagues

for growth

We are committed to oering colleagues the chance to develop

their skills while building pipelines of talented colleagues to

support the achievement of our strategic priorities.

Page 82

Building customer

inclusion and

resilience

Our approach to customer

inclusion and resilience

We aim to support ﬁnancial well-being and remove barriers

people can face in accessing ﬁnancial services.

Page 83

Engaging with our

communities

Building a more inclusive

world

We focus on a number of priorities where we can make a

dierence to the community and support sustainable growth.

Page 84

HSBC Holdings plc Annual Report and Accounts 2022 73

Social

Promoting diversity and fostering inclusion

How we hold ourselves to account

We set meaningful goals

Our executive Directors and Group

Executives have goals within their annual

performance scorecards that are tied to

remuneration plans. In 2022, we continued

to make progress against our three goals to:

– achieve a 35% representation of women

in senior leadership roles by 2025;

– achieve a 3.4% representation of Black

heritage colleagues in senior leadership

roles in the UK and US combined by

2025, aligned to our commitment to

double the number of Black colleagues

in leadership positions globally; and

– achieve a satisfaction score of at least

75% in our Inclusion index, which looks

at the inclusivity of our culture by

measuring our colleagues’ feelings of

belonging, trust and psychological

safety, as recorded within our employee

Snapshot survey.

We report and track progress

Data is critical and gives our Group Executive

Committee regular progress checks against

its goals. Our measures to track progress

consist of:

– a quarterly inclusion dashboard, which

tracks progress against goals with speciﬁc

data on hiring, promotion and exit ratios;

– a formal assessment of the Group Executive

Committee’s performance against its three

goals, run by our executive compensation

team, at the half-year, third quarter and the

end of the year, which is then reported to

the Group Remuneration Committee; and

– semi-annual inclusion review meetings

where our Head of Inclusion meets each

Group Executive to review data and their

progress against their goals, and to discuss

actions and provide recommendations to

support further progress.

We benchmark our performance

We use external disclosures and

benchmarks to measure the progress

we are making, and to provide us with

insight into what actions to prioritise.

In 2022, we achieved:

– the Parker Review target of having at

least one Director from a minority ethnic

group on its Board, with three Board

members;

– Stonewall’s Gold standard and rank as a

top global LGBTQ+ inclusion employer;

– a score of 87.2 in the Bloomberg

Gender Equality Index, which tracks

the performance of public companies

committed to transparency in gender

data reporting. This was 13.1 percentage

points above the ﬁnancial sector average.

A data driven approach to inclusion

Our approach to collecting ethnicity data through colleagues’ self-identiﬁcation underpins our ethnicity strategy to better reﬂect the

communities we serve. Allowing colleagues to self-identify helps us to set market representation goals. We have enabled 91% of our

workforce to be able to share their ethnic heritage with us. A total of 55% of our colleagues have now made disclosures on their ethnic

background, where legally permissible.

Strong self-declaration rates in the UK and US have enabled us to develop our ethnicity strategy with market-speciﬁc Black heritage

representation goals. We deﬁne Black heritage to include all colleagues in the UK who identify as Black or mixed race where one of the

ethnicities is stated as Black, and in the US for all colleagues who identify as Black or African-American.

Employees can also share their disability, gender identity and sexual orientation data where legally and culturally acceptable to do so.

These self-identiﬁcation options are enabled for 90%, 81% and 70% of our workforce, respectively.

Engaging with diversity at the Board level

We have a designated non-executive Director

responsible for workforce engagement,

whose role is to bring the voice of the

employee into the boardroom. Our employee

resource group leadership community is an

important contributor and communicator

related to workforce engagement.

Additionally, non-executive Directors are

aligned to each of our employee resource

groups.

In 2022, we continued our Bank Director

Programme that invites a diverse group of

senior leaders from across the Group to gain

exposure to boards and develop board skills.

This programme is building an internal pool

of diverse talent that we will be able to assign

to roles with our subsidiary boards.

For further details of Board diversity, see our

Corporate governance report on page 247.

Our approach to diversity and inclusion

Our purpose, ‘Opening up a world of

opportunity’, explains why we exist as an

organisation and is the foundation of our

diversity and inclusion strategy. Promoting

diversity and fostering inclusion contributes to

our ‘energise for growth’ priority. By valuing

dierence, we can make use of the unique

expertise, capabilities, breadth and

perspectives of our colleagues for the

beneﬁt of our customers.

To achieve progress, we are focused on

speciﬁc Group-wide priorities for which we

hold senior executives accountable. Alongside

Group targets, some executives have local

priorities, such as combating social inequality

in the UK, and the promotion of Hispanic

representation in the US, to allow ﬂexibility for

a broader diversity and inclusion agenda that

is contextually relevant.

Our approach extends beyond our colleagues

and opens up a world of opportunity to our

customers and the communities in which we

operate. As we set out on the following pages,

we are pleased to report progress in 2022,

although we acknowledge there is more work

to be done.

74 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Social

ESG review

Gender diversity statistics

33%

67%

19%

81%

34%

66%

170

33%

67%

6,226

3,103

Holdings

Board

Combined

Group

Executives and

direct reports

Senior

leadership

34%

66%

616

315

Subsidiary

directors

Group

Executives

37%

63%

18,897

11,257

Middle

management

49%

51%

53,363

51,541

Junior

management

52%

48%

107,863

115,907

All employees

Male Female

Gender diversity data Women in senior leadership

After achieving our ambition of having 30% of

senior leadership positions held by women in

2020, we set a new goal to reach 35% by 2025.

We remain on track, with 33.3% of senior

leadership roles held by women at the end of

2022, an increase of 1.6 percentage points since

2021. A total 35.7% of all external appointments

into senior positions were female, down from

37.8% in 2021, and 38.1% of all promotions into

senior leadership roles were female.

Talent programmes, including Accelerating

Female Leaders, helped increase the visibility,

sponsorship and network of our high-

performing senior women. Since starting the

programme in 2017, 38% of participants have

either been promoted or taken a lateral move

to develop their careers. We have also retained

87% of colleagues who have completed

the programme.

In our Accelerating into Leadership

programme, which prepares high potential,

mid-level colleagues for future leadership roles,

44% of participants in 2022 were women.

We also had more than 2,600 women

participating in our Coaching Circles

programme, which involves senior leaders

advising and supporting colleagues to develop

their leadership skills and build their networks.

Our succession planning for key leadership

roles includes an assessment of the diversity

of our succession plans. We are improving the

gender diversity of those in roles deemed most

critical to the organisation, and successors to

those roles. In 2022, 36% of the succession

pool for these roles were women.

In our support of our people throughout the

dierent stages of their lives and careers, and

in our aim to enable equal participation at

work, we introduced gender neutral parental

leave in the US and Australia, and improved

paid maternity and paternity leave in Mexico

and Argentina.

Black colleagues in senior leadership

We are on track to double the number of Black

colleagues in senior leadership roles globally

by 2025, having increased the number of

Black senior leaders by 37% since 2020.

During 2022 we set a new Group-wide

ethnicity strategy with the principle of better

reﬂecting the communities we serve. We test

this principle by comparing our workforce

to national census data and setting goals to

narrow material representation gaps over

time. Our analysis highlighted Black heritage

representation gaps in the UK and the US. We

therefore set a goal of having 3.4% of Black

heritage colleagues in senior leadership roles

in the UK and US combined by 2025. While

we are on track to meet this, with 2.5% of

leadership roles held by Black heritage

colleagues in 2022, we know there is more to

be done to be representative of the societies

we serve.

Our ethnicity strategy is overseen by a

committee of senior leaders, led by our

Group Chief Risk and Compliance Ocer.

The committee provides strategic direction

to the Global Ethnicity Inclusion Programme.

In 2022, we continued to focus on inclusive

hiring, investing in talent and growing

leadership eectiveness. We have launched

programmes to provide sponsorship and

mentoring such as Solaris in the UK, which

supports talented Black female colleagues, and

a Black heritage programme in Global Banking

and Markets, where 25% of participants at

Director level secured promotion within 12

months of commencing the programme. In

2023, we will extend the programme to

Commercial Banking colleagues and to

colleagues in the US, with an additional focus

on Hispanic colleagues. To help us attract

diverse talent, we partner with specialist

recruitment organisations that engage

ethnically diverse talent. We also introduced

reverse mentoring, which pairs Group

Executives with Black heritage colleagues.

Creating a diverse environment

Representation and pay gaps

We have reported gender representation and

pay gap data since 2017 for the UK, and

extended this to include gender data for the

UK, the US, mainland China, Hong Kong,

India and Mexico, alongside ethnicity data for

the UK and US. In 2022, we extended this to

include gender data for Singapore and the

UAE. This covers over 70% of our workforce.

In 2022, our mean aggregate UK-wide

gender pay gap was 45.2%, compared with

44.9% in 2021, and the ethnicity pay gap

was 0.4%, compared with -0.8% in 2021.

Our UK gender pay gap is driven by the

shape of our workforce. There are more men

than women in senior, higher-paid roles and

more women than men in junior roles. Given

dierences in variable pay levels across

these roles, the increase in the 2021 variable

pay pool contributed to the slight widening

of our pay gap for 2022.

While we are conﬁdent in our approach

to pay equity, until women and ethnically

diverse colleagues are proportionately

represented across all areas and levels of the

organisation we will continue to see gaps in

average pay. We are committed to paying

colleagues fairly regardless of their gender

or ethnic heritage and have processes to

ensure that remuneration is free from bias.

We review our pay practices and undertake

a pay equity review annually, including an

independent third-party review of equal pay

in major markets. If pay dierences are

identiﬁed that are not due to objective,

tangible reasons such as performance, skills

or experience, we make adjustments.

For further details on our representation data,

pay gap data, and actions, see www.hsbc.

com/diversitycommitments and the

ESG Data

Pack

at www.hsbc.com/esg.

HSBC Holdings plc Annual Report and Accounts 2022 75

Social

1 Combined Group Executives and direct reports

includes HSBC Group Executives and their

direct reports (excluding administrative sta)

as at 31 December 2022.

2 Directors (or equivalent) of subsidiary companies

that are included in the Group’s consolidated

ﬁnancial statements, excluding corporate

directors.

3 In our leadership structure, we classify: senior

leadership as those at career band 3 and above;

middle management as those at global career

band 4; and junior management as those at global

career bands 5 and 6.

Fostering an inclusive culture

In our annual Snapshot survey’s Inclusion

index, which measures our colleagues’ sense

of belonging, psychological safety, perception

of fairness and trust, we achieved a

favourability score of 76% in 2022, one point

higher than our goal, and four points above

the ﬁnancial services industry benchmark.

There was a three-point increase in colleagues

feeling able to speak up without fear of

negative consequences. This was a positive

indicator of our strengthening culture of

inclusion, which is a critical component of

our ‘energise for growth’ strategy.

To educate our leaders and colleagues on

driving an inclusive culture, we provided

a number of inclusive leadership training

programmes, and enhanced our ‘Making

HSBC more inclusive’ training. More than

10,500 colleagues also completed inclusive

hiring training, which is aimed at enabling fair

and inclusive hiring decisions that are in line

with our hiring principles.

Employee resource groups

Our employee resource groups foster an

inclusive culture, and contribute signiﬁcant

value to tens of thousands of colleagues,

with networks focused on a range of issues,

including: age, disability, parents and careers,

ethnicity, gender and LGBTQ+.

Our employee resource groups celebrate key

dates in the diversity calendar and hold events

for colleagues to raise awareness, and build

empathy and allyship. These included Pride,

our network for LGBTQ+ colleagues and allies,

holding a global ‘24 hours of Pride’ campaign

that engaged our workforce to collectively

celebrate our LGBTQ+ colleagues. Our

Embrace network for ethnicity hosted its

ﬁrst global summit, attended by over 1,300

colleagues, including senior leaders across

three regions.

Looking to the future on disability

Our ambition is to become a leading disability

conﬁdent employer and a digitally accessible

ﬁnancial services provider. In 2022, we

continued to focus on driving our digital

accessibility programme so that our products

and service can be accessible for all.

For our customers and colleagues, we

improved the accessibility of our public

websites, mobile applications and internal

systems. AbilityNet, the digital accessibility

charity, benchmarked HSBC as having the

most accessible website compared with other

local competitor banks in 10 of 13 of our key

Wealth and Personal Banking markets.

We are transforming our internal systems to

be digitally accessible. In 2022, we engaged

over 2,000 colleagues in digital accessibility

awareness and training, supported by the

launch of a digital accessibility hub, which

provides training and knowledge resources.

The hub achieved the best digital accessibility

award at the 2022 Digital Impact Awards.

We are looking to extend our UK workplace

adjustments process to other key markets,

ensuring our colleagues have the right tools

and technologies to perform their roles. The

programme will help colleagues with a

physical or sensory disability, long-term

mental health conditions or neurodiversity

needs to get advice and request additional

equipment or software to enable them to do

their work.

In 2022, HSBC UK was recognised as a Gold

Standard employer, following an assessment

by the Business Disability Forum, with a score

of 95.8%, the highest score awarded. We

were praised on our commitment, drive and

innovation with regards to disability inclusion.

In 2023, we will continue to progress the

execution of our disability conﬁdence strategy

with a particular focus on improving the

experiences of colleagues with a disability

across the key stages of their career journeys.

Empowering diverse customers

Aligned to our purpose of opening up a

world of opportunity, we are committed

to identifying and removing the dierent

barriers customers face in accessing ﬁnancial

services. In 2022, we contributed to this

through several initiatives, including the

launch of a $1bn lending fund to invest in

female-owned businesses. We introduced

new processes to support refugees ﬂeeing

the conﬂict in Ukraine so they can access the

ﬁnancial services they need to set up a new

life in the UK. We also sponsor the Hong Kong

Lutheran Social Service to develop the ‘Health

dollar fun’ app to boost digital literacy among

the elderly.

For further details of how we are making

ﬁnancial services more accessible and fair,

see ‘Our approach to customer inclusion and

resilience’ on page 83.

Creating more equal communities

We partner with external organisations to

open up opportunities for those groups who

have historically been disadvantaged. In 2022,

initiatives included:

– working with the Indian Academy for

Self-Employed Women to provide business

training and support to access digital

marketplaces;

– partnering with Rural Education and

Development India to train 500 youths

from migrant and rural families to equip

them with skills for the healthcare and

apparel sector; and

– supporting the National Council of

Social Service in Singapore to support

employability services for persons who

have recovered from mental health issues.

Starting our journey on social mobility

We believe in the principle that the

circumstances of someone’s birth

should not deﬁne their future.

In 2022, we began to collect the socio-

economic diversity data of our colleagues

within the UK, with the aim to improve social

mobility. We will use this data to help us

understand the representation and

progression of colleagues from lower

socio-economic backgrounds.

We also joined ProgressTogether, a

membership body of ﬁrms aimed at

addressing career progression and retention

for those identifying with a lower socio-

economic background. We established our

‘Strive’ employee resource group, which will

support and advocate for colleagues from

lower socio-economic backgrounds. We

plan to expand Strive to other markets as

our work matures.

76 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Social

ESG review

Building a healthy workplace

We were founded on the strength of dierent

experiences, attributes and voices. We believe

that seeking out and listening to the views of

our colleagues is a fundamental part of who

we are and how we work. This has been

especially important in 2022, as we looked to

continue deﬁning the future of work and

driving change in how we work.

Listening to colleague sentiment

In 2022, we changed how we run our

all-employee Snapshot survey, reducing

the frequency from once every six months

to once a year, with a focus on increasing

participation to enable more granular

reporting throughout the organisation. We

received a record 167,668 responses to the

survey in September, with 78% of employees

participating, surpassing the previous year’s

record of 64%.

This increase has enabled us to put more data

directly in the hands of our people managers

to understand how their teams feel about life

at HSBC, with 5,000 managers given access

to results, discussion guides and learning

resources to help them engage with the

feedback at a team level. We continue to

report insights to our Group Executive

Committee and the Board, and local results

are shared across the Group to provide senior

leaders across business areas with detailed

insight to help plan and make decisions.

We complement this all-colleague survey with

targeted listening activities throughout the

year, with employee lifecycle surveys aimed

at new joiners, internal movers and voluntary

leavers.

In May and June, we received more than

13,000 responses to our ‘Future of work’

survey, which explored how colleagues feel

towards hybrid working. For further details

of the ﬁndings and our approach to hybrid

working, see ‘Being a great place to work’

on page 79.

In 2022, we also held a global ‘employee jam’,

where over 18,000 colleagues across 63

markets came together for a live online

conversation (see panel below). The Snapshot

survey is also a key source of insight to inform

our approaches to well-being. For further

details of our approach to well-being, see

page 80.

Employee conduct and harassment

We expect our people to treat each other

with dignity and respect, and do not tolerate

bullying or harassment on any grounds. Over

the past few years, we have strengthened

our approach to bullying and harassment,

improving our collective understanding of,

and response to, these issues.

Our global anti-bullying and harassment code

helps us to maintain consistent high standards

of conduct across the Group, while

accommodating local cultural requirements. In

2022, we added further anti-bullying and

harassment messages to our mandatory

training for all our colleagues, and continued

our campaign to encourage colleagues to be

‘active bystanders’ and speak up when they

see or experience poor behaviours or things

that do not seem right.

We have mandatory local procedures for

handling employee concerns, including

complaints of bullying and harassment. Where

investigations are required, we have a global

framework setting the standards for those

investigations, which we improved throughout

2022. We monitor bullying and harassment

cases to inform our response and the data is

reported to management committees.

In 2022, 1,159 concerns were raised related

to bullying, harassment, discrimination and

retaliation. Of the 811 cases where an

investigation has concluded, 47% were

substantiated. We take action where we see

standards fall short of our expectation. In

2022, 591 colleagues were dismissed in

relation to misconduct, including 27 as a result

of bullying, harassment or discrimination. We

are not complacent and know that there is

more we can do. Our refreshed values will

guide and inform our plans to continue

creating and promoting an inclusive working

environment

Employee engagement

73%

Employee engagement score

(2021: 72%)

68%

Of colleagues feel able to achieve their career

objectives at this company

(2021: 67%)

77%

Of colleagues who feel conﬁdent about this

company’s future

(2021: 74%)

Listening to our colleagues

Holding a live global online conversation

In April, we held a global ‘employee jam’,

where over 18,000 colleagues came

together digitally for a live conversation

around three key themes: embedding our

purpose, values and strategy; enhancing the

colleague experience; and enhancing the

customer experience.

Mirroring what we have heard in Snapshot

surveys, colleagues told us that they believe in

our purpose, strategy and values, but want to

have a better understanding of their tangible

impacts – both inside and outside HSBC – as

well as their direct role in driving these.

Colleagues said that we have made progress

in areas such as diversity, future skills and

trust, but that the focus should now be

placed on building a culture of inclusion

and empowerment, and on a more

consistent approach to well-being. They also

said the Group should focus on simplifying

internal processes.

HSBC Holdings plc Annual Report and Accounts 2022 77

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What we learned

All eight of our Snapshot indices improved

slightly in 2022. Employee engagement, which

is our headline measure, was three points

above benchmark and one point above 2021

levels, and exceeded our target to maintain

engagement levels during the year. The

Strategy index continued to improve in relation

to the ﬁnancial services’ benchmark.

Our colleagues continued to cite our

approach to hybrid and ﬂexible working as a

reason to recommend HSBC, a theme that

has been consistent since 2020. A greater

proportion of colleagues also said they

experienced a positive environment

and culture, as well as saw training and

progression opportunities, helping to

drive our Employee engagement score.

One of the other top ﬁve factors identiﬁed to

inﬂuence the Employee engagement score is

colleagues’ conﬁdence in the company’s

future. Within the Strategy index, employees

recorded feeling increasingly conﬁdent about

the future of the company and understanding

of our strategic objectives.

With inﬂationary pressures and the rising cost

of living around the world, pay and ﬁnancial

well-being are growing concerns among

colleagues. We saw an increase in comments

relating to pay in the Snapshot survey, and

self-reported ﬁnancial well-being declined by

four points, despite a four-point increase in

employees reporting that they know how to

get support about their ﬁnancial capability. For

further details of our approach to ﬁnancial

well-being, see page 80.

Our Snapshot survey showed 65% of

colleagues reported they intend to stay with

HSBC for ﬁve or more years, a one-point

increase, while 19% said they intend to leave

in the next two years, a two-point decrease.

Despite this, involuntary turnover decreased

to 3.3% and voluntary turnover increased to

14.1%, as labour markets picked up globally.

Both our Snapshot and voluntary leaver

surveys tell us that career development

and pay and beneﬁts continue to be key

inﬂuencing factors for voluntary attrition,

and they remain central to our people strategy.

For further details of how we help our people

develop their careers, see ‘Developing skills,

careers and opportunities’ on page 81.

Listening to our colleagues continued

Employee engagement

We use eight Snapshot indices to measure key areas of focus and compare against peer institutions, including a new index focused on inclusion

that we introduced in 2022. The table below sets out how we performed.

Index Score

2021

HSBC vs

benchmark

Questions that make up the index

Employee

engagement

73% +1 +3 I am proud to say I work for this company.

I feel valued at this company.

I would recommend this company as a great place to work.

Employee

focus

72% +1 +2

I generally look forward to going to work.

My work gives me a feeling of personal accomplishment.

My work is challenging and interesting.

Strategy 75% +3 +4

I have a clear understanding of this company’s strategic objectives.

I am seeing the positive impact of our strategy.

I feel conﬁdent about this company’s future.

Change

leadership

76% +2 +2

Leaders in my area set a positive example.

My line manager does a good job of communicating reasons behind important changes that are made.

Senior leaders in my area communicate openly and honestly about changes to the business.

Speak-up 76% +1 +8

My company is genuine in its commitment to encourage colleagues to speak up.

I feel able to speak up when I see behaviour which I consider to be wrong.

Where I work, people can state their opinion without the fear of negative consequences.

Trust 77% +1 +3

I trust my direct manager.

I trust senior leadership in my area.

Where I work, people are treated fairly.

Career 68% +1 +4

I feel able to achieve my career objectives at this company.

I believe that we have fair processes for moving/promoting people into new roles.

My line manager actively supports my career development.

Inclusion

(new)

76% +1 +4

I feel a genuine sense of belonging to my team.

I feel able to achieve my career objectives at this company.

I feel able to be myself at work.

I trust my direct manager.

Where I work, people are treated fairly.

Where I work, people can state their opinion without the fear of negative consequences.

1 Each index comprises constituent questions, with the average of these questions forming the index score.

2 We benchmark Snapshot results against a peer group of global ﬁnancial services institutions, provided by our research partner, Karian and Box. Scores for each

question are calculated as the percentage of employees who agree to each statement. For further details on the constituent questions and past results, see the

ESG Data Pack

at www.hsbc.com/esg.

3 The Inclusion index was introduced in 2022. It comprises questions that were asked in earlier surveys, so we are able to report a comparison with 2021.

For further details of well-being, see page 80, and for further details of inclusion, see page 76.

78 HSBC Holdings plc Annual Report and Accounts 2022

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Being a great place to work

We continued to support our colleagues

during the Covid-19 pandemic, and ensured

their safe return to the oce. In 2022, we

made it a priority to support even more

colleagues to work ﬂexibly, while ensuring we

are there for our customers when and where

they need us.

Hybrid working is a key part of our ﬂexible

working proposition and requires trust. We

have empowered our people to ﬁnd the right

balance, guided by the three principles of:

– customer focus, by delivering excellent

outcomes for our customers;

– team commitment, by connecting with

each other, building our community and

collaborating; and

– two-way ﬂexibility, by providing more

choice on how, when and where we work,

suitable for the roles we perform.

Our ﬂexible working approach

Colleagues consistently tell us that our

approach to ﬂexible and hybrid working is

a key reason to recommend HSBC as an

employer. In June 2022, our ‘Future of work’

survey showed 81% of colleagues speak

positively about our approach to ﬂexible and

hybrid working, and 80% feel it improves their

work-life balance.

In 2022, we refreshed our ﬂexible working

policies to provide more choice and make it

easier to request a ﬂexible working

arrangement. Choices include ﬂexible and

staggered hours, job sharing, reduced hours

and hybrid working. These new policies are

available to more than 90% of colleagues,

including our branch network and non-

permanent employees. We have encouraged

teams to have open conversations about

ﬂexible working opportunities.

More colleagues than ever are working in

a hybrid way, where working time is split

between the oce and home or another

location. According to our Snapshot survey

in September, 59% of our colleagues work

in a hybrid way, compared with 37% in 2021.

Dierent markets are at dierent stages of

embedding hybrid working, and in 2022 some

continued to operate under Covid-19 conditions.

Getting the balance right

While working at home eliminates

commuting time and provides more

opportunities to balance work and life,

some beneﬁts of being together in person

cannot be recreated remotely.

Overall, we have seen that colleagues

in hybrid roles feel more productive and

engaged than those who are unable to

work remotely. However, nearly half of

our colleagues told us that the networks

of people they regularly interacted with

decreased during the pandemic, and they

missed social connections.

As a result, we have equipped leaders to

achieve the right balance of remote and

in-person working for their teams. Our people

managers have access to in-person and

on-demand learning to develop the skills

needed to lead hybrid teams eectively.

Nearly 8,000 hybrid working learning

curriculums were completed by our people

leaders in 2022. In addition, we ran targeted

events to stimulate a successful return to the

oce and create new hybrid working habits.

With more colleagues adopting balanced hybrid

working patterns, the Snapshot survey showed

77% of colleagues said they have enough

opportunities to connect and collaborate with

people outside their immediate teams.

Our oces will continue to evolve to support

increased collaboration. We are rolling out a

digital app in several locations that will oer

greater visibility of who is in the oce to

support teams coming together.

86%

Of people managers are conﬁdent their

teams have the right balance of remote and

in-person working to meet customer and

stakeholder needs.

Our approach to fair

pay and performance

As part of our approach to performance

management, we ask colleagues to

set goals with the support of their line

managers, which are regularly reviewed.

We encourage people managers to hold

regular performance and development

conversations, incorporating feedback,

and discussing well-being and progress.

In the Snapshot survey, 76% of

colleagues indicated they were happy

with the support their manager provided

for career development.

While our overall Career index, which

measures employee sentiment towards

career development, improved by

one point, results from our employee

listening channels indicated that

sentiment around pay and career

opportunities were key factors in

colleagues’ decisions to leave HSBC.

In 2023, we will review our approach to

pay and performance to ensure we are

able to motivate colleagues in a way that

is authentic to our culture and values.

Our approach will help colleagues have

clarity on performance expectations,

awareness of development

opportunities and access to resources.

As part of this programme, we are

proposing to simplify assessments

of colleagues and shift the focus to

conversations about performance and

growth, while improving transparency

and structure in our ﬁxed and variable

pay design.

For further details of our approach to

colleague remuneration see page 281, and

for details of our average standard entry

level wages compared with local minimum

wage, see our

ESG Data Pack

at www.

hsbc.com/esg.

Greater front-line ﬂexibility with far reaching beneﬁts

Colleagues have embraced hybrid working across our eight global service centres that

support our customer operations and services. Through a ‘Hello hybrid’ campaign, over

38,000 employees completed hybrid skills e-learning and nearly 850 colleagues took part in

team dialogue sessions. The campaign helped our colleagues identify the best of remote and

oce working for their diering customer needs, cultures and regulatory requirements. As a

result of the campaign, employee sentiment improved by 6% for the question ‘I generally look

forward to my work day.’ In our main contact centres, colleagues now spend up to 67% of

their working time on customer-facing activities.

HSBC Holdings plc Annual Report and Accounts 2022 79

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Well-being

We want our colleagues to be at their best

at work, so we invest signiﬁcantly in their

well-being and will continue to seek new

ways to provide support. Guided by data

and colleague feedback, the pillars of our

well-being programme are mental, physical,

ﬁnancial and social well-being. In our

employee Snapshot survey carried out in

September, 70% of our colleagues said they

believe HSBC cares about their well-being.

Mental well-being

Supporting our colleagues’ mental health

remains a top priority, with the Covid-19

pandemic still presenting mental health

challenges in many countries. Our Snapshot

survey revealed an increase in mental

well-being, with 84% of colleagues rating

their mental health as positive, compared with

82% in 2021. It also revealed that 73% of

colleagues felt comfortable talking to their

manager about their mental health, a slight

increase from 72% in 2021.

We have continued to make telephone

counselling services and Headspace, a

meditation app, available to all colleagues

globally. Use of these services increased

by 3% and 28% in 2022, respectively.

More than 240,000 colleagues and contractors

took part in mental health awareness training

as part of global mandatory training. Our

voluntary mental health e-learning has now

been completed by 30,000 employees, with

people managers making up 17% of the

completions. We also provide an in-depth

classroom course designed for line managers

and those wanting to be mental health

champions, which has been completed by

800 colleagues.

To celebrate World Mental Health Day, we ran

a global awareness campaign on alleviating

stigma and encouraging colleagues to feel

able to speak up if they need help. Throughout

October, we held over 100 virtual events,

featuring internal and external experts

providing advice on mental health and

well-being related topics.

Physical well-being

The Snapshot survey revealed a decrease in

physical well-being, with 71% of colleagues

rating their physical health as positive,

compared with 75% in 2021.

In February, we ran a survey about our

employee beneﬁts, which showed 37% of

colleagues wanted more support with physical

activity and exercise. In response, we ran a

ﬁve-month pilot with 2,000 colleagues to test

mobile apps that incentivise physical activity.

The pilot showed that the use of apps and

community challenges helped up to 70% of

users increase their physical activity, to

varying degrees. As a result, we are looking

at expanding the initiative to more countries

in 2023.

We have continued to provide access to

private medical insurance in the majority of

our countries and territories, covering 98% of

permanent employees. In certain countries we

provide on-site medical centres that the

majority of colleagues can access.

We have enhanced fertility, adoption, and

surrogacy beneﬁts for our colleagues in the

US and Canada. We are also expanding our

gender dysphoria beneﬁts for LGBTQ+

colleagues in the UK and Philippines

from 2023.

Financial well-being

Our Snapshot survey revealed a decrease in

ﬁnancial well-being, with 60% of colleagues

reporting positively, compared with 64% in

2021. We believe this is an impact of rising

inﬂation and cost of living in many countries.

However, colleagues felt more supported to

manage their ﬁnancial well-being, at 62%, an

increase of four points from 2021. The same

survey revealed that 81% of colleagues felt

they had the right skills and knowledge to

manage their day-to-day ﬁnances, and 77%

said they are well prepared to meet their

ﬁnancial goals.

Our beneﬁts survey showed that 31% of

colleagues want more support around

ﬁnancial education. In response, we have

continued to promote our ﬁnancial education

programmes on healthy ﬁnancial habits

and saving strategies. Since their launch,

over 2,400 colleagues have used these

programmes.

We review our approach to employee share

ownership plans in line with country demand,

operational capacity and local legislation. In 2022,

we expanded our global share plan to colleagues

in Bahrain, Qatar and Kuwait, meaning that 90%

of our people globally now have access to share

ownership plans. We continue to look to oer the

plan in new locations.

In the UK, we introduced a green car scheme

to encourage colleagues to transition to

electric vehicles and beneﬁt from reduced

running costs and CO

emissions.

Social well-being

We introduced social well-being as a new

pillar of our programme in 2022, to focus on

social connections and work-life balance.

Snapshot surveys showed 75% of colleagues

say they can integrate their work and personal

life positively, a slight decrease compared with

76% in 2021. We will continue to facilitate this

by enabling ﬂexible working arrangements,

including hybrid working, in line with our

future of work initiative (see page 76).

Colleagues feel more conﬁdent talking to their

manager about work-life balance, with 80%

saying they do, compared with 77% in 2021.

In 2021, we upgraded our At Our Best

recognition online platform, which allows

for real-time recognition and appreciation

between colleagues. The upgrade enables

colleagues to record and send video messages

to accompany recognitions. In 2022, there

were more than 1.2 million recognitions made,

an 11% increase on 2021. We also enabled

colleagues globally to donate their points

directly to humanitarian relief agencies

supporting those impacted by the war in

Ukraine. To date more than 1,100 colleagues

have made personal donations to this cause.

Awards

CCLA Global 100 Mental Health

Benchmark

– Ranked #1 global employer

Promoting a culture of well-being

In July 2022, we became a founding member of the World Wellbeing Movement, a coalition

of global leaders from business, civil society and academia. A key objective of the movement

is to develop a simple and universally acceptable standard for measuring well-being that

leads to meaningful action. We believe that having a standard ESG indicator on well-being

will improve transparency and enable organisations to better target actions to create positive

change.

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Learning and skills development

We aim to build a dynamic environment

where our colleagues can develop skills and

undertake experiences that help them fulﬁl

their potential. Our approach helps us to

meet our strategic priorities and support

our colleagues’ career goals.

Our resources

The way we work and the way we learn has

changed, driven by the adoption of hybrid

working styles and digital capabilities. We use

a range of resources to help colleagues take

ownership of their development and career,

including:

– HSBC University, which is our home for

learning and skills accessed online and

through a network of training centres.

Learning is organised through technical

academies aligned to businesses and

functions, complemented with enterprise-

wide academies on topics of strategic

importance;

– My HSBC Career Portal, which oers career

development information and resources to

help colleagues manage the various stages

of their career, from joining through to

career progression; and

– HSBC Talent Marketplace, which is our

online platform that uses artiﬁcial

intelligence (‘AI’) to match colleagues

interested in developing speciﬁc skills with

opportunities that exist throughout our

global network.

Learning foundations

We expect all colleagues, regardless of their

contract type, to complete global mandatory

training each year. This training plays a critical

role in shaping our culture, ensuring a focus on

the issues that are fundamental to our work

– such as sustainability, ﬁnancial crime risk, and

our intolerance of bullying and harassment.

New joiners attend our Global Discovery

programme, which is designed to build their

knowledge of the organisation and engage

them with our purpose, values and strategy.

As the risks and opportunities our business

faces change, our technical academies adapt

to oer general and targeted development.

Our Risk Academy provides learning for

every employee in traditional areas of risk

management such as ﬁnancial crime risk,

but also oers more speciﬁc development

for those in high-risk roles and for emerging

issues, such as climate risk, or the ethics and

conduct of AI and big data.

Preparing for the future

Our approach to learning is skills based.

Our academy teams work with businesses and

functions to identify the key skills and

capabilities they need now, and in the future.

We use people analytics, strategic workforce

planning, and learning needs analysis to identify

current and future skills demand, and to help

colleagues develop in new areas that match

their aspirations and support career growth.

Throughout 2022 we continued to run

skills campaigns to create the impetus for

individual-led learning, and have used our

skills inﬂuencer network of more than

1,800 colleagues to build engagement and

enthusiasm around the Talent Marketplace,

and opportunities for development.

Evolving how we learn

During the Covid-19 pandemic, we

strengthened our digital oering to enable

colleagues to develop their skills in a hybrid

environment. Our colleagues can access

HSBC University online via our Degreed

learning platform, using it to identify, assess

and develop skills through internal and

external courses and resources in a way

which suits them.

Degreed materials range from short videos,

articles or podcasts to packaged programmes

or curated learning pathways that link content

in a logical structure. By December, more than

187,000 colleagues were registered on the

platform. In 2022, overall training volumes

were 28.8 hours per FTE, up from 26.7 hours

per FTE in 2021.

However, we recognise that most

development happens while our colleagues

work, through regular coaching, feedback and

performance management. To enable even

more opportunities for colleagues to grow in

this way, our Talent Marketplace matches

colleagues to projects and new experiences

based on their aspirations and career goals.

In 2022, we rolled the platform out to an

additional 83,000 colleagues across 18

countries and territories. Over 150,000

colleagues now have access to the platform,

and to date over 3,000 projects and

networking requests have been facilitated, and

over 70,000 hours of activity have taken place.

Training at HSBC

6.3 million

Training hours carried out by our

colleagues in 2022.

(2021: 5.9 million)

28.8 hours

Training hours carried out per FTE in 2022.

(2021: 26.7 hours)

Developing skills, careers and opportunities

Identifying and retaining

future talent

The starting point to identifying talent is

having a fair and inclusive recruitment

process. To help managers hire in line

with our principles, we have launched

compulsory inclusive hiring training. In

2022, over 5,000 managers received the

certiﬁcation, in addition to 13,500 in 2021.

Our talent programmes have been

designed to enable talented employees

to make the successful transition into

more complex roles and to support

participants in planning for a long-term

career at HSBC. Our key programmes

include:

– Accelerating Female Leaders, which

increases the visibility, sponsorship

and network of female participants.

Colleagues are supported with

development plans to help them

prepare for the next level of

leadership, and matched with

sponsors from our senior leadership

and external executive coaches;

– Accelerating into Leadership, which

prepares participants for leadership

roles through peer-based development

activities, senior sponsorship and

executive coaches. Topics of focus

include network building, developing

resilience and navigating the

organisation. We measure the

retention of colleagues post-

programme to assess the success; and

– ‘UGrow’, which is our programme

that supports the retention and

development of colleagues while

strengthening our leadership pipeline.

The programme oers masterclasses

focused on career planning, driving

results and adaptability for aspiring

colleagues.

Our global emerging talent programmes

welcomed over 800 graduates and 600

interns to the organisation in 2022. Our

programmes are a key enabler of our

broader diversity goals (see page 74). In

2022, our graduate intake was 48%

female, and comprised graduates from

46 nationalities and over 30 ethnicities.

We welcomed our graduates with a

three-day induction programme, which

introduced them to key topics such as

our purpose, values and strategy, as

well as our role in delivering a

sustainable future.

HSBC Holdings plc Annual Report and Accounts 2022 81

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Energising our colleagues for growth

We are committed to oering colleagues the

chance to develop their skills while building

pipelines of talented colleagues to support

the achievement of our strategic priorities.

It remains critical to our ability to energise

for growth that we demonstrate the right

leadership, and create the optimal conditions

for our people to perform. Our leadership and

culture is guided by our purpose, values and

delivering our strategy.

The Sustainability Academy

To support our ambitions to become net zero

in our own operations by 2030, and to align

our ﬁnanced emissions to the Paris Agreement

goal of net zero by 2050, we launched the

Sustainability Academy in 2022. The academy

is available to all colleagues across the Group

and serves as a central point for colleagues to

access learning plans and resources, and

develop practical skills.

The academy has resources to help all

colleagues understand broad topics such

as climate change or biodiversity, and is

supplemented with more advanced content

for key groups of colleagues who are

supporting customers through their transition.

We intend to align content to support business

outcomes by educating our colleagues on

topics such as energy eciency, renewable

energy, sustainability and ESG reporting.

As part of our strategy to align the provision

of ﬁnance to the Paris Agreement, the

Sustainability Academy is supporting our

colleagues to build their knowledge and

capability in the sectors in which we have

begun to measure and set ﬁnanced emissions

targets, including the oil and gas, and power

and utilities sectors.

We will continue to update the academy with

new research and content related to ESG

issues, including those related to social and

governance issues.

Supporting our Asia wealth strategy

At the heart of our ambition to oer best-in

class international wealth management

services to our customers is the accelerated

expansion of our oering in Asia. To achieve

this, we are providing opportunities for our

colleagues to reskill and build career resilience

through our Accelerating Wealth Programme.

The programme oers a skills-based

development plan for colleagues who

are looking to pursue a career in wealth

management. Participants on the programme

are allocated 20% of their working week to

focus on learning and skills development.

They are then regularly assessed to ensure

they are making progress with developing

the right skills to meet our client needs.

We recognise the role that diverse experiences

can bring to our customers, and have

therefore ensured that the programme is open

to colleagues from all global businesses and

functions based in Asia.

Building leadership capabilities

We have strengthened the training we give to

leaders at all levels of the Group to ensure they

are equipped with the skills and knowledge

to energise and develop our colleagues.

We have continued the executive leadership

programme for our most senior leaders,

creating a programme of high-quality modules

that draws on internal and external expertise.

The programme focuses on the shifting

expectations of leaders, embedding the clarity

and alignment to achieve our goals and

tackling strategic change. We complemented

this with educational resources focused on the

opportunities presented by Cloud, artiﬁcial

intelligence, and blockchain technology.

Our Country Leadership Programme aims

to prepare and develop future country CEOs

and executives for highly complex roles.

The programme builds the conﬁdence and

competence of leaders across themes such

as managing cyber risk, building regulatory

relationships, representing HSBC’s net zero

ambitions and upholding customer-centricity.

Participants learn through simulation exercises

and coaching from seasoned executives,

subject matter experts and Board members.

Leadership development for our colleagues

at managing director level includes new

programmes that have been created in

partnership with business schools and

industry practitioners. Topics focus on a range

of issues, including critical skills areas such as

inﬂuence, inclusion, and Agile methodologies.

We recognise the importance of people

managers in shaping the experience of our

colleagues. We have revised our training for

people managers to better support living our

purpose, values and strategy, and to reﬂect

the challenges of retaining talent. Our core

leadership development programme is made

up of four modules that are available in

face-to-face and virtual formats. The

programme is focused on the role and

expectations of managers, how to design and

organise work, how to handle relationships

with employees and how to nurture a

productive team environment.

Supporting UK emerging talent

In the UK, we have continued to broaden our emerging talent programmes beyond

traditional graduate and internship schemes. Our programmes support those from non-

traditional education backgrounds, and are supportive of our social mobility ambitions,

outlined on page 75. In 2022, we provided over 180 apprenticeship opportunities for external

and internal applicants. We have also provided over 600 structured work placements for

secondary school students, and developed partnerships with Brampton Manor, Generating

Genius and the #merky foundation to provide ﬁnancial literacy support to over 6,400 14 to

16 year olds. We have recently launched a career accelerator programme, in partnership

with Zero Gravity, which involves over 120 of our graduates providing career coaching and

mentorship to university students. HSBC UK also uses its apprenticeship levy to support

work opportunities at small and medium-sized business through a partnership with West

Midlands Combined Authority.

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aking banking accessible

Number of no-cost accounts held for

customers who do not qualify for a standard

account or who might need additional support

due to social or ﬁnancial vulnerability.

678,554

692,655

716,9572022

2021

2020

1 The scope of this disclosure has expanded from 2021,

where we only reported the number of accounts opened

for homeless, refugees and survivors of human tracking.

We believe that ﬁnancial services, when

accessible and fair, can reduce inequality and

help more people access opportunities. We

aim to play an active role in opening up a

world of opportunity for individuals by

supporting their ﬁnancial well-being, and

removing the dierent barriers that people

can face in accessing ﬁnancial services.

Access to products and services

We aim to provide innovative solutions

that address the barriers people can face in

accessing products and services. In 2022, we

introduced a new process to help refugees

ﬂeeing the conﬂict in Ukraine to access the

ﬁnancial services they need to set up a new

life in the UK. Over 9,000 Ukrainian refugees

have now opened a bank account with us.

As part of our eorts to help vulnerable

customers access digital services, since 2021,

HSBC UK has given over 1,500 vulnerable

customers a free tablet device. This allows

customers who previously had no way of

accessing our online or mobile banking

services the ability to do so.

Supporting ﬁnancial knowledge

and education

We continue to invest in ﬁnancial education

content and features across dierent channels

to help customers, colleagues and communities

be conﬁdent users of ﬁnancial services.

Between the beginning of 2020 and the end

of 2022, we received over 4 million unique

visitors to our global digital ﬁnancial education

content, achieving our 2019 goal. We will

continue to engage customers with ﬁnancial

education content and build their ﬁnancial

capabilities through the introduction of

personal ﬁnancial management tools. Since

launching a ﬁnancial ﬁtness score in the UK,

74,325 customers have used the tool to

understand the healthiness of their ﬁnances

based on details about their spending,

borrowing and saving habits.

We support programmes that deliver ﬁnancial

education to our local communities. HSBC Life

is sponsoring the Hong Kong Lutheran Social

Service to develop the Health Dollar Fun App,

to boost digital literacy among the elderly,

enhance their physical well-being and

encourage social interaction. Throughout 2021

and 2022, we also partnered with Injaz

Al-Arab, member of JA Worldwide, to deliver

our ‘Saving for good’ programme, which

focuses on building the ﬁnancial capability of

low-income workers in Bahrain, Egypt, Kuwait,

Qatar and the UAE. We have now supported

over 1,700 individuals to grasp basic ﬁnancial

concepts such as budgeting, saving and

investing through a combination of

customised training courses and mentorship.

We also understand the importance of

building ﬁnancial capability in young people

to ensure future resilience. In Mexico, we

oer a podcast that covers a relevant

ﬁnancial educational theme in each episode.

To date, the podcast has been downloaded

more than 73,000 times.

In collaboration with BBC Children in Need,

HSBC UK has worked with ﬁnancial education

charity Young Enterprise to adapt its award-

winning Money Heroes programme for

children and young people experiencing a

range of issues and challenges in their lives.

The education resources have been adapted

to ensure they are accessible, with books

available in braille and large-print, as well

as British Sign Language signed videos,

audiobooks and a new early-reader e-book.

Creating an inclusive banking experience

We aim to ensure that our banking products

and services are designed to be accessible for

customers experiencing either temporary or

permanent challenging circumstances, such

as disability, impairment or a major life event.

We are committed to becoming a digitally

accessible bank so that our digital channels

are usable by everyone, regardless of ability.

We have been recognised by the charity

AbilityNet as having the most accessible

website compared with other local competitor

banks in 10 out of 13 of our key Wealth and

Personal Banking markets.

Support for customers extends beyond our

digital channels. In recognition of the fact that

not all disabilities are visible or immediately

obvious to others, we have now joined the

Hidden Disabilities Sunﬂower Lanyard

Scheme in the UK and Hong Kong. The

lanyard indicates that an individual may need

additional support, help or a little more time.

We also launched ‘quiet hours’ across all of

our UK branches and ‘quiet corners’ at

designated branches in Hong Kong, to provide

a calmer and more inclusive environment.

Supporting women and minority-led businesses

We aim to support our diverse customers

by opening up a world of opportunity for

women and minorities.

In May 2022, we launched a Female

Entrepreneur Fund that aims to provide $1bn

in lending to female-owned businesses.

Other programmes include our Mujeres Al

Mundo (Women of the World) programme

in Mexico, which supports the personal

and professional development of women

as customers. Mujeres Al Mundo oers

women exclusive beneﬁts across ﬁnancial

products and services, discounts on

workshops and programmes taught by

the University Anahuac Mexico.

We have also begun lending from the

$100m that we allocated in 2021 for

companies founded and led by women

and minorities through HSBC Ventures.

Our approach to customer inclusion and resilience

Building customer inclusion and resilience

HSBC Holdings plc Annual Report and Accounts 2022 83

Social

Charitable giving in 2022

Social, including Future Skills: 50%

Environment, including the Climate

Solutions Partnership: 20%

Local priorities: 16%

Disaster relief and other giving: 14%

We have a long-standing commitment to

support the communities in which we operate.

We aim to provide people with the skills and

knowledge needed to thrive in the post-

pandemic environment, and through the

transition to a sustainable future.

We are empowering our people and those

in our communities to develop skills for the

future. Through our charitable partnerships

and volunteering opportunities, our people

share their skills and create a positive impact

in society.

Our global reach is our unique strength.

Bringing together diverse people, ideas and

perspectives helps us open up opportunities

and build a more inclusive world.

Building community and future skills

Our Future Skills strategy, launched in 2018,

has supported over 6.6 million people through

more than $197m in charitable donations.

Current projections from our charity partners

indicate our support during 2022 reached

more than 1.45 million people through

donations of $41m.

In anticipation of global economies

transitioning towards a low-carbon future,

our colleagues and charity partners initiated

programmes that help people and

communities respond to opportunities and

challenges through building relevant skills:

– In the Middle East, we partner with the

Posterity Institute and the Arab Youth

Council for Climate Change to develop

an open-source curriculum for teaching

sustainability skills in higher education

institutions in the region.

– In Argentina, the Academia Solar

programme aims to train students in

design, installation and commissioning

of photovoltaic solar energy systems.

– In India, the Babuji Rural Enlightenment and

Development Society teaches rural farmers

sustainable farming practices, including soil

and water management, helping them to

increase their income.

We also work with our charity partners

around the world to promote employability

and ﬁnancial capabilities in disadvantaged

communities, and to respond to local needs:

– We support The Prince’s Trust Group to

help marginalised young people in Australia,

Canada, India, Malaysia, Malta and the

UK to develop employable skills.

– Our award-winning partnership with the

Scouts has led to the creation of the ﬁrst

ever Money Skills Activity Badge for

Beaver and Cub groups in the UK.

– We support Feeding America to help users

of food banks in the US get on-site job skill

training.

– We work with the China Volunteer Service

Foundation to improve the ﬁnancial

capability of elderly people in Beijing,

Shanghai, and Guangzhou.

Our support for Covid-19 relief eorts also

continued in 2022, with a door-to-door

vaccination programme in Hong Kong aiming

to help 10,000 elderly or people with

disabilities.

Community engagement and

volunteering

We oer paid volunteering days, and

encourage our people to give time, skills

and knowledge to causes within their

communities. In 2022, our colleagues gave

over 67,000 hours to community activities

during work time.

Engagement with pressure groups

We aim to maintain a constructive

dialogue on important topics that are often

raised by campaigning organisations and

pressure groups.

Total cash giving towards charitable

programmes

$116.8m

Hours volunteered during work time

>67,000

People reached through our Future Skills

programme

1.45m

Awards

Investor and Financial Education

Awards 2022 Hong Kong

– IFEA (Corporate) Gold Award

Building a more inclusive world

Climate Solutions Partnership

Our Climate Solutions Partnership is a ﬁve-year $100m philanthropic initiative that aims to

identify and remove barriers to scale for climate change solutions. Working with the World

Resources Institute, WWF and over 50 local partners, our support focuses on start-up

companies developing carbon-cutting technologies, nature-based solutions, renewable

energy initiatives in Asia and the WWF-led Asia Sustainable Palm Oil Links programme.

Since 2020, we have committed $95.8m of our $100m funding target to non-governmental

organisation (‘NGO’) partners, supporting projects with the potential to make signiﬁcant

impacts in the mission to achieve a net zero, resilient and sustainable future.

Engaging with our communities

84 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Social

ESG review

Governance

Acting responsibly

We remain committed to high standards of governance.

We work alongside our regulators and recognise our

contribution to building healthy and sustainable societies.

At a glance

Our relationship

We act on our responsibility to run our

business in a way that upholds high standards

of corporate governance.

Customer experience is at the heart of how

we operate. It is imperative that we treat our

customers well, that we listen, and that we act

to resolve complaints quickly and fairly. We

measure customer satisfaction through net

promoter scores across each of our business

lines, listen carefully to customer feedback so

we know where we need to improve, and take

steps to do this.

We are committed to working with our

regulators to manage the safety of the

ﬁnancial system, adhering to the spirit and

the letter of the rules and regulations

governing our industry.

We strive to meet our responsibilities to

society, including through being transparent in

our approach to paying taxes. We also seek to

ensure we respect global standards on human

rights in our workplace and our supply chains,

and continually work to improve our

compliance management capabilities.

For further details of our corporate

governance, see our corporate

governance report on page 239.

In this section

Setting high

standards of

governance

How ESG is governed

We expect that our ESG governance approach is likely to continue to

develop, in line with our evolving approach to ESG matters and

stakeholder expectations.

Page 86

Human rights Our respect for human

rights

As set out in our Human Rights Statement, we strive for continual

improvement in our approach to human rights.

Page 87

Customer

experience

Customer satisfaction While customer satisfaction improved during the year, we have work

to do to improve our rank position against competitors.

Page 89

How we listen We aim to be open and transparent in how we track, record and

manage complaints.

Page 90

Integrity, conduct

and fairness

Safeguarding the

ﬁnancial system

We have continued our eorts to combat ﬁnancial crime and

reduce its impact on our organisation, customers and communities

that we serve.

Page 92

Whistleblowing Our global whistleblowing channel, HSBC Conﬁdential, allows our

colleagues and other stakeholders to raise concerns conﬁdentially.

Page 92

A responsible approach

to tax

We seek to pay our fair share of tax in all jurisdictions in which

we operate.

Page 93

Acting with integrity We aim to act with courageous integrity and learn from past events

to prevent their recurrence.

Page 93

Conduct: Our product

responsibilities

Our conduct approach guides us to do the right thing and to focus on

the impact we have on our customers and the geographies in which

we operate.

Page 94

Our approach with

our suppliers

We require suppliers to meet our compliance and ﬁnancial stability

requirements, as well as to comply with our supplier code of

conduct.

Page 94

Safeguarding data Data privacy We are committed to protecting and respecting the data we hold

and process, in accordance with the laws and regulations of the

geographies in which we operate.

Page 95

Cybersecurity We invest in our business and technical controls to help prevent,

detect and mitigate cyber threats.

Page 96

HSBC Holdings plc Annual Report and Accounts 2022 85

Governance

How HSBC’s climate

strategy is cascaded

Group Executive Committee

ESG Committee

Sustainability Execution

Review Group

Climate Risk Oversight Forum

Group Risk Management Meeting

Group Risk Committee

Examples of ESG-related management governance

The following governance bodies support management in its delivery of ESG activities.

Board level governance

HSBC Holdings Board

Management level governance

Supports the development and delivery

of the Group’s ESG strategy, key

policies and material commitments by

providing oversight, coordination and

management of ESG commitments

and initiatives.

Co-Chairs: Group Company Secretary

and Chief Governance Ocer, and

Group Chief Sustainability Ocer

Receives updates on climate risk,

and reviews climate risk appetite

and top and emerging climate risks.

Chair: Group Chief Risk and

Compliance Ocer

Oversees the delivery of our ambition

to provide and facilitate $750bn to

$1tn of sustainable ﬁnance and

investment, and realisation of

commercial opportunities.

Chair: Group Chief Executive

Digital Business

Services Executive

Committee

Oversees the global

delivery of ESG

activities within our

own operations,

services and

technology

elements of our

strategy.

Chair: Group Chief

Operating Ocer

Sustainability

Target Operating

Model Steering

Committee

Oversees the

implementation

of the Group’s

organisational plan

for the internal

infrastructure,

both within the

Sustainability

function and the

wider Group,

to deliver our

climate ambitions.

Chair: Group Chief

Sustainability

Ocer

Human Rights

Steering

Committee

Oversees the

Group’s evolving

approach to human

rights and provides

enhanced

governance.

Chair: Group

Chief Risk and

Compliance Ocer

Group Reputational

Risk Committee

Oversees global

executive support

for identiﬁcation,

management and

ongoing monitoring

of reputational risks.

Chair: Group

Chief Risk and

Compliance Ocer

Oversees global risk activities relating

to climate risk management, including

physical and transition risks. Equivalent

forums have been established at

regional level.

Chair: Group Head of Risk Strategy

and Macroeconomic Risk

Regional, global business and global functions

Supporting governance

Opportunities

Risks

Group Audit Committee

How ESG is governed

The Board takes overall responsibility for ESG

strategy, overseeing executive management

in developing the approach, execution and

associated reporting. Progress against our ESG

ambitions is reviewed through Board discussion

and review of key topics such as updates on

our climate ambition and transition, customer

experience and employee sentiment. The Board

is regularly provided with speciﬁc updates on

ESG matters, including the energy policy, human

rights and employee well-being. Board members

receive ESG-related training as part of their

induction and ongoing development, and seek

out further opportunities to build their skills and

experience in this area. For further details of

Board members’ ESG skills and experience, see

page 240. For further details of their induction

and training in 2022, see page 252.

Given the wide-ranging remit of ESG matters,

the governance activities are managed through

a combination of specialist governance

infrastructure and regular meetings and

committees, where appropriate. These include

the Group Disclosure and Controls Committee

and Group Audit Committee, which provide

oversight for the scope and content of ESG

disclosures, and the Group People Committee,

which provides oversight support for the

Group’s approach to performance

management. For some areas, such as climate

where our approach is more advanced,

dedicated governance activities exist to support

the wide range of activities, from sustainable

ﬁnance solution development in the

Sustainability Execution Review Group to

climate risk management in the Climate Risk

Oversight Forum.

The Group Chief Risk and Compliance Ocer

and the chief risk ocers of our PRA-regulated

businesses are the senior managers responsible

for climate ﬁnancial risks under the UK Senior

Managers Regime. Climate risks are considered

in the Group Risk Management Meeting and

the Group Risk Committee, with scheduled

updates provided, as well as detailed reviews

of material matters, such as climate-related

stress testing exercises.

The diagram on the right provides an illustration

of our ESG governance process, including how

the Board’s strategy on climate is cascaded and

implemented throughout the organisation. It

identiﬁes examples of forums that manage both

climate-related opportunities and risks, along

with their responsibilities and the responsible

chair. The structure of the process is similar for

the escalation of problems, with issues either

resolved in a given forum or raised to the

appropriate level of governance with appropriate

scope and authority.

We expect that our ESG governance approach

is likely to continue to develop, in line with

our evolving approach to ESG matters

and stakeholder expectations.

Setting high standards of governance

TCFD

86 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Governance

ESG review

As set out in our Human Rights Statement, we

recognise the role of business in respecting

human rights. Our approach covers all aspects

of internationally recognised human rights and

is guided by the UN Guiding Principles on

Business and Human Rights (‘UNGPs’) and the

OECD Guidelines for Multinational Enterprises.

Refreshing our salient human rights issues

In 2022, building on an earlier human rights

review that had identiﬁed modern slavery and

discrimination as priority issues, we reviewed

our salient human rights issues following the

methodology set out in the UNGPs. These are

the human rights at risk of the most severe

potential negative impact through our business

activities and relationships. It is important to

understand these as inherent risks, based on

the nature of our business. Identifying and

regularly reviewing these risks helps us to

validate and evolve our overall approach to

human rights.

Through this review, we identiﬁed the following

ﬁve human rights risks (salient human rights

issues) inherent to HSBC’s business globally:

– Right to decent work: This covers freedom

from forced labour including freedom from

slavery and child labour and protection from

inhumane, harsh or degrading treatment or

punishment. It also includes the right to just

and favourable conditions of work including

the right to reasonable working hours, fair

working conditions and pay. It also covers the

right to health and safety at work, including

appropriate living conditions for workers as

well as protection of their mental and

physical health and safety while at work.

– Right to equality and freedom from

discrimination: This covers the right to equal

opportunity and freedom from discrimination

on the basis of protected characteristics.

– Right to privacy: This includes the right to

protection against interference with privacy.

– Cultural and land rights: This includes

Our salient human rights issues

Illustration of HSBC Group’s inherent human rights risks mapped to business activities.

HSBC activities

Employer

Buyer

Provider of products and

services

Investor

Inherent human rights risks

Personal

customers

Business

customers

Right to

decent

work

Freedom from forced

labour

◆ ◆ ◆

Just and favourable

conditions of work

◆ ◆ ◆ ◆

Right to health and safety

at work

◆ ◆ ◆ ◆ ◆

Right to equality and freedom from

discrimination

◆ ◆ ◆ ◆ ◆

Right to privacy

◆ ◆ ◆

Cultural and land rights

◆ ◆ ◆

Right to dignity and justice

◆ ◆ ◆ ◆ ◆

1 Investor includes our activities in HSBC Asset Management.

self-determination and the enjoyment of

culture, religion and language, and the rights

of indigenous people.

– Right to dignity and justice: This includes

freedom of opinion and expression and

freedom from arbitrary arrest, detention

or exile.

The assessment also considered our business

activities and relationships in the context of

our roles: as an employer; as a buyer of goods

and services; as a provider of ﬁnancial

products and services to personal customers

and, separately, to business customers; and as

an investor, including all investment activities.

We assessed how each of these ﬁve roles

might intersect with our ﬁve salient human

rights issues. The table above shows the areas

where we assessed severe negative impacts

on human rights would be most likely to arise,

in the absence of action to mitigate them. This

additional analysis allows us to focus our

eorts as we review the range of measures

already in place to manage risks, and consider

enhancements.

Managing risks to human rights

In 2022, we began the process of adapting our

risk management procedures to reﬂect what

we learned from the work on salient human

rights issues described above. This included

the development of Group guidance on human

rights, which incorporates the salient human

rights issues assessment and provides

colleagues with practical advice, including

case studies, on how to identify, prevent,

mitigate and account for how we address our

impacts on human rights.

We incorporated additional human rights

elements into our existing procurement

processes and supplier code of conduct,

and we extended existing human rights due

Human rights

Stakeholder engagement

As part of the process of validating our

assessment of our salient human rights

issues, we engaged with a range of internal

and external stakeholders. These included:

– drawing on the experience of our

employee groups, which gave us valuable

feedback on human rights challenges in

the workplace;

– working with civil society groups with

expertise in one or more of our salient

human rights issues, who could represent

the views of potentially impacted people;

– interviewing of our largest investors to hear

their assessments of the potential human

rights impacts associated with the ﬁnancial

services industry, and we listened to their

expectations of us in responding to the

risks; and

– discussing our salient human rights issues

with some of our key suppliers, our large

business customers and the companies in

which we invest, to understand their views

of human rights impacts in dierent parts of

the world and to develop collaborative

approaches to addressing those impacts.

These stakeholder engagements and input

from external human rights experts led us to

alter or extend our initial assessments in

several ways. For example, our discussions

with civil society groups helped us

understand the potential impact of our

investments on all ﬁve of our salient human

rights issues. Engagement with investors in

HSBC informed our assessment of the way

in which our salient human rights issues

overlap with our approach to climate change

and our commitment to a just transition (see

next page).

Our respect for human rights

HSBC Holdings plc Annual Report and Accounts 2022 87

Governance

Our respect for human rights continued

diligence processes for suppliers and business

customers. We continued to develop our

in-house capability on human rights, including

by launching online resources for all sta and

delivering bespoke human rights training for

520 employees across our network.

The actions we are taking to address these

salient human rights issues are consistent

with our values, and will help us to meet our

commitments on diversity and inclusion, and

those we have made under the UN Global

Compact and the World Economic Forum

metrics on risk for incidents of child, forced

or compulsory labour.

For further details of the actions we have taken to

respect the right to decent work, see our

Annual

Statement under the UK Modern Slavery Act

www.hsbc.com/modernslaveryact.

For further details of the actions taken to

respect the right to equality and freedom from

discrimination, see ’Our approach to diversity

and inclusion’ on page 74.

Sector policies

Some of our business customers operate in

sectors in which the risk of adverse human

rights impact is greater. Our sector policies for

agricultural commodities, energy, forestry,

mining and metals cover human rights issues

such as forced labour, harmful or exploitative

child labour, land rights, the rights of

indigenous peoples, including ‘free prior and

informed consent’, workers’ rights, and the

health and safety of communities.

Through our membership of international

certiﬁcation schemes such as the Forestry

Stewardship Council, the Roundtable on

Sustainable Palm Oil and the Equator Principles,

we actively support the continual improvement

of standards aimed at respecting human rights.

Our sector policies are reviewed periodically to

ensure they reﬂect our priorities.

For further details of our policy prohibitions and

other ﬁnancing restrictions, see our sector-

speciﬁc sustainability risk policies at www.hsbc.

com/who-we-are/esg-and-responsible-business/

managing-risk/sustainability-risk.

Working for a just transition

We aim to play a leading role in mobilising the transition to a global net zero economy, not just by

ﬁnancing it, but by helping to shape and inﬂuence the global policy agenda. When designing and

implementing low-carbon pathways it is important to consider the communities and areas of the

economy that will be facing the greatest challenges. This aligns closely with our commitments on

human rights more broadly. This was demonstrated in June 2022 when HSBC and US fashion

group PVH Corp. announced the ﬁrst sustainable supply chain ﬁnance programme that includes

human rights performance standards.

For further details on this programme, see page 58. See also our paper on Just and Inclusive Climate

Transition for investors at www.assetmanagement.hsbc.co.uk/-/media/ﬁles/attachments/common/

news-and-articles/articles/campaign-2022-11-02-hsbc-responsible-investment-insights-q4-2022.pdf.

Financial crime controls

The risk of us causing, contributing or being

linked to adverse human rights impacts is

also mitigated by our ﬁnancial crime risk

management framework, which includes our

global policies and associated controls.

For further details of how we ﬁght ﬁnancial crime,

see www.hsbc.com/who-we-are/esg-and-

responsible-business/ﬁghting-ﬁnancial-crime.

Other policies

HSBC’s Principles for the

Ethical Use of Data

and Artiﬁcial Intelligence

describe how we

seek to respect rights to privacy while making

use of these technologies.

Driving change

We continued to be active participants in

industry forums, including the Thun Group of

Banks, which is an informal group that seeks to

promote understanding of the UNGPs within

the sector.

HSBC has been an active member of the

Mekong Club since 2016. We are a regular

participant in its monthly ﬁnancial services

working group and use its informative

typological toolkits, infographics, and other

multimedia resources covering current and

emerging human tracking and modern

slavery issues. Our Compliance teams

regularly collaborate and engage with the

Mekong Club in designing bank-wide

knowledge sharing and training sessions.

Supporting those impacted and those

potentially at risk

We continued to expand our Survivor Bank

programme, which has now beneﬁted over

2,000 survivors of modern slavery and human

tracking in the UK, and is a model for

making ﬁnancial services more accessible to

vulnerable communities worldwide.

We built on this experience in developing

access to banking services for customers

in the UK and in Hong Kong with no ﬁxed

abode, providing over 4,000 accounts under

these programmes.

We also responded to the devastating eects

of the conﬂict in Ukraine by introducing a

new process to help refugees to access the

ﬁnancial services they need to set up a new

life in the UK. Over 9,000 people ﬂeeing the

conﬂict have opened a bank account with us.

For further details of our work to support

vulnerable communities, see page 83.

Eectiveness

The table below includes indicative metrics we

use to measure year-on-year continual

improvement to our human rights processes.

Contracted suppliers who had

either conﬁrmed adherence to the

code of conduct or provided their

own alternative that was accepted

by our Global Procurement

function (%)

93%

No-cost accounts held for

customers who do not qualify for

a standard account or who might

need additional support due to

social or ﬁnancial vulnerability

716,957

Employees who have received

bespoke training on human rights

520

Votes against management for

reasons including human rights

Concerns raised related to

bullying, harassment,

discrimination and retaliation

1,159

1 The ﬁgure represents the number of resolutions at

investee company shareholder meetings (including

AGMs) where votes were cast against management

for reasons related to human rights.

88 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Governance

ESG review

We remain committed to improving

customers’ experiences. In 2022, we gathered

feedback from over one million customers

across our three global businesses to help us

understand our strengths and the areas of

focus. Our recommendation scores improved

in more than 66% of our markets, although

we still have work to do to improve our rank

position against competitors.

Customer satisfaction

Listening to drive continual improvement

In 2022, we continued to embed our feedback

system so we can better listen, learn and act

on our customers’ feedback. We use the net

promoter score (‘NPS’) to provide a consistent

measure of our performance. NPS is

measured by subtracting the percentage

of ‘Detractors’ from the percentage of

‘Promoters’. ‘Detractors’ are customers who

provide a score of 0 to 6, and ‘promoters’ are

customers who provide a score of 9 to 10 to

the question: ‘On a scale on 0 to 10, how likely

is it that you would recommend HSBC to a

friend or colleague’.

We run studies that allow us to benchmark

ourselves against other banks. In 2022, we

expanded our surveys to 14 markets to cover

India, France and Germany. We try to make it

as easy as possible for customers to give us

feedback, accelerating our use of digital

real-time surveys to capture insight. By sharing

this and other feedback with our front-line

teams, and allowing them to respond directly

to customers, we are improving how we

address issues and realising opportunities.

Our WPB ‘Customer in the room’ programme

launched in 2022 to bring our senior

leadership closer to customers by providing

them with direct access to customer

feedback. The programme helps to

demonstrate the impact of our decisions on

our customers, and helps ensure we use

customer feedback in all aspects of how we

run our business.

How we fared

In WPB, our NPS increased in four of our six

key markets, which were the UK, Hong Kong,

mainland China and Singapore. Our NPS in

Mexico remained unchanged, while our NPS

in India saw a small decline. In Hong Kong,

we were ranked in ﬁrst place, with improved

scores in wealth advisory, life insurance and

investment products. Our PayMe payments

app was also ranked in second place for

digital wallets.

Our ranks in mainland China and India

remained in the top three, while our rank in

India declined to third place. Our NPS in India

declined across the mobile app, branch and

call centre channels. Our overall rank in

Singapore improved, and we remained in the

top three among our mass auent and high

net worth customers. Our rank in the UK

remained unchanged, with improvements in

our loan products and wealth advisory scores.

However, customers told us we needed to

focus more on making digital platforms more

accessible; making payments easier;

improving our account opening experience;

and helping customers better monitor their

spending. We have made a commitment to

invest in making improvements in these areas.

In our private bank, our global NPS decreased

to 25, compared with 31 in 2021. This was

largely due to a decrease in our scores in Hong

Kong, the US and Luxembourg, with mainland

China and Taiwan now included in the

overall score.

In CMB, our NPS increased in four of our

six key markets, which were Hong Kong,

mainland China, Singapore and Mexico. Our

NPS declined in the UK and India. Our rank

positions in Hong Kong, India, mainland China,

Singapore and Mexico either improved

compared with 2021, or were in the top three

against competitors. However, our rank in

India declined to third place. This was driven

by a decline in NPS among our Business

Banking customers. In the UK, our overall rank

remained unchanged. We were ranked in the

top three among our large corporate and

mid-market enterprise customers in the UK,

and we saw a small decline in NPS among

our Business Banking customers. We continue

to see some challenges in service delivery,

particularly for our Business Banking customers.

Among other initiatives, we have been working

hard to resolve telephony resourcing, which has

impacted our responsiveness.

In GBM, our global NPS improved from 13 to

17 points. Our global rank position remained in

ﬁfth place. We continued to be ranked in the

top three against competitors in MENA, while

our US rank improved. Our digital satisfaction

score fell marginally by one point. We

remained ranked ﬁrst for the quality of our

digital trade ﬁnance platforms.

Number of markets in top three

orimproving rank

2022

WPB 4 out of 6

CMB 5 out of 6

1 In 2022, we updated the markets we measure

our rank positions for both our WPB and CMB

businesses to align with executive incentive

scorecards. They comprise: the UK, Hong Kong,

Mexico, mainland China, India and Singapore.

Rank positions are provided using data gathered

through third-party research agencies

Acting on feedback

We continued to focus on improving our

products and services to enable better

customer experiences.

Across WPB, we launched our Global

Money proposition, initially in the UK, which

allows customers to open a multi-currency

account and be able to use it within

minutes. We also introduced a new mobile

account opening journey in Singapore in

response to preferences for mobile-ﬁrst

experiences.

In CMB, we deployed digital onboarding

solutions to 12 markets in 2022, using

external data sourcing to streamline client

and colleague journeys. These deliveries

increased our digital penetration by 14%

from 2021, extending our digital products

and services to more customers globally.

Through using technology to digitise our

operations, there was close to a 6% increase

in 2022 in trade transactions initiated digitally

by our customers, and nearly a 62% increase

in payments completed using the HSBCnet

mobile app.

In response to client feedback, we made a

number of changes to our client coverage

model in GBM during 2022. We reshaped

our Institutional Client Group, particularly our

approach to ﬁnancial sponsors, sovereign

wealth funds and global investors. We

enhanced our corporate multinational model

to focus on our largest relationships through

regional account managers. We also

launched a series of transaction banking

solutions to improve the experience for

our clients, and created a new digital

collaboration layer to drive clearer

accountability and coordination of global

teams when delivering these solutions.

Customer experience

HSBC Holdings plc Annual Report and Accounts 2022 89

Governance

How we listen

To improve how we serve our customers, we

must be open to feedback and acknowledge

when things go wrong. We have adapted

quickly to support our customers facing

new challenges and new ways of working,

especially as a result of Covid-19-related

lockdown restrictions.

We aim to be open and consistent in how

we track, record and manage complaints,

although as we serve a wide range of

customers – from personal banking and

wealth customers to large corporates,

institutions and governments – we tailor our

approach in each of our global businesses. As

the table on the right demonstrates, we have a

consistent set of principles that enable us to

remain customer-focused throughout the

complaints process.

For further details on complaints volumes by

geography, see our

ESG Data Pack

at www.

hsbc.com/esg.

1 A complaint is any expression of dissatisfaction

about WPB’s activities, products or services

where a response or resolution is explicitly or

implicitly expected.

2 Markets included: Hong Kong, mainland China,

France, the UK, UAE, Mexico, Canada and the US.

3 The UK, Mexico and Hong Kong make up 86% of

total complaints.

How we handle complaints

Our principles Our actions

Making it easy for

customers to

complain

Customers can complain via the channel that best suits them. We

provide a point of contact along with clear information on next

steps and timescales.

Acknowledging

complaints

All colleagues welcome complaints as opportunities and exercise

empathy to acknowledge our customers’ issues. Complaints are

escalated if they cannot be resolved at ﬁrst point of contact.

Keeping the

customer up to

date

We set clear expectations and keep customers informed throughout

the complaint resolution process via their preferred channel.

Ensuring fair

resolution

We thoroughly investigate all complaints to address concerns and

ensure the right outcome for our customers.

Providing available

rights

We provide customers with information on their rights and the

appeal process if they are not satisﬁed with the outcome of the

complaint.

Undertaking root

cause analysis

Complaint causes are analysed on a regular basis to identify and

address any systemic issues and to inform process improvements.

Acting on feedback

In 2022, we launched a Group-wide plan to

deliver an improved experience for our

customers around the world. The plan will

strengthen our capabilities to hear, understand

and act on what our customers are telling

us on a regular basis. Across markets we

enhanced our measurement and tracking

capabilities, and developed the skills and tools

our colleagues need to improve their customer

experience each day. We also sought to

standardise our customer-focused approach

in our processes.

For our colleagues focused on improving our

customers’ experiences, we enhanced and

launched regular forums in 15 of our key

markets to ensure systematic reviews are

carried out to prioritise feedback and

implement improvements quickly regarding

our customers’ online and oine experiences.

This allows us to have a structured approach

to manage feedback.

In Hong Kong, we analyse customer feedback

and detect their pain points at an early stage

through a feedback mechanism. Our

colleagues are now able to reach out to

our customers with unhappy experiences

proactively to resolve their outstanding issues.

WPB complaint volumes

(per 1,000 customers per month)

2022 2021

Total

2.3 2.4

1.4 1.4

Hong Kong

1.0 0.7

Mexico

5.1 5.5

In 2022, we received approximately 1.2 million

complaints from customers. The ratio of

complaints per 1,000 customers per month

in our large markets decreased slightly from

2.4 to 2.3.

In the UK, complaints fell 8% partly due to a

decline in transaction disputes, which had

risen during the Covid-19 pandemic. The

reduction in these complaint volumes can also

be attributed to journey improvements we

made to deal with these disputes more quickly.

We continue to be focused on improving the

customer experience to reduce complaint

volumes further during 2023.

The increase in complaints in Hong Kong was

mainly related to reduced operations in our

branches during Covid-19-related restrictions,

an increase in fraudulent activities, and the

migration by customers towards new ways of

accessing and using our digital platforms. We

are addressing these by seeking to improve our

digital capabilities, timely sta reinforcement,

enhanced guidance of how to use our digital

platforms and improved customer journeys.

The decrease in complaints in Mexico was

driven by improvements in fraud detection,

as our fraud teams took actions to protect

customers, including carrying out an upgrade

to a monitoring tool for credit and debit cards

and making adjustments to fraud rules.

In our private bank in 2022, we received 331

complaints, a 23% decrease on 2021, largely

due to the reduction in administration and

service issues. Within this category a high

proportion were attributable to processing or

client reporting delays/errors. In 2022, the

private bank resolved 344 complaints.

Wealth and Personal Banking (‘WPB’)

90 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Governance

ESG review

In 2022, we received 62,995 customer

complaints, a decrease of 23.4% from 2021.

Of the overall volumes, 78.1% came from the

UK and 12.9% from Hong Kong. The most

common complaint related to operations,

namely payment processing errors and delays.

The reduced volume of received complaints in

the UK was largely as a result of a reduction in

Covid-19-related complaints. This was mainly

due to the fact we received fewer complaints

related to the Bounce Back Loan scheme, and

we also resolved the under-resourcing in UK

servicing centres, which had led to delays in

customer support in 2021 and into the ﬁrst

half of 2022.

In Hong Kong, volumes were higher in the ﬁrst

half of the year due to the consequences of

Covid-19-related restrictions that placed stress

on servicing centre capacity. Additional

recruiting of servicing sta, improvements

in the customer due diligence policy and the

payment investigations process helped to

reduce complaints volumes in the second half

of the year, resulting in annual volumes that

were in line with 2021.

We resolved 65,018 complaints globally

in 2022. The average resolution time for

complaints reduced by 23% to an average

of 5.7 days, which is within our global target

of 20 days.

How we listen continued

Global Banking and Markets (‘GBM’)

In 2022, we received 2,127 customer

complaints in Global Banking, a decrease

of 8% from 2021.

Of the overall Global Banking complaints

volumes, 45.6% were from complaints in

Europe and 28.0% came from the MENA

region. With regard to the types of complaint,

82% for Global Banking related to servicing

and payment processing, which is in line with

previous years.

In the Markets and Securities Services

business, complaint volumes decreased by

6% from 2021. Of the overall Markets and

Securities Services complaint volumes, 48%

were in Asia and 43% in Europe. Our Markets

and Securities Services business remains

focused on providing a high standard of client

service and commitment to resolving issues in

a timely manner, with 93% closed within our

service standards.

1 Globally, a complaint is any expression of dissatisfaction, whether justiﬁed or not, relating to the provision of, or failure to provide, a speciﬁc product or service or

service activity. Within the UK, a complaint is any expression of dissatisfaction – whether justiﬁed or not – about our products, services or activities which suggests

we have caused (or might cause) ﬁnancial loss, or material distress or material inconvenience.

2 Global Banking also includes Global Payments Solutions (previously known as Global Liquidity and Cash Management) and complaints relating to payment

operations, which is part of Digital Business Services.

GBM complaint volumes

2022 2021

Total 2,419 2,619

Global Banking

2,127 2,310

Global Markets and

Securities Services

292 309

CMB complaint volumes

(000s)

2022 2021

Total 63.0 82.2

UK 49.2 67.1

Hong Kong

8.1 8.2

Acting on feedback

In 2022, we continued to invest in our client

feedback tool, moving our products and local

operations onto the platform. The Global

Payments Solutions business adopted the

tool during the year, and CMB sta in Hong

Kong and India are due to begin logging and

managing complaints in early 2023.

In late 2022, we also introduced new

reporting functionality for complaints logged

on the tool, which will update complaints

on a daily basis, and enable colleagues

responsible for managing complaints within

markets and product teams to more closely

manage volumes and operations.

We seek to ensure that we treat customers

fairly when managing complaints, especially

those who may be considered vulnerable or

who have enhanced care needs. In 2022, we

reported 865 complaints associated with such

customers and have managed these closely to

ensure fair outcomes for the customer.

Acting on feedback

We have continued to invest in our client

feedback tool to create a consistent and

streamlined experience for front-line sta in

Global Banking and Markets and the

wholesale businesses globally. In the fourth

quarter, we launched a new reporting

module driven from our client feedback tool,

which will provide real-time complaints

volumes, complaint details and operational

metrics for our complaints users. This

additional information will enable

management to respond to complaints

volumes.

Commercial Banking (‘CMB’)

HSBC Holdings plc Annual Report and Accounts 2022 91

Governance

Safeguarding the ﬁnancial system

We have continued our eorts to combat

ﬁnancial crime and reduce its impact on our

organisation, customers and the communities

that we serve. Financial crime includes fraud,

bribery and corruption, tax evasion, sanctions

and export control violations, money

laundering, terrorist ﬁnancing and

proliferation ﬁnancing.

We are committed to acting with integrity,

and have a ﬁnancial crime risk management

framework that is applicable across all global

businesses and functions, and all countries

and territories in which we operate. The

ﬁnancial crime risk framework, which is

overseen by the Board, is supported by our

ﬁnancial crime policies that are designed to

enable adherence to applicable laws and

regulations globally. Annual mandatory

training is provided to all colleagues, with

additional targeted training tailored to certain

individuals. We carry out regular risk

assessments, identifying where we need to

respond to evolving ﬁnancial crime threats, as

well as monitoring and testing our ﬁnancial

crime risk management programme.

We continue to invest in new technology,

including through the deployment of a

capability to monitor correspondent banking

activity, the enhancements to our fraud

monitoring capability and our trade screening

controls, and the application of machine

learning to improve the accuracy and

timeliness of our detection capabilities. These

new technologies should enhance our ability

to respond eectively to unusual activity and

be more granular in our risk assessments.

This helps us to protect our customers, the

organisation and the integrity of the global

ﬁnancial system against ﬁnancial crime.

Our anti-bribery and corruption policy

Our global anti-bribery and corruption policy

requires that all activity must be: conducted

without intent to bribe or corrupt; reasonable

and transparent; considered to not be lavish

nor disproportionate to the professional

relationship; appropriately documented

with business rationale; and authorised at

an appropriate level of seniority. Our global

anti-bribery and corruption policy requires

that we identify and mitigate the risk of our

customers and third parties committing

bribery or corruption. Among other controls,

we use customer due diligence and

transaction monitoring to identify and help

mitigate the risk that our customers are

involved in bribery or corruption. We perform

anti-bribery and corruption risk assessments

on third parties that expose us to this risk.

The scale of our work

Each month, on average, we monitor

over 1.2 billion transactions for signs of

ﬁnancial crime. During 2022, we ﬁled

over 73,000 suspicious activity reports

to law enforcement and regulatory

authorities where we identiﬁed potential

ﬁnancial crime. In addition, we screen

approximately 117 million customer

records monthly for sanctions exposure.

Whistleblowing

We want colleagues and stakeholders to have

conﬁdence in speaking up when they observe

unlawful or unethical behaviour. We oer a

range of speak-up channels to listen to the

concerns of individuals and have a zero

tolerance for acts of retaliation.

Listening through whistleblowing

channels

Our global whistleblowing channel, HSBC

Conﬁdential, is one of our speak-up channels,

which allows our colleagues and other

stakeholders to raise concerns conﬁdentially

and, if preferred, anonymously (subject to

local laws). In most of our markets, HSBC

Conﬁdential concerns are raised through an

independent third party, oering 24/7 hotlines

and a web portal in multiple languages. We

also provide and monitor an external email

address for concerns about accounting,

internal ﬁnancial controls or auditing matters

(accounti[email protected]). Concerns

are investigated proportionately and

independently, with action taken where

appropriate. This can include disciplinary

action, dismissal, and adjustments to variable

pay and performance ratings.

We promote our full range of speak-up

channels to colleagues to help ensure their

concerns are handled through the most

eective route. In 2022, 18% fewer concerns

were raised through HSBC Conﬁdential

compared with 2021. Of the concerns

investigated through the HSBC Conﬁdential

channel in 2022, 83% related to behaviour

and conduct, 11% to security and fraud risks,

6% to compliance risks and less than 1% to

other categories.

The Group Audit Committee has overall

oversight of the Group’s whistleblowing

arrangements, and the chair of the

Group Audit Committee acts as HSBC’s

whistleblowers’ champion with responsibility

for ensuring and overseeing the integrity,

independence and eectiveness of the

organisation’s policies and procedures.

Compliance sets the whistleblowing policy

and procedures, and provides the Group

Audit Committee with periodic updates on

their eectiveness. Specialist Compliance

teams and investigation functions own

whistleblowing controls, with monitoring in

place to determine control eectiveness.

For further details of the role of the Group Audit

Committee in relation to whistleblowing, see

page 266.

HSBC Conﬁdential concerns raised

in 2022:

1,817

(2021: 2,224)

Substantiation rate of concerns

investigated through HSBC Conﬁdential

in 2022:

41%

(2021: 42%)

99%

Total percentage of employees who have

received ﬁnancial crime training, including

on anti-bribery and corruption.

Integrity, conduct and fairness

92 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Governance

ESG review

Taxes paid – by type of tax

Tax on proﬁts $2,429m (2021: $2,711m)

Withholding taxes $361m (2021: $366m)

Employer taxes $1,041m (2021: $1,125m)

Bank levy $314m (2021: $479m)

Irrecoverable VAT $1,152m (2021: $1,315m)

Other duties and levies

$232m (2021: $278m)

Taxes paid – by region Taxes collected – by region

Europe $4,197m (2021: $3,177m)

Asia-Paciﬁc $3,274m (2021: $3,584m)

Middle East and North Africa $67m

(2021: $78m)

North America $1,129m (2021: $1,081m)

Latin America $1,493m (2021: $1,343m)

Europe $2,745m (2021: $3,170m)

Asia-Paciﬁc $1,894m (2021: $2,077m)

Middle East and North Africa $259m

(2021: $236m)

North America $207m (2021: $469m)

Latin America $424m (2021: $322m)

1 Other duties and levies includes property taxes of $94m (2021: $126m).

Acting with integrity

We aim to act with courageous integrity and

learn from past events to prevent their

recurrence. We recognise that restoration of

trust in our industry remains a signiﬁcant

challenge, but it is a challenge we must

continue to pursue. We owe this not just to our

customers and to society at large, but to our

colleagues to ensure they can be rightly proud

of the organisation where they work. We aim to

make decisions based on doing the right thing

for our customers and never compromising our

ethical standards or integrity.

Further information regarding the measures

that we have taken to prevent the recurrence

of past mistakes can be found at www.hsbc.

com/who-we-are/esg-and-responsible-

business/esg-reporting-and-policies.

A responsible approach to tax

We seek to pay our fair share of tax in all

jurisdictions in which we operate and to minimise

the likelihood of customers using our products

and services to evade or inappropriately avoid

tax. We also abide by international protocols that

aect our organisation. Our approach to tax and

governance processes is designed to achieve

these goals.

Through adoption of the Group’s risk

management framework, we seek to ensure

that we do not adopt inappropriately tax-

motivated transactions or products, and that

tax planning is scrutinised and supported by

genuine commercial activity. HSBC has no

appetite for using aggressive tax structures.

With respect to our own taxes, we are guided

by the following principles:

– We are committed to applying both the

letter and spirit of the law. This includes

adherence to a variety of measures arising

from the OECD Base Erosion and Proﬁt

Shifting initiative.

– We seek to have open and transparent

relationships with all tax authorities. Given

the size and complexity of our organisation,

which operates across over 60 jurisdictions,

a number of areas of diering interpretation

or disputes with tax authorities exist at

any point in time. We cooperate with the

relevant local tax authorities to mutually

agree and resolve these in a timely manner.

– We have applied the OECD/G20 Inclusive

Framework Pillar 2 guidance to identify those

jurisdictions in which we operate that have nil

or low tax rates (15% or below). We have

identiﬁed seven such jurisdictions in which

we operated during 2022 that may be

impacted by adjustments required under the

Pillar 2 Framework. We continually monitor

the number of active subsidiaries within each

jurisdiction as part of our ongoing entity

rationalisation programme. We seek to

ensure that our entities active in nil or low tax

jurisdictions have clear business rationale for

why they are based in these locations and

appropriate transparency over their activities.

With respect to our customers’ taxes, we are

guided by the following principles:

– We have made considerable investments to

support external tax transparency initiatives

and reduce the risk of banking services being

used to facilitate customer tax evasion.

Initiatives include the US Foreign Account

Tax Compliance Act, the OECD Standard for

Automatic Exchange of Financial Account

Information (‘Common Reporting Standard’),

and the UK legislation on the corporate

criminal oence of failing to prevent the

facilitation of tax evasion.

– We implement processes that aim to ensure

that inappropriately tax-motivated products and

services are not provided to our customers.

Our tax contributions

The eective tax rate for the year of 4.9%

was reduced by 14.3% by the recognition of

previously unrecognised deferred tax assets in

the UK and France in light of improvements in

forecast proﬁts in these jurisdictions. Further

details are provided on page 357. The UK bank

levy charge for 2022 of $13m is lower than the

charge of $116m for 2021 as it includes

adjustments made to prior period UK bank

levy charges recognised in the current year.

As highlighted below, in addition to paying

$5.5bn of our own tax liabilities during 2022,

we collected taxes of $10.2bn on behalf of

governments around the world. A more

detailed geographical breakdown of the taxes

paid in 2022 is provided in the

ESG Data Pack

HSBC Holdings plc Annual Report and Accounts 2022 93

Governance

Conduct: Our product responsibilities

Our conduct approach guides us to do the

right thing and to focus on the impact we have

for our customers and the ﬁnancial markets in

which we operate. It is embedded into the way

we design, approve, market and manage

products and services, with a focus on ﬁve

clear outcomes:

– We understand our customers’ needs.

– We provide products and services that

oer a fair exchange of value.

– We service customers’ ongoing needs,

and put it right if we make a mistake.

– We act with integrity in the ﬁnancial markets

we operate in.

– We operate resiliently and securely to avoid

harm to customers and markets.

We train all our sta on our approach to

conduct, helping to ensure our conduct

outcomes are part of everything we do.

Designing products and services

Our approach to product development is set

out in our policies, and provides a clear basis

on which informed decisions can be made.

Our policies require that products must be

ﬁt-for-purpose throughout their existence,

meeting regulatory requirements and

associated conduct outcomes.

Our approach includes:

– designing products to meet identiﬁed

customer needs;

– managing products through governance

processes, helping to ensure they meet

customers’ needs and deliver a fair

exchange of value;

– periodically reviewing products to help

ensure they remain relevant and perform

in line with expectations we have set; and

– improving, or withdrawing from sale,

products which do not meet our customers’

needs or no longer meet our high standards.

Meeting our customers’ needs

Our policies and procedures set standards to

ensure that we consider and meet customer

needs. These include:

– enabling customers to understand the key

features of products and services;

– enabling customers to make informed

decisions before purchasing a product or

service; and

– ensuring processes are in place for the

provision of advice to customers.

They help us provide the right outcomes for

customers, including those with enhanced

care needs. This helps us to support

customers who are more vulnerable to

external impacts, including the current cost of

living crisis (see ‘Supporting our customers

facing a rising cost of living’ on page 15).

Financial promotion

Our policies help to ensure that in the sale of

products and services, we use marketing and

product materials that support customer

understanding and fair customer outcomes.

This includes providing information on

products and services that is clear, fair and not

misleading. We also have controls in place to

ensure our cross-border marketing complies

with relevant regulatory requirements.

Our approach with our suppliers

We maintain global standards and procedures

for the onboarding and use of third-party

suppliers. We require suppliers to meet

our compliance and ﬁnancial stability

requirements, and to comply with our

supplier code of conduct.

Sustainable procurement

In October 2022, we introduced an internal

sustainable procurement procedure to set out

the minimum sustainability requirements for

procurement activity. This helps us to manage

the risks related to sustainability in our supply

chain, and balance the social, environmental

and economic considerations in procurement

decisions.

Supplier code of conduct

We have a supplier code of conduct, revised in

2022, which sets out our commitments to the

environment, diversity and human rights, and

which outlines the minimum commitments

we expect of our suppliers on these issues.

We formalise commitment to the code with

clauses in our supplier contracts, which

support the right to audit and act if a breach

is discovered.

At the end of 2022, 93% of approximately

9,600 contracted suppliers had either

conﬁrmed adherence to the supplier code of

conduct or provided their own alternative that

was accepted by our Global Procurement

function.

Managing environmental and social risk

In 2022, we updated our ESG reputational risk

assessment tool to identify the environmental

and social risks for suppliers that are

considered to be in sectors with high ESG risk.

Previously, the assessment was applied to

suppliers with higher value contracts only. The

tool provides an ESG reputational risk score for

the supplier. A high-risk score results in a

further review to establish whether we are

able to mitigate the risk and onboard

the supplier.

For further details of the number of suppliers by

geographical region, see the

ESG Data Pack

www.hsbc.com/esg.

Product governance

Our product governance arrangements

cover the entire lifecycle of the product.

This helps ensure that our products meet

our policy requirements before we sell

them. It also allows continued risk-based

oversight of product performance against

the intended customer outcomes.

When we decide to withdraw a product

from sale, we aim to consider the

implications for our existing customers,

and agree actions to help them achieve a

fair outcome where appropriate.

94 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Governance

ESG review

Safeguarding data

Data privacy

We are committed to protecting and

respecting the data we hold and process,

in accordance with the laws and regulations

of the markets in which we operate.

Our approach rests on having the right

talent, technology, systems, controls, policies

and processes to help ensure appropriate

management of privacy risk. Our Group-wide

consistent global approach to managing data

privacy risk, and must be applied by all of our

global businesses and global functions. Our

privacy principles are available at www.hsbc.

com/who-we-are/esg-and-responsible-

business/managing-risk/operational-risk.

We conduct regular employee training and

awareness sessions on data privacy and

security issues throughout the year. This

includes global mandatory training for all our

colleagues, with additional training sessions,

where needed, to keep up to date with new

developments in this space.

We provide transparency to our customers

and stakeholders on how we collect, use

and manage their personal data, and their

associated rights. Where relevant, we work

with third parties to help ensure adequate

protections are provided, in line with our data

privacy law. We oer a broad range of

channels in the markets where we operate,

through which customers and stakeholders

can raise concerns on the privacy of their data.

Our dedicated privacy teams report to the

highest level of management on data privacy

risks and issues, and oversee our global data

privacy programmes. We review data privacy

regularly at multiple governance forums,

including at Board level, to help ensure

appropriate challenge and visibility for senior

executives. Data privacy laws and regulations

continue to evolve globally. We continually

monitor the regulatory environment to ensure

we respond appropriately to any changes.

As part of our three lines of defence model,

our Global Internal Audit function provides

independent assurance as to whether our

data privacy risk management approaches

and processes are designed and operating

eectively. In addition, we have established

data privacy governance structures, and

continue to embed accountability across

all businesses and functions.

We continue to implement industry practices

for data privacy and security. Our privacy

teams work closely with our data protection

ocers, industry bodies and research

institutions to drive the design, implementation

and monitoring of privacy solutions. We

conduct regular reviews and privacy risk

assessments, and continue to develop solutions

to strengthen our data privacy controls.

We continue to enhance our internal data

privacy tools to improve accountability for

data privacy. We have procedures to articulate

the actions needed to deal with data privacy

considerations. These include notifying

regulators, customers or other data subjects,

as required under applicable privacy laws and

regulations, in the event of a reportable

incident occurring.

Intellectual property rights practices

We have policies, controls and guidance

to manage risk relating to intellectual

property. This is to help ensure that

intellectual property is identiﬁed, maintained

and protected appropriately, and to help

ensure we do not infringe third-party

intellectual property rights during the course

of business and/or operation.

These policies and controls support our

management of intellectual property risk,

and operate to help ensure that intellectual

property risk is controlled consistently and

eectively in line with our risk appetite.

Data Privacy Day

In January 2022, we hosted an internal

global data privacy event for our

colleagues to mark International Data

Privacy Day. The event, which was

broadcast online, was hosted by our

Global Head of Data Privacy Legal and

the Global Data Risk Steward. The

President and CEO of the International

Association of Privacy Professionals

was a guest speaker at the event.

Key themes included an exploration of

developments in US state and federal

data privacy legislation and regulations,

developments in the implementation and

embedding of existing data privacy laws,

key challenges to organisations such as

cross-border data transfers and data

localisation requirements, and the

evolving enforcement environment

within which we operate.

The ethical use of data and AI

Artiﬁcial intelligence and other emerging technologies give us the ability to process and

analyse data at a depth and breadth not previously possible. While these technologies oer

signiﬁcant potential beneﬁts for our customers, they also pose potential ethical risks for the

ﬁnancial services industry and society as a whole. We have developed a set of principles to

help us consider and address the ethical issues that could arise. HSBC’s Principles for the

Ethical Use of Data and Artiﬁcial Intelligence are available at www.hsbc.com/who-we-are/

esg-and-responsible-business/our-conduct.

HSBC Holdings plc Annual Report and Accounts 2022 95

Governance

Cybersecurity

The threat of cyber-attacks remains a concern

for our organisation, as it does across the

ﬁnancial sector. As cyber-attacks continue

to evolve, failure to protect our operations

may result in disruption for customers,

manipulation of data or ﬁnancial loss.

This could have a negative impact on

our customers and our reputation.

We continue to monitor ongoing geopolitical

events and changes to the cyber threat

landscape, and take necessary proactive

measures with the aim to reduce any impact

to our customers.

Prevent, detect and mitigate

We invest in business and technical controls

to help prevent, detect and mitigate cyber

threats. We apply a ’defence in depth’

approach to cyber controls, recognising the

complexity of our environment. Our ability

to detect and respond to attacks through

round-the-clock security operations centre

capabilities helps to reduce the impact

of attacks.

We continually evaluate threat levels for the

most prevalent attack types and their potential

outcomes. We have a cyber intelligence and

threat analysis capability, which proactively

collects and analyses external cyber

information. We input into the broader cyber

intelligence community through technical

expertise in investigations and contributions

to the cyber-sharing ecosystem in the ﬁnancial

services industry, alongside government

agencies around the world.

In 2022, we further strengthened our cyber

defences and enhanced our cybersecurity

capabilities to help reduce the likelihood and

impact of unauthorised access, security

vulnerabilities being exploited, data leakage,

third-party security exposure and advanced

malware. These defences build upon a

proactive data analytical approach to help

identify advanced targeted threats.

Policy and governance

We have a comprehensive range of

cybersecurity policies and systems designed

to help ensure that the organisation is well

managed, with oversight and control.

We operate a three lines of defence model,

aligned to the operational risk management

framework, to help ensure oversight and

challenge of our cybersecurity capabilities

and priorities. In the ﬁrst line of defence,

we have risk owners within global businesses

and functions who are accountable for

identifying and managing the cyber risk.

They work with control owners to apply the

appropriate risk treatment in line with our risk

appetite. Our controls are executed in line with

policies produced by our Resilience Risk

teams, and are reviewed and challenged by

the second line of defence. They are overseen

by the Global Internal Audit function, the third

line of defence.

We regularly report and review cyber risk and

control eectiveness at relevant governance

forums, including to the Board and across

global businesses, functions and regions.

In addition, we work with our third parties

to help reduce the threat of cyber-attacks

impacting our business processes. We have

an assessment capability to review third

parties’ compliance with our information

security policies and standards.

Cyber training and awareness

We understand the important role our people

play in protecting against cybersecurity threats.

Our mission is to equip every colleague with

the appropriate tools and behaviours they need

to keep our organisation and customers’ data

safe. We provide cybersecurity training and

awareness to all our people, ranging from our

top executives to IT developers to front-line

relationship managers around the world.

Over 92% of our IT developers hold at least one

of our enhanced security certiﬁcations to help

ensure we build secure systems and products.

We host an annual cyber awareness month

for all colleagues, covering topics such as

online safety at home, social media safety,

safe hybrid working and cyber incidents

and response. Our dedicated cybersecurity

training and awareness team provides regular

programmes to our colleagues and customers.

We provide a wide range of education

and guidance to both customers and our

colleagues about how to spot and prevent

online fraud.

Over 97%

Employees completed mandatory

cybersecurity training on time.

Over 92%

IT developers who hold at least one of our

internal secure developer certiﬁcations.

Over 140

Cybersecurity education events held globally.

Over 97%

Survey respondents to cybersecurity

education events who said they have

a better understanding of cybersecurity

following these events.

Educating customers online

Our Fraud and Cyber Awareness app, which launched in the UK in May 2021, has been

enhanced and extended to eight markets in the Middle East and North Africa as a pilot to

improve the ﬁnancial education of our customers. The app is available free of charge for both

personal and business customers, and is designed to keep customers and non-customers up

to date with the latest trends concerning fraud, scams and cyber-attacks. It enables users to

subscribe to real-time notiﬁcations about emerging fraud and cybercrime trends. Since May

2021, the app has been downloaded approximately 28,000 times and has a 4.8 rating on

Google Play and iOS app store. We plan to roll out the app to further markets in 2023.

96 HSBC Holdings plc Annual Report and Accounts 2022

ESG review | Governance

Financial review

Pioneering a sustainable supply

chain ﬁnance programme

In June 2022, we worked closely with US-based fashion group

PVH Corp. to launch the ﬁrst sustainable supply chain ﬁnance

programme tied to environmental and social objectives, and

based on suppliers’ sustainability ratings.

The programme provides the company’s global suppliers

with access to critical funding based on a set of science-based

environmental targets, as well as a series of social elements,

including a healthy and safe working environment,

compensation and beneﬁts, and employment issues, such

as forced labour, child labour, and harassment and abuse.

Sustainable supply chain ﬁnance supports leading companies

and key sectors like the apparel industry to help ensure progress

is made towards their targets and commitments.

The ﬁnancial review gives detailed reporting

of our ﬁnancial performance at Group level

as well as across our dierent global

businesses and geographical regions.

98 Financial summary

109 Global businesses and geographical regions

128 Reconciliation of alternative performance measures

Financial

review

97HSBC Holdings plc Annual Report and Accounts 2022

Financial summary

Contents

98 Use of alternative performance measures

98 Changes to presentation from 1January2022

98 Changes to presentation from 1January2023

99 Future accounting developments

99 Critical accounting estimates and judgements

100 Consolidated income statement

101 Income statement commentary

105 Consolidated balance sheet

Use of alternative performance

measures

Our reported results are prepared in accordance with IFRSs

asdetailed in the financial statements starting on page 324.

To measure our performance, we supplement our IFRSs figures with

non-IFRSs measures, which constitute alternative performance

measures under European Securities and Markets Authority guidance

and non-GAAP financial measures defined in and presented in

accordance with US Securities and Exchange Commission rules and

regulations. These measures include those derived from our reported

results that eliminate factors that distort year-on-year comparisons.

The ‘adjusted performance’ measure used throughout this report is

described below. Definitions and calculations of other alternative

performance measures are included in our ‘Reconciliation of

alternative performance measures’ on page 128. All alternative

performance measures are reconciled to the closest reported

performance measure.

The global business segmental results are presented on an adjusted

basis in accordance with IFRS 8 ‘Operating Segments’ as detailed in

Note 10 ‘Segmental analysis’ on page 360.

Adjusted performance

Adjusted performance is computed by adjusting reported results for

the effects of foreign currency translation differences and significant

items, which both distort year-on-year comparisons.

We consider that adjusted performance provides useful information

for investors by aligning internal and external reporting, identifying and

quantifying items management believes to besignificant, and

providing insight into how management assesses year-on-year

performance.

Management does not assess forward-looking reported operating

expenses as a target of the business, and therefore a reconciliation of

the adjusted operating expenses target to an equivalent IFRS

measure is not available without unreasonable efforts.

Significant items

‘Significant items’ refers collectively to the items that management

and investors would ordinarily identify and consider separately to

improve the understanding of the underlying trends in the business.

The tables on pages 109 to 112 and pages 119 to 124 detail the

effects of significant items on each of our global business segments,

geographical regions and selected countries/territories in 2022, 2021

and 2020.

Foreign currency translation differences

Foreign currency translation differences reflect the movements of the

US dollar against most major currencies during 2022.

We exclude them to derive constant currency data, allowing us to

assess balance sheet and income statement performance on a like-

for-like basis and to better understand theunderlying trends in the

business.

Foreign currency translation differences

Foreign currency translation differences for 2022 are computed by

retranslating into US dollars for non-US dollar branches, subsidiaries, joint

ventures and associates:

• the income statements for 2021 and 2020 at the average rates of

exchange for 2022; and

• the balance sheets at 31 December 2021 and 31 December 2020 at

the prevailing rates of exchange on 31 December 2022.

No adjustment has been made to the exchange rates used to translate

foreign currency-denominated assets and liabilities into the functional

currencies of any HSBC branches, subsidiaries, joint ventures or

associates. The constant currency data of HSBC’s Argentina subsidiaries

has not been adjusted further for the impacts of hyperinflation. Since

1June 2022, Türkiye has been deemed a hyperinflationary economy for

accounting purposes. HSBC has an operating entity in Türkiye and the

constant currency data has not been adjusted further for the impacts of

hyperinflation.

When reference is made to foreign currency translation differences in

tables or commentaries, comparative data reported in the functional

currencies of HSBC’s operations have been translated at the appropriate

exchange ratesapplied in the current period on the basis described

above.

Changes to presentation from

1January2022

Application of IAS 29 ‘Financial Reporting in

Hyperinflationary Economies’

Since 1 June 2022, Türkiye has been deemed a hyperinflationary

economy for accounting purposes. The results of HSBC’s operations

with a functional currency of the Turkish lira have been prepared in

accordance with IAS 29 ‘Financial Reporting in Hyperinflationary

Economies’ as if the economy had always been hyperinflationary. The

results of those operations for the 12-month period ended

31December 2022 are stated in terms of current purchasing power

using the Türkiye Consumer Price Index (’CPI’) at 31 December 2022

with the corresponding adjustment presented in the consolidated

statement of comprehensive income. In accordance with IAS 21 ‘The

Effects of Changes in Foreign Exchange Rates’, the results have been

translated and presented in US dollars at the prevailing rates of

exchange on 31 December 2022. The Group’s comparative

information presented in US dollars with respect to the 12-month

periods ended 31 December 2021 and 31 December 2020 has not

been restated. Argentina remains a hyperinflationary economy for

accounting purposes. The impact of applying IAS 29 and the

hyperinflation provisions of IAS 21 in the current period for both

Türkiye and Argentina was a decrease in the Group’s profit before tax

of $548m, comprising a decrease in revenue of $541m (including a

loss of net monetary position of $543m) and an increase in ECL and

operating expenses of $7m. The CPI at 31 December 2022 for Türkiye

was 1,047 (movement 2022: 359.94) and for Argentina was 1,147

(movement 2022: 563.92, 2021: 197.47).

Changes to presentation from

1January2023

Foreign currency and notable items

From 1 January 2023, ‘adjusted performance’ will no longer exclude

the impact of significant items. Rather it will be computed by

adjusting reported results only for the effects of foreign currency

translation differences between periods to enable users to

understand the impact this has had on the Group’s performance. We

will separately disclose ‘notable items‘, which are components of our

income statement which management and investors would consider

as outside the normal course of business and generally non-recurring

in nature. We will recalibrate applicable targets and guidance to reflect

the impact of these changes, as well as the impact on our targets

following the implementation of IFRS 17 ‘Insurance Contracts’, and

Financial summary

98 HSBC Holdings plc Annual Report and Accounts 2022

intend to communicate these as part of our first quarter results in

May 2023.

Reporting by legal entity

From 1 January 2023, the Group will no longer present results by

geographical regions. We will instead report performance by our main

legal entities to better reflect the Group’s structure.

Future accounting developments

IFRS 17 ‘Insurance Contracts’

IFRS 17 ‘Insurance Contracts’ was issued in May 2017, with

amendments to the standard issued in June 2020 and December

2021. Following the amendments, IFRS 17 is effective for annual

reporting periods beginning on or after 1 January 2023 and is applied

retrospectively, with comparatives restated from 1 January 2022.

On the basis of the implementation work performed to date, our

current assumption remains that the accounting changes will result in

a reduction in the earnings of our insurance business by

approximately two thirds on transition to IFRS 17, albeit within a

range of expected outcomes and before the effect of market impacts

in specific periods. Unlike current accounting where market impacts

and changes in assumptions are reported immediately in profit or

loss, under IFRS 17 these are primarily accumulated with the

contractual service margin (‘CSM’) and recognised in profit or loss

over the remaining life of the contracts. While IFRS 17 changes the

timing of profit recognition, there is no impact to the underlying

economics of the insurance business, including solvency, capital and

cash generation.

Results of work performed to date on the half-year to 30 June 2022

IFRS17 comparatives indicate there would be a likely reduction to

reported profit before tax for our insurance manufacturing operations

from $0.6bn under IFRS 4, to approximately $0.3bn under IFRS 17.

IFRS 4 based profit before tax included negative market impacts of

$0.7bn and a $0.3bn specific pricing update for policyholder funds

held on deposit with us in Hong Kong. The consolidated Group

insurance accounting considers the effect of eliminating intra-group

distribution fees between insurance manufacturing and non-insurance

Group entities, and instead includes the costs of selling insurance

contracts incurred by such entities within the Group CSM. These

factors generate a further impact on the 30 June 2022 Group IFRS 17

profit before tax of negative $0.1bn, in addition to the impact on

insurance manufacturing operations.

We also anticipate some impact on selected key Group metrics. We

expect an estimated reduction of approximately $1.1bn to the first

half of 2022 Group net interest income due to the reclassification of

assets supporting policyholder liabilities from amortised cost to fair

value through profit and loss classification, following which the

associated interest income will be included within the ‘net income/

(expense) from assets and liabilities of insurance businesses,

including related derivatives, measured at fair value through profit or

loss’ line item. Group operating expenses are expected to reduce by

approximately $0.3bn as a result of the IFRS 17 requirement for

directly attributable costs to be included in the CSM and recognised

within the insurance service result line, within revenue.

These estimates are based on accounting policies, assumptions,

judgements and estimation techniques that remain subject to change.

Critical accounting estimates and

judgements

The results of HSBC reflect the choice of accounting policies,

assumptions and estimates that underlie the preparation of HSBC’s

consolidated financial statements. The significant accounting policies,

including the policies which include criticalaccounting estimates and

judgements, are described inNote1.2 on the financial statements.

The accounting policies listed below are highlighted as they involve a

high degree of uncertainty and have a material impact on the financial

statements:

• Impairment of amortised cost financial assets and financial assets

measured at fair value through other comprehensive income

(‘FVOCI’): The most significant judgements relate to defining what

is considered to be a significant increase in credit risk, determining

the lifetime and point of initial recognition of revolving facilities,

selecting and calibrating the probability of default (‘PD’), the loss

given default (‘LGD’) and the exposure at default (‘EAD’) models,

as well as selecting model inputs and economic forecasts, and

making assumptions and estimates to incorporate relevant

information about late-breaking and past events, current conditions

and forecasts of economic conditions. A high degree of

uncertainty is involved in making estimations using assumptions

that are highly subjective and very sensitive to the risk factors.

SeeNote1.2(i) onpage341.

• Deferred tax assets: The most significant judgements relate to

those made in respect of recoverability, which is based on

expected future profitability. SeeNote 1.2(l) on page346.

• Valuation of financial instruments: In determining the fair value of

financial instruments a variety of valuation techniques are used,

some of which feature significant unobservable inputs and are

subject to substantial uncertainty. See Note1.2(c) on page339.

• Impairment of investment in subsidiaries: Impairment testing

involves significant judgement in determining the value in use, and

in particular estimating the present values of cash flows expected

to arise from continuing to hold the investment, based on a

number of management assumptions. The most significant

judgements relate to the impairment testing of HSBC Holdings’

investment in HSBC North America Holdings Limited and HSBC

Bank Bermuda Limited. See Note 1.2(a) on page 337.

• Impairment of interests in associates: Impairment testing involves

significant judgement in determining the value in use, and in

particular estimating the present values of cash flows expected to

arise from continuing to hold the investment, based on a number

of management assumptions. The most significant judgements

relate to the impairment testing of our investment in Bank of

Communications Co., Limited (‘BoCom’). See Note1.2(a) on

page337.

• Impairment of goodwill and non-financial assets: A high degree of

uncertainty is involved in estimating the future cash flows of the

cash-generating units (‘CGUs’) and the rates used to discount

these cash flows. See Note1.2(a) on page337.

• Provisions: Significant judgement may be required dueto the high

degree of uncertainty associated with determining whether a

present obligation exists, and estimating the probability and

amount of any outflows thatmay arise. See Note1.2(m) on

page346.

• Post-employment benefit plans: The calculation of the defined

benefit pension obligation involves the determination of key

assumptions including discount rate, inflation rate, pension

payments and deferred pensions, pay and mortality. See

Note1.2(k) on page345.

• Non-current assets and disposal groups held for sale:

Management judgement is required on determining the likelihood

of the sale to occur, and the anticipated timing in assessing

whether the held for sale criteria have been met. See Note 1.2(o)

on page 347.

Given the inherent uncertainties and the high level of subjectivity

involved in the recognition or measurement of theitems above, it is

possible that the outcomes in the next financial year could differ from

the expectations on which management’s estimates are based,

resulting in the recognition and measurement of materially different

amounts from those estimated by management in these financial

statements.

HSBC Holdings plc Annual Report and Accounts 2022 99

Financial review

Consolidated income statement

Summary consolidated income statement

2022

2021

2020

2019

2018

Net interest income 32,610 26,489 27,578 30,462 30,489

Net fee income 11,451 13,097 11,874 12,023 12,620

Net income from financial instruments held for trading or managed on a fair value basis 10,469 7,744 9,582 10,231 9,531

Net income/(expense) from assets and liabilities of insurance businesses, including related

derivatives, measured at fair value through profit or loss

(3,394) 4,053 2,081 3,478 (1,488)

Change in fair value of designated debt and related derivatives

(77) (182) 231 90 (97)

Changes in fair value of other financial instruments mandatorily measured at fair value through

profit or loss

226 798 455 812 695

Gains less losses from financial investments (3) 569 653 335 218

Net insurance premium income 12,825 10,870 10,093 10,636 10,659

Impairment loss relating to the planned sale of our retail banking operations in France

(2,378) — — — —

Other operating income/(loss) (133) 502 527 2,957 960

Total operating income 61,596 63,940 63,074 71,024 63,587

Net insurance claims and benefits paid and movement in liabilities to policyholders (9,869) (14,388) (12,645) (14,926) (9,807)

Net operating income before change in expected credit losses and other

credit impairment charges

51,727 49,552 50,429 56,098 53,780

Change in expected credit losses and other credit impairment charges (3,592) 928 (8,817) (2,756) (1,767)

Net operating income 48,135 50,480 41,612 53,342 52,013

Total operating expenses excluding impairment of goodwill and other intangible assets (33,183) (33,887) (33,044) (34,955) (34,622)

Impairment of goodwill and other intangible assets (147) (733) (1,388) (7,394) (37)

Operating profit 14,805 15,860 7,180 10,993 17,354

Share of profit in associates and joint ventures 2,723 3,046 1,597 2,354 2,536

Profit before tax 17,528 18,906 8,777 13,347 19,890

Tax expense (858) (4,213) (2,678) (4,639) (4,865)

Profit for the year 16,670 14,693 6,099 8,708 15,025

Attributable to:

– ordinary shareholders of the parent company 14,822 12,607 3,898 5,969 12,608

– preference shareholders of the parent company — 7 90 90 90

– other equity holders 1,213 1,303 1,241 1,324 1,029

– non-controlling interests 635 776 870 1,325 1,298

Profit for the year 16,670 14,693 6,099 8,708 15,025

Five-year financial information

2022

2021

2020

2019

2018

Basic earnings per share 0.75 0.62 0.19 0.30 0.63

Diluted earnings per share 0.74 0.62 0.19 0.30 0.63

Dividends per ordinary share (paid in the period)

0.27 0.22 — 0.51 0.51

Dividend payout ratio

44 40 79 100 81

Post-tax return on average total assets 0.6 0.5 0.2 0.3 0.6

Return on average ordinary shareholders’ equity 8.7 7.1 2.3 3.6 7.7

Return on average tangible equity 9.9 8.3 3.1 8.4 8.6

Effective tax rate 4.9 22.3 30.5 34.8 24.5

1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.

2 Includes impairment of goodwill of $425m.

3 Net operating income before change in expected credit losses and other credit impairment charges also referred to as revenue.

4 Includes an interim dividend of $0.09 per ordinary share in respect of the financial year ending 31 December 2022, paid in September 2022, and an

interim dividend of $0.18 per ordinary share in respect of the financial year ending 31 December 2021, paid in April 2022.

5 Dividend per share, in respect of the period, as a percentage of earnings per share adjusted for certain items (recognition of certain deferred tax

assets: $0.11 reduction in EPS; planned sales of the retail banking operations in France and banking business in Canada: $0.09 increase in EPS). No

items were adjusted in 2021, 2020, 2019 or 2018.

Unless stated otherwise, all tables in the Annual Report and Accounts 2022 are presented on a reported basis.

For a summary of our financial performance in 2022, see page 28.

For further financial performance data for each global business and geographical region, see pages 109 to 112 and 117 to 127 respectively. The

global business segmental results are presented on an adjusted basis in accordance with IFRS 8 ‘Operating Segments’, in Note 10: Segmental

analysis on page 360.

Financial summary

100 HSBC Holdings plc Annual Report and Accounts 2022

Income statement commentary

The following commentary compares Group financial performance for the year ended 2022 with 2021.

Net interest income

Year ended Quarter ended

31 Dec

30 Sep

31 Dec

2022

2021

2020

2022

2021

Interest income 55,059 36,188 41,756 19,548 14,656 9,219

Interest expense (22,449) (9,699) (14,178) (9,970) (6,075) (2,438)

Net interest income 32,610 26,489 27,578 9,578 8,581 6,781

Average interest-earning assets 2,203,639 2,209,513 2,092,900 2,178,281 2,170,599 2,251,433

Gross interest yield

2.50 1.64 2.00 3.56 2.68 1.62

Less: gross interest payable

(1.24) (0.53) (0.81) (2.21) (1.36) (0.52)

Net interest spread

1.26 1.11 1.19 1.35 1.32 1.10

Net interest margin

1.48 1.20 1.32 1.74 1.57 1.19

1 Gross interest yield is the average annualised interest rate earned on average interest-earning assets (‘AIEA’). Gross interest payable is the average

annualised interest cost as a percentage on average interest-bearing liabilities.

2 Net interest spread is the difference between the average annualised interest rate earned on AIEA, net of amortised premiums and loan fees, and the

average annualised interest rate payable on average interest-bearing funds.

3 Net interest margin is net interest income expressed as an annualised percentage of AIEA.

Summary of interest income by type of asset

2022

2021

2020

Average

balance

Interest

income

Yield

Average

balance

Interest

income

Yield

Average

balance

Interest

income

Yield

Short-term funds and loans and advances tobanks 446,178 5,596 1.25 450,678 1,105 0.25 298,255 1,264 0.42

Loans and advances to customers 1,023,606 32,607 3.19 1,060,658 26,071 2.46 1,046,795 29,391 2.81

Reverse repurchase agreements – non-trading 231,052 4,886 2.11 206,246 1,019 0.49 221,901 1,819 0.82

Financial investments 430,327 9,836 2.29 438,840 6,729 1.53 463,542 8,143 1.76

Other interest-earning assets 72,476 2,134 2.94 53,091 1,264 2.38 62,407 1,139 1.83

Total interest-earning assets 2,203,639 55,059 2.50 2,209,513 36,188 1.64 2,092,900 41,756 2.00

Summary of interest expense by type of liability

2022

2021

2020

Average

balance

Interest

expense

Cost

Average

balance

Interest

expense

Cost

Average

balance

Interest

expense

Cost

Deposits by banks

75,739 770 1.02 75,671 198 0.26 65,536 330 0.50

Customer accounts

1,342,342 10,903 0.81 1,362,580 4,099 0.30 1,254,249 6,478 0.52

Repurchase agreements – non-trading 118,309 3,085 2.61 114,201 363 0.32 125,376 963 0.77

Debt securities in issue – non-trading 179,814 5,608 3.12 193,137 3,603 1.87 219,610 4,944 2.25

Other interest-bearing liabilities 87,719 2,083 2.37 70,929 1,436 2.02 76,395 1,463 1.92

Total interest-bearing liabilities 1,803,923 22,449 1.24 1,816,518 9,699 0.53 1,741,166 14,178 0.81

1 Including interest-bearing bank deposits only.

2 Including interest-bearing customer accounts only.

Net interest income (‘NII’) for 2022 was $32.6bn, an increase of

$6.1bn or 23% compared with 2021. The increase reflected the

benefit of rising global interest rates, while actively managing our

pricing strategy and funding requirements, with growth in all regions,

notably in Asia and the UK.

Excluding the unfavourable impact of foreign currency translation

differences, net interest income increased by $7.7bn or 31%.

NII for the fourth quarter was $9.6bn, up 41% compared with the

previous year, and 12% compared with the previous quarter. This was

driven by higher interest rates and management of our funding costs,

with growth in all regions, notably in Asia and the UK.

Net interest margin (‘NIM’) for 2022 of 1.48% was up 28 basis

points (‘bps’) compared with 2021, as the gross yield on AIEA

improved by 86bps in the high interest rate environment. This was

partly offset by the rise in the funding cost of average interest-bearing

liabilities of 71bps. Excluding the adverse impact of foreign currency

translation differences, net interest income increased by 29bps.

NIM for the fourth quarter of 2022 was 1.74%, up 55bps year on

year, and up 17bps compared with the previous quarter,

predominantly driven by the impact of higher market interest rates.

Interest income for 2022 of $55.1bn increased by $18.9bn or 52%,

primarily due to higher average interest rates compared with 2021, as

the yield on AIEA rose by 86bps, mainly driven by loans and advances

to customers, short-term funds, loans and advances to banks, and

reverse repurchase agreements. However, mortgage yields rose

more modestly due to competitive pressures and market factors in

the UK and Hong Kong. The increase in interest income included

adverse effects of foreign currency translation differences of $2.2bn.

Excluding this, interest income increased by $21.1bn.

Interest income of $19.5bn in the fourth quarter was up $10.3bn year

on year, and up $4.9bn from the previous quarter. The increase was

driven by the impact of higher interest rates, resulting in improved

yields on loans and advances to customers and reverse repurchase

agreements.

HSBC Holdings plc Annual Report and Accounts 2022 101

Financial review

Interest expense for 2022 of $22.4bn increased by $12.8bn or 131%

compared with 2021. This reflected the increase in funding cost of

71bps, mainly arising from higher interest rates paid on interest-

bearing customer accounts, repurchase agreements and debt

securities in issue. The increase in interest expense included the

favourable effects of foreign currency translation differences of

$0.6bn. Excluding this, interest expense increased by $13.4bn.

Included within net interest income in 2022 is a $2.5bn interest

expense representing a component of centrally allocated funding

costs associated with generating ‘net income from financial

instruments held for trading or managed on a fair value basis’. This

compared with an interest expense of $0.4bn in 2021.

Interest expense of $10.0bn in the fourth quarter of 2022 was up

$7.5bn year on year, and up $3.9bn compared with the previous

quarter. The steep rise in interest expense was mainly driven by

higher funding cost on customer accounts as interest rates increased,

particularly in Asia and Europe.

Net fee income of $11.5bn was $1.6bn lower than in 2021, and

included an adverse impact from foreign currency translation

differences of $0.6bn. Net fee income fell in WPB and GBM, although

it increased in CMB.

In WPB, net fee income decreased by $0.9bn. The reduction was

mainly in Wealth, as adverse market sentiment resulted in lower

customer demand, mainly in Hong Kong. Fee income fell due to lower

sales of unit trusts and from subdued customer demand in funds

under management, as well as from lower broking income. Cards

income grew as spending increased compared with 2021. This also

resulted in higher fee expense.

In GBM, net fee income decreased by $0.8bn. This was driven by

lower fee income from underwriting, in line with the reduction in the

global fee pool. Fee income also decreased in credit facilities and in

corporate finance, reflecting subdued client demand.

In CMB, net fee income increased by $0.1bn. Fee income grew in

cards, as spending increased compared with 2021, and in account

services, reflecting greater client activity in transaction banking,

notably Global Payments Solutions (‘GPS’).

Net income from financial instruments held for trading or

managed on a fair value basis of $10.5bn was $2.7bn higher

compared with 2021. This primarily reflected a strong trading

performance in Global Foreign Exchange due to increased client

activity, driven by elevated levels of market volatility.

This was partly offset by adverse fair value movements on non-

qualifying hedges of $0.5bn.

Net expense from assets and liabilities of insurance businesses,

including related derivatives, measured at fair value through

profit or loss of $3.4bn compared with a net income of $4.1bn in

2021. This reduction primarily reflected unfavourable equity market

performances in Hong Kong and France. This compared with 2021,

which benefited from favourable equity markets.

This adverse movement resulted in a corresponding movement in

liabilities to policyholders and the present value of in-force long-term

insurance business (‘PVIF’) (see ‘Other operating income/expense’).

This reflected the extent to which the policyholders and shareholders

respectively participate in the investment performance of the

associated assets.

Changes in fair value of other financial instruments mandatorily

measured at fair value through profit or loss of $0.2bn was $0.6bn

lower compared with 2021. This primarily reflected lower revaluation

gains in our Principal Investments business in GBM.

Gains less losses from financial investments of $3m were $0.6bn

lower compared with 2021, reflecting lower gains on the disposal of

debt securities.

Net insurance premium income of $12.8bn was $2.0bn higher than

in 2021, primarily reflecting higher sales volumes, particularly in Hong

Kong, which had a higher proportion of single premium products in its

product mix, as well as in Singapore following our acquisition of AXA

Insurance Pte Limited.

Impairment loss relating to the sale of the retail banking

operations in France was $2.4bn. In accordance with IFRS 5 ‘Non-

current Assets Held for Sale and Discontinued Operations’, the

disposal group was classified as held for sale on 30 September 2022,

at which point the Group recognised the estimated impairment of

$2.4bn, which included impairment of goodwill of $0.4bn and related

transaction costs.

Other operating income/expense was an expense of $0.1bn

compared with an income of $0.5bn in 2021, and included an adverse

impact from foreign currency translation differences of $0.4 bn. The

reduction also reflected losses of $0.4bn related to the planned sales

of our branch operations in Greece and our business in Russia, as well

as the non-recurrence of a prior year gain on the sale of a property in

Germany. These reductions were partly offset by a gain of $0.1bn on

the completion of our acquisition of AXA Singapore and a favourable

change in PVIF of $0.2bn.

The favourable change in PVIF included a $0.2bn increase in the value

of new business, notably in Hong Kong, a $0.5bn favourable impact

from sharing lower investment returns with policyholders, and a

$0.3bn gain following a pricing update for our policyholders’ funds

held on deposit with us in Hong Kong to reflect the cost to provide

this service. These factors were partly offset by a $0.7bn reduction

from assumption changes, primarily reflecting the impact of higher

interest rates in Hong Kong.

PVIF is presented in accordance with IFRS 4 ‘Insurance Contracts’. As

set out on page 335, IFRS 17 ‘Insurance Contracts’ is effective from

1January 2023. Under IFRS17, there will be no PVIF asset

recognised. Instead, the estimated future profit will be included in the

measurement of the insurance contract liability as the contractual

service margin and gradually recognised in revenue as services are

provided over the duration of the insurance contract.

Net insurance claims and benefits paid and movement in

liabilities to policyholders was $4.5bn lower, primarily in France and

Hong Kong due to a reduction in returns on financial assets

supporting contracts where the policyholder is subject to part or all of

the investment risk. This was in part mitigated by higher sales

volumes in Hong Kong.

Change in expected credit losses and other credit impairment

charges (‘ECL’) were a charge of $3.6bn, compared with a net

release of $0.9bn in 2021.

The charges in 2022 reflected stage 3 charges of $2.2bn, in part

relating to exposures to the commercial real estate sector in mainland

China. We also recognised stage 1 and stage 2 charges in all global

businesses, reflecting a deterioration in the macroeconomic

environment, with many markets experiencing increased interest

rates, continued inflation, supply chain risks and heightened

recessionary risks. These economic conditions also contributed to the

increase in stage 3 charges, mainly in CMB and GBM. These

increases were in part mitigated by the release of most of our

remaining Covid-19-related allowances.

The charge in 2022 compared with a net release in 2021, primarily

relating to Covid-19-related allowances previously built up in 2020.

For further details on the calculation of ECL, including the

measurement uncertainties and significant judgements applied to

such calculations, the impact of the economic scenarios and

management judgemental adjustments, see pages 153 to 162.

Financial summary

102 HSBC Holdings plc Annual Report and Accounts 2022

Operating expenses – currency translation and significant items

Year ended

2022

2021

Significant items 2,864 2,335

– customer redress programmes (31) 49

– disposals, acquisitions and investment in new businesses 18 —

– impairment of goodwill and other intangibles (4) 587

– restructuring and other related costs 2,881 1,836

– currency translation on significant items (137)

Currency translation 2,181

Year ended 31 Dec 2,864 4,516

Operating expenses

Year ended

2022

2021

Gross employee compensation and benefits 19,288 19,612

Capitalised wages and salaries (922) (870)

Goodwill impairment — 587

Property and equipment 5,005 5,145

Amortisation and impairment of intangibles 1,716 1,438

UK bank levy

13 116

Legal proceedings and regulatory matters 246 106

Other operating expenses

7,984 8,486

Total operating expenses (reported) 33,330 34,620

Total significant items (including currency translation on significant items) (2,864) (2,335)

Currency translation (2,181)

Total operating expenses (adjusted) 30,466 30,104

1 The UK bank levy charge for the year ended 2022 includes adjustments made to prior period UK bank levy charges recognised in the current year.

2 Other operating expenses includes professional fees, contractor costs, transaction taxes, marketing and travel. The decrease was driven by favourable

currency translation movements, partly offset by higher costs related to our cost reduction programme.

Staff numbers (full-time equivalents)

2022

2021

2020

Global businesses

Wealth and Personal Banking 128,764 130,185 135,727

Commercial Banking 43,640 42,969 43,221

Global Banking and Markets 46,435 46,166 46,729

Corporate Centre 360 377 382

At 31 Dec 219,199 219,697 226,059

1 Represents the number of full-time equivalent people with contracts of service with the Group who are being paid at the reporting date.

HSBC Holdings plc Annual Report and Accounts 2022 103

Financial review

Operating expenses of $33.3bn were $1.3bn or 4% lower than in

2021, primarily as foreign currency translation differences resulted in

a favourable impact of $2.2bn, and due to the non-recurrence of a

2021 goodwill impairment of $0.6bn related to our WPB business in

Latin America.

Reported operating expenses also reflected the impact of ongoing

cost discipline across the Group. This helped mitigate growth from

increased investment in technology of $0.5bn, which included

investments in our digital capabilities, the impact of business volume

growth, and inflation. Restructuring and other related costs increased

by $1.0bn.

In 2022, cost to achieve spend, included within restructuring and

other related costs, was $2.9bn. This three-year programme ended on

31 December 2022 with a total spend of $6.5bn and cumulative gross

saves realised of $5.6bn. We expect additional gross cost savings of

approximately $1bn to be delivered in 2023 due to actions taken in

2022.

The number of employees expressed in full-time equivalent staff

(‘FTE’) at 31 December 2022 was 219,199, a decrease of 498

compared with 31 December 2021. The number of contractors at

31 December 2022 was 6,047, a decrease of 145.

Share of profit in associates and joint ventures of $2.7bn was

$0.3bn lower, primarily as 2021 included a higher share of profit from

Business Growth Fund in the UK due to the recovery in asset

valuations. This was partly offset by an increase in the share of profit

from The Saudi British Bank.

In relation to Bank of Communications Co., Limited (‘BoCom’), we

continue to be subject to a risk of impairment in the carrying value of

our investment. We have performed an impairment test on the

carrying amount of our investment and confirmed there was no

impairment at 31 December 2022.

For more information, see Note 18: Interests in associates and joint

ventures on page 379.

Tax expense

Year ended

2022

2021

Reported tax charge 858 4,213

Currency translation (279)

Tax significant items 3,429 307

– tax credit on significant items 1,118 328

– recognition of losses 2,330 (4)

– uncertain tax positions (19) —

– currency translation (17)

Adjusted tax charge 4,287 4,241

Tax expense

The effective tax rate for 2022 of 4.9% was lower than the 22.3% in

2021. Tax in 2022 included a $2.2bn credit arising from the

recognition of a deferred tax asset from historical tax losses in HSBC

Holdings, which was recognised as a significant item. This was a

result of improved profit forecasts for the UK tax group, which

accelerated the expected utilisation of these losses and reduced

uncertainty regarding their recoverability. We also benefited from

other deferred tax asset reassessments during 2022. Excluding these,

the effective tax rate for 2022 was 19.2%, which was 3.1 percentage

points lower than in 2021. The effective tax rate for 2022 was also

decreased by the remeasurement of deferred tax balances following

the substantive enactment in the first quarter of 2022 of legislation to

reduce the rate of the UK banking surcharge from 8% to 3% from

1April 2023.

Supplementary table for planned

disposals

The income statements and selected balance sheet metrics for the

year ended 31 December 2022 of our banking business in Canada and

our retail banking operations in France are shown below.

The asset and liability balances relating to these planned disposals are

reported on the Group balance sheet within ‘Assets held for sale’ and

‘Liabilities of disposal groups held for sale’, respectively, as at

31December 2022.

Income statement and selected balance sheet metrics of disposal

groups held for sale

Year ended 2022

Canada

France

retail

$bn

Revenue 1.9 0.6

ECL (0.1) —

Operating expenses

(1.0) (0.5)

Profit before tax 0.8 0.1

Loans and advances to customers 55.2 25.0

Customer accounts 60.6 22.3

RWA

31.9 5.0

1 Under the terms of the sale agreement, the pre-tax profit on the sale

will be recognised through a combination of the consolidation of HSBC

Canada’s results into the Group’s financial statements from 30 June

2022 until completion, and the remaining gain on sale recognised at

completion.

2 France retail includes the transferring retail banking business, HSBC

SFH and associated supporting services. For more information, see

Note 23: Assets held for sale and liabilities of disposal groups held for

sale on page 389.

3 Includes $0.3bn in Canada and $0.1bn in France retail in respect of

Group recharges and other costs not transferring as part of the planned

transactions.

4 Includes $3.0bn in Canada and $0.9bn in France retail in respect of

operational risk RWAs.

Financial summary

104 HSBC Holdings plc Annual Report and Accounts 2022

Consolidated balance sheet

Five-year summary consolidated balance sheet

2022

2021

2020

2019

2018

Assets

Cash and balances at central banks 327,002 403,018 304,481 154,099 162,843

Trading assets 218,093 248,842 231,990 254,271 238,130

Financial assets designated and otherwise mandatorily measured at fair value

through profit or loss

45,063 49,804 45,553 43,627 41,111

Derivatives 284,146 196,882 307,726 242,995 207,825

Loans and advances to banks 104,882 83,136 81,616 69,203 72,167

Loans and advances to customers 924,854 1,045,814 1,037,987 1,036,743 981,696

Reverse repurchase agreements – non-trading 253,754 241,648 230,628 240,862 242,804

Financial investments 425,564 446,274 490,693 443,312 407,433

Assets held for sale

115,919 3,411 299 123 735

Other assets 267,253 239,110 253,191 229,917 203,380

Total assets at 31 Dec 2,966,530 2,957,939 2,984,164 2,715,152 2,558,124

Liabilities and equity

Liabilities

Deposits by banks 66,722 101,152 82,080 59,022 56,331

Customer accounts 1,570,303 1,710,574 1,642,780 1,439,115 1,362,643

Repurchase agreements – non-trading 127,747 126,670 111,901 140,344 165,884

Trading liabilities 72,353 84,904 75,266 83,170 84,431

Financial liabilities designated at fair value 127,327 145,502 157,439 164,466 148,505

Derivatives 285,764 191,064 303,001 239,497 205,835

Debt securities in issue 78,149 78,557 95,492 104,555 85,342

Liabilities of disposal groups held for sale

114,597 9,005 — — 313

Liabilities under insurance contracts 114,844 112,745 107,191 97,439 87,330

Other liabilities 212,696 190,989 204,019 194,876 167,261

Total liabilities at 31 Dec 2,770,502 2,751,162 2,779,169 2,522,484 2,363,875

Equity

Total shareholders’ equity 187,484 198,250 196,443 183,955 186,253

Non-controlling interests 8,544 8,527 8,552 8,713 7,996

Total equity at 31 Dec 196,028 206,777 204,995 192,668 194,249

Total liabilities and equity at 31 Dec 2,966,530 2,957,939 2,984,164 2,715,152 2,558,124

1 ‘Assets held for sale’ in 2021, including $2.4bn of loans and advances to customers in relation to our exit of mass market retail banking business in the

US, were reported within ‘Other assets’ in the Annual Report and Accounts 2021. Similarly, $8.8bn of customer accounts classified as ‘Liabilities of

disposal groups’ were previously presented within ‘Other liabilities’.

A more detailed consolidated balance sheet is contained in the financial statements on page 326.

HSBC Holdings plc Annual Report and Accounts 2022 105

Financial review

Five-year selected financial information

2022

2021

2020

2019

2018

Called up share capital 10,147 10,316 10,347 10,319 10,180

Capital resources

162,423 177,786 184,423 172,150 173,238

Undated subordinated loan capital 1,967 1,968 1,970 1,968 1,969

Preferred securities and dated subordinated loan capital

29,921 28,568 30,721 33,063 35,014

Risk-weighted assets 839,720 838,263 857,520 843,395 865,318

Total shareholders’ equity 187,484 198,250 196,443 183,955 186,253

Less: preference shares and other equity instruments (19,746) (22,414) (22,414) (22,276) (23,772)

Total ordinary shareholders’ equity 167,738 175,836 174,029 161,679 162,481

Less: goodwill and intangible assets (net of tax) (18,383) (17,643) (17,606) (17,535) (22,425)

Tangible ordinary shareholders’ equity 149,355 158,193 156,423 144,144 140,056

Financial statistics

Loans and advances to customers as a percentage of customer accounts 58.9% 61.1% 63.2% 72.0% 72.0%

Average total shareholders’ equity to average total assets 6.34% 6.62% 6.46% 6.97% 7.16%

Net asset value per ordinary share at year-end ($)

8.50 8.76 8.62 8.00 8.13

Tangible net asset value per ordinary share at year-end ($)

7.57 7.88 7.75 7.13 7.01

Tangible net asset value per fully diluted share at year-end ($) 7.51 7.84 7.72 7.11 6.98

Number of $0.50 ordinary shares in issue (millions) 20,294 20,632 20,694 20,639 20,361

Basic number of $0.50 ordinary shares outstanding (millions) 19,739 20,073 20,184 20,206 19,981

Basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary

shares (millions)

19,876 20,189 20,272 20,280 20,059

Closing foreign exchange translation rates to $:

$1: £ 0.830 0.739 0.732 0.756 0.783

$1: € 0.937 0.880 0.816 0.890 0.873

1 Capital resources are regulatory total capital, the calculation of which is set out on page205.

2 Including perpetual preferred securities, details of which can be found in Note 29: Subordinated liabilities on page 393.

3 The definition of net asset value per ordinary share is total shareholders’ equity, less non-cumulative preference shares and capital securities, divided

by the number of ordinary shares in issue, excluding own shares held by the company, including those purchased and held in treasury.

4 The definition of tangible net asset value per ordinary share is total ordinary shareholders’ equity excluding goodwill, PVIF and other intangible assets

(net of deferred tax), divided by the number of basic ordinary shares in issue, excluding own shares held by the company, including those purchased

and held in treasury.

Combined view of customer lending and customer deposits

2022

2021

Combined customer lending

Loans and advances to customers 924,854 1,045,814

Loans and advances to customers of

disposal groups reported in ‘Assets held

for sale’

80,576 2,385

– Canada 55,197

– France retail banking operations 25,029

– other

350 2,385

At 31 Dec 1,005,430 1,048,199

Combined customer deposits

Customer accounts 1,570,303 1,710,574

Customer accounts reported in ‘Liabilities

of disposal groups held for sale’

85,274 8,750

– Canada 60,606

– France retail banking operations 22,348

– other

2,320 8,750

At 31 Dec 1,655,577 1,719,324

1 At 31 December 2021, ‘other’ included loans and advances and

customer accounts relating to the disposal of the US mass market

retail banking business. This sale completed in February 2022.

Balance sheet commentary compared with

31December2021

At 31 December 2022, total assets of $3.0tn, were broadly

unchanged on a reported basis and increased by $161bn or 6% on a

constant currency basis.

During the period, asset and liability balances mainly relating to the

planned sales of our retail banking operations in France and our

banking business in Canada were reclassified to ‘Assets held for sale’

and ‘Liabilities of disposal groups held for sale’.

Reported loans and advances to customers as a percentage of

customer accounts was 58.9%, compared with 61.1% at

31December 2021. The movement in this ratio reflected the

reclassifications to held for sale mentioned above.

Assets

Cash and balances at central banks decreased by $76bn or 19%,

which included a $32bn adverse impact of foreign currency translation

differences. The decrease was mainly in the US, reflecting the

redeployment of liquidity into reverse repurchase agreements, and

also due to a reduction in customer accounts. In addition, lower

balances in the UK primarily reflected growth in lending to customers

and banks, on a constant currency basis.

Trading assets decreased by $31bn or 12%, reflecting a reduction in

equity and debt securities held, particularly in Hong Kong and the UK,

reflecting weaker client demand.

Derivative assets increased by $87bn or 44%, mainly in Europe,

reflecting favourable revaluation movements on interest rate

contracts due to movements in long-term yield curve rates in most

major markets. Foreign exchange contracts also increased, primarily

in the UK, as a result of foreign exchange rate movements. The

increase in derivative assets was consistent with the increase in

derivative liabilities, as the underlying risk is broadly matched.

Loans and advances to banks increased by $22bn or 26%, primarily

reflecting increases in the UK and Hong Kong.

Loans and advances to customers of $925bn decreased by $121bn

or 12% on a reported basis. This included the following items:

• adverse impacts of foreign currency translation differences of

$55bn; and

• the reclassification of $81bn to ‘Assets held for sale’ primarily

relating to the planned sales of our retail banking operations in

France and our banking business in Canada in 2022, and $2bn in

2021 primarily associated with the US mass market retail banking

business sales which were disposed of during 2022.

On a constant currency basis and including balances classified as held

for sale, loans and advances to customers increased by $12bn. This

included the impact of the subsequent sale of US mass market retail

balances that were held for sale at 31 December 2021 of $2bn with

the remaining growth of $14bn reflecting the following movements.

Financial summary

106 HSBC Holdings plc Annual Report and Accounts 2022

In WPB, customer lending increased by $15bn, reflecting growth in

mortgage balances, notably in the UK (up $9bn), Hong Kong (up $3bn)

and Australia (up $2bn).

In CMB, customer lending was $3bn higher from term lending

increases in India, Australia and the US. Lending also increased in the

UK, primarily in trade lending. This was partly offset by a reduction in

term lending of $8bn in Hong Kong as customer demand for lending

softened in the second half of 2022.

In GBM, lending fell by $3bn due to a reduction in Global Banking

term lending in the fourth quarter of 2022, primarily in Hong Kong,

partly offset by a growth in overdrafts balances in the UK.

Financial investments decreased by $21bn or 5%, mainly in Europe

from the adverse impact of foreign currency translation differences

since 31 December 2021. The reduction included adverse fair value

movements recorded in ‘other comprehensive income’ in equity on

debt securities, treasury and other eligible bills as a result of higher

yield curves and wider macroeconomic pressures. It also included

reductions due to disposals and maturity of these securities. The

reductions were partly offset by increases in debt instruments

measured at amortised cost, as we repositioned our portfolio to

reduce capital volatility.

Assets held for sale of $116bn primarily comprised the assets

relating to the planned sales of our retail banking operations in France

and our banking business in Canada.

Other assets increased by $28bn, reflecting growth in cash collateral

of $21bn due to an increase in the fair value of derivative liabilities.

Liabilities

Deposits by banks decreased by $34bn or 34%, primarily in Europe,

Hong Kong and the US.

Customer accounts of $1.6tn decreased by $140bn or 8% on a

reported basis. This included the following items:

• adverse impacts of foreign currency translation differences of

$88bn; and

• the reclassification of $85bn to ‘Liabilities of disposal groups held

for sale’ primarily relating to the planned sales of our retail banking

operations in France and our banking business in Canada in 2022,

and $9bn in 2021 primarily associated with the US mass market

retail banking business which was disposed of during 2022.

On a constant currency basis and including balances classified as held

for sale, customer accounts increased by $24bn. This included the

impact of the subsequent sale of US mass market retail balances that

were held for sale at 31 December 2021 of $9bn with the remaining

growth of $33bn reflecting the following movements.

In GBM, customer accounts rose by $16bn. This was driven by

growth in interest-bearing and term deposit balances as customers

demonstrated a preference for higher yielding accounts as interest

rates rose, notably in Europe.

In WPB, customer accounts grew by $17bn, reflecting higher interest-

bearing and term deposit balances, as interest rates rose, primarily in

the UK and Asia.

In CMB, customer accounts remained broadly stable, with reductions

in Hong Kong, the US, and the UK, mitigated by growth in other Asia

markets.

Derivative liabilities increased by $95bn or 50%, which is consistent

with the increase in derivative assets, since the underlying risk is

broadly matched.

Liabilities of disposal groups held for sale of $115bn primarily

comprised the liabilities relating to the planned sales of our retail

banking operations in France and our banking business in Canada.

Other liabilities increased by $22bn, notably from growth in cash

collateral of $20bn, mainly due to the increase in fair value of

derivative assets.

Equity

Total shareholders’ equity, including non-controlling interests,

decreased by $11bn or 5% compared with 31 December 2021.

Profits generated of $17bn were offset by net losses through other

comprehensive income (‘OCI’) of $17bn. In addition, shareholders’

equity fell as a result of dividends paid of $7bn, the redemption of

perpetual subordinated contingent convertible capital securities of

$3bn and the impact of our $1bn share buy-back announced at our

2021 results in February 2022.

The net losses in OCI of $17bn included adverse movements of $5bn

on financial instruments designated as hold-to-collect-and-sell, which

are held as hedges to our exposure to interest rate movements, as a

result of the increase in term market yield curves in 2022. The net

loss also included an adverse impact from foreign exchange

differences of $10bn and losses of $4bn on cash flow hedges. These

losses were partly offset by fair value gains on liabilities related to

changes in own credit risk of $2bn.

In the earlier stages of a rising interest rate environment, the Group is

positively exposed to rising interest rates through net interest income,

although there is an impact on our capital base due to the fair value of

hold-to-collect-and-sell instruments. These instruments are reported

within ‘financial investments’. There is an initial negative effect

materialising through reserves, after which the net interest income is

expected to result in a net benefit for the Group over time, provided

policy rates follow market implied rates.

Over time, these adverse OCI movements will unwind as the

instruments reach maturity, although not all will necessarily be held to

maturity.

Risk-weighted assets

Risk-weighted assets (‘RWAs’) totalled $839.7bn at 31 December

2022, a $1.4bn increase since 2021. Excluding foreign currency

translation differences of $41.9bn, RWAs rose by $43.3bn in 2022.

This was mainly due to the following movements:

• a $20.9bn asset size increase, mostly caused by CMB and WPB

lending growth in Europe and Asia, offset by reduced lending in

GBM; and

• a $24.2bn increase in RWAs due to changes in methodology and

policy. This was mostly due to regulatory changes, data

enhancements driven by internal and external reviews of our

regulatory reporting processes and the reversal of the beneficial

changes to the treatment of software assets.

HSBC Holdings plc Annual Report and Accounts 2022 107

Financial review

Customer accounts by country/territory

2022

2021

Europe 601,473 667,769

– UK 493,028 535,797

– France

33,726 56,841

– Germany 28,949 22,509

– Switzerland 5,167 10,680

– other 40,603 41,942

Asia 784,236 792,098

– Hong Kong 542,543 549,429

– Singapore 61,475 57,572

– mainland China 56,948 59,266

– Australia 28,506 28,240

– India 22,636 24,507

– Malaysia 16,008 16,500

– Taiwan 15,316 15,483

– Indonesia 5,840 6,019

– other 34,964 35,082

Middle East and North Africa (excluding Saudi Arabia) 43,933 42,629

– United Arab Emirates 23,331 20,943

– Türkiye 3,497 4,258

– Egypt 6,045 6,699

– other 11,060 10,729

North America 109,093 178,565

– US 100,404 111,921

– Canada

— 58,071

– other 8,689 8,573

Latin America 31,568 29,513

– Mexico 25,531 23,583

– other 6,037 5,930

At 31 Dec 1,570,303 1,710,574

1 At 31 December 2022, customer accounts of $85bn met the criteria to be classified as held for sale and are reported within ‘Liabilities of disposal

groups held for sale’ on the balance sheet, of which $61bn and $22bn belongs to the planned sales of the banking business in Canada and retail

banking operations in France, respectively. Refer to Note 23 on page 389 for further details.

Loans and advances, deposits by currency

31 Dec 2022

USD

GBP

HKD

EUR

CNY

Others

Total

Loans and advances to banks 34,495 12,292 5,188 6,328 7,833 38,746 104,882

Loans and advances to customers 182,719 265,988 221,150 57,077 49,036 148,884 924,854

Total loans and advances 217,214 278,280 226,338 63,405 56,869 187,630 1,029,736

Deposits by banks 23,133 16,963 4,002 8,830 4,707 9,087 66,722

Customer accounts 430,866 422,087 312,052 112,399 63,032 229,867 1,570,303

Total deposits 453,999 439,050 316,054 121,229 67,739 238,954 1,637,025

31 Dec 2021

USD

GBP

HKD

EUR

CNY

Others

Total

Loans and advances to banks 21,474 3,991 524 3,970 6,545 46,632 83,136

Loans and advances to customers 169,055 280,909 223,714 83,457 44,093 244,586 1,045,814

Total loans and advances 190,529 284,900 224,238 87,427 50,638 291,218 1,128,950

Deposits by banks 37,962 20,909 2,757 24,393 5,049 10,082 101,152

Customer accounts 453,864 463,232 318,702 133,604 65,052 276,120 1,710,574

Total deposits 491,826 484,141 321,459 157,997 70,101 286,202 1,811,726

1 ‘Others’ includes items with no currency information available ($1,519m for loans to banks (2021: $11,028m), $3,405m for loans to customers (2021:

$64,491m), $13m for deposits by banks (2021: $23m) and $6m for customer accounts (2021: $5m)).

RWAs by currency

31 Dec 2022

USD

GBP

HKD

EUR

CNY

Others

Total

RWAs

223,657 143,474 152,804 60,843 49,867 209,075 839,720

31 Dec 2021

USD

GBP

HKD

EUR

CNY

Others

Total

RWAs 216,664 150,130 145,851 67,934 55,343 202,341 838,263

1 RWAs of $840bn includes credit risk, market risk and operational risk RWAs.

Financial summary

108 HSBC Holdings plc Annual Report and Accounts 2022

Global businesses and geographical regions

Contents

109 Summary

109 Reconciliation of reported and adjusted items – global businesses

112 Reconciliation of reported and adjusted risk-weighted assets

112 Supplementary tables for WPB and GBM

117 Analysis of reported results by geographical regions

119 Reconciliation of reported and adjusted items – geographical

regions

125 Analysis by country

Summary

The Group Chief Executive, supported by the rest of the Group

Executive Committee (‘GEC‘), reviews operating activity on a number

of bases, including by global business and geographical region. Our

global businesses – Wealth and Personal Banking, Commercial

Banking, and Global Banking and Markets – along with Corporate

Centre are our reportable segments under IFRS 8 ‘Operating

Segments’ and are presented below and in Note 10: Segmental

analysis on page 360.

Geographical information is classified by the location of the principal

operations of the subsidiary or, for The Hongkong and Shanghai

Banking Corporation Limited, HSBC Bank plc, HSBC UK Bank plc,

HSBC Bank Middle East Limited and HSBC Bank USA, by the location

of the branch responsible for reporting the results or providing

funding.

The expense of the UK bank levy is included in the Europe

geographical region as HSBC regards the levy as a cost of being

headquartered in the UK. From 2021, the UK bank levy was partially

allocated to global businesses, which was previously retained in

Corporate Centre. Comparative periods have not been re-presented.

The results of geographical regions are presented on a reported basis

on page 117 and an adjusted basis on page 119.

Reconciliation of reported and adjusted items – global businesses

Supplementary unaudited analysis of significant items by global business is presented below.

2022

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

Revenue

Reported 22,197 16,197 15,267 (1,934) 51,727

Significant items 2,170 18 92 1,338 3,618

– customer redress programmes (10) 2 — — (8)

– disposals, acquisitions and investment in new businesses

2,274 — — 525 2,799

– fair value movements on financial instruments

5 2 (93) 665 579

– restructuring and other related costs

(99) 14 185 148 248

Adjusted 24,367 16,215 15,359 (596) 55,345

ECL

Reported (1,137) (1,858) (587) (10) (3,592)

Adjusted (1,137) (1,858) (587) (10) (3,592)

Operating expenses

Reported (15,049) (6,893) (9,579) (1,809) (33,330)

Significant items 323 251 254 2,036 2,864

– customer redress programmes (37) — — 6 (31)

– disposals, acquisitions and investment in new businesses 2 — — 16 18

– impairment of goodwill and other intangibles — (13) — 9 (4)

– restructuring and other related costs 358 264 254 2,005 2,881

Adjusted (14,726) (6,642) (9,325) 227 (30,466)

Share of profit/(loss) in associates and joint ventures

Reported 29 1 (2) 2,695 2,723

Adjusted 29 1 (2) 2,695 2,723

Profit/(loss) before tax

Reported 6,040 7,447 5,099 (1,058) 17,528

Significant items 2,493 269 346 3,374 6,482

– revenue 2,170 18 92 1,338 3,618

– operating expenses 323 251 254 2,036 2,864

Adjusted 8,533 7,716 5,445 2,316 24,010

Loans and advances to customers (net)

Reported 423,553 308,094 192,852 355 924,854

Adjusted 423,553 308,094 192,852 355 924,854

Customer accounts

Reported 779,310 458,714 331,844 435 1,570,303

Adjusted 779,310 458,714 331,844 435 1,570,303

1 Net operating income/(expense) before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 Includes losses from classifying businesses as held for sale as part of a broader restructuring of our European business, of which $2.4bn relates to the

planned sale of our retail banking operations in France.

3 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.

4 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.

HSBC Holdings plc Annual Report and Accounts 2022 109

Financial review

Reconciliation of reported and adjusted items (continued)

2021

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

Revenue

Reported 22,117 13,431 14,588 (584) 49,552

Currency translation (1,152) (885) (987) (50) (3,074)

Significant items (2) (8) 381 171 542

– customer redress programmes 7 (18) — — (11)

– fair value movements on financial instruments

— (1) 19 224 242

– restructuring and other related costs

(14) 3 395 (77) 307

– currency translation on significant items 5 8 (33) 24 4

Adjusted 20,963 12,538 13,982 (463) 47,020

ECL

Reported 288 300 337 3 928

Currency translation (75) (75) (24) — (174)

Adjusted 213 225 313 3 754

Operating expenses

Reported (16,306) (7,055) (10,203) (1,056) (34,620)

Currency translation 914 429 781 57 2,181

Significant items 903 72 172 1,188 2,335

– customer redress programmes 39 1 — 9 49

– impairment of goodwill and other intangibles 587 — — — 587

– restructuring and other related costs 296 81 197 1,262 1,836

– currency translation on significant items (19) (10) (25) (83) (137)

Adjusted (14,489) (6,554) (9,250) 189 (30,104)

Share of profit in associates and joint ventures

Reported 34 1 — 3,011 3,046

Currency translation — — — (113) (113)

Adjusted 34 1 — 2,898 2,933

Profit/(loss) before tax

Reported 6,133 6,677 4,722 1,374 18,906

Currency translation (313) (531) (230) (106) (1,180)

Significant items 901 64 553 1,359 2,877

– revenue (2) (8) 381 171 542

– operating expenses 903 72 172 1,188 2,335

Adjusted 6,721 6,210 5,045 2,627 20,603

Loans and advances to customers (net)

Reported 488,786 349,126 207,162 740 1,045,814

Currency translation (27,739) (18,443) (8,383) (52) (54,617)

Adjusted 461,047 330,683 198,779 688 991,197

Customer accounts

Reported 859,029 506,688 344,205 652 1,710,574

Currency translation (39,710) (26,487) (21,770) (60) (88,027)

Adjusted 819,319 480,201 322,435 592 1,622,547

1 Net operating income/(expense) before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.

3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.

Global businesses

110 HSBC Holdings plc Annual Report and Accounts 2022

Reconciliation of reported and adjusted items (continued)

2020

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

Revenue

Reported 21,999 13,294 14,994 142 50,429

Currency translation (532) (423) (581) 13 (1,523)

Significant items 14 18 283 (373) (58)

– customer redress programmes 5 16 — — 21

– disposals, acquisitions and investment in new businesses 9 — — 1 10

– fair value movements on financial instruments

— 1 2 (267) (264)

– restructuring and other related costs

— 1 307 (138) 170

– currency translation on significant items — — (26) 31 5

Adjusted 21,481 12,889 14,696 (218) 48,848

ECL

Reported (2,855) (4,754) (1,209) 1 (8,817)

Currency translation (23) 44 (18) (1) 2

Adjusted (2,878) (4,710) (1,227) — (8,815)

Operating expenses

Reported (15,446) (6,900) (10,169) (1,917) (34,432)

Currency translation 498 230 400 42 1,170

Significant items 412 195 874 1,336 2,817

– customer redress programmes (64) 1 — 9 (54)

– impairment of goodwill and other intangibles 294 45 577 174 1,090

– past service costs of guaranteed minimum pension benefits equalisation — — — 17 17

– restructuring and other related costs

192 165 326 1,225 1,908

– settlements and provisions in connection with legal and regulatory

matters

— — 2 10 12

– currency translation on significant items (10) (16) (31) (99) (156)

Adjusted (14,536) (6,475) (8,895) (539) (30,445)

Share of profit/(loss) in associates and joint ventures

Reported 6 (1) — 1,592 1,597

Currency translation — — — 48 48

Significant items — — — 462 462

– impairment of goodwill

— — — 462 462

– currency translation on significant items — — — — —

Adjusted 6 (1) — 2,102 2,107

Profit/(loss) before tax

Reported 3,704 1,639 3,616 (182) 8,777

Currency translation (57) (149) (199) 102 (303)

Significant items 426 213 1,157 1,425 3,221

– revenue 14 18 283 (373) (58)

– operating expenses 412 195 874 1,336 2,817

– share of profit in associates and joint ventures — — — 462 462

Adjusted 4,073 1,703 4,574 1,345 11,695

Loans and advances to customers (net)

Reported 469,186 343,182 224,364 1,255 1,037,987

Currency translation (33,081) (23,098) (12,854) (104) (69,137)

Adjusted 436,105 320,084 211,510 1,151 968,850

Customer accounts

Reported 834,759 470,428 336,983 610 1,642,780

Currency translation (46,716) (30,539) (26,226) (70) (103,551)

Adjusted 788,043 439,889 310,757 540 1,539,229

1 Net operating income/(expense) before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.

3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.

4 Includes impairment of software intangible assets of $189m (of the total software intangible asset impairment of $1,347m) and impairment of tangible

assets of $197m.

5 In 2020, The Saudi British Bank (‘SABB’), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal Bank in 2019.

HSBC’s post-tax share of the goodwill impairment was $462m.

HSBC Holdings plc Annual Report and Accounts 2022 111

Financial review

Reconciliation of reported and adjusted risk-weighted assets

At 31 Dec 2022

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

$bn

Risk-weighted assets

Reported 182.9 334.8 233.5 88.5 839.7

Adjusted

182.9 334.8 233.5 88.5 839.7

At 31 Dec 2021

Risk-weighted assets

Reported 178.3 332.9 236.2 90.9 838.3

Currency translation (8.2) (19.6) (9.3) (1.6) (38.7)

Adjusted

170.1 313.3 226.9 89.3 799.6

At 31 Dec 2020

Risk-weighted assets

Reported 172.8 327.7 265.1 91.9 857.5

Currency translation (10.2) (24.2) (13.5) (2.7) (50.6)

Adjusted

162.6 303.5 251.6 89.2 806.9

1 Adjusted risk-weighted assets are calculated using reported risk-weighted assets adjusted for the effects of currency translation differences and

significant items.

Supplementary tables for WPB and GBM

WPB adjusted performance by business unit

A breakdown of WPB by business unit is presented below to reflect the basis of how the revenue performance of the business units is

assessed and managed.

WPB – summary (adjusted basis)

Consists of

Total

WPB

Banking

operations

Insurance

manufacturing

Global

Private

Banking

Asset

management

2022

Net operating income before change in expected credit losses and other

credit impairment charges

24,367 19,342 1,914 1,978 1,133

– net interest income 18,137 14,791 2,406 946 (6)

– net fee income/(expense) 5,030 3,848 (701) 776 1,107

– other income 1,200 703 209 256 32

ECL (1,137) (1,114) (17) (5) (1)

Net operating income 23,230 18,228 1,897 1,973 1,132

Total operating expenses (14,726) (11,624) (879) (1,399) (824)

Operating profit 8,504 6,604 1,018 574 308

Share of profit in associates and joint ventures 29 11 18 — —

Profit before tax 8,533 6,615 1,036 574 308

2021

Net operating income before change in expected credit losses and other

credit impairment charges

20,963 15,519 2,547 1,746 1,151

– net interest income 13,458 10,585 2,255 620 (2)

– net fee income/(expense) 5,649 4,236 (599) 901 1,111

– other income 1,856 698 891 225 42

ECL 213 219 (18) 13 (1)

Net operating income 21,176 15,738 2,529 1,759 1,150

Total operating expenses (14,489) (11,660) (564) (1,491) (774)

Operating profit 6,687 4,078 1,965 268 376

Share of profit in associates and joint ventures 34 17 17 — —

Profit before tax 6,721 4,095 1,982 268 376

Global businesses

112 HSBC Holdings plc Annual Report and Accounts 2022

WPB – summary (adjusted basis) (continued)

Total

WPB

Consists of

Banking

operations

Insurance

manufacturing

Global Private

Banking

Asset

management

2020

Net operating income before change in expected credit losses and other

credit impairment charges

21,481 16,925 1,834 1,712 1,010

– net interest income 14,752 11,904 2,189 661 (2)

– net fee income/(expense) 5,306 4,027 (505) 813 971

– other income 1,423 994 150 238 41

ECL (2,878) (2,746) (63) (68) (1)

Net operating income 18,603 14,179 1,771 1,644 1,009

Total operating expenses (14,536) (12,010) (463) (1,359) (704)

Operating profit 4,067 2,169 1,308 285 305

Share of profit in associates and joint ventures 6 6 — — —

Profit before tax 4,073 2,175 1,308 285 305

1 The results presented for insurance manufacturing operations are shown before elimination of inter-company transactions with HSBC non-insurance

operations. These eliminations are presented within Banking operations.

2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue. This may differ from

the WPB Life insurance manufacturing revenue shown in the managed view of adjusted revenue on page 32, which excludes the impact of Argentina

hyperinflation.

WPB insurance manufacturing adjusted results

The following table shows the results of our insurance manufacturing

operations by income statement line item. It shows the results of

insurance manufacturing operations for WPB and for all global

business segments in aggregate, and separately the insurance

distribution income earned by HSBC bank channels.

These results are prepared in accordance with current IFRSs, which

will change following the adoption of IFRS 17 ‘Insurance Contracts’,

effective from 1 January 2023. Further information about the adoption

of IFRS 17 is provided on page 99.

Adjusted results of insurance manufacturing operations and insurance distribution income earned by HSBC bank channels

1,2

2022

2021

2020

WPB

All global

businesses WPB

All global

businesses WPB

All global

businesses

Net interest income 2,406 2,595 2,255 2,430 2,189 2,352

Net fee income/(expense) (701) (724) (599) (629) (505) (541)

– fee income 140 159 100 123 108 129

– fee expense (841) (883) (699) (752) (613) (670)

Net income/(expenses) from financial instruments held for trading or managed

on a fair value basis

95 94 (4) (12) 60 76

Net income/(expense) from assets and liabilities of insurance businesses,

including related derivatives, measured at fair value through profit or loss

(3,411) (3,413) 3,867 3,903 1,903 1,853

Gains less losses from financial investments (12) (12) 85 89 12 12

Net insurance premium income 12,413 12,942 10,145 10,617 9,522 10,005

Other operating income 504 453 164 148 329 342

– of which: PVIF 369 324 76 69 365 377

Total operating income 11,294 11,935 15,913 16,546 13,510 14,100

Net insurance claims and benefits paid and movement in liabilities to

policyholders

(9,380) (9,929) (13,366) (13,863) (11,676) (12,166)

Net operating income before change in expected credit losses and other

credit impairment charges

1,914 2,006 2,547 2,683 1,834 1,934

Change in expected credit losses and other credit impairment charges (17) (18) (18) (22) (63) (72)

Net operating income 1,897 1,988 2,529 2,661 1,771 1,862

Total operating expenses (879) (918) (564) (590) (463) (492)

Operating profit 1,018 1,070 1,965 2,071 1,308 1,370

Share of profit in associates and joint ventures 18 18 17 17 — —

Profit before tax of insurance manufacturing operations

1,036 1,088 1,982 2,088 1,308 1,370

Annualised new business premiums of insurance manufacturing operations 2,295 2,354 2,777 2,830 2,272 2,333

Insurance distribution income earned by HSBC bank channels 764 823 726 795 718 781

1 Adjusted results are derived by adjusting for year-on-year effects of foreign currency translation differences, and the effect of significant items that

distort year-on-year comparisons. There are no significant items included within insurance manufacturing, and the impact of foreign currency

translation on all global businesses’ profit before tax is 2021: $53m unfavourable (reported: $2,141m), 2020: $7m unfavourable (reported: $1,377m).

2 The results presented for insurance manufacturing operations are shown before elimination of inter-company transactions with HSBC non-insurance

operations.

3 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

4 The effect on the insurance manufacturing operations of applying hyperinflation accounting in Argentina resulted in a decrease in adjusted revenue in

2022 of $3m (2021: increase of $6m, 2020: increase of $1m) and a decrease in profit before tax in 2022 of $2m (2021: increase of $5m, 2020:

increase of $13m). These effects are recorded within ‘All global businesses’.

HSBC Holdings plc Annual Report and Accounts 2022 113

Financial review

Insurance manufacturing

The following commentary, unless otherwise specified, relates to the

‘All global businesses’ results.

HSBC recognises the present value of long-term in-force insurance

contracts and investment contracts with discretionary participation

features (‘PVIF’) as an asset on the balance sheet. The overall balance

sheet equity, including PVIF, is therefore a measure of the embedded

value in the insurance manufacturing entities, and the movement in

this embedded value in the period drives the overall income

statement result.

Adjusted profit before tax of $1.1bn decreased by $1.0bn or 48%

compared with 2021.

Adjusted net operating income before change in expected credit

losses and other credit impairment changes was $2.0bn or 25%

lower than in 2021. This reflected the following:

• ‘Net expense from assets and liabilities of insurance businesses,

including related derivatives, measured at fair value through profit

or loss’ of $3.4bn in 2022 compared with a net income of $3.9bn

in 2021. This decrease primarily reflected unfavourable equity

market performance impacting our Hong Kong and France

businesses in 2022, compared with favourable market

performances in 2021.

• This unfavourable movement resulted in a corresponding

movement in liabilities to policyholders and PVIF (see ‘Other

operating income’ below), to the extent to which policyholders and

shareholders respectively participate in the investment

performance of the associated assets.

• Net insurance premium income of $12.9bn was $2.3bn higher

than in 2021, primarily reflecting higher sales volumes, particularly

in Hong Kong which had a higher proportion of single premium

products in its product mix, and in Singapore following the

acquisition of AXA Insurance Pte Limited (‘AXA Singapore‘) during

2022.

• Other operating income of $0.5bn increased by $0.3bn compared

with 2021. This reflected increases in Hong Kong of $0.2bn from

the value of new business, a $0.5bn favourable impact from

sharing lower investment returns with policyholders, a $0.3bn one-

off gain from a pricing update for policyholder funds held on

deposit with us in Hong Kong to reflect the cost of provision of

these services, and a $0.1bn gain on completion of our acquisition

of AXA Singapore in 2022. These were partly offset by a $0.7bn

reduction from PVIF assumption changes primarily in Hong Kong,

reflecting the impact of higher interest rates.

• Net insurance claims and benefits paid and movement in liabilities

to policyholders of $9.9bn were $3.9bn lower, primarily due to a

decline in returns on financial assets supporting contracts where

the policyholder is subject to part or all of the investment risk,

mainly in France and Hong Kong. It also reflected higher sales

volumes in Hong Kong.

Total operating expenses of $0.9bn increased by $0.3bn compared

with 2021, reflecting the incorporation of the results of AXA

Singapore in 2022 and investment in our Pinnacle proposition in

mainland China.

Annualised new business premiums (‘ANP’) is used to assess new

insurance premium generation by the business. It is calculated as

100% of annualised first year regular premiums and 10% of single

premiums, before reinsurance ceded. Lower ANP in the year mainly

reflect a change in product mix in Hong Kong towards single premium

new business, partially offset by higher ANP from business growth in

mainland China and the inclusion of the results of AXA Singapore.

Insurance distribution income from HSBC channels included $503m

(2021: $469m; 2020: $460m) from HSBC manufactured products, for

which a corresponding fee expense is recognised within insurance

manufacturing, and $320m (2021: $326m; 2020:$321m) from

products manufactured by third-party providers. The WPB component

of this distribution income was $461m (2021: $417m; 2020: $413m)

from HSBC manufactured products and $303m (2021: $309m; 2020:

$305m) from third-party products.

WPB: Wealth adjusted revenue by geography

The following table shows the adjusted revenue of our Wealth business by region. Our Wealth business comprises investment distribution, life

insurance manufacturing, Global Private Banking and Asset Management.

Wealth adjusted revenue by geography

2022

2021

2020

Europe 2,456 2,152 1,666

Asia 4,549 5,701 5,199

MENA 198 165 148

North America 581 522 513

Latin America 307 243 211

Total 8,091 8,783 7,737

Global businesses

114 HSBC Holdings plc Annual Report and Accounts 2022

WPB: Wealth balances

The following table shows the wealth balances, which include invested assets and wealth deposits. Invested assets comprise customer assets

either managed by our Asset Management business or by external third-party investment managers, as well as self-directed investments by our

customers.

WPB – reported wealth balances

2022

2021

$bn

Global Private Banking invested assets 312 351

– managed by Global Asset Management 57 67

– external managers, direct securities and other 255 284

Retail invested assets 364 434

– managed by Global Asset Management 198 229

– external managers, direct securities and other 166 205

Asset Management third-party distribution 340 334

Reported invested assets

1,016 1,119

Wealth deposits (Premier, Jade and Global Private Banking)

503 551

Total reported wealth balances 1,519 1,670

1 Invested assets are not reported on the Group’s balance sheet, except where it is deemed that we are acting as principal rather than agent in our role

as investment manager. At 31 December 2022, $31bn of invested assets were classified as held for sale and are not included in the table above.

2 Premier, Jade and Global Private Banking deposits, which include Prestige deposits in Hang Seng Bank, form part of the total WPB customer accounts

balance of $779bn (2021: $859bn) on page 109. At 31 December 2022, $42bn of wealth deposits were classified as held for sale and are not included

in the table above.

Asset Management: funds under management

The following table shows the funds under management of our Asset

Management business. Funds under management represents assets

managed, either actively or passively, on behalf of our customers.

Funds under management are not reported on the Group’s balance

sheet, except where it is deemed that we are acting as principal

rather than agent in our role as investment manager.

Asset Management – reported funds under management

2022

2021

$bn

Opening balance 630 602

Net new invested assets 45 27

Net market movements (36) 18

Foreign exchange and others (44) (17)

Closing balance 595 630

Asset Management – reported funds under management by geography

2022

2021

$bn

Europe 327 367

Asia 196 180

MENA 2 5

North America 60 69

Latin America 10 9

Closing balance 595 630

1 Funds under management are not reported on the Group’s balance sheet, except where it is deemed that we are acting as principal rather than agent

in our role as investment manager.

At 31 December 2022, Asset Management funds under management

amounted to $595bn, a decrease of $35bn or 6%. The decrease

reflected adverse market performance and foreign exchange

translation, which more than offset strong net new invested assets of

$45bn received in 2022. Within ‘foreign exchange and others’ is a

$14bn reduction related to the reclassification to held for sale of our

banking operations in Canada, which we continue to manage but are

no longer considered part of our core funds under management. This

was partly offset by an increase of $9bn due to the acquisition of L&T

Investment Management. Net new invested assets were notably

from additions in passive, private equity and money market products.

Global Private Banking: client assets

Global Private Banking client assets comprises invested assets and

deposits, which are translated at the rates of exchange applicable for

their respective year-ends, with the effects of currency translation

reported separately.

Global Private Banking – reported client assets

2022

2021

$bn

Opening balance 423 394

Net new invested assets 18 19

Increase/(decrease) in deposits (1) 4

Net market movements (53) 17

Foreign exchange and others (4) (11)

Closing Balance 383 423

HSBC Holdings plc Annual Report and Accounts 2022 115

Financial review

Global Private Banking – reported client assets by geography

2022

2021

$bn

Europe 153 174

Asia 174 178

North America 56 71

Closing balance 383 423

1 Client assets are translated at the rates of exchange applicable for their respective period-ends, with the effects of currency translation reported

separately.

2 Client assets are not reported on the Group’s balance sheet, except where it is deemed that we are acting as principal rather than agent in our role as

investment manager. Customer deposits included in these client assets are on balance sheet.

Retail invested assets

The following table shows the invested assets of our retail

customers. These comprise customer assets either managed by our

Asset Management business or by external third-party

investment managers as well as self-directed investments by our

customers. Retail invested assets are not reported on the Group’s

balance sheet, except where it is deemed that we are acting as

principal rather than agent in our role as investment manager.

Retail invested assets

2022

2021

$bn

Opening balance 434 407

Net new invested assets

26 26

Net market movements (46) 5

Foreign exchange and others (50) (4)

Closing balance 364 434

Retail invested assets by geography

2022

2021

$bn

Europe 54 81

Asia 285 293

MENA 5 4

North America 12 47

Latin America 8 9

Closing balance 364 434

1 ‘Retail net new invested assets’ covers nine markets, comprising Hong Kong including Hang Seng Bank (Hong Kong), mainland China, Malaysia,

Singapore, HSBC Bank UK, UAE, US, Canada and Mexico. The net new invested assets related to all other geographies is reported in ‘exchange and

other’.

WPB invested assets

Net new invested assets represents the net customer inflows from

retail invested assets, Asset Management third-party distribution and

Global Private Banking invested assets. It excludes all

customer deposits. The net new invested assets in the table below is

non-additive from the tables above, as net new invested assets

managed by Asset Management that are generated by retail clients or

Global Private Banking will be recorded in both businesses.

WPB: Invested assets

2022

2021

$bn

Opening balance 1,119 1,050

Net new invested assets 80 64

Net market movements (116) 33

Foreign exchange and others (67) (28)

Closing balance 1,016 1,119

WPB: Net new invested assets by geography

2022

2021

$bn

Europe 13 17

Asia 59 36

MENA — —

North America 7 10

Latin America 1 1

Total 80 64

Global businesses

116 HSBC Holdings plc Annual Report and Accounts 2022

GBM: Securities Services and Issuer

Services

Assets held in custody

Custody is the safekeeping and servicing of securities and other

financial assets on behalf of clients. Assets held in custody are not

reported on the Group’s balance sheet, except where it is deemed

that we are acting as principal rather than agent in our role as

investment manager. At 31 December 2022, we held $9.1tn of assets

as custodian, a reduction of 15% compared with 31December 2021.

The balance comprised $8.4tn of assets in Securities Services, which

were recorded at market value, and $0.8tn of assets in Issuer

Services, recorded at book value.

The reduction was mainly in Securities Services balances. This was

driven by an adverse impact of currency translation differences in

Europe and Asia, and adverse market movements, notably impacting

Asia and the US. In addition, there was a net outflow of assets in Asia

and Europe.

Assets under administration

Our assets under administration business, which includes the

provision of bond and loan administration services, transfer agency

services and the valuation of portfolios of securities and other

financial assets on behalf of clients, complements the custody

business. At 31 December 2022, the value of assets held under

administration by the Group amounted to $4.5tn, which was 9%

lower than at 31 December 2021. The balance comprised $2.6tn of

assets in Securities Services, which were recorded at market value,

and $1.8tn of assets in Issuer Services, recorded at book value.

The decrease was mainly driven by Securities Services balances due

to an adverse impact of currency translation differences in Europe, a

net outflow of assets, mainly in Asia and Europe, and adverse market

movements in Europe and Asia. These decreases were partly offset

by an inflow of assets from new customers in Europe.

Analysis of reported results by geographical regions

HSBC reported profit/(loss) before tax and balance sheet data

2022

Europe Asia MENA

North

America

Latin

America Intra-HSBC Total

Net interest income 7,185 16,157 1,665 3,395 2,754 1,454 32,610

Net fee income 3,554 4,695 830 1,824 547 1 11,451

Net income from financial instruments held for trading or

managed on a fair value basis

3,242 5,329 578 587 756 (23) 10,469

Net income from assets and liabilities of insurance businesses,

including related derivatives, measured at fair value through profit

and loss

(1,760) (1,683) — — 48 1 (3,394)

Changes in fair value of other financial instruments mandatorily

measured at fair value through profit or loss

1,639 4 2 (8) 20 (1,431) 226

Other income/(expense)

3,046 4,297 (138) 630 (317) (7,153) 365

Net operating income before change in

expected credit losses and other credit

impairment charges

16,906 28,799 2,937 6,428 3,808 (7,151) 51,727

Change in expected credit losses and other credit

impairment charges

(857) (2,089) 8 (93) (561) — (3,592)

Net operating income 16,049 26,710 2,945 6,335 3,247 (7,151) 48,135

Total operating expenses excluding impairment of goodwill and

other intangible assets

(16,370) (15,343) (1,582) (4,639) (2,401) 7,152 (33,183)

Impairment of goodwill and other intangible assets (54) (52) (5) (30) (5) (1) (147)

Operating profit/(loss) (375) 11,315 1,358 1,666 841 — 14,805

Share of profit/(loss) in associates and joint ventures (40) 2,409 342 — 12 — 2,723

Profit/(loss) before tax (415) 13,724 1,700 1,666 853 — 17,528

Share of HSBC’s profit before tax (2.4) 78.3 9.7 9.5 4.9 100.0

Cost efficiency ratio 97.1 53.5 54.0 72.6 63.2 64.4

Balance sheet data

Loans and advances to customers (net) 343,670 475,278 26,475 55,790 23,641 — 924,854

Total assets 1,345,971 1,316,876 70,755 341,125 51,708 (159,905) 2,966,530

Customer accounts 601,473 784,236 43,933 109,093 31,568 — 1,570,303

Risk-weighted assets

251,195 409,320 60,946 106,546 38,904 839,720

HSBC Holdings plc Annual Report and Accounts 2022 117

Financial review

HSBC reported profit/(loss) before tax and balance sheet data (continued)

2021

Europe Asia MENA

North

America

Latin

America

Intra-HSBC

items

Total

$m $m $m $m $m $m $m

Net interest income 6,454 12,596 1,299 2,845 2,195 1,100 26,489

Net fee income 3,882 5,871 774 2,056 514 — 13,097

Net income from financial instruments held for trading or

managed on a fair value basis

2,602 3,643 431 426 476 166 7,744

Net income from assets and liabilities of insurance businesses,

including related derivatives, measured at fair value through profit

and loss

1,670 2,340 — — 45 (2) 4,053

Changes in fair value of other financial instruments mandatorily

measured at fair value through profit or loss

1,973 (3) (3) 54 40 (1,263) 798

Other income/(expense)

3,523 1,316 59 673 (212) (7,988) (2,629)

Net operating income before change in expected credit losses

and other credit impairment charges

20,104 25,763 2,560 6,054 3,058 (7,987) 49,552

Change in expected credit losses and other credit

impairment charges

1,601 (840) 132 238 (203) — 928

Net operating income 21,705 24,923 2,692 6,292 2,855 (7,987) 50,480

Total operating expenses excluding impairment of goodwill and

other intangible assets

(18,099) (15,136) (1,536) (4,905) (2,198) 7,987 (33,887)

Impairment of goodwill and other intangible assets (95) (24) (8) (13) (593) — (733)

Operating profit/(loss) 3,511 9,763 1,148 1,374 64 — 15,860

Share of profit/(loss) in associates and joint ventures 268 2,486 275 — 17 — 3,046

Profit/(loss) before tax 3,779 12,249 1,423 1,374 81 — 18,906

Share of HSBC’s profit before tax 20.0 64.8 7.5 7.3 0.4 100.0

Cost efficiency ratio 90.5 58.8 60.3 81.2 91.3 69.9

Balance sheet data

Loans and advances to customers (net) 397,090 492,525 26,375 108,717 21,107 — 1,045,814

Total assets 1,354,483 1,261,707 70,974 362,150 46,602 (137,977) 2,957,939

Customer accounts 667,769 792,098 42,629 178,565 29,513 — 1,710,574

Risk-weighted assets

261,115 396,206 60,223 110,412 35,915 — 838,263

2020

Net interest income 5,695 14,318 1,465 2,836 1,960 1,304 27,578

Net fee income 3,499 5,418 695 1,795 467 — 11,874

Net income from financial instruments held for trading or

managed on a fair value basis

3,266 4,273 402 997 593 51 9,582

Net income/(expense) from assets and liabilities of insurance

businesses, including related derivatives, measured at fair value

through profit and loss

327 1,699 — — 55 — 2,081

Changes in fair value of other financial instruments mandatorily

measured at fair value through profit or loss

1,747 17 3 2 40 (1,354) 455

Other income/(expense)

3,885 1,197 63 745 (95) (6,936) (1,141)

Net operating income before loan impairment (charges)/

recoveries and other credit risk provisions

18,419 26,922 2,628 6,375 3,020 (6,935) 50,429

Change in expected credit losses and other credit

impairment (charges)/recoveries

(3,751) (2,284) (758) (900) (1,124) — (8,817)

Net operating income 14,668 24,638 1,870 5,475 1,896 (6,935) 41,612

Total operating expenses excluding impairment of goodwill and

other intangible assets

(17,860) (13,584) (1,521) (5,081) (1,933) 6,935 (33,044)

Impairment of goodwill and other intangible assets (1,014) (78) (65) (226) (5) — (1,388)

Operating profit/(loss) (4,206) 10,976 284 168 (42) — 7,180

Share of profit in associates and joint ventures 1 1,856 (265) — 5 — 1,597

Profit/(loss) before tax (4,205) 12,832 19 168 (37) — 8,777

% % % % % %

Share of HSBC’s profit before tax (47.9) 146.2 0.2 1.9 (0.4) 100.0

Cost efficiency ratio 102.5 50.7 60.4 83.2 64.2 68.3

Balance sheet data

Loans and advances to customers (net) 408,495 473,165 28,700 107,969 19,658 — 1,037,987

Total assets 1,416,111 1,206,404 68,860 373,167 49,703 (130,081) 2,984,164

Customer accounts 629,647 762,406 41,221 182,028 27,478 — 1,642,780

Risk-weighted assets

284,322 384,228 60,181 117,755 35,240 — 857,520

1 ‘Other income/(expense)’ in this context comprises where applicable net income/expense from other financial instruments designated at fair value,

gains less losses from financial investments, dividend income, net insurance premium income and other operating income less net insurance claims

and benefits paid and movement in liabilities to policyholders.

2 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

3 Risk-weighted assets are non-additive across geographical regions due to market risk diversification effects within the Group.

Geographical regions

118 HSBC Holdings plc Annual Report and Accounts 2022

Reconciliation of reported and adjusted items – geographical regions

Reconciliation of reported and adjusted items

2022

Europe Asia MENA

North

America

Latin

America Total

Revenue

Reported

16,906 28,799 2,937 6,428 3,808 51,727

Significant items

3,065 (223) 9 (108) 15 3,618

– customer redress programmes (8) — — — — (8)

– disposals, acquisitions and investment in new businesses

2,799 — — — — 2,799

– fair value movements on financial instruments

562 22 (3) (3) 1 579

– restructuring and other related costs

2,5

(288) (245) 12 (105) 14 248

Adjusted

19,971 28,576 2,946 6,320 3,823 55,345

ECL

Reported (857) (2,089) 8 (93) (561) (3,592)

Adjusted (857) (2,089) 8 (93) (561) (3,592)

Operating expenses

Reported

(16,424) (15,395) (1,587) (4,669) (2,406) (33,330)

Significant items

2,119 833 73 544 155 2,864

– customer redress programmes (31) — — — — (31)

– disposals, acquisitions and investment in new businesses 18 — — — — 18

– impairment of goodwill and other intangibles (4) — — — — (4)

– restructuring and other related costs

2,136 833 73 544 155 2,881

Adjusted

(14,305) (14,562) (1,514) (4,125) (2,251) (30,466)

Share of profit/(loss) in associates and joint ventures

Reported (40) 2,409 342 — 12 2,723

Adjusted (40) 2,409 342 — 12 2,723

Profit/(loss) before tax

Reported (415) 13,724 1,700 1,666 853 17,528

Significant items 5,184 610 82 436 170 6,482

– revenue

3,065 (223) 9 (108) 15 3,618

– operating expenses

2,119 833 73 544 155 2,864

Adjusted 4,769 14,334 1,782 2,102 1,023 24,010

Loans and advances to customers (net)

Reported 343,670 475,278 26,475 55,790 23,641 924,854

Adjusted 343,670 475,278 26,475 55,790 23,641 924,854

Customer accounts

Reported 601,473 784,236 43,933 109,093 31,568 1,570,303

Adjusted 601,473 784,236 43,933 109,093 31,568 1,570,303

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 Amounts are non-additive across geographical regions due to inter-company transactions within the Group.

3 Includes losses from classifying businesses as held for sale as part of a broader restructuring of our European business, of which $2.4bn relates to the

planned sale of our retail banking operations in France.

4 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.

5 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.

HSBC Holdings plc Annual Report and Accounts 2022 119

Financial review

Reconciliation of reported and adjusted items (continued)

2022

Hong

Kong

Mainland

China US Mexico

Revenue

Reported 17,353 16,155 4,246 4,107 2,749

Significant items 215 163 (73) (99) 19

– customer redress programmes (8) — — — —

– disposals, acquisitions and investment in new businesses 60 — — — —

– fair value movements on financial instruments

571 39 (1) (1) 1

– restructuring and other related costs

(408) 124 (72) (98) 18

Adjusted 17,568 16,318 4,173 4,008 2,768

ECL

Reported (712) (1,680) (328) (20) (507)

Adjusted (712) (1,680) (328) (20) (507)

Operating expenses

Reported (13,224) (8,275) (2,906) (3,438) (1,642)

Significant items 1,710 393 70 423 115

– customer redress programmes (31) — — — —

– restructuring and other related costs 1,741 393 70 423 115

Adjusted (11,514) (7,882) (2,836) (3,015) (1,527)

Share of profit/(loss) in associates and joint ventures

Reported (41) 5 2,386 — 12

Adjusted (41) 5 2,386 — 12

Profit before tax

Reported 3,376 6,205 3,398 649 612

Significant items 1,925 556 (3) 324 134

– revenue 215 163 (73) (99) 19

– operating expenses 1,710 393 70 423 115

Adjusted 5,301 6,761 3,395 973 746

Loans and advances to customers (net)

Reported 286,032 295,873 50,481 54,159 20,446

Adjusted 286,032 295,873 50,481 54,159 20,446

Customer accounts

Reported 493,028 542,543 56,948 100,404 25,531

Adjusted 493,028 542,543 56,948 100,404 25,531

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.

3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.

Geographical regions

120 HSBC Holdings plc Annual Report and Accounts 2022

Reconciliation of reported and adjusted items (continued)

2021

Europe Asia MENA

North

America

Latin

America

Total

Revenue

Reported

20,104 25,763 2,560 6,054 3,058 49,552

Currency translation

(2,096) (769) (224) (70) (148) (3,074)

Significant items

138 (154) (1) 10 5 542

– customer redress programmes (11) — — — — (11)

– fair value movements on financial instruments

226 11 — 5 — 242

– restructuring and other related costs

2,4

(90) (175) — 5 5 307

– currency translation on significant items

13 10 (1) — — 4

Adjusted

18,146 24,840 2,335 5,994 2,915 47,020

ECL

Reported 1,601 (840) 132 238 (203) 928

Currency translation (177) 19 (1) (1) (14) (174)

Adjusted 1,424 (821) 131 237 (217) 754

Operating expenses

Reported

(18,194) (15,160) (1,544) (4,918) (2,791) (34,620)

Currency translation

1,645 490 109 43 127 2,181

Significant items

1,234 492 51 429 673 2,335

– customer redress programmes 49 — — — — 49

– impairment of goodwill and other intangibles — — — — 587 587

– restructuring and other related costs

1,318 509 56 432 83 1,836

– currency translation on significant items

(133) (17) (5) (3) 3 (137)

Adjusted

(15,315) (14,178) (1,384) (4,446) (1,991) (30,104)

Share of profit in associates and joint ventures

Reported 268 2,486 275 — 17 3,046

Currency translation (23) (90) — — — (113)

Adjusted 245 2,396 275 — 17 2,933

Profit before tax

Reported 3,779 12,249 1,423 1,374 81 18,906

Currency translation (651) (350) (116) (28) (35) (1,180)

Significant items 1,372 338 50 439 678 2,877

– revenue

138 (154) (1) 10 5 542

– operating expenses

1,234 492 51 429 673 2,335

Adjusted 4,500 12,237 1,357 1,785 724 20,603

Loans and advances to customers (net)

Reported 397,090 492,525 26,375 108,717 21,107 1,045,814

Currency translation (38,699) (11,301) (1,395) (3,572) 350 (54,617)

Adjusted 358,391 481,224 24,980 105,145 21,457 991,197

Customer accounts

Reported 667,769 792,098 42,629 178,565 29,513 1,710,574

Currency translation (66,300) (13,859) (3,686) (3,826) (356) (88,027)

Adjusted 601,469 778,239 38,943 174,739 29,157 1,622,547

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 Amounts are non-additive across geographical regions due to inter-company transactions within the Group.

3 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.

4 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.

HSBC Holdings plc Annual Report and Accounts 2022 121

Financial review

Reconciliation of reported and adjusted items (continued)

2021

Hong

Kong

Mainland

China

US Mexico

Revenue

Reported 16,415 14,463 3,734 4,006 2,341

Currency translation (1,664) (103) (159) (1) 19

Significant items 7 60 (39) 14 15

– customer redress programmes (11) — — — —

– fair value movements on financial instruments

220 7 — 5 —

– restructuring and other related costs

(227) 54 (41) 9 15

– currency translation on significant items 25 (1) 2 — —

Adjusted 14,758 14,420 3,536 4,019 2,375

ECL

Reported 1,645 (608) (89) 205 (224)

Currency translation (182) 3 9 — (7)

Adjusted 1,463 (605) (80) 205 (231)

Operating expenses

Reported (14,808) (7,955) (2,773) (3,683) (1,565)

Currency translation 1,292 53 121 — (20)

Significant items 1,079 226 30 355 66

– customer redress programmes 49 — — — —

– restructuring and other related costs 1,144 227 32 355 59

– currency translation on significant items (114) (1) (2) — 7

Adjusted (12,437) (7,676) (2,622) (3,328) (1,519)

Share of profit in associates and joint ventures

Reported 267 16 2,461 — 17

Currency translation (23) — (89) — —

Adjusted 244 16 2,372 — 17

Profit before tax

Reported 3,519 5,916 3,333 528 569

Currency translation (577) (47) (118) (1) (8)

Significant items 1,086 286 (9) 369 81

– revenue 7 60 (39) 14 15

– operating expenses 1,079 226 30 355 66

Adjusted 4,028 6,155 3,206 896 642

Loans and advances to customers (net)

Reported 306,464 311,947 54,239 52,678 18,043

Currency translation (33,683) 111 (4,228) — 924

Adjusted 272,781 312,058 50,011 52,678 18,967

Customer accounts

Reported 535,797 549,429 59,266 111,921 23,583

Currency translation (58,889) 193 (4,620) — 1,208

Adjusted 476,908 549,622 54,646 111,921 24,791

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.

3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.

Geographical regions

122 HSBC Holdings plc Annual Report and Accounts 2022

Reconciliation of reported and adjusted items (continued)

2020

Europe Asia MENA

North

America

Latin

America

Total

Revenue

Reported

18,419 26,922 2,628 6,375 3,020 50,429

Currency translation

(819) (412) (252) 49 (195) (1,523)

Significant items

(234) (34) — 41 — (58)

– customer redress programmes 21 — — — — 21

– disposals, acquisitions and investment in new businesses — — — 10 — 10

– fair value movements on financial investments

(254) (5) — (2) (3) (264)

– restructuring and other related costs

2,4

(9) (32) — 35 — 170

– currency translation on significant items

8 3 — (2) 3 5

Adjusted

17,366 26,476 2,376 6,465 2,825 48,848

ECL

Reported (3,751) (2,284) (758) (900) (1,124) (8,817)

Currency translation 45 2 20 (18) (47) 2

Adjusted (3,706) (2,282) (738) (918) (1,171) (8,815)

Operating expenses

Reported

(18,874) (13,662) (1,586) (5,307) (1,938) (34,432)

Currency translation

756 250 146 (28) 152 1,170

Significant items

2,074 164 75 600 73 2,817

– customer redress programmes (54) — — — — (54)

– impairment of goodwill and other intangibles 803 — 64 223 — 1,090

– past service costs of guaranteed minimum pension benefits equalisation 17 — — — — 17

– restructuring and other related costs

2,5

1,425 171 19 378 91 1,908

– settlements and provisions in connection with legal and regulatory matters 12 — — — — 12

– currency translation on significant items

(129) (7) (8) (1) (18) (156)

Adjusted

(16,044) (13,248) (1,365) (4,735) (1,713) (30,445)

Share of profit/(loss) in associates and joint ventures

Reported 1 1,856 (265) — 5 1,597

Currency translation (11) 59 — — — 48

Significant items — — 462 — — 462

– impairment of goodwill

— — 462 — — 462

– currency translation on significant items — — — — — —

Adjusted (10) 1,915 197 — 5 2,107

Profit/(loss) before tax

Reported (4,205) 12,832 19 168 (37) 8,777

Currency translation (29) (101) (86) 3 (90) (303)

Significant items 1,840 130 537 641 73 3,221

– revenue

(234) (34) — 41 — (58)

– operating expenses

2,074 164 75 600 73 2,817

– share of profit in associates and joint ventures — — 462 — — 462

Adjusted (2,394) 12,861 470 812 (54) 11,695

Loans and advances to customers (net)

Reported 408,495 473,165 28,700 107,969 19,658 1,037,987

Currency translation (48,299) (14,753) (2,814) (2,974) (297) (69,137)

Adjusted 360,196 458,412 25,886 104,995 19,361 968,850

Customer accounts

Reported 629,647 762,406 41,221 182,028 27,478 1,642,780

Currency translation (74,348) (19,820) (4,466) (3,505) (1,412) (103,551)

Adjusted 555,299 742,586 36,755 178,523 26,066 1,539,229

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 Amounts are non-additive across geographical regions due to inter-company transactions within the Group.

3 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.

4 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.

5 Includes impairment of software intangible assets of $189m (of total software intangible asset impairment of $1,347m) and impairment of tangible

assets of $197m.

6 In 2020, The Saudi British Bank (’SABB’), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal bank in

2019. HSBC’s post-tax share of the goodwill impairment was $462m.

HSBC Holdings plc Annual Report and Accounts 2022 123

Financial review

Reconciliation of reported and adjusted items (continued)

2020

Hong

Kong

Mainland

China

US Mexico

Revenue

Reported 13,886 16,345 3,088 4,590 2,234

Currency translation (540) (145) 90 (1) 141

Significant items (187) 14 (5) 40 (12)

– customer redress programmes 21 — — — —

– disposals, acquisitions and investment in new businesses — — — 10 —

– fair value movements on financial instruments

(256) — (1) (2) (1)

– restructuring and other related costs

48 15 (4) 33 (12)

– currency translation on significant items — (1) — (1) 1

Adjusted 13,159 16,214 3,173 4,629 2,363

ECL

Reported (3,256) (824) (114) (622) (1,050)

Currency translation 30 9 (10) — (77)

Adjusted (3,226) (815) (124) (622) (1,127)

Operating expenses

Reported (14,855) (7,312) (2,211) (4,194) (1,376)

Currency translation 438 62 (49) — (89)

Significant items 1,275 98 18 556 44

– customer redress programmes (54) — — — —

– impairment of goodwill and other intangibles 650 — — 223 —

– past service costs of guaranteed minimum pension benefits equalisation 17 — — — —

– restructuring and other related costs 693 100 19 333 42

– settlements and provisions in connection with legal and regulatory matters 12 — — — —

– currency translation on significant items (43) (2) (1) — 2

Adjusted (13,142) (7,152) (2,242) (3,638) (1,421)

Share of profit/(loss) in associates and joint ventures

Reported 1 (2) 1,849 — 5

Currency translation (10) — 58 — —

Adjusted (9) (2) 1,907 — 5

Profit/(loss) before tax

Reported (4,224) 8,207 2,612 (226) (187)

Currency translation (82) (74) 89 (1) (25)

Significant items 1,088 112 13 596 32

– revenue (187) 14 (5) 40 (12)

– operating expenses 1,275 98 18 556 44

Adjusted (3,218) 8,245 2,714 369 (180)

Loans and advances to customers (net)

Reported 314,530 302,454 46,113 58,082 17,296

Currency translation (37,030) (1,635) (2,417) — 391

Adjusted 277,500 300,819 43,696 58,082 17,687

Customer accounts

Reported 504,275 531,489 56,826 117,485 22,220

Currency translation (59,369) (2,873) (2,978) — 503

Adjusted 444,906 528,616 53,848 117,485 22,723

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

2 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.

3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.

Geographical regions

124 HSBC Holdings plc Annual Report and Accounts 2022

Analysis by country

Profit/(loss) before tax by country/territory within global businesses

2022

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

Europe (95) 2,652 (77) (2,895) (415)

– UK

1,853 2,094 (534) (37) 3,376

– of which: HSBC UK Bank plc (ring-fenced bank) 2,112 2,662 143 (430) 4,487

– of which: HSBC Bank plc (non-ring-fenced bank) 386 315 141 (474) 368

– of which: Holdings and other (645) (883) (818) 867 (1,479)

– France

(2,016) 210 81 (268) (1,993)

– Germany 17 8 133 (147) 11

– Switzerland 25 17 13 (30) 25

– other

26 323 230 (2,413) (1,834)

Asia 4,995 2,981 3,529 2,219 13,724

– Hong Kong 4,521 1,309 955 (580) 6,205

– Australia 147 180 157 (37) 447

– India 45 304 622 306 1,277

– Indonesia 4 71 100 (9) 166

– mainland China (109) 303 526 2,678 3,398

– Malaysia 110 89 219 (35) 383

– Singapore 244 255 351 (78) 772

– Taiwan 36 43 137 (17) 199

– other (3) 427 462 (9) 877

Middle East and North Africa 313 290 861 236 1,700

– Egypt 101 76 194 (5) 366

– UAE 128 107 320 (86) 469

– Saudi Arabia

30 — 94 345 469

– other 54 107 253 (18) 396

North America 541 1,169 461 (505) 1,666

– US 209 557 270 (387) 649

– Canada 243 548 140 (89) 842

– other 89 64 51 (29) 175

Latin America 286 355 325 (113) 853

– Mexico 269 273 180 (110) 612

– other 17 82 145 (3) 241

Year ended 31 Dec 2022 6,040 7,447 5,099 (1,058) 17,528

1 UK includes results from the ultimate holding company, HSBC Holdings plc, and the separately incorporated group of service companies (‘ServCo

Group’).

2 Includes the impact of goodwill impairment of $425m as a result of the reclassification of our retail banking operations in France to held for sale. As

per Group accounting policy, HSBC’s cash-generating units are based on geographical regions, sub-divided by global businesses.

3 Corporate Centre includes inter-company debt eliminations of $1,850m.

4 Includes the results of HSBC Saudi Arabia and our share of the profits of our associate, The Saudi British Bank.

HSBC Holdings plc Annual Report and Accounts 2022 125

Financial review

Profit/(loss) before tax by country/territory within global businesses (continued)

2021

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking

and Markets

Corporate

Centre Total

Europe 1,817 2,893 (299) (632) 3,779

– UK

1,511 2,475 (487) 20 3,519

– of which: HSBC UK Bank plc (ring-fenced bank) 2,047 2,929 127 (318) 4,785

– of which: HSBC Bank plc (non-ring-fenced bank) 176 259 220 (17) 638

– of which: Holdings and other (712) (713) (834) 355 (1,904)

– France 236 163 (97) (133) 169

– Germany 17 82 155 67 321

– Switzerland 46 10 — (12) 44

– other 7 163 130 (574) (274)

Asia 4,366 2,364 3,193 2,326 12,249

– Hong Kong 4,076 1,303 920 (383) 5,916

– Australia 146 132 131 (26) 383

– India 20 265 593 232 1,110

– Indonesia 14 12 111 (8) 129

– mainland China (95) 288 586 2,554 3,333

– Malaysia 37 (23) 145 (20) 139

– Singapore 145 107 231 (13) 470

– Taiwan 14 16 106 (5) 131

– other 9 264 370 (5) 638

Middle East and North Africa 194 235 805 189 1,423

– Egypt 79 42 163 (2) 282

– UAE 91 3 342 (61) 375

– Saudi Arabia

17 — 65 274 356

– other 7 190 235 (22) 410

North America 60 1,023 697 (406) 1,374

– US (131) 472 524 (337) 528

– Canada 141 544 145 (62) 768

– other 50 7 28 (7) 78

Latin America (304) 162 326 (103) 81

– Mexico 305 88 222 (46) 569

– other

(609) 74 104 (57) (488)

Year ended 31 Dec 2021 6,133 6,677 4,722 1,374 18,906

1 UK includes results from the ultimate holding company, HSBC Holdings plc, and the separately incorporated group of service companies (‘ServCo

Group’).

2 Includes the results of HSBC Saudi Arabia and our share of the profits of our associate, The Saudi British Bank.

3 Includes the impact of goodwill impairment of $587m. As per Group accounting policy, HSBC’s cash-generating units are based on geographical

regions, sub-divided by global businesses.

Geographical regions

126 HSBC Holdings plc Annual Report and Accounts 2022

Profit/(loss) before tax by country/territory within global businesses (continued)

2020

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking

and Markets

Corporate

Centre Total

Europe (680) (529) (1,809) (1,187) (4,205)

– UK

(357) (543) (1,769) (1,555) (4,224)

– of which: HSBC UK Bank plc (ring-fenced bank) 113 167 90 (124) 246

– of which: HSBC Bank plc (non-ring fenced bank) 109 36 (1,030) (454) (1,339)

– of which: Holdings and other (579) (746) (829) (977) (3,131)

– France (340) (168) (347) (310) (1,165)

– Germany 17 16 197 (15) 215

– Switzerland (2) (4) — (10) (16)

– other 2 170 110 703 985

Asia 5,031 1,944 4,002 1,855 12,832

– Hong Kong 4,927 1,787 1,674 (181) 8,207

– Australia 108 76 138 (7) 315

– India 16 187 593 228 1,024

– Indonesia (6) (14) 147 (13) 114

– mainland China (34) 295 506 1,845 2,612

– Malaysia 8 33 141 (55) 127

– Singapore 45 (644) 239 (12) (372)

– Taiwan 9 18 104 (2) 129

– other (42) 206 460 52 676

Middle East and North Africa (15) (120) 478 (324) 19

– Egypt 68 46 185 (1) 298

– UAE (21) (210) 102 (39) (168)

– Saudi Arabia

21 — 26 (264) (217)

– other (83) 44 165 (20) 106

North America (449) 366 712 (461) 168

– US (547) 139 573 (391) (226)

– Canada 52 225 100 (67) 310

– other 46 2 39 (3) 84

Latin America (183) (22) 233 (65) (37)

– Mexico (115) (106) 59 (25) (187)

– other (68) 84 174 (40) 150

Year ended 31 Dec 2020 3,704 1,639 3,616 (182) 8,777

1 UK includes results from the ultimate holding company, HSBC Holdings plc, and the separately incorporated group of service companies (‘ServCo

Group’).

2 Includes the results of HSBC Saudi Arabia and our share of the profits of our associate, The Saudi British Bank.

HSBC Holdings plc Annual Report and Accounts 2022 127

Financial review

Reconciliation of alternative performance measures

Contents

128 Use of alternative performance measures

128

Return on average ordinary shareholders’ equity and return on

average tangible equity

129 Net asset value and tangible net asset value per ordinary share

130

Post-tax return and average total shareholders’ equity on average

total assets

130

Expected credit losses and other credit impairment charges as %

of average gross loans and advances to customers

Use of alternative performance

measures

Our reported results are prepared in accordance with IFRSs

asdetailed in our financial statements starting on page 324.

As described on page 98, we use a combination of reported and

alternative performance measures, including those derived from our

reported results that eliminate factors that distort year-on-year

comparisons. These are considered alternative performance

measures (non-GAAP financial measures).

The following information details the adjustments made to the

reported results and the calculation of other alternative performance

measures. All alternative performance measures are reconciled to the

closest reported performance measure.

Return on average ordinary

shareholders’ equity and return on

average tangible equity

Return on average ordinary shareholders’ equity (‘RoE’) is computed

by taking profit attributable to the ordinary shareholders of the parent

company (‘reported results’), divided by average ordinary

shareholders’ equity (‘reported equity’) for the period. The adjustment

to reported results and reported equity excludes amounts attributable

to non-controlling interests and other equity instruments.

Return on average tangible equity (‘RoTE’) is computed by adjusting

reported results for the movements in the present value ofin-force

long-term insurance business (‘PVIF’) and for impairment of goodwill

and other intangible assets (net of tax), divided by average reported

equity adjusted for goodwill, intangibles and PVIF for the period.

Return on average tangible equity excluding significant items is

annualised profit attributable to ordinary shareholders, excluding

changes in PVIF and significant items (net of tax), divided by average

tangible shareholders’ equity excluding fair value of own debt, debit

valuation adjustment (‘DVA’) and other adjustments for the period.

Since 1 January 2021, the UK bank levy has no longer been excluded

from the calculation of this measure. Comparative data have not been

re-presented.

We provide RoTE ratios in addition to RoE asa way of assessing our

performance, which is closely aligned to our capital position.

Return on average ordinary shareholders’ equity and return on average tangible equity

2022

2021

2020

Profit

Profit attributable to the ordinary shareholders of the parent company 14,822 12,607 3,898

Impairment of goodwill and other intangible assets (net of tax) 531 608 1,036

Decrease/(increase) in PVIF (net of tax) (264) (58) (253)

Profit attributable to the ordinary shareholders, excluding goodwill, other

intangible assets impairment and PVIF

15,089 13,157 4,681

Significant items (net of tax) and other adjustments

1,2

2,561 2,086 2,402

Profit attributable to the ordinary shareholders, excluding goodwill impairment, PVIF and significant items

17,650 15,243 7,083

Equity

Average total shareholders’ equity 191,998 199,295 189,719

Effect of average preference shares and other equity instruments (21,202) (22,814) (22,326)

Average ordinary shareholders’ equity 170,796 176,481 167,393

Effect of goodwill, PVIF and other intangibles (net of deferred tax) (17,935) (17,705) (17,292)

Average tangible equity 152,861 158,776 150,101

Fair value of own debt, DVA and other adjustments (1,125) 1,278 422

Average tangible equity excluding fair value of own debt, DVA and other adjustments 151,736 160,054 150,523

% % %

Ratio

Return on average ordinary shareholders’ equity 8.7 7.1 2.3

Return on average tangible equity 9.9 8.3 3.1

Return on average tangible equity excluding significant items

11.6 9.5 4.7

1 Since 1 January 2021, the UK bank levy has no longer been excluded from the calculation of this measure. Comparative data have not been

represented.

2 Other adjustments includes entries relating to the timing of payments on additional tier 1 coupons.

Reconciliation of alternative performance measures

128 HSBC Holdings plc Annual Report and Accounts 2022

The following table details the adjustments made to reported results by global business:

Return on average tangible equity by global business

Year ended 31 Dec 2022

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

Profit before tax 6,040 7,447 5,099 (1,058) 17,528

Tax expense (1,218) (1,737) (823) 2,920 (858)

Profit after tax 4,822 5,710 4,276 1,862 16,670

Less attributable to: preference shareholders, other equity holders, non-

controlling interests

(696) (493) (603) (56) (1,848)

Profit attributable to ordinary shareholders of the parent company 4,126 5,217 3,673 1,806 14,822

Increase in PVIF (net of tax) (251) 36 — (49) (264)

Significant items (net of tax) 1,960 197 300 581 3,038

Other adjustments 6 (15) (24) 87 54

Profit attributable to ordinary shareholders, excluding PVIF, significant

items

5,841 5,435 3,949 2,425 17,650

Average tangible shareholders’ equity excluding fair value of own debt, DVA and

other adjustments

31,519 38,373 36,944 44,900 151,736

Return on average tangible equity excluding significant items (%) 18.5 14.2 10.7 5.4 11.6

Year ended 31 Dec 2021

Profit before tax 6,133 6,677 4,722 1,374 18,906

Tax expense (1,540) (1,783) (1,020) 130 (4,213)

Profit after tax 4,593 4,894 3,702 1,504 14,693

Less attributable to: preference shareholders, other equity holders, non-

controlling interests

(735) (665) (618) (68) (2,086)

Profit attributable to ordinary shareholders of the parent company 3,858 4,229 3,084 1,436 12,607

Increase in PVIF (net of tax) (65) 4 — 3 (58)

Significant items (net of tax) 850 51 517 1,269 2,687

Other adjustments 3 (4) (3) 11 7

Profit attributable to ordinary shareholders, excluding PVIF, significant items 4,646 4,280 3,598 2,719 15,243

Average tangible shareholders’ equity excluding fair value of own debt, DVA and

other adjustments

30,587 39,487 41,816 48,164 160,054

Return on average tangible equity excluding significant items (%) 15.2 10.8 8.6 5.6 9.5

Net asset value and tangible net asset

value per ordinary share

Net asset value per ordinary share is total shareholders‘ equity less

non-cumulative preference shares and capital securities (‘total

ordinary shareholders’ equity’), divided by the number of ordinary

shares in issue excluding shares that the company has purchased and

are held in treasury.

Tangible net asset value per ordinary share is total ordinary

shareholders’ equity excluding goodwill, PVIF and other intangible

assets (net of deferred tax) (‘tangible ordinary shareholders’ equity’),

divided by the number of basic ordinary shares in issue excluding

shares that the company has purchased and are held in treasury.

Net asset value and tangible net asset value per ordinary share

2022

2021

2020

Total shareholders’ equity 187,484 198,250 196,443

Preference shares and other equity instruments (19,746) (22,414) (22,414)

Total ordinary shareholders’ equity 167,738 175,836 174,029

Goodwill, PVIF and intangible assets (net of deferred tax) (18,383) (17,643) (17,606)

Tangible ordinary shareholders’ equity 149,355 158,193 156,423

Basic number of $0.50 ordinary shares outstanding 19,739 20,073 20,184

Value per share

Net asset value per ordinary share 8.50 8.76 8.62

Tangible net asset value per ordinary share 7.57 7.88 7.75

HSBC Holdings plc Annual Report and Accounts 2022 129

Financial review

Post-tax return and average total shareholders’ equity on average total assets

Post-tax return on average total assets is profit after tax divided by average total assets for the period. Average total shareholders’ equity to

average total assets is average total shareholders’ equity divided by average total assets for the period.

Post-tax return and average total shareholders’ equity on average total assets

2022

2021

2020

Profit after tax 16,670 14,693 6,099

Average total shareholders’ equity 191,998 199,295 189,719

Average total assets 3,030,574 3,012,437 2,936,939

Ratio

Post-tax return on average total assets 0.6 0.5 0.2

Average total shareholders’ equity to average total assets 6.34 6.62 6.46

Expected credit losses and other credit impairment charges as % of average

gross loans and advances to customers

Expected credit losses and other credit impairment charges (‘ECL’) as % of average gross loans and advances to customers is the annualised

adjusted ECL divided by adjusted average gross loans and advances to customers for the period. The adjusted numbers are derived by adjusting

reported ECL and loans and advances to customers for the effects of foreign currency translation differences.

Expected credit losses and other credit impairment charges as % of average gross loans and advances to customers

2022

2021

2020

Expected credit losses and other credit impairment charges (‘ECL’) (3,592) 928 (8,817)

Currency translation (174) 2

Adjusted ECL (3,592) 754 (8,815)

Average gross loans and advances to customers 1,015,445 1,057,412 1,047,114

Currency translation (13,325) (63,174) (34,883)

Average gross loans and advances to customers – at most recent balance sheet foreign exchange rates 1,002,120 994,238 1,012,231

Average gross loans and advances to customers, including held for sale 1,036,974 1,058,947 1,047,114

Currency translation (12,846) (63,012) (34,883)

Average gross loans and advances to customers, including held for sale – at most recent balance sheet foreign

exchange rates

1,024,128 995,935 1,012,231

Ratio % % %

Expected credit losses and other credit impairment charges as % of average gross loans and advances to customers 0.36 (0.08) 0.87

Expected credit losses and other credit impairment charges as % of average gross loans and advances to customers,

including held for sale 0.35 (0.08) 0.87

Reconciliation of alternative performance measures

130 HSBC Holdings plc Annual Report and Accounts 2022

Identifying suspicious activities

through our award-winning AI tool

We are using the latest artiﬁcial intelligence technology to help

identify suspicious activities to help prevent ﬁnancial crime. Our

dynamic risk assessment solution brings data together on the

Cloud, and uses machine learning to analyse and identify criminal

activity by making use of relevant data, with the ability to identify

patterns that humans are unlikely to spot.

The tool, which we ﬁrst developed in November 2021 and is active

in several markets including the UK, enables suspicious activity to

be identiﬁed twice as fast than the previous process and reduces

case volumes by 60%.

The solution was recognised at the 2022 Banking Tech Awards,

winning ‘Best Use of Cloud’ and ‘Best Use of AI’. We plan to roll

it out to other markets throughout 2023.

Our risk review outlines our approach to

risk management, how we identify and

monitor top and emerging risks, and

the actions we take to mitigate them. In

addition, it explains our material banking

risks, including how we manage capital.

132 Our approach to risk

132 Our risk appetite

132 Risk management

135 Key developments in 2022

135 Top and emerging risks

135 Externally driven

140 Internally driven

142 Areas of special interest

142 Risks related to Covid-19

142 Our material banking risks

145 Credit risk

202 Treasury risk

218 Market risk

221 Climate risk

230 Resilience risk

231 Regulatory compliance risk

231 Financial crime risk

232 Model risk

233 Insurance manufacturing operations risk

Risk

review

131HSBC Holdings plc Annual Report and Accounts 2022

Our approach to risk

Our risk appetite

We recognise the importance of a strong culture, which refers to our

shared attitudes, beliefs, values and standards that shape behaviours

including those related to risk awareness, risk taking and risk

management. All our people are responsible for the management of

risk, with the ultimate accountability residing with the Board.

We seek to build our business for the long term by balancing social,

environmental and economic considerations in the decisions we

make. Our strategic priorities are underpinned by our endeavour to

operate in a sustainable way. This helps us to carry out our social

responsibility and manage the risk profile of the business. We are

committed to managing and mitigating climate-related risks, both

physical and transition risks, and continue to incorporate consideration

of these into how we manage and oversee risks internally and with

our customers.

The following principles guide the Group’s overarching appetite for

risk and determine how our businesses and risks are managed.

Financial position

• We aim to maintain a strong capital position, defined by regulatory

and internal capital ratios.

• We carry out liquidity and funding management for each operating

entity, on a stand-alone basis.

Operating model

• We seek to generate returns in line with our risk appetite and

strong risk management capability.

• We aim to deliver sustainable and diversified earnings and

consistent returns for shareholders.

Business practice

• We have no appetite for deliberately or knowingly causing

detriment to consumers, or incurring a breach of the letter or spirit

of regulatory requirements.

• We have no appetite for inappropriate market conduct by any

member of staff or by any Group business.

• We are committed to managing the climate risks that have an

impact on our financial position, and delivering on our net zero

ambition.

• We consider and, where appropriate, mitigate reputational risk that

may arise from our business activities and decisions.

• We monitor non-financial risk exposure against risk appetite,

including exposure related to inadequate or failed internal

processes, people and systems, or events that impact our

customers or can lead to sub-optimal returns to shareholders,

censure, or reputational damage.

Enterprise-wide application

Our risk appetite encapsulates the consideration of financial and non-

financial risks. We define financial risk as the risk of a financial loss as

a result of business activities. We actively take these types of risks to

maximise shareholder value and profits. Non-financial risk is the risk

to achieving our strategy or objectives as the result of failed internal

processes, people and systems, or from external events.

Our risk appetite is expressed in both quantitative and qualitative

terms and applied at the global business level, at the regional level

and to material operating entities. Every three years, the Group Risk

and Compliance function commissions an external independent firm

to review the Group’s approach to risk appetite and to help ensure

that it remains in line with market best practice and regulatory

expectations. This review was last carried out in 2021 and confirmed

the Group’s risk appetite statement (‘RAS’) remains aligned to best

practices, regulatory expectations and strategic goals. Our risk

appetite continues to evolve and expand its scope as part of our

regular review process.

The Board reviews and approves the Group’s risk appetite regularly to

make sure it remains fit for purpose. The Group’s risk appetite is

considered, developed and enhanced through:

• an alignment with our strategy, purpose, values and customer

needs;

• trends highlighted in other Group risk reports;

• communication with risk stewards on the developing risk

landscape;

• strength of our capital, liquidity and balance sheet;

• compliance with applicable laws and regulations;

• effectiveness of the applicable control environment to mitigate

risk, informed by risk ratings from risk control assessments;

• functionality, capacity and resilience of available systems to

manage risk; and

• the level of available staff with the required competencies to

manage risks.

We formally articulate our risk appetite through our RAS. Setting out

our risk appetite ensures that we agree a suitable level of risk for our

strategy. In this way, risk appetite informs our financial planning

process and helps senior management to allocate capital to business

activities, services and products.

The RAS is applied to the development of business line strategies,

strategic and business planning and remuneration. At a Group level,

performance against the RAS is reported to the Group Risk

Management Meeting alongside key risk indicators to support

targeted insight and discussion on breaches of risk appetite and any

associated mitigating actions. This reporting allows risks to be

promptly identified and mitigated, and informs risk-adjusted

remuneration to drive a strong risk culture.

Each global business, region and material operating entity is required

to have its own RAS, which is monitored to help ensure it remains

aligned with the Group’s RAS. Each RAS and business activity is

guided and underpinned by qualitative principles and/or quantitative

metrics.

Risk management

We recognise that the primary role of risk management is to protect

our customers, business, colleagues, shareholders and the

communities that we serve, while ensuring we are able to support

our strategy and provide sustainable growth. This is supported

through our three lines of defence model described on page 134.

The implementation of our business strategy remains a key focus. As

we implement change initiatives, we actively manage the execution

risks. We also perform periodic risk assessments, including against

strategies, to help ensure retention of key personnel for our continued

safe operation.

We aim to use a comprehensive risk management approach across

the organisation and across all risk types, underpinned by our culture

and values. This is outlined in our risk management framework,

including the key principles and practices that we employ in managing

material risks, both financial and non-financial. The framework fosters

continual monitoring, promotes risk awareness and encourages a

sound operational and strategic decision-making and escalation

process. It also supports a consistent approach to identifying,

assessing, managing and reporting the risks we accept and incur in

our activities, with clear accountabilities. We actively review and

enhance our risk management framework and our approach to

managing risk, through our activities with regard to: people and

capabilities; governance; reporting and management information;

credit risk management models; and data.

Group Risk and Compliance is independent from the global

businesses, including our sales and trading functions, to provide

challenge, oversight and appropriate balance in risk/return decisions.

Risk review

132 HSBC Holdings plc Annual Report and Accounts 2022

Our risk management framework

The following diagram and descriptions summarise key aspects of the risk management framework, including governance, structure, risk

management tools and our culture, which together help align employee behaviour with risk appetite.

Key components of our risk management framework

HSBC Values and risk culture

Risk governance

Non-executive risk governance

The Board approves the Group’s risk appetite, plans and performance

targets. It sets the ‘tone from the top’ and is advised by the Group Risk

Committee (see page 255).

Executive risk governance

Our executive risk governance structure is responsible for the

enterprise-wide management of all risks, including key policies and

frameworks for the management of risk within the Group (see pages

134 and 142).

Roles and

responsibilities

Three lines of defence model

Our ‘three lines of defence’ model defines roles and responsibilities for

risk management. An independent Group Risk and Compliance

function helps ensure the necessary balance in risk/return decisions

(see page 134).

Processes and tools

Risk appetite

The Group has processes in place to identify/assess, monitor, manage

and report risks to help ensure we remain within our risk appetite.

Enterprise-wide risk management tools

Active risk management: identification/assessment,

monitoring, management and reporting

Internal controls

Policies and procedures

Policies and procedures define the minimum requirements for the

controls required to manage our risks.

Control activities

Operational and resilience risk management defines minimum

standards and processes for managing operational risks and internal

controls.

Systems and infrastructure

The Group has systems and/or processes that support the

identification, capture and exchange of information to support risk

management activities.

Risk governance

The Board has ultimate responsibility for the effective management of

risk and approves our risk appetite.

The Group Chief Risk and Compliance Officer, supported by the

Group Risk Management Meeting, holds executive accountability for

the ongoing monitoring, assessment andmanagement of the risk

environment and the effectiveness of the risk management

framework.

The Group Chief Risk and Compliance Officer is also responsible for

the oversight of reputational risk, with the support of the Group

Reputational Risk Committee. The Group Reputational Risk

Committee considers matters arising from customers, transactions

and third parties that either present a serious potential reputational

risk to the Group or merit a Group-led decision to ensure a consistent

risk management approach across the regions, global businesses and

global functions. Further details can be found under the ‘Reputational

risk’ section of www.hsbc.com/our-approach/risk-and-responsibility.

Day-to-day responsibility for risk management is delegated tosenior

managers with individual accountability for decision making. All our

people have a role to play in risk management. These roles are

defined using the three lines of defence model, which takes into

account our business and functional structures as described in the

following commentary, ‘Our responsibilities’.

We use a defined executive risk governance structure to help ensure

there is appropriate oversight and accountability of risk, which

facilitates reporting and escalation to the Group Risk Management

Meeting. This structure is summarised in the following table.

HSBC Holdings plc Annual Report and Accounts 2022 133

Risk review

Group Risk Management

Meeting

Group Chief Risk and Compliance

Officer

Group Chief Legal Officer

Group Chief Executive

Group Chief Financial Officer

Group Head of Financial Crime and

Group Money Laundering Reporting

Officer

Group Head of Compliance

All other Group Executive Committee

members

• Supporting the Group Chief Risk and Compliance Officer in exercising Board-

delegated risk management authority

• Overseeing the implementation of risk appetite and the risk management

framework

• Forward-looking assessment of the risk environment, analysing possible risk

impacts and taking appropriate action

• Monitoring all categories of risk and determining appropriate mitigating action

• Promoting a supportive Group culture in relation to risk management and

conduct

Governance structure for the management of risk and compliance

Group Risk and

Compliance Executive

Committee

Group Chief Risk and Compliance

Officer

Chief risk officers of HSBC’s

globalbusinesses and regions

Heads of Global Risk and Compliance

sub-functions

• Supporting the Group Chief Risk and Compliance Officer in providing strategic

direction for the Group Risk and Compliance function, setting priorities and

providing oversight

• Overseeing a consistent approach to accountability for, and mitigation of, risk

and compliance across the Group

Global business/regional

risk management

meetings

Global business/regional chief

riskofficer

Global business/regional chief

executive officer

Global business/regional chief financial

officer

Global business/regional heads

ofglobal functions

• Supporting the Group Chief Risk and Compliance Officer in exercising Board-

delegated risk management authority

• Forward-looking assessment of the risk environment

• Implementation of risk appetite and the risk management framework

• Monitoring all categories of risk and overseeing appropriate mitigating actions

• Embedding a supportive culture in relation to risk management and controls

Authority Membership Responsibilities include:

The Board committees with responsibility for oversight of risk-related matters are set out on page 258.

Treasury risks are the responsibility of the Group Executive Committee and the Group Risk Committee. Global Treasury actively manages these

risks, supported by the Holdings Asset and Liability Management Committee (‘ALCO’) and local ALCOs, overseen by Treasury Risk

Management and the Group Risk Management Meeting. Further details on treasury risk management are set out on page 202.

Our responsibilities

All our people are responsible for identifying and managing riskwithin

the scope of their roles. Roles are defined using the three lines of

defence model, which takes into account our business and functional

structures as described below.

Three lines of defence

To create a robust control environment to manage risks, we use an

activity-based three lines of defence model. This model delineates

management accountabilities and responsibilities forrisk

management and the control environment.

The model underpins our approach to risk management by clarifying

responsibility and encouraging collaboration, as well as enabling

efficient coordination of risk and control activities. Thethree lines of

defence are summarised below:

• The first line of defence owns the risks and is responsible

foridentifying, recording, reporting and managing them in line with

risk appetite, andensuring that the right controls and assessments

are inplace to mitigate them.

• The second line of defence challenges the first line of defence on

effective risk management, and provides advice and guidance in

relation to the risk.

• The third line of defence is our Global Internal Audit function,

whichprovides independent assurance as to whether our risk

management approach and processes are designed and operating

effectively.

Group Risk and Compliance function

Our Group Risk and Compliance function is responsible for the

Group’s risk management framework. This responsibility includes

establishing global policy, monitoring risk profiles, and identifying and

managing forward-looking risk. Group Risk and Compliance is made

up of sub-functions covering all risks to our business. Forming part of

the second line of defence, the Group Risk and Compliance function

is independent from the global businesses, including sales and trading

functions, to provide challenge, appropriate oversight and balance in

risk/return decisions.

Responsibility for minimising both financial and non-financial risk lies

with our people. They are required to manage the risks of the

business and operational activities for which they are responsible. We

maintain adequate oversight of our risks through our various specialist

risk stewards and the collective accountability held by our chief risk

officers.

We have continued to strengthen the control environment and our

approach to the management of non-financial risk, as set out in our

risk management framework. The management of non-financial risk

focuses on governance and risk appetite, and provides a single view

of the non-financial risks that matter the most as well as the

associated controls. It incorporates a risk management system

designed to enable the active management of non-financial risk. Our

ongoing focus is on simplifying our approach to non-financial risk

management, while driving more effective oversight and better end-

to-end identification and management of non-financial risks. This is

overseen by the Operational and Resilience Risk function, headed by

the Group Head of Operational and Resilience Risk.

Stress testing and recovery planning

We operate a wide-ranging stress testing programme that is a key

part of our risk management and capital and liquidity planning. Stress

testing provides management with key insights into the impact of

severely adverse events on the Group, and provides confidence to

regulators on the Group’s financial stability.

Our stress testing programme assesses our capital and liquidity

strength through a rigorous examination of our resilience to external

shocks. As well as undertaking regulatory-driven stress tests, we

conduct our own internal stress tests in order to understand the

nature and level of all material risks, quantify the impact of such risks

and develop plausible business-as-usual mitigating actions.

Risk review

134 HSBC Holdings plc Annual Report and Accounts 2022

Internal stress tests

Our internal capital assessment uses a range of stress scenarios that

explore risks identified by management. They include potential

adverse macroeconomic, geopolitical and operational risk events, as

well as other potential events that are specific to HSBC.

The selection of stress scenarios is based upon the output of our

identified top and emerging risks and our risk appetite. Stress testing

analysis helps management understand the nature and extent of

vulnerabilities to which the Group is exposed. Using this information,

management decides whether risks can or should be mitigated

through management actions or, if they were to crystallise, be

absorbed through capital and liquidity. This in turn informs decisions

about preferred capital and liquidity levels and allocations.

In addition to the Group-wide stress testing scenarios, each major

subsidiary conducts regular macroeconomic and event-driven scenario

analysis specific to its region. They also participate, as required, in the

regulatory stress testing programmes of the jurisdictions in which

they operate, such as stress tests required by the Bank of England

(‘BoE’) in the UK, the Federal Reserve Board (‘FRB’) in the US, and

the Hong Kong Monetary Authority (‘HKMA’) in Hong Kong. Global

functions and businesses also perform bespoke stress testing to

inform their assessment of risks to potential scenarios.

We also conduct reverse stress tests each year at Group level and,

where required, at subsidiary entity level to understand potential

extreme conditions that would make our business model non-viable.

Reverse stress testing identifies potential stresses and vulnerabilities

we might face, and helps inform early warning triggers, management

actions and contingency plans designed to mitigate risks.

Recovery and resolution plans

Recovery and resolution plans form part of the integral framework

safeguarding the Group’s financial stability.The Group recovery plan,

together with stress testing, help us understand the likely outcomes

of adverse business or economic conditions and in the identification

of appropriate risk mitigating actions. The Group is committed to

further developing its recovery and resolution capabilities in line with

the BoE’s Resolvability Assessment Framework requirements.

Key developments in 2022

We actively managed the risks related to macroeconomic

uncertainties including inflation, fiscal and monetary policy, the

Russia-Ukraine war, broader geopolitical uncertainties and continued

risks resulting from the Covid-19 pandemic, as well as other key risks

described in this section. In addition, we sought to enhance our risk

management in the following areas:

• We continued to improve our risk governance decision making,

particularly with regard to the governance of treasury risk, to help

ensure senior executives have appropriate oversight and visibility

of macroeconomic trends around inflation and interest rates.

• We adapted our interest rate risk management strategy as market

and official interest rates increased in reaction to inflationary

pressures. This included the Board approving in September a new

interest rate risk in the banking book strategy, a managed

reduction in the duration risk of our hold-to-collect-and-sell asset

portfolio and an increase in net interest income stabilisation.

• We began a process of enhancement of our country credit risk

management framework to strengthen our control of risk tolerance

and appetite at a country level.

• We continued to develop our approach to emerging risk

identification and management, including the use of forward-

looking indicators to support our analysis.

• We enhanced our enterprise risk reporting processes to place a

greater focus on our emerging risks, including by capturing the

materiality, oversight and individual monitoring of these risks.

• We sought to further strengthen our third-party risk policy and

processes to improve control and oversight of our material third

parties to maintain our operational resilience, and to meet new and

evolving regulatory requirements.

• We made progress with our comprehensive regulatory reporting

programme to strengthen our global processes, improve

consistency and enhance controls.

• We continued to embed the governance and oversight around

model adjustments and related processes for IFRS 9 models and

Sarbanes-Oxley controls.

• We commenced a programme to enhance our framework for

managing the risks associated with machine learning and artificial

intelligence (‘AI’).

• Through our climate risk programme, we continued to embed

climate considerations throughout the organisation, including

updating the scope of our programme to cover all risk types,

expanding the scope of climate-related training, developing new

climate risk metrics to monitor and manage exposures, and

developing our internal climate scenario exercise.

• We sought to improve the effectiveness of our financial crime

controls, deploying advanced analytics capabilities into new

markets. We refreshed our financial crime policies to help ensure

they remain up to date and address changing and emerging risks.

We continue to monitor regulatory changes.

Top and emerging risks

We use a top and emerging risks process to provide a forward-looking

view of issues with the potential to threaten the execution of our

strategy or operations over the medium to longterm.

We proactively assess the internal and external risk environment, as

well as review the themes identified across our regions and global

businesses, for any risks that may require global escalation. We

update our top and emerging risks as necessary.

Our current top and emerging risks are as follows.

Externally driven

Geopolitical and macroeconomic risks

The Russia-Ukraine war has had far-reaching geopolitical and

economic implications. HSBC is monitoring the impacts of the war

and continues to respond to the further economic sanctions and trade

restrictions that have been imposed on Russia in response. In

particular, significant sanctions and trade restrictions imposed against

Russia have been put in place by the UK, the US and the EU, as well

as other countries. Such sanctions and restrictions have specifically

targeted certain Russian government officials, politically exposed

persons, business people, Russian oil imports, energy products,

financial institutions and other major Russian companies. In addition,

there have been put in place more generally applicable investment,

export, and import bans and restrictions. In response to such

sanctions and trade restrictions, as well as asset flight, Russia has

implemented certain countermeasures.

Further sanctions, trade restrictions and Russian countermeasures

may adversely impact the Group, its customers and the markets in

which the Group operates by creating regulatory, reputational and

market risks. Our business in Russia principally serves multinational

corporate clients headquartered in other countries, is not accepting

new business or customers and is consequently on a declining trend.

Following a strategic review, HSBC Europe BV (a wholly-owned

subsidiary of HSBC Bank plc) has entered into an agreement to sell its

wholly-owned subsidiary HSBC Bank (RR) (Limited Liability Company),

subject to regulatory and governmental approvals.

Global commodity markets have been significantly impacted by the

Russia-Ukraine war and localised Covid-19 outbreaks, leading to

continued supply chain disruptions. This has resulted in product

shortages appearing across several regions, and increased prices for

both energy and non-energy commodities, such as food. We do not

HSBC Holdings plc Annual Report and Accounts 2022 135

Risk review

expect these to ease significantly in the near term. In turn, this has

had a significant impact on global inflation. Relatively mild weather,

until recently, and diversification of fuel sources have nevertheless

helped regions most dependent on Russian supply to substantially

reduce risks of rationing over the winter months.

China’s policy measures issued at the end of 2022 have increased

liquidity and the supply of credit to the mainland China commercial

real estate sector. Recovery in the underlying domestic residential

demand and improved customer sentiment will be necessary to

support the ongoing health of the sector. We will continue to monitor

the sector closely, notably the risk of further idiosyncratic real estate

defaults and the potential associated impact on wider market,

investor and consumer sentiment. Given that parts of the global

economy are in, or close to, recession, the demand for Chinese

exports may also diminish.

Rising global inflation has prompted central banks to tighten monetary

policy. Since the beginning of 2022, the US Federal Reserve Board

(‘FRB’) has delivered a cumulative 450 basis point (‘bps’) increase in

the Federal Funds rate. The European Central Bank lagged the FRB

initially, but its benchmark rate has subsequently been increased by

300bps since July 2022. As of mid-February 2023, interest-rate

futures suggested market uncertainty as to whether the FRB would

begin to ease monetary policy over the 12-month horizon. Should

monetary policy rates move materially higher than current

expectations, a realignment of market expectations could cause

turbulence in financial asset prices.

Financial markets have also shown reduced appetite for expansionary

fiscal policies in the context of high debt ratios. Following the fiscal

statement of 23 September 2022 by the UK government, there was a

fall in the value of sterling and a sharp rise in the yields of UK

government securities, known as gilts. Following this, the Bank of

England reversed its plan to begin selling its gilt holdings from

September 2022, and the UK government reversed most of the

previously announced fiscal measures. We continue to monitor our

risk profile closely in the context of uncertainty over global

macroeconomic policies.

Higher inflation and interest rate expectations around the world – and

the resulting economic uncertainty – have had an impact on expected

credit losses and other credit impairment charges (‘ECL’). The

combined pressure of higher inflation and interest rates may impact

the ability of our customers to repay debt. Our Central scenario,

which has the highest probability weighting in our IFRS 9 ‘Financial

Instruments’ calculations of ECL, assumes low growth and a higher

inflation environment across many of our key markets. However, due

to the rapidly changing economic conditions, the potential for forecast

dispersion and volatility remain high, impacting the degree of accuracy

and certainty of our Central scenario forecast. The level of volatility

varies by market, depending on exposure to commodity price

increases, supply chain constraints, the monetary policy response to

inflation and the public health policy response to the Covid-19

pandemic. As a result, our Central scenario for impairment has not

been assigned the same likelihood of occurrence across our key

markets. There is also uncertainty with respect to the relationship

between the economic drivers and the historical loss experience,

which has required adjustments to modelled ECL in cases where we

determined that the model was unable to capture the material

underlying risks.

For further details of our Central and other scenarios, see

‘Measurement uncertainty and sensitivity analysis of ECL estimates’

on page 153.

Global tensions over trade, technology and ideology are manifesting

themselves in divergent regulatory standards and compliance

regimes, presenting long-term strategic challenges for multinational

businesses.

The US-China relationship remains complex. To date, the UK, the US,

the EU and other countries have imposed various sanctions and trade

restrictions on Chinese persons and companies. Although sanctions

and trade restrictions are difficult to predict, increases in diplomatic

tensions between China and the US and other countries could result

in sanctions that could negatively impact the Group, its customers

and the markets in which the Group operates. There is a continued

risk of additional sanctions and trade restrictions being imposed by

the US and other governments in relation to human rights,

technology, and other issues with China, and this could create a more

complex operating environment for the Group and its customers.

China has in turn announced a number of its own sanctions and trade

restrictions that target, or provide authority to target, foreign

individuals and companies.

These and any future measures and countermeasures that may be

taken by the US, China and other countries may affect the Group, its

customers and the markets in which the Group operates.

Negotiations between the UK and the EU over the operation of the

Northern Ireland Protocol are continuing. While there are signs that

differences may be diminishing, failure to reach agreement could

have implications for the future operation of the EU-UK Trade and

Cooperation Agreement.

In June 2022, the UK government published proposed legislation that

seeks to amend the Protocol in a number of respects. In response,

the EU launched infringement procedures against the UK, and is

evaluating the UK response, received in September 2022. If the

proposed legislation were to pass, and infringement procedures

progressed, it could further complicate the terms of trade between

the UK and the EU and potentially prevent progress in other areas

such as financial services. Over the medium to long term, the UK’s

withdrawal from the EU may impact markets and increase economic

risk, particularly in the UK, which could adversely impact our

profitability and prospects for growth in this market. We are

monitoring the situation closely, including the potential impacts on our

customers.

In August 2022, the US Inflation Reduction Act introduced a minimum

tax of 15% with effect from 1 January 2023. It is possible that the

minimum tax could result in an additional US tax liability over our

regular US federal corporate tax liability in a given year, based on the

differences between US book and taxable income (including as a

result of temporary differences). Given its recent pronouncement, it is

unclear at this time what, if any, impact the US Inflation Reduction

Act will have on HSBC’s US tax rate and US financial results. HSBC

will continue to evaluate its impact as further information becomes

available. In addition, potential changes to tax legislation and tax rates

in the countries and territories in which we operate could increase our

effective tax rate in the future.

As the geopolitical landscape evolves, compliance by multinational

corporations with their legal or regulatory obligations in one

jurisdiction may be seen as supporting the law or policy objectives of

that jurisdiction over another, creating additional compliance,

reputational and political risks for the Group. We maintain dialogue

with our regulators in various jurisdictions on the impact of legal and

regulatory obligations on our business and customers.

The financial impact on the Group of geopolitical risks in Asia is

heightened due to the region’s relatively high contribution to the

Group’s profitability, particularly in Hong Kong.

While it is the Group's policy to comply with all applicable laws and

regulations of all jurisdictions in which it operates, geopolitical risks

and tensions, and potential ambiguities in the Group’s compliance

obligations, will continue to present challenges and risks for the

Group and could have a material adverse impact on the Group‘s

business, financial condition, results of operations, prospects and

strategy, as well as on the Group’s customers.

Expanding data privacy, national security and cybersecurity laws in a

number of markets could pose potential challenges to intra-group data

sharing. These developments could increase financial institutions’

compliance obligations in respect of cross-border transfers of

personal information, which may affect our ability to manage financial

crime risks across markets.

Mitigating actions

• We closely monitor geopolitical and economic developments in

key markets and sectors and undertake scenario analysis where

appropriate. This helps us to take portfolio actions where

necessary, including through enhanced monitoring, amending our

risk appetite and/or reducing limits and exposures.

Risk review

136 HSBC Holdings plc Annual Report and Accounts 2022

• We stress test portfolios of particular concern to identify

sensitivity to loss under a range of scenarios, with management

actions being taken to rebalance exposures and manage risk

appetite where necessary.

• We regularly review key portfolios to help ensure that individual

customer or portfolio risks are understood and that our ability to

manage the level of facilities offered through any downturn is

appropriate.

• We continue to manage sanctions and trade restrictions through

the use of, and enhancements to, our existing controls.

• We continue to monitor the UK’s relationship with the EU, and

assess the potential impact on our people, operations and

portfolios.

• We have taken steps, where necessary, to enhance physical

security in geographical areas deemed to be at high risk from

terrorism and military conflicts.

Technology and cybersecurity risk

Together with other organisations, we operate in an extensive and

complex technology landscape, which needs to remain resilient in

order to support customers, our organisation and financial markets

globally. Risks arise where technology is not understood, maintained,

or developed appropriately. We also continue to operate in an

increasingly hostile cyber threat environment globally. These threats

include potential unauthorised access to customer accounts, attacks

on our systems or those of our third-party suppliers, and require

ongoing investment in business and technical controls to defend

against.

Mitigating actions

• We continue to invest in transforming how software solutions are

developed, delivered and maintained to improve system resilience.

We continue to build security into our software development

lifecycle and improve our testing processes and tools.

• We continue to upgrade many of our IT systems, simplify our

service provision and replace older IT infrastructure and

applications. These enhancements supported global

improvements in service availability during 2022 for both our

customers and colleagues.

• We continually evaluate threat levels for the most prevalent cyber-

attack types and their potential outcomes. To further protect HSBC

and our customers and help ensure the safe expansion of our

global businesses, we continue to strengthen our controls to

reduce the likelihood and impact of advanced malware, data

leakage, exposure through third parties and security vulnerabilities.

• We continue to enhance our cybersecurity capabilities, including

Cloud security, identity and access management, metrics and data

analytics, and third-party security reviews. An important part of our

defence strategy is ensuring our colleagues remain aware of

cybersecurity issues and know how to report incidents.

• We report and review cyber risk and control effectiveness at

executive and non-executive Board level. We also report it across

our global businesses, functions and regions to help ensure there

is appropriate visibility and governance of the risk and its mitigating

actions.

• We participate globally in industry bodies and working groups to

collaborate on tactics employed by cyber-crime groups and to

work together preventing, detecting and defending against cyber-

attacks on financial organisations globally.

Evolving regulatory environment risk

We aim to keep abreast of the emerging regulatory compliance and

conduct agenda, which currently includes, but is not limited to: ESG

matters; ensuring good customer outcomes; addressing customer

vulnerabilities due to cost of living pressures; regulatory compliance;

regulatory reporting; employee compliance, including the use of e-

communication channels; and the proposed reforms to the UK

financial services sector, known as the Edinburgh Reforms. We

monitor regulatory developments closely and engage with regulators,

as appropriate, to help ensure new regulatory requirements are

implemented effectively and in a timely way. The competitive

landscape in which the Group operates may be impacted by future

regulatory changes and government intervention.

Mitigating actions

• We monitor for regulatory developments to understand the

evolving regulatory landscape and seek to respond with changes in

a timely manner.

• We engage with governments and regulators, responding to

consultations with a view to help shaping regulations that can be

implemented effectively. We hold regular meetings with relevant

authorities to discuss strategic contingency plans, including those

arising from geopolitical issues.

• Our simplified conduct approach aligns to our purpose and values,

in particular the value ‘we take responsibility’.

Financialcrime risk

Financial institutions remain under considerable regulatory scrutiny

regarding their ability to detect and prevent financial crime. These

evolving challenges include managing conflicting laws and approaches

to legal and regulatory regimes, and implementing an unprecedented

volume and diverse set of sanctions, notably as a result of the Russia-

Ukraine war.

Amid rising inflation and increasing cost of living pressures, we face

increasing regulatory expectations with respect to managing internal

and external fraud, and protecting vulnerable customers.

The digitisation of financial services continues to have an impact on

the payments ecosystem, with an increasing number of new market

entrants and payment mechanisms, not all of which are subject to the

same level of regulatory scrutiny or regulations as banks.

Developments around digital assets and currencies have continued at

pace, with an increasing regulatory and enforcement focus on the

financial crimes linked to these types of assets.

Expectations with respect to the intersection of ESG issues and

financial crime, as our organisation, customers and suppliers transition

to net zero, continue to increase. These are particularly focused on

potential ‘greenwashing’, human rights issues and environmental

crimes. In addition, climate change itself could heighten risks linked to

vulnerable migrant populations in countries where financial crime is

already more prevalent.

We also continue to face increasing challenges presented by national

data privacy requirements, which may affect our ability to manage

financial crime risks across markets.

Mitigating actions

• We continue to manage sanctions and trade restrictions through

the use of, and enhancements to, our existing controls.

• We continue to develop our fraud controls and invest in

capabilities to fight financial crime through the application of

advanced analytics and artificial intelligence.

• We are looking at the impact of a rapidly changing payments

ecosystem, as well as risks associated with direct and indirect

exposure to digital assets and currencies, in an effort to maintain

appropriate financial crime controls.

• We are assessing our existing policies and control framework so

that developments relating to ESG are considered and the risks

mitigated.

• We engage with regulators, policymakers and relevant

international bodies, seeking to address data privacy challenges

through international standards, guidance and legislation.

Ibor transition risk

Interbank offered rates (‘Ibors’) have previously been used extensively

to set interest rates on different types of financial transactions and for

valuation purposes, risk measurement and performance

benchmarking.

Following the UK’s Financial Conduct Authority (‘FCA’) announcement

in July 2017 that it would no longer continue to persuade or require

panel banks to submit rates for the London interbank offered rate

(‘Libor’) after 2021, we have been actively working to transition legacy

HSBC Holdings plc Annual Report and Accounts 2022 137

Risk review

contracts from Ibors to products linked to near risk-free replacement

rates (‘RFRs’) or alternative reference rates.

The publication of sterling, Swiss franc, euro and Japanese yen Libor

interest rate benchmarks, as well as Euro Overnight Index Average

(‘Eonia’), ceased from the end of 2021. Our Ibor transition programme

– which is tasked with the development of RFR products and the

transition of legacy Ibor products – has continued to support the

transition of a limited number of remaining contracts in sterling and

Japanese yen Libor, which were published using a ‘synthetic’ interest

rate methodology during 2022. The remaining ‘tough legacy’ sterling

contracts have required protracted client discussions where contracts

are complex or restructuring of facilities is required. The publication of

‘synthetic’ Japanese yen Libor ceased after 31December 2022. In

addition the FCA announced, in September and November 2022, that

one month and six-month ‘synthetic’ sterling Libor rates will cease to

be published from 31 March 2023, and three-month ‘synthetic’

sterling Libor will cease to be published after 31 March 2024. We

have or are prepared to transition or remediate the remaining few

contracts relying on ‘synthetic’ sterling settings, outstanding as at

31December 2022, in advance of those cessation dates.

For the cessation of the publication of US dollar Libor from 30 June

2023, we have implemented the majority of required processes,

technology and RFR product capabilities throughout the Group in

preparation for upcoming market events. We will continue to

transition outstanding legacy contracts through the first half of 2023.

We have completed the transition of the majority of our uncommitted

lending facilities, and continue to make steady progress with the

transition of the outstanding legacy committed lending facilities.

Transition of our derivatives portfolio is progressing well with most

clients reliant on industry mechanisms to transition to RFRs. For the

limited number of bilateral derivatives trades where an alternative

transition path is required, client engagement is continuing. For

certain products and contracts, including bonds and syndicated loans,

we remain reliant on the continued support of agents and third

parties, but we continue to progress those contracts requiring

transition. We continue to monitor contracts that may be potentially

more challenging to transition, and may need to rely upon legislative

solutions. Additionally, following the FCA’s consultation in November

2022 proposing that US dollar Libor is to be published using a

‘synthetic’ methodology for a defined period, we will continue to work

with our clients to support them through the transition of their

products if transition is not completed by 30 June 2023.

For the Group’s own debt securities issuances, we continue to have

instruments in US dollars, sterling, Japanese yen and Singapore

dollars where the terms provide for an Ibor benchmark to be used to

reset the coupon rate if HSBC chooses not to redeem them on their

call dates. We remain mindful of the various factors that have an

impact on the Ibor remediation strategy for our regulatory capital and

MREL instruments, including – but not limited to – timescales for

cessation of relevant Ibor rates, constraints relating to the governing

law of outstanding instruments, the potential relevance of legislative

solutions and industry best practice guidance. We remain committed

to seeking to remediate or mitigate relevant risks relating to Ibor-

demise, as appropriate, on our outstanding regulatory capital and

MREL instruments before the relevant calculation dates, which may

occur post-cessation of the relevant Ibor rate or rates.

For US dollar Libor and other demising Ibors, we continue to be

exposed to, and actively monitor, risks including:

• regulatory compliance and conduct risks, as the transition of

legacy contracts to RFRs or alternative rates, or sales of products

referencing RFRs, may not deliver fair client outcomes;

• resilience and operational risks, as changes to manual and

automated processes, made in support of new RFR

methodologies, and the transition of large volumes of Ibor

contracts may lead to operational issues;

• legal risk, as issues arising from the use of legislative solutions and

from legacy contracts that the Group is unable to transition may

result in unintended or unfavourable outcomes for clients and

market participants, which could potentially increase the risk of

disputes;

• model risk, as there is a risk that changes to our models to replace

Ibor-related data adversely affect the accuracy of model outputs;

and

• market risk, because as a result of differences in Libor and RFR

interest rates, we are exposed to basis risk resulting from the

asymmetric adoption of rates across assets, liabilities and

products. Additionally the current stage of the Term Secured

Overnight Financing Rate (‘SOFR’) market presents challenges for

certain hedge accounting strategies.

While the level of risk is diminishing in line with our process

implementation and continued transition of contracts, we will monitor

these risks through the remainder of the transition of legacy

contracts. Throughout 2023, we plan to continue to engage with our

clients and investors to complete an orderly transition of contracts

that reference the remaining demising Ibors.

Mitigating actions

• Our global Ibor transition programme, which is overseen by the

Group Chief Risk and Compliance Officer, will continue to deliver

IT and operational processes to meet its objectives.

• We carry out extensive training, communication and client

engagement to facilitate appropriate selection of new rates and

products.

• We have dedicated teams in place to support the transition.

• We have actively transitioned legacy contracts and ceased

entering into new contracts based on demised or demising Ibors,

other than those allowed under regulatory exemptions, and

implemented associated monitoring and controls.

• We assess, monitor and dynamically manage risks arising from

Ibor transition, and implement specific mitigating controls when

required.

• We continue to actively engage with regulatory and industry

bodies to mitigate risks relating to ‘tough legacy’ contracts.

Financial instruments impacted by Ibor reform

(Audited)

Interest Rate Benchmark Reform Phase 2, the amendments to IFRSs

issued in August 2020, represents the second phase of the IASB’s

project on the effects of interest rate benchmark reform. The

amendments address issues affecting financial statements when

changes are made to contractual cash flows and hedging

relationships.

Under these amendments, changes made to a financial instrument

measured at other than fair value through profit or loss that are

economically equivalent and required by interest rate benchmark

reform, do not result in the derecognition or a change in the carrying

amount of the financial instrument. Instead they require the effective

interest rate to be updated to reflect the change in the interest rate

benchmark. In addition, hedge accounting will not be discontinued

solely because of the replacement of the interest rate benchmark if

the hedge meets other hedge accounting criteria.

Risk review

138 HSBC Holdings plc Annual Report and Accounts 2022

Financial instruments yet to transition to alternative

benchmarks, by main benchmark

USD Libor

GBP Libor

JPY Libor

Others

At 31 Dec 2022

Non-derivative financial assets

Loans and advances to customers 49,632 262 — 7,912

Other financial assets 4,716 42 — 1,562

Total non-derivative financial assets

54,348 304 — 9,474

Non-derivative financial liabilities

Financial liabilities designated at fair value 17,224 1,804 1,179 —

Debt securities in issue 5,352 — — —

Other financial liabilities 2,988 — — 176

Total non-derivative financial liabilities 25,564 1,804 1,179 176

Derivative notional contract amount

Foreign exchange 140,223 — — 7,337

Interest rate 2,208,189 68 — 186,952

Total derivative notional contract amount 2,348,412 68 — 194,289

Financial instruments yet to transition to alternative

benchmarks, by main benchmark

USD Libor

GBP Libor

JPY Libor

Others

At 31 Dec 2021

Non-derivative financial assets

Loans and advances to customers 70,932 18,307 370 8,259

Other financial assets 5,131 1,098 — 2

Total non-derivative financial assets

76,063 19,405 370 8,261

Non-derivative financial liabilities

Financial liabilities designated at fair value 20,219 4,019 1,399 1

Debt securities in issue 5,255 — — —

Other financial liabilities 2,998 78 — —

Total non-derivative financial liabilities 28,472 4,097 1,399 1

Derivative notional contract amount

Foreign exchange 137,188 5,157 31,470 9,652

Interest rate 2,318,613 284,898 72,229 133,667

Total derivative notional contract amount 2,455,801 290,055 103,699 143,319

1 Comprises financial instruments referencing other significant benchmark rates yet to transition to alternative benchmarks (euro Libor, Swiss franc

Libor, Eonia, SOR, THBFIX, MIFOR and Sibor). Announcements were made by regulators during 2022 on the cessation of the Canadian dollar offered

rate (‘CDOR’) and Mexican Interbank equilibrium interest rate (‘TIIE’), which will eventually transition to the Canadian overnight repo rate average

(‘CORRA’) and a new Mexican overnight fall-back rate, respectively. Therefore, CDOR and TIIE are also included in Others during the current period.

2 Gross carrying amount excluding allowances for expected credit losses.

The amounts in the above table relate to HSBC’s main operating

entities where HSBC has material exposures impacted by Ibor reform,

including in the UK, Hong Kong, France, the US, Mexico, Canada,

Singapore, the UAE, Bermuda, Australia, Qatar, Germany, Thailand,

India and Japan. The amounts provide an indication of the extent of

the Group’s exposure to the Ibor benchmarks that are due to be

replaced. Amounts are in respect of financial instruments that:

• contractually reference an interest rate benchmark that is planned

to transition to an alternative benchmark;

• have a contractual maturity date beyond the date by which the

reference interest rate benchmark is expected to cease; and

• are recognised on HSBC’s consolidated balance sheet.

Environmental, social and governance

(’ESG’) risk

We are subject to financial and non-financial risks associated with

ESG-related matters. Our current areas of focus include climate risk,

nature-related risks and human rights risks. These can impact us both

directly and indirectly through our business activities and

relationships. For details of how we govern ESG, see page 86.

Our assessment of climate risks covers three distinct time periods,

comprising: short term, which is up to 2025; medium term, which is

between 2026 and 2035; and long term, which is between 2036 and

2050. Focus on climate-related risk continued to increase over 2022,

owing to the pace and volume of policy and regulatory changes

globally, particularly on climate risk management, stress testing and

scenario analysis and disclosures. If we fail to meet evolving

regulatory expectations or requirements on climate risk management,

this could have regulatory compliance and reputational impacts.

We could face direct impacts, owing to the increase in frequency and

severity of weather events and chronic shifts in weather patterns,

which could affect our ability to conduct our day-to-day operations.

Our customers may find that their business models fail to align to a

net zero economy or face disruption to their operations or

deterioration to their assets as a result of extreme weather.

We face increased reputational, legal and regulatory risk as we make

progress towards our net zero ambition, with stakeholders likely to

place greater focus on our actions such as the development of

climate-related policies, our disclosures and financing and investment

decisions relating to our ambition.

We will face additional risks if we are perceived to mislead

stakeholders in respect of our climate strategy, the climate impact of

a product or service, or the commitments of our customers. Climate

risk may also impact on model risk, as the uncertain impacts of

climate change and data and methodology limitations present

challenges to creating reliable and accurate model outputs.

We also face reporting risk in relation to our climate disclosures, as

any data, methodologies and standards we have used may evolve

over time in line with market practice, regulation or owing to

developments in climate science. While emissions reporting has

improved over time, data remains of limited quality and consistency.

The use of inconsistent or incomplete data and models could result in

sub-optimal decision making. Any changes could result in revisions to

our internal frameworks and reported data, and could mean that

HSBC Holdings plc Annual Report and Accounts 2022 139

Risk review

reported figures are not reconcilable or comparable year on year. We

may also have to re-evaluate our progress towards our climate-related

targets in future and this could result in reputational, legal and

regulatory risks.

There is increasing evidence that a number of nature-related risks

beyond climate change, which include risks that can be represented

more broadly by impact and dependence on nature, can and will have

significant economic impact. These risks arise when the provision of

natural services – such as water availability, air quality and soil quality

– is compromised by overpopulation, urban development, natural

habitat and ecosystem loss, ecosystem degradation arising from

economic activity and other environmental stresses beyond climate

change. They can show themselves in various ways, including

through macroeconomic, market, credit, reputational, legal and

regulatory risks, for both HSBC and our customers. We continue to

engage with investors, regulators and customers on nature-related

risks to evolve our approach and understand best practice risk

mitigation.

Regulation and disclosure requirements in relation to human rights,

and to modern slavery in particular, are increasing. Businesses are

expected to be transparent about their efforts to identify and respond

to the risk of negative human rights impacts arising from their

business activities and relationships.

Mitigating actions

• We aim to deepen our understanding of the drivers of climate risk.

A dedicated Climate Risk Oversight Forum is responsible for

shaping and overseeing our approach and providing support in

managing climate risk. For further details of the Group’s ESG

governance structure, see page 86.

• Our climate risk programme continues to support the development

of our climate risk management capabilities across four key pillars:

governance and risk appetite, risk management, stress testing and

scenario analysis, and disclosures. We also aim to enhance our

approach to greenwashing risk management.

• In December 2022, we published our updated policy covering the

broader energy system including upstream oil and gas, oil and gas

power generation, coal, hydrogen, renewables and hydropower,

nuclear, biomass and energy from waste. We also expanded our

thermal coal phase-out policy, in which we committed to not

provide new finance or advisory services for the specific purposes

of the conversion of existing coal-to-gas fired power plants, or new

metallurgical coal mines (see page65).

• Climate stress tests and scenarios are being used to further

improve our understanding of our risk exposures for use in risk

management and business decision making.

• In 2022, we reviewed our salient human rights issues following

the methodology set out in the UNGPs. These are the human

rights at risk of the most severe potential negative impact through

our business activities and relationships. This review built on an

earlier review that had identified modern slavery and discrimination

as priority human rights issues. For further details, see page 87 of

the ESG review.

• In 2021, we joined several industry working groups dedicated to

helping us assess and manage nature-related risks, such as the

Taskforce on Nature-related Financial Disclosures (‘TNFD’). In 2022

our asset management business published its biodiversity policy to

publicly explain how our analysts address nature-related issues.

• We continue to engage with our customers, investors and

regulators proactively on the management of ESG risks. We also

engage with initiatives, including the Climate Financial Risk Forum,

Equator Principles, Task Force on Climate-related Financial

Disclosures and CDP (formerly the Carbon Disclosure Project) to

help drive best practice for climate risk management.

For further details of our approach to climate risk management, see

‘Climate risk’ on page 221.

For further details of ESG risk management, see ‘Financial crime risk‘

on page 231 and ‘Regulatory compliance risk environment including

conduct’ on page 225.

Our ESG review can be found on page 44.

Digitalisation and technological advances

risk

Developments in technology and changes to regulations are enabling

new entrants to the industry, particularly with respect to payments.

This challenges us to continue innovating and taking advantage of

new digital capabilities so that we improve how we serve our

customers, drive efficiency and adapt our products to attract and

retain customers. As a result, we may need to increase our

investment in our business to adapt or develop products and services

to respond to our customers’ evolving needs. We also need to ensure

that new digital capabilities do not weaken our resilience or wider risk

management capabilities.

New technologies such as blockchain and quantum computing offer

both business opportunities and potential risks for HSBC. As with all

use of technologies, we aim to maximise their potential while seeking

to ensure a robust control environment is in place to help manage the

inherent risks, such as the impact on encryption algorithms.

Mitigating actions:

• We continue to monitor this emerging risk, as well as the

advances in technology, and changes in customer behaviours to

understand how these may impact our business.

• We assess new technologies to help develop appropriate controls

and maintain resilience.

• We closely monitor and assess financial crime risk and the impact

on payment transparency and architecture.

Internally driven

Risks associated with workforce capability,

capacity and environmental factors with

potential impact on growth

Our global businesses and functions in all of our markets are exposed

to risks associated with workforce capacity challenges, including

challenges to retain, develop and attract high-performing employees

in key labour markets, and compliance with employment laws and

regulations. Changed working arrangements, and the residual impact

of local Covid-19-related restrictions and health concerns during the

pandemic, have also affected employee mental health and well-being.

Mitigating actions

• We seek to promote a diverse and inclusive workforce and provide

health and well-being support. We continue to build our speak-up

culture through active campaigns.

• We monitor hiring activities and levels of employee attrition, with

each business and function putting in place plans to help ensure

they have effective workforce forecasting to meet business

demands.

• We monitor people risks that could arise due to organisational

restructuring, helping to ensure we manage redundancies

sensitively and support impacted employees. We encourage our

people leaders to focus on talent retention at all levels, with an

empathetic mindset and approach, while ensuring the whole

proposition of working at HSBC is well understood.

• Our Future Skills curriculum helps provides skills that will help to

enable employees and HSBC to be successful in the future.

• We develop succession plans for key management roles, with

oversight from the Group Executive Committee.

Risk review

140 HSBC Holdings plc Annual Report and Accounts 2022

Risks arising from the receipt of services

from thirdparties

We use third parties to provide a range of goods and services. Risks

arising from the use of third-party providers and their supply chain

may be harder to identify. It is critical that we ensure we have

appropriate risk management policies, processes and practices over

the selection, governance and oversight of third parties and their

supply chain, particularly for key activities that could affect our

operational resilience. Any deficiency in the management of risks

associated with our third parties could affect our ability to support our

customers and meet regulatory expectations.

Mitigating actions

• We continue to monitor the effectiveness of the controls operated

by our third-party providers and request third-party control reports,

where required. We have made further enhancements to our

framework to help ensure risks associated with these

arrangements are understood and managed effectively by our

global businesses, global functions and regions.

• We continue to enhance the effective management of our intra-

Group arrangements using the same control standards as we have

for external third-party arrangements.

• We are implementing the changes required by new regulations as

set by our regulators.

Model risk

Model risk arises whenever business decision making includes

reliance on models. We use models in both financial and non-financial

contexts, as well as in a range of business applications such as

customer selection, product pricing, financial crime transaction

monitoring, creditworthiness evaluation and financial reporting.

Assessing model performance is a continuous undertaking. Models

can need redevelopment as market conditions change. Significant

increases in global inflation and interest rates have impacted the

reliability and accuracy of both credit and market risk models.

We continued to prioritise the redevelopment of internal ratings-based

(‘IRB’) and internal model methods (‘IMM’) models, in relation to

counterparty credit, as part of the IRB repair and Basel III programmes

with a key focus on enhancing the quality of data used as model

inputs. A number of these models have been submitted to the UK’s

Prudential Regulation Authority (‘PRA’) and other key regulators for

feedback, and approval is in progress. Some IMM and internal model

approach (‘IMA’) models have been approved for use, and feedback

has been received for some IRB models. Climate risk modelling is a

key focus for the Group as HSBC’s commitment to ESG has become

a key part of the Group’s strategy.

Model risk remains a key area of focus given the regulatory scrutiny in

this area, with local regulatory exams taking place in many

jurisdictions and further developments in policy expected from many

regulators, including the PRA.

Mitigating actions

• We have continued to embed the enhanced monitoring, review

and challenge of expected credit loss model performance through

our Model Risk Management function as part of a broader

quarterly process to determine loss levels. The Model Risk

Management team aims to provide effective review and challenge

of any future redevelopment of these models.

• Model Risk Governance committees at the Group, business and

functional levels continue to provide oversight of model risk.

• Model Risk Management works closely with businesses to ensure

that IRB/IMM/IMA models in development meet risk

management, pricing and capital management needs. Global

Internal Audit provides assurance over the risk management

framework for models.

• Additional assurance work is performed by the model risk

governance teams, which act as second lines of defence. The

teams test whether controls implemented by model users comply

with model risk policy and if model risk standards are adequate.

• Models using advanced machine learning techniques are validated

and monitored to help ensure that risks that are determined by the

algorithms have adequate oversight and review. A framework to

manage the range of risks that are generated by these advanced

techniques, and to recognise the multidisciplinary nature of these

risks, is being developed.

Data risk

We use multiple systems and growing quantities of data to support

our customers. Risk arises if data is incorrect, unavailable, misused, or

unprotected. Along with other banks and financial institutions, we

need to meet external regulatory obligations and laws that cover data,

such as the Basel Committee on Banking Supervision’s 239

guidelines and the General Data Protection Regulation (‘GDPR’).

Mitigating actions

• Through our global data management framework, we monitor the

quality, availability and security of data that supports our

customers and internal processes. We work towards resolving any

identified data issues in a timely manner.

• We have made improvements to our data policies. We are

implementing an updated control framework (which includes

trusted sources, data flows and data quality) in order to enhance

the end-to-end management of data risk.

• We have established a global data management utility, and

continue to simplify and unify data management activities across

the Group.

• We seek to protect customer data through our data privacy

framework, which establishes practices, design principles and

guidelines that enable us to demonstrate compliance with data

privacy laws and regulations.

• We continue to modernise our data and analytics infrastructure

through investments in Cloud technology, data visualisation,

machine learning and artificial intelligence.

• We continue to educate our employees on data risk and data

management. We have delivered regular mandatory training

globally on how to protect and manage data appropriately.

Change execution risk

We have continued investment in strategic change to support the

delivery of our strategic priorities and regulatory commitments. This

requires change to be executed safely and efficiently.

Mitigating actions

• In 2022, we added change execution risk to our risk taxonomy and

control library, so that it could be defined, assessed, managed,

reported and overseen in the same way as our other material risks.

• The Transformation Oversight Executive Committee oversees the

prioritisation, strategic alignment and management of execution

risk for all change portfolios and initiatives.

HSBC Holdings plc Annual Report and Accounts 2022 141

Risk review

Areas of special interest

During 2022, a number of areas were identified and considered as

part of our top and emerging risks because of the effect they may

have on the Group. While considered under the themes captured

under top and emerging risks, in this section we have placed a

particular focus on the Covid-19 pandemic.

Risks related to Covid-19

The impact from the Covid-19 pandemic remains a continuing risk to

our customers and organisation. However, the appetite for public

health restrictions has reduced following the successful roll-out of

vaccine programmes, and as societies have adapted. Countries

continue to differ in their approach, although China has recently

reversed restrictions on activity and mobility.

In most countries, high vaccination rates and acquired population

immunity have minimised the public health risks and the need for

restrictions. However, in mainland China and Hong Kong, adherence

to public health restrictions had adverse economic implications

throughout much of 2022. Government-imposed restrictions on

activity in major Chinese cities, and restrictions on travel, adversely

affected global tourism and supply chains.

While the recovery in China resulting from the relaxation of Covid-19

related restrictions on movement, international travel and tourism in

China that commenced in December 2022, raises the prospect of

global growth, it could also lead to renewed inflationary pressures as

demand for commodities and other goods rises. However, there are

still short-term risks, as any surge in Covid-19 infections in China may

dampen confidence and activity, and lead to the emergence of new

vaccine-resistant variants of the virus.

We continue to monitor the situation closely, and given the continuing

uncertainties related to the post-pandemic landscape, additional

mitigating actions may be required.

Our material banking risks

The material risk types associated with our banking and insurance manufacturing operations are described in the following tables:

Credit risk (see page 145)

Credit risk is the risk of

financial loss if a customer or

counterparty fails to meet an

obligation under a contract.

Credit risk arises principally from

direct lending, trade finance and

leasing business, but also from

other products such as guarantees

and derivatives.

Credit risk is:

• measured as the amount that could be lost if a customer or counterparty fails

to make repayments;

• monitored using various internal risk management measures and within limits

approved by individuals within a framework of delegated authorities; and

• managed through a robust risk control framework, which outlines clear

andconsistent policies, principles and guidance for risk managers.

Treasury risk (see page 202)

Treasury risk is the risk of

having insufficient capital,

liquidity or funding resources to

meet financial obligations and

satisfy regulatory

requirements, including the risk

of adverse impact on earnings

or capital due to structural and

transactional foreign exchange

exposures and changes in

market interest rates, together

with pension and insurance

risk.

Treasury risk arises from changes

to the respective resources and risk

profiles driven by customer

behaviour, management decisions

or the external environment.

Treasury risk is:

• measured through risk appetite and more granular limits, set to provide an

early warning of increasing risk, minimum ratios of relevant regulatory

metrics, and metrics to monitor the key risk drivers impacting treasury

resources;

• monitored and projected against appetites and by using operating plans based

on strategic objectives together with stress and scenario testing; and

• managed through control of resources in conjunction with risk profiles,

strategic objectives and cash flows.

Market risk (see page 218)

Market risk is the risk of an

adverse financial impact on

trading activities arising from

changes in market parameters

such as interest rates, foreign

exchange rates, asset prices,

volatilities, correlations and

credit spreads.

Exposure to market risk is

separated into two portfolios:

trading portfolios and non-trading

portfolios.

Market risk for non-trading

portfolios is discussed in the

Treasury risk section on page 214.

Market risk exposures arising from

our insurance operations are

discussed on page237.

Market risk is:

• measured using sensitivities, value at risk and stress testing, giving a detailed

picture of potential gains and losses for a range of market movements and

scenarios, as well as tail risks over specified time horizons;

• monitored using value at risk, stress testing and other measures; and

• managed using risk limits approved by the Group Risk Management Meeting

and the risk management meetings in various global businesses.

Description of risks – banking operations

Risks Arising from Measurement, monitoring and managementof risk

Risk review

142 HSBC Holdings plc Annual Report and Accounts 2022

Climate risk (see page 221)

Climate risk relates to the

financial and non-financial

impacts that may arise as a

result of climate change and

the move to a greener

economy.

Climate risk can materialise

through:

• physical risk, which arises from

the increased frequency and

severity of weather events;

• transition risk, which arises from

the process of moving to a low-

carbon economy; and

• greenwashing risk, which arises

from the act of knowingly or

unknowingly misleading

stakeholders regarding our

strategy relating to climate, the

climate impact/benefits of a

product or service, or the climate

commitments or performance of

our customers.

Climate risk is:

• measured using a variety of risk appetite metrics and key management

indicators, which assess the impact of climate risk across the risk taxonomy;

• monitored using stress testing; and

• managed through adherence to risk appetite thresholds and via specific

policies.

Resilience risk (see page 230)

Resilience risk is the risk of

sustained and significant

business disruption from

execution, delivery, physical

security or safety events,

causing the inability to provide

critical services to our

customers, affiliates, and

counterparties.

Resilience risk arises from failures

or inadequacies in processes,

people, systems or external events.

Resilience risk is:

• measured using a range of metrics with defined maximum acceptable impact

tolerances, and against our agreed risk appetite;

• monitored through oversight of enterprise processes, risks, controls and

strategic change programmes; and

• managed by continual monitoring and thematic reviews.

Regulatory compliance risk (see page 231)

Regulatory compliance risk is

the risk associated with

breaching our duty to clients

and other counterparties,

inappropriate market conduct

and breaching related financial

services regulatory standards.

Regulatory compliance risk arises

from the failure to observe relevant

laws, codes, rules and regulations

and can manifest itself in poor

market or customer outcomes and

lead to fines, penalties and

reputational damage to our

business.

Regulatory compliance risk is:

• measured by reference to risk appetite, identified metrics, incident

assessments, regulatory feedback and the judgement and assessment of our

regulatory compliance teams;

• monitored against the first line of defence risk and control assessments, the

results of the monitoring and control assurance activities of the second line of

defence functions, and the results of internal andexternal audits and

regulatory inspections; and

• managed by establishing and communicating appropriate policies and

procedures, training employees in them and monitoring activity to help ensure

their observance. Proactive risk control and/or remediation work is undertaken

where required.

Financial crime risk (see page 231)

Financial crime risk is the risk

that HSBC’s products and

services will be exploited for

criminal activity. This includes

fraud, bribery and corruption,

tax evasion, sanctions and

export control violations,

money laundering, terrorist

financing and proliferation

financing.

Financial crime risk arises from day-

to-day banking operations involving

customers, third parties and

employees.

Financial crime risk is:

• measured by reference to risk appetite, identified metrics, incident

assessments, regulatory feedback and the judgement of, and assessment by,

our compliance teams;

• monitored against the first line of defence risk and control assessments, the

results of the monitoring and control assurance activities of the second line of

defence functions, and the results of internal and external audits and

regulatory inspections; and

• managed by establishing and communicating appropriate policies and

procedures, training employees in them and monitoring activity to help ensure

their observance. Proactive risk control and/or remediation work is undertaken

where required.

Model risk (see page 232)

Model risk is the risk of

inappropriate or incorrect

business decisions arising from

the use of models that have

been inadequately designed,

implemented or used, or from

models that do not perform in

line with expectations and

predictions.

Model risk arises in both financial

and non-financial contexts

whenever business decision

making includes reliance on

models.

Model risk is:

• measured by reference to model performance tracking and the output of

detailed technical reviews, with key metrics including model review statuses

and findings;

• monitored against model risk appetite statements, insight from the

independent review function, feedback from internal and external audits, and

regulatory reviews; and

• managed by creating and communicating appropriate policies, procedures and

guidance, training colleagues in their application, and supervising their

adoption to ensure operational effectiveness.

Description of risks – banking operations (continued)

Risks Arising from Measurement, monitoring and managementof risk

HSBC Holdings plc Annual Report and Accounts 2022 143

Risk review

Our insurance manufacturing subsidiaries are regulated separately

from our banking operations. Risks in our insurance entities are

managed using methodologies and processes that are subject to

Group oversight. Our insurance operations are also subject to many of

the same risks as our banking operations, and these are covered by

the Group’s risk management processes. However, there are specific

risks inherent to the insurance operations as noted below.

Financial risk (see page 237)

For insurance entities, financial risk

includes the risk of not being able

to effectively match liabilities

arising under insurance contracts

with appropriate investments and

that the expected sharing of

financial performance with

policyholders under certain

contracts is not possible.

Exposure to financial risk

arises from:

• market risk affecting the fair

values of financial assets or

their future cash flows;

• credit risk; and

• liquidity risk of entities

being unable to

makepayments to

policyholders as they

falldue.

Financial risk is:

• measured for credit risk, in terms of economic capital and the amount that could

be lost if a counterparty fails to make repayments; for market risk, in terms of

economic capital, internal metrics and fluctuations in key financial variables; and

for liquidity risk, in terms of internal metrics including stressed operational cash

flow projections;

• monitored through a framework of approved limits and delegated authorities;

and

• managed through a robust risk control framework, which outlines clear and

consistent policies, principles and guidance. This includes using product design,

asset liability matching and bonus rates.

Insurance risk (see page 238)

Insurance risk is the risk that, over

time, the cost of insurance policies

written, including claims and

benefits, may exceed the total

amount of premiums and

investment income received.

The cost of claims and

benefits can be influenced

bymany factors, including

mortality and morbidity

experience, as well as lapse

and surrender rates.

Insurance risk is:

• measured in terms of life insurance liabilities and economic capital allocated to

insurance underwriting risk;

• monitored through a framework of approved limits and delegated authorities;

and

• managed through a robust risk control framework, which outlines clear and

consistent policies, principles and guidance. This includes using product design,

underwriting, reinsurance and claims-handling procedures.

Description of risks – insurance manufacturing operations

Risks Arising from Measurement, monitoring and managementof risk

Risk review

144 HSBC Holdings plc Annual Report and Accounts 2022

Credit risk

Contents

145 Overview

145 Credit risk management

147 Credit risk in 2022

148 Summary of credit risk

151 Stage 2 decomposition as at December 2022

152 Credit exposure

153 Measurement uncertainty and sensitivity analysis of ECL

162 Reconciliation of changes in gross carrying/nominal amount and

allowances for loans and advances to banks and customers

including loan commitments and financial guarantees

165 Credit quality

170 Wholesale lending

187 Personal lending

196 Supplementary information

201 HSBC Holdings

Overview

Credit risk is the risk of financial loss if a customer or counterparty

fails to meet an obligation under a contract. Credit risk arises

principally from direct lending, trade finance and leasing business, but

also from other products such as guarantees and derivatives.

Credit risk management

Key developments in 2022

There were no material changes to the policies and practices forthe

management of credit risk in 2022. We continued to apply the

requirements of IFRS 9 ‘Financial Instruments’ within the Credit Risk

sub-function. For certain retail portfolios, we enhanced the significant

increase in credit risk (‘SICR’) approach in relation to capturing relative

movements in probability of default (‘PD’) since origination.

For our retail portfolios, we adopted the EBA ‘Guidelines on the

application of definition of default’ during 2022 and, for our wholesale

portfolios, these guidelines were adopted during 2021. Adoption of

these guidelines did not have a material impact on our portfolios and

comparative disclosures have not been restated.

We actively managed the risks related to macroeconomic

uncertainties, including inflation, fiscal and monetary policy, the

Russia-Ukraine war, broader geopolitical uncertainties, and the

continued risks resulting from the Covid-19 pandemic.

For further details, see ‘Top and emerging risks’ on page 135.

Governance and structure

We have established Group-wide credit risk management and related

IFRS 9 processes. We continue to assess the impact of economic

developments in key markets on specific customers, customer

segments or portfolios. As credit conditions change, we take

mitigating actions, including the revision of risk appetites or limits and

tenors, as appropriate. In addition, we continue to evaluate the terms

under which we provide credit facilities within the context of

individual customer requirements, the quality of the relationship, local

regulatory requirements, market practices and our local market

position.

Credit Risk sub-function

(Audited)

Credit approval authorities are delegated by the Board to the Group

Chief Executive together with the authority to sub-delegate them. The

Credit Risk sub-function in Group Risk and Compliance is responsible

for the key policies and processes for managing credit risk, which

include formulating Group credit policies and risk rating frameworks,

guiding the Group’s appetite for credit risk exposures, undertaking

independent reviews and objective assessment of credit risk, and

monitoring performance and management of portfolios.

The principal objectives of our credit risk management are:

• to maintain across HSBC a strong culture of responsible lending,

and robust risk policies and control frameworks;

• to both partner and challenge our businesses in defining,

implementing and continually re-evaluating our risk appetite under

actual and scenario conditions; and

• to ensure there is independent, expert scrutiny of credit risks, their

costs and their mitigation.

Key risk management processes

IFRS 9 ‘Financial Instruments’ process

The IFRS 9 process comprises three main areas: modelling and data;

implementation; and governance.

Modelling, data and forward economic guidance

We have established IFRS 9 modelling and data processes in various

geographies, which are subject to internal model risk governance

including independent review of significant model developments.

We have a centralised process for generating unbiased and

independent global economic scenarios. Scenarios are subject to a

process of review and challenge by a dedicated team, as well as

regional groupings. Each quarter, the scenarios and probability

weights are reviewed and checked for consistency with the economic

conjuncture and current economic and financial risks. These are

subject to final review and approval by senior management in a

Forward Economic Guidance Global Business Impairment Committee.

Implementation

A centralised impairment engine performs the expected credit losses

calculation using data, which is subject to a number of validation

checks and enhancements, from a variety of client, finance and risk

systems. Where possible, these checks and processes are performed

in a globally consistent and centralised manner.

Governance

Regional management review forums are established in key sites and

regions in order to review and approve the impairment results.

Regional management review forums have representatives from

Credit Risk and Finance. The key site and regional approvals are

reported up to the relevant global business impairment committee for

final approval of the Group’s ECL for the period. Required members of

the committee are the Wholesale Global Chief Corporate Credit

Officer and Chief Risk Officer for Wealth and Personal Banking Risk,

as well as the relevant global business Chief Financial Officer and the

Global Financial Controller.

Concentration of exposure

(Audited)

Concentrations of credit risk arise when a number of counterparties or

exposures have comparable economic characteristics, or such

counterparties are engaged in similar activities or operate in the same

geographical areas or industry sectors so that their collective ability to

meet contractual obligations is uniformly affected by changes in

economic, political or other conditions. We use a number of controls

andmeasures to minimise undue concentration of exposure inour

portfolios across industries, countries and global businesses. These

include portfolio and counterparty limits, approval and review controls,

and stress testing.

Credit quality of financial instruments

(Audited)

Our risk rating system facilitates the internal ratings-based approach

under the Basel framework adopted by the Group to support the

calculation of our minimum credit regulatory capital requirement. The

five credit quality classifications encompass a range of granular

internal credit rating grades assigned to wholesale and retail

HSBC Holdings plc Annual Report and Accounts 2022 145

Risk review

customers, and the external ratings attributed by external agencies to

debt securities.

For debt securities and certain other financial instruments, external

ratings have been aligned to the five quality classifications based upon

the mapping of related customer risk rating (‘CRR’) to external credit

rating.

Wholesale lending

The CRR 10-grade scale summarises a more granular underlying 23-

grade scale of obligor probability of default (‘PD’). All corporate

customers are rated using the 10- or 23-grade scale, depending on

the degree of sophistication of the Basel approach adopted for the

exposure.

Each CRR band is associated with an external rating grade by

reference to long-run default rates for that grade, represented by the

average of issuer-weighted historical default rates. This mapping

between internal and external ratings is indicative and may vary over

time.

Retail lending

Retail lending credit quality is based on a 12-month point-in-time

probability-weighted PD.

Credit quality classification

Sovereign debt

securities

and bills

Other debt

securities

and bills

Wholesale lending

and derivatives Retail lending

External credit

rating

External credit

rating

Internal credit

rating

12-month

Basel

probability of

default %

Internal credit

rating

12 month

probability-

weighted PD %

Quality classification

1,2

Strong BBB and above A- and above CRR 1 to CRR 2 0–0.169 Band 1 and 2 0.000–0.500

Good BBB- to BB BBB+ to BBB- CRR 3 0.170–0.740 Band 3 0.501–1.500

Satisfactory

BB- to B and

unrated

BB+ to B and

unrated

CRR 4 to CRR 5 0.741–4.914 Band 4 and 5 1.501–20.000

Sub-standard B- to C B- to C CRR 6 to CRR 8 4.915–99.999 Band 6 20.001–99.999

Credit impaired Default Default CRR 9 to CRR 10 100 Band 7 100

1 Customer risk rating (‘CRR’).

2 12-month point-in-time probability-weighted probability of default (‘PD’).

Quality classification definitions

• ‘Strong’ exposures demonstrate a strong capacity to meet financial commitments, with negligible or low probability of default and/or low levels of

expected loss.

• ‘Good’ exposures require closer monitoring and demonstrate a good capacity to meet financial commitments, with low default risk.

• ‘Satisfactory’ exposures require closer monitoring and demonstrate an average-to-fair capacity to meet financial commitments, with moderate default

risk.

• ‘Sub-standard’ exposures require varying degrees of special attention and default risk is of greater concern.

• ‘Credit-impaired’ exposures have been assessed as described on Note 1.2(i) on the financial statements.

Forborne loans and advances

(Audited)

Forbearance measures consist of concessions towards an obligor that

is experiencing or about to experience difficulties in meeting its

financial commitments.

We continue to class loans as forborne when we modify the

contractual payment terms due to having significant concerns about

the borrowers’ ability to meet contractual payments when they were

due.

In 2022, we expanded our definition of forborne to capture non-

payment-related concessions, such as covenant waivers. For our

wholesale portfolio, we began identifying non-payment-related

concessions in 2021 when our internal policies were changed. For our

retail portfolios, we began identifying them during 2022.

The comparative disclosures have been presented under the prior

definition of forborne for the wholesale and retail portfolios.

For details of our policy on forbearance, see Note 1.2(i) in the financial

statements.

Credit quality of forborne loans

For wholesale lending, where payment-related forbearance measures

result in a diminished financial obligation, or if there are other

indicators of impairment, the loan will be classified as credit impaired

if it is not already so classified. All facilities with a customer, including

loans that have not been modified, are considered credit impaired

following the identification of a payment-related forborne loan. For

retail lending, where a material payment-related concession has been

granted, the loan will be classified as credit impaired. In isolation, non-

payment forbearance measures may not result in the loan being

classified as credit impaired unless combined with other indicators of

credit impairment. These are classed as performing forborne loans for

both wholesale and retail lending.

Wholesale and retail lending forborne loans are classified as credit

impaired until there is sufficient evidence to demonstrate a significant

reduction in the risk of non-payment of future cash flows, observed

over a minimum one-year period, and there are no other indicators of

impairment. Any forborne loans not considered credit impaired will

remain forborne for a minimum of two years from the date that credit

impairment no longer applies. For wholesale and retail lending, any

forbearance measures granted on a loan already classed as forborne

results in the customer being classed as credit impaired.

Forborne loans and recognition of expected credit losses

(Audited)

Forborne loans expected credit loss assessments reflect the higher

rates of losses typically experienced with these types of loans such

that they are in stage 2 and stage 3. The higher rates are more

pronounced in unsecured retail lending requiring further

segmentation. For wholesale lending, forborne loans are typically

assessed individually. Credit risk ratings are intrinsic to the

impairment assessments. The individual impairment assessment

takes into account the higher risk of the future non-payment inherent

in forborne loans.

Risk review

146 HSBC Holdings plc Annual Report and Accounts 2022

Impairment assessment

(Audited)

For details of our impairment policies on loans and advances and

financial investments, see Note 1.2(i) on the financial statements.

Write-off of loans and advances

(Audited)

For details of our policy on the write-off of loans and advances, see

Note 1.2(i) on the financial statements.

Unsecured personal facilities, including credit cards, are generally

written off at between 150 and 210 days past due. Thestandard

period runs until the end of the month in which the account becomes

180 days contractually delinquent. However, in exceptional

circumstances to achieve a fair customer outcome, and in line with

regulatory expectations, they may be extended further.

For secured facilities, write-off should occur upon repossession of

collateral, receipt of proceeds via settlement, or determination that

recovery of the collateral will not be pursued.

Any secured assets maintained on the balance sheet beyond

60months of consecutive delinquency-driven default require

additional monitoring and review to assess the prospect of recovery.

There are exceptions in a few countries and territories where local

regulation or legislation constrains earlier write-off, or where the

realisation of collateral for secured real estate lending takes more

time. Write-off, either partially or in full, may be earlier when there is

no reasonable expectation of further recovery, for example, in the

event of a bankruptcy or equivalent legal proceedings. Collection

procedures may continue after write-off.

Credit risk in 2022

At 31 December 2022, gross loans and advances to customers and

banks of $1,041bn decreased by $99.1bn, compared with

31December 2021. This included adverse foreign exchange

movements of $59.2bn and an $81.2bn decrease due to a

reclassification of businesses to assets held for sale, including our

banking business in Canada and our retail banking operations in

France.

Excluding foreign exchange movements, the underlying decrease of

$39.9bn was driven by a $36.1bn decrease in personal loans and

advances to customers and by a $29.9bn decrease in wholesale loans

and advances to customers. These were partly offset by a $25.9bn

increase in loans and advances to banks.

The underlying decrease in personal loans and advances to customers

was driven by the $50.1bn reclassification of businesses to assets

held for sale, and by a decrease in other personal lending, mainly in

Hong Kong (down $1.5bn). This was offset by mortgage growth of

$15.4bn, mainly in the UK (up $8.9bn), Hong Kong (up $3.4bn) and

Australia (up $1.6bn).

The underlying increase in loans and advances to banks was driven by

growth in the UK (up $10.6bn), Hong Kong (up $7.9bn) and Egypt (up

$1.9bn), driven mainly by higher central bank placements.

At 31 December 2022, the allowance for ECL of $12.6bn increased by

$0.5bn compared with 31 December 2021, including favourable

foreign exchange movements of $0.6bn and the effect of

reclassifications to assets held for sale of $0.4bn. The $12.6bn

allowance comprised $12.1bn in respect of assets held at amortised

cost, $0.4bn in respect of loan commitments and financial

guarantees, and $0.1bn in respect of debt instruments measured at

fair value through other comprehensive income (‘FVOCI’).

Excluding foreign exchange movements, the allowance for ECL in

relation to loans and advances to customers increased by $0.6bn from

31 December 2021. This was attributable to:

• a $0.7bn increase in wholesale loans and advances to customers,

of which $0.7bn was driven by stage 3; and

• a $0.1bn decrease in personal loans and advances to customers,

of which $0.4bn was driven by stage 3, partly offset by an increase

of $0.3bn in stages 1 and 2.

Stage 3 balances at 31 December 2022 increased by $1.9bn from

31December 2021. This was driven by a $3.2bn increase in

wholesale loans and advances to customers, mainly in corporate real

estate portfolios in Hong Kong. This was partly offset by a decrease

of $1.3bn in personal loans and advances to customers.

At 31 December 2022, for certain retail lending portfolios, we

introduced enhancements in the significant increase in credit risk

(‘SICR’) approach in relation to capturing relative movements in

probability of default (‘PD’). The enhanced approach captured relative

movements in PD since origination, which resulted in a significant

migration to stage 2 from loans to customers gross carrying amounts

in stage 1.

The volume of stage 1 customer accounts with lower absolute levels

of credit risk who have exhibited some amount of relative increase in

PD since origination have migrated into stage 2, and accounts

originated with higher absolute levels of credit risk with no or

insignificant increases in PD since origination have been transferred to

stage 1, with no material overall change in risk.

The impact on ECL is immaterial due to the offsetting ECL impacts of

stage migrations and due to the low loan-to-value (‘LTV‘) profiles. This

is particularly applicable to UK customers.

The enhancement of the SICR approach constitutes an improvement

towards more responsive models that better reflect the SICR since

origination. This includes consideration of the current cost of living

pressures, as markets adjust to the higher interest-rate environment.

In wholesale lending, China’s commercial real estate sector continued

to deteriorate in 2022, resulting in further stage 2 allowances on

downgrades and new and additional stage 3 charges.

The ECL charge for 2022 was $3.6bn, inclusive of recoveries. This

was driven by higher ECL charges relating to increasing inflationary

pressures, rising interest rates, China commercial real estate

exposures and economic uncertainty, partly offset by a release in

Covid-19-related allowances at the beginning of the year.

The ECL charge comprised: $2.4bn in respect of wholesale lending, of

which $1.7bn were in stage 3 and purchased or originated credit

impaired (‘POCI‘); $1.1bn in respect of personal lending, of which

$0.5bn were in stage 3; and $0.1bn in respect of debt instruments

measured at FVOCI.

Income statement movements are analysed further on page 101.

While credit risk arises across most of our balance sheet, ECL have

typically been recognised on loans and advances to customers and

banks, in addition to securitisation exposures and other structured

products. As a result, our disclosures focus primarily on these two

areas. For further details of:

• maximum exposure to credit risk, see page 153;

• measurement uncertainty and sensitivity analysis of ECL

estimates, see page 153;

• reconciliation of changes in gross carrying/nominal amount and

allowances for loans and advances to banks and customers

including loan commitments and financial guarantees, see

page162;

• credit quality, see page 165;

• total wholesale lending for loans and advances to banks and

customers by stage distribution, see page 171;

• wholesale lending collateral, see page 180;

• total personal lending for loans and advances to customers at

amortised cost by stage distribution, see page 188; and

• personal lending collateral, see page 193.

HSBC Holdings plc Annual Report and Accounts 2022 147

Risk review

Summary of credit risk

The following disclosure presents the gross carrying/nominal amount of financial instruments to which the impairment requirements in IFRS 9

are applied and the associated allowance for ECL.

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied

(Audited)

31 Dec 2022

At 31 Dec 2021

Gross carrying/

nominal amount

Allowance for

ECL

Gross carrying/

nominal amount

Allowance for

ECL

Loans and advances to customers at amortised cost 936,307 (11,453) 1,057,231 (11,417)

– personal 415,012 (2,872) 478,337 (3,103)

– corporate and commercial 454,356 (8,324) 513,539 (8,204)

– non-bank financial institutions 66,939 (257) 65,355 (110)

Loans and advances to banks at amortised cost 104,951 (69) 83,153 (17)

Other financial assets measured at amortised cost 1,014,498 (553) 880,351 (193)

– cash and balances at central banks 327,005 (3) 403,022 (4)

– items in the course of collection from other banks 7,297 — 4,136 —

– Hong Kong Government certificates of indebtedness 43,787 — 42,578 —

– reverse repurchase agreements – non-trading 253,754 — 241,648 —

– financial investments 168,827 (80) 97,364 (62)

– assets held for sale

102,556 (415) 2,859 (43)

– prepayments, accrued income and other assets

111,272 (55) 88,744 (84)

Total gross carrying amount on-balance sheet 2,055,756 (12,075) 2,020,735 (11,627)

Loans and other credit-related commitments 618,788 (386) 627,637 (379)

– personal 244,006 (27) 239,685 (39)

– corporate and commercial 269,187 (340) 283,625 (325)

– financial 105,595 (19) 104,327 (15)

Financial guarantees 18,783 (52) 27,795 (62)

– personal 1,135 — 1,130 —

– corporate and commercial 13,587 (50) 22,355 (58)

– financial 4,061 (2) 4,310 (4)

Total nominal amount off-balance sheet

637,571 (438) 655,432 (441)

2,693,327 (12,513) 2,676,167 (12,068)

Fair value

Memorandum

allowance for

ECL

Fair value

Memorandum

allowance for

ECL

Debt instruments measured at fair value through other comprehensive income

(‘FVOCI’)

266,303 (145) 347,203 (96)

1 The total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset,

in which case the ECL is recognised as a provision.

2 For further details on gross carrying amounts and allowances for ECL related to assets held for sale, see ‘Assets held for sale’ on page 151.

3 Includes only those financial instruments that are subject to the impairment requirements of IFRS 9. ‘Prepayments, accrued income and other assets’

as presented within the consolidated balance sheet on page 326 comprises both financial and non-financial assets, including cash collateral and

settlement accounts.

4 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

5 Debt instruments measured at FVOCI continue to be measured at fair value with the allowance for ECL as a memorandum item. Change in ECL is

recognised in ‘Change in expected credit losses and other credit impairment charges’ in the income statement.

The following table provides an overview of the Group’s credit risk by

stage and industry, and the associated ECL coverage. The financial

assets recorded in each stage have the following characteristics:

• Stage 1: These financial assets are unimpaired and without

significant increase in credit risk on which a 12-month allowance

for ECL is recognised.

• Stage 2: A significant increase in credit risk has been experienced

on these financial assets since initial recognition for which a

lifetime ECL is recognised.

• Stage 3: There is objective evidence of impairment and the

financial assets are therefore considered to be in default or

otherwise credit impaired on which a lifetime ECL is recognised.

• POCI: Financial assets that are purchased or originated at a deep

discount are seen to reflect the incurred credit losses on which a

lifetime ECL is recognised.

Risk review

148 HSBC Holdings plc Annual Report and Accounts 2022

Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at

31 December 2022

(Audited)

Gross carrying/nominal amount

Allowance for ECL

ECL coverage %

Stage

3 POCI

Total

Stage

POCI

Total

Stage

POCI

Total

Loans and

advances to

customers at

amortised cost 777,543 139,130 19,505 129 936,307 (1,095) (3,491) (6,829) (38) (11,453) 0.1 2.5 35.0 29.5 1.2

– personal 362,781 48,891 3,340 — 415,012 (562) (1,505) (805) — (2,872) 0.2 3.1 24.1 — 0.7

– corporate and

commercial 353,010 85,521 15,696 129 454,356 (490) (1,909) (5,887) (38) (8,324) 0.1 2.2 37.5 29.5 1.8

– non-bank

financial

institutions 61,752 4,718 469 — 66,939 (43) (77) (137) — (257) 0.1 1.6 29.2 — 0.4

Loans and

advances to

banks at

amortised cost 103,042 1,827 82 — 104,951 (18) (29) (22) — (69) — 1.6 26.8 — 0.1

Other financial

assets

measured at

amortised cost 996,489 17,166 797 46

1,014,498

(124) (188) (234) (7) (553) — 1.1 29.4 15.2 0.1

Loan and other

credit-related

commitments 583,383 34,033 1,372 — 618,788 (141) (180) (65) — (386) — 0.5 4.7 — 0.1

– personal 239,521 3,686 799 — 244,006 (26) (1) — — (27) — — — — —

– corporate and

commercial 241,313 27,323 551 — 269,187 (111) (166) (63) — (340) — 0.6 11.4 — 0.1

– financial

102,549 3,024 22 — 105,595 (4) (13) (2) — (19) — 0.4 9.1 — —

Financial

guarantees 16,071 2,463 249 — 18,783 (6) (13) (33) — (52) — 0.5 13.3 — 0.3

– personal 1,123 11 1 — 1,135 — — — — — — — — — —

– corporate and

commercial 11,547 1,793 247 — 13,587 (5) (12) (33) — (50) — 0.7 13.4 — 0.4

– financial 3,401 659 1 — 4,061 (1) (1) — — (2) — 0.2 — — —

At 31 Dec 2022

2,476,528

194,619 22,005 175

2,693,327

(1,384) (3,901) (7,183) (45) (12,513) 0.1 2.0 32.6 25.7 0.5

1 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

2 Purchased or originated credit-impaired (‘POCI’).

Unless identified at an earlier stage, all financial assets are deemed to

have suffered a significant increase in credit risk when they are 30

days past due (‘DPD’) and are transferred from stage 1 to stage 2.

The following disclosure presents the ageing of stage 2

financial assets by those less than 30 days and greater than 30 DPD

and therefore presents those financial assets classified as stage 2 due

to ageing (30 DPD) and those identified at an earlier stage (less than

30 DPD).

Stage 2 days past due analysis at 31 December 2022

(Audited)

Gross carrying amount Allowance for ECL ECL coverage %

Stage 2

Up-to-

date

1 to 29

DPD

1,2

30 and

> DPD

1,2

Stage 2

Up-to-

date

1 to 29

DPD

1,2

30 and

> DPD

1,2

Stage

Up-to-

date

1 to 29

DPD

1,2

30 and >

DPD

1,2

Loans and advances to

customers at amortised

cost

139,130 134,733 2,411 1,986 (3,491) (3,019) (234) (238) 2.5 2.2 9.7 12.0

– personal 48,891 46,402 1,683 806 (1,505) (1,080) (214) (211) 3.1 2.3 12.7 26.2

– corporate and

commercial

85,521 84,005 712 804 (1,909) (1,862) (20) (27) 2.2 2.2 2.8 3.4

– non-bank financial

institutions

4,718 4,326 16 376 (77) (77) — — 1.6 1.8 — —

Loans and advances to

banks at amortised cost

1,827 1,817 — 10 (29) (29) — — 1.6 1.6 — —

Other financial assets

measured at amortised

cost

17,166 16,930 140 96 (188) (164) (8) (16) 1.1 1.0 5.7 16.7

1 Days past due (‘DPD’).

2 The days past due amounts presented above are on a contractual basis and include the benefit of any customer relief payment holidays granted.

HSBC Holdings plc Annual Report and Accounts 2022 149

Risk review

Summary of credit risk (excluding debt instruments measured at FVOCI) by stage distribution and ECL coverage by industry sector at

31 December 2021 (continued)

(Audited)

Gross carrying/nominal amount

Allowance for ECL ECL coverage %

Stage

POCI

Total

Stage

3 POCI

Total

Stage

3 POCI

Total

Loans and

advances to

customers at

amortised cost 918,936 119,224 18,797 274 1,057,231 (1,367) (3,119) (6,867) (64) (11,417) 0.1 2.6 36.5 23.4 1.1

– personal 456,956 16,439 4,942 — 478,337 (658) (1,219) (1,226) — (3,103) 0.1 7.4 24.8 — 0.6

– corporate and

commercial 400,894 98,911 13,460 274 513,539 (665) (1,874) (5,601) (64) (8,204) 0.2 1.9 41.6 23.4 1.6

– non-bank

financial

institutions 61,086 3,874 395 — 65,355 (44) (26) (40) — (110) 0.1 0.7 10.1 — 0.2

Loans and

advances to

banks at

amortised cost 81,636 1,517 — — 83,153 (14) (3) — — (17) — 0.2 — — —

Other financial

assets

measured at

amortised cost 875,016 4,988 304 43 880,351 (91) (54) (42) (6) (193) — 1.1 13.8 14.0 —

Loan and other

credit-related

commitments 594,473 32,389 775 — 627,637 (165) (174) (40) — (379) — 0.5 5.2 — 0.1

– personal 237,770 1,747 168 — 239,685 (37) (2) — — (39) — 0.1 — — —

– corporate and

commercial 254,750 28,269 606 — 283,625 (120) (165) (40) — (325) — 0.6 6.6 — 0.1

– financial 101,953 2,373 1 — 104,327 (8) (7) — — (15) — 0.3 — — —

Financial

guarantees 24,932 2,638 225 — 27,795 (11) (30) (21) — (62) — 1.1 9.3 — 0.2

– personal 1,114 15 1 — 1,130 — — — — — — — — — —

– corporate and

commercial 20,025 2,107 223 — 22,355 (10) (28) (20) — (58) — 1.3 9.0 — 0.3

– financial 3,793 516 1 — 4,310 (1) (2) (1) — (4) — 0.4 100.0 — 0.1

At 31 Dec 2021 2,494,993 160,756 20,101 317 2,676,167 (1,648) (3,380) (6,970) (70) (12,068) 0.1 2.1 34.7 22.1 0.5

1 Represents the maximum amount at risk should the contracts be fully drawn upon and clients default.

2 Purchased or originated credit-impaired (‘POCI’).

Stage 2 days past due analysis at 31 December 2021 (continued)

(Audited)

Gross carrying amount Allowance for ECL ECL coverage %

Stage 2

Up-to-

date

1 to 29

DPD

1,2

30 and >

DPD

1,2

Stage

Up-to-

date

1 to 29

DPD

1,2

30 and >

DPD

1,2

Stage

Up-to-

date

1 to 29

DPD

1,2

30 and >

DPD

1,2

Loans and advances to

customers at amortised cost 119,224 115,350 2,193 1,681 (3,119) (2,732) (194) (193) 2.6 2.4 8.8 11.5

– personal 16,439 14,124 1,387 928 (1,219) (884) (160) (175) 7.4 6.3 11.5 18.9

– corporate and commercial 98,911 97,388 806 717 (1,874) (1,822) (34) (18) 1.9 1.9 4.2 2.5

– non-bank financial

institutions 3,874 3,838 — 36 (26) (26) — — 0.7 0.7 — —

Loans and advances to banks

at amortised cost 1,517 1,517 — — (3) (3) — — 0.2 0.2 — —

Other financial assets

measured at amortised cost 4,988 4,935 22 31 (54) (47) (4) (3) 1.1 1.0 18.2 9.7

1 Days past due (‘DPD’).

2 The days past due amounts presented above are on a contractual basis and include the benefit of any customer relief payment holidays granted.

Risk review

150 HSBC Holdings plc Annual Report and Accounts 2022

Stage 2 decomposition

The following table presents the stage 2 decomposition of gross

carrying amount and allowances for ECL for loans and advances to

customers. It also sets out the reasons why an exposure is classified

as stage 2 and therefore presented as a significant increase in credit

risk at 31 December 2022.

The quantitative classification shows gross carrying values and

allowances for ECL for which the applicable reporting date probability

of default (‘PD’) measure exceeds defined quantitative thresholds for

retail and wholesale exposures, as set out in Note 1.2 ‘Summary of

significant accounting policies’, on page 342.

The qualitative classification primarily accounts for CRR deterioration,

watch-and-worry and retail management judgemental adjustments.

A summary of our current policies and practices for the significant

increase in credit risk is set out in ‘Summary of significant accounting

policies’ on page 342.

Loans and advances to customers

At 31 Dec 2022

Gross carrying amount Allowance for ECL

ECL coverage

Personal

Corporate

and

commercial

Non-bank

financial

institutions

Total Personal

Corporate

and

commercial

Non-bank

financial

institutions Total Total

Quantitative 41,611 66,450 3,679 111,740 (1,301) (1,644) (66) (3,011) 2.7

Qualitative 7,233 18,555 878 26,666 (201) (262) (11) (474) 1.8

30 DPD backstop

47 516 161 724 (3) (3) — (6) 0.8

Total stage 2 48,891 85,521 4,718 139,130 (1,505) (1,909) (77) (3,491) 2.5

At 31 Dec 2021

Quantitative 9,907 68,000 3,041 80,948 (1,076) (1,347) (19) (2,442) 3.0

Qualitative 6,329 30,326 818 37,473 (134) (520) (7) (661) 1.8

30 DPD backstop

203 585 15 803 (9) (7) — (16) 2.0

Total stage 2 16,439 98,911 3,874 119,224 (1,219) (1,874) (26) (3,119) 2.6

1 Where balances satisfy more than one of the above three criteria for determining a significant increase in credit risk, the corresponding gross exposure

and ECL have been assigned in order of categories presented.

2 Days past due (‘DPD’).

Assets held for sale

(Audited)

During 2022, gross loans and advances and related impairment

allowances were reclassified from ‘loans and advances to customers’

and ‘loans and advances to banks’ to ‘assets held for sale’ in the

balance sheet.

At 31 December 2022, the most material balances held for sale came

from our banking business in Canada and from our retail banking

operations in France.

Disclosures relating to assets held for sale are provided in the

following credit risk tables, primarily where the disclosure is relevant

to the measurement of these financial assets:

• ‘Maximum exposure to credit risk’ (page 153);

• ‘Distribution of financial instruments by credit quality at

31December’ (page 165);

Although there was a reclassification on the balance sheet, there was

no separate income statement reclassification. As a result, charges

for changes in expected credit losses and other credit impairment

charges shown in the credit risk disclosures include charges relating

to financial assets classified as ‘assets held for sale’.

‘Loans and other credit-related commitments’ and ‘financial

guarantees’, as reported in credit disclosures, also include exposures

and allowances relating to financial assets classified as ‘assets held

for sale’.

Loans and advances to customers and banks measured at amortised cost

(Audited)

2022 2021

Total gross loans and

advances

Allowance for ECL

Total gross loans and

advances

Allowance for ECL

As reported 1,041,258 (11,522) 1,140,384 (11,434)

Reported in ‘Assets held for sale’ 81,221 (392) 2,424 (39)

At 31 December 1,122,479 (11,914) 1,142,808 (11,473)

At 31 December 2022, gross loans and advances of our banking

business in Canada were $55.5bn, and the related allowance for ECL

were $0.2bn. Gross loans of our retail banking operations in France

were $25.1bn, and the related allowance for ECL were $0.1bn.

Lending balances held for sale continue to be measured at amortised

cost less allowances for impairment and, therefore, such carrying

amounts may differ from fair value.

These lending balances are part of associated disposal groups that are

measured in their entirety at the lower of carrying amount and fair

value less costs to sell. Any difference between the carrying amount

of these assets and their sales price is part of the overall gain or loss

on the associated disposal group as a whole.

For further details of the carrying amount and the fair value at

31December 2022 of loans and advances to banks and customers

classified as held for sale, see Note 23 on the financial statements.

HSBC Holdings plc Annual Report and Accounts 2022 151

Risk review

Gross loans and allowance for ECL on loans and advances to customers and banks reported in ‘Assets held for sale’

(Audited)

Banking business in

Canada

Retail banking operations

in France Other

Total

Gross

carrying

value

Allowance

for ECL

Gross

carrying

value

Allowance

for ECL

Gross

carrying

value

Allowance

for ECL

Gross

carrying

value

Allowance

for ECL

Loans and advances to customers

at amortised cost

55,431 (234) 25,121 (92) 412 (62) 80,964 (388)

– personal 26,637 (75) 22,691 (88) 305 (47) 49,633 (210)

– corporate and commercial 27,128 (154) 2,379 (4) 107 (15) 29,614 (173)

– non-bank financial institutions 1,666 (5) 51 — — — 1,717 (5)

Loans and advances to banks at

amortised cost

100 — — — 157 (4) 257 (4)

At 31 December 2022 55,531 (234) 25,121 (92) 569 (66) 81,221 (392)

Banking business in Canada

Retail banking operations in

France Other

Total

Gross

carrying

value

Allowance

for ECL

Gross

carrying

value

Allowance

for ECL

Gross

carrying

value

Allowance

for ECL

Gross

carrying

value

Allowance

for ECL

Loans and advances to customers

at amortised cost — — — — 2,424 (39) 2,424 (39)

– personal — — — — 2,424 (39) 2,424 (39)

– corporate and commercial — — — — — — — —

– non-bank financial institutions — — — — — — — —

Loans and advances to banks at

amortised cost

— — — — — — — —

At 31 December 2021 — — — — 2,424 (39) 2,424 (39)

1 Comprising assets held for sale relating to the planned sale of our branch operations in Greece and of our business in Russia.

2 Comprising assets held for sale relating to our mass market retail banking business in the US.

The table below analyses the amount of ECL (charges)/releases arising from assets held for sale. The charges during the period primarily relate

to our retail banking operations in France.

Changes in expected credit losses and other credit impairment

(Audited)

2022

2021

ECL (charges)/releases arising from:

– assets held for sale (5) —

– assets not held for sale (3,587) 928

Year ended 31 December (3,592) 928

Credit exposure

Maximum exposure to credit risk

(Audited)

This section provides information on balance sheet items and their

offsets as well as loan and other credit-related commitments.

Commentary on consolidated balance sheet movements in 2022

isprovided on page106.

The offset on derivatives remains in line with the movements

inmaximum exposure amounts.

‘Maximum exposure to credit risk’ table

The following table presents our maximum exposure before taking

account of any collateral held or other credit enhancements (unless such

enhancements meet accounting offsetting requirements). The table

excludes financial instruments whose carrying amount best represents

the net exposure to credit risk, and it excludes equity securities as they

are not subject to credit risk. For the financial assets recognised on the

balance sheet, the maximum exposure to credit risk equals their carrying

amount and is net of the allowance for ECL. For financial guarantees and

other guarantees granted, it is the maximum amount that we would have

topay if the guarantees were called upon. For loan commitments and

other credit-related commitments, it is generally thefull amount of the

committed facilities.

The offset in the table relates to amounts where there is a legally

enforceable right of offset in the event of counterparty default and

where, as a result, there is a net exposure for credit risk purposes.

However, as there is no intention to settle these balances on a net basis

under normal circumstances, they do notqualify for net presentation for

accounting purposes. No offset has been applied to off-balance sheet

collateral. In the case of derivatives, the offset column also includes

collateral received in cash and other financial assets.

Risk review

152 HSBC Holdings plc Annual Report and Accounts 2022

Other credit risk mitigants

While not disclosed as an offset in the following ‘Maximum exposure

to credit risk’ table, other arrangements are in place that reduce our

maximum exposure to credit risk. These include a charge over

collateral on borrowers’ specific assets, such as residential properties,

collateral held in the form of financial instruments that are not held on

the balance sheet and short positions in securities. In addition, for

financial assets heldas part of linked insurance/investment contracts

the credit risk ispredominantly borne by the policyholder. See page

341 and Note 31 on the financial statements for further details of

collateral in respect of certain loans and advances andderivatives.

Collateral available to mitigate credit risk is disclosed in the ‘Collateral’

section on page 180.

Maximum exposure to credit risk

(Audited)

2022

2021

Maximum

exposure

Offset Net

Maximum

exposure

Offset Net

Loans and advances to customers held at amortised cost 924,854 (20,315) 904,539 1,045,814 (22,838) 1,022,976

– personal 412,140 (2,575) 409,565 475,234 (4,461) 470,773

– corporate and commercial 446,032 (16,262) 429,770 505,335 (16,824) 488,511

– non-bank financial institutions 66,682 (1,478) 65,204 65,245 (1,553) 63,692

Loans and advances to banks at amortised cost 104,882 — 104,882 83,136

—

83,136

Other financial assets held at amortised cost 1,029,618 (8,969) 1,020,649 882,708 (12,231) 870,477

– cash and balances at central banks 327,002 — 327,002 403,018

—

403,018

– items in the course of collection from other banks 7,297 — 7,297 4,136

—

4,136

– Hong Kong Government certificates of indebtedness 43,787 — 43,787 42,578

—

42,578

– reverse repurchase agreements – non-trading 253,754 (8,969) 244,785 241,648 (12,231) 229,417

– financial investments 168,747 — 168,747 97,302

—

97,302

– assets held for sale 115,919 — 115,919 3,411

—

3,411

– prepayments, accrued income and other assets 113,112 — 113,112 90,615

—

90,615

Derivatives 284,146 (273,497) 10,649 196,882 (188,284) 8,598

Total on-balance sheet exposure to credit risk 2,343,500 (302,781) 2,040,719 2,208,540 (223,353) 1,985,187

Total off-balance sheet 934,326 — 934,326 928,183

—

928,183

– financial and other guarantees 106,861 — 106,861 113,088

—

113,088

– loan and other credit-related commitments 827,465 — 827,465 815,095

—

815,095

At 31 Dec 3,277,826 (302,781) 2,975,045 3,136,723 (223,353) 2,913,370

Concentration of exposure

We have a number of global businesses with a broad range of

products.We operate in a number of geographical markets with the

majority of our exposures in Asia and Europe.

For an analysis of:

• financial investments, see Note 16 on the financial statements;

• trading assets, see Note 11 on the financial statements;

• derivatives, see page 187 and Note 15 on the financial statements;

and

• loans and advances by industry sector and by the location ofthe

principal operations of the lending subsidiary (or, in the case of the

operations of The Hongkong and Shanghai Banking Corporation

Limited, HSBC Bank plc, HSBC Bank Middle East Limited and

HSBC Bank USA, by the location of the lending branch), see page

170 for wholesale lending and page 187 for personal lending.

Credit deterioration of financial instruments

(Audited)

A summary of our current policies and practices regarding the

identification, treatment and measurement of stage 1, stage 2,

stage3 (credit impaired) and POCI financial instruments can be found

in Note 1.2 on the financial statements.

Measurement uncertainty and

sensitivity analysis of ECL estimates

(Audited)

The recognition and measurement of ECL involves the use of

significant judgement and estimation. We form multiple economic

scenarios based on economic forecasts, apply these assumptions to

credit risk models to estimate future credit losses, and probability

weight the results to determine an unbiased ECL estimate.

Management judgemental adjustments are used to address late-

breaking events, data and model limitations, model deficiencies and

expert credit judgements.

Amid a deterioration in the economic and geopolitical environment,

management judgements and estimates continued to be subject to a

high degree of uncertainty in relation to assessing economic

scenarios for impairment allowances in 2022.

Inflation, economic contraction and high interest rates, combined with

an unstable geopolitical environment and the effects of global supply

chain disruption, contributed to elevated levels of uncertainty during

the year.

At 31 December 2022, as a result of this uncertainty, additional stage

1 and 2 impairment allowances were recognised. Management

continued to reflect a degree of caution both in the selection of

economic scenarios and their weightings, and in the use of

management judgemental adjustments, described in more detail

below.

At 31 December 2022, there was a reduction in management

judgemental adjustments compared with 31 December 2021.

Adjustments related to Covid-19 and for sector-specific risks were

reduced as scenarios and modelled outcomes better reflected the key

risks at 31 December 2022.

HSBC Holdings plc Annual Report and Accounts 2022 153

Risk review

Methodology

Four global economic scenarios are used to capture the current

economic environment and to articulate management’s view of the

range of potential outcomes. Scenarios produced to calculate ECL are

aligned to HSBC’s top and emerging risks.

Three of the scenarios are drawn from consensus forecasts and

distributional estimates. The Central scenario is deemed the ‘most

likely’ scenario, and usually attracts the largest probability weighting,

while the outer scenarios represent the tails of the distribution, which

are less likely to occur. The Central scenario is created using the

average of a panel of external forecasters. Consensus Upside and

Downside scenarios are created with reference to distributions for

select markets that capture forecasters’ views of the entire range of

outcomes. In the later years of the scenarios, projections revert to

long-term consensus trend expectations. In the consensus outer

scenarios, reversion to trend expectations is done mechanically with

reference to historically observed quarterly changes in the values of

macroeconomic variables.

The fourth scenario, Downside 2, is designed to represent

management’s view of severe downside risks. It is a globally

consistent narrative-driven scenario that explores more extreme

economic outcomes than those captured by the consensus scenarios.

In this scenario, variables do not, by design, revert to long-term trend

expectations. They may instead explore alternative states of

equilibrium, where economic activity moves permanently away from

past trends. The consensus Downside and the consensus Upside

scenarios are each constructed to be consistent with a 10%

probability. The Downside 2 is constructed with a 5% probability. The

Central scenario is assigned the remaining 75%. This weighting

scheme is deemed appropriate for the unbiased estimation of ECL in

most circumstances. However, management may depart from this

probability-based scenario weighting approach when the economic

outlook is determined to be particularly uncertain and risks are

elevated.

In light of ongoing risks, management deviated from this probability

weighting in the fourth quarter of 2022, and assigned additional

weight to outer scenarios.

Description of economic scenarios

The economic assumptions presented in this section have been

formed by HSBC with reference to external forecasts and estimates,

specifically for the purpose of calculating ECL.

Economic forecasts in the Central scenario remain subject to a high

degree of uncertainty. Upside and Downside scenarios are

constructed so that they encompass the potential crystallisation of a

number of key macro-financial risks.

At the end of 2022, risks to the economic outlook included the

persistence of high inflation and its consequences on monetary

policy. Rapid changes to public policy also increased forecast

uncertainty.

In Asia, the removal of Chinese Covid-19-related public health

restrictions presents a key source of potential upside risk, but with

significant near-term uncertainty relating to a subsequent surge of

infections. This policy change could also have global implications.

In Europe, risks relating to energy pricing and supply security remain

significant. Geopolitical risks also remain significant and include the

possibility of a prolonged and escalating Russia-Ukraine war,

continued differences between the US and other countries with China

over a range of economic and strategic issues, and the evolution of

the UK’s relationship with the EU.

Economic forecasts for our main markets deteriorated in the fourth

quarter as GDP growth slowed. In North America and Europe, high

inflation and rising interest rates have reduced real household

incomes and raised business costs, dampening consumption and

investment and lowering growth expectations. The effects of higher

interest rate expectations and lower growth are evident in asset price

expectations, with house prices forecasts, in particular, significantly

lower.

In Asia, forecasts for Hong Kong and mainland China were cut

following weaker than expected third-quarter GDP growth, and due to

China’s adherence to a stringent pandemic-related public health policy

response for the majority of the year. While China made an abrupt

reversal of the policy in December and GDP is expected to recover in

2023, there remains a very high degree of uncertainty to both the

upside and downside, and consensus forecasts have been slow to

adjust. The increased uncertainty over China’s lifting of the

restrictions has been reflected in management’s assessment of

scenario probabilities.

The scenarios used to calculate ECL in the Annual Report and

Accounts 2022 are described below.

The consensus Central scenario

HSBC’s Central scenario reflects a low-growth and higher-inflation

environment across many of our key markets. The scenario features

an initial period of below-trend GDP growth in most of our main

markets as higher inflation and tighter monetary policy causes a

squeeze on business margins and households’ real disposable

income. Growth returns to its long-term expected trend in later years

as central banks bring inflation back to target.

However, three of our markets are forecast to experience increased

GDP growth. In Hong Kong and mainland China, GDP growth is

expected to be stronger in 2023 relative to 2022, following several

quarters of negative GDP growth and the suspension of Covid-19-

related restrictions. In the UAE, high oil prices and the continued

recovery of international travel and tourism are expected to ensure

growth remains above trend in the short term.

Our Central scenario assumes that inflation peaked in most of our key

markets at the end of 2022, but remains high through 2023, before

moderating as energy prices stabilise and supply chain disruptions

abate. Central banks are expected to keep raising interest rates until

the middle of 2023. Inflation is forecast to revert to target in most

markets by early 2024.

Global GDP is expected to grow by 1.6% in 2023 in the Central

scenario, and the average rate of global GDP growth is forecast to be

2.5% over the five-year forecast period. This is below the average

growth rate over the five-year period prior to the onset of the

pandemic.

The key features of our Central scenario are:

• Economic activity in European and North American markets

continues to weaken. Most major economies are forecast to grow

in 2023, but at very low rates. Hong Kong and mainland China are

expected to see a recovery in activity from 2023 as Covid-19-

related restrictions are lifted.

• In most markets, unemployment rises moderately from historical

lows as economic activity slows. Labour markets remain fairly

tight across our key markets.

• Inflation is expected to remain elevated across many of our key

markets, driven by energy and food prices. Inflation is

subsequently expected to converge back towards central banks’

target rates over the next two years of the forecast.

• Policy interest rates in key markets will continue to rise in the near

term but at a slower pace. Interest rates will stay elevated but

start to ease as inflation in each of the markets return to target.

• The West Texas Intermediate oil price is forecast to average $72

per barrel over the projection period.

The Central scenario was first created with forecasts available in

November, and reviewed continually until late December. Probability

weights assigned to the Central scenario vary from 55% to 70% and

reflect relative differences in risk and uncertainty across markets.

Risk review

154 HSBC Holdings plc Annual Report and Accounts 2022

The following table describes key macroeconomic variables and the probabilities assigned in the consensus Central scenario.

Central scenario 2023–2027

Hong Kong

Mainland China

Canada

France

UAE

Mexico

% % % % % % % %

GDP growth rate

2023: Annual average growth rate (0.8) 0.2 2.7 4.6 0.6 0.2 3.7 1.2

2024: Annual average growth rate 1.3 1.5 3.0 4.8 1.9 1.6 3.7 2.0

2025: Annual average growth rate 1.7 2.0 2.7 4.7 2.0 1.5 3.1 2.3

5-year average 1.1 1.5 2.7 4.6 1.6 1.2 3.2 1.9

Unemployment rate

2023: Annual average rate 4.4 4.3 3.7 5.2 6.1 7.6 2.9 3.7

2024: Annual average rate 4.6 4.5 3.5 5.1 5.9 7.5 2.8 3.7

2025: Annual average rate 4.3 4.2 3.4 5.0 6.0 7.3 2.8 3.5

5-year average 4.3 4.2 3.4 5.0 5.9 7.3 2.8 3.6

House price growth

2023: Annual average growth rate 0.2 (2.5) (10.0) (0.1) (15.6) 1.8 5.9 7.9

2024: Annual average growth rate (3.8) (3.2) (3.0) 2.9 (1.2) 2.0 5.2 5.2

2025: Annual average growth rate 0.7 (1.0) 1.7 3.5 4.0 3.1 4.5 4.2

5-year average 0.4 (0.7) (1.0) 2.9 (1.1) 2.8 4.4 5.1

Inflation rate

2023: Annual average rate 6.9 4.1 2.1 2.4 3.5 4.6 3.2 5.7

2024: Annual average rate 2.5 2.5 2.1 2.2 2.2 2.0 2.2 4.1

2025: Annual average rate 2.1 2.2 2.0 2.2 2.1 1.8 2.1 3.7

5-year average 3.1 2.7 2.1 2.2 2.4 2.4 2.3 4.2

Probability 60 70 55 55 70 60 70 70

The graphs compare the respective Central scenario at the year end 2021 with economic expectations at the end of 2022.

GDP growth: Comparison of Central scenarios

HSBC Holdings plc Annual Report and Accounts 2022 155

Note: Real GDP shown as year-on-year percentage change.

Hong Kong

Note: Real GDP shown as year-on-year percentage change.

Mainland China

Note: Real GDP shown as year-on-year percentage change.

100

‐10

‐5

2021 2022 2024 2025 2026 2027

2023

4Q21Central

4Q22Central

4Q21Central5YAverage:2.5%

4Q22Central5Y Average:1.1%

100

‐2

2021 2022 2024 2025 2026 2027

2023

4Q21Central

4Q22Central

4Q21Central 5YAverage:2.5%

4Q22Central5Y Average:1.5%

100

2021 2022 2024 2025 2026 2027

2023

4Q21Central

4Q22Central

4Q21Central 5YAverage:5.1%

4Q22Central5Y Average:4.6%

100

‐6

‐4

‐2

2021 2022 2023 2024 2025 2026 2027

4Q21Central 4Q22Central

4Q21Central 5YAverage:2.7%

4Q22Central5Y Average:2.7%

Risk review

The consensus Upside scenario

Compared with the Central scenario, the consensus Upside scenario

features stronger economic activity in the near term, before

converging to long-run trend expectations. It also incorporates a faster

fall in the rate of inflation than incorporated in the Central scenario.

The scenario is consistent with a number of key upside risk themes.

These include faster resolution of supply chain issues; a rapid

conclusion to the Russia-Ukraine war; de-escalation of tensions

between the US and China; relaxation of Covid-19 policies in Asia; and

improved relations between the UK and the EU.

The following table describes key macroeconomic variables and the

probabilities assigned in the consensus Upside scenario.

Consensus Upside scenario ‘best outcome’

Hong Kong

Mainland China

Canada

France

UAE

Mexico

GDP growth rate 4.4 (4Q24) 3.6 (4Q24) 9.0 (3Q23) 10.3 (2Q23) 4.3 (3Q24) 3.1 (1Q24) 7.8 (4Q23) 4.7 (4Q23)

Unemployment rate 3.5 (4Q23) 3.1 (3Q23) 3.0 (4Q23) 4.7 (3Q24) 5.2 (3Q24) 6.5 (4Q24) 2.2 (3Q24) 3.1 (3Q23)

House price growth 4.2 (1Q23) 3.6 (1Q23) 1.4 (4Q24) 6.9 (4Q24) 4.9 (2Q24) 3.7 (1Q23) 9.5 (2Q24) 10.3 (4Q23)

Inflation rate 0.7 (1Q24) 1.6 (1Q24) (0.1) (4Q23) 0.8 (4Q23) 1.0 (1Q24) 0.8 (4Q23) 1.5 (3Q24) 3.2 (1Q24)

Probability 5 5 20 20 5 5 5 5

Note: Extreme point in the consensus Upside is ‘best outcome’ in the scenario, for example the highest GDP growth and the lowest unemployment rate,

in the first two years of the scenario. The date on which the extreme is reached is indicated in parenthesis. For inflation, lower inflation is interpreted as

the ‘best’ outcome.

Downside scenarios

Downside scenarios explore the intensification and crystallisation of a

number of key economic and financial risks.

High inflation and a stronger monetary policy response have become

key concerns for global growth. In the Downside scenarios, supply

chain disruptions intensify, exacerbated by an escalation in the spread

of Covid-19, and rising geopolitical tensions drive inflation higher.

There also remains a risk that energy and food prices rise further due

to the Russia-Ukraine war, increasing pressure on household budgets

and firms’ costs.

The possibility of inflation expectations becoming detached from

central bank targets also remains a risk. A wage-price spiral triggered

by higher inflation and pandemic-related labour supply shortages

could put sustained upward pressure on wages, aggravating cost

pressures and increasing the squeeze on household real incomes and

corporate margins. In turn, it raises the risk of a more forceful policy

response from central banks, a steeper trajectory for interest rates

and, ultimately, a deep economic recession.

The risks relating to Covid-19 are centred on the emergence of a new

variant with greater vaccine resistance that necessitates the

imposition of stringent public health policies. In Asia, with the

reopening of China in December, management of Covid-19 remains a

key source of uncertainty, with the rapid spread of the virus posing a

heightened risk of new vaccine-resistant variants emerging.

The geopolitical environment also present risks, including:

• a prolonged Russia-Ukraine war with escalation beyond Ukraine’s

borders;

• the deterioration of the trading relationship between the UK and

the EU over the Northern Ireland Protocol; and

• continued differences between the US and other countries with

China, which could affect sentiment and restrict global economic

activity.

The consensus Downside scenario

In the consensus Downside scenario, economic activity is

considerably weaker compared with the Central scenario. In this

scenario, GDP growth weakens below the Central scenario,

unemployment rates rise and asset prices fall. The scenario features a

temporary supply side shock that keeps inflation higher than the

baseline, before the effects of weaker demand begin to dominate,

leading to a fall in commodity prices and to lower inflation.

The following table describes key macroeconomic variables and the

probabilities assigned in the consensus Downside scenario.

Consensus Downside scenario ‘worst outcome’

Hong Kong

Mainland China

Canada

France

UAE

Mexico

GDP growth rate (3.5) (3Q23) (3.7) (4Q23) (2.2) (4Q23) (1.2) (4Q23) (3.9) (4Q23) (1.4) (3Q23) 1.0 (4Q23) (2.7) (4Q23)

Unemployment rate 5.8 (2Q24) 5.9 (1Q24) 5.2 (3Q24) 5.9 (4Q23) 7.6 (3Q23) 8.8 (4Q23) 4.1 (3Q23) 4.4 (1Q23)

House price growth (10.1) (2Q24) (7.8) (4Q23) (14.9) (2Q23) (1.9) (1Q23) (23.8) (2Q23) (0.6) (4Q23) (3.0) (4Q23) 2.2 (3Q24)

Inflation rate (min) (0.4) (4Q24) 0.6 (4Q24) 0.3 (4Q24) 0.7 (4Q24) 0.4 (4Q24) 0.3 (4Q24) 1.8 (2Q23) 2.2 (4Q24)

Inflation rate (max) 10.8 (1Q23) 6.2 (1Q23) 3.7 (4Q23) 4.0 (4Q23) 6.0 (1Q23) 7.2 (1Q23) 4.5 (1Q23) 7.9 (1Q23)

Probability 25 20 20 20 15 25 20 20

Note: Extreme point in the consensus Downside is ‘worst outcome‘ in the scenario, for example lowest GDP growth and the highest unemployment rate,

in the first two years of the scenario. The date on which the extreme is reached is indicated in parenthesis. Due to the nature of the shock to inflation in

the Downside scenarios, both the lowest and the highest point is shown in the tables.

Downside 2 scenario

The Downside 2 scenario features a deep global recession and

reflects management’s view of the tail of the economic distribution. It

incorporates the crystallisation of a number of risks simultaneously,

including further escalation of the Russia-Ukraine war, worsening of

supply chain disruptions and the emergence of a vaccine-resistant

Covid-19 variant that necessitates a stringent public health policy

response globally.

This scenario features an initial supply-side shock that pushes up

inflation and interest rates higher. This impulse is expected to prove

short lived as a large downside demand pressure causes commodity

prices to correct sharply and global price inflation to fall as a severe

and prolonged recession takes hold.

Risk review

156 HSBC Holdings plc Annual Report and Accounts 2022

The following table describes key macroeconomic variables and the probabilities assigned in the Downside 2 scenario.

Downside 2 scenario ‘worst outcome’

Hong Kong

Mainland China

Canada

France

UAE

Mexico

GDP growth rate (6.9) (3Q23) (5.0) (4Q23) (9.2) (4Q23) (6.9) (4Q23) (5.9) (4Q23) (6.8) (4Q23) (3.7) (2Q24) (7.4) (4Q23)

Unemployment rate 8.7 (2Q24) 9.5 (4Q24) 5.8 (1Q24) 6.8 (4Q24) 11.6 (2Q24) 10.3 (4Q24) 4.6 (2Q24) 5.6 (2Q24)

House price growth (22.9) (2Q24) (21.5) (4Q23) (18.2) (1Q24) (18.5) (4Q23) (36.3) (4Q23) (6.4) (2Q24) (3.6) (4Q23) 0.9 (3Q24)

Inflation rate (min) (2.3) (2Q24) 0.3 (4Q24) 0.6 (4Q24) 1.0 (4Q24) 1.1 (4Q24) (2.5) (2Q24) 1.7 (4Q24) 2.0 (4Q24)

Inflation rate (max) 13.5 (2Q23) 6.3 (1Q23) 4.3 (4Q23) 4.6 (4Q23) 6.5 (1Q23) 10.4 (2Q23) 4.8 (1Q23) 7.9 (1Q23)

Probability 10 5 5 5 10 10 5 5

Note: Extreme point in the Downside 2 is ‘worst outcome‘ in the scenario, for example lowest GDP growth and the highest unemployment rate, in the

first two years of the scenario. The date on which the extreme is reached is indicated in parenthesis. Due to the nature of the shock to inflation in the

Downside scenarios, both the lowest and the highest point is shown in the tables.

Scenario weighting

In reviewing the economic conjuncture, the level of risk and

uncertainty, management has considered both global and country-

specific factors. This has led management to assign scenario

probabilities that are tailored to its view of uncertainty in individual

markets.

Key consideration around uncertainty attached to the Central scenario

projections focused on:

• the progression of the Covid-19 pandemic in Asian countries, and

the announcement of the removal of Covid-19-related measures

and travel restrictions in mainland China and Hong Kong;

• further tightening of monetary policy, and the impact on borrowing

costs in interest-rate sensitive sectors, such as housing;

• the risks to gas supply security in Europe, and the subsequent

impact on inflation and commodity prices and growth; and

• the ongoing risks to global supply chains.

In mainland China and Hong Kong, the announcement of the

relaxation of Covid-19-related measures and travel restrictions has led

to increased uncertainty around the Central scenario projection. It was

management’s view that the easing of the policy could increase risks

to the upside in the form of increased spending and travel. However,

the continuing risks to the downside were also acknowledged, given

the surge in Covid-19 infections and the potential for a new vaccine-

resistant variant. This led management to assign a combined

weighting of 75% to the consensus Upside and Central scenarios in

both markets.

In the UK and US, the surge in price inflation and a squeeze on

household real incomes have led to strong monetary policy responses

from both central banks. Higher interest rates have increased

recession risks and the prospects for outright decline in house prices.

The UK faces additional challenges from the rise in energy prices and

accompanying deterioration in the terms of trade. For Canada and

Mexico, similar risk themes dominate, and the connectivity to the US

has also been a key consideration. For the UK, the consensus Upside

and Central scenarios had a combined weighting of 65%. In each of

the other three markets, the combined weightings of the consensus

Upside and Central scenarios were 75%.

In France, uncertainties around the outlook remain elevated due to

high inflation and Europe’s exposure to the Russia-Ukraine war

through the economic costs incurred from the imposition of

sanctions, trade disruption and energy dependence on Russia. The

consensus Upside and Central scenarios had a combined weighting of

65%.

Management concluded that the outlook for the UAE was the least

uncertain of all our key markets. It is benefiting from higher

commodity prices and the revival in tourism and travel. The

consensus Upside and Central scenarios had a combined weighting of

75%.

The following graphs show the historical and forecasted GDP growth

rate for the various economic scenarios in our four largest markets.

HSBC Holdings plc Annual Report and Accounts 2022 157

100

‐6.0

‐4.0

‐2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2021 2022 2023 2024 2025 2026 2027

Central Upside Downside Downside2

100

‐10.0

‐5.0

0.0

5.0

10.0

15.0

20.0

25.0

2021 2022 2023 2024 2025 2026 2027

Central Upside Downside Downside2

100

‐10.0

‐8.0

‐6.0

‐4.0

‐2.0

0.0

2.0

4.0

6.0

8.0

10.0

2021 2022 2023 2024 2025 2026 2027

Central Upside Downside Downside2

Hong Kong

Risk review

Critical estimates and judgements

The calculation of ECL under IFRS 9 involves significant judgements,

assumptions and estimates. The level of estimation uncertainty and

judgement has remained elevated since 31 December 2021, including

judgements relating to:

• the selection and weighting of economic scenarios, given rapidly

changing economic conditions and a wide dispersion of economic

forecasts. There is judgement in making assumptions about the

effects of inflation and interest rates, global growth, supply chain

disruption; and

• estimating the economic effects of those scenarios on ECL,

particularly as the historical relationship between macroeconomic

variables and defaults might not reflect the dynamics of current

macroeconomic conditions.

How economic scenarios are reflected in

ECL calculations

Models are used to reflect economic scenarios on ECL estimates. As

described above, modelled assumptions and linkages based on

historical information could not alone produce relevant information

under the conditions experienced in 2022, and management

judgemental adjustments were still required to support modelled

outcomes.

We have developed globally consistent methodologies for the

application of forward economic guidance into the calculation of ECL

for wholesale and retail credit risk. These standard approaches are

described below, followed by the management judgemental

adjustments made, including those to reflect the circumstances

experienced in 2022.

For our wholesale portfolios, a global methodology is used for the

estimation of the term structure of probability of default (‘PD’) and

loss given default (‘LGD’). For PDs, we consider the correlation of

forward economic guidance to default rates for a particular industry in

a country. For LGD calculations, we consider the correlation of

forward economic guidance to collateral values and realisation rates

for a particular country and industry. PDs and LGDs are estimated for

the entire term structure of each instrument.

For impaired loans, LGD estimates take into account independent

recovery valuations provided by external consultants where available

or internal forecasts corresponding to anticipated economic conditions

and individual company conditions. In estimating the ECL on impaired

loans that are individually considered not to be significant, we

incorporate the forward economic guidance proportionate to the

probability-weighted outcome and the Central scenario outcome of

the performing population.

For our retail portfolios, the impact of economic scenarios on PD is

modelled at a portfolio level. Historical relationships between

observed default rates and macroeconomic variables are integrated

into IFRS 9 ECL estimates by using economic response models.

The impact of these scenarios on PD is modelled over a period equal

to the remaining maturity of the underlying asset or assets. The

impact on LGD is modelled for mortgage portfolios by forecasting

future loan-to-value profiles for the remaining maturity of the asset by

using national level forecasts of the house price index and applying

the corresponding LGD expectation.

These models are based largely on historical observations and

correlations with default rates. Management judgemental

adjustments are described below.

Management judgemental adjustments

In the context of IFRS 9, management judgemental adjustments are

typically short-term increases or decreases to the ECL at either a

customer, segment or portfolio level to account for late-breaking

events, model and data limitations and deficiencies, and expert credit

judgement applied following management review and challenge.

This includes refining model inputs and outputs and using

adjustments to ECL based on management judgement and higher-

level quantitative analysis for impacts that are difficult to model.

The effects of management judgemental adjustments are considered

for both balances and ECL when determining whether or not a

significant increase in credit risk has occurred and is allocated to a

stage where appropriate. This is in accordance with the internal

adjustments framework.

Management judgemental adjustments are reviewed under the

governance process for IFRS 9 (as detailed in the section ‘Credit risk

management’ on page 145). Review and challenge focuses on the

rationale and quantum of the adjustments with a further review

carried out by the second line of defence where significant. For some

management judgemental adjustments, internal frameworks establish

the conditions under which these adjustments should no longer be

required and as such are considered as part of the governance

process. This internal governance process allows management

judgemental adjustments to be reviewed regularly and, where

possible, to reduce the reliance on these through model recalibration

or redevelopment, as appropriate.

The drivers of management judgemental adjustments continue to

evolve with the economic environment and as new risks emerge.

At 31 December 2022, there was a $0.9bn reduction in management

judgemental adjustments compared with 31 December 2021.

Adjustments related to Covid-19 and for sector-specific risks were

reduced as scenarios and modelled outcomes better reflected the key

risks at 31 December 2022.

Management judgemental adjustments made in estimating the

scenario-weighted reported ECL at 31 December 2022 are set out in

the following table.

Management judgemental adjustments to ECL at 31 December

2022

Retail

Wholesale

Total

$bn

Banks, sovereigns,

government entities and

low-risk counterparties

— — —

Corporate lending

adjustments

0.5 0.5

Retail lending inflation-

related adjustments

0.1 0.1

Other macroeconomic-

related adjustments

0.1 0.1

Pandemic-related

economic recovery

adjustments

— —

Other retail lending

adjustments

0.2 0.2

Total 0.3 0.5 0.8

Risk review

158 HSBC Holdings plc Annual Report and Accounts 2022

Mainland China

100

‐10.0

‐5.0

0.0

5.0

10.0

15.0

20.0

2021 2022 2023 2024 2025 2026 2027

Central Upside Downside Downside2

Management judgemental adjustments to ECL at 31 December

2021

Retail

Wholesale

Total

$bn

Banks, sovereigns,

government entities and

low-risk counterparties

(0.1) (0.1)

Corporate lending

adjustments

1.3 1.3

Retail lending inflation-

related adjustments

—

Other macroeconomic-

related adjustments

—

Pandemic-related

economic recovery

adjustments

0.2 0.2

Other retail lending

adjustments

0.3 0.3

Total 0.5 1.2 1.7

1 Management judgemental adjustments presented in the table reflect

increases or (decreases) to ECL, respectively.

Management judgemental adjustments at 31 December 2022 were

an increase to ECL of $0.5bn for the wholesale portfolio and an

increase to ECL of $0.3bn for the retail portfolio.

At 31 December 2022, wholesale management judgemental

adjustments were an ECL increase of $0.5bn (31 December 2021:

$1.2bn increase).

• Adjustments to corporate exposures increased ECL by $0.5bn at

31 December 2022 (31 December 2021: $1.3bn increase). These

principally reflected the outcome of management judgements for

high-risk and vulnerable sectors in some of our key markets. This

was supported by credit experts’ input, portfolio risk metrics,

short- to medium-term risks under each scenario, model

performance, quantitative analyses and benchmarks.

Considerations include risk of individual exposures under different

macroeconomic scenarios and sub-sector analyses.

The largest increase in ECL was observed in the real estate sector,

including material adjustments to reflect the uncertainty of the

higher-risk Chinese commercial real estate exposures, booked in

Hong Kong.

At 31 December 2022, retail management judgemental adjustments

were an ECL increase of $0.3bn (31 December 2021: $0.5bn

increase).

• Retail lending inflation-related adjustments increased ECL by

$0.1bn (31 December 2021: $0.0bn). These adjustments

addressed where increasing inflation and interest rates result in

affordability risks that were not fully captured by the modelled

output.

• Other macroeconomic-related adjustments increased ECL by

$0.1bn (31 December 2021: $0.0bn). These adjustments were

primarily in relation to country-specific risks related to future

macroeconomic conditions.

• Other retail lending adjustments increased ECL by $0.2bn

(31December 2021: $0.3bn increase), reflecting all other data,

model and management judgemental adjustments.

• Pandemic-related economic recovery adjustments were removed

during 2022 as scenarios stabilised.

Economic scenarios sensitivity analysis of

ECL estimates

Management considered the sensitivity of the ECL outcome against

the economic forecasts as part of the ECL governance process by

recalculating the ECL under each scenario described above for

selected portfolios, applying a 100% weighting to each scenario in

turn. The weighting is reflected in both the determination of a

significant increase in credit risk and the measurement of the

resulting ECL.

The ECL calculated for the Upside and Downside scenarios should

not be taken to represent the upper and lower limits of possible ECL

outcomes. The impact of defaults that might occur in the future under

different economic scenarios is captured by recalculating ECL for

loans at the balance sheet date.

There is a particularly high degree of estimation uncertainty in

numbers representing more severe risk scenarios when assigned a

100% weighting.

For wholesale credit risk exposures, the sensitivity analysis excludes

ECL and financial instruments related to defaulted (stage 3) obligors.

It is generally impracticable to separate the effect of macroeconomic

factors in individual assessments of obligors in default. The

measurement of stage 3 ECL is relatively more sensitive to credit

factors specific to the obligor than future economic scenarios, and

loans to defaulted obligors are a small portion of the overall wholesale

lending exposure, even if representing the majority of the allowance

for ECL. Therefore, the sensitivity analysis to macroeconomic

scenarios does not capture the residual estimation risk arising from

wholesale stage 3 exposures. Due to the range and specificity of the

credit factors to which the ECL is sensitive, it is not possible to

provide a meaningful alternative sensitivity analysis for a consistent

set of risks across all defaulted obligors.

For retail credit risk exposures, the sensitivity analysis includes ECL

for loans and advances to customers related to defaulted obligors.

This is because the retail ECL for secured mortgage portfolios

including loans in all stages is sensitive to macroeconomic variables.

Wholesale and retail sensitivity

The wholesale and retail sensitivity tables present the 100%

weighted results. These exclude portfolios held by the insurance

business and small portfolios, and as such cannot be directly

compared with personal and wholesale lending presented in other

credit risk tables. In both the wholesale and retail analysis, the

comparative period results for Downside 2 scenarios are also not

directly comparable with the current period, because they reflect

different risks relative to the consensus scenarios for the period end.

The wholesale and retail sensitivity analysis is stated inclusive of

management judgemental adjustments, as appropriate to each

scenario.

HSBC Holdings plc Annual Report and Accounts 2022 159

Risk review

Wholesale analysis

IFRS 9 ECL sensitivity to future economic conditions

1,2,3

Gross carrying

amount

Reported ECL

Consensus

Central

scenario ECL

Consensus

Upside

scenario ECL

Consensus

Downside

scenario ECL

Downside 2

scenario ECL

By geography at 31 Dec 2022

UK 421,685 769 624 484 833 2,240

US 190,858 277 241 227 337 801

Hong Kong 415,875 925 819 592 1,315 2,161

Mainland China 125,466 295 242 144 415 1,227

Canada

83,274 126 80 60 148 579

Mexico 26,096 88 80 67 116 313

UAE 45,064 45 41 30 55 93

France 173,146 110 102 90 121 145

By geography at 31 Dec 2021

UK 483,273 920 727 590 944 1,985

US 227,817 227 204 155 317 391

Hong Kong 434,608 767 652 476 984 1,869

Mainland China 120,627 149 113 36 216 806

Canada

85,117 151 98 61 150 1,121

Mexico 23,054 118 80 61 123 358

UAE 44,767 158 122 73 214 711

France 163,845 133 121 106 162 187

1 ECL sensitivity includes off-balance sheet financial instruments. These are subject to significant measurement uncertainty.

2 Includes low credit-risk financial instruments such as debt instruments at FVOCI, which have high carrying amounts but low ECL under all the above

scenarios.

3 Excludes defaulted obligors. For a detailed breakdown of performing and non-performing wholesale portfolio exposures, see page 170.

4 Classified as held for sale at 31 December 2022.

At 31 December 2021, the most significant level of ECL sensitivity

was observed in the UK, Hong Kong and mainland China.

Real estate was the sector with higher sensitivity to a severe

Downside scenario, namely in Hong Kong and mainland China due to

higher risk of some material exposures.

In the UK, the real estate and services sectors accounted for the

majority of ECL sensitivity due to higher exposure to these sectors in

this market.

Risk review

160 HSBC Holdings plc Annual Report and Accounts 2022

Retail analysis

IFRS 9 ECL sensitivity to future economic conditions

Gross carrying

amount Reported ECL

Consensus

Central scenario

ECL

Consensus

Upside scenario

ECL

Consensus

Downside

scenario ECL

Downside 2

scenario ECL

By geography at 31 December

2022 $m $m $m $m $m $m

Mortgages 147,306 204 188 183 189 399

Credit cards 6,518 455 434 396 442 719

Other 7,486 368 333 274 383 605

Mexico

Mortgages 6,319 152 127 102 183 270

Credit cards 1,616 198 162 97 233 289

Other 3,447 438 400 318 503 618

Hong Kong

Mortgages 100,107 1 1 — 1 1

Credit cards 8,003 261 227 180 417 648

Other 5,899 85 81 74 100 123

UAE

Mortgages 2,170 37 37 36 38 38

Credit cards 441 41 37 21 68 86

Other 718 17 17 15 19 22

France

Mortgages 21,440 51 50 50 51 52

Other 1,433 54 53 52 55 59

Mortgages 13,489 7 6 6 8 15

Credit cards 219 26 25 23 27 36

Canada

Mortgages 25,163 45 44 43 46 58

Credit cards 299 10 9 8 11 11

Other 1,399 16 14 13 17 36

IFRS 9 ECL sensitivity to future economic conditions

Gross carrying

amount Reported ECL

Consensus

Central scenario

ECL

Consensus

Upside scenario

ECL

Consensus

Downside

scenario ECL

Downside 2

scenario ECL

By geography at 31 December

2021

$m $m $m $m $m $m

Mortgages 155,084 191 182 175 197 231

Credit cards 8,084 439 381 330 456 987

Other 7,902 369 298 254 388 830

Mexico

Mortgages 4,972 123 116 106 130 164

Credit cards 1,167 141 134 122 150 176

Other 2,935 366 360 350 374 401

Hong Kong

Mortgages 96,697 — — — — —

Credit cards 7,644 218 206 154 231 359

Other 5,628 109 101 88 128 180

UAE

Mortgages 1,982 45 44 42 46 57

Credit cards 429 43 41 29 54 82

Other 615 19 18 13 21 25

France

Mortgages 23,159 63 62 62 63 64

Other 1,602 61 61 60 61 63

Mortgages 15,379 28 27 26 29 41

Credit cards 446 80 76 70 83 118

Canada

Mortgages 26,097 28 27 26 29 48

Credit cards 279 9 9 9 10 13

Other 1,598 19 18 17 19 27

1 ECL sensitivities exclude portfolios utilising less complex modelling approaches.

2 Classified as ‘assets held for sale’ at 31 December 2022.

3 Includes balances and ECL, which have been reclassified from ‘loans and advances to customers’ to ‘assets held for sale’ in the balance sheet. This

also includes any balances and ECL which continue to be reported as personal lending in ‘loans and advances to customers’ that are in accordance

with the basis of inclusion for retail sensitivity analysis.

HSBC Holdings plc Annual Report and Accounts 2022 161

Risk review

At 31 December 2022, the most significant level of ECL sensitivity

was observed in the UK, Mexico and Hong Kong. Mortgages reflected

the lowest level of ECL sensitivity across most markets as collateral

values remained resilient. Hong Kong mortgages had low levels of

reported ECL due to the credit quality of the portfolio. Credit cards

and other unsecured lending are more sensitive to economic

forecasts, and therefore reflected the highest level of ECL sensitivity

during 2022.

Group ECL sensitivity results

The ECL impact of the scenarios and management judgemental

adjustments are highly sensitive to movements in economic

forecasts. Based upon the sensitivity tables presented above, if the

Group ECL balance was estimated solely on the basis of the Central

scenario, Downside scenario or the Downside 2 scenario at

31December 2022, it would increase/(decrease) as presented in the

below table.

Retail

Wholesale

Total Group ECL at 31 December 2022

$bn

Reported ECL 3.0 3.1

Scenarios

100% Consensus Central scenario (0.2) (0.5)

100% Consensus Upside scenario (0.6) (1.1)

100% Consensus Downside scenario 0.4 0.8

100% Downside 2 scenario 1.8 5.5

Retail

Wholesale

Total Group ECL at 31 December 2021

$bn

Reported ECL 3.0 3.1

Scenarios

100% Consensus Central scenario (0.2) (0.6)

100% Consensus Upside scenario (0.5) (1.2)

100% Consensus Downside scenario 0.2 0.6

100% Downside 2 scenario 2.0 5.5

1 On the same basis as retail and wholesale sensitivity analysis.

At Group level for both the retail and wholesale portfolios, the

reported ECL in scope of this analysis remained stable since

31December 2021. The Group total Downside 2 scenario ECL

continues to present the highest level of sensitivity.

The ECL sensitivity for the Central scenario remained flat for the

wholesale and retail portfolios from the previous year. For the

remaining scenarios, the changes in ECL sensitivity from the previous

year were reflective of geographical and sector risks, which increased

or reduced accordingly with macroeconomic conditions.

Reconciliation of changes in gross

carrying/nominal amount and

allowances for loans and advances to

banks and customers including loan

commitments and financial

guarantees

The following disclosure provides a reconciliation by stage of the

Group’s gross carrying/nominal amount and allowances for loans and

advances to banks and customers, including loan commitments and

financial guarantees. Movements are calculated on a quarterly basis

and therefore fully capture stage movements between quarters. If

movements were calculated on a year-to-date basis they would only

reflect the opening and closing position of the financial instrument.

The transfers of financial instruments represents the impact of stage

transfers upon the gross carrying/nominal amount and associated

allowance for ECL.

The net remeasurement of ECL arising from stage transfers

represents the increase or decrease due to these transfers, for

example, moving from a 12-month (stage 1) to a lifetime (stage 2)

ECL measurement basis. Net remeasurement excludes the

underlying customer risk rating (‘CRR’)/probability of default (‘PD’)

movements of the financial instruments transferring stage. This is

captured, along with other credit quality movements in the ‘changes

in risk parameters – credit quality’ line item.

Changes in ‘New financial assets originated or purchased’, ‘assets

derecognised (including final repayments)’ and ‘changes to risk

parameters – further lending/repayment’ represent the impact from

volume movements within the Group’s lending portfolio.

Risk review

162 HSBC Holdings plc Annual Report and Accounts 2022

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including

loan commitments and financial guarantees

(Audited)

Non-credit impaired

Credit impaired

Stage 1 Stage 2 Stage 3 POCI Total

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

At 1 Jan 2022 1,577,582 (1,557) 155,742 (3,326) 19,797 (6,928) 274 (64) 1,753,395 (11,875)

Transfers of financial

instruments:

(99,022) (798) 89,052 1,620 9,970 (822) — — — —

– transfers from stage 1 to

stage 2

(225,616) 470 225,616 (470) — — — — — —

– transfers from stage 2 to

stage 1

128,246 (1,216) (128,246) 1,216 — — — — — —

– transfers to stage 3 (2,392) 9 (10,087) 1,132 12,479 (1,141) — — — —

– transfers from stage 3 740 (61) 1,769 (258) (2,509) 319 — — — —

Net remeasurement of ECL

arising from transfer of

stage

— 739 — (953) — (152) — — — (366)

New financial assets

originated or purchased

483,617 (548) — — — — 26 (2) 483,643 (550)

Assets derecognised

(including final repayments)

(318,659) 148 (37,941) 343 (2,806) 416 (97) — (359,503) 907

Changes to risk parameters

– further lending/repayment

(65,778) 226 (6,963) 93 (594) 259 (61) 5 (73,396) 583

Changes to risk parameters

– credit quality

— 403 — (1,670) — (3,019) — 32 — (4,254)

Changes to models used

for ECL calculation

— 4 — (151) — 13 — — — (134)

Assets written off

— — — —

(2,794) 2,794 (10) 10 (2,804) 2,804

Credit-related modifications

that resulted in

derecognition — — — — (32) 9 — — (32) 9

Foreign exchange (81,975) 59 (8,811) 170 (1,395) 323 (3) 1 (92,184) 553

Others

(60,557) 64 (13,716) 161 (938) 158 — (20) (75,211) 363

At 31 Dec 2022 1,435,208 (1,260) 177,363 (3,713) 21,208 (6,949) 129 (38) 1,633,908 (11,960)

ECL income statement

change for the period

972 (2,338) (2,483) 35 (3,814)

Recoveries 316

Others (26)

Total ECL income

statement change for the

period

(3,524)

1 Total includes $82.7bn of gross carrying loans and advances to customers and banks, which were classified to assets held for sale, and a

corresponding allowance for ECL of $426m, reflecting business disposals as disclosed in Note 23 ‘Assets held for sale and liabilities of disposal groups

held for sale’ on page 389.

At 31 Dec 2022

12 months ended

31 Dec 2022

Gross carrying/

nominal amount

Allowance for ECL ECL charge



As above 1,633,908 (11,960) (3,524)

Other financial assets measured at amortised cost 1,014,498 (553) (41)

Non-trading reverse purchase agreement commitments 44,921 — —

Performance and other guarantees not considered for IFRS 9 — — 41

Summary of financial instruments to which the impairment requirements in

IFRS 9 are applied/Summary consolidated income statement

2,693,327 (12,513) (3,524)

Debt instruments measured at FVOCI 266,303 (145) (68)

Total allowance for ECL/total income statement ECL change for the period n/a (12,658) (3,592)

As shown in the previous table, the allowance for ECL for loans and

advances to customers and banks and relevant loan commitments

and financial guarantees increased $85m during the period from

$11,875m at 31 December 2021 to $11,960m at 31 December 2022.

This increase was primarily driven by:

• $4,254m relating to underlying credit quality changes, including the

credit quality impact of financial instruments transferring between

stages;

HSBC Holdings plc Annual Report and Accounts 2022 163

Risk review

• $366m relating to the net remeasurement impact of stage

transfers; and

• $134m of changes to models used for ECL calculation.

These were partly offset by:

• $2,804m of assets written off;

• $940m relating to volume movements, which included the ECL

allowance associated with new originations, assets derecognised

and further lending/repayment; and

• foreign exchange and other movements of $916m.

The ECL charge for the period of $3,814m presented in the previous

table consisted of $4,254m relating to underlying credit quality

changes, including the credit quality impact of financial instruments

transferring between stages, $366m relating to the net

remeasurement impact of stage transfers, and $134m in changes to

models used for ECL calculation. This was partly offset by $940m

relating to underlying net book volume movement.

Summary views of the movement in wholesale and personal lending

are presented on pages 173 and 191.

Reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and customers including

loan commitments and financial guarantees

(Audited)

Non-credit impaired

Credit impaired

Stage 1

Stage 2

Stage 3

POCI

Total

Gross

exposure

Allowance

/ provision

for ECL

Gross

exposure

Allowance

/ provision

for ECL

Gross

exposure

Allowance/

provision

for ECL

Gross

exposure

Allowance

/ provision

for ECL

Gross

exposure

Allowance/

provision

for ECL

At 1 Jan 2021 1,506,451 (2,331) 223,432 (5,403) 20,424 (7,544) 279 (113) 1,750,586 (15,391)

Transfers of financial instruments: 21,107 (1,792) (27,863) 2,601 6,756 (809) — — — —

– transfers from stage 1 to

stage 2

(159,633) 527 159,633 (527) — — — — — —

– transfers from stage 2 to

stage 1

182,432 (2,279) (182,432) 2,279 — — — — — —

– transfers to stage 3 (2,345) 24 (6,478) 1,010 8,823 (1,034) — — — —

– transfers from stage 3 653 (64) 1,414 (161) (2,067) 225 — — — —

Net remeasurement of ECL arising

from transfer of stage

— 1,225 — (596) — (34) — — — 595

New financial assets originated or

purchased

444,070 (553) — — — — 124 — 444,194 (553)

Assets derecognised (including

final repayments)

(304,158) 174 (31,393) 489 (2,750) 458 (10) 6 (338,311) 1,127

Changes to risk parameters –

further lending/repayment

(61,742) 547 (3,634) 498 (1,268) 576 (108) 12 (66,752) 1,633

Changes to risk parameters –

credit quality

— 1,111 — (1,012) — (2,354) — 28 — (2,227)

Changes to models used for ECL

calculation

— (17) — (33) — 1 — — — (49)

Assets written off — — — — (2,610) 2,605 (7) 7 (2,617) 2,612

Credit-related modifications that

resulted in derecognition

— — — — (125) — — — (125) —

Foreign exchange (25,231) 26 (2,918) 45 (479) 157 (4) 1 (28,632) 229

Others

(2,915) 53 (1,882) 85 (151) 16 — (5) (4,948) 149

At 31 Dec 2021 1,577,582 (1,557) 155,742 (3,326) 19,797 (6,928) 274 (64) 1,753,395 (11,875)

ECL income statement change for

the period

2,487 (654) (1,353) 46 526

Recoveries 409

Others (111)

Total ECL income statement

change for the period

824

1 Total includes $3.0bn of gross carrying loans and advances to customers, which were classified to assets held for sale, and a corresponding allowance

for ECL of $123m, reflecting our exit of the domestic mass market retail banking in the US.

At 31 Dec 2021

12 months ended 31 Dec

2021

Gross carrying/

nominal amount

Allowance for

ECL

ECL charge



As above 1,753,395 (11,875) 824

Other financial assets measured at amortised cost 880,351 (193) (19)

Non-trading reverse purchase agreement commitments 42,421 — —

Performance and other guarantees not considered for IFRS 9

— —

Summary of financial instruments to which the impairment requirements in IFRS 9 are

applied/Summary consolidated income statement 2,676,167 (12,068) 880

Debt instruments measured at FVOCI 347,203 (96) 48

Total allowance for ECL/total income statement ECL change for the period n/a (12,164) 928

Risk review

164 HSBC Holdings plc Annual Report and Accounts 2022

Credit quality

Credit quality of financial instruments

(Audited)

We assess the credit quality of all financial instruments that are

subject to credit risk. The credit quality of financial instruments is a

point-in-time assessment of PD, whereas stages 1 and 2 are

determined based on relative deterioration of credit quality since initial

recognition for the majority of portfolios. Accordingly, for non-credit-

impaired financial instruments, there is no direct relationship

between the credit quality assessment and stages 1 and 2, although

typically the lower credit quality bands exhibit a higher proportion in

stage 2.

The five credit quality classifications provided below each encompass

a range of granular internal credit rating grades assigned to wholesale

and personal lending businesses and the external ratings attributed by

external agencies to debt securities, as shown in the table on

page146.

Distribution of financial instruments by credit quality at 31 December 2022

(Audited)

Gross carrying/notional amount

Allowance

for ECL/

other credit

provisions NetStrong Good Satisfactory

Sub-

standard

Credit

impaired Total

In-scope for IFRS 9 ECL

Loans and advances to

customers held at amortised cost

492,848 197,560 196,819 29,446 19,634 936,307 (11,453) 924,854

– personal 333,838 45,696 28,942 3,196 3,340 415,012 (2,872) 412,140

– corporate and commercial 126,659 132,847 154,135 24,890 15,825 454,356 (8,324) 446,032

– non-bank financial institutions 32,351 19,017 13,742 1,360 469 66,939 (257) 66,682

Loans and advances to banks

held at amortised cost

93,025 4,890 5,643 1,311 82 104,951 (69) 104,882

Cash and balances at central

banks

325,119 1,296 590 — — 327,005 (3) 327,002

Items in the course of collection

from other banks

7,280 12 5 — — 7,297 — 7,297

Hong Kong Government

certificates of indebtedness

43,787 — — — — 43,787 — 43,787

Reverse repurchase agreements

– non-trading

170,386 41,659 41,686 20 3 253,754 — 253,754

Financial investments 151,385 14,113 3,121 161 47 168,827 (80) 168,747

Assets held for sale 67,617 17,993 13,972 2,333 641 102,556 (415) 102,141

Other assets 91,114 10,911 8,821 274 152 111,272 (55) 111,217

– endorsements and

acceptances

2,350 3,059 2,815 175 25 8,424 (17) 8,407

– accrued income and other 88,764 7,852 6,006 99 127 102,848 (38) 102,810

Debt instruments measured at

fair value through other

comprehensive income

261,247 10,132 5,981 1,949 42 279,351 (145) 279,206

Out-of-scope for IFRS 9

Trading assets 91,330 14,371 23,415 820 133 130,069 — 130,069

Other financial assets designated

and otherwise mandatorily

measured at fair value through

profit or loss 6,281 809 1,785 110 — 8,985 — 8,985

Derivatives 241,905 34,181 7,843 181 36 284,146 — 284,146

Assets held for sale 15,254 — — — — 15,254 — 15,254

Total gross carrying amount on

balance sheet

2,058,578 347,927 309,681 36,605 20,770 2,773,561 (12,220) 2,761,341

Percentage of total credit quality 74.2% 12.5% 11.2% 1.3% 0.8% 100%

Loan and other credit-related

commitments

402,972 132,402 74,410 7,632 1,372 618,788 (386) 618,402

Financial guarantees 8,281 4,669 4,571 1,013 249 18,783 (52) 18,731

In-scope: Irrevocable loan

commitments and financial

guarantees

411,253 137,071 78,981 8,645 1,621 637,571 (438) 637,133

Loan and other credit-related

commitments

76,095 69,667 59,452 3,360 489 209,063 — 209,063

Performance and other

guarantees

37,943 30,029 17,732 2,137 399 88,240 (110) 88,130

Out-of-scope: Revocable loan

commitments and non-

financial guarantees

114,038 99,696 77,184 5,497 888 297,303 (110) 297,193

1 For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset before adjusting for any loss allowance.

As such, the gross carrying value of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes fair value

gains and losses.

HSBC Holdings plc Annual Report and Accounts 2022 165

Risk review

Distribution of financial instruments by credit quality at 31 December 2021 (continued)

(Audited)

Gross carrying/notional amount

Allowance

for ECL/other

credit

provisions

NetStrong Good Satisfactory

Sub-

standard

Credit

impaired Total

In-scope for IFRS 9 ECL

Loans and advances to customers

held at amortised cost

544,695 230,326 233,739 29,404 19,067 1,057,231 (11,417) 1,045,814

– personal 388,903 52,080 30,492 1,920 4,942 478,337 (3,103) 475,234

– corporate and commercial 124,819 158,938 188,858 27,194 13,730 513,539 (8,204) 505,335

– non-bank financial institutions 30,973 19,308 14,389 290 395 65,355 (110) 65,245

Loans and advances to banks

held at amortised cost

72,978 4,037 5,020 1,118 — 83,153 (17) 83,136

Cash and balances at central

banks

400,176 1,675 1,171 — — 403,022 (4) 403,018

Items in the course of collection

from other banks

4,122 10 4 — — 4,136 — 4,136

Hong Kong Government

certificates of indebtedness

42,578 — — — — 42,578 — 42,578

Reverse repurchase agreements

– non-trading

175,576 46,412 18,881 779 — 241,648 — 241,648

Financial investments 84,477 11,442 1,401 1 43 97,364 (62) 97,302

Assets held for sale 560 1,112 936 110 141 2,859 (43) 2,816

Other assets 66,537 10,997 10,749 298 163 88,744 (84) 88,660

– endorsements and

acceptances

1,742 5,240 4,038 199 26 11,245 (17) 11,228

– accrued income and other 64,795 5,757 6,711 99 137 77,499 (67) 77,432

Debt instruments measured at

fair value through other

comprehensive income

320,161 12,298 11,677 1,087 46 345,269 (96) 345,173

Out-of-scope for IFRS 9

Trading assets 101,879 16,254 20,283 678 134 139,228 — 139,228

Other financial assets designated

and otherwise mandatorily

measured at fair value through

profit or loss

6,438 723 4,455 150 — 11,766 — 11,766

Derivatives 146,748 42,717 6,691 719 7 196,882 — 196,882

Total gross carrying amount on

balance sheet

1,966,925 378,003 315,007 34,344 19,601 2,713,880 (11,723) 2,702,157

Percentage of total credit quality 72.5% 13.9% 11.6% 1.3% 0.7% 100%

Loan and other credit-related

commitments

389,865 136,297 92,558 8,142 775 627,637 (379) 627,258

Financial guarantees 16,511 4,902 5,166 991 225 27,795 (62) 27,733

In-scope: Irrevocable loan

commitments and financial

guarantees

406,376 141,199 97,724 9,133 1,000 655,432 (441) 654,991

Loan and other credit-related

commitments

62,701 65,031 56,446 3,327 332 187,837 — 187,837

Performance and other

guarantees

31,510 32,193 19,265 2,027 539 85,534 (179) 85,355

Out-of-scope: Revocable loan

commitments and non-financial

guarantees

94,211 97,224 75,711 5,354 871 273,371 (179) 273,192

1 For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset before adjusting for any loss allowance.

As such, the gross carrying value of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes fair value

gains and losses.

Risk review

166 HSBC Holdings plc Annual Report and Accounts 2022

Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation

(Audited)

Gross carrying/notional amount

Allowance

for ECL

NetStrong Good Satisfactory

Sub-

standard

Credit

impaired

Total

Loans and advances to customers at

amortised cost

492,848 197,560 196,819 29,446 19,634 936,307 (11,453) 924,854

– stage 1 458,843 170,875 142,695 5,130 — 777,543 (1,095) 776,448

– stage 2 34,005 26,685 54,124 24,316 — 139,130 (3,491) 135,639

– stage 3 — — — — 19,505 19,505 (6,829) 12,676

– POCI — — — — 129 129 (38) 91

Loans and advances to banks at amortised

cost

93,025 4,890 5,643 1,311 82 104,951 (69) 104,882

– stage 1 92,696 4,465 5,466 415 — 103,042 (18) 103,024

– stage 2 329 425 177 896 — 1,827 (29) 1,798

– stage 3 — — — — 82 82 (22) 60

– POCI — — — — — — — —

Other financial assets measured at amortised

cost

856,688 85,984 68,195 2,788 843 1,014,498 (553) 1,013,945

– stage 1 855,523 80,175 60,583 208 — 996,489 (124) 996,365

– stage 2 1,165 5,809 7,612 2,580 — 17,166 (188) 16,978

– stage 3 — — — — 797 797 (234) 563

– POCI — — — — 46 46 (7) 39

Loan and other credit-related commitments 402,972 132,402 74,410 7,632 1,372 618,788 (386) 618,402

– stage 1 398,120 121,581 60,990 2,692 — 583,383 (141) 583,242

– stage 2 4,852 10,821 13,420 4,940 — 34,033 (180) 33,853

– stage 3 — — — — 1,372 1,372 (65) 1,307

– POCI — — — — — — — —

Financial guarantees 8,281 4,669 4,571 1,013 249 18,783 (52) 18,731

– stage 1 8,189 4,245 3,488 149 — 16,071 (6) 16,065

– stage 2 92 424 1,083 864 — 2,463 (13) 2,450

– stage 3 — — — — 249 249 (33) 216

– POCI — — — — — — — —

At 31 Dec 2022 1,853,814 425,505 349,638 42,190 22,180 2,693,327 (12,513) 2,680,814

Debt instruments at FVOCI

– stage 1 260,941 10,000 5,690 — — 276,631 (68) 276,563

– stage 2 306 132 291 1,949 — 2,678 (69) 2,609

– stage 3 — — — — 5 5 (1) 4

– POCI — — — — 37 37 (7) 30

At 31 Dec 2022 261,247 10,132 5,981 1,949 42 279,351 (145) 279,206

1 For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset before adjusting for any loss allowance.

As such, the gross carrying value of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes fair value

gains and losses.

HSBC Holdings plc Annual Report and Accounts 2022 167

Risk review

Distribution of financial instruments to which the impairment requirements in IFRS 9 are applied, by credit quality and stage allocation

(continued)

(Audited)

Gross carrying/notional amount

Strong Good Satisfactory

Sub-

standard

Credit

impaired

Total

Allowance

for ECL

Net

Loans and advances to customers at amortised

cost 544,695 230,326 233,739 29,404 19,067 1,057,231 (11,417) 1,045,814

– stage 1 537,642 206,645 169,809 4,840 — 918,936 (1,367) 917,569

– stage 2 7,053 23,681 63,930 24,560 — 119,224 (3,119) 116,105

– stage 3 — — — — 18,797 18,797 (6,867) 11,930

– POCI — — — 4 270 274 (64) 210

Loans and advances to banks at amortised

cost

72,978 4,037 5,020 1,118 — 83,153 (17) 83,136

– stage 1 72,903 3,935 4,788 10 — 81,636 (14) 81,622

– stage 2 75 102 232 1,108 — 1,517 (3) 1,514

– stage 3 — — — — — — — —

– POCI — — — — — — — —

Other financial assets measured at amortised

cost 774,026 71,648 33,142 1,188 347 880,351 (193) 880,158

– stage 1 773,427 70,508 30,997 84 — 875,016 (91) 874,925

– stage 2 599 1,140 2,145 1,104 — 4,988 (54) 4,934

– stage 3 — — — — 304 304 (42) 262

– POCI — — — — 43 43 (6) 37

Loan and other credit-related commitments 389,865 136,297 92,558 8,142 775 627,637 (379) 627,258

– stage 1 387,434 129,455 76,043 1,541 — 594,473 (165) 594,308

– stage 2 2,431 6,842 16,515 6,601 — 32,389 (174) 32,215

– stage 3 — — — — 775 775 (40) 735

– POCI — — — — — — — —

Financial guarantees 16,511 4,902 5,166 991 225 27,795 (62) 27,733

– stage 1 16,351 4,469 3,929 183 — 24,932 (11) 24,921

– stage 2 160 433 1,237 808 — 2,638 (30) 2,608

– stage 3 — — — — 225 225 (21) 204

– POCI — — — — — — — —

At 31 Dec 2021 1,798,075 447,210 369,625 40,843 20,414 2,676,167 (12,068) 2,664,099

Debt instruments at FVOCI

– stage 1 319,557 12,196 11,354 — — 343,107 (67) 343,040

– stage 2 604 102 323 1,087 — 2,116 (22) 2,094

– stage 3 — — — — — — — —

– POCI — — — — 46 46 (7) 39

At 31 Dec 2021 320,161 12,298 11,677 1,087 46 345,269 (96) 345,173

1 For the purposes of this disclosure, gross carrying value is defined as the amortised cost of a financial asset before adjusting for any loss allowance.

As such, the gross carrying value of debt instruments at FVOCI as presented above will not reconcile to the balance sheet as it excludes fair value

gains and losses.

Credit-impaired loans

(Audited)

We determine that a financial instrument is credit impaired and in

stage 3 by considering relevant objective evidence, primarily whether:

• contractual payments of either principal or interest are past due for

more than 90 days;

• there are other indications that the borrower is unlikely to pay,

such as when a concession has been granted to the borrower for

economic or legal reasons relating to the borrower’s financial

condition; and

• the loan is otherwise considered to be in default. If such

unlikeliness to pay is not identified at an earlier stage, it is deemed

to occur when an exposure is 90 days past due, even where

regulatory rules permit default to be defined based on 180 days

past due. Therefore, the definitions of credit impaired and default

are aligned as far as possible so that stage 3 represents all loans

that are considered defaulted or otherwise credit impaired.

Risk review

168 HSBC Holdings plc Annual Report and Accounts 2022

Forbearance

The following table shows the gross carrying amounts and allowances for ECL of the Group’s holdings of forborne loans and advances to

customers by industry sector and by stages.

A summary of our current policies and practices for forbearance is set out in ‘Credit risk management’ on page 145.

Forborne loans and advances to customers at amortised cost by stage allocation

Performing – forborne Non-performing – forborne

Total –

forborne

Stage 1

Stage 2

Stage 3

POCI

Total

Gross carrying amount

Personal — 651 1,171 — 1,822

– first lien residential mortgages — 369 738 — 1,107

–second lien residential mortgages — — 7 — 7

–guaranteed loans in respect of residential property — — 4 — 4

– other personal lending which is secured — 5 13 — 18

–credit cards — 93 75 — 168

– other personal lending which is unsecured — 179 334 — 513

– motor vehicle finance — 5 — — 5

Wholesale — 4,873 4,576 107 9,556

– corporate and commercial — 4,859 4,562 107 9,528

– non-bank financial institutions — 14 14 — 28

At 31 Dec 2022 — 5,524 5,747 107 11,378

Allowance for ECL

Personal — (124) (302) — (426)

– first lien residential mortgages — (49) (118) — (167)

–second lien residential mortgages — — (3) — (3)

–guaranteed loans in respect of residential property — — (3) — (3)

– other personal lending which is secured — — (2) — (2)

–credit cards — (19) (44) — (63)

– other personal lending which is unsecured — (54) (132) — (186)

– motor vehicle finance — (2) — — (2)

Wholesale — (152) (1,497) (25) (1,674)

– corporate and commercial — (151) (1,490) (25) (1,666)

– non-bank financial institutions — (1) (7) — (8)

At 31 Dec 2022 — (276) (1,799) (25) (2,100)

Gross carrying amount

Personal — — 2,256 — 2,256

– first lien residential mortgages — — 1,547 — 1,547

–second lien residential mortgages — — 22 — 22

–guaranteed loans in respect of residential property — — 23 — 23

– other personal lending which is secured — — 39 — 39

–credit cards — — 168 — 168

– other personal lending which is unsecured — — 456 — 456

– motor vehicle finance — — 1 — 1

Wholesale 366 559 4,505 253 5,683

– corporate and commercial 355 550 4,491 253 5,649

– non-bank financial institutions 11 9 14 — 34

At 31 Dec 2021

366 559 6,761 253 7,939

Allowance for ECL

Personal — — (400) — (400)

– first lien residential mortgages — — (178) — (178)

–second lien residential mortgages — — (6) — (6)

–guaranteed loans in respect of residential property — — (7) — (7)

– other personal lending which is secured — — (5) — (5)

–credit cards — — (53) — (53)

– other personal lending which is unsecured — — (151) — (151)

– motor vehicle finance — — — — —

Wholesale (7) (24) (1,282) (52) (1,365)

– corporate and commercial (7) (24) (1,274) (52) (1,357)

– non-bank financial institutions — — (8) — (8)

At 31 Dec 2021

(7) (24) (1,682) (52) (1,765)

1 Forborne exposures and allowances for ECL at 31 December 2021 have not been restated and agreed with the policies and disclosures presented in

the Annual Report and Accounts 2021.

Following the adoption of the EBA ‘Guidelines on the application of definition of default’, retail and wholesale loans are identified as forborne

and classified as either performing or non-performing when we modify the contractual terms due to financial difficulty of the borrower. At

31December 2022, we reported $5,524m (31 December 2021: $925m) of performing forborne loans. The increase of $4,599m was mainly

driven by the inclusion of non-payment-related concessions in the forbearance assessment since 1 January 2022.

HSBC Holdings plc Annual Report and Accounts 2022 169

Risk review

Forborne loans and advances to customers by geographical region

of which:

Europe Asia MENA

North

America

Latin

America

Total UK

Hong

Kong

Gross carrying amount

Performing forborne 3,121 276 482 1,100 545 5,524 1,028 134

Non-performing forborne 2,636 1,562 1,076 368 212 5,854 2,126 879

At 31 Dec 2022 5,757 1,838 1,558 1,468 757 11,378 3,154 1,013

Allowances for ECL

Performing forborne (95) (21) (19) (62) (79) (276) (64) (17)

Non-performing forborne (566) (525) (536) (83) (114) (1,824) (441) (355)

At 31 Dec 2022 (661) (546) (555) (145) (193) (2,100) (505) (372)

Gross carrying amount

Performing forborne 698 5 105 89 28 925 640 —

Non-performing forborne 3,421 1,317 849 975 452 7,014 2,829 528

At 31 Dec 2021

4,119 1,322 954 1,064 480 7,939 3,469 528

Allowances for ECL

Performing forborne (13) — (9) (8) (1) (31) (10) —

Non-performing forborne (615) (306) (475) (138) (200) (1,734) (459) (89)

At 31 Dec 2021

(628) (306) (484) (146) (201) (1,765) (469) (89)

1 Forborne exposures and allowances for ECL at 31 December 2021 have not been restated and agreed with the policies and disclosures presented in

the Annual Report and Accounts 2021.

Wholesale lending

This section provides further details on the regions, countries,

territories and products comprising wholesale loans and advances to

customers and banks. Product granularity is also provided by stage

with geographical data presented for loans and advances to

customers, banks, other credit commitments, financial guarantees

and similar contracts. Additionally, this section provides a

reconciliation of the opening 1 January 2022 to 31 December 2022

closing gross carrying/nominal amounts and the associated allowance

for ECL.

At 31 December 2022, wholesale lending for loans and advances to

banks and customers of $626.2bn decreased by $35.8bn since

31December 2021. This included adverse foreign exchange

movements of $31.9bn. Excluding foreign exchange movements, the

total wholesale lending decrease of $3.9bn was driven by a $34.3bn

decline in corporate and commercial balances. This was partly offset

by a $25.9bn increase in loans and advances to banks and a $4.5bn

increase in balances from non-bank financial institutions.

The primary driver of the decline in corporate and commercial

balances was the $23.4bn reclassification of our banking business in

Canada to held for sale, and a decline of $11.3bn in Asia. In Asia, the

decline was driven from a $17.3bn decrease in Hong Kong, partly

offset by growth of $2.4bn in Australia, $1.9b in Japan and $1.7bn in

India.

Growth in loans and advances to banks was mainly driven by a

$13.0bn increase in Asia, a $10.1bn increase in Europe, and a $2.6bn

increase in MENA. In Asia, the increase can be largely attributed to

$7.9bn in Hong Kong and $1.5bn in Malaysia. In Europe, the growth

was mainly from the UK with an increase of $10.6bn.

The increase in balances from non-bank financial institutions was

driven from an increase of $3.7bn in Asia and $2.0bn in Europe. This

growth was partly offset by a decline of $1.3bn in North America, of

which $1.4bn was due to the reclassification of our banking business

in Canada to held for sale, and a $0.1bn increase in the US.

Loan commitments and financial guarantees decreased by $22.2bn

since 31 December 2021 to $392.4bn at 31 December 2022,

including a $3.0bn increase related to unsettled reverse repurchase

agreements. This also included adverse foreign exchange movements

of $21.8bn.

The allowance for ECL attributable to wholesale loans and advances

to banks and customers increased by $0.3bn to $8.7bn at

31December 2022. This included favourable foreign exchange

movements of $0.4bn.

Excluding foreign exchange movements, the total increase in the

wholesale ECL allowance for loans and advances to customers and

banks was driven by a $0.5bn growth in corporate and commercial

allowances. The primary driver of this increase in corporate and

commercial allowance for ECL was $1.1bn in Asia, notably $1.4bn in

Hong Kong, which was partly offset by a decline of $0.4bn in

Singapore. Allowances for ECL decreased by $0.2bn in North

America, and by $0.1bn in both Europe and Latin America.

The allowance for ECL attributable to loan commitments and financial

guarantees at 31 December 2022 remained at $0.4bn from

31December 2021.

Risk review

170 HSBC Holdings plc Annual Report and Accounts 2022

Total wholesale lending for loans and advances to banks and customers by stage distribution

Gross carrying amount

Allowance for ECL

Stage 1

Stage 2

Stage 3

POCI

Total

Stage 1

Stage 2

Stage 3

POCI

Total

Corporate and commercial 353,010 85,521 15,696 129 454,356 (490) (1,909) (5,887) (38) (8,324)

– agriculture, forestry and fishing 4,805 1,505 261 — 6,571 (10) (44) (68) — (122)

– mining and quarrying 6,498 1,463 232 1 8,194 (5) (21) (145) (1) (172)

– manufacturing 70,187 15,251 2,016 49 87,503 (93) (164) (867) (29) (1,153)

– electricity, gas, steam and air-

conditioning supply 15,006 1,799 277 — 17,082 (11) (31) (67) — (109)

– water supply, sewerage, waste

management and remediation 2,690 277 26 — 2,993 (3) (5) (13) — (21)

– construction 9,692 2,742 791 7 13,232 (21) (51) (368) (3) (443)

– wholesale and retail trade, repair of

motor vehicles and motorcycles 63,755 15,872 2,805 5 82,437 (96) (226) (1,341) (3) (1,666)

– transportation and storage 19,227 5,062 556 — 24,845 (31) (65) (153) — (249)

– accommodation and food 9,873 6,523 787 2 17,185 (23) (139) (81) (1) (244)

– publishing, audiovisual and

broadcasting 16,609 1,537 249 28 18,423 (22) (36) (58) (1) (117)

– real estate 72,195 24,386 4,834 19 101,434 (86) (904) (1,861) — (2,851)

– professional, scientific and technical

activities 15,164 2,229 542 — 17,935 (21) (51) (200) — (272)

– administrative and support services 20,592 3,505 962 18 25,077 (25) (90) (293) — (408)

– public administration and defence,

compulsory social security 1,166 14 — — 1,180 — (1) — — (1)

– education 1,346 181 87 — 1,614 (4) (5) (22) — (31)

– health and care 3,055 643 266 — 3,964 (6) (17) (67) — (90)

– arts, entertainment and recreation 1,264 452 146 — 1,862 (4) (16) (57) — (77)

– other services 10,391 1,547 589 — 12,527 (26) (30) (219) — (275)

– activities of households 730 14 — — 744 — — — — —

– extra-territorial organisations and

bodies activities 47 — — — 47 — — — — —

– government 8,699 506 270 — 9,475 (3) — (7) — (10)

– asset-backed securities 19 13 — — 32 — (13) — — (13)

Non-bank financial institutions 61,752 4,718 469 — 66,939 (43) (77) (137) — (257)

Loans and advances to banks 103,042 1,827 82 — 104,951 (18) (29) (22) — (69)

At 31 Dec 2022 517,804 92,066 16,247 129 626,246 (551) (2,015) (6,046) (38) (8,650)

By geography

Europe 150,592 28,060 7,070 31 185,753 (223) (628) (1,718) (1) (2,570)

– of which: UK 104,595 21,489 5,432 28 131,544 (186) (501) (1,015) (1) (1,703)

Asia 293,503 50,826 6,938 81 351,348 (220) (1,077) (3,125) (25) (4,447)

– of which: Hong Kong 155,513 28,275 5,338 57 189,183 (104) (775) (2,136) (22) (3,037)

MENA 29,512 3,254 1,530 17 34,313 (22) (49) (909) (12) (992)

North America 31,372 6,950 245 — 38,567 (25) (197) (44) — (266)

Latin America 12,825 2,976 464 — 16,265 (61) (64) (250) — (375)

At 31 Dec 2022 517,804 92,066 16,247 129 626,246 (551) (2,015) (6,046) (38) (8,650)

Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution

Nominal amount

Allowance for ECL

Stage 1

Stage 2

Stage 3

POCI

Total

Stage 1

Stage 2

Stage 3

POCI

Total

Corporate and commercial 252,860 29,116 798 — 282,774 (116) (178) (96) — (390)

Financial 105,950 3,683 23 — 109,656 (5) (14) (2) — (21)

At 31 Dec 2022 358,810 32,799 821 — 392,430 (121) (192) (98) — (411)

By geography

Europe 168,179 17,235 498 — 185,912 (41) (87) (85) — (213)

– of which: UK 60,532 9,941 278 — 70,751 (34) (64) (46) — (144)

Asia 67,473 6,081 114 — 73,668 (54) (53) (9) — (116)

– of which: Hong Kong 27,102 2,448 46 — 29,596 (14) (27) (2) — (43)

MENA 7,500 565 21 — 8,086 (4) (5) (2) — (11)

North America 112,695 8,642 185 — 121,522 (21) (47) (2) — (70)

Latin America 2,963 276 3 — 3,242 (1) — — — (1)

At 31 Dec 2022 358,810 32,799 821 — 392,430 (121) (192) (98) — (411)

1 Included in loans and other credit-related commitments and financial guarantees is $45bn relating to unsettled reverse repurchase agreements, which

once drawn are classified as ‘Reverse repurchase agreements – non-trading’.

HSBC Holdings plc Annual Report and Accounts 2022 171

Risk review

Total wholesale lending for loans and advances to banks and customers by stage distribution

Gross carrying amount

Allowance for ECL

Stage 1

Stage 2

Stage 3

POCI

Total

Stage 1

Stage 2

Stage 3

POCI

Total

Corporate and commercial 400,894 98,911 13,460 274 513,539 (665) (1,874) (5,601) (64) (8,204)

– agriculture, forestry and fishing 6,510 1,026 362 1 7,899 (10) (23) (104) (1) (138)

– mining and quarrying 7,167 2,055 447 16 9,685 (17) (39) (159) (12) (227)

– manufacturing 75,193 16,443 2,019 88 93,743 (110) (176) (931) (31) (1,248)

– electricity, gas, steam and air-

conditioning supply 15,255 1,285 78 — 16,618 (16) (21) (31) — (68)

– water supply, sewerage, waste

management and remediation 3,376 468 51 — 3,895 (5) (4) (20) — (29)

– construction 9,506 3,605 842 1 13,954 (24) (44) (439) (1) (508)

– wholesale and retail trade, repair of

motor vehicles and motorcycles 79,137 12,802 3,003 2 94,944 (71) (99) (1,936) (1) (2,107)

– transportation and storage 21,199 7,726 658 9 29,592 (56) (116) (191) — (363)

– accommodation and food 8,080 14,096 1,199 1 23,376 (67) (245) (110) (1) (423)

– publishing, audiovisual and

broadcasting 16,417 1,804 222 28 18,471 (37) (47) (94) (6) (184)

– real estate 93,633 25,154 2,375 98 121,260 (132) (737) (775) — (1,644)

– professional, scientific and technical

activities 16,160 2,888 637 — 19,685 (26) (40) (172) — (238)

– administrative and support services 23,186 4,740 719 30 28,675 (40) (84) (296) (11) (431)

– public administration and defence,

compulsory social security

938 333 — — 1,271 (5) (3) — — (8)

– education 1,455 273 65 — 1,793 (4) (15) (18) — (37)

– health and care 3,743 928 183 — 4,854 (11) (24) (37) — (72)

– arts, entertainment and recreation 1,620 826 152 — 2,598 (6) (44) (42) — (92)

– other services 10,123 1,726 448 — 12,297 (26) (101) (246) — (373)

– activities of households 860 117 — — 977 — — — — —

– extra-territorial organisations and

bodies activities

2 — — — 2 — — — — —

– government 7,010 602 — — 7,612 (2) (2) — — (4)

– asset-backed securities 324 14 — — 338 — (10) — — (10)

Non-bank financial institutions 61,086 3,874 395 — 65,355 (44) (26) (40) — (110)

Loans and advances to banks 81,636 1,517 — — 83,153 (14) (3) — — (17)

At 31 Dec 2021 543,616 104,302 13,855 274 662,047 (723) (1,903) (5,641) (64) (8,331)

By geography

Europe 154,575 31,871 6,741 30 193,217 (356) (654) (1,806) (9) (2,825)

– of which: UK 101,029 24,461 5,126 28 130,644 (306) (518) (1,060) (6) (1,890)

Asia 297,423 53,993 3,997 199 355,612 (182) (830) (2,299) (43) (3,354)

– of which: Hong Kong 165,437 30,305 1,990 159 197,891 (85) (650) (836) (21) (1,592)

MENA 26,135 5,295 1,682 22 33,134 (62) (108) (1,028) (11) (1,209)

North America 53,513 10,397 652 — 64,562 (57) (215) (169) — (441)

Latin America 11,970 2,746 783 23 15,522 (66) (96) (339) (1) (502)

At 31 Dec 2021 543,616 104,302 13,855 274 662,047 (723) (1,903) (5,641) (64) (8,331)

Total wholesale lending for loans and other credit-related commitments and financial guarantees by stage distribution

Nominal amount

Allowance for ECL

Stage 1

Stage 2

Stage 3

POCI

Total

Stage 1

Stage 2

Stage 3

POCI

Total

Corporate and commercial 274,775 30,376 829 — 305,980 (130) (193) (60) — (383)

Financial 105,746 2,889 2 — 108,637 (9) (9) (1) — (19)

At 31 Dec 2021 380,521 33,265 831 — 414,617 (139) (202) (61) — (402)

By geography

Europe 189,770 15,585 673 — 206,028 (67) (76) (47) — (190)

– of which: UK 68,136 8,430 389 — 76,955 (55) (49) (28) — (132)

Asia 72,179 5,229 20 — 77,428 (35) (40) (5) — (80)

– of which: Hong Kong 31,314 1,517 10 — 32,841 (11) (17) (2) — (30)

MENA 6,335 1,017 19 — 7,371 (10) (18) (3) — (31)

North America 109,851 11,350 91 — 121,292 (24) (66) (1) — (91)

Latin America 2,386 84 28 — 2,498 (3) (2) (5) — (10)

At 31 Dec 2021 380,521 33,265 831 — 414,617 (139) (202) (61) — (402)

1 Included in loans and other credit-related commitments and financial guarantees is $42bn relating to unsettled reverse repurchase agreements, which

once drawn are classified as ‘Reverse repurchase agreements – non-trading’.

Risk review

172 HSBC Holdings plc Annual Report and Accounts 2022

Wholesale lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and

customers including loan commitments and financial guarantees

(Audited)

Non-credit impaired

Credit impaired

Stage 1

Stage 2

Stage 3

POCI

Total

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

At 1 Jan 2022 881,742 (862) 137,541 (2,105) 14,686 (5,702) 274 (64) 1,034,243 (8,733)

Transfers of financial

instruments

(58,188) (299) 49,569 943 8,619 (644) — — — —

– transfers from stage 1 to

stage 2

(157,553) 201 157,553 (201) — — — — — —

– transfers from stage 2 to

stage 1

100,839 (482) (100,839) 482 — — — — — —

– transfers to stage 3

(1,831) 7 (8,100) 771 9,931 (778) — —

– transfers from stage 3

357 (25) 955 (109) (1,312) 134 — — — —

Net remeasurement of

ECL arising from transfer

of stage

— 241 — (370) — (64) — — — (193)

New financial assets

originated or purchased 352,985 (277) — — — — 26 (2) 353,011 (279)

Assets derecognised

(including final

repayments) (250,014) 54 (33,850) 73 (1,763) 292 (97) — (285,724) 419

Changes to risk

parameters – further

lending/repayments (34,321) 64 (11,501) 128 (1,491) 292 (61) 5 (47,374) 489

Change in risk parameters

– credit quality — 321 — (994) — (2,197) — 32 — (2,838)

Changes to models used

for ECL calculation — 6 — (57) — — — — — (51)

Assets written off — — — — (1,579) 1,579 (10) 10 (1,589) 1,589

Credit-related

modifications that resulted

in derecognition — — — — (32) 9 — — (32) 9

Foreign exchange and

other

(60,421) 80 (16,984) 175 (1,372) 291 (3) (19) (78,780) 527

At 31 Dec 2022 831,783 (672) 124,775 (2,207) 17,068 (6,144) 129 (38) 973,755 (9,061)

ECL income statement

change for the period 409 (1,220) (1,677) 35 (2,453)

Recoveries 33

Others (23)

Total ECL income

statement change for the

period (2,443)

1 Total includes $33.1bn of gross carrying loans and advances to customers and banks, which were classified to assets held for sale, and a

corresponding allowance for ECL of $204m, reflecting business disposals as disclosed in Note 23 ‘Assets held for sale and liabilities of disposal groups

held for sale’ on page 389.

As shown in the above table, the allowance for ECL for loans and

advances to customers and banks and relevant loan commitments

and financial guarantees increased by $328m during the period from

$8,733m at 31 December 2021 to $9,061m at 31 December 2022.

This increase was primarily driven by:

• $2,838m relating to underlying credit quality changes, including the

credit quality impact of financial instruments transferring between

stages;

• $193m relating to the net remeasurement impact of stage

transfers; and

• $51m of changes to models used for ECL calculation.

These were partly offset by:

• $1,589m of assets written off;

• $629m relating to volume movements, which included the ECL

allowance associated with new originations, assets derecognised

and further lending/repayments; and

• foreign exchange and other movements of $527m.

The ECL charge for the period of $2,453m presented in the previous

table consisted of $2,838m relating to underlying credit quality

changes, including the credit quality impact of financial instruments

transferring between stages, $193m relating to the net

remeasurement impact of stage transfers and $51m in changes to

models used for ECL calculation. This was partly offset by $629m

relating to underlying net book volume movement.

During the period, there was a net transfer to stage 2 of $56,714m

gross carrying/nominal amounts. The movement reflected the

increased level of uncertainty around the macroeconomic outlook

during the period. It was primarily driven by $29,049m in Asia, due to

deterioration in the macroeconomic outlook affecting real estate

portfolios booked in Hong Kong, and $20,860m in Europe, mainly

driven by deterioration in the macroeconomic outlook affecting

corporate and commercial portfolios in France.

HSBC Holdings plc Annual Report and Accounts 2022 173

Risk review

Wholesale lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to banks and

customers including loan commitments and financial guarantees

(Audited)

Non-credit impaired

Credit impaired

Stage 1

Stage 2

Stage 3

POCI

Total

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

At 1 Jan 2021 841,105 (1,465) 196,662 (2,998) 14,662 (6,041) 279 (113) 1,052,708 (10,617)

Transfers of financial instruments 19,285 (638) (23,361) 888 4,076 (250) — — — —

– transfers from stage 1 to

stage 2

(135,932) 238 135,932 (238) — — — — — —

– transfers from stage 2 to

stage 1

156,346 (875) (156,346) 875 — — — — — —

– transfers to stage 3 (1,363) 17 (3,410) 276 4,773 (293) — — — —

– transfers from stage 3

234 (18) 463 (25) (697) 43 — — — —

Net remeasurement of ECL

arising from transfer of stage — 400 — (233) — (27) — — — 140

New financial assets originated or

purchased 307,150 (342) — — — — 124 — 307,274 (342)

Assets derecognised (including

final repayments) (221,160) 55 (26,136) 70 (1,514) 239 (10) 6 (248,820) 370

Changes to risk parameters –

further lending/repayments (47,766) 307 (6,014) 384 (987) 525 (108) 12 (54,875) 1,228

Changes to risk parameters –

credit quality — 793 — (234) — (1,347) — 28 — (760)

Changes to models used for ECL

calculation — (15) — (33) — — — — — (48)

Assets written off — — — — (1,085) 1,085 (7) 7 (1,092) 1,092

Credit-related modifications that

resulted in derecognition — — — — (125) — — — (125) —

Foreign exchange (16,157) 9 (2,560) 26 (341) 112 (4) 1 (19,062) 148

Others (715) 34 (1,050) 25 — 2 — (5) (1,765) 56

At 31 Dec 2021 881,742 (862) 137,541 (2,105) 14,686 (5,702) 274 (64) 1,034,243 (8,733)

ECL income statement change

for the period 1,198 (46) (610) 46 588

Recoveries 54

Others (102)

Total ECL income statement

change for the period

540

Wholesale lending – distribution of financial instruments to which the impairment requirements of IFRS 9 are applied by credit quality

Gross carrying/nominal amount

Allowance

for ECL NetStrong Good Satisfactory

Sub-

standard

Credit

impaired

Total

By geography

Europe 60,016 49,831 58,580 10,224 7,102 185,753 (2,570)

183,183

– of which: UK 44,515 38,521 36,934 6,115 5,459 131,544 (1,703)

129,841

Asia 167,720 81,907 84,973 9,735 7,013 351,348 (4,447)

346,901

– of which: Hong Kong 77,227 44,479 54,500 7,581 5,396 189,183 (3,037)

186,146

MENA 15,132 5,349 11,170 1,113 1,549 34,313 (992) 33,321

North America 7,445 13,390 12,856 4,630 246 38,567 (266) 38,301

Latin America 1,722 6,277 5,941 1,859 466 16,265 (375) 15,890

At 31 Dec 2022 252,035 156,754 173,520 27,561 16,376 626,246 (8,650)

617,596

Percentage of total credit quality 40.3 % 25.0 % 27.7 % 4.4 % 2.6 % 100.0 %

By geography

Europe 48,758 49,254 74,240 14,196 6,769 193,217 (2,825) 190,392

– of which: UK 30,390 37,212 48,694 9,192 5,156 130,644 (1,890) 128,754

Asia 155,072 95,626 96,046 4,670 4,198 355,612 (3,354) 352,258

– of which: Hong Kong 74,440 54,703 63,301 3,297 2,150 197,891 (1,592) 196,299

MENA 12,264 7,004 10,321 1,844 1,701 33,134 (1,209) 31,925

North America 11,683 24,663 22,022 5,543 651 64,562 (441) 64,121

Latin America 993 5,736 5,638 2,349 806 15,522 (502) 15,020

At 31 Dec 2021 228,770 182,283 208,267 28,602 14,125 662,047 (8,331) 653,716

Percentage of total credit quality 34.6 % 27.5 % 31.5 % 4.3 % 2.1 % 100.0 %

Our risk rating system facilitates the internal ratings-based approach under the Basel framework adopted by the Group to support calculation of

our minimum credit regulatory capital requirement. The credit quality classifications can be found on page146.

Risk review

174 HSBC Holdings plc Annual Report and Accounts 2022

Wholesale lending – credit risk profile by obligor grade for loans and advances at amortised cost

Gross carrying amount Allowance for ECL

Basel one-year

PD range Stage 1 Stage 2

Stage

POC

I Total

Stage

3 POCI Total

ECL

coverage

Mapped

external

rating

Corporate and

commercial

353,010 85,521 15,696 129 454,356 (490) (1,909) (5,887) (38) (8,324) 1.8

– CRR 1 0.000 to 0.053 35,630 330 — — 35,960 (6) (1) — — (7) — AA- and above

– CRR 2 0.054 to 0.169 87,465 3,234 — — 90,699 (28) (15) — — (43) — A+ to A-

– CRR 3 0.170 to 0.740 115,116 17,731 — — 132,847 (129) (122) — — (251) 0.2 BBB+ to BBB-

– CRR 4 0.741 to 1.927 74,229 21,550 — — 95,779 (155) (210) — — (365) 0.4 BB+ to BB-

– CRR 5 1.928 to 4.914 36,707 21,649 — — 58,356 (146) (361) — — (507) 0.9 BB- to B

– CRR 6 4.915 to 8.860 2,513 9,171 — — 11,684 (16) (237) — — (253) 2.2 B-

– CRR 7 8.861 to 15.000 1,164 5,476 — — 6,640 (8) (337) — — (345) 5.2 CCC+

– CRR 8 15.001 to 99.999 186 6,380 — — 6,566 (2) (626) — — (628) 9.6 CCC to C

– CRR 9/10 100.000 — — 15,696 129 15,825 — — (5,887) (38) (5,925) 37.4 D

Non-bank

financial

institutions

61,752 4,718 469 — 66,939 (43) (77) (137) — (257) 0.4

– CRR 1 0.000 to 0.053 15,082 421 — — 15,503 (2) (1) — — (3) — AA- and above

– CRR 2 0.054 to 0.169 16,350 498 — — 16,848 (3) (1) — — (4) — A+ to A-

– CRR 3 0.170 to 0.740 17,254 1,763 — — 19,017 (9) (13) — — (22) 0.1 BBB+ to BBB-

– CRR 4 0.741 to 1.927 7,074 717 — — 7,791 (19) (4) — — (23) 0.3 BB+ to BB-

– CRR 5 1.928 to 4.914 5,215 736 — — 5,951 (10) (10) — — (20) 0.3 BB- to B

– CRR 6 4.915 to 8.860 716 90 — — 806 — (4) — — (4) 0.5 B-

– CRR 7 8.861 to 15.000 46 32 — — 78 — (3) — — (3) 3.8 CCC+

– CRR 8 15.001 to 99.999 15 461 — — 476 — (41) — — (41) 8.6 CCC to C

– CRR 9/10 100.000 — — 469 — 469 — — (137) — (137) 29.2 D

Banks 103,042 1,827 82 — 104,951 (18) (29) (22) — (69) 0.1

– CRR 1 0.000 to 0.053 79,188 120 — — 79,308 (8) — — — (8) — AA- and above

– CRR 2 0.054 to 0.169 13,508 209 — — 13,717 (2) — — — (2) — A+ to A-

– CRR 3 0.170 to 0.740 4,465 425 — — 4,890 (3) — — — (3) 0.1 BBB+ to BBB-

– CRR 4 0.741 to 1.927 2,154 5 — — 2,159 (1) — — — (1) — BB+ to BB-

– CRR 5 1.928 to 4.914 3,312 172 — — 3,484 (4) (1) — — (5) 0.1 BB- to B

– CRR 6 4.915 to 8.860 — 5 — — 5 — — — — — — B-

– CRR 7 8.861 to 15.000 1 862 — — 863 — (27) — — (27) 3.1 CCC+

– CRR 8 15.001 to 99.999 414 29 — — 443 — (1) — — (1) 0.2 CCC to C

– CRR 9/10 100.000 — — 82 — 82 — — (22) — (22) 26.8 D

At 31 Dec 2022 517,804 92,066 16,247 129 626,246 (551) (2,015) (6,046) (38) (8,650) 1.4

HSBC Holdings plc Annual Report and Accounts 2022 175

Risk review

Wholesale lending – credit risk profile by obligor grade for loans and advances at amortised cost (continued)

Basel one-year

PD range

Gross carrying amount

Allowance for ECL

ECL

coverage

Mapped

external ratingStage 1 Stage 2

Stage

POC

Total

Stage

Stage 2 Stage 3 POCI Total

Corporate and

commercial

400,894 98,911 13,460 274 513,539 (665) (1,874) (5,601) (64) (8,204) 1.6

– CRR 1 0.000 to 0.053 40,583 599 — — 41,182 (7) (1) — — (8) — AA- and above

– CRR 2 0.054 to 0.169 78,794 4,843 — — 83,637 (26) (43) — — (69) 0.1 A+ to A-

– CRR 3 0.170 to 0.740 139,739 19,199 — — 158,938 (165) (145) — — (310) 0.2 BBB+ to BBB-

– CRR 4 0.741 to 1.927 91,268 23,365 — — 114,633 (218) (258) — — (476) 0.4 BB+ to BB-

– CRR 5 1.928 to 4.914 45,850 28,375 — — 74,225 (185) (424) — — (609) 0.8 BB- to B

– CRR 6 4.915 to 8.860 3,280 11,197 — — 14,477 (22) (242) — — (264) 1.8 B-

– CRR 7 8.861 to 15.000 1,101 4,406 — — 5,507 (24) (167) — — (191) 3.5 CCC+

– CRR 8 15.001 to 99.999 279 6,927 — 4 7,210 (18) (594) — — (612) 8.5 CCC to C

– CRR 9/10 100.000 — — 13,460 270 13,730 — — (5,601) (64) (5,665) 41.3 D

Non-bank financial

institutions

61,086 3,874 395 — 65,355 (44) (26) (40) — (110) 0.2

– CRR 1 0.000 to 0.053 14,370 122 — — 14,492 (2) (1) — — (3) — AA- and above

– CRR 2 0.054 to 0.169 16,438 43 — — 16,481 (5) — — — (5) — A+ to A-

– CRR 3 0.170 to 0.740 18,282 1,026 — — 19,308 (11) (4) — — (15) 0.1 BBB+ to BBB-

– CRR 4 0.741 to 1.927 6,835 1,204 — — 8,039 (15) (11) — — (26) 0.3 BB+ to BB-

– CRR 5 1.928 to 4.914 5,053 1,297 — — 6,350 (11) (4) — — (15) 0.2 BB- to B

– CRR 6 4.915 to 8.860 102 98 — — 200 — (5) — — (5) 2.5 B-

– CRR 7 8.861 to 15.000 5 25 — — 30 — (1) — — (1) 3.3 CCC+

– CRR 8 15.001 to 99.999 1 59 — — 60 — — — — — — CCC to C

– CRR 9/10 100.000 — — 395 — 395 — — (40) — (40) 10.1 D

Banks 81,636 1,517 — — 83,153 (14) (3) — — (17) —

– CRR 1 0.000 to 0.053 61,275 10 — — 61,285 (4) — — — (4) — AA- and above

– CRR 2 0.054 to 0.169 11,628 65 — — 11,693 (3) — — — (3) — A+ to A-

– CRR 3 0.170 to 0.740 3,935 102 — — 4,037 (2) — — — (2) — BBB+ to BBB-

– CRR 4 0.741 to 1.927 4,232 180 — — 4,412 (5) — — — (5) 0.1 BB+ to BB-

– CRR 5 1.928 to 4.914 556 52 — — 608 — (1) — — (1) 0.2 BB- to B

– CRR 6 4.915 to 8.860 9 541 — — 550 — — — — — — B-

– CRR 7 8.861 to 15.000 1 564 — — 565 — — — — — — CCC+

– CRR 8 15.001 to 99.999 — 3 — — 3 — (2) — — (2) 66.7 CCC to C

– CRR 9/10 100.000 — — — — — — — — — — — D

At 31 Dec 2021 543,616 104,302 13,855 274 662,047 (723) (1,903) (5,641) (64) (8,331) 1.3

Risk review

176 HSBC Holdings plc Annual Report and Accounts 2022

Commercial real estate

Commercial real estate lending includes the financing of corporate,

institutional and high net worth customers who are investing primarily

in income-producing assets and, to a lesser extent, in their

construction and development. The portfolio is globally diversified

with larger concentrations in Hong Kong, theUK, mainland China and

the US.

Our global exposure is centred largely on cities with economic,

political or cultural significance. In more developed markets, our

exposure mainly comprises the financing of investment assets, the

redevelopment of existing stock and the augmentation of both

commercial and residential markets to support economic and

population growth. In less developed commercial real estate markets,

our exposures comprise lending for development assets on relatively

short tenors with a particular focus on supporting larger, better

capitalised developers involved in residential construction or assets

supporting economic expansion.

Excluding adverse foreign exchange movements of $3.8bn,

commercial real estate lending decreased by $14.9bn, mainly due to

the reclassification of assets held for sale of our banking operations in

Canada of $7.1bn, compounded by loan repayments in Hong Kong of

$6.7bn and France of $0.7bn.

Commercial real estate lending to customers

of which:

Europe Asia MENA

North

America

Latin

America

Total UK Hong Kong

Gross loans and advances

Stage 1 17,318 46,757 1,115 1,534 880 67,604 12,209 35,963

Stage 2 3,590 16,337 364 798 44 21,133 3,008 11,092

Stage 3 980 3,320 286 8 54 4,648 827 3,029

POCI — 19 — — — 19 — 19

At 31 Dec 2022 21,888 66,433 1,765 2,340 978 93,404 16,044 50,103

– of which: forborne loans 359 763 472 173 47 1,814 336 654

Allowance for ECL (369) (2,095) (159) (12) (31) (2,666) (323) (1,879)

Gross loans and advances

Stage 1 20,317 56,734 781 8,328 1,073 87,233 14,235 42,951

Stage 2 3,505 17,103 569 1,265 218 22,660 2,781 13,300

Stage 3 1,062 543 206 9 249 2,069 905 435

POCI — 98 — — — 98 — 98

At 31 Dec 2021 24,884 74,478 1,556 9,602 1,540 112,060 17,921 56,784

– of which: forborne loans

440 251 145 — — 836 436 170

Allowance for ECL (450) (693) (158) (26) (130) (1,457) (366) (604)

1 Forborne gross loans and advances at 31 December 2021 have not been restated, and agreed with the policies and disclosures presented in the

Annual Report and Accounts 2021.

Refinance risk in commercial real estate

Commercial real estate lending tends to require the repayment of a

significant proportion of the principal at maturity. Typically, a customer

will arrange repayment through the acquisition of a new loan to settle

the existing debt. Refinance risk is the risk that a customer, being

unable to repay the debt on maturity, fails to refinance it at

commercial terms. We monitor our commercial real estate portfolio

closely, assessing indicators forsigns of potential issues with

refinancing.

Commercial real estate gross loans and advances to customers maturity analysis

of which:

Europe Asia MENA

North

America

Latin

America Total UK

Hong

Kong

On demand, overdrafts or revolving

< 1 year 10,996 23,492 434 196 299 35,417 9,211 18,698

1–2 years 5,197 18,052 255 280 117 23,901 3,678 13,917

2–5 years 4,031 21,818 694 1,832 462 28,837 2,472 14,978

> 5 years 1,664 3,071 382 32 100 5,249 683 2,510

At 31 Dec 2022 21,888 66,433 1,765 2,340 978 93,404 16,044 50,103

On demand, overdrafts or revolving

< 1 year 12,980 26,736 478 5,961 336 46,491 10,546 20,466

1–2 years 4,794 18,192 159 1,098 280 24,523 3,921 14,399

2–5 years 5,352 26,668 631 2,297 559 35,507 2,805 19,562

> 5 years 1,758 2,882 288 246 365 5,539 649 2,357

At 31 Dec 2021 24,884 74,478 1,556 9,602 1,540 112,060 17,921 56,784

HSBC Holdings plc Annual Report and Accounts 2022 177

Risk review

The following table presents the Group’s exposure to borrowers

classified in the commercial real estate sector where the ultimate

parent is based in mainland China, as well as all commercial real

estate exposures booked on mainland China balance sheets. The

exposures at 31 December 2022 are split by country/territory and

credit quality including allowances for ECL by stage.

Mainland China commercial real estate

Hong Kong

Mainland China

Rest of the Group

Total

(audited)

(unaudited)

Loans and advances to customers

9,129 5,752 860 15,741

Guarantees issued and others

249 755 18 1,022

Total mainland China commercial real estate exposure at 31 Dec 2022 9,378 6,507 878 16,763

Distribution of mainland China commercial real estate exposure by

credit quality

– Strong 1,425 2,118 220 3,763

– Good 697 1,087 370 2,154

– Satisfactory 1,269 2,248 77 3,594

– Sub-standard 2,887 779 193 3,859

– Credit impaired 3,100 275 18 3,393

At 31 Dec 2022 9,378 6,507 878 16,763

Allowance for ECL by credit quality

– Strong — (5) — (5)

– Good — (8) (1) (9)

– Satisfactory (20) (81) — (101)

– Sub-standard (458) (42) (3) (503)

– Credit impaired (1,268) (105) — (1,373)

At 31 Dec 2022 (1,746) (241) (4) (1,991)

Allowance for ECL by stage distribution

– Stage 1 (1) (9) (1) (11)

– Stage 2 (477) (127) (3) (607)

– Stage 3 (1,268) (105) — (1,373)

– POCI — — — —

At 31 Dec 2022 (1,746) (241) (4) (1,991)

ECL coverage % 18.6 3.7 0.5 11.9

1 Disclosures in respect of mainland China commercial real estate exposures in Hong Kong and mainland China form part of the scope of the audit of

the Group’s Annual Report and Accounts 2022. Amounts disclosed for mainland China commercial real estate exposures elsewhere in the Group have

not been audited but are provided for completeness.

2 Amounts represent gross carrying amount.

3 Amounts represent nominal amount for guarantees and other contingent liabilities.

Risk review

178 HSBC Holdings plc Annual Report and Accounts 2022

Mainland China commercial real estate

Hong Kong

Mainland China

Rest of the Group

Total

(audited)

(unaudited)

Loans and advances to customers

11,484 6,811 410 18,705

Guarantees issued and others

166 2,376 79 2,621

Total mainland China commercial real estate exposure at 31 Dec 2021 11,650 9,187 489 21,326

Distribution of mainland China commercial real estate exposure by credit

quality

– Strong 3,543 3,864 155 7,562

– Good 2,652 2,354 73 5,079

– Satisfactory 3,383 2,855 106 6,344

– Sub-standard 1,570 12 155 1,737

– Credit impaired 502 102 — 604

At 31 Dec 2021 11,650 9,187 489 21,326

Allowance for ECL by credit quality

– Strong (15) (7) — (22)

– Good (37) (10) — (47)

– Satisfactory (382) (20) (2) (404)

– Sub-standard (24) (1) — (25)

– Credit impaired (102) (11) — (113)

At 31 Dec 2021 (560) (49) (2) (611)

Allowance for ECL by stage distribution

– Stage 1 (2) (11) (1) (14)

– Stage 2 (456) (27) (1) (484)

– Stage 3 (102) (11) — (113)

– POCI — — — —

At 31 Dec 2021 (560) (49) (2) (611)

ECL coverage % 4.8 0.5 0.4

2.9

1 Comparatives have been restated to reflect an exposure reclassification from ‘guarantees and others‘ to ‘loans and advances to customers‘, which

better reflects the nature of product.

2 Disclosures in respect of mainland China commercial real estate exposures in Hong Kong and mainland China form part of the scope of the audit of

the Group’s Annual Report and Accounts 2022. Amounts disclosed for mainland China commercial real estate exposures elsewhere in the Group have

not been audited but are provided for completeness.

3 Amounts represent gross carrying amount.

4 Amounts represent nominal amount for guarantees and other contingent liabilities.

Commercial real estate financing refers to lending that focuses on

commercial development and investment in real estate and covers

commercial, residential and industrial assets. Commercial real estate

financing can also be provided to a corporate or financial entity for the

purchase or financing of a property which supports the overall

operations of the business.

The exposures in the table are related to companies whose primary

activities are focused on residential, commercial and mixed-use real

estate activities. Lending is generally focused on tier 1 and 2 cities.

The exposures in the table above had 57% (31December 2021: 89%)

of exposure booked with a credit quality of ‘satisfactory’ or above.

This deterioration reflects increased funding risks and weaker sales

performance for a number of our customers over the period.

Facilities booked in Hong Kong are exposures which represent

relatively higher risk within the mainland China commercial real estate

portfolio. This portfolio had 36% (31 December 2021: 82%) of

exposure booked with a credit quality of ‘satisfactory’ or above,

reflecting sustained credit deterioration in this book over the course of

the year. At 31December 2022, the Group had allowances for ECL of

$1.7bn (31December 2021: $0.6bn) held against mainland China

commercial real estate exposures booked in Hong Kong .

Over one third of the unimpaired exposure in the Hong Kong portfolio

reflects lending to state owned enterprises, and much of the

remaining is to relatively strong privately owned enterprises. This is

reflected in the relatively low ECL allowance in this part of the

portfolio.

Regulatory and policy developments in the latter part of 2022 appear

to have stabilised the sector. Sustained liquidity support and improved

domestic residential demand will be necessary to support a recovery.

The Group has additional exposures to mainland China commercial

real estate as a result of lending to multinational corporates, which is

not incorporated in the table above.

HSBC Holdings plc Annual Report and Accounts 2022 179

Risk review

Collateral and other credit enhancements

(Audited)

Although collateral can be an important mitigant of credit risk, it is the

Group’s practice to lend on the basis of the customer’s ability to meet

their obligations out of cash flow resources rather than placing

primary reliance on collateral and other credit risk enhancements.

Depending on the customer’s standing and the type of product,

facilities may be provided without any collateral or other credit

enhancements. For other lending, a charge over collateral is obtained

and considered in determining the credit decision and pricing. In the

event of default, the Group may utilise the collateral as a source of

repayment.

Depending on its form, collateral can have a significant financial effect

in mitigating our exposure to credit risk. Where there is sufficient

collateral, an expected credit loss is not recognised. This is the case

for reverse repurchase agreements and for certain loans and

advances to customers where the loan to value (‘LTV’) is very low.

Mitigants may include a charge on borrowers’ specific assets, such as

real estate or financial instruments. Other credit risk mitigants include

short positions in securities and financial assets held as part of linked

insurance/investment contracts where the risk is predominantly borne

by the policyholder. Additionally, risk may be managed by employing

other types of collateral and credit risk enhancements, such as

second charges, other liens and unsupported guarantees. Guarantees

are normally taken from corporates and export credit agencies.

Corporates would normally provide guarantees as part of a parent/

subsidiary relationship and span a number of credit grades. The export

credit agencies will normally be investment grade.

Certain credit mitigants are used strategically in portfolio management

activities. While single name concentrations arise in portfolios

managed by Global Banking and Corporate Banking, it is only in Global

Banking that their size requires the use of portfolio level credit

mitigants. Across Global Banking, risk limits and utilisations, maturity

profiles and risk quality are monitored and managed proactively. This

process is key to the setting of risk appetite for these larger, more

complex, geographically distributed customer groups. While the

principal form of risk management continues to be at the point of

exposure origination, through the lending decision-making process,

Global Banking also utilises loan sales and credit default swap (‘CDS’)

hedges to manage concentrations and reduce risk.

These transactions are the responsibility of a dedicated Global

Banking portfolio management team. Hedging activity is carried out

within agreed credit parameters, and is subject to market risk limits

and a robust governance structure. Where applicable, CDSs are

entered into directly with a central clearing house counterparty.

Otherwise, the Group’s exposure to CDS protection providers is

diversified among mainly banking counterparties with strong credit

ratings.

CDS mitigants are held at portfolio level and are not included in the

expected credit loss calculations. CDS mitigants are not reported in

the following tables.

Collateral on loans and advances

Collateral held is analysed separately for commercial real estate and

for other corporate, commercial and financial (non-bank) lending. The

following tables include off-balance sheet loan commitments,

primarily undrawn credit lines.

The collateral measured in the following tables consists of fixedfirst

charges on real estate, and charges over cash and marketable

financial instruments. The values in the tables represent the expected

market value on an open market basis. No adjustment has been made

to the collateral for any expected costs of recovery. Marketable

securities are measured at their fair value.

Other types of collateral such as unsupported guarantees and floating

charges over the assets of a customer’s business are not measured

in the following tables. While such mitigants have value, often

providing rights in insolvency, their assignable value is not sufficiently

certain and they are therefore assigned no value for disclosure

purposes.

The LTV ratios presented are calculated by directly associating loans

and advances with the collateral that individually and uniquely

supports each facility. When collateral assets are shared by multiple

loans and advances, whether specifically or, more generally, by way

of an all monies charge, the collateral value is pro-rated across the

loans and advances protected by the collateral.

For credit-impaired loans, the collateral values cannot be directly

compared with impairment allowances recognised. The LTV figures

use open market values with no adjustments. Impairment allowances

are calculated on a different basis, by considering other cash flows

and adjusting collateral values for costs of realising collateral as

explained further on page 342.

Commercial real estate loans and advances

The value of commercial real estate collateral is determined byusing

a combination of external and internal valuations

andphysical inspections. For commercial real estate, where the

facility exceeds regulatory threshold requirements, Group policy

requires an independent review of the valuation at least every three

years, or more frequently as the need arises.

In Hong Kong, market practice is typically for lending to major

property companies to be either secured by guarantees or unsecured.

In Europe, facilities of a working capital nature are generally not

secured by a first fixed charge, and are therefore disclosed as not

collateralised.

Risk review

180 HSBC Holdings plc Annual Report and Accounts 2022

Wholesale lending – commercial real estate loans and advances to customers including loan commitments by level of collateral for key

countries/territories (by stage)

(Audited)

of which:

Total

Hong Kong

Gross carrying/

nominal amount

ECL

coverage

Gross carrying/

nominal amount

ECL

coverage

Gross carrying/

nominal amount

ECL

coverage

Stage 1

Not collateralised 44,052 0.1 5,960 0.3 20,286 —

Fully collateralised 53,475 0.1 10,293 0.1 27,926 —

LTV ratio:

– less than 50% 29,486 0.1 2,900 0.2 21,185 —

– 51% to 75% 18,530 0.1 6,361 0.1 5,365 0.1

– 76% to 90% 2,941 0.1 556 0.2 995 —

– 91% to 100% 2,518 0.2 476 0.2 381 —

Partially collateralised (A): 4,923 0.1 1,920 0.2 804 —

– collateral value on A 2,800 1,113 584

Total 102,450 0.1 18,173 0.2 49,016 —

Stage 2

Not collateralised 9,804 5.7 2,511 1.5 4,673 10.5

Fully collateralised 15,423 1.6 2,025 0.9 7,457 1.1

LTV ratio:

– less than 50% 5,945 1.6 664 0.9 3,539 1.4

– 51% to 75% 6,821 1.1 1,197 0.9 3,536 1.0

– 76% to 90% 908 2.1 140 1.4 134 0.1

– 91% to 100% 1,749 3.6 24 0.4 248 0.2

Partially collateralised (B): 1,624 1.6 179 1.1 390 2.8

– collateral value on B 997 144 249

Total 26,851 3.1 4,715 1.3 12,520 4.7

Stage 3

Not collateralised 2,612 53.7 295 35.3 2,123 56.9

Fully collateralised 1,617 10.8 372 6.5 864 5.2

LTV ratio:

– less than 50% 544 16.5 53 3.8 318 2.2

– 51% to 75% 594 4.4 291 2.1 205 3.4

– 76% to 90% 315 4.1 11 18.2 264 1.9

– 91% to 100% 164 28.7 17 76.5 77 32.5

Partially collateralised (C): 513 54.2 176 68.8 73 61.6

– collateral value on C 293 72 39

Total 4,742 39.1 843 29.5 3,060 42.5

POCI

Not collateralised — — — — — —

Fully collateralised — — — — — —

LTV ratio:

– less than 50% — — — — — —

– 51% to 75% — — — — — —

– 76% to 90% — — — — — —

– 91% to 100% — — — — — —

Partially collateralised (D): 19 — — — 19 —

– collateral value on D 8 — 8

Total 19 — — — 19 —

At 31 Dec 2022 134,062 2.1 23,731 1.4 64,615 2.9

HSBC Holdings plc Annual Report and Accounts 2022 181

Risk review

Wholesale lending – commercial real estate loans and advances to customers including loan commitments by level of collateral for key

countries/territories (by stage) (continued)

(Audited)

Of which:

Total

Hong Kong

Gross carrying/

nominal amount

ECL

coverage

Gross carrying/

nominal amount

ECL

coverage

Gross carrying/

nominal amount

ECL

coverage

Stage 1

Not collateralised 50,603 0.1 7,623 0.4 23,864 —

Fully collateralised 71,769 0.1 13,139 0.2 32,951 —

LTV ratio:

– less than 50% 35,984 0.1 4,142 0.2 22,645 —

– 51% to 75% 26,390 0.1 6,460 0.2 8,082 —

– 76% to 90% 5,284 0.2 1,859 0.2 1,181 —

– 91% to 100% 4,111 0.1 678 — 1,043 0.1

Partially collateralised (A): 5,429 0.1 2,018 0.1 714 —

– collateral value on A 2,942 874 447

Total 127,801 0.1 22,780 0.3 57,529 —

Stage 2

Not collateralised 11,729 4.3 1,970 0.9 7,758 5.9

Fully collateralised 12,741 1.1 1,131 2.3 6,385 0.4

LTV ratio:

– less than 50% 5,759 1.0 605 3.1 3,633 0.3

– 51% to 75% 4,804 1.1 471 1.3 2,389 0.5

– 76% to 90% 757 1.5 43 — 269 0.4

– 91% to 100% 1,421 1.5 12 — 94 —

Partially collateralised (B): 1,783 2.7 366 0.3 172 2.9

– collateral value on B 930 223 70

Total 26,253 2.7 3,467 1.3 14,315 3.4

Stage 3

Not collateralised 828 40.9 407 42.0 198 35.9

Fully collateralised 1,176 22.0 346 5.2 290 11.0

LTV ratio:

– less than 50% 645 19.8 36 2.8 284 10.9

– 51% to 75% 286 9.1 250 5.2 — —

– 76% to 90% 62 14.5 11 — 2 —

– 91% to 100% 183 52.5 49 8.2 4 25.0

Partially collateralised (C): 265 47.9 204 49.0 — —

– collateral value on C 149 97 —

Total 2,269 32.0 957 30.2 488 21.1

POCI

Not collateralised — — — — — —

Fully collateralised 98 — — — 98 —

LTV ratio:

– less than 50% 98 — — — 98 —

– 51% to 75% — — — — — —

– 76% to 90% — — — — — —

– 91% to 100% — — — — — —

Partially collateralised (D): — — — — — —

– collateral value on D — — —

Total 98 — — — 98 —

At 31 Dec 2021 156,421 1.0 27,204 1.5 72,430 0.8

Risk review

182 HSBC Holdings plc Annual Report and Accounts 2022

Wholesale lending – commercial real estate loans and advances including loan commitments by level of collateral for key

countries/territories

(Audited)

of which:

Total

Hong Kong

Gross carrying/

nominal amount

ECL

coverage

Gross carrying/

nominal amount

ECL

coverage

Gross carrying/

nominal amount

ECL

coverage

Rated CRR/PD1 to 7

Not collateralised 52,373 0.6 8,457 0.7 23,861 0.9

Fully collateralised 68,020 0.3 12,309 0.3 34,779 0.1

Partially collateralised (A): 6,479 0.4 2,098 0.2 1,194 0.9

– collateral value on A 3,754 1,257 833

Total 126,872 0.4 22,864 0.4 59,834 0.5

Rated CRR/PD8

Not collateralised 1,483 19.8 14 3.6 1,098 26.0

Fully collateralised 878 9.2 9 11.1 604 7.1

LTV ratio:

– less than 50% 236 21.6 4 7.5 167 15.0

– 51% to 75% 594 5.1 3 13.3 393 4.6

– 76% to 90% 45 0.4 — — 44 0.2

– 91% to 100% 3 3.3 2 3.5 — —

Partially collateralised (B): 68 2.9 1 8.0 — —

– collateral value on B 43 — —

Total 2,429 15.5 24 6.6 1,702 19.3

Rated CRR/PD9 to 10

Not collateralised 2,612 53.7 295 35.3 2,123 56.9

Fully collateralised 1,617 10.8 372 6.5 864 5.2

LTV ratio:

– less than 50% 544 16.5 53 3.8 318 2.2

– 51% to 75% 594 4.4 291 2.1 205 3.4

– 76% to 90% 315 4.1 11 18.2 264 1.9

– 91% to 100% 164 28.7 17 76.5 77 32.5

Partially collateralised (C): 532 52.3 176 68.8 92 48.9

– collateral value on C 301 72 47

Total 4,761 39.0 843 29.5 3,079 42.2

At 31 Dec 2022 134,062 2.1 23,731 1.4 64,615 2.9

Rated CRR/PD1 to 7

Not collateralised 61,279 0.5 9,586 0.5 30,917 0.6

Fully collateralised 83,456 0.2 14,218 0.2 38,817 0.1

Partially collateralised (A): 7,059 0.5 2,379 0.2 886 0.6

– collateral value on A 3,729 1,092 517

Total 151,794 0.3 26,183 0.3 70,620 0.3

Rated CRR/PD8

Not collateralised 1,053 26.5 7 42.9 705 38.6

Fully collateralised 1,054 3.8 52 38.5 519 2.1

LTV ratio:

– less than 50% 503 4.8 41 41.5 378 0.8

– 51% to 75% 447 3.1 8 25.0 137 5.8

– 76% to 90% 60 1.7 1 — 4 —

– 91% to 100% 44 2.3 2 — — —

Partially collateralised (B): 153 15.0 5 20.0 — —

– collateral value on B 143 5 —

Total 2,260 15.1 64 37.5 1,224 23.1

Rated CRR/PD9 to 10

Not collateralised 828 40.9 407 42.0 198 35.9

Fully collateralised 1,274 20.3 346 5.2 388 8.2

LTV ratio:

– less than 50% 743 17.2 36 2.8 382 8.1

– 51% to 75% 286 9.1 250 5.2 — —

– 76% to 90% 62 14.5 11 — 2 —

– 91% to 100% 183 52.5 49 8.2 4 25.0

Partially collateralised (C): 265 47.9 204 49.0 — —

– collateral value on C 149 97 —

Total 2,367 30.6 957 30.2 586 17.6

At 31 Dec 2021 156,421 1.0 27,204 1.5 72,430 0.8

HSBC Holdings plc Annual Report and Accounts 2022 183

Risk review

Other corporate, commercial and financial

(non-bank) loans and advances

Other corporate, commercial and financial (non-bank) loans are

analysed separately in the following table, which focuses on the

countries/territories containing the majority of our loans and advances

balances. For financing activities in other corporate and commercial

lending, collateral value is not strongly correlated toprincipal

repayment performance.

Collateral values are generally refreshed when an obligor’s general

credit performance deteriorates and we have to assess the likely

performance of secondary sources of repayment should it prove

necessary to rely on them.

Accordingly, the following table reports values only for customers

with CRR 8–10, recognising that these loans and advances generally

have valuations that are comparatively recent.

Wholesale lending – other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level

of collateral for key countries/territories (by stage)

(Audited)

of which:

Total

Hong Kong

Gross

carrying/

nominal

amount

ECL

coverage

Gross

carrying/

nominal

amount

ECL

coverage

Gross

carrying/

nominal

amount

ECL

coverage

Stage 1

Not collateralised 632,847 0.1 105,126 0.1 109,919 —

Fully collateralised 96,434 0.1 21,192 0.1 39,165 0.1

LTV ratio:

– less than 50% 36,896 0.1 6,928 0.1 15,695 0.1

– 51% to 75% 29,242 0.1 7,611 0.1 13,893 0.1

– 76% to 90% 9,922 0.1 1,889 0.1 4,964 0.1

– 91% to 100% 20,374 0.1 4,764 — 4,613 0.1

Partially collateralised (A): 54,836 0.1 6,480 0.1 17,704 0.1

– collateral value on A 27,779 3,470 7,737

Total 784,117 0.1 132,798 0.1 166,788 0.1

Stage 2

Not collateralised 79,013 1.0 16,886 2.2 9,906 0.7

Fully collateralised 29,618 1.2 6,511 1.3 12,693 1.0

LTV ratio:

– less than 50% 11,221 1.3 2,872 1.0 4,577 0.9

– 51% to 75% 11,948 1.4 2,656 1.5 5,413 1.2

– 76% to 90% 2,990 1.0 578 1.9 1,479 0.7

– 91% to 100% 3,459 0.8 405 1.2 1,224 0.3

Partially collateralised (B): 13,130 1.0 2,288 1.2 3,379 0.6

– collateral value on B 6,484 1,197 1,524

Total 121,761 1.1 25,685 1.9 25,978 0.8

Stage 3

Not collateralised 8,278 38.4 3,783 17.8 939 56.0

Fully collateralised 1,948 13.7 699 4.6 665 3.8

LTV ratio:

– less than 50% 678 18.7 175 3.4 175 1.7

– 51% to 75% 503 11.3 336 6.5 115 7.8

– 76% to 90% 402 4.7 102 1.0 268 0.4

– 91% to 100% 365 17.5 86 3.5 107 10.3

Partially collateralised (C): 2,120 37.3 308 25.6 777 30.9

– collateral value on C 1,133 158 397

Total 12,346 34.3 4,790 16.4 2,381 33.2

POCI

Not collateralised 64 18.8 28 3.6 — —

Fully collateralised 24 91.7 — — 24 91.7

LTV ratio:

– less than 50% — — — — — —

– 51% to 75% 1 — — — 1 —

– 76% to 90% 23 95.7 — — 23 95.7

– 91% to 100% — — — — — —

Partially collateralised (D): 22 18.2 — — 14 —

– collateral value on D 16 — 13

Total 110 34.5 28 3.6 38 57.9

At 31 Dec 2022 918,334 0.7 163,301 0.9 195,185 0.6

Risk review

184 HSBC Holdings plc Annual Report and Accounts 2022

Wholesale lending – other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level

of collateral for key countries/territories (by stage) (continued)

(Audited)

of which:

Total UK Hong Kong

Gross carrying/

nominal

amount

ECL

coverage

Gross carrying/

nominal

amount

ECL

coverage

Gross carrying/

nominal

amount

ECL

coverage

Stage 1

Not collateralised 624,935 0.1 112,188 0.2 111,948 —

Fully collateralised 112,905 0.1 22,971 0.2 45,479 0.1

LTV ratio:

– less than 50% 40,636 0.1 6,512 0.2 16,915 —

– 51% to 75% 38,709 0.1 9,431 0.2 16,533 0.1

– 76% to 90% 13,284 0.1 2,556 0.1 4,920 0.1

– 91% to 100% 20,276 0.1 4,472 — 7,111 0.1

Partially collateralised (A): 64,058 0.1 8,665 0.1 20,358 —

– collateral value on A 30,890 4,826 9,322

Total 801,898 0.1 143,824 0.2 177,785 —

Stage 2

Not collateralised 85,394 1.1 18,562 2.0 8,310 1.1

Fully collateralised 32,019 1.1 8,231 1.3 11,503 0.7

LTV ratio:

– less than 50% 10,892 1.2 3,148 1.5 3,378 0.5

– 51% to 75% 14,281 1.1 4,161 1.2 5,202 0.9

– 76% to 90% 2,752 1.2 687 1.5 1,148 0.9

– 91% to 100% 4,094 0.9 235 1.7 1,775 0.2

Partially collateralised (B): 12,484 1.0 1,824 1.9 1,788 0.4

– collateral value on B 6,675 937 785

Total 129,897 1.1 28,617 1.8 21,601 0.8

Stage 3

Not collateralised 8,122 47.3 2,979 21.6 732 74.7

Fully collateralised 2,278 12.7 1,212 3.4 240 2.1

LTV ratio:

– less than 50% 603 20.9 249 4.8 76 —

– 51% to 75% 1,110 5.0 786 1.4 110 3.6

– 76% to 90% 295 11.5 115 9.6 26 —

– 91% to 100% 270 27.4 62 9.7 28 3.6

Partially collateralised (C): 2,134 38.7 318 35.5 616 28.9

– collateral value on C 1,200 186 358

Total 12,534 39.6 4,509 17.7 1,588 46.0

POCI

Not collateralised 114 36.0 28 21.4 4 —

Fully collateralised 61 34.4 — — 57 36.8

LTV ratio:

– less than 50% — — — — — —

– 51% to 75% 57 36.8 — — 57 36.8

– 76% to 90% — — — — — —

– 91% to 100% 4 — — — — —

Partially collateralised (D): 2 100.0 — — — —

– collateral value on D 2 — —

Total 177 36.2 28 21.4 61 34.4

At 31 Dec 2021 944,506 0.8 176,978 0.9 201,035 0.5

HSBC Holdings plc Annual Report and Accounts 2022 185

Risk review

Wholesale lending – other corporate, commercial and financial (non-bank) loans and advances including loan commitments by level

of collateral for key countries/territories

(Audited)

of which:

Total

Hong Kong

Gross

carrying/

nominal

amount

ECL

coverage

Gross

carrying/

nominal

amount

ECL

coverage

Gross

carrying/

nominal

amount

ECL

coverage

Rated CRR/PD8

Not collateralised 4,209 3.5 1,071 1.6 62 38.7

Fully collateralised 2,208 3.8 303 3.3 171 12.3

LTV ratio:

– less than 50% 1,104 4.3 184 0.5 84 14.3

– 51% to 75% 933 3.5 95 5.3 84 10.7

– 76% to 90% 44 6.8 22 13.6 — —

– 91% to 100% 127 0.8 2 10.0 3 6.7

Partially collateralised (A): 1,298 2.9 24 4.2 9 11.1

– collateral value on A 1,212 4 5

Total 7,715 3.5 1,398 2.0 242 19.0

Rated CRR/PD9 to 10

Not collateralised 8,342 38.2 3,810 17.7 939 56.0

Fully collateralised 1,971 14.6 699 4.6 688 6.7

LTV ratio:

– less than 50% 677 18.8 175 3.4 175 1.7

– 51% to 75% 504 11.3 336 6.5 116 7.8

– 76% to 90% 425 9.6 102 1.0 290 7.9

– 91% to 100% 365 17.5 86 3.5 107 10.3

Partially collateralised (B): 2,143 37.1 309 25.6 792 30.3

– collateral value on B 1,149 158 410

Total 12,456 34.3 4,818 16.3 2,419 33.6

At 31 Dec 2022 20,171 22.5 6,216 13.1 2,661 32.2

Rated CRR/PD8

Not collateralised 4,790 3.9 1,587 3.1 79 30.4

Fully collateralised 1,653 3.9 259 6.6 32 —

LTV ratio:

– less than 50% 803 3.5 113 6.2 2 —

– 51% to 75% 583 3.8 110 8.2 1 —

– 76% to 90% 116 5.2 23 4.3 29 —

– 91% to 100% 151 5.3 13 — — —

Partially collateralised (A): 1,253 3.7 138 8.0 11 —

– collateral value on A 921 40 6

Total 7,696 3.9 1,984 3.9 122 20.5

Rated CRR/PD9 to 10

Not collateralised 8,239 47.1 3,007 21.5 736 74.3

Fully collateralised 2,335 13.3 1,212 3.4 297 9.1

LTV ratio:

– less than 50% 604 20.9 249 4.8 75 —

– 51% to 75% 1,166 6.7 786 1.4 168 14.9

– 76% to 90% 295 11.5 115 9.6 26 —

– 91% to 100% 270 27.4 62 9.7 28 3.6

Partially collateralised (B): 2,137 38.7 318 35.5 616 28.9

– collateral value on B 1,203 186 358

Total 12,711 39.5 4,537 17.7 1,649 45.6

At 31 Dec 2021 20,407 26.1 6,521 13.5 1,771 43.8

Other credit risk exposures

In addition to collateralised lending, other credit enhancements are

employed and methods used to mitigate credit risk arising from

financial assets. These are summarised below:

• Some securities issued by governments, banks and other financial

institutions benefit from additional credit enhancements provided

by government guarantees thatcoverthe assets.

• Debt securities issued by banks and financial institutions include

asset-backed securities (‘ABSs’) and similar instruments, which

are supported by underlying pools of financial assets. Credit risk

associated with ABSs is reduced through the purchase ofcredit

default swap (‘CDS’) protection.

• Trading loans and advances mainly pledged against cash collateral

are posted to satisfy margin requirements. There is limited credit

risk on cash collateral posted since in the event of default of the

counterparty this would be set off against the related liability.

Reverse repos and stock borrowing are by their nature

collateralised.

Collateral accepted as security that the Group is permitted tosell or

repledge under these arrangements is described on page 378 of the

financial statements.

• The Group’s maximum exposure to credit risk includes financial

guarantees and similar contracts granted, as well as loan and other

credit-related commitments. Depending on the terms of the

arrangement, we may use additional credit mitigation if a

guarantee is called upon or a loan commitment is drawn and

subsequently defaults.

For further information on these arrangements, seeNote33 onthe

financial statements.

Risk review

186 HSBC Holdings plc Annual Report and Accounts 2022

Derivatives

We participate in transactions exposing us to counterparty credit risk.

Counterparty credit risk is the risk of financial loss if the counterparty

to a transaction defaults before satisfactorily settling it. It arises

principally from over-the-counter (‘OTC’) derivatives and securities

financing transactions and is calculated in both the trading and non-

trading books. Transactions vary in value by reference to a market

factor suchas an interest rate, exchange rate or asset price.

The counterparty risk from derivative transactions is taken into

account when reporting the fair value of derivative positions. The

adjustment to the fair value is known as the credit valuation

adjustment (‘CVA’).

For an analysis of CVAs, see Note 12 on the financial statements.

The following table reflects by risk type the fair values and gross

notional contract amounts of derivatives cleared through an exchange,

central counterparty or non-central counterparty.

Notional contract amounts and fair values of derivatives

2022

2021

Notional

Fair value

Notional

Fair value

amount

Assets

Liabilities

amount

Assets

Liabilities

Total OTC derivatives 23,649,591 421,309 423,911 21,964,665 246,108 241,136

– total OTC derivatives cleared by central counterparties 11,360,729 149,190 154,167 10,086,344 59,147 60,686

– total OTC derivatives not cleared by central counterparties 12,288,862 272,119 269,744 11,878,321 186,961 180,450

Total exchange traded derivatives 1,146,426 3,824 2,840 1,359,692 4,152 3,306

Gross 24,796,017 425,133 426,751 23,324,357 250,260 244,442

Offset (140,987) (140,987) (53,378) (53,378)

At 31 Dec 284,146 285,764 196,882 191,064

The purposes for which HSBC uses derivatives are described

inNote15 on the financial statements.

The International Swaps and Derivatives Association (‘ISDA’) master

agreement is our preferred agreement for documenting derivatives

activity. It is common, and our preferred practice, forthe parties

involved in a derivative transaction to execute a credit support annex

(‘CSA’) in conjunction with the ISDA master agreement. Under a CSA,

collateral is passed between the parties to mitigate the counterparty

risk inherent in outstanding positions. The majority ofour CSAs are

with financial institutional clients.

We manage the counterparty exposure on our OTC derivative

contracts by using collateral agreements with counterparties and

netting agreements. Currently, we do not actively manage ourgeneral

OTC derivative counterparty exposure in the credit markets, although

we may manage individual exposures in certain circumstances.

We place strict policy restrictions on collateral types and as a

consequence the types of collateral received and pledged are, by

value, highly liquid and of a strong quality, being predominantly cash.

Where a collateral type is required to be approved outside the

collateral policy, approval is required from a committee of senior

representatives from Markets, Legal and Risk.

See Note 31 on the financial statements for details regarding legally

enforceable right of offset in the event of counterparty default and

collateral received in respect of derivatives.

Personal lending

This section presents further disclosures related to personal lending.

It provides details of the regions, countries and products that are

driving the change observed in personal loans and advances to

customers, with the impact of foreign exchange separately identified.

Additionally, Hong Kong and UK mortgage book LTV data is provided.

This section also provides a reconciliation of the opening 1January

2022 to 31 December 2022 closing gross carrying/nominal amounts

and associated allowance for ECL. Further product granularity is also

provided by stage, with geographical data presented for loans and

advances to customers, loan and other credit-related commitments

and financial guarantees.

At 31 December 2022, total personal lending for loans and advances

to customers of $415bn decreased by $63.3bn compared with

31December 2021. This decrease included adverse foreign exchange

movements of $27.3bn. Excluding foreign exchange movements,

there was a decrease of $36bn. This decrease was due to the

reclassification to assets held for sale of our banking business in

Canada of $26.1bn and our retail banking operations in France of

$23.7bn.

The reduction was partly mitigated by growth of $8.7bn in the UK,

$2.8bn in Asia and $2.0bn in Latin America.

The allowance for ECL attributable to personal lending, excluding off-

balance sheet loan commitments and guarantees, decreased by

$0.2bn to $2.9bn at 31 December 2022. This included favourable

foreign exchange movements of $0.1bn.

Excluding foreign exchange movements and reclassifications to held

for sale, mortgage lending balances increased by $15.4bn to $336.8bn

at 31 December 2022. The majority of the growth was in the UK by

$8.9bn; Asia by $4.4bn, notably $3.4bn in Hong Kong and $1.6bn in

Australia; and in Latin America by $1.0bn. The allowance for ECL,

excluding foreign exchange, attributable to mortgages of $0.6bn

decreased by $0.1bn compared with 31 December 2021.

At 31 December 2022, for certain retail lending portfolios, we

introduced enhancements in the significant increase in credit risk

(‘SICR’) approach in relation to capturing relative movements in

probability of default (‘PD’). The enhanced approach captured relative

movements in PD since origination, which resulted in a significant

migration to stage 2 from loans to customers gross carrying amounts

in stage 1.

The volume of stage 1 customer accounts with lower absolute levels

of credit risk who have exhibited some amount of relative increase in

PD since origination have migrated into stage 2, and accounts

originated with higher absolute levels of credit risk with no or

insignificant increases in PD since origination have been transferred to

stage 1, with no material overall change in risk.

The impact on ECL is immaterial due to the offsetting ECL impacts of

stage migrations and due to the LTV profiles. This is particularly

applicable to UK customers.

The enhancement of the SICR approach constitutes an improvement

towards more responsive models that better reflect the SICR since

origination. This includes consideration of the current cost of living

pressures, as markets adjust to the higher interest-rate environment.

The quality of both our Hong Kong and UK mortgage books remained

strong, with low levels of impairment allowances. The average LTV

ratio on new mortgage lending in Hong Kong was 59%, compared

with an estimated 57% for the overall mortgage portfolio. The

average LTV ratio on new lending in the UK was 67%, compared with

an estimated 50% for the overall mortgage portfolio.

Excluding foreign exchange movements and reclassifications to held

for sale, other personal lending balances at 31 December 2022

decreased by $1.4bn compared with 31 December 2021. This was

mainly from a decline of $2.0bn from Hong Kong in secured personal

lending, partly offset by an increase of $0.5bn from Latin America in

credit cards.

HSBC Holdings plc Annual Report and Accounts 2022 187

Risk review

The allowance for ECL, excluding foreign exchange, attributable to

other personal lending of $2.3bn remained unchanged from

31December 2021. Excluding foreign exchange, the allowance for

ECL attributable to credit cards increased by $0.1bn, offset by a

decrease of $0.1bn in unsecured personal lending.

Total personal lending for loans and advances to customers at amortised cost by stage distribution

Gross carrying amount Allowance for ECL

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

By portfolio

First lien residential mortgages 294,918 39,860 2,043 336,821 (74) (230) (270) (574)

– of which: interest only (including offset) 19,636 4,485 169 24,290 (3) (46) (41) (90)

– affordability (including US adjustable rate

mortgages) 14,773 369 240 15,382 (5) (3) (4) (12)

Other personal lending 67,863 9,031 1,297 78,191 (488) (1,275) (535) (2,298)

– second lien residential mortgages 353 20 6 379 (1) (2) (3) (6)

– guaranteed loans in respect of residential

property

1,121 121 125 1,367 (1) (3) (30) (34)

– other personal lending which is secured 31,306 594 206 32,106 (15) (10) (30) (55)

– credit cards 16,705 4,423 260 21,388 (225) (777) (160) (1,162)

– other personal lending which is unsecured 16,617 3,706 687 21,010 (235) (470) (305) (1,010)

– motor vehicle finance 1,761 167 13 1,941 (11) (13) (7) (31)

At 31 Dec 2022 362,781 48,891 3,340 415,012 (562) (1,505) (805) (2,872)

By geography

Europe 143,438 38,186 1,269 182,893 (151) (706) (282) (1,139)

– of which: UK 132,312 37,974 1,027 171,313 (137) (696) (230) (1,063)

Asia 185,828 8,723 1,117 195,668 (139) (363) (188) (690)

– of which: Hong Kong 128,218 4,563 236 133,017 (59) (255) (39) (353)

MENA 5,347 237 132 5,716 (33) (42) (70) (145)

North America 17,772 562 439 18,773 (15) (44) (67) (126)

Latin America 10,396 1,183 383 11,962 (224) (350) (198) (772)

At 31 Dec 2022 362,781 48,891 3,340 415,012 (562) (1,505) (805) (2,872)

At 31 December 2022, the stage 2 personal lending balances in the

UK of $38.0bn increased by $33.3bn compared with 31 December

2021. This increase was largely due to the enhancement in the SICR

approach in relation to capturing relative movements in PD since

origination, and also, to a lesser extent, it considered cost of living

pressures. The impact on ECL was immaterial due to the offsetting

ECL impacts of stage migrations due to the low LTV profiles

applicable to these UK customers.

Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution

Nominal amount Allowance for ECL

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Europe 53,299 592 114 54,005 (11) (1) — (12)

– of which: UK 51,589 454 107 52,150 (11) (1) — (12)

Asia 170,103 2,914 633 173,650 (2) — — (2)

– of which: Hong Kong 128,990 2,176 624 131,790 (2) — — (2)

MENA 2,328 20 2 2,350 (1) — — (1)

North America 10,418 140 48 10,606 (1) — — (1)

Latin America 4,496 31 3 4,530 (11) — — (11)

At 31 Dec 2022 240,644 3,697 800 245,141 (26) (1) — (27)

Risk review

188 HSBC Holdings plc Annual Report and Accounts 2022

Total personal lending for loans and advances to customers at amortised cost by stage distribution (continued)

Gross carrying amount Allowance for ECL

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

By portfolio

First lien residential mortgages 360,686 7,637 3,045 371,368 (128) (131) (416) (675)

– of which: interest only (including offset) 28,506 1,795 255 30,556 (5) (24) (81) (110)

– affordability (including US adjustable rate

mortgages)

13,621 712 452 14,785 (6) (6) (5) (17)

Other personal lending 96,270 8,802 1,897 106,969 (530) (1,088) (810) (2,428)

– second lien residential mortgages 314 44 37 395 (1) (4) (9) (14)

– guaranteed loans in respect of residential

property

20,643 731 236 21,610 (9) (7) (42) (58)

– other personal lending which is secured 36,533 1,096 366 37,995 (21) (15) (120) (156)

– credit cards 18,623 3,897 338 22,858 (246) (675) (214) (1,135)

– other personal lending which is unsecured 18,743 2,820 915 22,478 (240) (378) (421) (1,039)

– motor vehicle finance 1,414 214 5 1,633 (13) (9) (4) (26)

At 31 Dec 2021 456,956 16,439 4,942 478,337 (658) (1,219) (1,226) (3,103)

By geography

Europe 212,284 5,639 2,148 220,071 (199) (499) (637) (1,335)

– of which: UK 176,547 4,668 1,488 182,703 (167) (480) (399) (1,046)

Asia 187,391 7,796 1,303 196,490 (158) (381) (226) (765)

– of which: Hong Kong 125,854 4,959 202 131,015 (65) (231) (43) (339)

MENA 4,965 252 202 5,419 (38) (40) (94) (172)

North America 43,489 2,126 1,005 46,620 (43) (67) (118) (228)

Latin America 8,827 626 284 9,737 (220) (232) (151) (603)

At 31 Dec 2021 456,956 16,439 4,942 478,337 (658) (1,219) (1,226) (3,103)

Total personal lending for loans and other credit-related commitments and financial guarantees by stage distribution (continued)

Nominal amount Allowance for ECL

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Europe 57,109 558 107 57,774 (11) (1) — (12)

– of which: UK 54,704 407 104 55,215 (10) (1) — (11)

Asia 160,248 894 21 161,163 — — — —

– of which: Hong Kong 121,597 292 19 121,908 — — — —

MENA 2,568 30 16 2,614 (5) — — (5)

North America 15,039 251 23 15,313 (15) (1) — (16)

Latin America 3,920 29 2 3,951 (6) — — (6)

At 31 Dec 2021 238,884 1,762 169 240,815 (37) (2) — (39)

HSBC Holdings plc Annual Report and Accounts 2022 189

Risk review

Exposure to UK interest-only mortgage

loans

The following information is presented for HSBC branded interest-

only mortgage loans. This excludes offset mortgages in first direct

and private banking mortgages.

At the end of 2022, the average LTV ratio of the interest-only

mortgage loans was 41% (2021: 40%) and 99% (2021: 99%) had a

LTV ratio of 75% or less.

Of the interest-only mortgage loans that expired in 2020, 83% were

repaid within 12 months of expiry with a total of 96% being repaid

within 24 months of expiry. For those expiring during 2021, 95%

were repaid within 12 months of expiry. The increase of the amount

fully repaid within the 12 months is explained by the extensions

granted as part of the FCA guidance on helping borrowers with

maturing interest-only mortgages during the pandemic, which

reduced the repayment rates within 12 months for cases maturing in

2022. Following the end of these extension in October 2021,

repayment rates have now returned to levels similar to 2019.

At 31 December 2022, interest-only mortgage loans exposures were

$14.4bn and the maturity profile is as follows:

UK interest-only mortgage loans

Expired interest-only mortgage loans 134

Interest-only mortgage loans by maturity

– 2023 219

– 2024 215

– 2025 300

– 2026 383

– 2027–2031 2,951

– post-2031 10,248

At 31 Dec 2022 14,450

Expired interest-only mortgage loans 167

Interest-only mortgage loans by maturity

– 2022 267

– 2023 401

– 2024 330

– 2025 420

– 2026–2030 3,288

– post-2030 10,333

At 31 Dec 2021 15,206

Exposure to offset mortgage in first direct

The offset mortgage in first direct is a flexible way for our customers

to take control of their finances. It works by grouping together the

customer’s mortgage, savings and current accounts to offset their

credit and debit balances against their mortgage exposure.

At 31 December 2022, exposures were worth a total $5.5bn with an

average LTV ratio of 32% (2021: $7.0bn exposure and 35% LTV ratio).

Risk review

190 HSBC Holdings plc Annual Report and Accounts 2022

Personal lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to

customers including loan commitments and financial guarantees

(Audited)

Non-credit impaired Credit impaired

Stage 1 Stage 2 Stage 3 Total

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

At 1 Jan 2022 695,840 (695) 18,201 (1,221) 5,111 (1,226) 719,152 (3,142)

Transfers of financial instruments (40,834) (499) 39,483 677 1,351 (178) — —

– transfers from stage 1 to stage 2 (68,063) 269 68,063 (269) — — — —

– transfers from stage 2 to stage 1 27,407 (734) (27,407) 734 — — — —

– transfers to stage 3 (561) 2 (1,987) 361 2,548 (363) — —

– transfers from stage 3 383 (36) 814 (149) (1,197) 185 — —

Net remeasurement of ECL arising from transfer

of stage

— 498 — (583) — (88) — (173)

New financial assets originated or purchased 130,632 (271) — — — — 130,632 (271)

Assets derecognised (including final repayments) (68,645) 94 (4,091) 270 (1,043) 124 (73,779) 488

Changes to risk parameters – further lending/

repayments

(31,457) 162 4,538 (35) 897 (33) (26,022) 94

Change in risk parameters – credit quality — 82 — (676) — (822) — (1,416)

Changes to models used for ECL calculation — (2) — (94) — 13 — (83)

Assets written off — — — — (1,215) 1,215 (1,215) 1,215

Foreign exchange and other

(82,111) 43 (5,543) 156 (961) 190 (88,615) 389

At 31 Dec 2022 603,425 (588) 52,588 (1,506) 4,140 (805) 660,153 (2,899)

ECL income statement change for the period 563 (1,118) (806) (1,361)

Recoveries 283

Other (3)

Total ECL income statement change for the

period

(1,081)

1 Total includes $49.6bn of gross carrying loans and advances to customers, which were classified to assets held for sale, and a corresponding

allowance for ECL of $221m, reflecting business disposals as disclosed in Note 23 ‘Assets held for sale and liabilities of disposal groups held for sale’

on page 389.

As shown in the above table, the allowance for ECL for loans and

advances to customers and relevant loan commitments and financial

guarantees decreased by $243m during the period from $3,142m at

31December 2021 to $2,899m at 31December2022.

This decrease was primarily driven by:

• $1,215m of assets written off;

• foreign exchange and other movements of $389m; and

• $311m relating to volume movements, which included the ECL

allowance associated with new originations, assets derecognised

and further lending/repayment.

These were partly offset by:

• $1,416m relating to underlying credit quality changes, including the

credit quality impact of financial instruments transferring between

stages;

• $173m relating to the net remeasurement impact of stage

transfers; and

• $83m of changes to models used for ECL calculation.

The ECL charge for the period of $1,361m presented in the above

table consisted of $1,416m relating to underlying credit quality

changes, including the credit quality impact of financial instruments

transferring between stages, $83m in changes to models used for

ECL calculation and $173m relating to the net remeasurement impact

of stage transfers. This was partly offset by $311m relating to

underlying net book volume movements.

During the period, there was a net transfer to stage 2 of $40,656m

gross carrying/nominal amounts. This increase was primarily driven by

$36,816m in Europe, of which $34,278m was from the UK, largely

due to enhancements in the SICR approach in relation to capturing

relative movements in PD since origination and taking into

consideration cost of living pressures. Further details are presented

on page 187.

HSBC Holdings plc Annual Report and Accounts 2022 191

Risk review

Personal lending – reconciliation of changes in gross carrying/nominal amount and allowances for loans and advances to customers

including loan commitments and financial guarantees

(Audited)

Non-credit impaired

Credit impaired

Stage 1

Stage 2

Stage 3

Total

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

Gross

carrying/

nominal

amount

Allowance

for ECL

At 1 Jan 2021 665,346 (866) 26,770 (2,405) 5,762 (1,503) 697,878 (4,774)

Transfers of financial instruments 1,822 (1,154) (4,502) 1,713 2,680 (559) — —

– transfers from stage 1 to stage 2 (23,701) 289 23,701 (289) — — — —

– transfers from stage 2 to stage 1 26,086 (1,404) (26,086) 1,404 — — — —

– transfers to stage 3 (982) 7 (3,068) 734 4,050 (741) — —

– transfers from stage 3 419 (46) 951 (136) (1,370) 182 — —

Net remeasurement of ECL arising from transfer of

stage

— 825 — (363) — (7) — 455

New financial assets originated or purchased 136,920 (211) — — — — 136,920 (211)

Assets derecognised (including final repayments) (82,998) 119 (5,257) 419 (1,236) 219 (89,491) 757

Changes to risk parameters – further lending/

repayments (13,976) 240 2,380 114 (281) 51 (11,877) 405

Change in risk parameters – credit quality — 318 — (778) — (1,007) — (1,467)

Changes to models used for ECL calculation — (2) — — — 1 — (1)

Assets written off — — — — (1,525) 1,520 (1,525) 1,520

Foreign exchange (9,074) 17 (358) 19 (138) 45 (9,570) 81

Others

(2,200) 19 (832) 60 (151) 14 (3,183) 93

At 31 Dec 2021 695,840 (695) 18,201 (1,221) 5,111 (1,226) 719,152 (3,142)

ECL income statement change for the period 1,289 (608) (743) (62)

Recoveries 355

Other (9)

Total ECL income statement change for the period 284

1 Total includes $3.0bn of gross carrying loans and advances to customers, which were classified to assets held for sale, and a corresponding allowance

for ECL of $123m, reflecting our exit of the domestic mass market retail banking in the US.

Personal lending – credit risk profile by internal PD band for loans and advances to customers at amortised cost

Gross carrying amount

Allowance for ECL

PD range

Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total

ECL

coverage

First lien residential

mortgages 294,918 39,860 2,043 336,821 (74) (230) (270) (574) 0.2

– Band 1 0.000 to 0.250 247,330 21,220 — 268,550 (13) (4) — (17) —

– Band 2 0.251 to 0.500 19,614 7,900 — 27,514 (4) (3) — (7) —

– Band 3 0.501 to 1.500 21,323 5,691 — 27,014 (18) (7) — (25) 0.1

– Band 4 1.501 to 5.000 6,594 2,694 — 9,288 (39) (24) — (63) 0.7

– Band 5 5.001 to 20.000 34 1,024 — 1,058 — (40) — (40) 3.8

– Band 6 20.001 to 99.999 23 1,331 — 1,354 — (152) — (152) 11.2

– Band 7 100.000 — — 2,043 2,043 — — (270) (270) 13.2

Other personal lending 67,863 9,031 1,297 78,191 (488) (1,275) (535) (2,298) 2.9

– Band 1 0.000 to 0.250 30,151 153 — 30,304 (54) (13) — (67) 0.2

– Band 2 0.251 to 0.500 7,219 251 — 7,470 (26) (1) — (27) 0.4

– Band 3 0.501 to 1.500 17,183 1,499 — 18,682 (82) (44) — (126) 0.7

– Band 4 1.501 to 5.000 10,342 2,061 — 12,403 (171) (104) — (275) 2.2

– Band 5 5.001 to 20.000 2,501 3,692 — 6,193 (154) (520) — (674) 10.9

– Band 6 20.001 to 99.999 467 1,375 — 1,842 (1) (593) — (594) 32.2

– Band 7 100.000 — — 1,297 1,297 — — (535) (535) 41.2

At 31 Dec 2022 362,781 48,891 3,340 415,012 (562) (1,505) (805) (2,872) 0.7

1 12-month point in time adjusted for multiple economic scenarios.

Risk review

192 HSBC Holdings plc Annual Report and Accounts 2022

Personal lending – credit risk profile by internal PD band for loans and advances to customers at amortised cost (continued)

Gross carrying amount Allowance for ECL

PD range

Stage 1 Stage 2 Stage 3 Total Stage 1 Stage 2 Stage 3 Total

ECL

coverage

First lien residential

mortgages 360,686 7,637 3,045 371,368 (128) (131) (416) (675) 0.2

– Band 1 0.000 to 0.250 310,042 451 — 310,493 (30) (5) — (35) —

– Band 2 0.251 to 0.500 19,741 203 — 19,944 (7) (2) — (9) —

– Band 3 0.501 to 1.500 25,835 1,936 — 27,771 (79) (8) — (87) 0.3

– Band 4 1.501 to 5.000 4,976 2,657 — 7,633 (12) (30) — (42) 0.6

– Band 5 5.001 to 20.000 88 1,416 — 1,504 — (35) — (35) 2.3

– Band 6 20.001 to 99.999 4 974 — 978 — (51) — (51) 5.2

– Band 7 100.000 — — 3,045 3,045 — — (416) (416) 13.7

Other personal lending 96,270 8,802 1,897 106,969 (530) (1,088) (810) (2,428) 2.3

– Band 1 0.000 to 0.250 45,049 187 — 45,236 (50) (13) — (63) 0.1

– Band 2 0.251 to 0.500 12,625 605 — 13,230 (27) (6) — (33) 0.2

– Band 3 0.501 to 1.500 22,791 1,518 — 24,309 (102) (30) — (132) 0.5

– Band 4 1.501 to 5.000 13,006 2,360 — 15,366 (213) (108) — (321) 2.1

– Band 5 5.001 to 20.000 2,732 3,257 — 5,989 (138) (554) — (692) 11.6

– Band 6 20.001 to 99.999 67 875 — 942 — (377) — (377) 40.0

– Band 7 100.000 — — 1,897 1,897 — — (810) (810) 42.7

At 31 Dec 2021 456,956 16,439 4,942 478,337 (658) (1,219) (1,226) (3,103) 0.6

1 12-month point in time adjusted for multiple economic scenarios.

Collateral on loans and advances

(Audited)

The following table provides a quantification of the value of fixed

charges we hold over specific assets where we have a history

ofenforcing, and are able to enforce, collateral in satisfying a debt in

the event of the borrower failing to meet its contractual

obligations, and where the collateral is cash or can be realised by sale

in an established market. The collateral valuation excludes any

adjustments for obtaining and selling the collateral and, in particular,

loans shown as not collateralised or partially collateralised may also

benefit from other forms of credit mitigants.

HSBC Holdings plc Annual Report and Accounts 2022 193

Risk review

Personal lending – residential mortgage loans including loan commitments by level of collateral for key countries/territories by stage

(Audited)

of which:

Total

Hong Kong

Gross carrying/

nominal amount

ECL

coverage

Gross carrying/

nominal amount

ECL

coverage

Gross carrying/

nominal amount

ECL

coverage

Stage 1

Fully collateralised 310,705 — 134,044 — 94,949 —

LTV ratio:

– less than 50% 154,337 — 70,936 — 44,740 —

– 51% to 60% 57,386 — 23,226 — 18,027 —

– 61% to 70% 44,805 — 20,391 — 10,096 —

– 71% to 80% 25,458 — 12,849 — 4,167 —

– 81% to 90% 17,106 — 5,922 — 7,883 —

– 91% to 100% 11,613 — 720 — 10,036 —

Partially collateralised (A): 6,964 — 329 — 6,441 —

LTV ratio:

– 101% to 110% 6,127 — 73 — 5,953 —

– 111% to 120% 570 — 61 — 482 —

– greater than 120% 267 0.4 195 — 6 —

– collateral value on A 6,521 237 6,146

Total 317,669 — 134,373 — 101,390 —

Stage 2

Fully collateralised 39,906 0.6 34,541 0.4 981 —

LTV ratio:

– less than 50% 12,250 0.7 10,387 0.6 577 —

– 51% to 60% 7,372 0.5 6,402 0.4 171 —

– 61% to 70% 9,617 0.4 8,541 0.3 85 —

– 71% to 80% 6,770 0.5 5,922 0.3 37 —

– 81% to 90% 3,388 0.5 2,918 0.2 51 0.1

– 91% to 100% 509 1.1 371 0.2 60 0.2

Partially collateralised (B): 143 6.9 49 0.3 47 0.2

LTV ratio:

– 101% to 110% 73 3.6 10 1.2 45 0.2

– 111% to 120% 24 12.5 10 — 2 —

– greater than 120% 46 9.1 29 0.1 — —

– collateral value on B 123 38 44

Total 40,049 0.6 34,590 0.4 1,028 —

Stage 3

Fully collateralised 2,097 9.9 676 11.1 237 0.1

LTV ratio:

– less than 50% 1,077 7.2 448 9.4 105 —

– 51% to 60% 330 7.6 110 9.7 26 0.1

– 61% to 70% 207 12.6 48 15.9 11 0.7

– 71% to 80% 212 14.7 33 19.7 25 0.1

– 81% to 90% 147 17.8 10 24.5 27 —

– 91% to 100% 124 18.1 27 22.5 43 —

Partially collateralised (C): 133 46.9 12 9.8 1 0.3

LTV ratio:

– 101% to 110% 37 24.3 10 3.7 1 0.4

– 111% to 120% 17 32.7 — 64.9 — —

– greater than 120% 79 60.5 2 36.2 — —

– collateral value on C 79 4 1

Total 2,230 12.1 688 11.1 238 0.1

At 31 Dec 2022 359,948 0.2 169,651 0.1 102,656 —

Risk review

194 HSBC Holdings plc Annual Report and Accounts 2022

Personal lending – residential mortgage loans including loan commitments by level of collateral for key countries/territories by stage

(continued)

(Audited)

of which:

Total UK Hong Kong

Gross carrying/

nominal amount

ECL

coverage

Gross carrying/

nominal amount

ECL

coverage

Gross carrying/

nominal amount

ECL

coverage

$m % $m % $m %

Stage 1

Fully collateralised 377,454 — 168,737 — 98,020 —

LTV ratio:

– less than 50% 190,370 — 81,582 — 61,234 —

– 51% to 60% 64,217 — 28,555 — 12,070 —

– 61% to 70% 51,842 — 25,949 — 4,649 —

– 71% to 80% 46,932 0.1 24,114 — 8,360 —

– 81% to 90% 18,778 0.1 7,899 — 8,420 —

– 91% to 100% 5,315 0.1 638 — 3,287 —

Partially collateralised (A): 682 0.3 358 — 30 —

LTV ratio:

– 101% to 110% 254 0.6 104 — 26 —

– 111% to 120% 98 0.4 60 — 1 —

– greater than 120% 330 0.1 194 — 3 —

– collateral value on A 484 235 28

Total 378,136 — 169,095 — 98,050 —

Stage 2

Fully collateralised 7,710 1.7 2,738 2.1 1,166 —

LTV ratio:

– less than 50% 4,380 1.5 1,846 1.6 905 —

– 51% to 60% 1,317 1.4 397 2.4 106 —

– 61% to 70% 1,016 1.6 282 3.0 34 —

– 71% to 80% 725 2.3 175 4.7 50 —

– 81% to 90% 208 4.3 32 5.6 58 —

– 91% to 100% 64 4.1 6 1.9 13 —

Partially collateralised (B): 24 13.6 3 7.7 — —

LTV ratio:

– 101% to 110% 7 18.6 1 1.0 — —

– 111% to 120% 8 16.6 — — — —

– greater than 120% 9 6.7 2 11.1 — —

– collateral value on B 20 2 —

Total 7,734 1.7 2,741 2.1 1,166 —

Stage 3

Fully collateralised 2,853 11.5 954 14.2 68 0.3

LTV ratio:

– less than 50% 1,490 9.2 635 13.0 48 0.5

– 51% to 60% 443 8.6 129 14.0 10 0.1

– 61% to 70% 371 10.9 79 16.2 2 0.1

– 71% to 80% 256 15.4 67 19.1 3 —

– 81% to 90% 171 20.4 21 25.2 4 —

– 91% to 100% 122 32.2 23 18.6 1 —

Partially collateralised (C): 220 39.6 7 30.8 — —

LTV ratio:

– 101% to 110% 56 27.5 4 22.3 — —

– 111% to 120% 29 29.2 — — — —

– greater than 120% 135 46.9 3 45.5 — —

– collateral value on C 143 6 —

Total 3,073 13.5 961 14.4 68 0.3

At 31 Dec 2021 388,943 0.2 172,797 0.1 99,284 —

HSBC Holdings plc Annual Report and Accounts 2022 195

Risk review

Supplementary information

Wholesale lending – loans and advances to customers at amortised cost by country/territory

Gross carrying amount Allowance for ECL

Corporate

and

commercial

Of which:

real estate

Non-bank

financial

institutions Total

Corporate

and

commercial

Of which:

real estate

Non-bank

financial

institutions Total

Europe 146,236 19,814 18,198 164,434 (2,376) (370) (139) (2,515)

– UK 104,775 14,309 12,663 117,438 (1,522) (329) (130) (1,652)

– France 27,571 4,216 4,152 31,723 (622) (36) (4) (626)

– Germany 6,603 252 713 7,316 (154) — (3) (157)

– Switzerland 988 635 298 1,286 (8) — — (8)

– other 6,299 402 372 6,671 (70) (5) (2) (72)

Asia 245,872 73,164 38,863 284,735 (4,361) (2,197) (77) (4,438)

– Hong Kong 145,411 56,161 20,812 166,223 (3,001) (1,966) (36) (3,037)

– Australia 11,641 3,106 1,157 12,798 (97) (1) — (97)

– India 9,052 1,711 4,267 13,319 (80) (22) (10) (90)

– Indonesia 3,214 85 226 3,440 (187) (1) — (187)

– mainland China 31,790 5,752 8,908 40,698 (328) (167) (30) (358)

– Malaysia 5,986 1,081 180 6,166 (133) (15) — (133)

– Singapore 15,904 3,812 1,192 17,096 (388) (12) (1) (389)

– Taiwan 4,700 20 65 4,765 (1) — — (1)

– other 18,174 1,436 2,056 20,230 (146) (13) — (146)

Middle East and North Africa (excluding

SaudiArabia) 21,565 1,766 324 21,889 (983) (158) (3) (986)

– Egypt 1,261 77 101 1,362 (117) (5) (1) (118)

– UAE 13,503 1,569 149 13,652 (673) (152) — (673)

– other 6,801 120 74 6,875 (193) (1) (2) (195)

North America 28,619 5,783 8,791 37,410 (230) (102) (37) (267)

– US 28,249 5,714 8,640 36,889 (214) (94) (26) (240)

– Canada

— — — — — — — —

– other 370 69 151 521 (16) (8) (11) (27)

Latin America 12,064 907 763 12,827 (374) (24) (1) (375)

– Mexico 9,784 903 717 10,501 (335) (24) (1) (336)

– other 2,280 4 46 2,326 (39) — — (39)

At 31 Dec 2022 454,356 101,434 66,939 521,295 (8,324) (2,851) (257) (8,581)

Europe 163,341 23,137 17,818 181,159 (2,770) (546) (41) (2,811)

– UK

115,386 16,233 11,306 126,692 (1,855) (489) (32) (1,887)

– France 34,488 5,520 4,391 38,879 (654) (47) (2) (656)

– Germany 6,746 306 987 7,733 (120) — (3) (123)

– Switzerland 1,188 731 688 1,876 (8) — — (8)

– other 5,533 347 446 5,979 (133) (10) (4) (137)

Asia 263,821 81,453 36,321 300,142 (3,297) (731) (44) (3,341)

– Hong Kong 162,684 62,792 20,182 182,866 (1,585) (624) (7) (1,592)

– Australia 9,937 2,596 717 10,654 (108) (3) — (108)

– India 8,221 1,786 4,003 12,224 (84) (29) (8) (92)

– Indonesia 3,436 86 226 3,662 (246) (2) (1) (247)

– mainland China 33,555 6,811 9,359 42,914 (198) (41) (28) (226)

– Malaysia 7,229 1,741 197 7,426 (172) (21) — (172)

– Singapore 16,401 4,158 782 17,183 (792) (5) — (792)

– Taiwan 6,291 31 47 6,338 — — — —

– other 16,067 1,452 808 16,875 (112) (6) — (112)

Middle East and North Africa (excluding

SaudiArabia) 21,963 1,555 376 22,339 (1,207) (158) (3) (1,210)

– Egypt 1,788 69 152 1,940 (161) (7) — (161)

– UAE 12,942 1,370 190 13,132 (811) (149) — (811)

– other 7,233 116 34 7,267 (235) (2) (3) (238)

North America 52,577 13,639 10,197 62,774 (427) (87) (18) (445)

– US 27,002 5,895 8,511 35,513 (207) (64) (1) (208)

– Canada 25,048 7,650 1,546 26,594 (198) (15) (6) (204)

– other 527 94 140 667 (22) (8) (11) (33)

Latin America 11,837 1,476 643 12,480 (503) (122) (4) (507)

– Mexico 9,561 1,475 618 10,179 (452) (122) (4) (456)

– other 2,276 1 25 2,301 (51) — — (51)

At 31 Dec 2021 513,539 121,260 65,355 578,894 (8,204) (1,644) (110) (8,314)

1 Real estate lending within this disclosure corresponds solely to the industry of the borrower. Commercial real estate on page 177 includes borrowers

in multiple industries investing in income-producing assets and to a lesser extent, their construction and development.

2 Classified as held for sale at 31 December 2022.

Risk review

196 HSBC Holdings plc Annual Report and Accounts 2022

Personal lending – loans and advances to customers at amortised cost by country/territory

Gross carrying amount Allowance for ECL

First lien

residential

mortgages

Other

personal

Of which:

credit

cards

Total

First lien

residential

mortgages

Other

personal

Of which:

credit

cards

Total

Europe 159,063 23,830 6,665 182,893 (265) (874) (451) (1,139)

– UK 154,519 16,794 6,622 171,313 (226) (837) (449) (1,063)

– France

30 76 9 106 (14) (8) — (22)

– Germany — 234 — 234 — — — —

– Switzerland 1,378 5,094 — 6,472 — (22) — (22)

– other 3,136 1,632 34 4,768 (25) (7) (2) (32)

Asia 151,058 44,610 11,805 195,668 (50) (640) (423) (690)

– Hong Kong 101,478 31,539 8,645 133,017 (1) (352) (258) (353)

– Australia 21,372 456 396 21,828 (11) (19) (18) (30)

– India 1,078 590 162 1,668 (4) (18) (13) (22)

– Indonesia 70 278 141 348 (1) (17) (12) (18)

– mainland China 9,305 921 378 10,226 (3) (62) (49) (65)

– Malaysia 2,292 2,437 843 4,729 (27) (93) (31) (120)

– Singapore 7,501 6,264 422 13,765 — (36) (14) (36)

– Taiwan 5,428 1,189 284 6,617 — (18) (5) (18)

– other 2,534 936 534 3,470 (3) (25) (23) (28)

Middle East and North Africa (excluding

SaudiArabia)

2,450 3,266 735 5,716 (22) (123) (52) (145)

– Egypt — 310 83 310 — (2) (1) (2)

– UAE 2,104 1,340 426 3,444 (14) (83) (41) (97)

– other 346 1,616 226 1,962 (8) (38) (10) (46)

North America 17,907 866 256 18,773 (91) (35) (24) (126)

– US 16,847 704 213 17,551 (10) (30) (23) (40)

– Canada

— — — — — — — —

– other 1,060 162 43 1,222 (81) (5) (1) (86)

Latin America 6,343 5,619 1,927 11,962 (146) (626) (212) (772)

– Mexico 6,124 4,894 1,615 11,018 (145) (593) (196) (738)

– other 219 725 312 944 (1) (33) (16) (34)

At 31 Dec 2022 336,821 78,191 21,388 415,012 (574) (2,298) (1,162) (2,872)

Europe 170,818 49,253 8,624 220,071 (329) (1,006) (437) (1,335)

– UK

163,549 19,154 8,213 182,703 (223) (823) (434) (1,046)

– France

3,124 22,908 366 26,032 (38) (91) (3) (129)

– Germany — 282 — 282 — — — —

– Switzerland 1,367 6,615 — 7,982 — (75) — (75)

– other 2,778 294 45 3,072 (68) (17) — (85)

Asia 149,709 46,781 11,413 196,490 (59) (706) (428) (765)

– Hong Kong 98,019 32,996 8,154 131,015 (1) (338) (217) (339)

– Australia 21,149 504 427 21,653 (5) (33) (32) (38)

– India 981 543 181 1,524 (10) (30) (20) (40)

– Indonesia 76 272 147 348 (1) (20) (14) (21)

– mainland China 10,525 1,103 563 11,628 (4) (72) (66) (76)

– Malaysia 2,532 2,657 791 5,189 (33) (122) (34) (155)

– Singapore 7,811 6,649 367 14,460 — (40) (13) (40)

– Taiwan 5,672 1,188 271 6,860 — (17) (5) (17)

– other 2,944 869 512 3,813 (5) (34) (27) (39)

Middle East and North Africa (excluding

SaudiArabia)

2,262 3,157 761 5,419 (26) (146) (60) (172)

– Egypt — 368 98 368 — (3) (1) (3)

– UAE 1,924 1,232 417 3,156 (18) (88) (39) (106)

– other 338 1,557 246 1,895 (8) (55) (20) (63)

North America 43,529 3,091 555 46,620 (141) (87) (47) (228)

– US 16,642 799 232 17,441 (12) (53) (36) (65)

– Canada 25,773 2,123 284 27,896 (33) (27) (8) (60)

– other 1,114 169 39 1,283 (96) (7) (3) (103)

Latin America 5,050 4,687 1,505 9,737 (120) (483) (163) (603)

– Mexico 4,882 4,006 1,172 8,888 (119) (450) (148) (569)

– other 168 681 333 849 (1) (33) (15) (34)

At 31 Dec 2021 371,368 106,969 22,858 478,337 (675) (2,428) (1,135) (3,103)

1 Included in other personal lending at 31 December 2022 is nil (31 December 2021: $19,972m) guaranteed by Crédit Logement as our retail banking

business in France has been classified as held for sale.

2 Classified as held for sale at 31 December 2022.

HSBC Holdings plc Annual Report and Accounts 2022 197

Risk review

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied – by global business

Gross carrying/nominal amount

Allowance for ECL

Stage 1 Stage 2 Stage 3 POCI Total Stage 1 Stage 2 Stage 3 POCI Total

Loans and advances to customers at amortised cost 777,543 139,130 19,505 129 936,307 (1,095) (3,491) (6,829) (38) (11,453)

– WPB 373,889 49,096 3,502 — 426,487 (572) (1,512) (850) — (2,934)

– CMB 232,296 69,784 12,794 112 314,986 (435) (1,529) (4,891) (38) (6,893)

– GBM 171,033 20,207 3,209 17 194,466 (88) (437) (1,088) — (1,613)

– Corporate Centre 325 43 — — 368 — (13) — — (13)

Loans and advances to banks at amortised cost 103,042 1,827 82 — 104,951 (18) (29) (22) — (69)

– WPB 26,111 377 — — 26,488 (3) (1) — — (4)

– CMB 23,735 257 4 — 23,996 (5) — (2) — (7)

– GBM 47,128 1,050 78 — 48,256 (9) (28) (20) — (57)

– Corporate Centre 6,068 143 — — 6,211 (1) — — — (1)

Other financial assets measured at amortised cost 996,489 17,166 797 46 1,014,498 (124) (188) (234) (7) (553)

– WPB 248,708 5,644 458 46 254,856 (57) (96) (130) (7) (290)

– CMB 184,459 10,883 253 — 195,595 (37) (84) (91) — (212)

– GBM 486,224 637 78 — 486,939 (28) (8) (13) — (49)

– Corporate Centre 77,098 2 8 — 77,108 (2) — — — (2)

Total gross carrying amount on-balance sheet at

31Dec2022

1,877,074 158,123 20,384 175 2,055,756 (1,237) (3,708) (7,085) (45) (12,075)

Loans and other credit-related commitments 583,383 34,033 1,372 — 618,788 (141) (180) (65) — (386)

– WPB 238,161 4,377 769 — 243,307 (25) (1) — — (26)

– CMB 121,909 18,376 512 — 140,797 (78) (128) (55) — (261)

– GBM 223,065 11,279 91 — 234,435 (38) (51) (10) — (99)

– Corporate Centre 248 1 — — 249 — — — — —

Financial guarantees 16,071 2,463 249 — 18,783 (6) (13) (33) — (52)

– WPB 1,196 11 1 — 1,208 — — — — —

– CMB 6,665 1,524 128 — 8,317 (5) (8) (26) — (39)

– GBM 8,210 928 120 — 9,258 (1) (5) (7) — (13)

– Corporate Centre — — — — — — — — — —

Total nominal amount off-balance sheet at

31Dec2022

599,454 36,496 1,621 — 637,571 (147) (193) (98) — (438)

WPB 113,557 1,213 — 33 114,803 (18) (26) — (6) (50)

CMB 70,728 736 — 4 71,468 (9) (15) — (1) (25)

GBM 75,951 434 — 1 76,386 (11) (8) — — (19)

Corporate Centre 3,347 299 — — 3,646 (31) (19) (1) — (51)

Debt instruments measured at FVOCI at

31 Dec 2022

263,583 2,682 — 38 266,303 (69) (68) (1) (7) (145)

Risk review

198 HSBC Holdings plc Annual Report and Accounts 2022

Summary of financial instruments to which the impairment requirements in IFRS 9 are applied – by global business (continued)

Gross carrying/nominal amount

Allowance for ECL

Stage 1

Stage 2

Stage 3

POCI

Total

Stage 1

Stage 2

Stage 3

POCI

Total

Loans and advances to customers at amortised cost 918,936 119,224 18,797 274 1,057,231 (1,367) (3,119) (6,867) (64) (11,417)

– WPB 469,477 17,285 5,211 — 491,973 (664) (1,247) (1,276) — (3,187)

– CMB 267,517 76,798 11,462 245 356,022 (571) (1,369) (4,904) (53) (6,897)

– GBM 181,247 25,085 2,124 29 208,485 (132) (493) (687) (11) (1,323)

– Corporate Centre 695 56 — — 751 — (10) — — (10)

Loans and advances to banks at amortised cost 81,636 1,517 — — 83,153 (14) (3) — — (17)

– WPB 20,464 481 — — 20,945 (1) (1) — — (2)

– CMB 15,269 352 — — 15,621 (1) — — — (1)

– GBM 36,875 654 — — 37,529 (10) (2) — — (12)

– Corporate Centre 9,028 30 — — 9,058 (2) — — — (2)

Other financial assets measured at amortised cost 875,016 4,988 304 43 880,351 (91) (54) (42) (6) (193)

– WPB 207,335 1,407 175 43 208,960 (51) (44) (14) (6) (115)

– CMB 163,457 2,370 61 — 165,888 (12) (8) (20) — (40)

– GBM 409,808 1,204 62 — 411,074 (28) (2) (8) — (38)

– Corporate Centre 94,416 7 6 — 94,429 — — — — —

Total gross carrying amount on-balance sheet at

31 Dec 2021

1,875,588 125,729 19,101 317 2,020,735 (1,472) (3,176) (6,909) (70) (11,627)

Loans and other credit-related commitments 594,473 32,389 775 — 627,637 (165) (174) (40) — (379)

– WPB 235,722 2,111 153 — 237,986 (37) (3) — — (40)

– CMB 126,728 17,490 555 — 144,773 (80) (118) (37) — (235)

– GBM 231,890 12,788 67 — 244,745 (48) (53) (3) — (104)

– Corporate Centre 133 — — — 133 — — — — —

Financial guarantees 24,932 2,638 225 — 27,795 (11) (30) (21) — (62)

– WPB 1,295 15 1 — 1,311 — (1) — — (1)

– CMB 6,105 1,606 126 — 7,837 (7) (16) (17) — (40)

– GBM 17,531 1,017 98 — 18,646 (4) (13) (4) — (21)

– Corporate Centre 1 — — — 1 — — — — —

Total nominal amount off-balance sheet at

31 Dec 2021

619,405 35,027 1,000 — 655,432 (176) (204) (61) — (441)

WPB 143,373 718 — 35 144,126 (20) (7) — (5) (32)

CMB 86,247 471 — 10 86,728 (11) (1) — (1) (13)

GBM 111,473 526 — 1 112,000 (13) (2) — — (15)

Corporate Centre 4,038 311 — — 4,349 (25) (11) — — (36)

Debt instruments measured at FVOCI at

31 Dec 2021

345,131 2,026 — 46 347,203 (69) (21) — (6) (96)

HSBC Holdings plc Annual Report and Accounts 2022 199

Risk review

Loans and advances to customers and banks metrics

Gross

carrying

amount

of which:

stage 3

and POCI

Allowance

for ECL

of which:

stage 3

and POCI

Change in

ECL Write-offs Recoveries

First lien residential mortgages 336,821 2,043 (574) (270) 180 (48) 26

– second lien residential mortgages 379 6 (6) (3) 9 (1) 4

– guaranteed loans in respect of residential property 1,367 125 (34) (30) (11) (9) 2

– other personal lending which is secured 32,106 206 (55) (30) (16) (8) 1

– credit cards 21,388 260 (1,162) (160) (638) (471) 126

– other personal lending which is unsecured 21,010 687 (1,010) (305) (655) (660) 119

– motor vehicle finance 1,941 13 (31) (7) 39 (18) 5

Other personal lending 78,191 1,297 (2,298) (535) (1,272) (1,167) 257

Personal lending 415,012 3,340 (2,872) (805) (1,092) (1,215) 283

– agriculture, forestry and fishing 6,571 261 (122) (68) (32) (42) —

– mining and quarrying 8,194 233 (172) (146) (24) (46) —

– manufacturing 87,503 2,065 (1,153) (896) (191) (171) 3

– electricity, gas, steam and air-conditioning supply 17,082 277 (109) (67) (75) (16) —

– water supply, sewerage, waste management and

remediation

2,993 26 (21) (13) 3 (1) —

– construction 13,232 798 (443) (371) (93) (136) 6

– wholesale and retail trade, repair of motor vehicles and

motorcycles

82,437 2,810 (1,666) (1,344) (344) (667) 8

– transportation and storage 24,845 556 (249) (153) (13) (82) 1

– accommodation and food 17,185 789 (244) (82) 103 (29) —

– publishing, audiovisual and broadcasting 18,423 277 (117) (59) 9 (47) 1

– real estate 101,434 4,853 (2,851) (1,861) (1,537) (174) 2

– professional, scientific and technical activities 17,935 542 (272) (200) (81) (31) 1

– administrative and support services 25,077 980 (408) (293) (27) (27) 1

– public administration and defence, compulsory social

security

1,180 — (1) — 5 — —

– education 1,614 87 (31) (22) 1 (3) —

– health and care 3,964 266 (90) (67) (30) (7) 1

– arts, entertainment and recreation 1,862 146 (77) (57) 1 (17) —

– other services 12,527 589 (275) (219) 120 (92) 7

– activities of households 744 — — — — — —

– extra-territorial organisations and bodies activities 47 — — — 1 — 1

– government 9,475 270 (10) (7) (5) — —

– asset-backed securities 32 — (13) — (4) — —

Corporate and commercial 454,356 15,825 (8,324) (5,925) (2,213) (1,588) 32

Non-bank financial institutions 66,939 469 (257) (137) (165) (1) 1

Wholesale lending 521,295 16,294 (8,581) (6,062) (2,378) (1,589) 33

Loans and advances to customers 936,307 19,634 (11,453) (6,867) (3,470) (2,804) 316

Loans and advances to banks 104,951 82 (69) (22) (53) — —

At 31 Dec 2022 1,041,258 19,716 (11,522) (6,889) (3,523) (2,804) 316

Risk review

200 HSBC Holdings plc Annual Report and Accounts 2022

Loans and advances to customers and banks metrics (continued)

Gross

carrying

amount

of which:

stage 3 and

POCI

Allowance

for ECL

of which:

stage 3 and

POCI

Change in

ECL Write-offs Recoveries

First lien residential mortgages 371,368 3,045 (675) (416) — (70) 31

– second lien residential mortgages 395 37 (14) (9) 12 (1) 6

– guaranteed loans in respect of residential property 21,610 236 (58) (42) (5) (8) 2

– other personal lending which is secured 37,995 366 (156) (120) (11) (11) 1

– credit cards 22,858 338 (1,135) (214) 172 (751) 153

– other personal lending which is unsecured 22,478 915 (1,039) (421) 135 (659) 156

– motor vehicle finance 1,633 5 (26) (4) (22) (20) 6

Other personal lending 106,969 1,897 (2,428) (810) 281 (1,450) 324

Personal lending 478,337 4,942 (3,103) (1,226) 281 (1,520) 355

– agriculture, forestry and fishing 7,899 363 (138) (105) 61 (5) —

– mining and quarrying 9,685 463 (227) (171) 72 (57) (1)

– manufacturing 93,743 2,107 (1,248) (962) 102 (222) 7

– electricity, gas, steam and air-conditioning supply 16,618 78 (68) (31) 5 — —

– water supply, sewerage, waste management and

remediation

3,895 51 (29) (20) 3 (7) —

– construction 13,954 843 (508) (440) (13) (94) 9

– wholesale and retail trade, repair of motor vehicles and

motorcycles 94,944 3,005 (2,107) (1,937) 163 (238) 15

– transportation and storage 29,592 667 (363) (191) 100 (10) 2

– accommodation and food 23,376 1,200 (423) (111) 12 (17) 6

– publishing, audiovisual and broadcasting 18,471 250 (184) (100) (12) (4) 1

– real estate 121,260 2,473 (1,644) (775) (674) (152) 5

– professional, scientific and technical activities 19,685 637 (238) (172) 97 (39) 1

– administrative and support services 28,675 749 (431) (307) 48 (37) —

– public administration and defence, compulsory social

security

1,271 — (8) — 6 — 1

– education 1,793 65 (37) (18) 1 (1) —

– health and care 4,854 183 (72) (37) 44 (69) 1

– arts, entertainment and recreation 2,598 152 (92) (42) 27 (26) —

– other services 12,297 448 (373) (246) (59) (109) 6

– activities of households 977 — — — — — —

– extra-territorial organisations and bodies activities 2 — — — 1 — 1

– government 7,612 — (4) — (6) — —

– asset-backed securities 338 — (10) — 3 — —

Corporate and commercial 513,539 13,734 (8,204) (5,665) (19) (1,087) 54

Non-bank financial institutions 65,355 395 (110) (40) 129 (5) —

Wholesale lending 578,894 14,129 (8,314) (5,705) 110 (1,092) 54

Loans and advances to customers 1,057,231 19,071 (11,417) (6,931) 391 (2,612) 409

Loans and advances to banks 83,153 — (17) — 22 — —

At 31 Dec 2021 1,140,384 19,071 (11,434) (6,931) 413 (2,612) 409

HSBC Holdings

(Audited)

Risk in HSBC Holdings is overseen by the HSBC Holdings Asset and

Liability Management Committee. The major risks faced by HSBC

Holdings are credit risk, liquidity risk and market risk (in the form of

interest rate risk and foreign exchange risk).

Credit risk in HSBC Holdings primarily arises from transactions with

Group subsidiaries and its investments in those subsidiaries.

In HSBC Holdings, the maximum exposure to credit risk arises from

two components:

• financial instruments on the balance sheet (see page 332); and

• financial guarantees and similar contracts, where the maximum

exposure is the maximum that we would have to pay if the

guarantees were called upon (see Note 33).

In the case of our derivative balances, we have amounts with a legally

enforceable right of offset in the case of counterparty default that are

not included in the carrying value. These offsets also include collateral

received in cash and other financial assets.

The total offset relating to our derivative balances was $3.1bn at

31December 2022 (2021:$1.6bn).

The credit quality of loans and advances and financial investments,

both of which consist of intra-Group lending and US Treasury bills and

bonds, isassessed as ‘strong’, with 100% of the exposure being

neither past due nor impaired (2021: 100%). For further details of

credit quality classification, see page 146.

HSBC Holdings plc Annual Report and Accounts 2022 201

Risk review

Treasury risk

Contents

202 Overview

202 Treasury risk management

204 Other Group risks

205 Capital risk in 2022

209 Liquidity and funding risk in 2022

212 Structural foreign exchange risk in 2022

213 Interest rate risk in the banking book in 2022

Overview

Treasury risk is the risk of having insufficient capital, liquidity or

funding resources to meet financial obligations and satisfy regulatory

requirements, including the risk of adverse impact on earnings or

capital due to structural or transactional foreign exchange exposures

and changes in market interest rates, together with pension and

insurance risk.

Treasury risk arises from changes to the respective resources and risk

profiles driven by customer behaviour, management decisions or the

external environment.

Approach and policy

(Audited)

Our objective in the management of treasury risk is to maintain

appropriate levels of capital, liquidity, funding, foreign exchange and

market risk to support our business strategy, and meet our regulatory

and stress testing-related requirements.

Our approach to treasury management is driven by our strategic and

organisational requirements, taking into account the regulatory,

economic and commercial environment. We aim to maintain a strong

capital and liquidity base to support the risks inherent in our business

and invest in accordance with our strategy, meeting both consolidated

and local regulatory requirements at all times.

Our policy is underpinned by our risk management framework. The

risk management framework incorporates a number of measures

aligned to our assessment of risks for both internal and regulatory

purposes. These risks include credit, market, operational, pensions,

structural and transactional foreign exchange risk, and interest rate

risk in the banking book.

For further details, refer to our Pillar 3 Disclosures at 31 December

2022.

Treasury risk management

Key developments in 2022

• All of the Group’s material operating entities were above

regulatory minimum levels of capital, liquidity and funding at

31December 2022.

• Our CET1 position decreased from 15.8% at 31 December 2021 to

14.2% at 31 December 2022. This included a 0.8 percentage point

impact from new regulatory requirements and a 0.7 percentage

point decrease from the fall in the fair value of securities.

• The Board approved a new interest rate risk in the banking book

(‘IRRBB’) strategy in September, with the objective of increasing

our stabilisation of net interest income (‘NII’), with consideration

given to any capital or other constraints, and then adopting a

managed approach based on interest rates and outlook.

• We took steps to reduce the duration risk of the Global Treasury

hold-to-collect-and-sell portfolio, which is accounted for at fair

value through other comprehensive income (‘FVOCI‘), primarily to

dampen the capital impact from rising interest rates. This risk

reduction lowered the hold-to-collect-and-sell stressed value at risk

(‘VaR’) exposure of this portfolio from $3.63bn at the end of 2021

to $2.15bn at the end of 2022. For further details of the calculation

of this exposure and the use of this metric in our interest rate risk

management framework, see page215.

• We implemented a new hold-to-collect business model to better

reflect our management strategy to stabilise NII. This portfolio of

high-quality liquid assets will form a material part of our liquid

asset buffer going forward, as well as being a hedge to our

structural interest rate risk.

• We enhanced monitoring and forecasting as a result of the Russia-

Ukraine war, although there were no direct material capital or

liquidity impacts.

• The HBUK section of the HSBC Bank (UK) Pension Scheme’s

trustee funding level remained stable during the volatility in the UK

gilt markets in September and October, as a result of its proactive

pension scheme management, low-risk investment strategy and

limited leverage in its liability-driven investment funds.

Refinements relating to the scheme‘s inflation hedging strategy

ensured continued effectiveness in the high-inflation environment.

• HSBC Overseas Holdings (UK) Limited entered into an agreement

to sell its banking business in Canada to Royal Bank of Canada,

subject to regulatory and governmental approvals. The transaction

is expected to complete in late 2023. As a consequence of the

gain on the sale and disposal of risk-weighted assets (‘RWAs‘)

from our banking business in Canada, we expect an increase of

approximately 1.3 percentage points in CET1 capital before any

distribution. In addition, the hedging activity in respect to this

transaction reduced the full-year 2022 ratio by 0.06 percentage

point. This impact will revert on completion of sale.

• HSBC Continental Europe signed a framework agreement with

Promontoria MMB SAS (‘My Money Group’) and its subsidiary

Banque des Caraïbes SA for the sale of its retail banking business

in France. The sale, which is subject to regulatory and

governmental approvals, is anticipated to complete in the second

half of 2023. The impact of classifying the disposal as held for sale

resulted in a 0.3percentage point reduction in the Group‘s CET1

ratio, which will be partly offset by the reduction in RWAs upon

closing.

• We identified an error in the RWA calculations of the European

resolution group whereby $35bn of non-capital MREL instruments

issued by the Asian and US resolution groups and held by the

European resolution group were excluded from these calculations

and were only deducted from MREL, whereas the relevant UK

legislation requires these instruments to be both risk-weighted and

deducted from MREL. In rectifying this error, we changed our

treatment of $35bn of non-capital MREL investments held by the

European resolution group from entities outside its group to

deduct them from the European resolution group’s own funds

rather than from solely its MREL, allowing us to exclude them

from RWAs. The change in treatment significantly reduced the

European resolution group’s total capital and increased its leverage

ratio at 31 December 2022, although the European resolution

group has no capital requirements. For further details regarding

MREL, see ‘Assessment and risk appetite’ on page 203.

• We performed our inaugural resolvability self-assessment to meet

the Bank of England requirements, which came into effect on

1January 2022. This was incorporated into the Bank of England’s

publication of its findings on its first assessment of the

resolvability of the eight major UK firms, as part of the

Resolvability Assessment Framework.

For quantitative disclosures on capital ratios, own funds and RWAs,

see pages 205 to 207. For quantitative disclosures on liquidity and

funding metrics, see pages 209 to 210. For quantitative disclosures

on interest rate risk in the banking book, see pages 213 to 215.

Risk review

202 HSBC Holdings plc Annual Report and Accounts 2022

Governance and structure

The Global Head of Traded and Treasury Risk Management and Risk

Analytics is the accountable risk steward for all treasury risks. The

Group Treasurer is the risk owner for all treasury risks, with the

exception of pension risk and insurance risk. The Group Treasurer co-

owns pension risk with the Group Head of Performance, Reward and

Employee Relations. Insurance risk is owned by the Chief Executive

Officer for Global Insurance.

Capital risk, liquidity risk, interest rate risk in the banking book,

structural foreign exchange risk and transactional foreign exchange

risk are the responsibility of the Group Executive Committee and the

Group Risk Committee (‘GRC’). Global Treasury actively manages

these risks on an ongoing basis, supported by the Holdings Asset and

Liability Management Committee (‘ALCO’) and local ALCOs, overseen

by Treasury Risk Management and Risk Management Meetings.

Pension risk is overseen by a network of local and regional pension

risk management meetings. The Global Pensions Risk Management

Meeting provides oversight of all pension plans sponsored by HSBC

globally, and is chaired by the accountable risk steward. Insurance risk

is overseen by the Global Insurance Risk Management Meeting,

chaired by the Chief Risk Officer for Global Insurance.

Capital, liquidity and funding risk

management processes

Assessment and risk appetite

Our capital management policy is supported by a global capital

management framework. The framework sets out our approach to

determining key capital risk appetites including CET1, total capital,

minimum requirements for own funds and eligible liabilities (‘MREL’),

the leverage ratio and double leverage. Our internal capital adequacy

assessment process (‘ICAAP’) is an assessment of the Group’s

capital position, outlining both regulatory and internal capital resources

and requirements resulting from HSBC’s business model, strategy,

risk profile and management, performance and planning, risks to

capital, and the implications of stress testing. Our assessment of

capital adequacy is driven by an assessment of risks. These risks

include credit, market, operational, pensions, insurance, structural

foreign exchange, interest rate risk in the banking book and Group

risk. Climate risk is also considered as part of the ICAAP, and we are

continuing to develop our approach. The Group’s ICAAP supports the

determination of the consolidated capital risk appetite and target

ratios, as well as enables the assessment and determination of capital

requirements by regulators. Subsidiaries prepare ICAAPs in line with

global guidance, while considering their local regulatory regimes to

determine their own risk appetites and ratios.

HSBC Holdings is the provider of equity capital and MREL-eligible

debt to its subsidiaries, and also provides them with non-equity capital

where necessary. These investments are funded by HSBC Holdings’

own equity capital and MREL-eligible debt. MREL includes own funds

and liabilities that can be written down or converted into capital

resources in order to absorb losses or recapitalise a bank in the event

of its failure. In line with our existing structure and business model,

HSBC has three resolution groups – the European resolution group,

the Asian resolution group and the US resolution group. There are

some smaller entities that fall outside these resolution groups.

HSBC Holdings seeks to maintain a prudent balance between the

composition of its capital and its investments in subsidiaries.

As a matter of long-standing policy, the holding company retains a

substantial holdings capital buffer comprising high-quality liquid assets

(‘HQLA’), which at 31December 2022 was in excess of $24bn.

We aim to ensure that management has oversight of our liquidity and

funding risks at Group and entity level through robust governance, in

line with our risk management framework. We manage liquidity and

funding risk at an operating entity level in accordance with globally

consistent policies, procedures and reporting standards. This ensures

that obligations can be met in a timely manner, in the jurisdiction

where they fall due.

Operating entities are required to meet internal minimum

requirements and any applicable regulatory requirements at all times.

These requirements are assessed through our internal liquidity

adequacy assessment process (‘ILAAP’), which ensures that

operating entities have robust strategies, policies, processes and

systems for the identification, measurement, management and

monitoring of liquidity risk over an appropriate set of time horizons,

including intra-day. The ILAAP informs the validation of risk tolerance

and the setting of risk appetite. It also assesses the capability to

manage liquidity and funding effectively in each major entity. These

metrics are set and managed locally but are subject to robust global

review and challenge to ensure consistency of approach and

application of the Group’s policies and controls.

Planning and performance

Capital and RWA plans form part of the annual financial resource plan

that is approved by the Board. Capital and RWA forecasts are

submitted to the Group Executive Committee on a monthly basis, and

capital and RWAs are monitored and managed against the plan. The

responsibility for global capital allocation principles rests with the

Group Chief Financial Officer, supported by the Group Capital

Management Meeting. This is a specialist forum addressing capital

management, reporting into Holdings ALCO.

Through our internal governance processes, we seek to strengthen

discipline over our investment and capital allocation decisions, and to

ensure that returns on investment meet management’s objectives.

Our strategy is to allocate capital to businesses and entities to

support growth objectives where returns above internal hurdle levels

have been identified and in order to meet their regulatory and

economic capital needs. We evaluate and manage business returns

by using a return on average tangible equity measure.

Funding and liquidity plans also form part of the financial resource

plan that is approved by the Board. The Board-level appetite measures

are the liquidity coverage ratio (‘LCR’) and net stable funding ratio

(‘NSFR’), together with an internal liquidity metric. In addition, we use

a wider set of measures to manage an appropriate funding and

liquidity profile, including legal entity depositor concentration limits,

intra-day liquidity, forward-looking funding assessments and other key

measures.

Risks to capital and liquidity

Outside the stress testing framework, other risks may be identified

that have the potential to affect our RWAs, capital and/or liquidity

position. Downside and Upside scenarios are assessed against our

management objectives, and mitigating actions are assigned as

necessary. We closely monitor future regulatory changes and

continue to evaluate the impact of these upon our capital and liquidity

requirements, particularly those related to the UK’s implementation of

the outstanding measures to be implemented from the Basel III

reforms (‘Basel 3.1‘).

Regulatory developments

Our capital adequacy ratios were affected by regulatory developments

in 2022, including changes to internal-ratings based (’IRB’) modelling

requirements and the UK’s implementation of the revisions to the

Capital Requirements Regulation and Directive (’CRRII’). The PRA’s

final rules on NSFR were implemented and have been reflected in

disclosures since the first quarter of 2022.

Future changes to our ratios will occur with the implementation of

Basel 3.1. The PRA has published its consultation paper on the UK’s

implementation, with a proposed implementation date of 1 January

2025. We currently do not foresee a material net impact on our ratios

from the initial implementation. The RWA output floor under Basel 3.1

is proposed to be subject to a five-year transitional provision. Any

impact from the output floor would be towards the end of the

transition period.

Regulatory reporting processes and controls

The quality of regulatory reporting remains a key priority for

management and regulators. We are progressing with a

comprehensive programme to strengthen our processes, improve

consistency and enhance controls across our prudential regulatory

reporting, focusing on PRA requirements initially. We commissioned a

number of independent external reviews, some at the request of our

regulators, including one on our credit risk RWA reporting process,

which concluded in December 2022. These reviews have so far

HSBC Holdings plc Annual Report and Accounts 2022 203

Risk review

resulted in enhancements to our RWAs and the LCR through

improvements in reporting accuracy, which have been reflected in our

year-end regulatory reported ratios. Our prudential regulatory

reporting programme is being phased over a number of years,

prioritising RWA, capital and liquidity reporting in the early stages of

the programme. While this programme continues, there may be

further impacts on some of our regulatory ratios, such as the CET1,

LCR and NSFR, as we implement recommended changes and

continue to enhance our controls across the process.

Stress testing and recovery and resolution planning

The Group uses stress testing to inform management of the capital

and liquidity needed to withstand internal and external shocks,

including a global economic downturn or a systems failure. Stress

testing results are also used to inform risk mitigation actions,

allocation of financial resources, and recovery and resolution planning,

as well as to re-evaluate business plans where analysis shows capital,

liquidity and/or returns do not meet their target.

In addition to a range of internal stress tests, we are subject to

supervisory stress testing in many jurisdictions. These include the

programmes of the Bank of England, the US Federal Reserve Board,

the European Banking Authority, the European Central Bank and the

Hong Kong Monetary Authority. The results of regulatory stress

testing and our internal stress tests are used when assessing our

internal capital and liquidity requirements through the ICAAP and

ILAAP. The outcomes of stress testing exercises carried out by the

PRA and other regulators feed into the setting of regulatory minimum

ratios and buffers.

We maintain recovery plans for the Group and material entities, which

set out potential options management could take in a range of stress

scenarios that could result in a breach of capital or liquidity buffers.

The Group recovery plan sets out the framework and governance

arrangements to support restoring HSBC to a stable and viable

position, and so lowering the probability of failure from either

idiosyncratic company-specific stress or systemic market-wide issues.

Our material entities’ recovery plans provide detailed actions that

management would consider taking in a stress scenario should their

positions deteriorate and threaten to breach risk appetite and

regulatory minimum levels. This is to help ensure that HSBC entities

can stabilise their financial position and recover from financial losses

in a stress environment.

The Group also has capabilities, resources and arrangements in place

to address the unlikely event that HSBC might not be recoverable and

would therefore need to be resolved by regulators. The Group

performed the inaugural Resolvability Assessment Framework self-

assessment during 2021 to meet the Bank of England’s

requirements, which came into effect on 1 January 2022.

Overall, HSBC’s recovery and resolution planning helps safeguard the

Group’s financial and operational stability. The Group is committed to

further developing its recovery and resolution capabilities, including in

relation to the Bank of England’s Resolvability Assessment

Framework.

Measurement of interest rate risk in the

banking book processes

Assessment and risk appetite

Interest rate risk in the banking book is the risk of an adverse impact

to earnings or capital due to changes in market interest rates. It is

generated by our non-traded assets and liabilities, specifically loans,

deposits and financial instruments that are not held for trading intent

or in order to hedge positions held with trading intent. Interest rate

risk that can be economically hedged may be transferred to Global

Treasury. Hedging is generally executed through interest rate

derivatives or fixed-rate government bonds. Any interest rate risk that

Global Treasury cannot economically hedge is not transferred and will

remain within the global business where the risks originate.

Global Treasury uses a number of measures to monitor and control

interest rate risk in the banking book, including:

• net interest income sensitivity; and

• economic value of equity sensitivity.

Net interest income sensitivity

A principal part of our management of non-traded interest rate risk is

to monitor the sensitivity of expected net interest income (‘NII’) under

varying interest rate scenarios (i.e. simulation modelling), where all

other economic variables are held constant. This monitoring is

undertaken at an entity level, where entities calculate both one-year

and five-year NII sensitivities across a range of interest rate scenarios.

NII sensitivity figures represent the effect of pro forma movements in

projected yield curves based on a static balance sheet size and

structure, except for certain mortgage products where balances are

impacted by interest-rate sensitive prepayments. These sensitivity

calculations do not incorporate actions that would be taken by Global

Treasury or in the business that originates the risk to mitigate the

effect of interest rate movements.

The NII sensitivity calculations assume that interest rates of all

maturities move by the same amount in the ‘up-shock’ scenario. The

sensitivity calculations in the ‘down-shock’ scenarios reflect no floors

to the shocked market rates. However, customer product-specific

interest rate floors are recognised where applicable.

Economic value of equity sensitivity

Economic value of equity (‘EVE’) represents the present value of the

future banking book cash flows that could be distributed to equity

holders under a managed run-off scenario. This equates to the current

book value of equity plus the present value of future NII in this

scenario. EVE can be used to assess the economic capital required to

support interest rate risk in the banking book. An EVE sensitivity

represents the expected movement in EVE due to pre-specified

interest rate shocks, where all other economic variables are held

constant. Operating entities are required to monitor EVE sensitivities

as a percentage of capital resources.

Further details of HSBC’s risk management of interest rate risk in the

banking book can be found in the Group’s Pillar 3 Disclosures at

31December 2022.

Other Group risks

Non-trading book foreign exchange

exposures

Structural foreign exchange exposures

Structural foreign exchange exposures arise from net assets or capital

investments in foreign operations, together with any associated

hedging. A foreign operation is defined as a subsidiary, associate, joint

arrangement or branch where the activities are conducted in a

currency other than that of the reporting entity. An entity’s functional

reporting currency is normally that of the primary economic

environment in which the entity operates.

Exchange differences on structural exposures are recognised in other

comprehensive income (‘OCI’). We use the US dollar as our

presentation currency in our consolidated financial statements

because the US dollar and currencies linked to it form the major

currency bloc in which we transact and fund our business. Therefore,

our consolidated balance sheet is affected by exchange differences

between the US dollar and all the non-US dollar functional currencies

of underlying foreign operations.

Our structural foreign exchange exposures are managed with the

primary objective of ensuring, where practical, that our consolidated

capital ratios and the capital ratios of individual banking subsidiaries

are largely protected from the effect of changes in exchange rates.

We hedge structural foreign exchange positions where it is capital

efficient to do so, and subject to approved limits. This is achieved

through a combination of net investment hedges and economic

hedges. Hedging positions are monitored and rebalanced periodically

to manage RWA or downside risks associated with HSBC’s foreign

currency investments.

For further details of our structural foreign exchange exposures, see

page 212.

Risk review

204 HSBC Holdings plc Annual Report and Accounts 2022

Transactional foreign exchange exposures

Transactional foreign exchange risk arises primarily from day-to-day

transactions in the banking book generating profit and loss or fair

value through other comprehensive income (‘FVOCI’) reserves in a

currency other than the reporting currency of the operating entity.

Transactional foreign exchange exposure generated through profit and

loss is periodically transferred to Markets and Securities Services and

managed within limits with the exception of limited residual foreign

exchange exposure arising from timing differences or for other

reasons. Transactional foreign exchange exposure generated through

OCI reserves is managed by Global Treasury within agreed appetite.

HSBC Holdings risk management

As a financial services holding company, HSBC Holdings has limited

market risk activities. Its activities predominantly involve maintaining

sufficient capital resources to support the Group’s diverse activities;

allocating these capital resources across the Group’s businesses;

earning dividend and interest income on its investments in the

businesses; payment of operating expenses; providing dividend

payments to its equity shareholders and interest payments to

providers of debt capital; and maintaining a supply of short-term liquid

assets for deployment under extraordinary circumstances.

The main market risks to which HSBC Holdings is exposed are

banking book interest rate risk and foreign currency risk. Exposure to

these risks arises from short-term cash balances, funding positions

held, loans to subsidiaries, investments in long-term financial assets,

financial liabilities including debt capital issued, and structural foreign

exchange hedges. The objective of HSBC Holdings’ market risk

management strategy is to manage volatility in capital resources, cash

flows and distributable reserves that could be caused by movements

in market parameters. Market risk for HSBC Holdings is monitored by

Holdings ALCO in accordance with its risk appetite statement.

HSBC Holdings uses interest rate swaps and cross-currency interest

rate swaps to manage the interest rate risk and foreign currency risk

arising from its long-term debt issues. It also uses forward foreign

exchange contracts to manage its structural foreign exchange

exposures.

For quantitative disclosures on interest rate risk in the banking book,

see pages 213 to 215.

Pension risk management processes

Our global pensions strategy is to move from defined benefit to

defined contribution plans, where local law allows and it is considered

competitive to do so.

In defined contribution pension plans, the contributions that HSBC is

required to make are known, while the ultimate pension benefit will

vary, typically with investment returns achieved by investment

choices made by the employee. While the market risk to HSBC of

defined contribution plans is low, the Group is still exposed to

operational and reputational risk.

In defined benefit pension plans, the level of pension benefit is

known. Therefore, the level of contributions required by HSBC will

vary due to a number of risks, including:

• investments delivering a return below that required to provide the

projected plan benefits;

• the prevailing economic environment leading to corporate failures,

thus triggering write-downs in asset values (both equity and debt);

• a change in either interest rates or inflation expectations, causing

an increase in the value of plan liabilities; and

• plan members living longer than expected (known as longevity

risk).

Pension risk is assessed using an economic capital model that takes

into account potential variations in these factors. The impact of these

variations on both pension assets and pension liabilities is assessed

using a one-in-200-year stress test. Scenario analysis and other stress

tests are also used to support pension risk management, including

the review of de-risking opportunities.

To fund the benefits associated with defined benefit plans,

sponsoring Group companies, and in some instances employees,

make regular contributions in accordance with advice from actuaries

and in consultation with the plan’s fiduciaries where relevant. These

contributions are normally set to ensure that there are sufficient funds

to meet the cost of the accruing benefits for the future service of

active members. However, higher contributions are required when

plan assets are considered insufficient to cover the existing pension

liabilities. Contribution rates are typically revised annually or once

every three years, depending on the plan.

The defined benefit plans invest contributions in a range of

investments designed to limit the risk of assets failing to meet a

plan’s liabilities. Any changes in expected returns from the

investments may also change future contribution requirements. In

pursuit of these long-term objectives, an overall target allocation is

established between asset classes of the defined benefit plan. In

addition, each permitted asset class has its own benchmarks, such as

stock-market or property valuation indices or liability characteristics.

The benchmarks are reviewed at least once every three to five years

and more frequently if required by local legislation or circumstances.

The process generally involves an extensive asset and liability review.

In addition, some of the Group’s pension plans hold longevity swap

contracts. These arrangements provide long-term protection to the

relevant plans against costs resulting from pensioners or their

dependants living longer than initially expected. The most sizeable

plan to do this is the HSBC Bank (UK) Pension Scheme, which holds

longevity swaps covering approximately 60% of the plan’s pensioner

liabilities.

Capital risk in 2022

Capital overview

Capital adequacy metrics

31 Dec

2022

2021

Risk-weighted assets (‘RWAs’) ($bn)

Credit risk 679.1 680.6

Counterparty credit risk 37.1 35.9

Market risk 37.6 32.9

Operational risk 85.9 88.9

Total RWAs 839.7 838.3

Capital on a transitional basis ($bn)

Common equity tier 1 (‘CET1’) capital 119.3 132.6

Tier 1 capital 139.1 156.3

Total capital 162.4 177.8

Capital ratios on a transitional basis (%)

Common equity tier 1 ratio 14.2 15.8

Tier 1 ratio 16.6 18.6

Total capital ratio 19.3 21.2

Capital on an end point basis ($bn)

Common equity tier 1 (‘CET1’) capital 119.3 132.6

Tier 1 capital 139.1 155.0

Total capital 157.2 167.5

Capital ratios on an end point basis (%)

Common equity tier 1 ratio 14.2 15.8

Tier 1 ratio 16.6 18.5

Total capital ratio 18.7 20.0

Liquidity coverage ratio (‘LCR’)

Total high-quality liquid assets ($bn) 647.0 688.2

Total net cash outflow ($bn) 490.8 495.1

LCR ratio (%) 131.8 139.0

Net stable funding ratio (‘NSFR’)

Total available stable funding ($bn) 1,552.0 N/A

Total required stable funding ($bn) 1,138.4 N/A

NSFR ratio (%) 136.3 N/A

1 The LCR and NSFR ratios presented in the above table are based on

average value. The LCR is the average of the preceding 12 months.

The NSFR is the average of the preceding four quarters. The prior

periods for LCR have been restated for consistency. We have not

restated the prior periods for NSFR as no comparatives are available.

HSBC Holdings plc Annual Report and Accounts 2022 205

Risk review

References to EU regulations and directives (including technical

standards) should, as applicable, be read as references to the UK’s

version of such regulation or directive, as onshored into UK law under

the European Union (Withdrawal) Act 2018, and as may be

subsequently amended under UK law.

Capital figures and ratios in the previous table are calculated in

accordance with the revised Capital Requirements Regulation and

Directive, as implemented (‘CRR II’). The table presents them under

the transitional arrangements in CRR II for capital instruments and

after their expiry, known as the end point. The end point figures in the

table above include the benefit of the regulatory transitional

arrangements in CRR II for IFRS 9, which are more fully described

below. Where applicable, they also reflect government relief schemes

intended to mitigate the impact of the Covid-19 pandemic.

At 31 December 2022, our common equity tier 1 (‘CET1’) capital ratio

decreased to 14.2% from 15.8% at 31 December 2021. This primarily

reflected a decrease of $13.3bn in our CET1 capital. The key drivers of

the fall in our CET1 ratio were:

• a 0.8 percentage point impact from new regulatory requirements,

which reduced CET1 capital by $3.5bn and increased risk-weighted

assets (‘RWAs’) by $27.1bn at implementation;

• a 0.7 percentage point decrease from a $5.6bn fall in the fair value

through other comprehensive income (‘FVOCI’);

• a 0.4 percentage point impact from RWA growth, offset by

favourable foreign currency translations; and

• a 0.3 percentage point impact from the $2.0bn impairment on the

reclassification of our French retail operations to held for sale.

Profits and other movements added $4.4bn to CET1 capital and a

0.7percentage point to the CET1 ratio. This included capital

deductions for deferred tax, dividends and the share buy-back.

Our Pillar 2A requirement at 31 December 2022, as per the PRA’s

Individual Capital Requirement based on a point-in-time assessment,

was 2.6% of RWAs, of which 1.5% was required to be met by CET1.

Structural foreign exchange risk is now capitalised in RWAs under

Pillar 1 and assessed for Pillar 2A in the same manner as other risks.

Own funds disclosure

(Audited)

31 Dec

2022

2021

Ref*

Common equity tier 1 (‘CET1’) capital: instruments and reserves

1 Capital instruments and the related share premium accounts 23,406 23,513

– ordinary shares 23,406 23,513

2 Retained earnings

127,155 121,059

3 Accumulated other comprehensive income (and other reserves)

4,105 8,273

5 Minority interests (amount allowed in consolidated CET1) 4,444 4,186

5a Independently reviewed net profits net of any foreseeable charge or dividend 8,633 5,887

6 Common equity tier 1 capital before regulatory adjustments

167,743 162,918

28 Total regulatory adjustments to common equity tier

(48,452) (30,353)

29 Common equity tier 1 capital 119,291 132,565

36 Additional tier 1 capital before regulatory adjustments 19,836 23,787

43 Total regulatory adjustments to additional tier 1 capital (60) (60)

44 Additional tier 1 capital 19,776 23,727

45 Tier 1 capital 139,067 156,292

51 Tier 2 capital before regulatory adjustments 24,779 23,018

57 Total regulatory adjustments to tier 2 capital (1,423) (1,524)

58 Tier 2 capital 23,356 21,494

59 Total capital 162,423 177,786

* The references identify lines prescribed in the Prudential Regulatory Authority (‘PRA’) template, which are applicable and where there is a value.

1 To comply with new disclosures guidance from the PRA, with effect from 1 January 2022 we report changes in ‘Retained earnings’ during 2022

separately in ‘Accumulated other comprehensive income’. As this change has no impact on CET1 capital, we have not restated prior periods.

2 From 30 September 2022, investments in non-financial institution subsidiaries or participations have been measured on an equity accounting basis in

compliance with UK regulatory requirements. This change increased ‘Common equity tier 1 capital before regulatory adjustments’ and ‘Total

regulatory adjustments to common equity tier’ by $13.2bn, with no impact on CET1 capital as at 31December 2022. As this change has immaterial

impact on CET1 capital as at 31 December 2021, we have not restated the comparatives.

Throughout 2022, we complied with the PRA’s regulatory capital

adequacy requirements, including those relating to stress testing.

Regulatory and other developments

We expect the recently announced reduction of the Hong Kong

Monetary Authority’s risk weight floor for residential mortgages from

25% to 15% to improve our CET1 ratio by 0.1 percentage points with

effect from 1 January 2023. This reduction will be partly offset by a

change to the sourcing and risk-weighting of balances we

proportionally consolidate for our associates.

During 2023, our CET1 ratio will continue to be affected by strategic

decisions we have taken.

Based on our capital position on 31 December 2022, we would

expect that on completing the planned sale of our banking operations

in Canada, branch operations in Greece, and our retail banking

operations in France, we would improve our CET1 ratio by around

1.4percentage points, net of the impact from foreign exchange

hedges related to the proceeds from the planned sale of our Canada

business. The exact timing and impact on our capital position of these

transactions may change as the balance sheets being disposed evolve

in 2023.

Risk review

206 HSBC Holdings plc Annual Report and Accounts 2022

Risk-weighted assets

RWAs by global business

WPB CMB GBM

Corporate

Centre

Total

$bn

Credit risk 149.3 307.4 146.2 76.2 679.1

Counterparty credit risk 0.9 0.7 33.8 1.7 37.1

Market risk 1.6 1.1 23.6 11.3 37.6

Operational risk 31.1 25.6 29.9 (0.7) 85.9

At 31 Dec 2022 182.9 334.8 233.5 88.5 839.7

At 31 Dec 2021 178.3 332.9 236.2 90.9 838.3

RWAs by geographical region

Europe Asia MENA

North

America

Latin

America

Total

$bn

Credit risk 180.3 330.2 49.8 87.4 31.4 679.1

Counterparty credit risk 18.9 10.4 2.7 4.2 0.9 37.1

Market risk

28.2 28.6 2.6 4.2 1.2 37.6

Operational risk 23.8 40.1 5.9 10.7 5.4 85.9

At 31 Dec 2022 251.2 409.3 61.0 106.5 38.9 839.7

At 31 Dec 2021 261.1 396.3 60.2 110.4 35.9 838.3

1 RWAs are non-additive across geographical regions due to market risk diversification effects within the Group.

RWA movement by global business by key driver

Credit risk, counterparty credit risk and operational

risk

WPB CMB GBM

Corporate

Centre

Market

risk

Total

RWAs

$bn

RWAs at 1 Jan 2022 176.6 332.0 215.9 80.9 32.9 838.3

Asset size 6.5 13.7 (3.5) (0.6) 4.8 20.9

Asset quality 1.6 (1.1) 3.4 (0.8) — 3.1

Model updates (3.1) 1.0 (0.7) (0.1) — (2.9)

Methodology and policy 11.6 8.9 4.7 (0.9) (0.1) 24.2

Acquisitions and disposals (2.0) — — — — (2.0)

Foreign exchange movements

(9.9) (20.8) (9.9) (1.3) — (41.9)

Total RWA movement 4.7 1.7 (6.0) (3.7) 4.7 1.4

RWAs at 31 Dec 2022 181.3 333.7 209.9 77.2 37.6 839.7

RWA movement by geographical region by key driver

Credit risk, counterparty credit risk and

operational risk

Europe Asia MENA

North

America

Latin

America

Market risk

Total

RWAs

$bn

RWAs at 1 Jan 2022 236.5 371.0 57.9 105.1 34.9 32.9 838.3

Asset size 1.5 3.9 3.6 1.9 5.2 4.8 20.9

Asset quality (2.6) 7.1 — (1.7) 0.3 — 3.1

Model updates (3.0) 0.2 0.1 (0.2) — — (2.9)

Methodology and policy 11.2 10.5 1.4 1.0 0.2 (0.1) 24.2

Acquisitions and disposals — — (0.2) (1.8) — — (2.0)

Foreign exchange movements

(20.6) (12.0) (4.4) (2.0) (2.9) — (41.9)

Total RWA movement (13.5) 9.7 0.5 (2.8) 2.8 4.7 1.4

RWAs at 31 Dec 2022 223.0 380.7 58.4 102.3 37.7 37.6 839.7

1 Foreign exchange movements in this disclosure are computed by retranslating the RWAs into US dollars for non-US dollar branches, subsidiaries, joint

ventures and associates.

Risk-weighted assets (‘RWAs’) rose by $1.4bn during the year. An

increase of $43.3bn, driven by regulatory change and lending growth,

was partly offset by a decrease of $41.9bn due to favourable foreign

currency translation differences. At 31 December 2022, our

cumulative RWA saves as part of our transformation programme

were $128bn.

Asset size

The $20.9bn increase in RWAs due to asset size movement included

an increase of $4.8bn in market risk RWAs, mostly attributable to

heightened market risk volatility, and an increase in transactional and

structural foreign exchange exposures. The $13.7bn increase in CMB

RWAs reflected corporate loan growth in Europe, Asia and North

America.

HSBC Holdings plc Annual Report and Accounts 2022 207

Risk review

GBM RWAs fell by $3.5bn due to a reduction in counterparty credit

risk of $2.8bn, driven by mark-to-market movements and

management initiatives. Lower lending in Europe further reduced

RWAs, which was partly offset by growth in Asia and Latin America.

WPB RWAs increased by $6.5bn, primarily due to lending growth in

Asia and Latin America, largely in term lending and the mortgage

portfolio.

Asset quality

The increase of $3.1bn RWAs was mostly driven by credit migration,

primarily in Europe and Asia and partly offset against portfolio mix

changes.

Model updates

The $3.1bn RWA decrease in WPB was mostly due to the

implementation of a credit card model in Hong Kong and a retail

model in France. A reduction of $1.6bn RWAs in GBM was driven by

the introduction of a counterparty credit risk equity model in Europe.

This was mostly offset by a $2.1bn increase in RWAs in GBM and

CMB due to a commercial property loan model in Asia.

Methodology and policy

The $24.2bn increase in RWAs was driven by the regulatory changes

of $27.1bn for revised IRB modelling requirements and the UK‘s

implementation of the CRR II rules.

These increases were partly offset by reductions predominantly due

to data enhancements driven by internal and external reviews of our

regulatory reporting processes, and the reversal of the beneficial

changes to the treatment of software assets in Corporate Centre.

Acquisitions and disposals

The $2.0bn RWA decrease was mainly due to the $1.8bn sale of WPB

retail branches in US.

Leverage ratio

31 Dec

2022

2021

$bn

Tier 1 capital 139.1 155.0

Total leverage ratio exposure 2,417.2 2,962.7

% %

Leverage ratio 5.8 5.2

1 The CRR II regulatory transitional arrangements for IFRS 9 are applied in the leverage ratio calculation. This calculation is in line with the UK leverage

rules that were implemented on 1 January 2022, and excludes central bank claims. Comparatives for 2021 are reported based on the disclosure rules

in force at that time, and include claims on central banks.

Our leverage ratio was 5.8% at 31December 2022, up from 5.2% at

31 December2021. The improvement was mainly due to the

exclusion of central bank claims following the implementation of the

UK leverage ratio framework from 1 January 2022, and foreign

exchange translation movement. This was partly offset by a decline in

tier 1 capital.

At 31 December 2022, our UK minimum leverage ratio requirement of

3.25% was supplemented by a leverage ratio buffer of 0.8%, which

consists of an additional leverage ratio buffer of 0.7% and a

countercyclical leverage ratio buffer of 0.1%. These buffers translated

into capital values of $16.9bn and $2.4bn respectively. We exceeded

these leverage requirements.

Regulatory transitional arrangements for

IFRS 9 ‘Financial Instruments’

We have adopted the regulatory transitional arrangements in CRRII

for IFRS 9, including paragraph four of article 473a. Our capital and

ratios are presented under these arrangements throughout the tables

in this section, including in the end point figures. Without their

application, our CET1 ratio would be 14.2%.

The IFRS 9 regulatory transitional arrangements allow banks to add

back to their capital base a proportion of the impact that IFRS9 has

upon their loan loss allowances. The impact is defined as:

• the increase in loan loss allowances on day one of IFRS 9

adoption; and

• any subsequent increase in ECL in the non-credit-impaired book

thereafter.

Any add-back must be tax affected and accompanied by a

recalculation of deferred tax, exposure and RWAs. The impact is

calculated separately for portfolios using the standardised (‘STD’) and

internal ratings-based (‘IRB’) approaches. For IRB portfolios, there is

no add-back to capital unless loan loss allowances exceed regulatory

12-month expected losses.

The EU’s CRR ‘Quick Fix’ relief package increased the 2022 scalar

from 25% to 75% the relief that banks may take for loan loss

allowances recognised since 1 January 2020 on the

non-credit-impaired book.

In the current period, the add-back to CET1 capital amounted to

$0.4bn under the STD approach with a tax impact of $0.1bn. At

31December2021, the add-back to the capital base under the STD

approach was $1.0bn with a tax impact of $0.2bn.

Pillar 3 disclosure requirements

Pillar 3 of the Basel regulatory framework is related to market

discipline and aims to make financial services firms more transparent

by requiring publication of wide-ranging information on their risks,

capital and management. Our Pillar 3 Disclosures at 31 December

2022 ispublished on our website at www.hsbc.com/investors.

Risk review

208 HSBC Holdings plc Annual Report and Accounts 2022

Liquidity and funding risk in 2022

Liquidity metrics

At 31 December 2022, all of the Group’s material operating entities

were above regulatory minimum liquidity and funding levels.

Each entity maintains sufficient unencumbered liquid assets to

comply with local and regulatory requirements. The liquidity value of

these assets for each entity is shown in the following table, along

with the individual LCR ratio on a local regulatory requirements basis

wherever applicable. Where local regulatory requirements are not

applicable, the PRA LCR is shown. The local basis may differ from

PRA measures due to differences in the way regulators have

implemented the Basel III standards.

Each entity maintains a sufficient stable funding profile and is

assessed using the NSFR or other appropriate metrics.

In addition to regulatory metrics, we use a wide set of measures to

manage our liquidity and funding profile.

The Group liquidity and funding position on an average basis is

analysed in the following sections.

Operating entities’ liquidity

At 31 December 2022

LCR HQLA

Net

outflows

NSFR

$bn

HSBC UK Bank plc (ring-fenced bank)

226 136 60 164

HSBC Bank plc (non-ring-fenced bank)

3,4

143 128 90 115

The Hongkong and Shanghai Banking Corporation – Hong Kong branch

179 147 82 130

HSBC Singapore

247 21 9 173

Hang Seng Bank 228 50 22 156

HSBC Bank China 183 23 13 132

HSBC Bank USA 164 85 52 131

HSBC Continental Europe

7,8

151 55 37 132

HSBC Bank Middle East Ltd – UAE branch 239 12 5 158

HSBC Canada

149 22 15 122

HSBC Mexico 155 8 5 129

At 31 December 2021

HSBC UK Bank plc (ring-fenced bank)

222 143 64 176

HSBC Bank plc (non-ring-fenced bank)

3,4

142 118 84 115

The Hongkong and Shanghai Banking Corporation – Hong Kong branch

190 139 74 136

HSBC Singapore

277 19 7 165

Hang Seng Bank 200 48 24 145

HSBC Bank China 155 23 15 143

HSBC Bank USA 169 104 62 145

HSBC Continental Europe

142 56 39 131

HSBC Bank Middle East Ltd – UAE branch 203 12 6 154

HSBC Canada

154 25 16 125

HSBC Mexico 210 9 4 138

1 The LCR and NSFR ratios presented in the above table are based on average values. The LCR is the average of the preceding 12 months. The NSFR is

the average of the preceding four quarters. Prior period numbers have been restated for consistency.

2 HSBC UK Bank plc refers to the HSBC UK liquidity group, which comprises four legal entities: HSBC UK Bank plc, Marks and Spencer Financial

Services plc, HSBC Private Bank (UK) Ltd and HSBC Trust Company (UK) Limited, managed as a single operating entity, in line with the application of

UK liquidity regulation as agreed with the PRA.

3 HSBC Bank plc includes overseas branches and special purpose entities consolidated by HSBC for financial statements purposes.

4 HSBC Bank plc implemented a strategic data enhancement that resulted in a reclassification of some securities. This reclassification drove a reduction

in total HQLA and corresponding LCR as of 31 December 2022. Prior period numbers have been restated for consistency.

5 The Hongkong and Shanghai Banking Corporation – Hong Kong branch represents the material activities of The Hongkong and Shanghai Banking

Corporation Limited.

6 HSBC Singapore includes HSBC Bank Singapore Limited and The Hongkong and Shanghai Banking Corporation – Singapore branch. Liquidity and

funding risk is monitored and controlled at country level in line with the local regulator’s approval. Prior period numbers have been restated for

consistency.

7 HSBC Continental Europe and HSBC Canada represent the consolidated banking operations of the Group in France and Canada, respectively. HSBC

Continental Europe andHSBC Canada are each managed as single distinct operating entities for liquidity purposes.

8 In response to the requirement for an intermediate parent undertaking in line with EU Capital Requirements Directive (’CRD V’), HSBC Continental

Europe acquired control of HSBC Germany and HSBC Bank Malta on 30 November 2022. The averages for LCR and NSFR includes the impact of the

inclusion of two entities for November 2022 and December 2022.

HSBC Holdings plc Annual Report and Accounts 2022 209

Risk review

Consolidated liquidity metrics

Net stable funding ratio

From 1 January 2022, we started managing funding risk based on the

PRA’s NSFR rules. The Group’s NSFR at 31 December 22, calculated

from the average of the four preceding quarters average, was 136%.

31 Dec

30 Jun

31 Dec

2022

2021

$bn

Total available stable funding ($bn) 1,552 1,567 N/A

Total required stable funding ($bn) 1,138 1,139 N/A

NSFR ratio (%) 136 138 N/A

1 Group NSFR numbers above are based on average values. The NSFR

number is the average of the preceding quarters.

Liquidity coverage ratio

At 31 December 2022, the average HQLA held at entity level

amounted to $812bn (31 December 2021: $861bn). Since 2021, we

have implemented a revised approach to the application of the

requirements under the European Commission Delegated Regulation

(EU) 2015/61 and PRA rule book. This revised approach was used to

reflect the impact of limitations in the transferability of entity liquidity

around the Group, and resulted in an adjustment of $165bn to LCR

HQLA and $9bn to LCR inflows on an average basis. The change in

methodology was designed to better incorporate local regulatory

restrictions on the transferability of liquidity.

31 Dec

30 Jun

31 Dec

2022

2021

$bn

High-quality liquid assets (in entities) 812 848 861

EC Delegated Act adjustment for transfer

restrictions

(174) (181) (176)

Group LCR HQLA 647 676 688

Net outflows 491 500 495

Liquidity coverage ratio 132% 135% 139%

1 Group LCR numbers above are based on average values. The LCR is

the average of the preceding 12 months.

2 This includes adjustments made to high-quality liquid assets and

inflows in entities to reflect liquidity transfer restrictions.

Liquid assets

After the $165bn adjustment, the average Group LCR HQLA of

$647bn (31December 2021: $688bn) was held in a range of asset

classes and currencies. Of these, 97% were eligible as level 1

(31December 2021: 93%).

The following tables reflect the composition of the average liquidity

pool by asset type and currency at 31 December 2022.

Liquidity pool by asset type

Liquidity

pool

Cash Level 1

Level 2

$bn

Cash and balance at central

bank

344 344 — —

Central and local government

bonds

288 — 272 16

Regional government public

sector entities

2 — 2 —

International organisation and

multilateral developments

banks

9 — 9 —

Covered bonds 2 — — 2

Other 2 — 1 1

Total at 31 Dec 2022 647 344 284 19

Total at 31 Dec 2021 688 390 251 47

1 Group liquid assets numbers are based on average values.

2 As defined in EU regulations, level 1 assets means ‘assets of

extremely high liquidity and credit quality’, and level 2 assets means

‘assets of high liquidity and credit quality’.

Liquidity pool by currency

€

HK$

Other

Total

$bn

Liquidity pool at 31 Dec

2022 167 191 98 54 137 647

Liquidity pool at 31 Dec

2021

176 206 117 67 122 688

1 Group liquid assets numbers are based on average values.

Sources of funding

Our primary sources of funding are customer current accounts and

savings deposits payable on demand or at short notice. We issue

secured and unsecured wholesale securities to supplement customer

deposits, meet regulatory obligations and to change the currency mix,

maturity profile or location of our liabilities.

The following ‘Funding sources’ and ‘Funding uses’ tables provide a

view of how our consolidated balance sheet is funded. In practice, all

the principal operating entities are required to manage liquidity and

funding risk on a stand-alone basis.

The tables analyse our consolidated balance sheet according to the

assets that primarily arise from operating activities and the sources of

funding primarily supporting these activities. Assets and liabilities that

do not arise from operating activities are presented at a net balancing

source or deployment of funds.

Funding sources

(Audited)

2022

2021

Customer accounts 1,570,303 1,710,574

Deposits by banks 66,722 101,152

Repurchase agreements – non-trading 127,747 126,670

Debt securities in issue 78,149 78,557

Cash collateral, margin and settlement accounts 88,468 65,452

Liabilities of disposal groups held for sale

114,597 9,005

Subordinated liabilities 22,290 20,487

Financial liabilities designated at fair value 127,327 145,502

Liabilities under insurance contracts 114,844 112,745

Trading liabilities 72,353 84,904

– repos 16,254 11,004

– stock lending 3,541 2,332

– other trading liabilities 52,558 71,568

Total equity 196,028 206,777

Other balance sheet liabilities 387,702 296,114

At 31 Dec 2,966,530 2,957,939

Funding uses

(Audited)

2022

2021

Loans and advances to customers 924,854 1,045,814

Loans and advances to banks 104,882 83,136

Reverse repurchase agreements – non-trading 253,754 241,648

Cash collateral, margin and settlement accounts 82,986 59,884

Assets held for sale

115,919 3,411

Trading assets 218,093 248,842

– reverse repos 14,797 14,994

– stock borrowing 10,706 8,082

– other trading assets

192,590 225,766

Financial investments 425,564 446,274

Cash and balances with central banks

327,002 403,018

Other balance sheet assets 513,476 425,912

At 31 Dec 2,966,530 2,957,939

1 ‘Liabilities of disposal groups held for sale’ includes $85bn and $27bn

and ‘Assets held for sale’ includes $90bn and $23bn, in respect of

planned sale of our banking business in Canada and planned sale of our

retail banking operations in France respectively, that were classified as

assets held for sale during 2022.

Risk review

210 HSBC Holdings plc Annual Report and Accounts 2022

Wholesale term debt maturity profile

The maturity profile of our wholesale term debt obligations is set out

in the following table. The balances in the table are not directly

comparable with those in the consolidated balance sheet because the

table presents gross cash flows relating to principal payments and not

the balance sheet carrying value, which includes debt securities and

subordinated liabilities measured at fair value.

Wholesale funding cash flows payable by HSBC under financial liabilities by remaining contractual maturities

Due not

than

1 month

Due over

1 month

but not

more than

3 months

Due over

3 months

but not

more than

6 months

Due over

6 months

but not

more than

9 months

Due over

9 months

but not

than

1 year

Due over

1 year

but not

more than

2 years

Due over

2 years

but not

more than

5 years

Due

over

5 years Total

Debt securities issued 11,959 11,266 12,532 8,225 8,212 26,669 52,435 52,952 184,250

– unsecured CDs and CP 3,821 6,017 7,088 4,137 3,123 1,264 707 1,004 27,161

– unsecured senior MTNs 5,973 2,351 3,534 1,363 3,238 19,229 44,023 44,021 123,732

– unsecured senior structured notes 1,264 1,421 1,247 1,850 1,627 4,463 2,609 5,990 20,471

– secured covered bonds — — — — — — 602 — 602

– secured asset-backed commercial paper 690 — — — — — — — 690

– secured ABS 15 28 40 38 36 123 656 220 1,156

– others 196 1,449 623 837 188 1,590 3,838 1,717 10,438

Subordinated liabilities — — 11 160 — 2,000 5,581 25,189 32,941

– subordinated debt securities — — 11 160 — 2,000 5,581 23,446 31,198

– preferred securities — — — — — — — 1,743 1,743

At 31 Dec 2022 11,959 11,266 12,543 8,385 8,212 28,669 58,016 78,141 217,191

Debt securities issued 17,602 14,593 9,293 9,249 5,233 25,058 55,388 56,639 193,055

– unsecured CDs and CP 4,586 6,795 4,281 2,837 1,189 947 834 931 22,400

– unsecured senior MTNs 8,542 4,140 2,633 2,078 2,074 14,932 45,063 45,259 124,721

– unsecured senior structured notes 2,090 1,610 1,017 975 1,206 2,996 3,382 8,604 21,880

– secured covered bonds — 1,137 — 997 — 2,417 1,997 — 6,548

– secured asset-backed commercial paper 956 — — — — — — — 956

– secured ABS 1 133 33 31 193 896 1,696 98 3,081

– others 1,427 778 1,329 2,331 571 2,870 2,416 1,747 13,469

Subordinated liabilities — — 11 — — 417 7,023 21,274 28,725

– subordinated debt securities — — 11 — — 417 7,023 19,427 26,878

– preferred securities — — — — — — — 1,847 1,847

At 31 Dec 2021 17,602 14,593 9,304 9,249 5,233 25,475 62,411 77,913 221,780

1 Excludes financial liabilities of disposal groups.

HSBC Holdings plc Annual Report and Accounts 2022 211

Risk review

Structural foreign exchange risk in 2022

Structural foreign exchange exposures represent net assets or capital investments in subsidiaries, branches, joint arrangements or associates,

together with any associated hedges, the functional currencies of which are currencies other than the US dollar. Exchange differences on

structural exposures are usually recognised in ‘other comprehensive income’.

Net structural foreign exchange exposures

2022

Currency of structural exposure

Net

investment

in foreign

operations

(excl non-

controlling

interest)

Net

investment

hedges

Structural

foreign

exchange

exposures

(pre-

economic

hedges)

Economic

hedges –

structural

FX hedges

Economic

hedges –

equity

securities

(AT1)

Net

structural

foreign

exchange

exposures

Hong Kong dollars 47,204 (4,597) 42,607 (8,363) — 34,244

Pounds sterling 39,535 (14,000) 25,535 — (1,205) 24,330

Chinese renminbi 35,801 (3,532) 32,269 (994) — 31,275

Euros 15,182 (777) 14,405 — (2,402) 12,003

Canadian dollars 4,402 (811) 3,591 — — 3,591

Indian rupees 4,967 (1,380) 3,587 — — 3,587

Mexican pesos 3,989 — 3,989 — — 3,989

Saudi riyals 4,182 (109) 4,073 — — 4,073

UAE dirhams 4,534 (731) 3,803 (2,285) — 1,518

Malaysian ringgit 2,715 — 2,715 — — 2,715

Singapore dollars 3,108 (358) 2,750 — (559) 2,191

Australian dollars 2,264 — 2,264 — — 2,264

Taiwanese dollars 2,058 (1,140) 918 — — 918

Indonesian rupiah 1,453 (469) 984 — — 984

Swiss francs 1,233 (727) 506 — — 506

Korean won 1,283 (817) 466 — — 466

Thai baht 908 — 908 — — 908

Egyptian pound 746 — 746 — — 746

Qatari rial 785 (200) 585 (277) — 308

Argentinian peso 968 — 968 — — 968

Others, each less than $700m 5,135 (495) 4,640 (36) — 4,604

At 31 Dec 182,452 (30,143) 152,309 (11,955) (4,166) 136,188

2021

Hong Kong dollars 44,714 (4,992) 39,722 (7,935) — 31,787

Pounds sterling 47,935 (15,717) 32,218 — (1,353) 30,865

Chinese renminbi 35,879 — 35,879 (1,255) — 34,624

Euros 14,671 — 14,671 — (4,262) 10,409

Canadian dollars 5,147 (1,093) 4,054 — — 4,054

Indian rupees 5,106 — 5,106 — — 5,106

Mexican pesos 3,598 — 3,598 — — 3,598

Saudi riyals 4,115 — 4,115 — — 4,115

UAE dirhams 4,155 (700) 3,455 (1,985) — 1,470

Malaysian ringgit 2,713 — 2,713 — — 2,713

Singapore dollars 2,339 (680) 1,659 — (1,298) 361

Australian dollars 2,300 — 2,300 — — 2,300

Taiwanese dollars 2,105 (1,019) 1,086 — — 1,086

Indonesian rupiah 1,748 — 1,748 — — 1,748

Swiss francs 1,107 (809) 298 — — 298

Korean won 1,219 (696) 523 — — 523

Thai baht 859 — 859 — — 859

Egyptian pound 1,051 — 1,051 — — 1,051

Qatari rial 725 — 725 (332) — 393

Argentinian peso 795 — 795 — — 795

Others, each less than $700m 5,242 (200) 5,042 (36) — 5,006

At 31 Dec 187,523 (25,906) 161,617 (11,543) (6,913) 143,161

1 Represents hedges that do not qualify as net investment hedges for accounting purposes.

2 Represents foreign currency-denominated preference share and AT1 instruments. These are accounted for at historical cost under IFRSs and do not

qualify as net investment hedges for accounting purposes. The gain or loss arising from changes in the US dollar value of these instruments is

recognised on redemption in retained earnings.

For definition of structural foreign exchange exposures, see page 205.

Risk review

212 HSBC Holdings plc Annual Report and Accounts 2022

Interest rate risk in the banking book

in 2022

Net interest income sensitivity

The following tables set out the assessed impact to a hypothetical

basecase projection of our banking book NII under the following

scenarios:

• an immediate shock of 25 basis points (‘bps’) to the current

market-implied path of interest rates across all currencies on

1January2023 (effects over one year and five years); and

• an immediate shock of 100bps to the current market-implied path

of interest rates across all currencies on 1 January 2023 (effects

over one year and five years).

The sensitivities shown represent a hypothetical simulation of the

base case NII, assuming a static balance sheet (specifically no

assumed migration from current account to term deposits), no

management actions from Global Treasury and a simplified 50% pass-

on assumption applied for material entities. This also incorporates the

effect of interest rate behaviouralisation, hypothetical managed rate

product pricing assumptions, prepayment of mortgages and deposit

stability. The sensitivity calculations exclude pensions, insurance and

investments in subsidiaries.

The NII sensitivity analysis performed in the case of a down-shock

does not include floors to market rates, and it does not include floors

on some wholesale assets and liabilities. However, floors have been

maintained for deposits and loans to customers where this is

contractual or where negative rates would not be applied.

As market and policy rates move, the degree to which these changes

are passed on to customers will vary based on a number of factors,

including the absolute level of market rates, regulatory and contractual

frameworks, and competitive dynamics. To aid comparability between

markets, we have simplified the basis of preparation for our

disclosure, and have used a 50% pass-on assumption for major

entities on certain interest bearing deposits. Our pass-through asset

assumptions are largely in line with our contractual agreements or

established market practice, which typically results in a significant

portion of interest rate changes being passed on.

The one-year and five-year NII sensitivities in the down-shock

scenarios decreased at 31 December 2022 at Group level when

compared with 31 December 2021. This was driven by changes in the

forecasted yield curves and changes in balance sheet composition.

Immediate interest rate rises of 25bps and 100bps would increase

projected NII for the 12 months to 31 December 2023 by $884m and

$3,535m, respectively. Immediate interest rate falls of 25bps and

100bps would decrease projected NII for the 12 months to

31December 2023 by $973m and $3,969m, respectively.

The sensitivity of NII for 12 months decreased by $1,879m in the plus

100bps parallel shock and by $1,792m in the minus 100bps parallel

shock, comparing 31 December 2022 with 31 December 2021. The

decrease in the sensitivity of NII for 12 months in the plus 100bps

parallel shock was mainly driven by changes in market pricing,

reflecting current market expectations of main policy rates. The key

drivers of the reduction in NII sensitivity are the reduced effects of

flooring as rates have moved higher, deposit migration, and

management actions.

The sensitivities broken down by currency in the tables below do not

include the impact of vanilla foreign exchange swaps to optimise cash

management across the Group.

For further details of measurement of interest rate risk in the banking

book, see page 204.

NII sensitivity to an instantaneous change in yield curves (12 months) – 1 year NII sensitivity by currency

Currency

HK$

€

Other

Total

Change in Jan 2023 to Dec 2023 (based on balance sheet at 31 December 2022)

+25bps parallel (66) 107 245 167 431 884

-25bps parallel 64 (115) (289) (194) (439) (973)

+100bps parallel (267) 413 1,026 674 1,689 3,535

-100bps parallel 236 (476) (1,177) (765) (1,787) (3,969)

Change in Jan 2022 to Dec 2022 (based on balance sheet at 31 December 2021)

+25bps parallel 125 265 420 106 393 1,309

-25bps parallel (257) (536) (594) (170) (395) (1,952)

+100bps parallel 458 1,054 1,739 632 1,532 5,414

-100bps parallel (466) (1,020) (2,070) (595) (1,610) (5,761)

NII sensitivity to an instantaneous change in yield curves (5 years) – Cumulative 5 years NII sensitivity by currency

Currency

HK$

€

Other

Total

Change in Jan 2023 to Dec 2027 (based on balance sheet at 31 December 2022)

+25bps parallel 192 668 2,315 924 2,500 6,599

-25bps parallel (282) (688) (2,336) (1,044) (2,498) (6,848)

+100bps parallel 673 2,401 9,254 3,764 9,765 25,857

-100bps parallel (1,522) (3,004) (9,454) (4,173) (10,317) (28,470)

Change in Jan 2022 to Dec 2026 (based on balance sheet at 31 December 2021)

+25bps parallel 1,026 1,410 3,333 827 2,510 9,106

-25bps parallel (1,701) (2,887) (4,216) (997) (2,600) (12,401)

+100bps parallel 3,922 4,870 13,389 3,919 9,841 35,941

-100bps parallel (5,060) (7,052) (14,893) (3,571) (10,481) (41,057)

The net interest income sensitivities arising from the scenarios presented in the tables above are not directly comparable. This is due to timing

differences relating to interest rate changes and the repricing of assets and liabilities.

HSBC Holdings plc Annual Report and Accounts 2022 213

Risk review

NII sensitivity to an instantaneous change in yield curves (5 years) – NII sensitivity by years

Year 1

Year 2

Year 3

Year 4

Year 5

Total

Change in Jan 2023 to Dec 2027 (based on balance sheet at 31 December 2022)

+25bps parallel 884 1,145 1,378 1,550 1,642 6,599

-25bps parallel (973) (1,178) (1,420) (1,579) (1,699) (6,848)

+100bps parallel 3,535 4,565 5,367 5,962 6,429 25,857

-100bps parallel (3,969) (4,944) (5,925) (6,565) (7,067) (28,470)

Change in Jan 2022 to Dec 2026 (based on balance sheet at 31 December 2021)

+25bps parallel 1,309 1,758 1,896 2,002 2,141 9,106

-25bps parallel (1,952) (2,324) (2,593) (2,687) (2,845) (12,401)

+100bps parallel 5,414 6,738 7,492 7,937 8,359 35,941

-100bps parallel (5,761) (7,664) (8,675) (9,354) (9,603) (41,057)

Non-trading value at risk

Non-trading portfolios comprise positions that primarily arise from the

interest rate management of our retail and commercial banking assets

and liabilities, financial investments measured at fair value through

other comprehensive income, debt instruments measured at

amortised cost, and exposures arising from our insurance operations.

Value at risk of non-trading portfolios

Value at risk (‘VaR’) is a technique for estimating potential losses on

risk positions as a result of movements in market rates and prices

over a specified time horizon and to a given level of confidence. The

use of VaR is integrated into the market risk management of non-

trading portfolios to have a complete picture of risk, complementing

risk sensitivity analysis.

Our models are predominantly based on historical simulation that

incorporates the following features:

• historical market rates and prices, which are calculated with

reference to interest rates, credit spreads and the associated

volatilities;

• potential market movements that are calculated with reference to

data from the past two years; and

• calculations to a 99% confidence level and using a one-day holding

period.

Although a valuable guide to risk, VaR is used for non-trading

portfolios with awareness of its limitations. For example:

• The use of historical data as a proxy for estimating future market

moves may not encompass all potential market events, particularly

those that are extreme in nature. As the model is calibrated on the

last 500 business days, it does not adjust instantaneously to a

change in the market regime.

• The use of a one-day holding period for risk management purposes

of non-trading books is only an indication of exposure and not

indicative of the time period required to hedge or liquidate

positions.

• The use of a 99% confidence level by definition does not take into

account losses that might occur beyond this level of confidence.

The interest rate risk on the fixed-rate securities issued by HSBC

Holdings is not included in the Group non-trading VaR. The

management of this risk is described on page 217. Non-trading VaR

also excludes the equity risk on securities held at fair value and non-

trading book foreign exchange risk.

The VaR for non-trading activity at 31 December 2022 was lower than

at 31 December 2021.

The daily levels of total non-trading VaR in 2022 are set out in the

graph below.

Daily VaR (non-trading portfolios), 99% 1 day ($m)

Non-trading total IR non-trading CS non-trading intent Diversification

Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22

-100

-80

-60

-40

-20

100

120

140

160

180

200

220

240

260

280

300

Risk review

214 HSBC Holdings plc Annual Report and Accounts 2022

The Group non-trading VaR for 2022 is shown in the table below.

Non-trading VaR, 99% 1 day

(Audited)

Interest

rate

Credit

spread

Portfolio

diversification

Total

Balance at 31 Dec 2022 159.8 56.6 (45.3) 171.1

Average 134.6 56.9 (35.9) 155.6

Maximum 225.5 84.7 265.3

Minimum 98.3 43.4 106.3

Balance at 31 Dec 2021 216.4 70.3 (66.3) 220.4

Average 200.7 76.9 (40.3) 237.3

Maximum 248.7 99.3 — 298.8

Minimum 163.3 64.7 — 193.5

1 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in

unsystematic market risk that occurs when combining a number of different risk types – such as interest rate and credit spreads – together inone

portfolio. It is measured as the difference between the sum of the VaRby individual risk type and the combined total VaR. A negative number

represents the benefit of portfolio diversification. As the maximum and minimum occurs on different days for different risk types, it is not meaningful

to calculate a portfolio diversification benefit for these measures.

2 The total VaR is non-additive across risk types due to diversification effects.

The decrease at the end of February was primarily driven by Covid-19

scenarios moving out of the two-year historical scenario window used

to calculate VaR. Non-trading VaR remained at relatively low levels

throughout the next two quarters, with an increase in duration risk

exposure in Global Treasury during November driving an increase in

both interest rate and total VaR. The average portfolio diversification

effect between interest rate and credit spread exposure remained

relatively stable between 2021 and 2022.

Sensitivity of capital and reserves

Hold-to-collect-and-sell stressed VaR is a quantification of the

potential losses to a 99% confidence level of the portfolio of high-

quality liquid assets held under a hold-to-collect-and-sell business

model in Global Treasury. The portfolio is accounted for at fair value

through other comprehensive income together with the derivatives

held in designated hedging relationships with these securities. The

mark-to-market of this portfolio therefore has an impact on CET1.

Stressed VaR is quantified based on the worst losses over a one-year

period going back to the beginning of 2007 and the assumed holding

period is 60 days. At the end of December 2022, the stressed VaR of

the portfolio was $2.15bn (2021: $3.63bn). The decrease was

primarily due to actions taken to reduce the overall duration risk of the

portfolio in order to dampen the capital impact from higher interest

rates.

Alongside our monitoring of the stressed VaR of this portfolio, we

also monitor the sensitivity of reported cash flow hedging reserves to

interest rate movements on a yearly basis by assessing the expected

reduction in valuation of cash flow hedges due to parallel movements

of plus or minus 100bps in all yield curves.

The following table describes the sensitivity of our cash flow hedge

reported reserves to the stipulated movements in yield curves at the

year end. The sensitivities are indicative and based on simplified

scenarios. These particular exposures form only a part of our overall

interest rate exposure. We apply flooring on negative rates in the

minus 100bps scenario in this assessment. However, due to

increases in interest rates in most major markets, the effect of this

flooring is immaterial at the end of 2022.

Comparing 31 December 2022 with 31 December 2021, the

sensitivity of the cash flow hedging reserve increased by $368m in

the plus 100bps scenario and increased by $375m in the minus

100bps scenario. Although our largest exposure by currency remained

fixed rate pound sterling hedges transacted in HSBC UK Bank plc, the

increase in sensitivity during 2022 was driven by increases in hedge

exposure in a variety of other currencies including US dollars and

Hong Kong dollars.

Sensitivity of cash flow hedging reported reserves to interest rate movements

At 31 Dec 2022

+100 basis point parallel move in all yield curves (1,899)

As a percentage of total shareholders’ equity (1.01)%

-100 basis point parallel move in all yield curves 1,912

As a percentage of total shareholders’ equity 1.02%

At 31 Dec 2021

+100 basis point parallel move in all yield curves (1,531)

As a percentage of total shareholders’ equity (0.77)%

-100 basis point parallel move in all yield curves 1,537

As a percentage of total shareholders’ equity 0.78%

Third-party assets in Markets Treasury

Third-party assets in Markets Treasury decreased by 3% compared

with 31 December 2021. The net decrease of $22bn was partly

reflective of a reduction in our commercial surplus during the year, as

well as the impact of foreign exchange rates and interest rates, as

central banks tightened monetary policy during 2022. The increase of

$31bn in ‘Other’ was largely driven by the reclassification of our

banking business in Canada to held for sale.

HSBC Holdings plc Annual Report and Accounts 2022 215

Risk review

Third-party assets in Markets Treasury

2022

2021

Cash and balances at central banks 317,479 379,106

Trading assets 498 329

Loans and advances:

– to banks 67,612 47,363

– to customers 2,102 371

Reverse repurchase agreements 53,016 47,067

Financial investments 319,852 338,692

Other 36,192 5,451

At 31 Dec 796,751 818,379

Defined benefit pension plans

Market risk arises within our defined benefit pension plans to the

extent that the obligations of the plans are not fully matched by

assets with determinable cash flows.

For details of our defined benefit plans, including asset allocation, see

Note 5 on the financial statements, and for pension risk management,

seepage 205.

Additional market risk measures applicable

only to the parent company

HSBC Holdings monitors and manages foreign exchange risk and

interest rate risk. In order to manage interest rate risk, HSBC Holdings

uses the projected sensitivity of its NII to future changes in yield

curves and the interest rate repricing gap tables.

During 2022, HSBC Holdings hedged $22.7bn of previously unhedged

issuances. The impact can be observed in the NII sensitivity tables

with a change from positive to negative sensitivities due to increases

in interest rates.

Foreign exchange risk

HSBC Holdings’ foreign exchange exposures derive almost entirely

from the execution of structural foreign exchange hedges on behalf of

the Group as its business-as-usual foreign exchange exposures are

managed within tight risk limits. At 31 December 2022, HSBC

Holdings had forward foreign exchange contracts of

$30.1bn (2021: $25.9bn) to manage the Group’s structural foreign

exchange exposures.

For further details of our structural foreign exchange exposures, see

page 212.

Sensitivity of net interest income

HSBC Holdings monitors NII sensitivity over 12-month and five-year

time horizons, reflecting the longer-term perspective on interest rate

risk management appropriate to a financial services holding company.

These sensitivities assume that any issuance where HSBC Holdings

has an option to reimburse at a future call date is called at this date.

The tables below set out the effect on HSBC Holdings’ future NII of

the following scenarios:

• an immediate shock of 25bps to the current market-implied path of

interest rates across all currencies on 1January2023; and

• an immediate shock of 100bps to the current market-implied path

of interest rates across all currencies on 1 January 2023.

The NII sensitivities shown are indicative and based on simplified

scenarios. Immediate interest rate rises of 25bps and 100bps would

decrease projected NII for the 12 months to 31 December 2023 by

$60m and $240m respectively. Conversely, falls of 25bps and 100bps

would increase projected NII for the 12 months to 31 December 2023

by $60m and $240m respectively.

NII sensitivity to an instantaneous change in yield curves (12 months)

HK$

€

Other

Total

Change in Jan 2023 to Dec 2023 (based on balance sheet at 31 December 2022)

+25bps (66) — 4 2 — (60)

-25bps 66 — (4) (2) — 60

+100bps (265) — 16 9 — (240)

-100bps 265 — (16) (9) — 240

Change in Jan 2022 to Dec 2022 (based on balance sheet at 31 December 2021)

+25bps 16 — 8 4 — 29

-25bps (16) — (8) (4) — (28)

+100bps 65 — 31 16 — 113

-100bps (64) — (31) (14) — (109)

NII sensitivity to an instantaneous change in yield curves (5 years)

Year 1

Year 2

Year 3

Year 4

Year 5

Total

Change in Jan 2023 to Dec 2023 (based on balance sheet at 31 December 2022)

+25bps (60) (41) (36) (37) (38) (212)

-25bps 60 41 36 37 38 212

+100bps (240) (162) (143) (148) (154) (847)

-100bps 240 162 143 148 154 847

Change in Jan 2022 to Dec 2022 (based on balance sheet at 31 December 2021)

—

+25bps 29 44 45 38 28 184

-25bps (28) (44) (45) (38) (28) (183)

+100bps 113 177 180 152 112 733

-100bps (109) (174) (174) (148) (109) (715)

Risk review

216 HSBC Holdings plc Annual Report and Accounts 2022

The figures represent hypothetical movements in NII based on our

projected yield curve scenarios, HSBC Holdings’ current interest rate

risk profile and assumed changes to that profile during the next five

years.

The sensitivities represent our assessment of the change to a

hypothetical base case based on a static balance sheet assumption,

and do not take intoaccount the effect of actions thatcould be taken

to mitigate this interest rate risk.

Interest rate repricing gap table

The interest rate risk on the fixed-rate securities issued by HSBC

Holdings is not included within the Group VaR, but is managed on a

repricing gap basis. The following ‘Repricing gap analysis of HSBC

Holdings’ table analyses the full term structure of interest rate

mismatches within HSBC Holdings’ balance sheet where debt

issuances are reflected based on either the next repricing date if

floating rate or the maturity/call date (whichever is first) if fixed rate.

Repricing gap analysis of HSBC Holdings

Total

Up to

1 year

From over

1 to 5 years

From over

5 to 10

years

More than

10 years

Non-interest

bearing

Cash at bank and in hand:

– balances with HSBC undertakings 2,590 2,590

Derivatives 2,811 2,811

Loans and advances to HSBC undertakings 76,516 22,545 29,759 20,347 2,000 1,865

Financial investments in HSBC undertakings 26,194 22,917 3,268 9

Investments in subsidiaries 163,211 5,425 8,395 600 148,791

Other assets 1,850 1,850

Total assets 273,172 53,477 41,422 20,947 2,000 155,326

Amounts owed to HSBC undertakings (111) (111)

Financial liabilities designated at fair values (32,418) (5,925) (10,801) (14,942) (750)

Derivatives (1,220) (1,220)

Debt securities in issue (67,483) (11,244) (34,917) (19,322) (2,000)

Other liabilities (4,551) (4,551)

Subordinated liabilities (17,059) (1,131) (3,705) (1,780) (10,443)

Total equity (150,330) (2,446) (11,096) (8,721) (128,067)

Total liabilities and equity (273,172) (20,746) (60,519) (44,765) (13,193) (133,949)

Off-balance sheet items attracting interest rate sensitivity (18,797) (10,871) 1,434 6,184 308

Net interest rate risk gap at 31 Dec 2022 13,952 (8,226) (22,384) (5,009) 21,667

Cumulative interest rate gap 13,952 5,726 (16,658) (21,667)

Cash at bank and in hand:

– balances with HSBC undertakings 2,590 2,590

Derivatives 2,811 2,811

Loans and advances to HSBC undertakings 76,516 22,545 29,759 20,347 2,000 1,865

Financial investments in HSBC undertakings 26,194 22,917 3,268 9

Investments in subsidiaries 163,211 5,425 8,395 600 148,791

Other assets 1,850 1,850

Total assets 273,172 53,477 41,422 20,947 2,000 155,326

Amounts owed to HSBC undertakings (111) (111)

Financial liabilities designated at fair values (32,418) (5,925) (10,801) (14,942) (750)

Derivatives (1,220) (1,220)

Debt securities in issue (67,483) (11,244) (34,917) (19,322) (2,000)

Other liabilities (4,551) (4,551)

Subordinated liabilities (17,059) (1,131) (3,705) (1,780) (10,443)

Total equity (150,330) (2,446) (11,096) (8,721) (128,067)

Total liabilities and equity (273,172) (20,746) (60,519) (44,765) (13,193) (133,949)

Off-balance sheet items attracting interest rate sensitivity (18,797) (10,871) 1,434 6,184 308

Net interest rate risk gap at 31 Dec 2021

13,952 (8,226) (22,384) (5,009) 21,667

Cumulative interest rate gap 13,952 5,726 (16,658) (21,667)

1 Investments in subsidiaries and equity have been allocated based on call dates for any callable bonds. The prior year figures have been amended to

reflect this.

HSBC Holdings plc Annual Report and Accounts 2022 217

Risk review

Market risk

Contents

218 Overview

218 Market risk management

219 Market risk in 2022

219 Trading portfolios

220 Market risk balance sheet linkages

Overview

Market risk is the risk of an adverse financial impact on trading

activities arising from changes in market parameters such as interest

rates, foreign exchange rates, asset prices, volatilities, correlations

and credit spreads. Exposure to market risk is separated into two

portfolios: trading portfolios and non-trading portfolios.

For further details of market risk in non-trading portfolios, page 214, of

the Annual Report and Accounts 2022.

Market risk management

Key developments in 2022

There were no material changes to our policies and practices for the

management of market risk in 2022.

Governance and structure

The following diagram summarises the main business areas where

trading market risks reside and the market risk measures used to

monitor and limit exposures.

Risk types

Trading risk

• Foreign exchange and commodities

• Interest rates

• Credit spreads

• Equities

Global business

GBM

Risk measure

Value at risk | Sensitivity | Stress testing

The objective of our risk management policies and measurement

techniques is to manage and control market risk exposures to

optimise return on risk while maintaining a market profile consistent

with our established risk appetite.

Market risk is managed and controlled through limits approved by the

Group Chief Risk and Compliance Officer for HSBC Holdings. These

limits are allocated across business lines and to the Group’s legal

entities. Each major operating entity has an independent market risk

management and control sub-function, which is responsible for

measuring, monitoring and reporting market risk exposures against

limits on a daily basis. Each operating entity is required to assess the

market risks arising in its business and to transfer them either to its

local Markets and Securities Services or Markets Treasury unit for

management, or to separate books managed under the supervision of

the local ALCO. The Traded Risk function enforces the controls

around trading in permissible instruments approved for each site as

well as changes that follow completion of the new product approval

process. Traded Risk also restricts trading in the more complex

derivative products to offices with appropriate levels of product

expertise and robust control systems.

Key risk management processes

Monitoring and limiting market risk exposures

Our objective is to manage and control market risk exposures while

maintaining a market profile consistent with our risk appetite.

We use a range of tools to monitor and limit market risk exposures

including sensitivity analysis, VaR and stresstesting.

Sensitivity analysis

Sensitivity analysis measures the impact of individual market factor

movements on specific instruments or portfolios, including interest

rates, foreign exchange rates and equity prices. We use sensitivity

measures to monitor the market risk positions within each risk type.

Granular sensitivity limits are set for trading desks with consideration

of market liquidity, customer demand and capital constraints, among

other factors.

Value at risk

(Audited)

VaR is a technique for estimating potential losses on risk positions as

a result of movements in market ratesand prices over a specified

time horizon and to a given level of confidence. The use of VaR is

integrated into market risk management and calculated for all trading

positions regardless of how we capitalise them. Where we do not

calculate VaR explicitly, we use alternative tools as summarised in the

‘Stress testing’ section below.

Our models are predominantly based on historical simulation that

incorporates the following features:

• historical market rates and prices, which are calculated with

reference to foreign exchange rates, commodity prices, interest

rates, equity prices and the associated volatilities;

• potential market movements that are calculated with reference to

data from the past two years; and

• calculations to a 99% confidence level and using a one-day holding

period.

The models also incorporate the effect of option features on the

underlying exposures. The nature of the VaR models means that an

increase in observed market volatility will lead to anincrease in VaR

without any changes in the underlying positions.

VaR model limitations

Although a valuable guide to risk, VaR is used with awareness of its

limitations. For example:

• The use of historical data as a proxy for estimating future market

moves may not encompass all potential market events, particularly

those that are extreme in nature. As the model is calibrated on the

last 500 business days, it does not adjust instantaneously to a

change in the market regime.

• The use of a one-day holding period for risk management purposes

of trading books assumes that this short period is sufficient to

hedge or liquidate all positions.

• The use of a 99% confidence level by definition does not take into

account losses that might occur beyond this level of confidence.

• VaR is calculated on the basis of exposures outstanding at the

close of business and therefore does not reflect intra-day

exposures.

Risk not in VaR framework

The risks not in VaR (‘RNIV’) framework captures and capitalises

material market risks that are not adequately covered in the VaR

model.

Risk factors are reviewed on a regular basis and are either

incorporated directly in the VaR models, where possible, or quantified

through either the VaR-based RNIV approach or a stress test approach

within the RNIV framework. While VaR-based RNIVs are calculated by

using historical scenarios, stress-type RNIVs are estimated on the

basis of stress scenarios whose severity is calibrated to be in line

with the capital adequacy requirements. The outcome of the VaR-

based RNIV approach is included in the overall VaR calculation but

excluded from the VaR measure used for regulatory back-testing. In

addition, the stressed VaR measure also includes risk factors

considered in the VaR-based RNIV approach.

Risk review

218 HSBC Holdings plc Annual Report and Accounts 2022

Stress-type RNIVs include a deal contingent derivatives capital charge

to capture risk for these transactions and a de-peg risk measure to

capture risk to pegged and heavily managed currencies.

Stress testing

Stress testing is an important procedure that is integrated intoour

market risk management framework to evaluate the potential impact

on portfolio values of more extreme, although plausible, events or

movements in a set of financial variables. Insuch scenarios, losses

can be much greater than those predicted by VaR modelling.

Stress testing is implemented at legal entity, regional and overall

Group levels. A set of scenarios is used consistently across all regions

within the Group. The risk appetite around potential stress losses

forthe Group is set and monitored against a referral limit.

Market risk reverse stress tests are designed to identify vulnerabilities

in our portfolios by looking for scenarios that lead to loss levels

considered severe for the relevant portfolio. These scenarios may be

quite local or idiosyncratic in nature, and complement the systematic

top-down stress testing.

Stress testing and reverse stress testing provide senior management

withinsights regarding the ‘tail risk’ beyond VaR, for which our

appetite is limited.

Trading portfolios

Trading portfolios comprise positions held for client servicing and

market-making, with the intention of short-term resale and/or to

hedge risks resulting from such positions.

Back-testing

We routinely validate the accuracy of our VaR models by back-testing

the VaR metric against both actual and hypothetical profit and loss.

Hypothetical profit and loss excludes non-modelled items such as

fees, commissions and revenue of intra-day transactions. The

hypothetical profit and loss reflects the profit and loss that would be

realised if positions were held constant from the end of one trading

day to the end of the next. This measure of profit and loss does not

align with how risk is dynamically hedged, and is not therefore

necessarily indicative of the actual performance of the business.

The number of hypothetical loss back-testing exceptions, together

with a number of other indicators, is used to assess model

performance and to consider whether enhanced internal monitoring of

a VaR model is required. We back-test our VaR at set levels of our

Group entity hierarchy.

Market risk in 2022

During 2022, financial markets were driven by concerns over high

inflation and recession risks, against the backdrop of the Russia-

Ukraine war and continued Covid-19-related pandemic restrictions in

some countries. Throughout the year, several major central banks

tightened their monetary policies at a faster pace than previously

anticipated in order to counter rising inflation. As a result, bond

markets sold off sharply and bond yields rose to multi-year highs. In

addition, a change in the UK fiscal stance in late September led to the

pound reaching record lows and to significant turmoil in the market

for long-dated UK government bonds, which was exacerbated by

rapid deleveraging of liability-driven investment funds used by pension

schemes. There was pronounced volatility in equity valuations, with

declines across most market sectors due to recession risks and

tighter liquidity conditions. Foreign exchange markets were largely

dominated by a strong US dollar, as a result of global geopolitical

instability and the relatively fast pace of monetary tightening by the

US Federal Reserve. Investor sentiment remained fragile in credit

markets, with credit spreads in both investment-grade and high-yield

debt benchmarks reaching their widest levels since the start of the

Covid-19 pandemic.

We continued to manage market risk prudently during 2022.

Sensitivity exposures and VaR remained within appetite as the

business pursued its core market-making activity in support of our

customers. Market risk was managed using a complementary set of

risk measures and limits, including stress testing and scenario

analysis.

Trading portfolios

Value at risk of the trading portfolios

Trading VaR was predominantly generated by the Markets and

Securities Services business.

Trading VaR as at 31 December 2022 increased compared with

31December 2021. The increase, which peaked in September 2022,

was mainly driven by interest rate risk factors across business lines,

although lower loss contributions from credit spread risks provided a

partial offset. VaR returned to normal operating range in the fourth

quarter of 2022.

The daily levels of total trading VaR during 2022 are set outin the graph below.

Daily VaR (trading portfolios), 99% 1 day ($m)

Trading total Interest rate (‘IR’) trading Equity (‘EQ’) trading

Credit spread (‘CS’) trading intent Foreign exchange (‘FX’) trading Diversification

Dec-21 Jan-22 Feb-22 Mar-22 Apr-22 May-22 Jun-22 Jul-22 Aug-22 Sep-22 Oct-22 Nov-22 Dec-22

-60

-40

-20

100

HSBC Holdings plc Annual Report and Accounts 2022 219

Risk review

The Group trading VaR for the year is shown in the table below.

Trading VaR, 99% 1 day

(Audited)

Foreign

exchange and

commodity

Interest

rate Equity

Credit

spread

Portfolio

diversification

Total

Balance at 31 Dec 2022 15.4 40.0 18.6 11.9 (36.4) 49.5

Average 13.6 29.6 16.1 16.8 (34.0) 42.1

Maximum 29.2 73.3 24.8 27.9 78.3

Minimum 5.7 20.2 11.5 9.1 29.1

Balance at 31 Dec 2021 9.1 25.9 15.4 24.8 (36.5) 38.8

Average 12.9 33.8 16.7 19.2 (45.5) 37.1

Maximum 31.8 51.7 24.3 29.4 53.8

Minimum 6.7 18.5 12.1 12.2 27.7

1 Trading portfolios comprise positions arising from the market-making and warehousing of customer-derived positions.

2 Portfolio diversification is the market risk dispersion effect of holding a portfolio containing different risk types. It represents the reduction in

unsystematic market risk that occurs when combining a number of different risk types – such as interest rate, equity and foreign exchange – together

inone portfolio. It is measured as the difference between the sum of the VaRby individual risk type and the combined total VaR. A negative number

represents the benefit of portfolio diversification. As the maximum and minimum occurs on different days for different risk types, it is not meaningful

to calculate a portfolio diversification benefit for these measures.

3 The total VaR is non-additive across risk types due to diversification effects.

The table below shows trading VaR at a 99% confidence level

compared with trading VaR at a 95% confidence level at

31December2022. This comparison facilitates the benchmarking

of the trading VaR, which can be stated at different confidence levels,

with financial institution peers. The 95% VaR is unaudited.

Comparison of trading VaR, 99% 1 day vs trading VaR, 95% 1 day

Trading VaR,

99% 1 day

Trading VaR,

95% 1 day

Balance at 31 Dec 2022 49.5 31.7

Average 42.1 24.6

Maximum 78.3 49.0

Minimum 29.1 17.5

Balance at 31 Dec 2021 38.8 21.6

Average 37.1 24.0

Maximum 53.8 30.0

Minimum 27.7 18.9

Back-testing

During 2022, the Group experienced 10 loss back-testing exceptions

against hypothetical profit and losses, of which seven exceptions

occurred in the second half of the year. The high number of

hypothetical back-testing exceptions was primarily driven by the

volatile market environment and a rapid shift in the global interest rate

regime in 2022.

The hypothetical profit and loss reflects the profit and loss that would

be realised if positions were held constant from the end of one

trading day to the end of the next. This measure of profit and loss

does not align with how risk is dynamically hedged, and is not

therefore indicative of the actual performance of the business.

Accordingly, of the 10 loss back-testing exceptions against

hypothetical profit and loss, only one corresponded to an actual profit

and loss exception.

The Group experienced four loss back-testing exceptions against

actual profit and losses during 2022. Losses were attributable to fair

value adjustments that were adopted for factors not incorporated

within valuation models, and from the impacts of restructuring of

derivative exposures under our RWA optimisation programme.

Given the heightened number of hypothetical loss back-testing

exceptions in the second half of 2022, we have undertaken a review

of our VaR model assumptions and updated the risk parameters

within the model.

Market risk balance sheet linkages

The following balance sheet lines in the Group’s consolidated position

are subject to market risk:

Trading assets and liabilities

The Group’s trading assets and liabilities are in almost all cases

originated by GBM. These assets and liabilities are treated as traded

risk for the purposes of market risk management, other than a limited

number of exceptions, primarily in Global Banking where the short-

term acquisition and disposal of the assets are linked to other non-

trading-related activities such as loan origination.

Derivative assets and liabilities

We undertake derivative activity for three primary purposes: to create

risk management solutions for clients, to manage the portfolio risks

arising from client business, and to manage and hedge our own risks.

Most of our derivative exposures arise from sales and trading

activities within GBM. The assets and liabilities included in trading

VaR give rise to a large proportion of the income included in net

income from financial instruments held for trading or managed on a

fair value basis. Adjustments to trading income such as valuation

adjustments are not measured by the trading VaR model.

For information on the accounting policies applied to financial

instruments at fair value, see Note1 on the financial statements.

Risk review

220 HSBC Holdings plc Annual Report and Accounts 2022

Climate risk TCFD

Contents

221 Overview

222 Climate risk management

223 Wholesale credit risk

224 Retail credit risk

225 Resilience risk

225 Regulatory compliance risk

225 Reputational risk

226 Insights from climate scenario analysis

Overview

Climate risk relates to the financial and non-financial impacts that may

arise as a result of climate change and the move to a greener

economy. Climate risk can materialise through:

• physical risk, which arises from the increased frequency and

severity of weather events, such as hurricanes and floods, or

chronic shifts in weather patterns;

• transition risk, which arises from the process of moving to a low-

carbon economy, including changes in government or public

policy, technology and end-demand; and

• greenwashing risk, which arises from the act of knowingly or

unknowingly misleading stakeholders regarding our strategy

relating to climate, the climate impact/benefit of a product or

service, or the climate commitments or performance of our

customers.

Approach and policy

We are affected by climate risks either directly or indirectly through

our relationships with our customers, resulting in both financial and

non-financial impacts.

We may face direct exposure to the physical impacts of climate

change, which could negatively affect our day-to-day operations. Any

detrimental impact to our customers from climate risk could

negatively impact us either through credit losses on our loan book or

losses on trading assets. We may also be impacted by reputational

concerns related to the climate action or inaction of our customers. In

addition, if we are perceived to mislead stakeholders on our business

activities or if we fail to achieve our stated net zero ambitions, we

could face greenwashing risk resulting in significant reputational

damage and potential regulatory fines, impacting our revenue

generating ability.

We have integrated climate risk into our existing risk taxonomy, and

incorporated it within the risk management framework through the

policies and controls for the existing risks where appropriate.

Our climate risk approach is aligned to our Group-wide risk

management framework and three lines of defence model, which

sets out how we identify, assess and manage our risks (for further

details of our three lines of defence framework, see page 134). This

approach provides the Board and senior management with visibility

and oversight of our key climate risks.

Our initial approach to managing climate risk was focused on

understanding physical and transition impacts across five priority risk

types: wholesale credit risk, retail credit risk, reputational risk,

resilience risk and regulatory compliance risk. In 2022, we expanded

our scope to consider climate risk impacts on our other risk types in

our risk taxonomy.

We consider greenwashing to be an important emerging risk that is

likely to increase over time as we look to develop capabilities and

products to achieve our net zero commitments, and work with our

clients to help them transition to a low-carbon economy. To reflect

this, our climate risk approach has been updated to include

greenwashing risk, and guidance has been provided to the first and

second lines of defence on the key risk factors, and how it should be

managed.

Our ambition to achieve net zero in our financed emissions also

exposes us to potential reputational, compliance and legal risks if we

fail to effectively deliver on our ambition. Achieving this ambition is

dependent on a number of known and unknown factors including the

accuracy and reliability of data, emerging methodologies and the need

to develop new tools to accurately assess emissions reductions. We

have taken initial steps to develop our capabilities to monitor our

exposures and set risk appetites, although, operationalising our

ambition is dependent on data and methodologies maturing over

time, and requires us to continue developing our internal processes

and tools to help achieve our ambition.

The tables below provide an overview of the climate risk drivers

considered within HSBC’s climate risk framework. Primary risk drivers

refer to risk drivers aligned to the Financial Stability Board’s Task

Force on Climate-related Financial Disclosures (‘TCFD’), which sets a

framework to help public companies and other organisations disclose

climate-related risks and opportunities. Thematic risk drivers are

bespoke to our internal climate risk framework.

The following table provides an overview of the physical and transition climate risk drivers.

Climate risk – primary risk drivers

Details Potential Impacts

Physical Acute

Increased frequency and severity of weather events causing

disruption to business operations

• Decreased real estate values or stranded

assets

• Decreased household income and wealth

• Increased costs of legal and compliance

• Increased public scrutiny

• Decreased profitability

• Lower asset performance

Chronic

Longer-term shifts in climate patterns (e.g. sustained higher

temperatures, sea level rise, shifting monsoons or chronic heat

waves)

Transition Policy and legal

Mandates on, and regulation of products and services and/or

policy support for low carbon alternatives. Litigation from parties

who have suffered loss and damage from climate impacts

Technology

Replacement of existing products with lower emissions options

End-demand

(market)

Changing consumer demand from individuals and corporates

Reputational

Increased scrutiny following a change in stakeholder perceptions

of climate-related action or inaction

HSBC Holdings plc Annual Report and Accounts 2022 221

Risk review

The table below provides an overview of the drivers of greenwashing risk, which is considered to be a thematic risk driver within HSBC’s

framework.

Climate risk – thematic risk drivers

Details

Greenwashing Firm

Failure to be accurate and transparent in communicating our progress against our net zero ambition

Product

Not taking steps to ensure our ‘green’ and ‘sustainable’ products are developed and marketed appropriately

Client

Failing to check our products are being used for ‘green’ and ‘sustainable’ business activity and assessing the

credibility of our customers’ climate commitments and/or progress against key performance indicators

In February 2022, we refreshed a high-level assessment of how

climate risk may impact HSBC taxonomy risk types over a 12-month

horizon, and we conducted an assessment to understand which parts

of our risk taxonomy could be impacted by greenwashing risk. The

table below summarises the results of these exercises. Assessments

were completed prior to year-end 2022 and do not take into account

all of the factors that were considered in our assessment of climate

risk impacts on the financial statements for the year ended 31

December 2022. The assessments will be refreshed annually, and,

results may change as our understanding of climate risk and how it

impacts HSBC evolves (for further details, see ‘Impact on reporting

and financial statements’ on page 46). In addition to these

assessments, we also consider climate risk in our emerging risk

process, which considers potential impacts across longer time

horizons (for further details, see ‘Top and emerging risks’ on

page135).

Risk type

Relevant risk drivers

Primary risk drivers Thematic risk drivers

Physical Transition Greenwashing

Financial risk

Wholesale credit risk

● ●

Retail credit risk

● ●

Treasury risk – insurance risk

● ●

Treasury risk – pension risk

● ●

Traded risk

● ●

Strategic business risk

●

Reputational risk

● ●

Non-financial risk

Regulatory compliance risk

● ●

Resilience risk

● ● ●

Model risk

● ● ●

Financial crime risk

● ● ●

Financial reporting risk

● ●

Legal risk

● ●

Relevant risk driver

Climate risk management

Key developments in 2022

Our climate risk programme continues to support the development of

our climate risk management capabilities. The following outlines key

developments in 2022.

• We updated our climate risk management approach to cover all

risk types in our risk taxonomy.

• We expanded the scope of climate-related training for employees

to cover additional topics, such as greenwashing risk, and

increased the availability of training to the broader workforce.

• We developed new metrics to monitor physical climate risk

exposure in our mortgage portfolio in all our markets, based on

locally available data.

• We enhanced our transition and physical risk questionnaire and

scoring tool, which will help us improve our understanding of the

impact of transition and physical risk on corporate clients in high

climate transition risk sectors.

• We assessed transition plans for EU and OECD managed clients in

scope of our thermal coal phase-out policy.

• We developed our first internal climate scenario exercise, where

we used four scenarios that were designed to articulate our view

of the range of potential outcomes for global climate change. For

further details of our internal climate scenario analysis, see

page226.

While we have made progress in developing our climate risk

framework, there remains significant work to fully integrate climate

risk, including the need to provide additional skills for our colleagues

and clients on climate risk topics, and develop further metrics to

understand how climate risk can impact our risk taxonomy. We also

need to continue to enhance our stress testing capabilities and

expand our greenwashing risk framework. We have a dependency on

data and systems in order to achieve these aims, which continue to

be enhanced.

Governance and structure

The Board takes overall responsibility for our ESG strategy,

overseeing executive management in developing the approach,

execution and associated reporting.

The Group ESG Committee supports the development and delivery of

our ESG strategy, key policies and material commitments by providing

oversight, coordination and management of ESG commitments and

initiatives. It is co-chaired by the Group Company Secretary and Chief

Governance Officer, and Group Chief Sustainability Officer.

The Group Chief Risk and Compliance Officer is responsible for the

management of climate-related financial risks under the UK Senior

Managers Regime, which involves holding overall accountability for

the Group’s climate risk programme. The Climate Risk Oversight

Forum oversees risk activities relating to climate risk management

and the escalation of climate risks. It is supported by equivalent

forums at regional level.

The Group Reputational Risk Committee considers matters arising

from customers, transactions and third parties that either present a

serious potential reputational risk to the Group or merit a Group-led

decision to ensure a consistent risk management approach across the

regions, global businesses and global functions.

The Group Risk Management Meeting and the Group Risk Committee

receive regular updates on our climate risk profile and progress of our

climate risk programme.

For further details on the Group’s ESG governance structure, see

page86.

Risk review

222 HSBC Holdings plc Annual Report and Accounts 2022

Risk appetite

Our climate risk appetite supports the oversight and management of

the financial and non-financial risks from climate change, and supports

the business to deliver our climate ambition in a safe and sustainable

way. Our initial risk appetite focused on the oversight and

management of climate risks in five priority areas, including exposure

to high transition risk sectors in our wholesale portfolio and physical

risk exposures in our retail portfolio. We have created metrics both at

global and regional levels, where appropriate, to help manage our risk

appetite. We continue to review our risk appetite regularly to capture

the most material climate risks and will enhance our metrics over

time, including to monitor risk exposures associated with our financed

emissions reduction targets.

Policies, processes and controls

We are integrating climate risk into the policies, processes and

controls across many areas of our organisation, and we will continue

to update these as our climate risk management capabilities mature

over time. In 2022, we incorporated climate considerations into our

UK mortgage origination process for our retail business, and new

money request process for our key wholesale businesses. We also

continued to enhance our climate risk scoring tool, which will enable

us to assess our customers’ exposures to climate risk. We also

published our updated energy policy, covering the broader energy

system, including upstream oil and gas, oil and gas power generation,

coal, hydrogen, renewables and hydropower, nuclear, biomass and

energy from waste, and we updated our thermal coal phase-out policy

after its initial publication in 2021. For further details of how we

manage climate risk across our global businesses, see page 64.

Wholesale credit risk

Identification and assessment

In 2019, we initially identified six key sectors where our wholesale

credit customers had the highest exposure to climate transition risk,

based on their carbon emissions, which were: automotive; chemicals;

construction and building materials; metals and mining; oil and gas;

and power and utilities. For a majority of customers in these sectors,

we use a transition and physical risk questionnaire to help assess and

improve our understanding of the impact of climate change on our

customers’ business models and any related transition strategies.

Relationship managers work with these customers to record

questionnaire responses and also help identify potential business

opportunities to support the transition. Since 2020, we have rolled out

the questionnaire so that it includes the majority of our largest

customers in the next highest climate transition risk sectors:

agriculture; industrials; real estate; and transportation. In 2022, we

continued to roll out the physical and transition risk questionnaire in

these sectors by adding new countries to the scope of the

questionnaire. Due to ongoing data and methodology challenges

across the industry, our risk appetite metrics remained limited in their

ability to monitor our risk profile.

In 2023, we intend to roll out the questionnaire to additional

customers and enhance our scoring model. We will also continue

engaging with peers and regulators to explore approaches for further

integration of climate in credit risk models. We continue to develop

processes and training to improve the quality and accuracy of the

questionnaire responses.

Management

In 2022, we updated our credit risk policy to require that relationship

managers comment on climate risk factors in credit applications for

new money requests. We continued using a climate risk scoring tool,

which provides a climate risk score for each customer based on

questionnaire responses. The climate risk score is used to inform

portfolio level management discussions, and are made available to

relationship management teams and credit risk management teams.

The scoring tool will be enhanced and refined over time as more data

becomes available.

In 2023, we aim to further embed climate risk considerations in our

credit risk management processes.

Aggregation and reporting

We report our exposure to the six high transition risk sectors in the

wholesale portfolio, as well as our related RWAs internally.

We also report the proportion of questionnaire responses that have a

board policy or management plan for transition risk. Our key

wholesale credit exposures are included as part of our broader ESG

management information dashboard, which is presented to the Group

Executive Committee each quarter. In addition, a representative from

the Wholesale Credit Risk Management function attends the Global

Climate Risk Oversight Forum to ensure there is consideration of this

risk type, and we report our exposure through the climate risk

management information dashboard at this meeting.

Since 2019, we have received responses from customers within the

six high transition risk sectors, which represent 59% of our exposure,

an increase in coverage of 7% since last year. The table below

presents a breakdown of our customer responses by sector.

The table below also captures our lending activity, including

environmentally responsible and sustainable finance activities, to

customers within the six high risk sectors. Green financing for large

companies that work in high transition sectors is also included. The

overall exposure has decreased to 17.7% (2021: 18.2%). We have

restated the 2021 comparatives to reflect the new 2022 sector

allocations and to remove certain off-balance sheet exposures that

were previously included following improvements in our data and

processes. For further details of how we designate counterparties as

high transition risk, see footnote 2.

HSBC Holdings plc Annual Report and Accounts 2022 223

Risk review

Wholesale loan exposure to transition risk sectors and customer questionnaire responses at 31 December 2022

Automotive Chemicals

Construction

and building

materials

Metals

and

mining

Oil and

gas

Power

and

utilities

Total

Wholesale loan exposure as % of total wholesale loans and

advances to customers and banks

2,3,4

≤ 3.0 ≤ 3.3 ≤ 3.2 ≤ 2.1 ≤ 2.6 ≤ 3.5 ≤ 17.7

Proportion of sector for which questionnaires were completed

63 49 55 56 67 66 59

Proportion of questionnaire responses that reported either having

a board policy or a management plan

69 81 74 71 77 94 79

Sector weight as proportion of high transition risk sector

16 19 18 12 15 20 100

1 The 2022 numbers reflect the new 2022 sector allocations and remove certain off-balance sheet exposures that were previously included following

improvements in our data and processes. See the ESG Data Pack for comparative 2020 and 2021 data.

2 Amounts shown in the table also include green and other sustainable finance loans, which support the transition to the net zero economy. The

methodology for quantifying our exposure to high transition risk sectors and the transition risk metrics will evolve over time as more data becomes

available and is incorporated in our risk management systems and processes.

3 Counterparties are allocated to the high transition risk sectors via a two-step approach. Firstly, where the main business of a group of connected

counterparties is in a high transition risk sector, all lending to the group is included in one high transition risk sector irrespective of the sector of each

individual obligor within the group. Secondly, where the main business of a group of connected counterparties is not in a high transition risk sector,

only lending to individual obligors in the high transition risk sectors is included. From 2022, for Global Banking and Markets clients and Commercial

Banking clients, the main business of a group of connected counterparties is identified by the industry that generates the majority of revenue within a

group. Customer revenue data utilised during this allocation process is the most recent readily available and will not align to our own reporting period.

In prior periods for Global Banking and Markets clients, the main business of a group of connected counterparties was identified by the relationship

manager for the group. For Commercial Banking clients, the main business of a group of connected counterparties was identified based on the largest

industry of HSBC’s total lending limits to the group.

4 Total wholesale loans and advances to customers and banks amount to $658bn (2021: $662bn). Amounts include loans and advances that are held for

sale.

5 All percentages are weighted by exposure.

Retail credit risk

Identification and assessment

We continued to improve our identification and assessment of climate

risk within our retail mortgage portfolio. We increased our

investments in centrally available physical risk data and enhanced our

internal risk assessment capabilities and models, in order to

understand our physical risk exposure across a larger proportion of

our global portfolio. We have also started to identify and monitor

potential physical risk in the remainder of our global mortgage

markets, using locally available data.

In 2022, we undertook an internal climate scenario analysis exercise

to further our understanding and assessment of the potential impacts

that physical risk could have on our mortgage portfolios. We

completed detailed analysis for the UK, Hong Kong, Singapore and

Australia, which together represent 73.8% of balances of the global

mortgage portfolio. We also undertook a stress test for our portfolio in

Singapore at the behest of the Monetary Authority of Singapore, and

participated in the second round of the Bank of England’s climate

biennial exploratory scenario exercise, focusing on management

actions. For further details of our approach and results of our scenario

analysis, see the ‘Insights on climate scenario analysis’ section on

page 226.

Management

We continued to review and update our retail credit risk management

policies and processes to further embed climate risk, while

monitoring local regulatory developments to ensure compliance.

In the UK, which has our largest retail mortgage portfolio, we

integrated climate risk data into our decision-making framework as

part of the mortgage origination process. We are actively managing

our UK mortgage portfolio with a climate risk perspective, and in line

with our risk appetite, taking conduct considerations into account in

the lending decision-making process.

Our UK team is also proactively supporting customers by providing

information on our public website relating to how physical risk and

home energy efficiency ratings may impact their mortgage

applications. This gives customers more insight when considering

purchasing a property that may be susceptible to physical climate risk

or which may not be energy efficient.

Aggregation and reporting

We manage and monitor the integration of climate risk in Wealth and

Personal Banking through the WPB Risk Management Meeting and

other senior leadership forums.

We assess the progress of the implementation of our strategic

climate risk plans, and ensure that we update operational processes

and risk management frameworks as our data and understanding of

climate risk evolves. A senior representative from WPB Risk attends

the Group Climate Risk Oversight Forum to ensure we maintain

alignment with the Group strategy.

Monitoring climate risk

In 2022, each of our retail mortgage businesses defined metrics and

began reporting on their potential balance sheet exposure to physical

climate risk. Locally relevant data sources were used to identify

properties or areas with potentially heightened climate risk. These

climate risk exposure metrics are in the early stages of development

and the underlying data and methodologies may require refinement in

the future, although they provide an indicative view.

We continue to measure climate risk using third-party data in our

most material mortgage market, which is the UK, where the primary

physical risk facing properties is flooding. Using a risk methodology

that considers a combination of the likelihood and severity of flood

hazard affecting individual properties, we estimate that on a total

value basis, and at present day risk levels, 3.5% of the UK retail

mortgage portfolio is at high risk of flooding, and 0.2% is at a very

high risk. This is based on approximately 93% coverage by value of

our portfolio at the end of September 2022, and is reliant on flood

data provided by Ambiental Risk Analytics.

In line with the UK government ambition to improve the energy

performance certificate (‘EPC’) ratings of housing stock, we continue

to identify the current and potential EPC ratings for individual

properties within the UK mortgage portfolio.

At the end of September, we had approximately 62% of properties by

value in our UK residential mortgage portfolio with a valid EPC

certificate dated within the last 10 years. While 37.7% of these, with

balances of $31.5bn, had a ‘current’ rating of A to C, 96.8% of them,

with balances of $81.1bn, had the potential to improve to that level.

We are working on improving the EPC data coverage, we currently do

not have EPC data for properties in Northern Ireland.

Risk review

224 HSBC Holdings plc Annual Report and Accounts 2022

For both flood risk and EPC data, we disclose the end of September

position. This is due to the time required for the data to be processed

by a third party and our reliance on the government’s public EPC data.

Beyond the UK, we have strengthened our focus on the development

of initiatives to support customers with their transition to more energy

efficient homes.

The table below shows the maturity level of the UK retail mortgage

portfolio at the end of December 2022, split by tenor.

Tenor Loan by residual maturity ($bn)

<1 years 0.45

1–5 years 3.38

>5 years 143.90

For further details of flood risk and the EPC breakdown of our UK

retail mortgage portfolio, see our ESG Data Pack at www.hsbc.com/

esg.

Resilience risk

Identification and assessment

Our Operational and Resilience Risk function is responsible for

overseeing the identification and assessment of physical and

transition climate risks that may impact on the organisation’s

operational and resilience capabilities.

We are developing a deeper understanding of the risks to which our

properties are subject, and assess the mitigants to ensure ongoing

operational resilience.

Management

Operational and Resilience Risk policies are reviewed and enhanced

periodically so they remain relevant to evolving risks, including those

linked to climate change. The capability of our colleagues is enhanced

through training, periodic communications and dedicated guidance.

Aggregation and reporting

With our ambition to achieve net zero in our own operations, we are

particularly focused on developing measures to facilitate proactive risk

management and assess progress against this strategic target.

Operational and Resilience Risk is represented at the Group’s Climate

Risk Oversight Forum.

Regulatory compliance risk

Identification and assessment

Compliance continues to prioritise the identification and assessment

of compliance risks that may arise from climate risk.

Throughout 2022, our focus remained on greenwashing risk,

particularly with regard to the development and ongoing governance

of new, changed or withdrawn climate and ESG products and

services, and ensuring sales practices and marketing materials were

clear, fair and not misleading.

To support the ongoing management and mitigation of greenwashing

risk, Regulatory Compliance worked across all business lines to

enhance our product controls. This improved our ability to identify,

assess and manage product-related greenwashing risks throughout

the product governance lifecycle. Examples of ongoing

enhancements include:

• integrating the consideration and mitigation of climate and ESG

risks within our existing product governance framework;

• enhancing our product templates and forms to ensure climate risk

is actively considered and documented by the business within

product review and creation; and

• clarifying and improving product governance policies, associated

guidance and key governance terms of reference to ensure new

climate and ESG products, as well as climate- and ESG-related

amendments to existing products, comply with both internal and

external standards, and are subject to robust governance.

Management

Our policies continue to set the Group-wide standards that are

required to manage the risk of breaches of our regulatory duty to

customers, including those related to climate risk, ensuring fair

customer outcomes are achieved. Our product and customer lifecycle

policies have been enhanced to ensure they take climate into

consideration. They are reviewed on a periodic basis to ensure they

remain relevant and up to date.

The Compliance function continues to focus on improving the

capability of colleagues through training, communications and

dedicated guidance, with a particular focus on ensuring colleagues

remain up to date with changes in the evolving regulatory landscape.

Aggregation and reporting

The Compliance function continues to operate an ESG and Climate

Risk Working Group to track and monitor the integration and

embedding of climate risk within the management of regulatory

compliance risks. The working group also continues to monitor

ongoing regulatory and legislative changes across the ESG and

climate risk agenda.

We have continued to develop our key climate risk-related metrics

and indicators, aligned to the broader focus on regulatory compliance

risks, to continually improve our risk monitoring capability. This has

included the development of a climate-specific risk profile, alongside

the introduction and improvement of existing metrics and indicators.

The Compliance function continues to be represented at the Group’s

Climate Risk Oversight Forums.

Reputational risk

Identification and assessment

We implement sustainability risk policies, including the Equator

Principles, as part of our broader reputational risk framework. We

focus on sensitive sectors that may have a high adverse impact on

people or the environment, and in which we have a significant

number of customers. A key area of focus is high-carbon sectors,

which include oil and gas, power generation, mining, agricultural

commodities and forestry. In 2022, we published our updated energy

policy, covering the broader energy system, including upstream oil

and gas, oil and gas power generation, hydrogen, renewables and

hydropower, nuclear, biomass and energy from waste. We also

updated our thermal coal phase-out policy after its initial publication in

2021.

Management

As the primary point of contact for our customers, our relationship

managers are responsible for checking that our customers meet

policies aimed at reducing carbon impacts. Our global network of

more than 75 sustainability risk managers provides local policy

support and expertise to relationship managers. Risk Strategy

includes a team of reputational and sustainability risk specialists

that provides a higher level of guidance and is responsible for the

oversight of policy compliance and implementation over wholesale

banking activities.

For further details on our sustainability risk policies, see our ESG

review on page 65.

Aggregation and reporting

Our Sustainability Risk Oversight Forum provides a Group-wide forum

for senior members of our Group Risk and Compliance team and

global businesses. It also oversees the development and

implementation of sustainability risk policies. Cases involving complex

sustainability risk issues related to customers, transactions or third

parties are managed through the reputational risk and client selection

governance process. We report annually on our implementation of the

Equator Principles and the corporate loans, project-related bridge

loans and advisory mandates completed under the principles. For the

latest report, see: www.hsbc.com/who-we-are/esg-and-responsible-

business/esg-reporting-centre. A representative from Reputational

HSBC Holdings plc Annual Report and Accounts 2022 225

Risk review

Risk attends the Group Climate Risk Forum to ensure consideration of

this risk type.

Other risks

The following section outlines key developments that we made to

embed climate considerations within other risk types in our risk

taxonomy. All risk functions, including those not referenced below,

performed a materiality assessment to determine the impact of

climate risk on their risk framework.

Treasury risk

We established a treasury risk-specific climate risk governance forum

to provide oversight over climate-related topics that may impact

Global Treasury. We updated relevant treasury risk policies to

strengthen our climate risk guidance and requirements pertaining to

treasury risk. We undertook an initial assessment to understand the

exposure of high transition risk sectors within our pension plans.

Traded risk

We established a climate stress testing-focused working group to

coordinate the implementation of climate stress testing, and support

the delivery of internal climate scenario analysis. As part of the annual

limit review in 2022, we developed a set of climate metrics for

Markets and Securities Services, which we plan to implement in

2023.

Insights from climate scenario

analysis

Scenario analysis supports our strategy by assessing our position

under a range of climate scenarios. It helps to build our awareness of

climate change, plan for the future and meet our growing regulatory

requirements.

Having run our first Group-wide climate change scenario analysis

exercise in 2021, we produced several climate stress tests for global

regulators in 2022, including the Monetary Authority of Singapore and

the European Central Bank. We also conducted our first internal

climate scenario analysis.

We continue to develop how we produce our climate scenario

analysis exercises so that we can have a more comprehensive

understanding of climate headwinds, risks and opportunities that will

support our strategic planning and actions.

In climate scenario analysis, we consider, jointly:

• transition risk arising from the process of moving to a net zero

economy, including changes in policy, technology, consumer

behaviour and stakeholder perception, which could each impact

borrowers’ operating income, financing requirements and asset

values; and

• physical risk arising from the increased frequency and severity of

weather events, such as hurricanes and floods, or chronic shifts in

weather patterns, which could each impact property values, repair

costs and lead to business interruptions.

We also analyse how these climate risks impact how we manage

other risks within our organisation, including credit and market risks,

and on an exploratory basis, operational, liquidity, insurance and

pension risks.

Our climate scenarios

In our 2022 internal climate scenario analysis exercise, we used four

scenarios that were designed to articulate our view of the range of

potential outcomes for global climate change. The analysis considered

the key regions in which we operate, and assessed the impact on our

balance sheet between the 2022 and 2050 time period. In the

following sections, the time horizons are considered to cover three

distinct time periods: short term is up to 2025; medium term is 2026

to 2035; and long term is 2036 to 2050. The timeframes chosen are

aligned to the Climate Action 100+ disclosure framework.

These internal scenarios were formed with reference to external

publicly available climate scenarios, including those produced by the

Network for Greening the Financial System (‘NGFS’), the

Intergovernmental Panel on Climate Change and the International

Energy Agency. Using these external scenarios as a template, we

adapted them by incorporating our unique climate risks and

vulnerabilities to which our organisation and customers across

different business sectors and regions are exposed. This helped us

produce the scenarios, which varied by severity and probability, to

analyse how climate risks will impact our portfolios. Our scenarios

were:

• the Net Zero scenario, which aligns with our net zero strategy and

is consistent with the Paris Agreement, and which assumes that

there will be rapid and considerable climate action, limiting global

warming to no more than 1.5°C by 2100, when compared with

pre-industrial levels;

• the Current Commitments scenario, which assumes that climate

action is limited to the current governmental commitments and

pledges, leading to global temperature rises of 2.4°C by 2100;

• the Downside Transition Risk scenario, which assumes that

climate action is delayed until 2030, but will be rapid enough to

limit global temperature rises to 1.5°C by 2100; and

• the Downside Physical Risk scenario, which assumes climate

action is limited to current governmental policies, leading to

extreme global warming with global temperatures increasing by

3.1°C by 2100.

We have chosen these scenarios as they are designed to identify,

measure and assess our most material climate vulnerabilities through

considering our global presence, business activities and exposures.

Our scenarios reflect inputs from our businesses and experts, and

have been reviewed and approved through internal governance.

Our four scenarios reflect different levels of physical and transition

risks. The scenario assumptions include varying levels of

governmental climate policy changes, macroeconomic factors and

technological developments. However, these scenarios rely on the

development of technologies that are still unproven, such as global

hydrogen production to decarbonise aviation and shipping.

The nature of the scenarios, our developing capabilities, and

limitations of the analysis lead to outcomes that are indicative of

climate change headwinds, although they are not a direct forecast.

Developments in climate science, data, methodology and scenario

analysis techniques will help us shape our approach further. We

therefore expect this view to change over time.

For further details of our four internal climate scenarios, including a

table including their key underlying assumptions, see our ESG Data

Pack at www.hsbc.com/esg.

Our modelling approach

For our scenario analysis, we used models to assess how transition

and physical risks may impact our portfolios under different scenarios.

Our models incorporate a range of climate-specific metrics that will

have an impact on our customers, including expected production

volumes, revenue, unit costs and capital expenditure.

We also assess how these metrics interplay with economic factors

such as carbon prices, which represent the cost effect of climate-

related policies that aim to discourage carbon-emitting activities and

encourage low-carbon solutions. The expected result of higher carbon

prices is a reduction in emissions as high-emission activities become

uneconomical. We also assume carbon prices will vary from country

to country.

The models for our wholesale corporate lending portfolio consider

metrics across each climate scenario, and from 2022 also

incorporated our customers’ individual climate transition plans as part

of our climate scenario analysis. These results in turn feed into the

calculation of our risk-weighted assets and expected credit loss

projections. For our residential real estate portfolio models, we focus

on physical risk factors, including property locations, perils and

insurance coverage when assessing the overall credit risk impact to

the portfolio. The results were reviewed by our sector specialists

who, subject to our governance procedures, make bespoke

adjustments to our results based on their expert judgement when

relevant.

Risk review

226 HSBC Holdings plc Annual Report and Accounts 2022

We continue to enhance our capabilities by incorporating lessons

learnt from previous exercises and feedback from key stakeholders,

including regulators.

For a broad overview of the models that we use for our climate

scenario analysis, as well as graphs that show how global carbon

prices and carbon emissions will differ under our climate scenarios,

see our ESG Data Pack at www.hsbc.com/esg.

Analysing the outputs of the climate

scenario analysis

Climate scenario analysis allows us to model how different potential

climate pathways may affect our customers and portfolios, particularly

in respect of credit losses. As the chart below shows, losses are

influenced by their exposure to a variety of climate risks under

different climate scenarios. Under the Current Commitments

scenario, we expect moderate levels of losses relating to transition

risks. However, the rise in global warming will lead to increasing

levels of physical risk losses in later years.

1 The counterfactual scenario is modelled on a scenario where there will

be no losses due to climate change.

2 The dotted lines in the chart show the impact of modelled expected

credit losses following our strategic responses to reduce the effect of

climate risks under the Net Zero and Downside Transition Risk

scenarios.

A gradual transition towards net zero, as shown in the Net Zero

scenario, still requires fundamental shifts in our customers’ business

models, and significant investments. This will have an impact on

profitability, leading to higher credit risk in the transition period. A

delayed transition will be even more disruptive due to lower levels of

innovation that limits the ability to decarbonise effectively, and rising

carbon prices that squeeze profit margins.

Overall, our scenario analysis shows that the level of potential credit

losses can be mitigated if we support our customers in enhancing

their climate transition plans.

In the following sections, we assess the impacts to our banking

portfolios under different climate scenarios.

How climate change is impacting our

wholesale lending portfolio

In our scenario analysis, we assessed the impact of climate-related

risks on our corporate counterparties under different climate

scenarios, which we measured by reviewing the modelled effect on

our expected credit losses (‘ECL’).

We focused our analysis on the 11 wholesale sectors that we expect

to be most impacted by climate risks. As at December 2021, these

portfolios represented 27% of our wholesale lending portfolio.

For each sector in each scenario, we calculated a peak ECL increase,

a metric showing the highest level of ECL modelled to be

experienced during the 2022 to 2050 period. The peak ECL increase

metric compares the multiplied levels of exposure in the scenario

against a counterfactual scenario that incorporates no climate change.

We use the sector’s exposure at default (‘EAD’), which represents

the relative size of our exposure to potential losses from customer

defaults. This helps to demonstrate which sectors are the most

material to us in terms of the impact of climate change.

Due to current limitations, we are unable to fully model the impact of

physical risks on our corporate customers’ supply chain. As a result,

we have not included the Downside Physical Risk scenario in the

following analysis, although we continue to develop our modelling

capabilities.

Impact of climate risk on wholesale lending portfolios under modelled

climate solutions

Relative size of exposures at default and increase in peak ECL under

each scenario compared with the counterfactual scenario (expressed

as a multiple).

Sector level

Exposure

at default

Net

Zero

Downside

Transition

Risk

Current

Commitments

Conglomerates

and industrials

♦

<5x >5x <1.5x

Power and

utilities

♦

<3x <3x <1.5x

Construction

and building

materials

♦

<3x <3x <1.25x

Oil and gas

♦

<1.5x <1.5x <1.25x

Chemicals

♦

<4x <4x <1.5x

Automotive

♦

<3x <3x <1.25x

Land transport

and logistics

♦

<5x >5x <1.5x

Aviation

♦

<2x <3x <1.25x

Agriculture and

soft

commodities

♦

<5x <4x <1.5x

Marine

♦

<2x <3x <1.25x

Metals and

mining

♦

<5x >5x <1.5x

As the table above illustrates, we expect our ECL to rise most under

the Net Zero or Downside Transition Risk scenarios. This is reflective

of the high transition risks to which these sectors are exposed, and

the potential impact of not having clear transition plans to mitigate

these risks.

For many sectors, the impact of rising carbon prices will lead to

increased credit losses. However, this will depend on individual

companies to determine how much of the additional costs associated

with carbon pricing will be absorbed by their suppliers or customers

and demand for more economically viable substitute products that

emerge.

The conglomerates and industrials sector, which includes large

companies with business activities in multiple business segments, is

the most impacted by climate change in each scenario. It also

represents our largest climate-related exposure, and would potentially

experience the highest increases in credit losses, largely due to the

transition risks predominantly within the high-emitting and lower-

profitability manufacturing segments.

Of our other largest and most impacted sectors, the power and

utilities, construction and building materials, and chemicals sectors

are subject to increased levels of transition risks due to their ongoing

exposure to higher carbon emitting activities.

HSBC Holdings plc Annual Report and Accounts 2022 227

2021 2025 2030 2035 2040 2045

2050

Downside Transition Risk

Counterfactual

Net Zero

Current Commitments Net Zero2

Downside Transition Risk2

Cum

(

)

Modelled climate losses

How credit losses from climate risks have

been modelled under dierent scenarios.

<1.5x

>1.5x

Risk review

Within the analysis, there is a range of geographical outcomes,

dictated by the varied pace of change in the transition to net zero,

such as in Asia, where the quality of our customers’ climate transition

plans within our high-risk sectors lags behind other regions.

We use the results of our climate scenario analysis, including how

different scenarios will impact on different sectors, to assess the

impact of climate change risk mitigation on our clients, including our

customers’ creditworthiness. It informs us about climate risks in our

wholesale portfolio, allowing us to identify and prioritise the sectors

and sub-sectors that require the greatest support to transition. This

also allow us to test the impact of actions that can support our

customers’ transition and our net zero ambition.

Our net zero ambition represents one of our four strategic pillars. For

further details of our net zero ambition, see the ‘Transition to net zero’

section of the ESG review on page 47, including how we are

supporting our customers transition to net zero on page 57.

How climate change is impacting our retail

mortgage portfolio

As part of our internal climate scenario analysis, we carried out a

detailed physical risk assessment of four of our retail mortgage

markets – the UK, Hong Kong, Singapore and Australia – which

represent 73.8% of balances in our retail mortgage portfolio.

We modelled defaults and losses under three physical risk scenarios.

Under the Net Zero and Current Commitments scenarios, we project

minimal losses over the modelled time horizon. However, under the

Downside Physical Risk scenario, the mortgage book is expected to

experience a moderate increase in defaults and losses, as the severity

of perils is expected to worsen, although overall losses are still low.

The modelling, data and methodology in relation to climate scenario

analysis is still evolving, so the results are not expected to be stable

or consistent in the short to medium term, and are meant to give an

indicative, directional assessment for strategic awareness only.

In our analysis of our retail mortgage portfolio, we assessed several

physical perils that could impact the value of properties, including

flooding, wildfire and windstorms. We also assessed the ability and

willingness of borrowers to service their debts.

In 2022, we enhanced the methodology to factor in the negative

impact on property valuations, as well as the impact of affordability

due to repair costs, following physical risk events. We also considered

the retail mortgage portfolio with and without insurance. The scenario

assumptions reflected whether or not properties within the portfolio

had buildings insurance coverage to pay for damage incurred from

physical events. In addition, we addressed geolocation data

deficiencies, implemented new models and incorporated more data,

although the data and models used to estimate defaults and losses

are still evolving.

1 Our internal climate scenarios are supported by the Intergovernmental

Panel on Climate Change’s Representative Concentration Pathways

(‘RCP’) and are used as inputs into physical risk modelling. The Net

Zero scenario is mostly aligned to the RCP 2.6 scenario; the Current

Commitments scenario is mostly aligned to the RCP 4.5 scenario; and

the Downside Physical Risk scenario is mostly aligned to the RCP 8.5

scenario.

The modelled impact on our portfolio projects losses will remain

negligible under the Net Zero and Current Commitments scenarios by

2050. Under the Downside Physical Risk (with insurance) scenario,

although losses are five times larger than under the Net Zero and

Current Commitments scenario, they remain at low levels. This

moderate increase is largely driven by the expected demise of Flood

Re in the UK in 2039. Flood Re is a UK government-backed insurance

scheme that ensures that properties at the highest risk of flooding

can obtain buildings insurance. Under this scenario, properties ceded

to the scheme become uninsurable post-2039. The proportion of our

properties that were reinsured by Flood Re was less than 4% of the

UK portfolio at December 2021. While overall modelled losses were

low, a large proportion of these were driven by such properties.

One of the outcomes from the exercise was that the non-availability

of insurance for impacted properties was a key contributor to losses.

It was assumed that properties that are insurable, or where insurance

is affordable, will largely maintain their insurance. We also assessed

the impact of enhanced EPC legislation, although it was deemed to

be immaterial.

In addition, we assessed the risk of tropical cyclones and related

storm surges as they were deemed material in Hong Kong. However,

defaults are expected to remain low through to 2050 due to buildings

being designed to withstand high wind speeds and investment into

sea defences. We also looked at wildfire in Australia, although the risk

and severity is limited given our mortgage portfolio is predominantly

located in metropolitan areas. Similarly, losses in Singapore were low

in all the scenarios due to its geographical location and strong sea

defences.

Projected peril risk

Flooding is usually localised to specific areas that are close to water

sources such as rivers or the coast, areas that are located in particular

valleys where surface water can ‘pool’, or urban areas with poor

drainage following flash floods.

As the ‘Exposure to flooding’ table below shows, the majority of

properties located in the four markets are predicted to experience

zero to low risk of flooding, with flood depths of less than 0.5 metres,

under a 1-in-100-year event in each of the scenarios, demonstrating

the resilience of our portfolio.

Risk review

228 HSBC Holdings plc Annual Report and Accounts 2022

2020 2030

2040

2050

Losses as a proportion of global retail

mortgage book under tested scenarios1

RCP2.6 Net Zero (with insurance)

RCP4.5 Current Commitments (with insurance)

RCP 8.5 Downside Physical Risk (with insurance)

Exposure to flooding

Proportion of properties with projected flood depths in a 1-in-100-

year severity flood event (%)

Scenarios

Markets

Flood depth

(metres)

Baseline

flood risk Net Zero

Downside

Physical Risk

2022 2050 2050

UK >1.5 0.2 0.2 0.4

0.5–1.5 0.7 2.5 3.7

0–0.5 99.1 97.3 95.9

Hong Kong >1.5 0.7 0.8 1.2

0.5–1.5 1.2 1.3 30.4

0–0.5 98.1 97.9 68.4

Singapore >1.5 0 0 0.1

0.5–1.5 2.8 2.9 7.4

0–0.5 97.2 97.1 92.5

Australia >1.5

0.6 0.6 0.7

0.5–1.5 1.2 1.2 2.6

0–0.5 98.2 98.2 96.7

1 Severe flood events include river and surface flooding and coastal

inundation. The table compares 2050 snapshots under the Net Zero

and Downside Physical Risk scenarios with a baseline view in 2022.

The most impacted market is Hong Kong, where over 30% of the

locations would be susceptible to flood depths greater than

0.5metres under the Downside Physical Risk scenario in 2050. This is

primarily driven by higher coastal and storm surges. However, this did

not take into account building type and property floor level, which we

expect would reduce the impact of flooding for a large number of

individual properties, given the majority of buildings in Hong Kong are

high-rise apartments.

For the remainder of the markets, more than 90% of mortgage

locations within each market are expected to experience flood depths

of less than 0.5 metres in all scenarios, which would not be material.

How climate change is impacting our

commercial real estate portfolios

We assessed the impact of various perils to which our commercial

real estate customers could be vulnerable, including flooding and

windstorms. Our commercial real estate portfolio is globally

diversified with larger concentrations in Hong Kong, the UK and the

US.

The impact of exposures to these perils can lead to increased ECL,

largely due to the cost of repairs following damages caused by

physical risk events or property valuation impacts caused by the

increasing frequency of physical risk events.

The ‘Exposure to peril’ table below shows exposure of our

commercial real estate portfolio within our largest markets to specific

physical risk events. The ‘peak multiplier increase in ECL’ table shows

for our largest markets the peak ECL increase modelled to be

experienced during the 2022 to 2050 period. This is a metric which

compares the multiplied levels of exposure in the scenario against a

counterfactual scenario that incorporates no climate change. We use

the sector’s exposure at default, which represents the relative size of

our exposure to potential losses from customer defaults within each

jurisdiction.

Exposure to peril

Proportion of our portfolio exposed to main perils in key markets.

Coastal

inundation

Cyclone

wind

Surface water

flooding

Riverine

flooding

Hong

Kong

2 94 18 11

UK 15 0 12 8

US 16 83 15 28

Peak multiplier increase in ECL

Relative size of exposures at default (‘EAD’) and increase in peak ECL

under each scenario compared with the counterfactual scenario

(expressed as a multiple)

Exposure

at default

in 2021

Net

Zero

Current

Commit-

ments

Downside

Transition

Risk

Downside

Physical

Risk (with

insurance)

Downside

Physical

Risk

(without

insurance

)

Hong

Kong

♦

<1.25x <1.25x <1.25x <1.25x <1.25x

♦

<1.25x <1.25x <1.25x

<1.5x <1.5x

♦

<1.25x <1.25x <1.25x

<1.25x <1.5x

The tables show that despite a varying degree of exposure to perils

across our most significant markets, our portfolio continues to

maintain a strong level of resilience to physical climate risks out to the

long term. In addition, the impact of insurance coverage mitigates

some of the risks under the most severe Downside Physical Risk

climate scenario.

Our largest credit exposure is in Hong Kong, where our portfolio has

material exposure to tropical cyclone winds. However, the resulting

impact on prospective credit losses remains low in the medium to

long term due to high building standards.

In the UK, in line with our retail portfolio, the main perils that drive

potential credit losses relate to coastal, river and surface water

flooding, although the impacts from these perils are not expected to

cause significant damages. Around 20% of our financed properties

are in London, and most are protected by the Thames Barrier. Under

the Net Zero scenario, transition risks materialise from 2025 due to

the costs of retrofitting requirements, and these are expected to lead

to increased impairments.

In the US, the major perils are from coastal flooding, largely in the

north-east of the country and in Florida, and from hurricane impact,

including gust damage, heavy rainfall and storm surges. The intensity

of these events are expected to increase in the future with a greater

proportion of tropical cyclones falling within the highest categories.

These will not only affect the regions that are currently exposed, but

also new areas due to the projected poleward shift of future tropical

cyclones. Building resilience and the future availability and affordability

of insurance cover in these regions will be the key determinants of

climate risks.

Understanding the resilience of our critical

properties

Climate change poses a physical risk to the buildings that we occupy

as an organisation, including our offices, retail branches and data

centres, both in terms of loss and damage, and business interruption.

We measure the impacts of climate and weather events to our

buildings on an ongoing basis, using historical, current and scenario

modelled forecast data. In 2022, there were 38 major storms that had

no impact on the availability of our buildings.

We use stress testing to evaluate the potential for impact to our

owned or leased premises. Our scenario stress test, conducted in

2022, analysed how seven different climate change-related hazards –

comprising coastal inundation, extreme heat, extreme winds,

wildfires, riverine flooding, soil movement due to drought, and surface

water flooding – could impact 500 of our critical and important

buildings.

The 2022 stress test covered all 500 buildings and modelled climate

change with the NGFS’s Hot house scenario that projects that the rise

in the temperature of the world will likely exceed 4°C by 2100. It also

modelled a less severe scenario that projects that global warming will

likely be limited to 2°C, in line with the upper limit ambition of the

Paris Agreement.

HSBC Holdings plc Annual Report and Accounts 2022 229

Risk review

Key findings from the 4°C or greater Hot house scenario included:

• By 2050, 62 of the 500 critical and important buildings will have a

high potential for impact due to climate change, with insurance-

related losses estimated to be in excess of 10% of the insured

value of our buildings.

• These included 40 locations that face the risk of coastal flooding

due to sea levels rising and storm surges associated with

typhoons and hurricanes. In addition, five locations face the risk of

fluvial flooding due to surface water run-off caused by heavy rain.

The remaining 17 locations are data centres where the

predominant risk emanate from a mixture of temperature

extremes and water stress, which could impact the mechanical

cooling equipment or drought for which the specific direct physical

impacts could be soil movement.

• A further 84 locations have the potential to be impacted by climate

change, albeit to a lesser extent, with insurance-related losses

estimated at between 5% and 10% of the insured value of our

buildings. The principal risks are coastal flooding, drought,

temperature extremes, and water stress.

A key finding from the 2°C, less severe scenario showed:

• The total number of buildings at risk reduces from 146 to 98, with

the same 62 key facilities still at risk by 2050 from the same perils.

This forward-looking data will inform real estate planning. We will

continue to improve our understanding of how extreme weather

events impact our building portfolio as climate risk assessment tools

improve and evolve. Additionally, we buy insurance for property

damage and business interruption, and consider insurance as a loss

mitigation strategy depending on its availability and price.

We regularly review and enhance our building selection process and

global engineering standards, and will continue to assess historical

claims data to help ensure our building selection and design standards

reflect the potential impacts of climate change.

Resilience risk

Overview

Resilience risk is the risk of sustained and significant business

disruption from execution, delivery, physical security or safety events,

causing the inability to provide critical services to our customers,

affiliates, and counterparties. Resilience risk arises from failures or

inadequacies in processes, people, systems or external events.

Resilience risk management

Key developments in 2022

The Operational and Resilience Risk sub-function provides robust risk

steward oversight of the management of resilience risk by the Group

businesses, functions and legal entities. This includes effective and

timely independent challenge and expert advice. During the year, we

carried out a number of initiatives to keep pace with geopolitical,

regulatory and technology changes and to strengthen the

management of resilience risk:

• We focused on enhancing our understanding of our risk and

control environment, by updating our risk taxonomy and control

libraries, and refreshing risk and control assessments.

• We implemented heightened monitoring and reporting of cyber,

third-party, business continuity and payment/sanctions risks

resulting from the Russia-Ukraine war, and enhanced controls and

key processes where needed.

• We provided analysis and easy-to-access risk and control

information and metrics to enable management to focus on non-

financial risks in their decision making and appetite setting.

• We further strengthened our non-financial risk governance and

senior leadership, and improved our coverage and risk steward

oversight for data privacy and change execution.

We prioritise our efforts on material risks and areas undergoing

strategic growth, aligning our location strategy to this need. We also

remotely provide oversight and stewardship, including support of

chief risk officers, in territories where we have no physical presence.

Governance and structure

The Operational and Resilience Risk target operating model provides a

globally consistent view across resilience risks, strengthening our risk

management oversight while operating effectively as part of a

simplified non-financial risk structure. We view resilience risk across

nine sub-risk types related to: failure to manage third parties;

technology and cybersecurity; transaction processing; failure to

protect people and places from physical malevolent acts; business

interruption and incident risk; data risk; change execution risk; building

unavailability; and workplace safety.

Risk appetite and key escalations for resilience risk are reported to the

Non-Financial Risk Management Board, chaired by the Group Chief

Risk and Compliance Officer, with an escalation path to the Group

Risk Management Meeting and Group Risk Committee.

Key risk management processes

Operational resilience is our ability to anticipate, prevent, adapt,

respond to, recover and learn from operational disruption while

minimising customer and market impact. Resilience is determined by

assessing whether we are able to continue to provide our most

important services, within an agreed level. This is achieved via day-to-

day oversight and periodic and ongoing assurance, such as deep dive

reviews and controls testing, which may result in challenges being

raised to the business by risk stewards. Further challenge is also

raised in the form of quarterly risk steward opinion papers to formal

governance. We accept we will not be able to prevent all disruption

but we prioritise investment to continually improve the response and

recovery strategies for our most important business services.

Business operations continuity

We continue to monitor the situation in Russia and Ukraine, and

remain ready to take measures to help ensure business continuity,

should the situation require. There has been no significant impact to

our services in nearby markets where the Group operates.

Publications from the UK government, EU Commission and energy

company National Grid, among others, advised on potential plans for

power cuts and energy restrictions across the UK and continental

Europe during the winter period. In light of potential disruption,

businesses and functions in these markets are reviewing existing

plans and responses to minimise the impact.

Risk review

230 HSBC Holdings plc Annual Report and Accounts 2022

Regulatory compliance risk

Overview

Regulatory compliance risk is the risk associated with breaching our

duty to clients and other counterparties, inappropriate market conduct

and breaching related financial services regulatory standards.

Regulatory compliance risk arises from the failure to observe relevant

laws, codes, rules and regulations and can manifest itself in poor

market or customer outcomes and lead to fines, penalties and

reputational damage to our business.

Regulatory compliance risk management

Key developments in 2022

The dedicated programme to embed our updated purpose-led

conduct approach has concluded. Work to map applicable regulations

to our risks and controls continues in 2023 alongside the adoption of

new tooling to support enterprise-wide horizon scanning for new

regulatory obligations and manage our regulatory reporting

inventories. Climate risk has been integrated into regulatory

compliance policies and processes, with enhancements made to the

product governance framework and controls in order to ensure the

effective consideration of climate – and in particular greenwashing –

risks.

Governance and structure

The structure of the Compliance function is substantively unchanged

and the Group Regulatory Conduct capability and Group Financial

Crime capability both continue to work closely with the regional chief

compliance officers and their respective teams to help them identify

and manage regulatory and financial crime compliance risks across

the Group.

They also work together and with all relevant stakeholders to achieve

good conduct outcomes and provide enterprise-wide support on the

compliance risk agenda in collaboration with the Group’s Risk

function.

Key risk management processes

The Group Regulatory Conduct capability is responsible for setting

global policies, standards and risk appetite to guide the Group’s

management of regulatory compliance risk. It also devises the

required frameworks, support processes and tooling to protect

against regulatory compliance risks. The Group capability provides

oversight, review and challenge to the regional chief compliance

officers and their teams to help them identify, assess and mitigate

regulatory compliance risks, where required. The Group’s regulatory

compliance risk policies are regularly reviewed. Global policies and

procedures require the identification and escalation of any actual or

potential regulatory breaches, and relevant reportable events are

escalated to the Group’s Non-Financial Risk Management Board, the

Group Risk Management Meeting and Group Risk Committee, as

appropriate. The Group Head of Compliance reports to the Group

Chief Risk and Compliance Officer and attends the Risk and

Compliance Executive Committee, the Group Risk Management

Meeting and the Group Risk Committee.

Financial crime risk

Overview

Financial crime risk is the risk that HSBC’s products and services will

be exploited for criminal activity. This includes fraud, bribery and

corruption, tax evasion, sanctions and export control violations,

money laundering, terrorist financing and proliferation financing.

Financial crime risk arises from day-to-day banking operations

involving customers, third parties and employees.

Financial crime risk management

Key developments in 2022

We regularly review the effectiveness of our financial crime risk

management framework, which includes consideration of the

complex and dynamic nature of sanctions compliance risk. In 2022,

we adapted our policies, procedures and controls to respond to the

unprecedented volume and diverse set of sanctions and trade

restrictions imposed against Russia following its invasion of Ukraine.

We also continued to make progress with several key financial crime

risk management initiatives, including:

• We enhanced our screening and non-screening controls to aid the

identification of potential sanctions risk related to Russia, as well

as risk arising from export control restrictions.

• We deployed a key component of our intelligence-led, dynamic

risk assessment capability for customer account monitoring in

additional UK entities, Mexico and Singapore, and have expanded

coverage to include monitoring of customer credit card activity in

the UK. Furthermore we have deployed a next generation

capability for the monitoring of correspondent banking activity in

Hong Kong and the UK.

• We reconfigured our transaction screening capability to be ready

for the global change to payment systems formatting under

ISO20022 requirements, and enhanced transaction screening

capabilities by implementing automated alert discounting.

• We strengthened the first-party lending fraud framework,

reviewed and published an updated fraud policy and associated

control library, and continued to develop fraud detection tools.

Governance and structure

The structure of the Financial Crime function remained substantively

unchanged in 2022, although we continued to review the

effectiveness of our governance framework to manage financial crime

risk. The Group Head of Financial Crime and Group Money Laundering

Reporting Officer continues to report to the Group Chief Risk and

Compliance Officer, while the Group Risk Committee retains

oversight of matters relating to fraud, bribery and corruption, tax

evasion, sanctions and export control breaches, money laundering,

terrorist financing and proliferation financing.

Key risk management processes

We will not tolerate knowingly conducting business with individuals or

entities believed to be engaged in criminal activity. We require

everybody in HSBC to play their role in maintaining effective systems

and controls to prevent and detect financial crime. Where we believe

we have identified suspected criminal activity or vulnerabilities in our

control framework, we will take appropriate mitigating action.

We manage financial crime risk because it is the right thing to do to

protect our customers, shareholders, staff, the communities in which

we operate, as well as the integrity of the financial system on which

we all rely. We operate in a highly regulated industry in which these

same policy goals are codified in law and regulation.

We are committed to complying with the laws and regulations of all

the markets in which we operate and applying a consistently high

financial crime standard globally.

We continue to assess the effectiveness of our end-to-end financial

crime risk management framework, and invest in enhancing our

operational control capabilities and technology solutions to deter and

detect criminal activity. We have simplified our framework by

streamlining and de-duplicating policy requirements. We also

strengthened our financial crime risk taxonomy and control libraries

and our investigative and monitoring capabilities through technology

deployments. We developed more targeted metrics, and have also

enhanced our governance and reporting.

We are committed to working in partnership with the wider industry

and the public sector in managing financial crime risk and we

HSBC Holdings plc Annual Report and Accounts 2022 231

Risk review

participate in numerous public-private partnerships and information

sharing initiatives around the world. In 2022, our focus remained on

measures to improve the overall effectiveness of the global financial

crime framework, notably by providing input into legislative and

regulatory reform activities. We did this by contributing to the

development of responses to consultation papers focused on how

financial crime risk management frameworks can deliver more

effective outcomes in detecting and deterring criminal activity,

including tackling evolving criminal behaviours such as fraud. Through

our work with the Wolfsberg Group and the Institute of International

Finance, we supported the efforts of the global standard setter, the

Financial Action Task Force. In addition, we participated in a number

of public events related to tackling forestry crimes, wildlife trafficking

and human trafficking.

Independent Reviews

In August 2022, the Board of Governors of the Federal Reserve

System terminated its 2012 cease-and-desist order, with immediate

effect. This order was the final remaining regulatory enforcement

action that HSBC had entered into in 2012. In June 2021, the UK

Financial Conduct Authority had already determined that no further

skilled person work was required under section 166 of the Financial

Services and Markets Act. The Group Risk Committee retains

oversight of matters relating to financial crime, including any

remaining remedial activity not yet completed as part of previous

recommendations.

Model risk

Overview

Model risk is the risk of inappropriate or incorrect business decisions

arising from the use of models that have been inadequately designed,

implemented or used, or from models that do not perform in line with

expectations and predictions.

Model risk arises in both financial and non-financial contexts

whenever business decision making includes reliance on models.

Key developments in 2022

In 2022, we continued to make improvements in our model risk

management processes amid regulatory changes in model

requirements.

Initiatives during the year included:

• In response to regulatory capital changes, we redeveloped,

independently validated and submitted to the PRA and other local

regulators our models for the internal ratings-based (‘IRB’)

approach for credit risk, internal model method (‘IMM’) for

counterparty credit risk and internal model approach (‘IMA’) for

market risk. These new models have been built to enhanced

standards using improved data as a result of investment in

processes and systems.

• We redeveloped and validated models impacted by the changes to

the alternative rate setting mechanisms due to the Ibor transition.

• We embedded changes to address gaps in the control framework

that emerged as a result of increases in adjustments and overlays

that were applied to compensate for the impact of the Covid-19

pandemic, and the subsequent volatility due to the effects of the

rise in global interest rates on the ECL models.

• We have increased the involvement of first line colleagues in

businesses and functions in the development and management of

models. We also put an enhanced focus on key model risk drivers

such as data quality and model methodology.

• We have sought to enhance the reporting that supports the model

risk appetite measures, to support our businesses and functions in

managing model risk more effectively.

• We continued the transformation of the Model Risk Management

team, with further enhancements to the independent model

validation processes, including new systems and working

practices. Key senior hires were made during the year to lead the

business areas and regions to strengthen oversight and expertise

within the function.

• We have completed independent validations of a suite of newly

developed models for the forthcoming IFRS17 accounting

standards for insurance.

• We have enhanced our model risk teams with specialist skills to

manage the increased model risk in areas such as climate risk and

models using advanced analytics and machine learning, as they

become critical areas of focus that will grow in importance in 2023

and beyond.

Governance and structure

Model risk governance committees at the Group, business and

functional levels provide oversight of model risk. The committees

include senior leaders from the three global businesses and the Group

Risk and Compliance function, and focus on model-related concerns

and are supported by key model risk metrics. We also have Model

Risk Committees in our geographical regions focused on local delivery

and requirements. The Group-level Model Risk Committee is chaired

by the Group Chief Risk and Compliance Officer, and the heads of key

businesses participate in these meetings.

Key risk management processes

We use a variety of modelling approaches, including regression,

simulation, sampling, machine learning and judgemental scorecards

for a range of business applications. These activities include customer

selection, product pricing, financial crime transaction monitoring,

creditworthiness evaluation and financial reporting. Global

responsibility for managing model risk is delegated from the Board to

the Group Chief Risk and Compliance Officer, who authorises the

Group Model Risk Committee. This committee regularly reviews our

model risk management policies and procedures, and requires the

first line of defence to demonstrate comprehensive and effective

controls based on a library of model risk controls provided by Model

Risk Management. Model Risk Management also reports on model

risk to senior management and the Group Risk Committee on a

regular basis through the use of the risk map, risk appetite metrics

and top and emerging risks.

We regularly review the effectiveness of these processes, including

the model oversight committee structure, to help ensure appropriate

understanding and ownership of model risk is embedded in the

businesses and functions.

Risk review

232 HSBC Holdings plc Annual Report and Accounts 2022

Insurance manufacturing operations risk

Contents

233 Overview

233 Insurance manufacturing operations risk management

235 Insurance manufacturing operations risk in 2022

235 Measurement

237 Key risk types

237 – Market risk

238 – Credit risk

238 – Liquidity risk

238 – Insurance underwriting risk

Overview

The key risks for our insurance manufacturing operations are market

risk, in particular interest rate and equity, credit risk and insurance

underwriting risk. These have a direct impact on the financial results

and capital positions of the insurance operations. Liquidity risk, while

significant in other parts of the Group, is relatively minor for our

insurance operations.

HSBC’s insurance business

We sell insurance products through a range of channels including our

branches, insurance salesforces, direct channels and third-party

distributors. The majority of sales are through an integrated

bancassurance model that provides insurance products principally for

customers with whom we have a banking relationship, although the

proportion of sales through other sources such as independent

financial advisers, tied agents and digital is increasing.

For the insurance products we manufacture, the majority ofsales are

savings, universal life and protection contracts.

We choose to manufacture these insurance products in HSBC

subsidiaries based on an assessment of operational scale and risk

appetite. Manufacturing insurance allows us to retain the risks and

rewards associated with writing insurance contracts by keeping part

of the underwriting profit and investment income within the Group.

We have life insurance manufacturing subsidiaries in eight markets,

which are Hong Kong, Singapore, mainland China, France, the UK,

Malta, Mexico and Argentina. We also have a life insurance

manufacturing associate in India.

Where we do not have the risk appetite or operational scale tobe an

effective insurance manufacturer, we engage with a small number of

leading external insurance companies in order to provide insurance

products to our customers. These arrangements aregenerally

structured with our exclusive strategic partners and earn the Group a

combination of commissions, fees and a share of profits. We

distribute insurance products in all of our geographical regions.

This section focuses only on the risks relating to the insurance

products we manufacture.

Insurance manufacturing operations

risk management

Key developments in 2022

The insurance manufacturing subsidiaries follow the Group’s risk

management framework. In addition, there are specific policies and

practices relating to the risk management of insurance contracts,

which have not changed materially over 2022. During the year, there

was continued market volatility observed across interest rates, equity

markets and foreign exchange rates. This was predominantly driven

by geopolitical factors and wider inflationary concerns. One area of

key risk management focus was the implementation of the new

accounting standard, IFRS17 ‘Insurance Contracts’. Given the

fundamental nature of the impact of the accounting standard on

insurance accounting, this presents additional financial reporting and

model risks for the Group. Another area of focus was the acquisition

early in 2022 of an insurance business in Singapore and the

subsequent integration of that business into the Group’s risk

management framework.

Governance and structure

(Audited)

Insurance manufacturing risks are managed to a defined risk appetite,

which isaligned to the Group’s risk appetite and risk management

framework, including its three lines of defence model. For details of

the Group’s governance framework, see page133. The Global

Insurance Risk Management Meeting oversees the control

framework globally and is accountable to the WPB Risk Management

Meeting on risk matters relating to the insurance business.

The monitoring of the risks within our insurance operations is carried

out by Insurance Risk teams. The Group’s risk stewardship functions

support the Insurance Risk teams in their respective areas of

expertise.

Stress and scenario testing

(Audited)

Stress testing forms a key part of the risk management framework for

the insurance business. We participate in local and Group-wide

regulatory stress tests, as well as internally developed stress and

scenario tests, including Group internal stress test exercises.

The results of these stress tests and the adequacy of management

action plans to mitigate these risks are considered in the Group’s

ICAAP and the entities’ regulatory Own Risk and Solvency

Assessments (‘ORSAs’), which are produced by all material entities.

Key risk management processes

Market risk

(Audited)

All our insurance manufacturing subsidiaries have market risk

mandates and limits that specify the investment instruments in which

they are permitted to invest and the maximum quantum of market

risk that they may retain. They manage market risk by using, among

others, some or all of the techniques listed below, depending on the

nature of the contracts written:

• We are able to adjust bonus rates to manage the liabilities to

policyholders for products with discretionary participating features

(‘DPF’). The effect is that a significant proportion of the market risk

is borne by the policyholder.

• We use asset and liability matching where asset portfolios are

structured to support projected liability cash flows. The Group

manages its assets using an approach that considers asset quality,

diversification, cash flow matching, liquidity, volatility and target

investment return. We use models to assess the effect of a range

of future scenarios on the values of financial assets and associated

liabilities, and ALCOs employ the outcomes in determining how

best to structure asset holdings to support liabilities.

• We use derivatives to protect against adverse market movements.

• We design new products to mitigate market risk, such as changing

the investment return sharing proportion between policyholders

and the shareholder.

HSBC Holdings plc Annual Report and Accounts 2022 233

Risk review

Credit risk

(Audited)

Our insurance manufacturing subsidiaries also have credit risk

mandates and limits within which they are permitted to operate,

which consider the credit risk exposure, quality and performance of

their investment portfolios. Our assessment of the creditworthiness

of issuers and counterparties is based primarily upon internationally

recognised credit ratings and other publicly available information.

Stress testing is performed on investment credit exposures using

credit spread sensitivities and default probabilities.

We use a number of tools to manage and monitor credit risk. These

include a credit report containing a watch-list of investments with

current credit concerns, primarily investments that may be at risk of

future impairment or where high concentrations to counterparties are

present in the investment portfolio. Sensitivities to credit spread risk

are assessed and monitored regularly.

Capital and liquidity risk

(Audited)

Capital risk for our insurance manufacturing subsidiaries is assessed

in the Group’s ICAAP based on their financial capacity to support the

risks to which they are exposed. Capital adequacy is assessed on

both the Group’s economic capital basis, and the relevant local

insurance regulatory basis.

Risk appetite buffers are set to ensure that the operations are able to

remain solvent, allowing for business-as-usual volatility and extreme

but plausible stress events. In certain cases, entities use reinsurance

to manage capital risk.

Liquidity risk is relatively minor for the insurance business. It is

managed by cash flow matching and maintaining sufficient cash

resources, investing in high credit-quality investments with deep and

liquid markets, monitoring investment concentrations and restricting

them where appropriate, and establishing committed contingency

borrowing facilities.

Insurance manufacturing subsidiaries complete quarterly liquidity risk

reports and an annual review of the liquidity risks to which they are

exposed.

Insurance underwriting risk

Our insurance manufacturing subsidiaries primarily use the following

frameworks and processes to manage and mitigate insurance

underwriting risks:

• a formal approval process for launching new products or making

changes to products;

• a product pricing and profitability framework, which requires initial

and ongoing assessment of the adequacy of premiums charged on

new insurance contracts to meet the risks associated with them;

• a framework for customer underwriting;

• reinsurance, which cedes risks to third-party reinsurers to keep

risks within risk appetite, reduce volatility and improve capital

efficiency; and

• oversight of expense and reserve risks by entity Financial

Reporting Committees.

Risk review

234 HSBC Holdings plc Annual Report and Accounts 2022

Insurance manufacturing operations risk in 2022

Measurement

The following tables show the composition of assets and liabilities by contract type and by geographical region.

Balance sheet of insurance manufacturing subsidiaries by type of contract

(Audited)

With

DPF Unit-linked

Other

contracts

Shareholder

assets and

liabilities Total

Financial assets 89,907 8,144 21,467 9,086 128,604

– financial assets designated and otherwise mandatorily measured at fair value

through profit or loss 30,950 7,992 3,899 1,543 44,384

– derivatives 418 — 30 15 463

– financial investments at amortised cost 46,142 43 16,114 4,805 67,104

– financial investments at fair value through other comprehensive income 8,349 — 486 1,920 10,755

– other financial assets

4,048 109 938 803 5,898

Reinsurance assets 2,945 50 1,724 2 4,721

PVIF

— — — 9,900 9,900

Other assets and investment properties 2,521 2 225 957 3,705

Total assets 95,373 8,196 23,416 19,945 146,930

Liabilities under investment contracts designated at fair value — 2,084 3,296 — 5,380

Liabilities under insurance contracts 91,948 5,438 17,521 — 114,907

Deferred tax

227 6 22 1,495 1,750

Other liabilities — — — 7,212 7,212

Total liabilities 92,175 7,528 20,839 8,707 129,249

Total equity — — — 17,681 17,681

Total liabilities and equity at 31 Dec 2022 92,175 7,528 20,839 26,388 146,930

Financial assets 88,969 8,881 19,856 9,951 127,657

– financial assets designated and otherwise mandatorily measured at fair value

through profit or loss 30,669 8,605 3,581 1,827 44,682

– derivatives 129 1 15 2 147

– financial investments at amortised cost

42,001

61 14,622 4,909 61,593

– financial investments at fair value through other comprehensive income 10,858 — 459 1,951 13,268

– other financial assets

5,312 214 1,179 1,262 7,967

Reinsurance assets 2,180 72 1,666 3 3,921

PVIF

— — — 9,453 9,453

Other assets and investment properties 2,558 1 206 820 3,585

Total assets 93,707 8,954 21,728 20,227 144,616

Liabilities under investment contracts designated at fair value — 2,297 3,641 — 5,938

Liabilities under insurance contracts 89,492 6,558 16,757 — 112,807

Deferred tax

179 9 24 1,418 1,630

Other liabilities — — — 7,269 7,269

Total liabilities 89,671 8,864 20,422 8,687 127,644

Total equity — — — 16,972 16,972

Total liabilities and equity at 31 Dec 2021 89,671 8,864 20,422 25,659 144,616

1 Balance sheet of insurance manufacturing operations is shown before elimination of inter-company transactions with HSBC non-insurance operations.

2 ‘Other contracts’ includes term insurance, credit life insurance, universal life insurance and investment contracts not included in the ‘Unit-linked’ or

‘With DPF’ columns.

3 Comprise mainly loans and advances to banks, cash and inter-company balances with other non-insurance legal entities.

4 Present value of in-force long-term insurance business.

5 ‘Deferred tax’ includes the deferred tax liabilities arising on recognition of PVIF.

HSBC Holdings plc Annual Report and Accounts 2022 235

Risk review

Balance sheet of insurance manufacturing subsidiaries by geographical region

1,2

(Audited)

Europe Asia

Latin

America

Total

Financial assets 27,407 100,224 973 128,604

– financial assets designated and otherwise mandatorily measured at fair value through profit or

loss

15,858 28,030 496 44,384

– derivatives 292 171 — 463

– financial investments – at amortised cost 383 66,674 47 67,104

– financial investments – at fair value through other comprehensive income 9,505 861 389 10,755

– other financial assets

1,369 4,488 41 5,898

Reinsurance assets 183 4,533 5 4,721

PVIF

1,296 8,407 197 9,900

Other assets and investment properties 958 2,687 60 3,705

Total assets 29,844 115,851 1,235 146,930

Liabilities under investment contracts designated at fair value 1,143 4,237 — 5,380

Liabilities under insurance contracts 24,076 89,904 927 114,907

Deferred tax

288 1,440 22 1,750

Other liabilities 2,166 4,992 54 7,212

Total liabilities 27,673 100,573 1,003 129,249

Total equity 2,171 15,278 232 17,681

Total liabilities and equity at 31 Dec 2022 29,844 115,851 1,235 146,930

Financial assets 34,264 92,535 858 127,657

– financial assets designated and otherwise mandatorily measured at fair value through profit or

loss

19,030 25,248 404 44,682

– derivatives 65 82 — 147

– financial investments – at amortised cost 1,161 60,389 43 61,593

– financial investments – at fair value through other comprehensive income 12,073 817 378 13,268

– other financial assets

1,935 5,999 33 7,967

Reinsurance assets 213 3,703 5 3,921

PVIF

1,098 8,177 178 9,453

Other assets and investment properties 1,091 2,431 63 3,585

Total assets 36,666 106,846 1,104 144,616

Liabilities under investment contracts designated at fair value 1,396 4,542 — 5,938

Liabilities under insurance contracts 30,131 81,840 836 112,807

Deferred tax

250 1,357 23 1,630

Other liabilities 2,711 4,523 35 7,269

Total liabilities 34,488 92,262 894 127,644

Total equity 2,178 14,584 210 16,972

Total liabilities and equity at 31 Dec 2021 36,666 106,846 1,104 144,616

1 HSBC has no insurance manufacturing subsidiaries in the Middle East and North Africa or North America.

2 Balance sheet of insurance manufacturing operations is shown before elimination of inter-company transactions with HSBC non-insurance operations.

3 Comprise mainly loans and advances to banks, cash and inter-company balances with other non-insurance legal entities.

4 Present value of in-force long-term insurance business.

5 ‘Deferred tax’ includes the deferred tax liabilities arising on recognition of PVIF.

Risk review

236 HSBC Holdings plc Annual Report and Accounts 2022

Key risk types

Market risk

(Audited)

Description and exposure

Market risk is the risk of changes in market factors affecting HSBC’s

capital or profit. Market factors include interest rates, equity and

growth assets and foreign exchange rates.

Our exposure varies depending on the type of contract issued.

Ourmost significant life insurance products are contracts with

discretionary participating features (‘DPF’). These products typically

include some form of capital guarantee or guaranteed return on the

sums invested bythe policyholders, to which discretionary bonuses

are added ifallowed by the overall performance of the funds. These

funds are primarily invested in fixed interest, with a proportion

allocated to other asset classes to provide customers with the

potential for enhanced returns.

DPF products expose HSBC to the risk of variation in asset returns,

which will impact our participation in the investment performance.

In addition, in some scenarios the asset returns can become

insufficient to cover the policyholders’ financial guarantees, in which

case the shortfall has to be met by HSBC. Amounts are held against

the cost of such guarantees, calculated by stochastic modelling in the

larger entities.

The cost of such guarantees is accounted for as a deduction from the

present value of in-force (‘PVIF‘) asset, unless the cost of such

guarantees is already explicitly allowed for within the insurance

contract liabilities.

The following table shows the total reserve held for the cost of

guarantees, the range of investment returns on assets supporting

these products and the implied investment return that would enable

the business to meet the guarantees.

The cost of guarantees decreased to $745m (2021: $938m), primarily

due increases in interest rates during 2022.

For unit-linked contracts, market risk is substantially borne bythe

policyholder, but some market risk exposure typically remains, as fees

earned are related to the market value of the linked assets.

Financial return guarantees

(Audited)

2022 2021

Investment

returns

implied by

guarantee

Long-term

investment

returns on

relevant

portfolios

Cost of

guarantees

Investment

returns

implied by

guarantee

Long-term

investment

returns on

relevant

portfolios

Cost of

guarantees

Capital — 1.6-5.1 47 — 0.7-2.3 220

Nominal annual return 0.1-1.9 3.6-6.8 548 0.1-1.9 2.7-6.4 423

Nominal annual return 2.0-3.9 2.0-5.5 109 2.0-3.9 2.2-4.1 183

Nominal annual return 4.0-5.0 2.0-4.2 41 4.0-5.0 2.2-4.2 112

At 31 Dec 745 938

Sensitivities

Changes in financial market factors, from the economic assumptions

in place at the start of the year, had a negative impact on reported

profit before tax of $988m (2021: $516m). The following table

illustrates the effects of selected interest rate, equity price and

foreign exchange rate scenarios on our profit for the year and the total

equity of our insurance manufacturing subsidiaries. These sensitivities

are prepared in accordance with current IFRSs, which will change

following the adoption of IFRS 17 ‘Insurance Contracts’, effective

from 1 January 2023. Further information about the adoption of

IFRS17 is provided on page 335.

Where appropriate, the effects of the sensitivity tests on profit after

tax and equity incorporate the impact of the stress on the PVIF.

Due in part to the impact of the cost of guarantees and hedging

strategies, which may be in place, the relationship between the profit

and total equity and the risk factors is non-linear, particularly in a low

interest-rate environment. Therefore, the results disclosed should not

be extrapolated to measure sensitivities to different levels of stress.

For the same reason, the impact of the stress is not necessarily

symmetrical on the upside and downside. The sensitivities are stated

before allowance for management actions, which may mitigate the

effect of changes in the market environment. The sensitivities

presented allow for adverse changes in policyholder behaviour that

may arise in response to changes in market rates. The differences

between the impacts on profit after tax and equity are driven by the

changes in value of the bonds measured at fair value through other

comprehensive income, which are only accounted for in equity. The

increased upward sensitivity and reduced downward sensitivity of

profit after tax to a parallel shift in yield curves is driven by rising

interest rates having reduced the sensitivity impact associated with

the cost of guarantees in France.

Sensitivity of HSBC’s insurance manufacturing subsidiaries to market risk factors

(Audited)

2022 2021

Effect on

profit after

tax

Effect on

total equity

Effect on

profit after tax

Effect on

total equity

+100 basis point parallel shift in yield curves (100) (236) (2) (142)

-100 basis point parallel shift in yield curves 35 177 (154) (9)

10% increase in equity prices 391 391 369 369

10% decrease in equity prices (419) (419) (377) (377)

10% increase in US dollar exchange rate compared with all currencies 98 98 80 80

10% decrease in US dollar exchange rate compared with all currencies (98) (98) (80) (80)

HSBC Holdings plc Annual Report and Accounts 2022 237

Risk review

Credit risk

(Audited)

Description and exposure

Credit risk is the risk of financial loss if a customer or counterparty

fails to meet their obligation under a contract. It arises in two main

areas for our insurance manufacturers:

• risk associated with credit spread volatility and default by debt

security counterparties after investing premiums to generate a

return for policyholders and shareholders; and

• risk of default by reinsurance counterparties and non-

reimbursement for claims made after ceding insurance risk.

The amounts outstanding at the balance sheet date in respect

ofthese items are shown in the table on page 235.

The credit quality of the reinsurers’ share of liabilities under insurance

contracts is assessed as ‘satisfactory’ or higher (as defined on

page146), with 100% of the exposure being neither past due nor

impaired (2021: 100%).

Credit risk on assets supporting unit-linked liabilities is predominantly

borne by the policyholders. Therefore, our exposure is primarily

related to liabilities under non-linked insurance and investment

contracts and shareholders’ funds. The credit quality of insurance

financial assets is included in thetable on page 165.

The risk associated with credit spread volatility is to a large extent

mitigated by holding debt securities to maturity, and sharing a degree

of credit spread experience with policyholders.

Liquidity risk

(Audited)

Description and exposure

Liquidity risk is the risk that an insurance operation, though solvent,

either does not have sufficient financial resources available to meet

its obligations when they fall due, or can secure them only at

excessive cost. Liquidity risk may be able to be shared with

policyholders for products with DPF.

The following table shows the expected undiscounted cash flows for

insurance liabilities at 31 December 2022.

The profile of the expected maturity of insurance contracts at

31December 2022 remained comparable with 2021.

The remaining contractual maturity of investment contract liabilities is

included in Note 30 on page 396.

Expected maturity of insurance contract liabilities

(Audited)

Expected cash flows (undiscounted)

Within 1 year

1–5 years

5–15 years

Over 15 years

Total

Unit-linked 801 1,732 2,522 2,355 7,410

With DPF and Other contracts 8,637 31,290 55,157 135,002 230,086

At 31 Dec 2022 9,438 33,022 57,679 137,357 237,496

Unit-linked 1,346 2,605 3,159 2,293 9,403

With DPF and Other contracts 8,803 31,334 51,891 94,168 186,196

At 31 Dec 2021 10,149 33,939 55,050 96,461 195,599

Insurance underwriting risk

Description and exposure

Insurance underwriting risk is the risk of loss through adverse

experience, in either timing or amount, of insurance underwriting

parameters (non-economic assumptions). These parameters include

mortality, morbidity, longevity, lapse and expense rates. Lapse risk

exposure on products with premium financing increased over the year

as rising interest rates led to an increase in the cost of financing for

customers.

The principal risk we face is that, over time, the cost of the contract,

including claims and benefits, may exceed the total amount of

premiums and investment income received.

The tables on pages 235 and 236 analyse our life insurance risk

exposures by type of contract and by geographical region.

The insurance risk profile and related exposures remain largely

consistent with those observed at 31 December 2021.

Sensitivities

(Audited)

The following table shows the sensitivity of profit and total equity to

reasonably possible changes in non-economic assumptions across all

our insurance manufacturing subsidiaries. These sensitivities are

prepared in accordance with current IFRSs, which will change

following the adoption of IFRS 17 ‘Insurance Contracts’, effective

from 1 January 2023. Further information about the adoption of

IFRS17 is provided on page 335.

Mortality and morbidity risk is typically associated with life insurance

contracts. The effect on profit of an increase in mortality or morbidity

depends on the type of business being written.

Sensitivity to lapse rates depends on the type of contracts

beingwritten. An increase in lapse rates typically has a negative

effect on profit due to the loss offuture income on the lapsed

policies. However, some contract lapses have a positive effect on

profit due to the existence of policy surrender charges.

Expense rate risk is the exposure to a change in the allocated cost

ofadministering insurance contracts. To the extent that increased

expenses cannot be passed on to policyholders, anincrease in

expense rates will have a negative effect on ourprofits. This risk is

generally greatest for our smaller entities.

Sensitivity analysis

(Audited)

2022

2021

Effect on profit after tax and total equity at 31 Dec

Effect on profit after tax and total equity at 10% increase in mortality and/or morbidity rates (105) (112)

Effect on profit after tax and total equity at 10% decrease in mortality and/or morbidity rates 109 115

Effect on profit after tax and total equity at 10% increase in lapse rates (121) (115)

Effect on profit after tax and total equity at 10% decrease in lapse rates 124 129

Effect on profit after tax and total equity at 10% increase in expense rates (89) (108)

Effect on profit after tax and total equity at 10% decrease in expense rates 89 107

Risk review

238 HSBC Holdings plc Annual Report and Accounts 2022

We have a comprehensive range of policies and systems

in place designed to help ensure that the Group is well

managed, with eective oversight and control.

HSBC continues to enhance its corporate

governance practices and procedures to

support the Board's ambition of world-class

governance.

The corporate governance report gives

details of our Board of Directors, senior

management, and Board committees.

It outlines key aspects of our approach

to corporate governance, including

internal control.

It also includes the Directors’ remuneration

report, which explains our policies on

remuneration and their application.

240 The Board

244 Senior management

248 How we are governed

255 Board activities during 2022

257 Board and committee eectiveness,

performance and accountability

259 Board committees

276 Directors' remuneration report

301 Share capital and other related disclosures

306 Internal control

308 Employees

310 Statement of compliance

311 Directors' responsibility statement

Corporate

governance

report

HSBC Holdings plc Annual Report and Accounts 2022 239

Chairman and executive Directors

Mark E Tucker (65)

Group Chairman

Appointed to the Board: September 2017

Group Chairman since: October 2017

Skills and experience: With over 35 years of

experience in ﬁnancial services in Asia, Africa,

the US, the EU and the UK, including 30 years

living and working in Hong Kong, Mark has a

deep understanding of the industry and markets

in which we operate.

Career: Mark was previously Chairman, Group

Chief Executive and President of AIA Group Limited

(‘AIA’), and prior to AIA he was Group Chief

Executive of Prudential plc.

Mark previously served as a non-executive Director

of the Court of the Bank of England and as an

independent non-executive Director of Goldman

Sachs Group.

Other appointments:

– Non-executive Chairman of Discovery Limited

– Supporting Chair of Chapter Zero

– Member of the UK Investment Council

– Member of the Advisory Group on Trade Finance

to the International Chamber of Commerce

– Member of the Trade Advisory Group on Financial

Services to the UK Government’s Department for

International Trade

– Member of the Asia Business Council

– Chairman of the Multinational Chairman’s Group

– Co-Chair of the Indian B20 Taskforce on Financial

Inclusion for Economic Empowerment

– Director, Peterson Institute for International

Economics

– Director, Institute of International Finance

– Asia Society Board of Trustees

Noel Quinn (61)

Group Chief Executive

Appointed to the Board: August 2019

Group Chief Executive since: March 2020

Skills and experience: Having qualiﬁed as an

accountant in 1987, Noel has more than 30 years

of banking and ﬁnancial services experience,

both in the UK and Asia.

Career: Noel was appointed Group Chief Executive

in March 2020, having held the role on an interim

basis since August 2019. Since joining HSBC and its

constituent companies in 1987, Noel has held a

variety of roles including Chief Executive Ocer,

Global Commercial Banking; Regional Head of

Commercial Banking for Asia-Paciﬁc; Head of

Commercial Banking UK; and Head of Commercial

Finance Europe.

Other appointments:

– Chair of the Financial Services Task Force of the

Sustainable Markets Initiative

– Member of the Advisory Council of the Sustainable

Markets Initiative

– Founding member of CNBC ESG Council

– Member of the Advisory Board of the China

Children Development Fund

– Principal member of the Glasgow Financial

Alliance for Net Zero

– Member of the World Economic Forum’s

International Business Council

Georges Elhedery (48)

Group Chief Financial Ocer

Appointed to the Board: January 2023

Skills and experience: Georges has 25 years of

experience in the banking industry across Europe,

the Middle East and Asia, and has held a number of

executive roles at both a regional and global

business level.

Career: Georges was appointed Group Chief

Financial Ocer and executive Director with eect

from 1 January 2023. He is also responsible for the

oversight of the Group’s transformation programme

and corporate development activities. Georges was

previously co-Chief Executive Ocer, Global

Banking and Markets and also Head of the Markets

and Securities Services division of the business.

Georges joined HSBC in 2005 with extensive trading

experience in London, Paris and Tokyo. He has since

held a number of senior leadership roles, including

Head of Global Banking and Markets, Middle East

and North Africa; Chief Executive Ocer for HSBC,

Middle East, North Africa and Türkiye; and Global

Head of Markets based in London.

Board committee membership key

Committee Chair

Group Audit Committee

Group Risk Committee

Group Remuneration Committee

Nomination & Corporate Governance Committee

For full biographical details of our Board

members, see www.hsbc.com/who-we-are/

leadership-and-governance.

The Board

The Board, which seeks to promote the Group’s long-term

success, deliver sustainable value to shareholders and

promote a culture of openness and debate, comprises

diverse, high-calibre members who have experience in

our global markets.

240 HSBC Holdings plc Annual Report and Accounts 2022

Report of the Directors | Corporate governance report

Independent non-executive Directors

Dame Carolyn Fairbairn (62)

Independent non-executive

Director

Appointed to the Board:

September 2021

Skills and experience: Carolyn has

signiﬁcant experience across the

media, government and ﬁnance

sectors, and a deep understanding

of the macroeconomic, regulatory,

and political environment.

Career: An economist by training,

Carolyn has served as a partner at

McKinsey & Company, Director-

General of the Confederation of British

Industry, and held senior executive

positions at BBC and ITV plc. She has

extensive board experience, having

previously served as non-executive

Director of Lloyds Banking Group plc,

The Vitec Group plc, Capita plc and

BAE Systems plc. She has also served

as a non-executive Director of the UK

Competition and Markets Authority

and the Financial Services Authority.

Other appointments:

– Honorary Fellow of Gonville and

Caius College, Cambridge

– Honorary Fellow of Nueld

College, Oxford

– Chair of Trustees at Royal Mencap

Society

Rachel Duan (52)

Independent non-executive

Director

Appointed to the Board:

September 2021

Skills and experience: Rachel is

an experienced business leader with

exceptional international experience in

the US, Japan, mainland China and

Hong Kong.

Career: Rachel spent 24 years at

General Electric (‘GE’), where she

held positions including Senior Vice

President of GE, and President and

Chief Executive Ocer of GE’s Global

Markets where she was responsible

for driving GE’s growth in Asia-Paciﬁc,

the Middle East, Africa, Latin America,

Russia and the Commonwealth

of Independent States. She also

previously served as President

and Chief Executive Ocer of GE

Advanced Materials China and then

of the Asia-Paciﬁc; President and

CEO of GE Healthcare China; and

President and CEO of GE China.

Other appointments:

– Independent non-executive Director

of Sanoﬁ S.A.

– Independent non-executive Director

of AXA S.A.

– Independent non-executive Director

of the Adecco Group AG

Geraldine Buckingham (45)

Independent non-executive

Director

Appointed to the Board: May 2022

Skills and experience: Geraldine is

an experienced executive within the

global ﬁnancial services industry,

with signiﬁcant leadership experience

in Asia.

Career: Geraldine is the former Chair

and Head of Asia-Paciﬁc at BlackRock,

where she was responsible for all

business activities across Hong Kong,

mainland China, Japan, Australia,

Singapore, India and Korea. After

stepping down from this role, she

acted as senior adviser to the

Chairman and Chief Executive Ocer

of BlackRock. She earlier served as

BlackRock’s Global Head of Corporate

Strategy, and previously was a partner

within McKinsey & Company’s

ﬁnancial services practice.

Other appointments:

– Independent non-executive Director

of Brunswick Group Partnership Ltd

– Member of the Advisory Board of

ClimateWorks Centre Australia

HSBC Holdings plc Annual Report and Accounts 2022 241

Corporate governance

Dr José Antonio Meade Kuribreña

(53)

Independent non-executive Director

Appointed to the Board: March 2019

Workforce engagement non-executive

irector since: June 2022

Skills and experience: José has

extensive experience in public

administration, banking and

ﬁnancial policy.

Career: José has held Cabinet-level

positions in the federal government

of Mexico, including as Secretary of

Finance and Public Credit, Secretary

of Social Development, Secretary

of Foreign Aairs and Secretary of

Energy. Prior to his appointment to the

Cabinet, he served as Undersecretary

and as Chief of Sta in the Ministry of

Finance and Public Credit. José is also

a former Director General of Banking

and Savings at the Ministry of Finance

and Public Credit, and served as Chief

Executive Ocer of the National Bank

for Rural Credit.

Other appointments:

– Independent non-executive Director

of Alfa S.A.B. de C.V.

– Independent non-executive Director

of Grupo Comercial Chedraui, S.A.B.

de C.V.

– Board member of The Global Center

on Adaptation

– Member of the Advisory Board of

the University of California, Centre

for US Mexican Studies

– Member of the UNICEF Mexico

Advisory Board

James Forese (59)

Independent non-executive Director

Appointed to the Board: May 2020

Skills and experience: James has

over 30 years of international business

and management experience in the

ﬁnance industry working in areas

including global markets, investment

and private banking.

Career: James formerly served

as President of Citigroup. He began

his career in securities trading with

Salomon Brothers, one of Citigroup’s

predecessor companies, in 1985.

In addition to his most recent role

as Citigroup’s President, he was

Chief Executive Ocer of Citigroup’s

Institutional Clients Group. He has held

the positions of Chief Executive of its

Securities and Banking division and

Head of its Global Markets business.

Other appointments:

– Non-executive Chair of HSBC North

America Holdings Inc

– Non-executive Chairman of Global

Bamboo Technologies

– Trustee of Colby College

Steven Guggenheimer (57)

Independent non-executive Director

Appointed to the Board: May 2020

Skills and experience: Steven brings

extensive insight into technologies

ranging from artiﬁcial intelligence

to Cloud computing, through his

experience advising businesses

on digital transformation.

Career: Steven has more than 25

years of experience at Microsoft,

where he held a variety of senior

leadership roles. These included:

Corporate Vice President, Artiﬁcial

Intelligence and Independent Software

Vendor Engagement; and Corporate

Vice President, Original Equipment

Manufacturer.

Other appointments:

– Independent non-executive Director

of BT Group plc

– Independent non-executive Director

of Leupold & Stevens, Inc

– Independent non-executive Director

of Forrit Holdings Limited

– Independent non-executive Director

of Software Acquisition Group

242 HSBC Holdings plc Annual Report and Accounts 2022

Report of the Directors | Corporate governance report

Eileen Murray (64)

Independent non-executive Director

Appointed to the Board: July 2020

Skills and experience: Eileen has

extensive knowledge in ﬁnancial

services, technology and corporate

strategy from a career spanning

more than 40 years.

Career: Eileen previously served

as co-Chief Executive Ocer of

Bridgewater Associates, LP. Before

this, she was Chief Executive Ocer

for Investment Risk Management LLC,

and President and co-Chief Executive

Ocer of Du Capital Advisors.

Eileen started her professional career

at Morgan Stanley, where she held

positions including Controller,

Treasurer, and Global Head of

Technology and Operations, as

well as Chief Operating Ocer for

its Institutional Securities Group. She

was also Head of Global Technology,

Operations and Product Control at

Credit Suisse.

Other appointments:

– Independent non-executive Director

of Guardian Life Insurance Company

of America

– Independent non-executive Director

of Broadridge Financial Solutions, Inc

– Independent non-executive Director

and Chair of Carbon Arc

– Strategic Adviser of Invisible Urban

Charging

– Adviser of ConsenSys

Aileen Taylor (50)

Group Company Secretary and

Chief Governance Ocer

Appointed: November 2019

Skills and experience: Aileen

is a solicitor with signiﬁcant

governance and regulatory

experience across various roles

in the banking industry. She is a

member of the European Corporate

Governance Council, the GC100

and the Financial Conduct

Authority’s Listing Authority

Advisory Panel.

Career: Prior to joining HSBC,

Aileen spent 19 years at the Royal

Bank of Scotland Group, holding

various legal, risk and compliance

roles. She was appointed Group

Secretary in 2010 and subsequently

Chief Governance Ocer and

Board Counsel.

Jackson Tai (72)

Independent non-executive Director

Appointed to the Board: September 2016

Skills and experience: Jackson has

held senior operating and governance

roles across Asia, North America

and Europe.

Career: Jackson was Vice Chairman

and Chief Executive Ocer of DBS

Group and DBS Bank Ltd, having

previously served as Chief Financial

Ocer and President and Chief

Operating Ocer. He worked for

25 years in the investment banking

division of J.P. Morgan & Co.

Incorporated, holding roles as

Chairman of the Asia-Paciﬁc

Management Committee and Head

of Japan Capital Markets. Former

non-executive Director appointments

included Canada Pension Plan

Investment Board, Royal Philips N.V.,

Bank of China Limited, Singapore

Airlines, NYSE Euronext, ING Groep

N.V., CapitaLand Ltd, SingTel Ltd.

and Jones Lang LaSalle Inc. He also

served as Vice Chairman of Islamic

Bank of Asia.

Other appointments:

– Independent non-executive Director

of Eli Lilly and Company

– Independent non-executive Director

of MasterCard Incorporated

– Member of the Advisory Panel of the

Russell Reynolds Associates Board

and CEO Advisory Group

– Member of the Board of Trustees of

the Rensselaer Polytechnic Institute

– Member of the Association of the

Metropolitan Opera Board

David Nish (62)

Independent non-executive Director

Appointed to the Board: May 2016

Senior Independent non-executive

Director since: February 2020

Skills and experience: David has

international experience in ﬁnancial

services, corporate governance,

strategy, ﬁnancial reporting, and

operational transformation.

Career: David served as Group Chief

Executive Ocer of Standard Life plc

between 2010 and 2015, having joined

the company in 2006 as Group

Finance Director. He is also a former

Group Finance Director of Scottish

Power plc and was a partner at Price

Waterhouse. David has also previously

served as a non-executive Director of

HDFC Life (India), Northern Foods plc,

Thus plc, London Stock Exchange

Group plc, the UK Green Investment

Bank plc and Zurich Insurance Group.

Other appointments:

– Independent non-executive Director

of Vodafone Group plc

– Honorary Professor of University

of Dundee Business School

Former Directors who served during the year

Irene Lee

Irene Lee retired from the Board on 29 April 2022

Pauline van der Meer Mohr

Pauline van der Meer Mohr retired from the Board

on 29 April 2022

Ewen Stevenson

Ewen Stevenson resigned from the Board on

31 December 2022

For full biographical details of our Board members,

see www.hsbc.com/who-we-are/leadership-and-governance.

HSBC Holdings plc Annual Report and Accounts 2022 243

Corporate governance

Elaine Arden (54)

Group Chief Human

Resources Ocer

Elaine joined HSBC as Group Chief

Human Resources Ocer in June

2017. Prior to joining HSBC, she was

Group Human Resources Director at

Royal Bank of Scotland Group for six

years. She has held a number of human

resources and employee relations roles

throughout her career in ﬁnancial

services, including with Clydesdale

Bank and Direct Line Group. Elaine is

a member of the Chartered Institute

of Personnel and Development, and

a Fellow of the Chartered Institute of

Banking in Scotland.

Colin Bell (55)

Chief Executive Ocer,

HSBC Bank plc and HSBC Europe

Colin joined HSBC in July 2016 and

was appointed Chief Executive Ocer,

HSBC Bank plc and HSBC Europe in

February 2021. He previously held

the role of Group Chief Compliance

Ocer. Before HSBC, Colin worked at

UBS as Global Head of Compliance

and Operational Risk Control. He

served for 16 years in the British Army,

where he held a variety of command

and sta positions, including within

operational tours of Iraq and Northern

Ireland, and roles in the Ministry of

Defence and NATO.

Jonathan Calvert-Davies (54)

Group Head of Internal Audit

Jonathan is a standing attendee

of the Group Executive Committee,

having joined HSBC as Group Head

of Internal Audit in October 2019. He

has 30 years of experience providing

assurance, audit and advisory

services to the banking and securities

industries in the UK, the US and

Europe. Jonathan’s previous roles

included leading KPMG UK’s ﬁnancial

services internal audit services

practice and PwC’s UK internal audit

services practice. He also previously

served as interim Group Head of

Internal Audit at the Royal Bank of

Scotland Group.

Senior management, which includes

the Group Executive Committee,

supports the Group Chief Executive

in the day-to-day management of

the business and the implementation

of strategy.

Senior management

Greg Guyett (59)

Chief Executive Ocer,

Global Banking and Markets

Greg joined HSBC in October 2018 as

Head of Global Banking and became

co-Chief Executive Ocer of Global

Banking and Markets in March 2020,

before assuming sole responsibility in

October 2022. Before joining HSBC,

he was President and Chief Operating

Ocer of East West Bank. Greg began

his career as an investment banker at

J.P. Morgan, where positions included:

Chief Executive Ocer for Greater

China; Chief Executive Ocer, Global

Corporate Bank; Head of Investment

Banking for Asia-Paciﬁc; and Co-Head

of Banking for Asia-Paciﬁc.

244 HSBC Holdings plc Annual Report and Accounts 2022

Report of the Directors | Corporate governance report

Pam Kaur (59)

Group Chief Risk and

Compliance Ocer

Pam was appointed Group Chief Risk

and Compliance Ocer in 2021,

having held the position of Group

Chief Risk Ocer since 2020. Since

joining HSBC in 2013, her roles

included Group Head of Internal Audit

and Head of Wholesale Market and

Credit Risk. Pam has also held a

variety of audit, compliance, ﬁnance

and operations roles in the banking

industry, including with Deutsche

Bank, Royal Bank of Scotland Group,

Lloyds TSB and Citigroup. She serves

as a non-executive Director of abrdn

plc, and was previously a non-

executive Director of Centrica plc.

Bob Hoyt (58)

Group Chief Legal Ocer

Bob joined HSBC as Group Chief

Legal Ocer in January 2021. He was

previously Group General Counsel at

Barclays from 2013 to 2020. Prior to

that, he was General Counsel and

Chief Regulatory Aairs Ocer for

PNC Financial Services Group. Bob

has served as General Counsel and

Senior Policy Adviser to the US

Department of the Treasury under

Secretary Henry M. Paulson Jr, and

as Special Assistant and Associate

Counsel to the White House under

President George W. Bush.

Steve John (49)

Group Chief Communications and

Brand Ocer

Steve joined HSBC in December

2019 and was appointed to the

Group Executive Committee in

April 2021. He has a wealth of senior

communications, public policy

and leadership experience acquired

across a number of multinational and

charitable organisations. Steve was

previously a partner and Global

Director of Communications at

McKinsey & Company from 2014 to

2019. He has also held roles with Bupa

as Global Director of Corporate Aairs

and PepsiCo as Director of Corporate

Aairs for their UK and Ireland

franchises.

John Hinshaw (52)

Group Chief Operating Ocer

John became Group Chief Operating

Ocer in February 2020, having joined

HSBC in December 2019. He has

extensive background in transforming

and digitising organisations across a

range of industries. John was previously

Executive Vice President of Technology

and Operations and Chief Customer

Ocer at Hewlett Packard and Hewlett

Packard Enterprise, and has held senior

executive positions at Verizon and

Boeing. John serves on the boards of

Sysco Corporation and Illumio, Inc., and

has previously served on the boards of

BNY Mellon, DocuSign and the National

Academy Foundation.

Dr Celine Herweijer (45)

Group Chief Sustainability Ocer

Celine joined HSBC as Group Chief

Sustainability Ocer in July 2021, and

is responsible for the Group’s execution

of its sustainability strategy. She is also

co-chair of the Group’s ESG Committee.

She was previously a partner at PwC for

over a decade, where she held global

leadership roles including acting as its

global innovation and sustainability

leader. Before joining PwC in 2009,

Celine worked as Director of Climate

Change and Consulting for Risk

Management Solutions. She is a World

Economic Forum Young Global Leader,

a co-chair of the We Mean Business

Coalition, a PhD climate scientist and

NASA Fellow.

David Liao (50)

Co-Chief Executive Ocer,

Asia-Paciﬁc – The Hongkong

and Shanghai Banking

Corporation Limited

David was appointed co-Chief

Executive Ocer of the Asia-Paciﬁc

region in 2021. He is a Director of the

Hongkong and Shanghai Banking

Corporation Limited, Bank of

Communications Co., Limited, and

Hang Seng Bank Limited. David joined

HSBC in 1997, with previous roles

including: Head of Global Banking

Coverage for Asia-Paciﬁc; President

and Chief Executive of HSBC China;

Head of Global Banking and Markets,

HSBC China; and Treasurer and Head

of Global Markets, HSBC China.

HSBC Holdings plc Annual Report and Accounts 2022 245

Corporate governance

Surendra Rosha (54)

Co-Chief Executive Ocer,

Asia-Paciﬁc – The Hongkong

and Shanghai Banking

Corporation Limited

Surendra was appointed co-Chief

Executive Ocer of the Asia-Paciﬁc

region in 2021. He is a Director of The

Hongkong and Shanghai Banking

Corporation Limited, HSBC Global

Asset Management Limited and HSBC

Bank Malaysia Berhad. Surendra

joined HSBC in 1991 and has held

several senior positions within Global

Banking and Markets, including Head

of Global Markets in Indonesia and

Head of Institutional Sales, Asia-

Paciﬁc. He previously held the position

of Chief Executive for HSBC India and

Head of HSBC’s ﬁnancial institutions

group for Asia-Paciﬁc.

John David Stuart

(known as Ian Stuart) (59)

Chief Executive Ocer,

HSBC UK Bank plc

Ian has been Chief Executive Ocer of

HSBC UK Bank plc since 2017 and has

worked in ﬁnancial services for over

four decades. He joined HSBC as

Head of Commercial Banking in

the UK and Europe in 2014, having

previously led the corporate and

business banking businesses at

Barclays. He has also held various

roles at the Royal Bank of Scotland

Group, and started his career at

Bank of Scotland. Ian is a business

ambassador for Meningitis Now,

and a member of the Economic Crime

Strategic Board and UK Finance Board.

Barry O’Byrne (47)

Chief Executive Ocer,

Global Commercial Banking

Barry was appointed Chief Executive

of Global Commercial Banking in

2020, having served in the role on

an interim basis since August 2019.

He joined HSBC in 2017 as Chief

Operating Ocer for Commercial

Banking. Before joining HSBC, Barry

worked at GE Capital for 19 years

where he held a number of senior

leadership roles, including Chief

Executive Ocer and Chief Operating

Ocer for GE Capital International.

Michael Roberts (62)

Chief Executive Ocer,

HSBC USA and Americas

Michael was appointed Chief

Executive Ocer of HSBC USA

when he joined HSBC in 2019. He

became Chief Executive Ocer of the

Americas with oversight responsibility

for Canada and Latin America in 2021.

He is a Director of HSBC Bank Canada;

Director, President and Chief Executive

Ocer of HSBC North America

Holdings Inc.; and Chairman of HSBC

Bank USA, N.A., HSBC USA Inc and

HSBC Latin America Holdings (UK)

Limited. Previously, Michael spent

over 30 years at Citigroup in a number

of senior leadership roles, most

recently as Global Head of Corporate

Banking and Capital Management

and Chief Lending Ocer.

Additional members of the

Group Executive Committee

Noel Quinn

Georges Elhedery

Aileen Taylor

Biographies are provided on pages

240 and 243.

Stephen Moss (56)

Regional Chief Executive Ocer –

Middle East, North Africa and

Türkiye

Stephen was appointed Regional Chief

Executive Ocer for the Middle East,

North Africa and Türkiye in 2021. He

has held a series of roles in Asia, the

UK and the Middle East since joining

HSBC in 1992, including as Chief of

Sta to the Group Chief Executive

and overseeing the Group’s mergers

and acquisitions, and strategy and

planning activities. Stephen is a

Director of HSBC Bank Middle East

Limited, HSBC Middle East Holdings

B.V, HSBC Bank Egypt S.A.E.,

HSBC Saudi Arabia and The Saudi

British Bank.

Nuno Matos (55)

Chief Executive Ocer, Wealth

and Personal Banking

Nuno was appointed Chief Executive

Ocer of Wealth and Personal

Banking in 2021. Since joining HSBC

in 2015 from Santander Group, he has

held various roles, most recently as

Chief Executive Ocer of HSBC Bank

plc and HSBC Europe. He has also

held the positions of Chief Executive

Ocer of HSBC Mexico and Regional

Head of Retail Banking and Wealth

Management for Latin America. He is

currently a Director of HSBC Global

Asset Management Limited.

246 HSBC Holdings plc Annual Report and Accounts 2022

Report of the Directors | Corporate governance report

Board and senior management diversity

We value dierence

Diversity and inclusion are embedded within the culture of HSBC. The Board remains

committed to having an inclusive culture that recognises the importance of

gender, social and ethnic diversity, and the beneﬁts gained from dierent perspectives.

This section outlines the key diversity and inclusion metrics for Board members and executive management as at 31 December 2022.

This includes tenure, age, skills and experience, gender and ethnic representation.

Balance of executive Directors

and non executive Directors

Non executive

Directors 10

Executive

Directors 2

Tenure Age

45–49

50–54

55–59

60–64

Over 65

0–2 years

2–4 years

5–7 years

Balance of executive Directors

and non executive Directors

Non executive

Directors 10

Executive

Directors 2

Tenure Age

45–49

50–54

55–59

60–64

Over 65

0–2 years

2–4 years

5–7 years

Gender and ethnic diversity

The Financial Conduct Authority, in its capacity as the UK Listing Authority, introduced new rules

during 2022 that require listed companies to publish information on female and ethnic heritage

representation on the Board and in senior management within the

Annual Report and Accounts

2023

. The tables below outline the current gender and ethnic diversity of the HSBC Holdings

Board and executive management in advance of these requirements becoming applicable.

Board members

Number of

senior positions

Executive management

Number % Number %

Male 8 67 4 17 81

Female 4 33 0 4 19

Other – – – – –

Not speciﬁed/prefer not to say – – – – –

Board members

Number of

senior positions

Executive management

Number % Number %

White British or other White

(including minority-White groups)

9 75 4 14 66

Mixed/multiple ethnic groups – – – 1 5

Asian/Asian British 2 17 – 4 19

Black/African/Caribbean/

Black British

– – – –

Other ethnic group,

including Arab

1 8 – 1 5

Not speciﬁed/prefer not to say – – 1 5

Male

Female

Male

Female

White British or other

White (including

minority-White groups)

Asian/Asian British

Other ethnic groups,

including Arab

White British or other White

(including minority-White groups)

Mixed/multiple ethnic groups

Asian/Asian British

Other ethnic group, including Arab

Not speciﬁed/prefer not to say

Board Board

Executive management Executive management

Male

Female

Male

Female

White British or other

White (including

minority-White groups)

Asian/Asian British

Other ethnic groups,

including Arab

White British or other White

(including minority-White groups)

Mixed/multiple ethnic groups

Asian/Asian British

Other ethnic group, including Arab

Not speciﬁed/prefer not to say

Board Board

Executive management Executive management

Male

Female

Male

Female

White British or other

White (including

minority-White groups)

Asian/Asian British

Other ethnic groups,

including Arab

White British or other White

(including minority-White groups)

Mixed/multiple ethnic groups

Asian/Asian British

Other ethnic group, including Arab

Not speciﬁed/prefer not to say

Board Board

Executive management

Male

Female

Male

Female

White British or other

White (including

minority-White groups)

Asian/Asian British

Other ethnic groups,

including Arab

White British or other White

(including minority-White groups)

Mixed/multiple ethnic groups

Asian/Asian British

Other ethnic group, including Arab

Not speciﬁed/prefer not to say

Board Board

Executive management Executive management

Board composition,

tenure and age

Skills and experience

Gender

Ethnic diversity

Executive

Directors

Non-executive

Directors

1 Senior positions on the Board comprise the Group Chairman, Group Chief Executive, Group Chief Financial

Ocer and Senior Independent non-executive Director.

2 Executive management comprises the Group Chief Executive, his direct reports, and the Group Company

Secretary and Chief Governance Ocer.

The Board, through its Nomination &

Corporate Governance Committee, regularly

reviews the skills and experience it requires

to eectively discharge its responsibilities.

A skills matrix, which is a key tool used by

the Board to inform its succession planning

discussions, is reviewed at least annually

by the Board. An extract of the skills matrix,

showing a selection of the current skills and

experience of the non-executive Directors,

is shown below.

Male

Corporate social responsibility/ESG

Direct Asia market experience

Global business experience

Technology/digital

Customer

Risk

Finance

Banking

HSBC Holdings plc Annual Report and Accounts 2022 247

Corporate governance

How we are governed

We are committed to high standards of corporate governance. The

Group has a comprehensive range of policies and procedures in place

designed to help ensure that it is well managed, with effective

oversight and controls. We comply with the UK Corporate

Governance Code and the applicable requirements of the Hong Kong

Corporate Governance Code.

Board’s role, Directors’

responsibilities and meeting

attendance

The Board, led by the Group Chairman, is responsible among other

matters for:

• promoting the Group’s long-term success and delivering

sustainable value to shareholders;

• establishing and approving the Group’s strategy and objectives,

and monitoring the alignment of the Group’s purpose, strategy and

values with the desired culture;

• setting the Group’s risk appetite and monitoring the Group’s risk

profile;

• approving and monitoring capital and financial resource plans for

achieving strategic objectives, including material transactions;

• considering and approving the Group’s technology and

environmental, social and governance strategies;

• approving the appointment and remuneration of Directors,

including Board roles; and

• reviewing the Group’s overall corporate governance arrangements.

The Board’s responsibilities are set out in a schedule of matters

reserved within its terms of reference, which are available on our

website at www.hsbc.com/who-we-are/leadership-and-governance/

board-responsibilities. The Board’s powers are subject to relevant

laws, regulations and HSBC’s articles of association.

The role of the independent non-executive Directors is to support the

development of strategy, oversee risk, hold management to account

and ensure the executive Directors are discharging their

responsibilities properly, while creating the right culture to encourage

constructive challenge. Further details on the independence of the

Board can be found in the Nomination & Corporate Governance

Committee report on page 259. Non-executive Directors also review

the performance of management in meeting agreed goals and

objectives. The Group Chairman meets with the non-executive

Directors without the executive Directors in attendance after Board

meetings and otherwise, as necessary.

The roles of Group Chairman and Group Chief Executive are separate.

There is a clear division of responsibilities between the leadership of

the Board by the Group Chairman, and the executive responsibility for

day-to-day management of HSBC’s business, which is undertaken by

the Group Chief Executive.

The majority of Board members are independent non-executive

Directors. At 31 December 2022, the Board comprised the Group

Chairman, nine non-executive Directors, and two executive Directors

who are the Group Chief Executive and the Group Chief Financial

Officer. One non-executive Director will not stand for re-election at

the AGM in May 2023.

For further details of Board members' career backgrounds, skills,

experience and external appointments, see their biographies on

page240, and for a breakdown of the diversity and skills of the Board

and senior management, see page 247.

Operation of the Board

The Board is ordinarily scheduled to meet at least seven times a year.

In 2022, the Board held 15 meetings. For further details on

attendance at those meetings, see page 250. The Board agenda is

agreed by the Group Chairman, working with both the Group Chief

Executive and the Group Company Secretary and Chief Governance

Officer. For further information, see ’Board activities during 2022’ on

page 255.

The Group Company Secretary and Chief Governance Officer, the

Group Chief Risk and Compliance Officer, the Group Chief Legal

Officer and the non-executive Chairman of The Hongkong and

Shanghai Banking Corporation Limited are all regular attendees at

Board meetings. Other senior executives attend Board meetings for

specific items as required.

In addition to formal Board meetings, the Board Oversight Sub-Group

met in advance of each Board meeting during 2022. Such meetings

were established following the appointment of Noel Quinn as Group

Chief Executive and changes to the senior management team as an

informal mechanism for a smaller group of Board members and

management to discuss emerging issues and upcoming Board

matters. Standing attendees comprise the Group Chairman, the Chair

of the Group Audit Committee (who is also the Senior Independent

Director), the Chair of the Group Risk Committee, the Chair of the

Group Remuneration Committee, the Group Chief Executive, the

Group Chief Financial Officer, the Group Chief Risk and Compliance

Officer, and the Group Company Secretary and Chief Governance

Officer. Other non-executive Directors and senior management are

invited on an ad hoc basis, depending on the subject matter to be

discussed. The forum is not decision making but provides regular

opportunities for Board members to communicate with senior

management to deepen their understanding of, and provide input into,

key issues facing the Group. Following a review by the Group

Chairman and Group Chief Executive of the role of the Board

Oversight Sub-Group, it was agreed that it would only be used on an

ad hoc basis where necessary going forward.

Relationship between the Board and senior

management

The Board delegates day-to-day management of the business and

implementation of strategy to the Group Chief Executive. The Group

Chief Executive is supported in his management of the Group by

recommendations and advice from the Group Executive Committee

(’GEC’), an executive forum comprising members of senior

management that include chief executive officers of the global

businesses, regional chief executive officers and functional heads. For

further details of the senior management team, see page 244.

The Directors are encouraged to have contact with management at all

levels, and have full access to all relevant information. Non-executive

Directors are encouraged to visit local business operations and meet

local management when they attend Board meetings in different

locations, and when travelling for other reasons. Board and senior

management travel resumed in 2022, which allowed for more

opportunities for Board members to meet together in person and with

key stakeholders. As Covid-19 restrictions remained in place for some

markets, and with the safety of colleagues and customers a priority,

several virtual meetings with senior executives continued to take

place, which included business meetings, induction meetings and

subject matter ’deep dives’.

Report of the Directors | Corporate governance report

248 HSBC Holdings plc Annual Report and Accounts 2022

Executive governance

The Group’s executive governance is underpinned by the Group

operating rhythm, which helps facilitate end-to-end governance

between senior leadership and the Board, and sets out the Board and

executive engagement schedule.

The Group operating rhythm has the following three pillars:

• The GEC normally meets every week to discuss current and

emerging issues.

• On a monthly basis, the GEC reviews the performance of each of

the global businesses in principal geographical areas and legal

entities. These performance reviews are supplemented by

operating unit performance review meetings between the Group

Chief Financial Officer and each of the chief executive officers of

the respective global businesses, regions and principal

subsidiaries. The Group Chief Risk and Compliance Officer usually

attends these meetings.

• The GEC holds a strategy and governance meeting two weeks in

advance of each Board meeting.

In addition, during the year, the Group Chief Executive independently

conducts several business reviews on focus areas such as costs and

the financial reporting plan.

Separate committees have been established to provide specialist

oversight for matters delegated to the Group Chief Executive and

senior management. For further details of these committees, see

page 251.

To further support our senior management, we have dedicated

corporate governance officers supporting our global businesses and

global functions to assist in effective end-to-end governance,

consistency and connectivity.

Subsidiary governance

We are committed to maintaining high standards of corporate

governance throughout the Group. All subsidiary boards and their

respective businesses are required to have in place effective

governance arrangements with regard to the businesses’ nature, size,

locations and the sectors in which they operate.

Certain subsidiaries are designated formally as principal subsidiaries

by approval of the Board. In addition to their obligations under their

respective local laws and regulation, principal subsidiaries, supported

by regional company secretaries, perform an important role in

supporting effective and high standards of governance across the

Group.

The designated principal subsidiaries are:

Principal subsidiary Oversight responsibility

The Hongkong and Shanghai

Banking Corporation Limited

Asia-Pacific

HSBC Bank plc Europe, Bermuda (excluding

Switzerland and UK ring-fenced

activities)

HSBC UK Bank plc UK ring-fenced bank and its

subsidiaries

HSBC Middle East Holdings BV

Middle East, North Africa and

Türkiye

HSBC North America Holdings Inc. US

HSBC Latin America Holdings (UK)

Limited

Mexico and Latin America

HSBC Bank Canada

Canada

1 On 29 November 2022 HSBC announced it had entered into an

agreement to sell HSBC Bank Canada, subject to regulatory and

governmental approvals. The sale is expected to complete in late 2023.

Principal subsidiaries play a critical role in overseeing the

implementation of the subsidiary accountability framework in the

regions for which they are responsible. The subsidiary accountability

framework, refreshed by the Board in 2021, aims to provide

subsidiaries with a shared understanding and a consistent approach

towards the Group’s strategic objectives, culture and values, and

ensure that corporate governance best practice is applied throughout.

The framework sets clear overarching principles for subsidiaries to

follow to improve communications and connectivity within the Group.

It also focuses on ensuring that each subsidiary is led by an effective

board with an appropriate balance of skills, diversity, experience and

knowledge, having regard to the nature of the subsidiary's business

and any local legal and regulatory requirements. Board composition of

the Group's subsidiaries is kept under review as part of succession

planning.

The framework is subject to periodic review by the Board and/or its

Nomination & Corporate Governance Committee and is updated to

ensure that there is clarity for the directors and officers of their

respective roles and responsibilities.

Since the revised framework was implemented in 2021, there has

been a notable improvement in the diversity of subsidiary board

composition.

To continue this progress, HSBC in 2022 launched a Bank Director

Programme to develop and equip internal talent to undertake non-

executive employee director roles on subsidiary boards. This

programme is delivered in partnership with an external business

school, and provides certified qualifications to its participants in

becoming highly skilled and knowledgeable subsidiary director

candidates.

The Group Chairman interacts regularly with the chairs of the principal

subsidiaries, including through the Chairman’s Forum, which brings

together the chairs of the principal subsidiaries and the chairs of the

Group’s audit, risk and remuneration committees, and depending on

the topic for discussion, also the Group Chief Executive, non-

executive Directors and relevant executive management, advisers

and/or external experts. In 2022, the Chairman’s Forum covered

strategic business considerations, geopolitics, global public health,

liability pricing, shareholder engagements, ESG insights, delegations

of authority, employee engagement and financial performance. The

Non-Executive Director Summits, hosted by the Group Chairman, are

also effective subsidiary directors’ engagement events.

During 2022, the Group Chairman hosted two virtual Non-Executive

Director Summits in March and September, where approximately 180

independent non-executive directors from the Group’s subsidiaries

attended along with HSBC Holdings Board Directors. The summits

provide a platform for sharing key messages across subsidiaries, as

well as facilitating greater connectivity and helping to build a sense of

community among our subsidiaries’ non-executive directors. In 2022,

the non-executive directors received updates on Group-wide matters

including strategy, ESG issues, technology and governance.

The annual Remuneration Committee Chairs’ Forum took place in

November, and provided the principal subsidiary chairs with an

opportunity to discuss the Group’s performance and the Group

Remuneration Committee’s priorities. A follow-up forum was held in

late November to provide transparency around pay outcomes and

allocation, with feedback from the discussion used to shape the final

pay proposals, which were considered and approved by the Group

Remuneration Committee.

Board members attend principal subsidiary meetings as guests from

time to time. Similarly, principal subsidiary directors are invited to

attend committee meetings at Group level, where relevant. The chairs

of the principal subsidiary risk committees are regular attendees at

the Group Risk Committee. Similarly, the Group Audit Committee

Chair meets regularly with the principal subsidiary audit committee

chairs to promote the sharing of information and best practices.

These Group Board committees received escalated reports and

certifications from the principal subsidiary risk and audit committees

through the year.

HSBC Holdings plc Annual Report and Accounts 2022 249

Corporate governance

Board roles, responsibilities and meeting attendance

The table below sets out the Board members’ respective roles, responsibilities and attendance at Board meetings and the AGM in 2022. For a

full description of key Board members’ responsibilities, see www.hsbc.com/who-we-are/leadership-and-governance/board-responsibilities.

Roles

Board

attendance in

2022

Responsibilities

Group Chairman

Mark E Tucker

1,2

15/15

• Provides effective leadership of the Board and promotes the highest standards of corporate governance

practices.

• Leads the Board in providing strong strategic oversight and setting the Board’s agenda, culture and values.

• Leads the Board in challenging management’s thinking and proposals, and fosters open and constructive

debate among Directors.

• Maintains internal and external relationships with key stakeholders, and communicates investors’ views to the

Board.

• Organises periodic monitoring and evaluation, including externally facilitated evaluation, of the performance of

the Board, its committees and individual Directors.

• Leads on succession planning for the Board and its committees, ensuring appointments reflect diverse

cultures, skills and experiences.

Executive Director

Group Chief Executive

Noel Quinn

15/15

• Leads and directs the implementation of the Group’s business strategy, embedding the organisation’s culture

and values.

• Leads the Group Executive Committee with responsibility for the day-to-day operations of the Group, under

authority delegated to him from the Board.

• Maintains relationships with key internal and external stakeholders including the Group Chairman, the Board,

customers, regulators, governments and investors.

• Maintains responsibility and accountability for the Group’s and its employees’ compliance with applicable

laws, codes, rules and regulations, good market practice and HSBC’s own standards.

Executive Director

Group Chief Financial Officer

Ewen Stevenson

2,4,6

14/15

• Supports the Group Chief Executive in developing and implementing the Group strategy and recommends the

annual budget and long-term strategic and financial resource plan.

• Leads the Finance function and is responsible for effective financial reporting, including the effectiveness of

the processes and controls, to ensure the financial control framework is robust and fit for purpose.

• Maintains relationships with key stakeholders including shareholders.

Non-executive Director

Senior Independent Director

David Nish

2,3

15/15

• Supports the Group Chairman, acting as intermediary for non-executive Directors when necessary.

• Leads the non-executive Directors in the oversight of the Group Chairman, supporting the clear division of

responsibility between the Group Chairman and the Group Chief Executive.

• Listens to shareholders’ views if they have concerns that cannot be resolved through the normal channels.

Non-executive Directors

• Develop and approve the Group strategy.

• Challenge and oversee the performance of management.

• Approve the Group’s risk appetite and review risk profile and performance.

• Contribute to the assessment and monitoring of culture.

• Maintain internal and external relationships with the Group’s key stakeholders.

Geraldine Buckingham

3,5

9/9

Rachel Duan

2,3

15/15

Dame Carolyn Fairbairn

2,3

15/15

James Forese

2,3,6

14/15

Steven Guggenheimer

2,3

14/15

Irene Lee

2,4

6/6

Dr José Antonio Meade

Kuribreña

2,3

15/15

Eileen Murray

2,3,6

14/15

Jackson Tai

2,3

15/15

Pauline van der Meer

Mohr

2,3,4,6

4/6

Group Company Secretary

and Chief Governance

Officer

Aileen Taylor

• Maintains strong and consistent governance practices at Board level and throughout the Group.

• Supports the Group Chairman in ensuring effective functioning of the Board and its committees, and

transparent engagement between senior management and non-executive Directors.

• Facilitates induction and professional development of non-executive Directors.

• Advises and supports the Board and management in ensuring effective end-to-end governance and decision

making across the Group.

1 The non-executive Group Chairman was considered to be independent on appointment.

2 Attended the AGM on 29 April 2022.

3 Independent non-executive Director. All of the non-executive Directors are considered to be independent of HSBC. There are no relationships or

circumstances that are likely to affect any individual non-executive Director’s judgement. All non-executive Directors have confirmed their

independence during the year.

4 Irene Lee and Pauline van der Meer Mohr retired from the Board on 29 April 2022. Ewen Stevenson retired from the Board on 31 December 2022.

5 Geraldine Buckingham joined the Board effective 1 May 2022.

6 Due to prior commitments Eileen Murray and Pauline van der Meer Mohr were not able to attend on 28 March 2022 and Steven Guggenheimer on

2November 2022. Meetings held on 10 February 2022 and 25 November 2022 were ad hoc meetings called at short notice, and due to prior

commitments, James Forese and Pauline van der Meer Mohr were unable to attend on 10 February 2022 and Ewen Stevenson was unable to attend

on 25 November 2022.

Report of the Directors | Corporate governance report

250 HSBC Holdings plc Annual Report and Accounts 2022

Board committees and working groups

The Board delegates oversight of certain audit, risk, remuneration,

nomination and governance matters to its committees. Each standing

Board committee is chaired by a non-executive Board member and

has a remit to cover specific topics in accordance with their

respective terms of reference. Only the Group Chairman and the

independent non-executive Directors are members of Board

committees. Details of the work carried out by each of the Board

committees can be found in the respective committee reports from

page 259.

The Chairman’s Committee provides the Board with the opportunity

to consider ad hoc and routine matters between scheduled Board

meetings. All Board members are invited to attend Chairman’s

Committee meetings.

In addition to Board committees, working groups have been

established to enhance Board governance, when appropriate,

including the Board Oversight Sub-Group and the Technology

Governance Working Group, which were first convened in 2019 and

2021, respectively. For further details of these committees, see

page248 and the box below.

The Group Executive Committee has established a number of

committees to provide specialist oversight for matters delegated to

the Group Chief Executive and senior management, which help fulfil

their responsibilities under the Senior Managers and Certification

Regime.

These committees support the Group Chief Executive and senior

management in areas such as capital and liquidity, risk management,

disclosure and financial reporting, restructuring and investment

considerations, transformation oversight, ESG matters and talent and

development.

Board

Chair: Mark Tucker

Chairman’s

Committee

Nomination &

Corporate

Governance

Committee

Group Audit

Committee

Group Risk

Committee

Group

Remuneration

Committee

Informal governance

Board Oversight Sub-

Group

Chair: Mark Tucker Chair: Mark Tucker Chair: David Nish Chair: Jackson Tai Chair: Dame Carolyn

Fairbairn

Chair: Mark Tucker

See page 259 See page 262 See page 271 See page 276 Technology

Governance Working

Group

Co-Chairs:

Eileen Murray and

Steven Guggenheimer

Group Executive Committee

Chair: Noel Quinn

Acquisitions and

Disposals

Committee

Disclosure and

Controls

Committee

Environmental,

Social and

Governance

Committee

Group People

Committee

Group Risk

Management

Meeting

Holdings Asset

and Liability

Committee

Transformation

Oversight

Executive

Committee

Chair: Noel

Quinn

Chair: Ewen

Stevenson

Co-Chairs:

Celine Herweijer

and Aileen Taylor

Chair: Elaine Arden Chair: Pam Kaur Chair: Ewen

Stevenson

Chair: Ewen

Stevenson

1 Georges Elhedery took over as chair from 1 January 2023.

ESG governance

With ESG issues rising up the global agenda, including with the

transition to a sustainable economy, we understood the need to

embed ESG considerations more deeply into our governance

processes. In February 2021, the Board approved the establishment

of an executive level ESG committee to support senior management

in the delivery of the Group’s ESG strategy and development of key

policies. The ESG Committee also aims to track the Group's

progress against material commitments by providing holistic

oversight, coordination and management of ESG activities. The ESG

Committee is jointly chaired by the Group Chief Sustainability Officer

and the Group Company Secretary and Chief Governance Officer.

The committee oversees all areas of environmental, social and

governance issues, with support from accountable senior

management in relation to their particular areas of responsibilities.

Key representatives from the functions and global businesses

attend to provide insights on the implementation of the ESG

strategy across the Group, allowing the ESG Committee to make

recommendations to the Board in respect of ESG matters.

Technology governance

The Technology Governance Working Group was established by the

Board in early 2021 to enhance its oversight of technology strategy,

governance and emerging risks, as well as to strengthen

connectivity with the principal subsidiaries. The role of the working

group is regularly reviewed by the Board. It was agreed in January

2022 that it should continue as an informal committee of the Board

for the duration of 2022, and it was extended for a further 12

months in January 2023. The working group continues to be jointly

chaired by two of the Board’s non-executive Directors, Eileen

Murray and Steven Guggenheimer, and members include the Group

Risk Committee chair and other non-executive Directors

representing our US, UK, European and Asian principal subsidiaries.

The working group met formally six times in 2022. These meetings

included deep dives on key strategic business initiatives, as well as

updates on technology strategy implementation and cybersecurity

matters, with attendance from key technology and business

stakeholders. There were a number of joint sessions between the

working group, the Group Audit Committee and the Group Risk

Committee. For further details of these sessions, see pages 262

and 271.

HSBC Holdings plc Annual Report and Accounts 2022 251

Corporate governance

Board induction and training

The Group Company Secretary and Chief Governance Officer works

with the Group Chairman to ensure that all Board members receive

appropriate training, both individually and collectively, throughout their

time on the Board. On appointment, new Directors are provided with

tailored and comprehensive induction programmes to fit with their

individual experiences and needs, including the process for managing

conflicts.

During 2022, we welcomed one new non-executive Director,

Geraldine Buckingham, to our Board. In October, we also announced

that Ewen Stevenson would be stepping down as Group Chief

Financial Officer on 31 December 2022 and be replaced by Georges

Elhedery. Georges Elhedery’s induction programme commenced

upon announcement of his proposed appointment, which included a

detailed handover prepared by the Group Chief Financial Officer prior

to Georges commencing the role from 1January2023.

The induction programme is delivered through formal briefings and

introductory sessions with other Board members, senior

management, legal counsel, auditors, tax advisers and regulators, as

appropriate. Topics covered in the induction programme include, but

are not limited to: purpose and values; culture and leadership;

governance and stakeholder management; Directors’ legal and

regulatory duties; recovery and resolution planning; anti-money

laundering and anti-bribery; technical and business briefings; and

strategy.

Where possible, the induction process is initiated before appointment

to allow each new Board member to contribute meaningfully from

appointment. The structure of the induction supports good

information flows within the Board and its committees, as well as

between senior management and non-executive Directors, providing

a clear understanding of our culture and way of operating.

For illustrations of typical induction modules, see the ’Directors’

induction and ongoing development in 2022’ table below.

Directors undertook routine training during 2022 in subject matters

that included: the risk management framework; financial crime; and

health, safety and well-being. They were provided training by external

counsel on their obligations when handling confidential and sensitive

information. The Directors also participated in ’deep dive’ sessions

into specific areas of the Group’s strategic priorities, risk appetite,

approach to managing certain risks, climate-aligned finance and

market abuse regulations. These training sessions included external

consultants who provided insights into geopolitical matters,

macroeconomics and investor sentiments. Other topics of focus

included: operations and technology strategy; the resolvability

assessment framework; and climate change and sustainability.

Non-executive Directors also discussed individual development areas

with the Group Chairman during performance reviews and in

conversations with the Group Company Secretary and Chief

Governance Officer. The Group Company Secretary and Chief

Governance Officer makes appropriate arrangements for any

additional training needs identified using internal resources, or

otherwise, at HSBC’s expense.

Members of Board committees receive relevant training as

appropriate. Directors may take independent professional advice at

HSBC’s expense.

Board Directors who serve on principal subsidiary boards receive

training that is pertinent to circumstances and context relevant to

those boards. Opportunities exist for the principal subsidiary

committee chairs to share their understanding in specific areas with

the Board Directors as part of the Chairman’s Forum.

Directors’ induction and ongoing development in 2022

Director Induction

Strategy and

business

briefings

Risk and

control

Corporate

governance,

ESG and other

reporting

matters

Board global

mandatory

training

Chair and

subsidiary non-

executive

Director

forums

Geraldine Buckingham

l l l l l l

Rachel Duan

l l l l l

Dame Carolyn Fairbairn

l l l l l

James Forese

l l l l l

Steven Guggenheimer

l l l l l

José Antonio Meade Kuribreña

l l l l l

Eileen Murray

l l l l l

David Nish

l l l l l

Noel Quinn

l l l l l

Ewen Stevenson

l l l l l

Jackson Tai

l l l l l

Mark Tucker

l l l l l

Matter considered

Matter not considered

1 The induction programme was delivered through formal briefings and introductory sessions with Board members, senior management, legal counsel,

auditors, tax advisers and regulators, as appropriate. Topics covered included, but were not limited to: purpose and values; culture and leadership;

governance and stakeholder management; Directors’ legal and regulatory duties; recovery and resolution risk; anti-money laundering and anti-bribery;

technical and business briefings; and strategy.

2 Directors participated in business strategy, market development and business briefings, which are global, regional and/or market-specific. Examples of

specific sessions held in 2022 included: ’Sustainability operating model’, ’Implications from the Russia-Ukraine conflict’ and ’Strategy execution of Asia

wealth’.

3 Directors received risk and control training and briefings. Examples of specific sessions held in 2022 included: ’Interest rate risk of the banking book

strategy’ and ’ICAAP/ILAAP’.

4 All Directors received training on topics such as: ’Resolvability assessment framework’, ’Climate-aligned finance’, ’Data literacy’ and ’Cyber

ransomware’.

5 Global mandatory training, issued to all Directors, mirrored training undertaken by all employees, including senior management. This included:

management of risk under the risk management framework; cybersecurity risk; health, safety and well-being; sustainability; financial crime, including

understanding money laundering, terrorist financing, tax, sanctions, fraud and bribery and corruption risks; our values, including workplace harassment;

and data privacy and the protection of data of our customers and colleagues.

6 These included the Chairman’s Forum, Remuneration Committee Chairs’ Forum and the Non-Executive Director Summits.

Report of the Directors | Corporate governance report

252 HSBC Holdings plc Annual Report and Accounts 2022

Board stakeholder engagement

during 2022

The Board is committed to engaging with key stakeholders, including

colleagues, and welcomed the increased focus on bringing the

employee voice into the boardroom, as envisaged by the revisions

made to the UK Corporate Governance Code in 2018.

The Board had previously decided that, given HSBC’s size, scale and

geographical spread, the ’alternative arrangements’ approach for

workforce engagement under the UK Corporate Governance Code

was the suitable option. The Board reviews this annually, and in light

of the challenges facing the organisation and colleagues from factors

outside of HSBC’s control, including the Covid-19 pandemic, decided

to strengthen its practices through the introduction of a non-executive

Director with designated responsibility for workforce engagement. It

was agreed by the Board’s Nomination & Corporate Governance

Committee in May 2022 to appoint José Meade to the new role of

dedicated workforce engagement non-executive Director. This

approach assists with the employee voice being heard in Board

discussions and helps inform decision making.

The appointment of a designated workforce engagement non-

executive Director does not restrict other Board members from

engaging with the workforce, particularly as it is not possible for one

person to represent the diversity of views across the entirety of the

Group. It remains the responsibility of all Directors to consider

stakeholder views, including employees.

The programme of workforce engagement for 2022 continued to be

delivered through a variety of interaction styles, both in person and

virtually, to accommodate the breadth of experience, geographical

spread and range of seniority of our employees. Such activities

included bespoke sessions with smaller groups, formal presentations

and Q&A opportunities. These engagements were designed to

promote and deliver open dialogue and two-way discussions between

Directors and colleagues, allowing the Board to gain valuable insight

on employee perspectives. This in turn informed Directors’

deliberations and decision making in Board and committee meetings.

To help inform the Board of employee initiatives and sentiment and

allow the Board to plan for future engagement activities, Directors

received regular workforce engagement papers at Board meetings.

The Board’s agenda also regularly included non-executive Director

workforce and other stakeholder engagement updates. These

updates were addressed in the Group Chief Executive’s Board report

and the Group Chief Human Resources Officer's report on employee

views and sentiment, particularly around employee Snapshot surveys.

The Chairman’s Forum meetings also discussed employee feedback

from the Group's subsidiaries and received workforce engagement

updates from each of the principal subsidiary chairs.

Engagement activity between the Board and the wider workforce

included meetings and events between representatives of the eight

employee resource groups and the non-executive Directors who have

been designated to support them. These included:

• a virtual Nurture event with working parents and carers, which

reflected on the HSBC colleague survey and how more relevant

data could be captured and actioned;

• two Pride events with our LGBTQ+ colleagues, during which

participants shared their thoughts, explored what Pride had

achieved, discussed future opportunities and considered how

Directors could advocate and support the work of Pride; and

• an in-person event with employee resource group leaders based in

Hong Kong to discuss what motivates them to be employee

resource group leaders, share achievements and discuss

opportunities to align outcomes across the Group.

For more examples of how the Board has engaged with the

workforce and other stakeholders see ‘Board decision making and

engagement with stakeholders’ on page 20.

Workforce engagement non-executive

Director

“I was pleased when the Board took the decision to create

this role and asked me to assume the position of workforce

engagement non-executive Director. Our colleagues, and the

culture we promote, are key to our success in achieving our

purpose of opening up a world of opportunity.

My role and responsibilities, summarised in the chart below,

are clear, but I appreciate that given the scale of our

organisation, and the newness of this responsibility, it is

critical that I execute this role with focus and intent to

understand the employee voice, and communicate this to the

Board. Notwithstanding the challenges, I am dedicated to do

what I can to meet and speak with a broad spectrum of our

people, across global businesses, regions and functions.

With the easing of Covid-19 restrictions in 2022, and as the

Board resumed travel for meetings, I used these opportunities

to connect with employees on a number of topics. Each

experience has been enlightening and I am encouraged to see

how common themes and reflections are being addressed.

While I cannot represent and hear every employee voice, I will

endeavour to listen to what our colleagues are saying around

the world. With a dedicated plan of action for 2023, I see this

role evolving such that I will be able to add value to – and help

drive more in-depth Board discussions on – topics that affect

our people.

I look forward to reporting in the future on the progress

made.”

Dr José Antonio Meade Kuribreña

Workforce engagement non-executive Director

Lunch with graduates

Mexico City, HSBC Tower

July 2022

HSBC Holdings plc Annual Report and Accounts 2022 253

Corporate governance

Role of the workforce engagement non-executive Director at a glance

Headline responsibilities:

• Engages, understands, represents colleagues globally.

• Receives employee perspectives through formal and informal engagement.

• Represents the employee voice at Board meetings for consideration during decision making.

Holdings Board

Feedback given

and considered

↑

Workforce engagement

non-executive Director

↑

Data Direct engagement

Means of

engagement

Surveys/

Snapshot

Employee

jams

Audits

Chairs of

principal

subsidiaries

Virtual 'field' trips

Geographical

visits

Reach

Global Global Sample Regional Specific interest groups

Direct

engagement

↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑

Likely issues/

topics

Purpose,

culture values

Strategy and

growth

Pay

Performance

management

Working

conditions/

future of work

Diversity and

inclusion

Change and

transformation

Climate/ESG

Activities during 2022

José Meade’s appointment was announced to the workforce jointly

by the Group Chairman and Group Chief Executive on 1 June 2022.

This was positively received by colleagues, several of whom reached

out directly to José with engagement ideas.

Since his appointment, José has undertaken a variety of

engagements in his role including:

Employee views – Mexico, US, India, UK, Hong Kong,

Argentina, Brazil, Chile and Uruguay

In the weeks immediately following his appointment, José had 25

meetings with colleagues in nine countries, in person and virtually,

across most areas of the Group. Topics discussed included: the

need for continued focus on areas such as well-being, and diversity

and inclusion; and enhancement of technology. Following such

discussions, several suggestions were made, including

strengthening employee retention strategies, increasing career

ownership within teams and improving information gathering

analysis and dissemination following exit interviews to relevant

colleagues in the Group.

Graduates – Mexico, US

During the year, José met with Mexican graduates in person and US

graduates virtually to share experiences of HSBC’s graduate

programme.

GBM – UK

José participated in an in-person meeting with a diverse group of

Global Banking colleagues in London to share experiences and

views on people matters, women in finance, diversity and inclusion,

and career development.

Global Service Centre – Mexico

José joined colleagues for a meeting with Global Service Centre

employees to understand their perspective on working life.

Employee resource groups – Global

José participated in the virtual annual employee resource group

summit and heard about the groups' leaders' successes and

challenges. He connected with representatives in the UK, Mexico,

India, Dubai, Hong Kong, Singapore and the US.

Employee resource groups – Dubai

José joined an in-person meeting with the chapter leads of the five

employee resource groups active in MENA (Ability, Balance,

Embrace, Generations and Nurture).

Visit to Global Service Centre, Mexico City, Tecnoparque

October 2022

Engagement highlights

65 1,500+

Sessions attended by executive

and/or non-executive Directors

Number of employees engaged

38 600+

Sessions attended by workforce

engagement non-executive

Director

Number of employees engaged

by workforce engagement non-

executive Director

12+ 73%

Countries of engagement

Highest employee engagement

survey response

Priorities for 2023

• Review opportunities with Human Resources to ensure the right

insight is being gained from employees to support and better

inform the Board when taking decisions.

• Attend six larger-scale employee engagement events aligned to

Board meeting agenda items to foster debate and discussion.

• Plan further international employee engagement opportunities in

addition to the Board travel plans.

Report of the Directors | Corporate governance report

254 HSBC Holdings plc Annual Report and Accounts 2022

Board activities during 2022

During 2022, the Board remained focused on HSBC’s strategic

direction, overseeing performance, and risk. It considered

performance against financial and other strategic objectives, key

business challenges, emerging risks, business development, investor

relations and the Group’s relationships with its stakeholders. The end-

to-end governance framework facilitated discussion on strategy and

performance by each of the global businesses and across the principal

geographical areas, which enabled the Board to support executive

management with its delivery of the Group’s strategy.

The Board’s key areas of focus in 2022 are set out by theme below.

Strategy and business performance

The Group’s strategy remains focused on increasing returns for

investors, creating capacity for future investment and building a

sustainable platform for growth. In 2022, each Board meeting

featured the Group's strategic performance on its agenda, facilitating

opportunities to track its delivery throughout the year, and providing

opportunity to shape how it was developed. The Board reviewed

progress within the Group’s global businesses and regions, as well as

against its four strategic pillars of: focus on our strengths, digitise at

scale, energise for growth and transition to net zero.

The Group’s strategic transformation programme came to a formal

conclusion in December 2022, having delivered against its objectives

to reshape underperforming businesses, simplify the organisation,

reduce costs and reallocate risk-weighted assets. Transformation

remains a key business focus as it is embedded throughout the

organisation and its operations.

Environmental, social and governance

In 2020, the Group announced a climate ambition to align its financed

emissions to net zero by 2050, and to become net zero in its own

operations and supply chain by 2030. The Group aims to achieve this

by supporting clients’ transition to a net zero carbon economy and

focusing on sustainable finance opportunities, as well as by reducing

the carbon emissions in its own operations.

The Board takes overall responsibility for ESG strategy, overseeing

executive management in developing the approach, execution and

associated reporting. The Board considered whether to establish a

Board committee dedicated to ESG issues, but instead decided that

the best way to support the oversight and delivery of the Group’s

climate ambition and ESG strategy was to retain governance at Board

level. The Group Executive Committee enhanced its governance

model of ESG matters with the introduction of a dedicated ESG

Committee and supporting forums. These support senior

management in the delivery of the Group’s ESG strategy, key policies

and material commitments by providing oversight over – and

management and coordination of – ESG commitments and initiatives.

In 2022, the Board oversaw the implementation of ESG strategy

through regular dashboard reports and detailed updates including:

reviews of net zero policies, financed emissions target setting and

climate-aligned financing initiatives.

Financial decisions

The Board and its dedicated committees approved key financial

decisions throughout the year, including the Annual Report and

Accounts 2021, the Interim Report 2022 and the first quarter and the

third quarter Earnings Releases.

At the end of 2021, the Board approved the 2022 financial resourcing

plan. The Board monitored the Group’s performance against the

approved plan, as well as the plans of each of the global businesses.

The Board also approved the renewal of the debt issuance

programme. In December 2022, the Board approved the financial

resourcing plan for 2023.

The Board adopted a dividend policy designed to provide sustainable

cash dividends, while retaining the flexibility to invest and grow the

business in the future, supplemented by additional shareholder

distributions, if appropriate. For the financial year 2022, we achieved a

dividend payout ratio within our 2022 target range of between 40%

and 55% of reported earnings per ordinary share (’EPS’). As

previously communicated, given our current returns trajectory, we are

establishing a dividend payout ratio of 50% of reported earnings per

share for 2023 and 2024, excluding material significant items

(including the planned sale of our retail banking operations in France

and the planned sale of our banking business in Canada).

On 22 February 2022, we announced an interim dividend of $0.18 per

share for the 2021 full-year, and on 1 August 2022 we announced an

interim dividend of $0.09 per share for the 2022 half-year. For further

details of dividend payments, see page 418.

Risk, regulatory and legal

considerations

The Board, advised by the Group Risk Committee, promotes a strong

risk governance culture that shapes the Group’s risk appetite and

supports the maintenance of a strong risk management framework,

giving consideration to the measurement, evaluation, acceptance and

management of risks, including emerging risks.

The Board considered the Group’s approach to risk including its

regulatory obligations. A number of key frameworks, control

documents, core processes and legal responsibilities were also

reviewed and approved as required by the Board and/or its relevant

committees. These included:

• the Group’s risk appetite framework and risk appetite statement;

• the individual liquidity adequacy assessment process;

• the individual capital adequacy assessment process;

• the Group’s obligations under the Modern Slavery Act and

approval of the Modern Slavery and Human Trafficking Statement;

• stress testing and capabilities required to meet the PRA’s

resolvability assessment framework;

• the revised terms of reference for the Board and Board

committees; and

• the Group's revised delegation of authority policy.

The Board also reviewed and monitored the implications of

geopolitical and macroeconomic developments during the year.

Technology

Throughout the year, the Board received regular updates on

technology from the Group Chief Operating Officer, including on the

implementation of the technology strategy and key strategic business

initiatives. As technology is crucial to help deliver the Group’s

strategic objectives, including the strategic pillar ’Digitise at scale’,

strategy papers covered technology issues throughout the year. In

December, the Board discussed a digital technology map, a new tool

that could help simplify, prioritise and drive change in the Group’s

technology estate. For further details, see ’Principal decisions’ on

page22.

The Technology Governance Working Group continued to oversee

and enhance the Group's governance of technology. For further

details of this working group, see page 251.

People and culture

The Board continued to dedicate time in its meetings to discuss

people-related and culture-related topics, to help raise its awareness

of employee and other stakeholder perspectives. The Board is

committed to setting the right cultural tone, with each Board meeting

beginning with a ’culture moment’, which includes observations of

behaviours within the Group aligned to its purpose and values.

Group subsidiary directors’ approaches to workforce engagement

were presented by each of the chairs from the principal subsidiaries

to the Chairman's Forum, where they discussed their respective

board engagement activities with the workforce, as well as what they

learned as part of such engagements and other cultural insights. The

HSBC Holdings plc Annual Report and Accounts 2022 255

Corporate governance

Board also receives insights from the all-employee Snapshot survey,

which measures employee sentiment. A culture insights report,

developed in 2021, provides the Board with key data indicators, such

as behaviours, sentiment, business outcomes and people to allow it

to monitor culture across the Group.

Board engagement with management and the wider workforce

continued to remain a strong area of attention, particularly with the

appointment of a dedicated workforce engagement non-executive

Director. For further details of the work of the workforce engagement

non-executive Director, see page 253.

Governance

The Board continued to oversee the governance, smooth operation

and oversight of the Group and its principal and material subsidiaries.

The Board and senior management supported improvements to

governance initiatives to encourage simplification and promote

effective decision making in the business. Such improvements

included making refinements to Board and committee paper

templates, and reducing unnecessary committee meetings to free

management time and encourage individual accountability and

decision taking.

During the year, Pauline van der Meer Mohr and Irene Lee retired as

independent non-executive Directors, and Ewen Stevenson resigned

as Group Chief Financial Officer. The Board appointed Geraldine

Buckingham as an independent non-executive Director in May 2022,

and Georges Elhedery as Group Chief Financial Officer from 1 January

2023. The Board, supported by the Nomination & Corporate

Governance Committee, reviews the skills and experience of the

Board on an ongoing basis. This ensures that the Board and its

committees comprise the necessary skills, diversity, experience and

competencies to discharge their responsibilities effectively. For

further details of the review and changes to the Board, see the

Nomination & Corporate Governance report on page 259. For further

details of diversity of the Board, see page 247.

The Board monitored its compliance with the UK Corporate

Governance Code, the Hong Kong Corporate Governance Code and

the Companies Act 2006 throughout the year.

Board engagements with

shareholders

In 2022, Board members remained responsive to shareholder

requests to engage, and certain of the Board met with key investors

including Ping An Asset Management Co. Ltd. The Group Chairman

and the Senior Independent Director, often with the Group Company

Secretary and Chief Governance Officer, engaged with a number of

our large institutional investors in 19 meetings. The Group Chief

Executive and the Group Chief Financial Officer, together and

separately, attended over 100 meetings with investors. Key topics

included our financial performance, updates on strategy and market

presence, geopolitical risks and the macroeconomic outlook in key

geographies.

The Group Remuneration Committee Chair also met with key

investors and proxy advisory firms during the fourth quarter of 2022.

These sessions provided useful insight into investor views on key

areas of decision making for the Group Remuneration Committee,

including our approach to the 2022 pay review for executive Directors

and the wider workforce. For further details of the Group

Remuneration Committee report, see page 276.

Board activities in 2022

Main topic

Sub-topic

Meetings at which topics were discussed

Jan Feb Mar Apr May Jun Jul Sep Nov Dec

Strategy

Group strategy

ô ô

l l l l

Regional strategy/global business strategy

l l l l l

l l l l

Environmental, social, governance

l l

Business and

financial

performance

Region/global business

l l

Financial performance

l l

Financial

Results and accounts

l l

ô ô ô ô

ô ô ô

Dividends

l l

ô ô ô ô

ô ô ô

Group financial resource planning

l l

Risk

Risk function

l l

Risk appetite

ô ô

ô ô ô

ô ô

Capital and liquidity adequacy

ô ô

l l

ô ô ô

ô ô

Regulatory

Regulatory and legal matters

l l l l l l l l

Regulatory matters with regulators in attendance

ô ô ô ô ô

ô ô ô ô

External

External insights

ô ô ô

ô ô

Technology

Strategic and operational

l l

l l l l l

People and

culture

Purpose, values and engagement

ô ô ô ô ô

ô ô

Governance

Subsidiary governance framework

ô ô ô ô ô ô ô ô

Policies and terms of reference

ô ô

l l

Board/committee effectiveness

l l

ô ô ô ô

ô ô ô

Appointment and succession

ô ô ô ô

l l

AGM and resolutions

l l

ô ô ô ô ô ô

Matter considered

Matter not considered

1 No Board meetings were held during August and October 2022.

2 Includes resolvability assessment framework, modern slavery and human trafficking, statement of business principles and code of conduct, regional

updates and listing renewals.

3 Meeting attended by members of the Prudential Regulation Authority.

Report of the Directors | Corporate governance report

256 HSBC Holdings plc Annual Report and Accounts 2022

Board and committee effectiveness, performance and

accountability

The Board and its committees are committed to regular, independent

evaluation of their effectiveness at least once every three years. The

Board intends to conduct an independent evaluation in 2023.

For 2022, the Nomination & Corporate Governance Committee

agreed that the evaluation of the Board and its committees would

again be conducted internally. The process included the completion of

a questionnaire, issued by Lintstock, an independent service provider

with no other connection to the Group or any individual Director. The

questions were designed by the Group Company Secretary and Chief

Governance Officer, some based on themes from the 2021 evaluation

findings. A summary of the effectiveness reviews of the Board and

the Board committees can be found on page 258 and in the

respective committee reports from page 259.

To gather qualitative feedback, the Group Company Secretary and

Chief Governance Officer, together with the Deputy Group Secretary,

conducted interviews with each questionnaire respondent, including

all the Board Directors, regular attendees of the relevant meetings

and key advisers. The Group Chairman and committee chairs also

participated in additional discussions following the consolidation of

feedback in respect of the individual committees.

Overall, the work of the Board was rated highly and it was viewed as

operating effectively. In general, there were consistent findings

across the Board and committee reviews. These included:

• a positive view of the effectiveness of the Chairs of the Board and

committees and the participation of its members;

• a greater desire to be even more forward looking;

• a need for continued focus on the quality of meeting materials to

ensure that content remains focused, clear and precise; and

• continued collaboration between the Board committees.

At its January 2023 meeting, the Group Chairman led a discussion

with the Board and considered the findings. The following areas of

focus were discussed and actions agreed: a revised approach to

tracking strategy execution; continued development of the timeline of

sustainability and technology deliverables; simplification and

prioritisation of deliverables and interdependencies; and enhanced

focus on customer stakeholder engagement.

Actions will be monitored and addressed on an ongoing basis. Similar

discussions were led by each of the committee chairs in their

respective January meetings. Progress against these actions will be

included in the Annual Report and Accounts 2023.

During 2022, a review of the Group Chairman’s performance was led

by the Senior Independent Director in consultation with the other

independent non-executive Directors, management and key

stakeholders. Non-executive Directors also undergo regular individual

reviews with the Group Chairman. These reviews confirmed that the

performance of the Group Chairman and each Director was effective

and that each had met their time commitments during the year.

The review of executive Directors’ performance, which helps

determine their pay outcomes each year, is contained in the

Directors’ remuneration report on page 276.

Board and Committee evaluation process

The Board made good progress against all of the action points

identified during the 2021 evaluation. In particular, the Board:

• enhanced its composition with the appointment of Geraldine

Buckingham, which brought significant Asia leadership experience;

• maintained a focus on succession planning, with a view to

strengthening its expertise in banking and improving its

representation from Asia;

• strengthened workforce engagement, with the appointment of

José Antonio Meade Kuribreña as designated non-executive

Director for workforce engagement;

• devoted time to the consideration of key areas of focus, including

digital opportunities and threats, ESG and strategic risk;

• continued to monitor compliance with the subsidiary accountability

framework; and

• enhanced coordination and collaboration between its committees,

with combined meetings of the Group Audit Committee, Group

Risk Committee and Technology Governance Working Group held

during the year.

HSBC Holdings plc Annual Report and Accounts 2022 257

Agree

approach

Complete

questionnaires

Conduct

interviews

Evaluate

findings

Share findings

with

Committee

Chairs

Report

findings to the

Board

Agree action plan for

2023 and disclosures

in the ARA

Corporate governance

Summary of 2022 Board effectiveness findings and recommendations for action:

Findings from the evaluation Recommendations for action

Strategy,

execution and

deliverables

• The Board’s strategic oversight was rated positively

overall, although the consistency of management’s

articulation, tracking and execution of progress against

the Group’s strategy could be strengthened. It was

recommended to increase the use of metrics to show

comparable progress against key deliverables.

• The Board’s approach to the oversight of the Group’s

sustainability strategy was rated positively, although the

monitoring of sustainability-related key targets required

greater clarity.

• The Board’s oversight of technology strategy was

considered strong and it was suggested that the Board

required a more detailed plan of digital deliverables to

enable continuous monitoring and performance tracking.

• The Group Chief Executive should develop a revised set of

metrics related to performance, execution and risk management,

as well as other key value drivers, as appropriate.

• The Group Chief Executive and relevant accountable executives

should develop a timeline of ESG and technology deliverables and

milestones.

Simplification and

prioritisation

• The importance of devoting sufficient time to

challenging management’s progress on simplification

and prioritisation was highlighted. It was suggested that

the Board provide greater oversight of management

prioritisation of key projects and strategic deliverables.

• A Board session should be held annually on organisational

simplification and prioritisation of deliverables and

interdependencies.

Stakeholder

engagement

• Engagement with stakeholders was strong, including

the focus on the employees, in the year. The Board

asked that further enhancements be considered, in

particular customers given the current macroeconomic

headwinds.

• The Board’s stakeholder engagement plan should be reviewed to

ensure that all members of the Board have sufficient opportunity

to engage with, and understand the views, of the Group’s key

stakeholders.

Meeting materials

• It was recognised that meeting materials had improved

considerably over recent years, but it was emphasised

there was opportunity for further improvement around

consistency, comparability and ownership. Stakeholder

considerations could be better incorporated in Board

papers to support decision making.

• Training and/or guidance should be provided to all paper authors in

2023.

Report of the Directors | Corporate governance report | Board committees

258 HSBC Holdings plc Annual Report and Accounts 2022

Nomination & Corporate Governance Committee

"Developing our skills and experience, and diversity

and inclusion ambitions remains a priority and the

Committee will continue to oversee and enhance the

succession pipeline at Board and senior leadership

level.”

Dear Shareholder

I am pleased to present the Nomination & Corporate Governance

Committee report, which provides an overview of the work of the

Committee and its activities during the year.

During 2022, the Committee continued to review the Board’s

composition, succession planning, skills, experience and diversity, to

ensure that the Group operated in line with its ambition of world class

governance.

On behalf of the Board, the Committee oversaw a number of changes

to Board composition, including the retirements of Pauline van der

Meer Mohr and Irene Lee, and the appointment of Geraldine

Buckingham. The Committee also closely monitored executive

succession planning, in particular the transition of the Group Chief

Financial Officer, with Georges Elhedery succeeding Ewen Stevenson

from 1 January 2023. Ewen leaves with our sincere thanks for the

significant contribution that he has made to the Board and to the

broader Group over the past four years.

Jackson Tai will retire from the Board at the conclusion of our 2023

AGM in May and will be succeeded as Chair of the Group Risk

Committee by James Forese. On behalf of the Board, I wish to thank

Jackson for his outstanding dedication and the significant contribution

he has made to the success of the Group, in particular the

improvement in our oversight and governance of risk and conduct.

James' significant banking and risk experience will be invaluable in

the leadership of the Group Risk Committee as the Group continues

to deliver on its transformation and growth strategy, in a safe and

sustainable manner.

On 1 March 2023, Kalpana Morparia will join the Board, strengthening

both its collective Asia business and banking knowledge and

experience, and diversity.

Developing our skills and experience, and diversity and inclusion

ambitions of the Board and senior management, remains a priority

and the Committee will continue to oversee and enhance the

succession pipeline at Board and senior leadership level through

2023. This will build on the revised gender and ethnic representation

targets introduced within the diversity and inclusion policy, and the

work led by management on developing successors for senior

leadership roles and under the Asia Talent programme. Our Board

diversity and inclusion policy, which contains our revised targets, can

be found on hsbc.com.

During 2022, we also took the decision to establish a new Board role

designated with responsibility for ensuring that the employee voice is

strengthened within the Board’s deliberations. The creation of the role

was a natural evolution of the work already undertaken to enhance

stakeholder engagement within Board decision making. In this role,

José Meade will lead our workforce engagement on behalf of the

Board, supported by the Corporate Governance and Secretariat and

Human Resource functions. Further details on the role and initial

areas of focus can be found on page 253.

Membership

Member since

Meeting

attendance in 2022

Mark Tucker (Chair) Oct 2017 7/7

Geraldine Buckingham

May 2022 4/4

Rachel Duan

Sep 2021 6/7

Dame Carolyn Fairbairn Sep 2021 7/7

James Forese May 2020 7/7

Steven Guggenheimer May 2020 7/7

Irene Lee

Apr 2018 3/3

José Antonio Meade

Kuribreña

Apr 2019 7/7

Eileen Murray

Jul 2020 5/7

David Nish Apr 2018 7/7

Jackson Tai Apr 2018 7/7

Pauline van der Meer Mohr

Apr 2016 3/3

1 Geraldine Buckingham was appointed to the Board and joined the

Committee on 1 May 2022.

2 Rachel Duan was unable to attend the July committee meeting due to

a pre-existing engagement. Eileen Murray was unable to attend the

April and September meetings for personal health reasons.

3 Irene Lee and Pauline van der Meer Mohr stepped down from the

Board and the Committee following the conclusion of the AGM on

29April 2022.

The Committee’s role in overseeing these changes is outlined on the

following pages.

As we look ahead to 2023, the Committee will consider the changes

to the UK audit, governance and regulatory regimes, including

updates to the UK Corporate Governance Code, and the steps needed

to ensure the Group continues to operate in line with best practice.

Mark E Tucker

Chair

Nomination & Corporate Governance Committee

21 February 2023

Key responsibilities

The Committee’s key responsibilities include:

• leading the process for identifying and nominating candidates for

appointment to the Board and its committees;

• overseeing succession planning and development for the Group

Executive Committee and other senior executives; and

• overseeing and monitoring the corporate governance framework

of the Group and ensuring that this is consistent with best

practice.

Committee governance

The Group Chief Executive, the Group Chief Human Resources

Officer, and the Group Head of Talent routinely and selectively

attended Committee meetings. The Group Company Secretary and

Chief Governance Officer attends all Committee meetings and

supports the Group Chairman in ensuring that the Committee has

fulfilled its governance responsibilities.

Russell Reynolds Associates, which supported the Committee and

the management team in relation to Board and senior management

succession planning, regularly and selectively attended meetings

during the year. It has no other connection with the Group or

members of the Board.

HSBC Holdings plc Annual Report and Accounts 2022 259

Corporate governance

Board composition and succession

The Committee continued its focus on ensuring that the Board and its

members, both collectively and individually, possess the skills,

knowledge and experience necessary to oversee, challenge and

support management in the achievement of the Group’s strategic and

business objectives.

In addition to the retirements of Irene Lee and Pauline van der Meer

Mohr, the Board welcomed Geraldine Buckingham, who most

recently held the position of Head of Asia-Pacific at BlackRock. She

was appointed to the Board with effect from 1 May 2022.

In October, the Group announced the appointment of Georges

Elhedery as an executive Director and Group Chief Financial Officer

with effect from 1 January 2023. This decision followed a review by

the Committee of the composition of the Group Executive Committee

with a particular focus on long-term succession planning. It was

concluded, based on the recommendation of the Group Chief

Executive, that Georges, who was previously co-Chief Executive

Officer of Global Banking and Markets, should replace Ewen, who

stepped down from the Board at the end of 2022. Georges, who has

a track record of driving growth and managing change and who brings

a strong focus on execution, will help the Group to accelerate delivery

of improved financial performance and shareholder returns.

In advance of taking up the role, Georges spent significant time with

Ewen to ensure an orderly handover of responsibilities. The Board has

put in place a tailored development and support plan for Georges as

he transitions to his new role, which will be overseen by the

Committee.

The Committee expects that non-executive Directors serve two three-

year terms, with any appointments beyond this to be determined on

an annual basis with reference to the needs of the Board and the

performance and contribution of the individual. In view of the

importance of continuity for key roles on the Board, particularly given

the current economic and geopolitical environment, the Committee

agreed that David Nish’s appointment should be extended for a

further year to the 2024 AGM, subject to his re-election by

shareholders. In taking this decision, the Committee considered the

need for an effective transition in relation to the Senior Independent

Director and Chair of the Group Audit Committee roles, both of which

David currently holds. It is the Board’s strong belief that this

extension of David’s appointment, given his performance and

contribution to the Board during 2022, is in the best interests of the

Group and all of its stakeholders.

As referenced in our 2021 report, the Committee agreed to prioritise

in future appointments significant previous executive experience in

banking, as well as with deep business and cultural expertise across

Hong Kong and mainland China, and south-east Asia. A number of

potential candidates meeting the desired skills and experiences were

identified, a shortlist of which were considered and discussed by the

Committee. Following meetings between various members of the

Committee and priority candidates to understand their respective

interests and capacities, the Board accepted the Committee’s

recommendations and approved the appointments of Geraldine

Buckingham with effect from 1 May 2022 and Kalpana Morparia with

effect from 1 March 2023.

Strengthening the Board’s collective experience in these areas

remains a priority, and the Committee will continue to discuss broader

succession planning for key roles on the Board and committees

through 2023, and beyond. In addition, succession planning will have

regard to diversity and inclusion targets and expectations. The

Committee is focused on identifying candidates with the following

skills and experience for future appointments to the Board:

• significant executive experience in banking;

• deep business and cultural expertise across Asia, in particular

Hong Kong and mainland China, and the Middle East, given the

geographical mix of the Group’s business and the importance of

these regions to the strategy and future growth; and

• previous public company leadership experience.

The Committee will continue to monitor the market for potential

candidates for appointment to the Board in both the short and

medium term, to ensure that the Board has a pipeline of credible

successors and continues to be equipped to effectively discharge its

responsibilities.

Board diversity

The Board recognises the importance of gender, social and ethnic

diversity, and the strengths diversity brings to Board effectiveness.

Diversity is taken into account in its broadest sense when considering

succession plans and appointments at both Board and senior

management level, as well as more broadly across the Group.

Over the past 12 months, there has been significant focus on

diversity at Board level, including as a result of the updated guidance

and targets issued by the FTSE Women Leaders Review (formerly the

Hampton-Alexander review) and the UK Listing Authority. The Board

is supportive of the proposals and, in line with the Board diversity and

inclusion policy, remains committed to increasing diversity at Board

and senior levels to ensure we reflect the markets and societies we

serve. This policy, which was updated in 2022 to incorporate new

targets on female representation, details our approach to achieving

our diversity ambitions, and ensures that diversity and inclusion

factors are considered in succession planning. The revised Board

diversity and inclusion policy is available at www.hsbc.com/who-we-

are/leadership-and-governance/board-responsibilities.

At the end of 2022, the Board had 33% female representation, with

four female Board members out of 12. Following our recent

announcement in relation to Kalpana Morparia and Jackson Tai, this

leaves us on track to meet our aspirational target of at least 40%

female representation on the Board by the end of 2023, ahead of the

end of 2025 expectations set by the FTSE Women Leaders Review

for gender representation on Boards.

The FTSE Women Leaders Review also published revised gender

representation targets, specifically the expectation that a woman

holds at least one of the senior Board positions of Chair, Chief

Executive Officer, Senior Independent Director or Chief Financial

Officer by the end of 2025. The Committee considers succession for

these key Board roles on an ongoing basis and will take into account

the need for greater diversity when considering candidates for

appointment to these roles in future. At the end of 2022, all those

holding these senior Board positions at the Group were male. The

Board is committed to achieving this target by the review’s end of

2025 deadline.

The Board continued to exceed the Parker Review target of having at

least one Director of diverse ethnic heritage, with three members of

our Board self-identifying in line with the ethnicity/ethnic definition set

by the Parker Review. Given the global and international nature of our

business, including our strong presence and heritage in Asia, the

Committee considers that the Board should comprise a greater

proportion of diverse ethnic heritage Directors than anticipated by the

Parker Review. The Board’s targets were revised to reflect this

commitment and therefore to maintain or improve the current

representation of directors from a diverse ethnic heritage.

Further details on activities to improve diversity across senior

management and the wider workforce, together with representation

statistics, can be found on page 308.

Diversity of our principal subsidiary boards has also improved as a

result of the Committee’s focus on succession planning and regular

refreshment of subsidiary boards, with gender representation

improving across all seven of our principal subsidiaries. The HSBC

Bank Director Programme, delivered in partnership with IMD

Business School during the first half of 2022, has also helped to

prepare senior talent for roles on our subsidiary boards. A number of

the graduates who participated in the programme have been provided

with opportunities on subsidiary boards, enhancing the skills,

experience and diversity of our subsidiary boards. This programme

will operate regularly with the next cohort scheduled to take place in

2024.

Report of the Directors | Corporate governance report | Board committees

260 HSBC Holdings plc Annual Report and Accounts 2022

Independence

Independence is a critical component of good corporate governance,

and is a principle that is applied consistently at both Holdings and

subsidiary level. The Committee has delegated authority from the

Board in relation to the assessment of the independence of non-

executive Directors. In accordance with the UK and Hong Kong

Corporate Governance Codes, the Committee has reviewed and

confirmed that all non-executive Directors who have submitted

themselves for election and re-election at the AGM are considered to

be independent. This conclusion was reached after consideration of

all relevant circumstances that are likely to impair, or could appear to

impair, independence.

In line with the requirements of the Hong Kong Corporate

Governance Code, the Committee also reviewed and considered the

mechanisms in place to ensure independent views and input are

available to the Board. These mechanisms include:

• having the appropriate Board and Committee structure in place,

including rules on the appointment and tenure of non-executive

Directors;

• facilitating the option of having brokers and external industry

experts in attendance at Board meetings during 2022, as well as

having representatives from the Group’s key regulators attend

Board meetings in relation to specific regulatory items;

• ensuring non-executive Directors are entitled to obtain

independent professional advice relating to their personal

responsibilities as a Director at the Group’s expense;

• having terms of reference for each Committee and the Board

provide authority to engage independent professional advisers;

and

• holding annual Board and Committee effectiveness reviews, with

feedback sought from members on the quality of, and access to,

independent external advice.

Senior executive succession and

development

The outputs from the annual capability review, including updated

succession plans for the Group Executive Committee members, were

considered and approved by the Committee in December 2022.

These reflected continued efforts to support the development and

progression of diverse talent and promote the long-term success of

the Group, with the gender diversity and proportion of Asian heritage

successors improving year on year. This included future internal and

external succession options for the Group Chief Executive, to ensure

that the Committee has a robust and actionable succession plan

when required.

The Committee also continued to receive updates on the

development of our talent programme within the Asia-Pacific region.

Since its launch in 2020, significant progress has been made towards

ensuring that we have a deeper and more diverse leadership bench-

strength. Succession plans are more robust, with greater diversity and

good succession fulfilment outcomes.

Committee evaluation

The annual review of the effectiveness of the Committee was

internally facilitated in 2022. The review concluded that, overall, the

Committee continued to operate effectively and in line with regulatory

requirements. However, a number of areas for enhancement were

identified, including the need for a continued focus on succession

planning for the Group Chief Executive, the Committee Chair, the

Senior Independent Director and future non-executive Directors,

ensuring plans supporting the Board’s objectives in relation to

diversity and stakeholder needs. Other areas of focus included the

continued identification of both internal and external talent, training

requirements and the retention strategy for high performing

individuals. Certain priority areas of focus for the Committee across

2023 were suggested, including the continued monitoring of progress

of governance within material and principal subsidiaries (as defined in

the subsidiary accountability framework), and the need to review the

external advisers supporting the Committee. The outcomes of the

evaluation have been reported to the Board, and the Committee will

track the progress in implementing recommendations during 2023. In

line with the UK Corporate Governance Code, the 2023 Board and

Committee performance review will be externally facilitated.

The Committee has initiated the process for the selection of the

independent board evaluator, with a decision on the evaluator to be

taken within the first half of the year to allow the review to

commence in the second half of 2023. A report on the process,

findings and recommendations will be disclosed in the Annual Report

and Accounts 2023.

The Committee was kept updated on progress on actions agreed

following its 2021 evaluation, which were all completed.

Subsidiary governance

In line with the subsidiary accountability framework introduced in

2021, the Committee continued to oversee the corporate governance

and succession arrangements across the principal and material

subsidiary portfolio. Where appropriate and subject to strong

rationale, the Committee approved exceptions from strict compliance

with the framework, including to reflect local law and regulation, as

well as market practice. The Committee has reinforced its

expectations that subsidiaries take steps to achieve full compliance

with the framework, with any exception requests subject to thorough

review and consideration by the Group Company Secretary and Chief

Governance Officer in advance of consideration by the Committee.

Matters considered during 2022

Jan

Feb

Apr

May

Jul

Sep

Dec

Board composition and succession

Board composition, including succession planning and skills

matrices

l l l l

Approval of diversity and inclusion policy

ô ô ô ô

ô ô

Executive talent and development

Senior executive succession

l l l l l l

Approval of executive succession plans

ô ô ô ô ô ô

Talent programmes

ô ô ô ô

Governance

Board and committee evaluation

ô ô ô

ô ô

Subsidiary governance

ô ô ô

l l l

Subsidiary and executive appointments

l l l

Matter considered

Matter not considered

HSBC Holdings plc Annual Report and Accounts 2022 261

Corporate governance

Group Audit Committee

"The Committee reviewed management's

arrangements for compliance and assurance over

regulatory reporting processes, and progress of

HSBC-specific reviews of regulatory reporting."

Dear Shareholder

I am pleased to introduce the Group Audit Committee (‘GAC’) report

setting out the key matters and issues considered in 2022.

We welcomed Eileen Murray, who rejoined the GAC in 2022, and

Rachel Duan, who was appointed to the Committee in April 2022.

Pauline van der Meer Mohr stepped down from the Board and James

Forese stepped down from the GAC to assume new Board

responsibilities. I would like to thank them both for their support and

insightful contributions to the work of the GAC.

The GAC continued to provide oversight of change and transformation

programmes to enhance the Group’s internal controls over financial

reporting. We challenged management on its forecasts and

confidence in the delivery of externally communicated targets in an

uncertain external environment. The Committee also reviewed

management's arrangements for compliance and assurance over

regulatory reporting processes, and progress of HSBC-specific

reviews of regulatory reporting.

We continued to strengthen our relationships and understanding of

issues at the local level through regular information sharing with the

principal subsidiary audit committee chairs. This was supplemented

with regular meetings with the principal subsidiary audit committee

chairs to discuss key issues, and through their attendance at GAC

meetings. I also joined a number of principal subsidiary audit

committee meetings throughout the Group.

The Group’s whistleblowing arrangements continue to satisfy

regulatory obligations and I regularly met the whistleblowing team to

discuss material whistleblowing cases. Efforts were made in 2022 to

drive continuous operational improvements and to provide deeper

insights to support our purpose, values and conduct approach.

Actions were also taken to make use of best practices across

investigative functions and to enhance the experiences of colleagues

when they report concerns at HSBC.

The Committee oversaw the retendering for statutory audit services

for the 2025 year-end. This process included detailed qualification

activities, thorough evaluation of firms, consideration of evolving UK

legislation and guidelines, and engagement with regulators. The GAC

recommended to the Board that PwC be reappointed for a further

term of 10 years commencing 1January 2025.

The Committee implemented all the actions from the 2022 evaluation

and the 2023 review determined that the GAC continued to operate

effectively.

David Nish

Chair

Group Audit Committee

21 February 2023

Membership

Member since

Meeting

attendance

in 2022

David Nish (Chair) May 2016 13/13

Rachel Duan

Apr 2022 6/8

James Forese

May 2020 5/5

Eileen Murray

Jun 2022 6/8

Jackson Tai Dec 2018 13/13

Pauline van der Meer Mohr

Apr 2020 5/5

1 These included four joint meetings with the Group Risk Committee

(‘GRC’) and the Technology Governance Working Group.

2 Rachel Duan was unable to join two meetings due to prior

commitments made before becoming a GAC member.

3 James Forese stepped down from the GAC on 1 June 2022.

4 Eileen Murray rejoined the GAC on 1 June 2022, and was unable to

attend two meetings due to personal circumstances.

5 Pauline van der Meer Mohr retired from the Board on 29 April 2022.

Key responsibilities

The Committee’s key responsibilities include:

• monitoring and assessing the integrity of the financial statements,

formal announcements and regulatory information in relation to the

Group’s financial performance, as well as significant accounting

judgements;

• reviewing the effectiveness of, and ensuring that management

has appropriate internal controls over, financial reporting;

• reviewing management’s arrangements for compliance with

prudential regulatory financial reporting;

• reviewing and monitoring the relationship with the external auditor

and overseeing its appointment, tenure, rotation, remuneration,

independence and engagement for non-audit services;

• overseeing the Group’s policies, procedures and arrangements for

capturing and responding to whistleblower concerns and ensuring

they are operating effectively; and

• overseeing the work of Global Internal Audit and monitoring and

assessing the effectiveness, performance, resourcing,

independence and standing of the function.

Committee governance

The Committee keeps the Board informed and advises on matters

concerning the Group’s financial reporting requirements to ensure

that the Board has exercised oversight of the work carried out by

management, Global Internal Audit and the external auditor.

Committee meetings usually take place a couple of days before Board

meetings to allow the Committee to report its findings and

recommendations in a timely and orderly manner. The Board also

receives copies of the Committee agendas and minutes of meetings.

The Group Chief Executive, Group Chief Financial Officer, Group Head

of Finance, Global Financial Controller, Group Head of Internal Audit,

Group Chief Risk and Compliance Officer, Group Company Secretary

and Chief Governance Officer and other members of senior

management routinely attended meetings of the GAC. The external

auditor attended all meetings.

The Chair held regular meetings with management, Global Internal

Audit and the external auditor to discuss agenda planning and specific

issues as they arose during the year outside the formal Committee

process. The Committee also regularly met separately with the

internal and external auditors and other senior management to

discuss matters in private.

The Committee Secretary regularly met with the Chair to ensure the

Committee fulfilled its governance responsibilities, and to consider

input from stakeholders when finalising meeting agendas, tracking

progress on actions and Committee priorities.

Report of the Directors | Corporate governance report | Board committees

262 HSBC Holdings plc Annual Report and Accounts 2022

Matters considered during 2022

Jan Feb Apr Jun Jul Sep Oct Dec

Reporting

Financial reporting matters including:

– review of financial statements, ensuring that disclosures are fair, balanced and understandable

– significant accounting judgements

– going concern assumptions and viability statement

– supplementary regulatory information

l l l l l l l l

ESG and climate reporting

l l

ô ô

l l

Regulatory reporting-related matters

l l l l l l l l

Certificates from principal subsidiary audit committees

ô ô

ô ô ô

Control environment

Control enhancement programmes

l l l l l l l l

Group transformation

ô ô ô ô

ô ô

Review of deficiencies and effectiveness of internal financial controls

l l l l l l l l

Internal audit

Reports from Global Internal Audit

l l l

l l

Audit plan updates, independence and effectiveness

ô ô

External audit

Reports from external audit, including external audit plan

l l l l l l l l

Appointment, remuneration, non-audit services and effectiveness

l l l l l l

Audit tender

l l l l

Compliance

Accounting standards and critical accounting policies

l l

Corporate governance codes and listing rules

l l

ô ô ô

Whistleblowing

Whistleblowing arrangements and effectiveness

ô ô ô

Matter considered

Matter not considered

Compliance with regulatory requirements

The Board has confirmed that each member of the Committee is

independent according to the criteria from the US Securities and

Exchange Commission, and the Committee continues to have

competence relevant to the sector in which the Group operates. The

Board has determined that David Nish, Jackson Tai and Eileen Murray

are ‘financial experts’ for the purposes of section 407 of the

Sarbanes-Oxley Act and have recent and relevant financial experience

for the purposes of the UK and Hong Kong Corporate Governance

Codes.

The GAC Chair continued to engage with regulators, including the

UK’s PRA and the Financial Reporting Council. These included

trilateral meetings involving the Group’s external auditor, PwC.

The Committee assessed the adequacy of resources of the

accounting, internal audit, financial reporting and ESG performance

and reporting functions. It also monitored the legal and regulatory

environment relevant to its responsibilities.

How the Committee discharged its

responsibilities

Connectivity with principal subsidiary audit committees

The GAC strengthened its working relationship with the principal

subsidiary audit committees through formal and informal channels.

The GAC Chair regularly met the chairs of the principal subsidiary

audit committees to enable close links and deeper understanding on

judgements around key issues. The GAC Chair attended a number of

the principal subsidiary audit committee meetings and certain chairs

of the principal subsidiary audit committees also joined meetings of

the GAC during the year.

This continuous engagement supported effective information sharing

and targeted collaboration between audit committee chairs and

management to ensure there was appropriate focus on the local

implementation of programmes. Subsidiary audit committee chairs

were also able to directly share local challenges, including regulatory

expectations with Group management and the GAC Chair.

On a half-year basis, principal subsidiary audit committees provided

certifications to the GAC that regarded the preparation of their

financial statements, adherence to Group policies and escalation of

any issues that required the attention of the GAC. These certifications

also included information regarding the governance, review and

assurance activities undertaken by principal subsidiary audit

committees in relation to prudential regulatory reporting.

Internal controls

The Committee devoted significant time in understanding the effect

on financial reporting risk from high-impact programmes aimed at

enhancing and enabling the transformation of the control environment

to support financial, prudential regulatory and other regulatory

reporting. The GAC provided detailed feedback and challenge to

management on a number of aspects, including requesting external

assurance, replanning and mobilisation of programme workstreams,

resourcing and engagement throughout the Group and with

regulators. Common themes from these discussions included the

need to improve understanding and accountability for data capture,

improve data quality from the implementation and embedding of data

policies while ensuring there was a stronger appreciation throughout

the Group of the downstream impact on financial and regulatory

reporting. The oversight and implementation of these programmes

and their component parts will remain a key focus for the Committee

in 2023.

The GAC received regular updates and confirmations that

management had taken, or was taking, the necessary actions to

remediate any failings or weaknesses identified through the operation

of the Group’s framework of internal financial controls. These updates

included the Group’s work on compliance with section 404 of the

Sarbanes-Oxley Act. Based on this work, the GAC recommended that

the Board support its assessment of the internal controls over

financial reporting.

For further details on how the Board reviewed the effectiveness of

key aspects of internal control, see page 306.

Financial reporting

The Committee is responsible for reviewing the Group’s financial

reporting during the year, including the Annual Report and Accounts,

Interim Report, quarterly earnings releases, analyst presentations and,

where material, Pillar 3 disclosures and other items arising from the

review of the Group Disclosure and Controls Committee. As part of

its review, the GAC:

• evaluated management’s application of critical accounting policies

and material areas in which significant accounting judgements

were applied;

HSBC Holdings plc Annual Report and Accounts 2022 263

Corporate governance

• gave particular regard to the analysis and measurement of IFRS 9

expected credit losses (‘ECL’), including the key judgements and

management adjustments made in relation to the forward

economic guidance, underlying economic scenarios and

reasonableness of the weightings;

• focused on compliance with disclosure requirements to ensure

these were consistent, appropriate and acceptable under the

relevant financial and governance reporting requirements;

• provided advice to the Board on the form and basis underlying the

long-term viability statement; and

• gave careful consideration to the key performance metrics related

to strategic priorities and ensured that the performance and

outlook statements were fair, balanced and reflected the risks and

uncertainties appropriately.

In conjunction with the Group Risk Committee (‘GRC’), the GAC

considered the current position of the Group, along with the emerging

and principal risks, and carried out a robust assessment of the

Group’s prospects, before making a recommendation to the Board on

the Group’s long-term viability. The GAC also undertook a detailed

review before recommending to the Board that the Group continues

to adopt the going concern basis in preparing the annual and interim

financial statements. Further details can be found on page 42.

Fair, balanced and understandable

Following review and challenge of the disclosures, the Committee

recommended to the Board that the financial statements, taken as a

whole, were fair, balanced and understandable. The financial

statements provided the shareholders with the necessary information

to assess the Group’s position and performance, business model,

strategy and risks facing the business, including in relation to the

increasingly important ESG considerations.

The Committee reviewed the draft Annual Report and Accounts 2022

and results announcements to enable input and comment. It was

supported by the work of the Group Disclosure and Controls

Committee, which also reviewed and assessed the Annual Report

and Accounts 2022 and investor communications.

This work enabled the GAC to provide positive assurance to the Board

to assist them in making the statement required in compliance with

the UK and Hong Kong Corporate Governance Codes.

Key financial metrics and strategic priorities

The Committee assessed management’s assurance and preparation

over external financial reporting disclosures, in particular the

monitoring and tracking of key financial metrics and strategic

priorities. In the second quarter of 2022, the Committee was involved

at all stages in overseeing and challenging management on the

revised financial targets.

The GAC challenged management on the forecasting, analysis and

additional assurance work undertaken to support the revised financial

targets in light of geopolitical risks, deteriorating outlook, ongoing

impact of the Covid-19 pandemic in certain jurisdictions and a rising

interest rate environment.

Further details can be found in the ‘Principal activities and significant

issues considered during 2022‘ table on page 266.

ESG and climate reporting

The GAC, supported by the executive-level ESG Committee and

Group Disclosure and Controls Committee, provided close oversight

of the disclosure risks in relation to ESG and climate reporting, amid

rising stakeholder expectations.

The GAC tracked and monitored developments from a number of

prominent consultations and considered them when reviewing the

strategy and scope of ESG and climate disclosures in 2022. In

particular, the Committee asked management to provide further

details on the pipeline of mandatory regulatory and externally

committed ESG and climate-related disclosures over the next 12 to 24

months, including the delivery status. This allowed the Committee to

consider management’s development of methodologies, tools and

data solutions holistically to fulfil external disclosure requirements and

commitments.

ESG reporting is fast evolving with few globally consistent reporting

standards and a high reliance on external data. The Committee

focused on internal and external assurance in this area in line with

wider market developments. Management updated the Committee

on the verification and assurance framework to ensure that ESG and

climate disclosures were materially accurate, consistent, fair and

balanced. The GAC discussed the roles and work of the three lines of

defence as part of this framework, discussed the nature and root

cause of issues identified through the increased assurance work, as

well as proposals for further limited third-party assurance to be

performed over specific ESG-related metrics.

Regulatory reporting

The Committee continued to focus heavily on the quality and reliability

of regulatory reporting and oversight of key programmes to

strengthen the end-to-end processes to meet regulatory expectations.

Management provided updates on the status of ongoing HSBC-

specific external reviews, and discussed the issues and themes

identified from the increased assurance work and focus on regulatory

reporting. They also discussed root cause themes, remediation of

known issues and new issues identified through the increased

assurance work and focus on regulatory reporting. The GAC was

instrumental in the initiation of a global programme designed to

deliver consistent control frameworks for our regulatory reporting

globally over the next few years. The Committee challenged

management on remediation plans, to ensure there was a sustainable

reduction in issues and that dependencies with other key

programmes were well understood. The Committee Chair invited

certain principal subsidiary audit committee chairs to GAC meetings

to participate in discussions to ensure alignment and understanding of

key issues and ongoing regulatory engagement.

UK audit reform

In May 2022, the UK government published its response to the

consultation paper, ‘Restoring Trust in Audit and Corporate

Governance’, on strengthening the UK’s audit, corporate reporting

and corporate governance systems. This summarised the responses

received to the consultation and set out the next steps towards

implementation.

One of the key changes proposed is for large public interest entities,

such as HSBC, to develop and publish an audit and assurance policy

every three years, setting out the approach to assurance of

information beyond the financial statements. The government will

also introduce a new statutory resilience statement.

The Committee received updates on the outcome of the consultation

and reviewed management’s proposed actions to support the future

requirement for disclosure of an audit and assurance policy. This

includes the work towards designing an integrated internal assurance

approach across the three lines of defence, with the development

during the year of an integrated assurance framework in support of

the Group’s risk management framework.

While the legislation and expected guidance around the form and

content of an audit and assurance policy is still being drafted, it is

expected that the areas below will be covered by any future

disclosures. Current disclosures exist in respect of certain of these

areas, although these will need to be enhanced and expanded as

guidance develops. The areas highlighted below are in addition to

disclosures on the statutory audit and assurance work required by

regulators.

Report of the Directors | Corporate governance report | Board committees

264 HSBC Holdings plc Annual Report and Accounts 2022

Area Relevant current disclosure

Overview of risk and internal control

framework

Risk review, pages 131 to 238

Assurance over internal controls Risk review, pages 131 to 238,

’Global Internal Audit’, page 266, and

‘Internal controls’ page 306.

Specific information subject to

assurance

Environmental, social and governance

review, page 14

Resilience statement

(currently viability statement)

Long-term viability and going concern

statement, page 42

External auditor engagement ’External auditor’, page 265

Stakeholder engagement on audit

and assurance policy

No existing disclosure.

The Committee continues to focus on ESG and regulatory reporting

as areas for expanded assurance, in line with the risk assessment

framework established in 2021. The specific external assurance over

ESG disclosures is set out in the ESG review section of the Annual

Report and Accounts. The Committee continued to respond to various

regulatory engagement requests and surveys, including the Financial

Reporting Council’s Draft Minimum Standards for Audit Committees.

The Committee will continue to monitor developments as legislation

is drafted to enact the requirements and the associated guidance is

developed.

External auditor

The GAC has the primary responsibility for overseeing the relationship

with the Group’s external auditor, PwC.

PwC completed its eighth audit, providing robust challenge to

management and sound independent advice to the Committee on

specific financial reporting judgements and the control environment.

The senior audit partner is Scott Berryman who has been in the role

since 2019. The Committee reviewed the external auditor’s approach

and strategy for the annual audit and also received regular updates on

the audit, including observations on the control environment. Critical

audit matters discussed with PwC are set out in its report on

page313.

External audit plan

The GAC reviewed the PwC external audit approach, including the

materiality, risk assessment and scope of the audit. PwC highlighted

the changes being made to their approach to enhance the quality and

effectiveness of the audit. Changes for the 2023 audit included more

auditing being performed centrally across legal entities. The

Committee also focused on PwC's increased use of technology

solutions, and received detailed briefings on its approach to data and

analytics.

Effectiveness of external audit process

The GAC assessed the effectiveness of PwC as the Group’s external

auditor, using a questionnaire that focused on the overall audit

process, its effectiveness and the quality of output.

In addition, the GAC Chair, certain principal subsidiary audit chairs and

members of the Group Executive Committee met with the Head of

Audit, PwC UK to discuss findings from the questionnaire and provide

in-depth feedback on the interaction with the PwC audit team.

PwC highlighted the actions being taken in response to the HSBC

effectiveness review, including the development of audit quality

indicators, which would provide a balanced scorecard and transparent

reporting to the GAC. These audit quality indicators focused on the

following areas:

• findings from inspections across the Group and regulators on PwC

as a firm;

• the hours of audit work delivered by senior PwC audit team

members, the extent of specialist and expert involvement, delivery

against agreed timetable and milestones and the use of

technology;

• any new control deficiencies in Sarbanes-Oxley locations,

proportion of management identified deficiencies and delivery of

audit deliverables to agreed timelines; and

• outcomes and scores from annual audit surveys, independent

senior partner reviews and prior period errors.

The GAC will continue to receive regular updates from PwC and

management on the progress of the external audit plan and PwC

performance across the audit quality indicators.

There were no breaches of the policy on hiring employees or former

employees of the external auditor during the year. The external

auditor attended all Committee meetings and the GAC Chair

maintains regular contact with the senior audit partner and his team

throughout the year.

Independence and objectivity

The Committee assessed any potential threats to independence that

were self-identified or reported by PwC. The GAC considered PwC to

be independent and PwC, in accordance with professional ethical

standards and applicable rules and regulations, provided the GAC with

written confirmation of its independence for the duration of 2022.

The Committee confirms it has complied with the provisions of The

Statutory Audit Services for Large Companies Market Investigation

(Mandatory Use of Competitive Tender Processes and Audit

Committee Responsibilities) Order 2014 for the financial statements.

The Committee acknowledges the provisions contained in the 2018

UK Corporate Governance Code in respect of audit tendering. In

conformance with these requirements, the GAC oversaw the

retendering of statutory audit services for the 2025 year-end,

including considering the tendering and shared audit proposals from

the UK government’s consultation. More details on the audit tender

can be found on page 267.

The Committee has recommended to the Board that PwC should be

reappointed as auditor. Resolutions concerning the reappointment of

PwC and its audit fee for 2023 will be proposed to shareholders at the

2023 AGM.

Non-audit services

The Committee is responsible for setting, reviewing and monitoring

the appropriateness of the provision of non-audit services by the

external auditor. It also applies the Group’s policy on the award of

non-audit services to the external auditor. The non-audit services are

carried out in accordance with the external auditor independence

policy to ensure that services do not create a conflict of interest. All

non-audit services are either approved by the GAC, or by Group

Finance when acting within delegated limits and criteria set by the

GAC.

The non-audit services carried out by PwC included 73 engagements

approved during the year where the fees were over $100,000 but less

than $1m. Global Finance, as a delegate of the GAC, considered that

it was in the best interests of the Group to use PwC for these

services because they were:

• audit-related engagements that were largely carried out by

members of the audit engagement team, with the work closely

related to the work performed in the audit;

• engagements covered under other assurance services that require

obtaining appropriate audit evidence to express a conclusion

designed to enhance the degree of confidence of the intended

users other than the responsible party about the subject matter

information; or

• other permitted services to advisory attestation reports on internal

controls of a service organisation primarily prepared for and used

by third-party end users.

Eleven engagements during the year were approved where the fees

exceeded $1m. These were mainly engagements required by the

regulator and incremental fees related to previously approved

engagements, including the provision of services by PwC relating to

the Section 166 Financial Services and Markets Act 2000 Skilled

Person report.

2022

2021

Auditors‘ remuneration

Total fees payable 148.1 129.4

Of which fees for non-audit services 50.5 41.3

HSBC Holdings plc Annual Report and Accounts 2022 265

Corporate governance

Global Internal Audit

The primary role of the Global Internal Audit function is to help the

Board and management protect the assets, reputation and

sustainability of the Group. Global Internal Audit does this by providing

independent and objective assurance on the design and operating

effectiveness of the Group’s governance, risk management and

control framework and processes, prioritising the greatest areas of

risk. The independence of Global Internal Audit from day-to-day line

management responsibility is critical to its ability to deliver objective

audit coverage by maintaining an independent and objective stance.

Global Internal Audit is free from interference by any element in the

organisation, including on matters of audit selection, scope,

procedures, frequency, timing, or internal audit report content. The

Group Head of Internal Audit reports to, and meets frequently with,

the Chair of the GAC. In addition, in 2022, there was more interaction

between Global Internal Audit senior management and the members

of the GAC, aimed at increasing knowledge and awareness of the

audit universe and existing and emerging risks identified by Global

Internal Audit. Global Internal Audit adheres to The Institute of Internal

Auditors’ mandatory guidance.

Consistent with previous years, the 2023 audit planning process

includes assessing the inherent risks and strength of the control

environment across the audit entities representing the Group. Results

of this assessment are combined with a top-down analysis of risk

themes by risk category to ensure that themes identified are

addressed in the annual plan. Audit coverage is achieved using a

combination of business and functional audits of processes and

controls, risk management frameworks and major change initiatives,

as well as regulatory audits, investigations and special reviews. In

addition to the ongoing importance of regulatory-focused work, key

risk theme categories for 2023 audit coverage remain as: strategy,

governance and culture; financial crime, conduct and compliance;

financial resilience; and operational resilience. A quarterly assessment

of key risk themes will form the basis of thematic reporting and plan

updates and will ultimately drive the 2024 planning process.

In 2023, Global Internal Audit will maintain significant focus on the

Group transformation portfolio, increase coverage of treasury risks,

financial forecasting processes and regulatory reporting, and include

coverage of ESG risk, with focus on climate commitments,

operationalisation and reporting. In addition, Global Internal Audit will

continue its programme of culture audits to assess the extent that

behaviours reflect HSBC’s purpose, ambition, values and strategy,

and expand its coverage of franchise audits for locally significant

countries, following the development of the approach in 2022. The

annual audit plan and material plan updates made in response to

changes in the Group’s structure and risk profile are approved by the

GAC.

The results of audit work, together with an assessment of the

Group’s overall governance, risk management and control framework

and processes are reported regularly to the GAC, GRC and local audit

and risk committees, as appropriate. This reporting highlights key

themes identified through audit activity, and the output from

continuous monitoring. This includes business and regulatory

developments and an independent view of emerging and horizon risk,

together with details of audit coverage and any required changes to

the annual audit plan. Based on regular internal audit reporting to the

GAC, private sessions with the Group Head of Internal Audit, the

Global Professional Practices annual assessment and quarterly quality

assurance updates, the GAC is satisfied with the effectiveness of the

Global Internal Audit function and the appropriateness of its

resources.

Executive management is responsible for ensuring that issues raised

by Global Internal Audit are addressed within an appropriate and

agreed timetable. Confirmation to this effect must be provided to

Global Internal Audit, which validates closure on a risk basis.

Global Internal Audit maintains a close working relationship with

HSBC’s external auditor, PwC. The external auditor is kept informed

of Global Internal Audit’s activities and results, and is afforded free

access to all internal audit reports and supporting records.

Principal activities and significant

issues considered during 2022

Collaborative oversight by GAC, GRC and

Technology Governance Working Group

The GAC and GRC worked closely to ensure there were procedures

to manage risk and oversee the internal control framework. The

Chairs are members of both committees and engage on the agendas

of each other’s committees to further enhance connectivity,

coordination and flow of information.

A further development, based on 2022 evaluation findings, was to

have joint meetings of the GAC, GRC and Technology Governance

Working Group. These meetings would ensure there was coordinated

oversight and consistent joint feedback to management on areas of

significant overlap.

Areas of joint focus for the GAC, GRC and the Technology

Governance Working Group during 2022 were:

Finance on the Cloud

Finance on the Cloud is a key multi-year data and reporting

transformation programme using Cloud technology to enable the

transformation of the Global Finance operating model and re-

engineering of core reporting processes.

The committees conducted a deep dive review of Finance on the

Cloud and held multiple meetings throughout 2022 to challenge

management on the programme’s overall objectives, scope and target

end-state. As part of these discussions, the committees considered

organisational realignment and programme leadership, and asked

management to seek external assurance and validation of the Finance

on the Cloud investment case and technology architecture. The

committees also ensured that there was a greater understanding of

the complexities and dependencies between Finance on the Cloud

and other key programmes to ensure that deadlines for financial and

regulatory reporting deliverables were met.

Digital Business Services

The committees held a joint meeting to develop a deeper

understanding of the risk and internal controls issues across key

components of Digital Business Services. The joint meeting

discussed:

• the regulatory purpose of the service company structure, and

management providing an update on initiatives to streamline,

simplify and automate the services;

• actions taken by the Identity and Access Management sub-

function to tackle access risks through automation and a new

toolset;

• monitoring and governance activities carried out by the Global

Operations and Payments teams, and its shift towards an

automated control environment; and

• actions carried out within Global Procurement to enhance the risk

management and control culture, in particular with regard to the

oversight of critical third parties and its upgrade to a Cloud-based

procurement platform.

Embedding data into our culture

The committees reviewed and challenged the Group’s data strategy

and the work required for the Group to embed its data policies, define

the data technology landscape, and build a data-led culture. The

committees also reviewed the Group's approach to harnessing and

using data to better unlock value for our customers.

Whistleblowing and speak-up culture

An important part of HSBC’s values is speaking up when something

does not feel right. HSBC remains committed to ensuring colleagues

have confidence to speak up and acting when they do. A wide variety

of channels are provided for colleagues to raise concerns, including

the Group’s whistleblowing channel, HSBC Confidential (see page 92

for further information). The GAC is responsible for the oversight of

the effectiveness of the Group’s whistleblowing arrangements. The

Report of the Directors | Corporate governance report | Board committees

266 HSBC Holdings plc Annual Report and Accounts 2022

Group Head of Compliance provides periodic reporting to the GAC on

the efficacy of the whistleblowing arrangements, providing an

assessment of controls and detailing the results of internal audit

assessments. The Committee is also briefed on culture and conduct

risks arising from whistleblowing cases and the associated

management actions. The Chair of the GAC acts as the Group’s

whistleblowers’ champion, with responsibility for ensuring and

overseeing the integrity, independence and effectiveness of HSBC’s

policies and procedures on whistleblowing and the protection of

whistleblowers.

The Chair continued to meet regularly throughout 2022 with the

Group Head of Conduct, Policy and Whistleblowing, receiving

briefings on material whistleblowing cases and the ongoing

effectiveness of the whistleblowing arrangements. The Committee

also received reports on actions being taken to further align our

whistleblowing arrangements to actively support our purpose and

values, and conduct approach. During 2023, the Committee will

continue to be briefed on these actions, as well as the ongoing

effectiveness of the HSBC Confidential channel.

Audit tender

Following the conclusion of a formal competitive audit tender

process, the Board has approved the re-appointment of PwC as

external auditor of the statutory audits of HSBC Holdings for 2025 to

2034, at which point we are required to rotate auditors in accordance

with UK requirements. The audit tender process considered both

large and challenger audit firms and was led by the GAC.

Scope

As a UK public interest entity, we are required to tender our audit

every 10 years and rotate our auditor every 20 years. We disclosed in

our Annual Report and Accounts 2021 the intention to commence an

audit tender, given PwC were initially appointed for the audit of the

Annual Report and Accounts 2015.

Pursuant to the tender, interested and qualified parties were invited to

submit proposals for the right to provide statutory audit services to

HSBC Holdings and its subsidiaries for a period of 10 years

commencing from the financial year ending 31 December 2025.

HSBC’s primary objective was to ensure a fair and transparent tender

process and appoint the audit firm that will provide the highest quality

in the most effective and efficient manner. Firms were assessed

against detailed criteria which considered audit quality, capacity and

capability, understanding of HSBC and future audit vision. Input was

sought from principal subsidiaries’ audit committee chairs as part of

the GAC evaluation. Management views were advisory only to the

GAC.

In accordance with best practice corporate governance requirements,

the audit tender process described below was designed and led by

the GAC, with direct involvement of the GAC Chair at every stage.

Pre-qualification

HSBC undertook a series of pre-qualification activities to identify

vendors that satisfy our minimum requirements relating to credibility,

capacity and independence. These activities were overseen by the

GAC. The pre-qualification phase considered both large and challenger

audit firms and explored the possibility of adopting a managed, shared

audit using challenger firms.

During the pre-qualification phase, we were informed by two of the

large audit firms that they were not able to participate in the tender as

they believed they had insufficient capacity to perform a quality audit.

Three shortlisted audit firms were invited to respond to the formal

tender, including PwC and one challenger audit firm.

Process and assessment

The shortlisted firms were invited to submit capability proposals

(including written and data modelling exercises) to demonstrate their

understanding of HSBC, audit quality, capabilities and their future

vision of audit. Group and principal subsidiaries’ audit committee chair

and management meetings took place during October 2022, enabling

both the audit firms and HSBC management to articulate and discuss

critical success factors for the audit. Lead audit partner referrals and

audit quality reports from regulators supplemented these

assessments and contributed to the final evaluation of the audit firms.

The capability proposals were submitted on a fee blind basis, with the

fee proposal submitted directly to the GAC Chair.

The Committee considered the following during the evaluation of

audit firms:

• a tender proposal, a formal document in response to the tender

requirements;

• management meetings between the firms and HSBC (major legal

entity audit committee chairs and senior management);

• data exercises covering audit planning and risk assessment, ECL

modelling, firms’ broader assurance offering and a shared audit

exercise;

• public regulator audit reports for independent assessment on audit

quality;

• external referees to provide a third-party opinion on the audit lead

partner to support the evaluation process; and

• final presentations to the GAC.

As part of the tender process, the GAC Chair also met with Chief

Executive and Head of Standards of the Financial Reporting Council to

explain our audit tender process, understand views on shared audits

and seek input into our evaluation of individual firm’s audit quality

track record.

Evaluation

The key evaluation criteria and their respective weightings used to

assess the successful audit firm were proposed by management and

reviewed by the Group Audit Committee. The criteria were assessed

through formal capability proposals, presentations and certain

supplementary evidence:

• Audit quality (30%) – regulatory evaluation, methodology, risk

assessment, technology.

• Capacity and capability (30%) – footprint, partner quality and

rotation, diversity, independence.

• Future audit vision (20%) – future audit developments, audit

reform and innovation.

• Understanding of HSBC (20%) – knowledge of HSBC, shareholder

concerns and the financial services landscape.

Final decision

The GAC considered various data points from the assessments

outlined above, adopting a scorecard approach to supplement the final

presentations made by the audit firms at the end of the tender

process. The Committee considered the merits of appointing a

challenger audit firm in a managed shared audit capacity, in line with

recent UK government proposals. However, it did not have sufficient

confidence that the desired audit quality outcomes could be assured

in a such a large, complex, integrated and global organisation to

pursue such an arrangement.

The GAC presented two audit firms to the Board for consideration of

awarding the tender, recommending the re-appointment of PwC

given their strong performance against our evaluation criteria and the

benefits of continuity in this period of strategic change and

uncertainty in the external environment.

The Board made a final decision to award the audit tender to PwC on

19 January 2023. PwC will continue to be subject to annual

performance reviews (including annual effectiveness surveys and

analysis of relevant audit regulator findings) in the period up to 2025

to support the annual AGM auditor re-appointment requirement.

HSBC Holdings plc Annual Report and Accounts 2022 267

Corporate governance

Principal activities and significant issues considered during 2022

Areas of focus

Key issues Conclusions and actions

Financial and

regulatory

reporting

Key financial metrics and strategic priorities

The GAC considered the key judgements in

relation to external reporting to track the key

financial metrics and strategic priorities and to

review the forecast performance and outlook.

In exercising its oversight, the Committee assessed management’s assurance and

preparation of external financial reporting disclosures. The Committee reviewed the

draft external reporting disclosures and provided feedback and challenge on the top

sensitive disclosures, including key financial metrics and strategic priorities to ensure

HSBC was consistent and transparent in its messaging.

Environmental, social and governance

(‘ESG’) reporting

The Committee considered management’s

efforts to enhance ESG disclosures and

associated verification and assurance activities.

The GAC reviewed the 2022 ESG disclosure

approach in line with our external

commitments.

In relation to our climate change resolution, particular attention was given to the

disclosure of the financed and facilitated emissions, and thermal coal exposures. The

Committee considered the key limitations and challenges relating to governance,

processes, controls and data underpinning climate reporting. The Committee also

discussed the nature and root cause of issues identified through the increased

assurance work and ongoing enhancements to the governance, processes, controls

and data underpinning climate reporting, which resulted in the deferral of disclosures

on facilitated emissions and thermal coal. The Committee reviewed the ESG

reporting strategy, including the broadening of ESG coverage in the Annual Report

and Accounts and management’s approach on integrated reporting, which will be

further informed by feedback from external stakeholders.

Regulatory reporting assurance programme

The GAC monitored the progress of the

regulatory reporting assurance programme to

enhance the Group’s regulatory reporting,

impact on the control environment and

oversee regulatory reviews and engagement.

The Committee reflected on the continued focus on the quality and reliability of

regulatory reporting by the PRA and other regulators globally. The GAC reviewed

management’s efforts to strengthen and simplify the end-to-end operating model,

including commissioning further independent external reviews of various aspects of

regulatory reporting. The Committee discussed and provided feedback on

management’s engagement plans with the Group’s regulators, including any potential

impacts on some of our regulatory ratios. We continue to keep the PRA and other

relevant regulators informed of our progress.

Significant

accounting

judgements

Expected credit losses

The measurement of expected credit losses

involves significant judgements, particularly

under current economic conditions. Despite a

general recovery in economic conditions in

2022, there remains an elevated degree of

uncertainty over ECL estimation under current

conditions, due to macroeconomic and political

uncertainties.

The measurement of expected credit losses involves significant judgements,

particularly under current economic conditions. There remains an elevated degree of

uncertainty over ECL estimation under current conditions, due to macroeconomic,

and political uncertainties.

The GAC reviewed the economic scenarios for the key countries in which the Group

operates, and challenged management’s judgements as to the weightings assigned

to these scenarios. The GAC also challenged management’s approach to making

management adjustments to account for the uncertainty in outcomes arising from the

Russia-Ukraine war, inflation, supply chain disruption risks, China commercial real

estate and Covid-19, including the rationale for such adjustments, the controls

underpinning the adjustment processes, and under what conditions such

adjustments could be reduced or removed. The GAC also challenged management on

the overall levels of ECL across portfolios, including looking at historical performances

of portfolios and peer group comparisons.

Goodwill, other non-financial assets and

investment in subsidiaries impairment

During the year, management tested for

impairment goodwill, other non-financial assets

and investments in subsidiaries. Key

judgements in this area relate to long-term

growth rates, discount factors and what cash

flows to include for each cash-generating unit

tested, both in terms of compliance with the

accounting standards and reasonableness of

the forecast.

The GAC received reports on management’s approach to goodwill, other non-financial

assets and investments in subsidiaries impairment testing and challenged the

approach and methodologies used, with a key focus on the cash flows included

within the forecasts and the discount rates used. The GAC also challenged

management’s key judgements and considered the reasonableness of the outcomes

as a sense check against the business forecasts and strategic objectives of HSBC.

Associates (Bank of Communications Co.,

Limited)

During the year, management performed the

impairment review of HSBC’s investment in

Bank of Communications Co., Ltd (‘BoCom’).

The impairment reviews are complex and

require significant judgements, such as

projected future cash flows, discount rate, and

regulatory capital assumptions.

The GAC reviewed the judgements in relation to the impairment review of HSBC’s

investment in BoCom, including the sensitivity of the results to estimates and key

assumptions such as projected future cash flows and regulatory capital assumptions.

Additionally, the GAC reviewed the model’s sensitivity to long-term assumptions

including the continued appropriateness of the discount rates. The GAC also

challenged management to review all aspects of its approach to accounting for

BoCom to ensure the approach remains the most appropriate in terms of accounting

judgements including compliance with the relevant accounting requirements.

Investments in subsidiaries

Management has reviewed investments in

subsidiaries for indicators of impairment and

conducted impairment reviews where relevant.

These involve exercising significant judgement

to assess the recoverable amounts of

subsidiaries, by reference to projected future

cash flows, discount rates and regulatory

capital assumptions.

The GAC reviewed the judgements in relation to the impairment review of HSBC

Overseas Holdings (UK) Limited, and the key inputs underpinning the recoverable

amounts of its subsidiaries.

Report of the Directors | Corporate governance report | Board committees

268 HSBC Holdings plc Annual Report and Accounts 2022

Principal activities and significant issues considered during 2022 (continued)

Areas of focus

Key issues Conclusions and actions

Significant

accounting

judgements

Legal proceedings and regulatory matters

Management has used judgement in relation

to the recognition and measurement of

provisions, as well as the existence of

contingent liabilities for legal and regulatory

matters.

The GAC received reports from management on the legal proceedings and regulatory

matters that highlight the accounting judgements for matters where these are required. The

matters requiring significant judgements were highlighted. The GAC has reviewed these

reports and agrees with the conclusions reached by management.

Valuation of defined benefit pension

obligations

The valuation of defined benefit pension

obligations involves highly judgemental inputs

and assumptions, of which the most sensitive

are the discount rate, pension payments and

deferred pensions, inflation rate and changes

in mortality.

The GAC has considered the effect of changes in key assumptions on the HSBC UK

Bank plc section of the HSBC Bank (UK) Pensions Scheme, which is the principal plan

of HSBC Group. The GAC also considered the impact of changes in key assumptions

on other schemes.

Valuation of financial instruments

Due to the ongoing volatile market conditions

in 2022, management continuously refined its

approach to valuing the Group’s investment

portfolio. In addition, as losses were incurred

on the novation of certain derivative portfolios,

management considered whether fair value

adjustments were required under the fair value

framework. Management’s analysis provided

insufficient evidence to support the

introduction of these adjustments in line with

IFRSs.

The GAC considered the key valuation metrics and judgements involved in the

determination of the fair value of financial instruments. The GAC considered the

valuation control framework, valuation metrics, significant year-end judgements and

emerging valuation topics and agrees with the judgements applied by management.

Long-term viability and going concern

statement

The GAC has considered a wide range of

information relating to present and future

projections of profitability, cash flows, capital

requirements and capital resources. These

considerations include stressed scenarios that

reflect the implications of the Russia-Ukraine

war, disrupted supply chains globally and

slower Chinese economic activity, as well as

considering potential impacts from other top

and emerging risks, and the related impact on

profitability, capital and liquidity.

In accordance with the UK and Hong Kong Corporate Governance Codes, the

Directors carried out a robust assessment of the principal risks of the Group and

parent company. The GAC considered the statement to be made by the Directors and

concluded that the Group and parent company will be able to continue in operation

and meet liabilities as they fall due, and that it is appropriate that the long-term

viability statement covers a period of three years.

Tax-related judgements

HSBC has recognised deferred tax assets to

the extent that they are recoverable through

expected future taxable profits. Significant

judgement continues to be exercised in

assessing the probability and sufficiency of

future taxable profits, future reversals of

existing taxable temporary differences and

expected outcomes relating to uncertain tax

treatments.

The GAC considered the recoverability of deferred tax assets, in particular in the US,

France and the UK. The GAC also considered management’s judgements relating to

tax positions in respect of which the appropriate tax treatment is uncertain, open to

interpretation or has been challenged by the tax authority.

Impact of acquisitions and disposals

In 2022, HSBC engaged in a number of

business acquisition and disposal activities,

notably in Canada, France, Singapore and India.

There are a number of accounting impacts that

need to be considered, including the timing of

recognition of assets held-for-sale, gains or

losses, and the measurement of assets and

liabilities on acquisition or disposal.

The GAC considered the impacts of the planned exits of the Canadian and French

retail businesses, management's judgements in relation to classification as held for

sale, and the timing of the accounting recognition of these transactions. The GAC

also considered the financial and accounting impacts of other acquisitions and

disposals.

HSBC Holdings plc Annual Report and Accounts 2022 269

Corporate governance

Principal activities and significant issues considered during 2022 (continued)

Areas of focus

Key issues Conclusions and actions

Group

transformation

Transformation and sustainable control

environment

The GAC will oversee the impact on the risk

and control environment from the Group

transformation programme.

The Committee received regular updates on the Group transformation programme

and the broader change framework, to review the impact on the risk and control

environment, to oversee progress of the transformation programme and the

continued embedding of the broader change framework.

In these updates the Committee monitored the progress of the programme, focused

on the continued implementation of the change framework and the progress in the

management of the entire change portfolio. This oversight helped the Committee to

understand the progress being made in the management of the change portfolio,

through the implementation of the change framework. The committee noted the

progress on simplifying our change inventory, greater rigour on tracking progress

against committed business cases, and strengthening of the lessons learnt process.

Management’s updates were supplemented by further focus and assurance work

from Global Internal Audit where a dedicated team continuously monitored and

reviewed the Group transformation programme. This included carrying out targeted

audit reviews, in addition to audits of significant programmes.

Global Finance transformation

The Committee reviewed the proposals for the

Global Finance organisational design, the

migration to Cloud and the impact on financial

controls.

The Committee has oversight for the adequacy of resources and expertise, as well as

succession planning for the Global Finance function. During 2022, the Committee

dedicated significant time to the review and progress of the multi-year Global Finance

transformation programme, particularly Finance on the Cloud, with the overall

objectives being to improve the control environment and customer outcomes and to

make use of technology to increase overall efficiency.

The Group Chief Financial Officer had private sessions with the Committee to share

his perspectives on the progress of the Global Finance transformation and where

additional focus was required.

Regulatory

change

IFRS 17 ’Insurance Contracts’

The Committee will oversee the transition to

IFRS 17 and consider the wider strategic

implications of the change on the insurance

business.

During 2022 management provided updates to the Committee on preparations for the

implementation of IFRS 17, which is effective from 1 January 2023 with one year of

comparative restatements required. The Committee was updated on the production

of the transition balance sheet and considered the financial impacts (for which a

summary is provided within the Future Accounting Developments section of the

Basis of Preparation on page 335), as well as the generation of comparative income

statement estimated impacts (for which a high level summary based on estimated

1H22 results is provided on page 99). The Committee also received updates with

respect to progress on implementing the supporting operational infrastructure,

internal controls over financial reporting, key judgements considered including

transition approaches selected, as well as plans for disclosure of related non-GAAP

measures and key performance metrics.

The first publication of results on an IFRS 17 basis will be at the 1Q23 Earnings

Release, and the Committee noted that management intends to publish an IFRS 17

Transition statement together with that announcement.

Basel III Reform

The GAC considered the implementation of the

Basel III Reform and the impact on the capital

requirements and RWA assurance. This was

considered in the context of the strategy and

structure of the balance sheet.

The Committee received an update on the progress and impact of the Basel III

programme on the Group. Management discussed the uncertainty over the final

definition of the rules and the actions taken to ensure sufficient flexibility to make

changes and mitigate risks from legislation being finalised at a later date and also on a

staggered basis across each jurisdiction. The discussion highlighted the

dependencies of the Basel III programme with other Group transformation

programmes, in particular the dependency on adoption of the Finance on the Cloud

solution, risk model development and the impact on data delivery and storage.

The Committee noted the completion of the programme restructure, reviewed the

ongoing management of risks, issues and dependencies and challenged

management to prioritise deliverables across each jurisdiction in line with regulatory

timelines, in each case, to ensure that solutions delivered to the minimum required

standards. The Committee noted the overall improved status of the programme and

requested an update post the Office of the Superintendent of Financial Institutions

Canada implementation date of 1 April 2023.

Committee evaluation and effectiveness

The annual review of the effectiveness of the Board committees,

including the GAC, was conducted internally in 2022, led by the Group

Company Secretary and Chief Governance Officer. Overall, the review

concluded that the GAC continued to operate effectively. The Chair’s

management of meetings and leadership of the audit tender process,

in particular, were rated highly. The review also made certain

recommendations for continuous improvement. These included a

need for continued focus on the quality of reporting, oversight of

prioritisation of key programmes, and continued coordination between

the GAC and other Board committees on topics of mutual interest. It

was also suggested that the Committee should dedicate more time to

the oversight of capacity and succession planning in the Finance and

Internal Audit functions. The Committee considered the outcomes of

the evaluation and accepts the findings. The evaluation outcomes

were reported to the Board, and the Committee will track progress

against the recommendations during 2023.

Focus of future activities

In 2023, the Committee will prioritise control remediation and

enhancements, particularly of controls supporting regulatory

reporting. This will include developing a deeper understanding of the

prioritisation and interdependencies in the delivery of key

transformation and regulatory programmes to strengthen the risk and

control environment. It will also monitor domestic and worldwide tax

policy developments and examine the potential impact on accounting

judgements. A key priority will be to further embed ESG and climate-

related disclosures to meet increasing expectations of stakeholders,

in particular the implementation of robust processes and controls to

support these disclosures. Along with other committees of the Board,

the Committee will continue to ensure root cause themes related to

understanding and accountability for data capture, data quality and the

implementation and embedding of data policies are addressed by

management.

Report of the Directors | Corporate governance report | Board committees

270 HSBC Holdings plc Annual Report and Accounts 2022

Group Risk Committee

"The GRC closely monitored heightened geopolitical

and macroeconomic headwinds throughout the year

to anticipate potential impacts to the Group‘s

revenue, capital base and continuing ability to support

customers."

Dear Shareholder

I am pleased to present the Group Risk Committee (‘GRC’) report.

Geopolitical risks and the macroeconomic outlook deteriorated rapidly

at the start of the year due to the Russia-Ukraine war. The GRC

closely monitored heightened geopolitical and macroeconomic

headwinds throughout the year to anticipate potential impacts to the

Group’s revenue, capital base and continuing ability to support its

customers. Measures included monitoring the Group’s preparedness

for an expected recession in key markets from rising inflation and

interest rates. The Committee embraced management’s development

of forward-looking sensitivity analysis to assess the potential impacts

on HSBC’s prudential position, franchise resilience and ability to

support customers.

The GRC worked closely with the Group Chief Risk and Compliance

Officer to strengthen the Group’s risk management framework, and

to promote the development of more dynamic and granular risk

appetite statements to manage HSBC’s risk profile.

Throughout the year, the GRC reviewed and challenged management

on the Group’s regulatory submissions, including the Bank of

England’s requirements for the Resolvability Assessment Framework,

internal capital adequacy assessment process (‘ICAAP’) and internal

liquidity adequacy assessment process (‘ILAAP’). The GRC had

primary non-executive responsibility for reviewing the outcomes of

regulatory stress tests, including the Bank of England’s climate

biennial exploratory scenario, and the 2022 annual cyclical scenario

exercise.

The GRC carefully considered the Group’s regulatory remediation and

change programmes, and helped direct management to better

prioritise and understand where there are interdependencies. In

particular, the GRC reviewed and challenged the Group’s data

management plans and interest rate risk in the banking book strategy.

The GRC also provided oversight and support to risk transformation

activities to develop stronger risk management capabilities and

outcomes across the Group.

The GRC continued to review its committee composition, skills and

experience. In June, we welcomed Geraldine Buckingham and James

Forese as new members, and we expressed sincere gratitude to José

Antonio Meade Kuribreña and Eileen Murray, who stepped down to

assume new Board governance responsibilities.

Jackson Tai

Chair

Group Risk Committee

21 February 2023

Membership

Member since

Meeting attendance

in 2022

Jackson Tai (Chair) Sep 2016 18/18

Geraldine Buckingham

June 2022 11/11

Dame Carolyn Fairbairn

Sep 2021 17/18

James Forese

June 2022 12/13

Steven Guggenheimer

May 2020 16/18

José Antonio Meade Kuribreña

May 2019

10/10

Eileen Murray

Jul 2020 7/9

David Nish

Feb 2020 16/18

1 These included seven scheduled meetings, five ad hoc meetings, four

joint meetings with the Group Audit Committee and the Technology

Governance Working Group, and two joint meetings with the Group

Remuneration Committee.

2 Geraldine Buckingham joined the GRC on 1 June 2022.

3 Dame Carolyn Fairbairn was unable to attend one meeting due to a

prior commitment.

4 James Forese joined the GRC on 1 June 2022. He was unable to

attend one meeting due to a prior commitment.

5 Steven Guggenheimer was unable to attend two meetings due to

personal circumstances.

6 José Antonio Meade Kuribreña stepped down from the GRC on 1 June

2022.

7 Eileen Murray stepped down from the GRC on 1 June 2022. She was

unable to attend two meetings due to personal circumstances.

8 David Nish was unable to attend two meetings due to a prior

commitment.

Key responsibilities

The GRC has overall non-executive responsibility for the oversight of

risk-related matters and the risks impacting the Group. The GRC’s key

responsibilities include:

• overseeing and advising the Board on all risk-related matters,

including financial and non-financial risks;

• advising the Board on risk appetite-related matters, and key

regulatory submissions;

• reviewing the effectiveness of the Group’s risk management

framework and internal controls systems (other than internal

financial controls overseen by the GAC);

• reviewing and challenging the Group’s stress testing exercises;

and

• overseeing the Group’s approach to conduct, fairness and

preventing financial crime.

Committee governance

The Group Chief Risk and Compliance Officer, Group Chief Financial

Officer, Group Chief Operating Officer, Group Company Secretary and

Chief Governance Officer, Group Chief Human Resources Officer,

Group Chief Legal Officer, Group Head of Internal Audit, Group Head

of Finance and Group Head of Risk Strategy and Macroeconomic Risk

are standing attendees at GRC meetings. The Chair and members of

the GRC also hold private meetings with the Group Chief Risk and

Compliance Officer, the Group Head of Internal Audit and external

auditor, PwC, following scheduled GRC meetings.

The participation of our senior business leaders, including the Group

Chief Executive who attended six scheduled GRC meetings in 2022,

reaffirmed the ownership and accountability of risks in the first line of

defence.

The Chair meets regularly with the Group Chief Risk and Compliance

Officer to discuss priorities and track progress on key actions. The

Chair also has regular meetings with members of senior management

to discuss specific risk matters that arise outside formal meetings.

The Chair also meets regularly with the GRC Secretary to ensure the

GRC addresses its governance responsibilities. A summary of

coverage is set out in the ’Matters considered during 2022’ table on

page 272.

HSBC Holdings plc Annual Report and Accounts 2022 271

Corporate governance

Matters considered during 2022

Jan Feb Mar Apr May Jun Jul Sep Oct Dec

Holistic enterprise risk monitoring including

Group risk profile

l l l l l l l l

Risk framework and/or policies

l l

ô ô ô ô

ô ô ô

Treasury risk

l l l l l l l l l

Wholesale/retail credit risk

l l

Financial reporting risk

ô ô ô

ô ô ô ô

Resilience risk (including IT and operational risk)

ô ô

l l l l l l

Financial crime risk

l l l

l l

ô ô ô

People and conduct risk

ô ô

Regulatory compliance risk

l l

l l l l

Legal risk

ô ô

l l

Model risk

ô ô ô ô ô ô ô

ô ô

ESG risk

ô ô ô ô ô ô

l l l l

Matter considered

Matter not considered

1 The GRC receives updates on all risk types through the Group risk profile, which is presented to the majority of meetings. The Committee also met

with the Group Chief Risk and Compliance Officer and Risk and Compliance Executive Committee members in November 2022 to review the GRC

agenda, particularly matters relating to risk transformation, financial crime and conduct.

How the Committee discharged its

responsibilities

Activities outside formal meetings

The GRC held a number of meetings outside its regular schedule to

facilitate deeper and more effective oversight of the risks impacting

the Group. In particular, Directors’ education meetings and GRC

Chair’s preview meetings strengthened the understanding of more

technical topics and promoted constructive challenge. Areas covered

included risk transformation, interest rate risk in the banking book,

stress testing, ICAAP and ILAAP preparations, as well as recovery and

resolution planning. Further details on these sessions are included in

the ’Principal activities and significant issues considered during 2022’

table starting on page 273.

Connectivity with principal subsidiary risk committees

During 2022, the GRC continued to actively engage with principal

subsidiary risk committees through the scheduled participation of

principal subsidiary risk committee chairs at GRC meetings, and

through a connectivity meeting with the principal subsidiary risk

committee chairs. This participation and connectivity promoted the

sharing of information and best practices between the GRC and

principal subsidiary risk committees.

The GRC also received reports on the key risks facing principal

subsidiaries at its regular meetings and continued to review escalated

reports and certifications from the principal subsidiary risk

committees. The certifications confirmed that the principal subsidiary

risk committees had challenged management on the quality of the

information provided, reviewed the actions proposed by management

to address any emerging issues and that risk management and

internal control systems had been operating effectively.

These interactions furthered the GRC’s understanding of the risk

profile of the principal subsidiaries, leading to more comprehensive

review and challenge by the GRC.

Engagement with the Risk and Compliance Executive

Committee

During 2022, the GRC met with the Risk and Compliance Executive

Committee to promote information sharing and encourage active

engagement with executive management.

During the engagement meeting, the GRC developed a better

understanding of the efforts to strengthen our capabilities across the

Group Risk and Compliance function. There were also in-depth

discussions on the efforts to embed the right risk culture into our

global operations to support our transformation activities. The

engagement also promoted a healthy working relationship between

GRC members and executive management.

Collaborative oversight by the GRC, GAC and Technology

Governance Working Group

The GRC worked closely with the GAC and the Technology

Governance Working Group to address any areas of significant

overlap, and to oversee risk more comprehensively through inter-

committee communications and joint meetings.

The GRC, GAC and the Technology Governance Working Group

convened on four occasions to consider the Group's data strategy and

ambitions, the Finance on the Cloud transformation programme, and

internal control issues across key components of Digital Business

Services.

Further details on each of these sessions can be found under the

’Collaborative oversight by the GAC, GRC and Technology

Governance Working Group’ section of the GAC report on page 266.

The committees worked closely to ensure appropriate alignment in

the review, discussion, challenge and conclusions on topics including

risk and control issues relating to Digital Business Services, and the

transition of core capabilities to the Cloud. This ensured that the

committees benefited from each other’s expertise and challenge. The

GRC Chair also included the GAC Chair for pre-meetings on technical

matters such as interest rate risk in the banking book and stress

testing.

Coordination between the GRC, GAC and the Technology Governance

Working Group is supported by cross-membership. The GRC and GAC

Chairs are members of both committees in order to strengthen

connectivity and the flow of information between the committees.

The GRC Chair is also a member of the Technology Governance

Working Group, and each of the co-Chairs of the Technology

Governance Working Group are members of the GRC and GAC,

respectively.

Report of the Directors | Corporate governance report | Board committees

272 HSBC Holdings plc Annual Report and Accounts 2022

Principal activities and significant issues considered during 2022

Risk areas Key issues Conclusions and actions

Holistic

enterprise risk

monitoring,

including

Group risk

profile

Geopolitical and macroeconomic risks continue

to present significant challenges to revenue

growth, operational resilience, and our

commitment to serve customers and local

markets.

The GRC closely monitored global geopolitical and macroeconomic risks that could

impact the Group’s strategy, business performance or operations. These risks

were exacerbated by the Russia-Ukraine conflict and by related regulatory and

reputational risks impacting our operations globally.

The GRC continued to track top and emerging risks, our risk appetite and other

management information metrics, as well as other early warning measures to

understand sensitivities and the likelihood of the potential impact to our

operations, customers and stakeholders. The GRC encouraged management to

examine and maintain a timely and up-to-date book of strategic management

actions.

Risk

framework/

policies

The Group risk appetite statement defines the

Group’s risk appetite and tolerance thresholds

and forms the basis of the first and second lines

of defence’s management of risks, the Group’s

capacity and capabilities to support customers,

and the achievement of strategic goals.

The GRC maintained oversight of the Group’s risk management framework and

changes to the Group’s risk appetite statements, which provided the basis for the

Committee’s interactive review of financial and non-financial risk management

information at each scheduled GRC meeting. The GRC continued to promote the

development of more dynamic and granular risk appetite statements that were

forward looking and risk-responsive. The GRC provided oversight for the linkage

between risk appetite statements with the Group’s corporate strategy, stress

testing, financial resource plan, as well as the Group’s move towards stronger,

sustainably higher returns for shareholders. The GRC recommended changes to

the Group’s risk appetite statement, including in the areas of interest rate risk in

the banking book, insurance risk, climate risk, resilience risk, financial crime risk,

regulatory compliance and liquidity risk.

Treasury risk,

including

stress testing

and recovery

and resolution

The Group takes active steps to safeguard its

capital and liquidity positions.

It also performs internal and regulatory stress

tests to measure its resilience and performance

against stress, and to consider strategic

management actions that could be applied

against anticipated stress events and headwinds.

The Group is also required to show how its

resolution strategy could be carried out in an

orderly way, and identify any risks to successful

resolution.

The GRC reviewed the Group’s ongoing treasury, capital and liquidity risk

management activities, including early warning indicators, scenario stress testing,

interest rate risk in the banking book (’IRRBB’) strategy and remediation activity,

capital and liquidity reporting, and capital and liquidity adequacy.

The GRC conducted its annual review, challenge and recommendation of the

Group’s ICAAP and ILAAP to the Board for approval. GRC members previewed the

ICAAP and ILAAP submissions in depth, with input from principal subsidiary risk

committee chairs as appropriate. The GRC evaluated the Group’s IRRBB strategy

and progress on the multi-year liquidity improvement programme. The GRC will

continue to monitor the Group’s IRRBB strategy closely through regular updates in

2023. In relation to stress testing exercises, the GRC reviewed the Bank of

England’s 2022 annual cyclical scenarios, and following a detailed review of

principal subsidiary and global businesses inputs, approved the results of the 2022

annual cyclical scenario exercise in December 2022. The GRC also reviewed the

implications of the results of the severely adverse scenario stress test from the

Federal Reserve’s Comprehensive Capital Analysis and Review in relation to HSBC

North America Holdings, and considered actions being progressed by management

in response.

The GRC continued its oversight of the Group’s progress in developing its

capabilities against the Bank of England’s requirements for recovery and

resolvability. In 2022, the GRC reviewed and challenged the Group recovery plan,

including with an assessment of the financial resources and recovery capacity

needed to stabilise the Group. The GRC considered views of all lines of defence to

determine credibility and ability to execute the plan. In advance of the review by

the GRC, the GRC and GAC Chairs met with management to consider the principal

subsidiary risk committee components.

The GRC was heavily involved in the governance of the resolvability assessment

framework (‘RAF’). This included oversight of the addendum to the Group’s RAF

self-assessment that set out HSBC’s progress since submission of the original

self-assessment in October 2021. The GRC also reviewed the RAF public

disclosure prior to its submission, and considered remedial actions to address the

feedback provided by the Bank of England.

In addition, the GRC assessed the adequacy of the recovery and resolution

planning programme that is expected to deliver improvements, in line with

management expectation and the PRA’s feedback.

Wholesale/

retail credit risk

HSBC faces risk from the possibility of losses

resulting from the failure of a counterparty to

meet its agreed obligations to pay the Group.

The GRC reviewed updates on the strategy and approach to managing credit risk

and credit risk capabilities. The GRC received quarterly updates on the Group’s

expected credit losses and provisions, loan impairment charges and the credit risk

arising from the wholesale portfolio and mortgage books. The GRC also reviewed

the potential impact of a likely recession in our key markets due to rising inflation

and interest rates to assess management’s readiness and approach to drive

stronger credit risk management practices. The GRC continued its emphasis on

building even stronger credit capabilities for specialty sectors, the development of

stronger portfolio management capabilities and further improving the Group’s

credit risk culture.

HSBC Holdings plc Annual Report and Accounts 2022 273

Corporate governance

Principal activities and significant issues considered during 2022 (continued)

Risk areas Key issues Conclusions and actions

Financial

reporting risk

HSBC is exposed to the risk where controls

supporting the reporting of its financial

statements are not effective, resulting in material

error or misstatement.

The GRC receives regular reports on entity level control assessments to enable the

oversight of the effectiveness of such controls in support of the Group's financial

reporting. The GRC also receives notable audit reports that provide an assessment

of control effectiveness, where applicable. While the GAC assumes primary

responsibility for the oversight of financial reporting capabilities, the GAC

collaborated with the GRC and the Technology Governance Working Group to

assess the progress in developing these capabilities. Further details on the joint

meeting are included in the ’Collaborative oversight by the GAC, GRC and

Technology Governance Working Group’ section on page 272.

Resilience risk

(technology

and operational

risk)

Resilience risk is where we may be unable to

provide our customers with critical business

services due to significant disruption.

Technology risk is where there may be

unmanaged disruption to any IT system within

HSBC, as a result of malicious acts, accidental

actions or poor IT practice or IT system failure.

The operational resilience programme defines

the Group’s policies and practices to strengthen

its ability and readiness to serve customers in the

event of unforeseen disruptions in key markets.

The GRC continued its oversight of the Group’s implementation of operational

resilience capabilities in line with PRA and FCA policies. The GRC reviewed and

challenged the operational resilience self-assessment against regulatory

expectations, and worked with management to ensure that ownership and the

delivery of resilience outcomes were embedded within the business and with

function leaders. The GRC advocated for the early adoption of operational

resilience requirements across key markets and businesses. The GRC will oversee

the progress in extending the programme of operational resilience globally

throughout 2023.

The GRC regularly reviewed reports on the Group’s technology risk profile, as well

as reports on cybersecurity risks. The GRC also maintained a strong focus on

understanding the Group’s data risk landscape, its data strategy and data

management programme.

Financial crime

risk

The Group is committed to closely monitoring

and managing the risk that HSBC’s products and

services will be exploited for criminal activity,

including fraud, bribery and corruption, tax

evasion, sanctions and export control violations,

money laundering, terrorist financing and

proliferation financing.

The GRC continued to review the Group’s approach to managing its financial crime

risk across geographies and businesses. This included reviewing the Group’s

progress in enhancing its transaction monitoring framework, as well as monitoring

the fraud landscape and the strategies for managing such risk.

In light of the Russia-Ukraine war, the GRC also maintained oversight of the ever-

changing and increasingly complex international sanctions landscape in which the

Group and its customers operate, as well as the Group’s approach to managing its

compliance with multiple and differing sanctions regimes globally.

People and

conduct risk

The Group promotes a culture that is effective in

managing risk and leads to fair conduct

outcomes. It seeks to actively manage the risk of

not having the right people with the right skills

doing the right thing, including risks associated

with employment practices and relations.

The GRC monitored people risk and employee conduct, with support from the

Group Chief Human Resources Officer and Group Chief Risk and Compliance

Officer. The GRC considered people risk issues with a focus on capacity,

capability, culture and conduct. It also considered remuneration risks, and

strategies to retain talent and acquire new capabilities and skills in key areas.

The GRC also placed strong emphasis on policies and practices relating to conduct

and fairness to customers, especially on vulnerable customers given heightened

macroeconomic pressures and stress on customers across markets.

The GRC and Group Remuneration Committee met jointly in September and

December, and reviewed the Group’s risk and reward alignment framework to

promote sound and effective risk management in meeting PRA and FCA

remuneration rules and expectations.

Regulatory

compliance

risk

The Group operates in multiple jurisdictions, and

is exposed to risks associated with inappropriate

market conduct or breaching related financial

services regulatory standards or expectations.

The GRC receives feedback from regulators, and monitors the progress of any

regulatory remediation activities, with the support from the Group Chief Risk and

Compliance Officer as well as principal subsidiary risk committee chairs. During

the year, the GRC had oversight over reports providing feedback from regulators,

including a summary of regulatory deliverables to ensure HSBC remains in line

with regulatory standards and expectations.

Legal risk

HSBC is exposed to the risk of financial loss,

legal or regulatory action resulting from

contractual risk, dispute management risk,

breach of competition law or intellectual property

risk.

The GRC oversees and receives regular updates on key legal developments and

material legal issues from the Group Chief Legal Officer. The updates also cover

material litigation and regulatory enforcement matters and an overview of the legal

risk profile of HSBC.

Model risk

HSBC faces risk from the inappropriate or

incorrect business decisions arising from the use

of models that have been inadequately designed,

implemented or used, or from models that do not

perform in line with expectations and predictions.

The GRC continued to oversee the Group’s progress in managing model risk

through the Group Chief Risk and Compliance Officer’s Group risk profile report.

The GRC oversaw the progress in achieving our model risk vision and the

strengthening of our model risk management capabilities. In particular, the GRC

reviewed model risk deliverables against external review findings, improvements

made to enhance first line of defence engagement in the model lifecycle, progress

made to transform the Model Risk Management function and the implementation

of new global model risk policy and standards.

Report of the Directors | Corporate governance report | Board committees

274 HSBC Holdings plc Annual Report and Accounts 2022

Principal activities and significant issues considered during 2022 (continued)

Risk areas Key issues Conclusions and actions

ESG risk

Successful delivery of our climate ambition will

be determined by our ability to measure and

manage all components of environmental, social

and governance (’ESG’) risk, including climate

risk.

The GRC remained focused on ESG risk, including climate risk, and has reviewed

quarterly reports on climate risk management, while maintaining oversight of

delivery plans to ensure that the Group develops robust climate risk management

capabilities. The GRC also has oversight over ESG-related initiatives and reviews

these to assess the risk profile.

The GRC approved the Group’s climate biennial exploratory scenario stress test

submission to the PRA in March 2022. In preparation, the GRC reviewed the

scenario and considered planned engagement with clients, strategic management

actions; the challenges in relation to data, modelling and infrastructure support;

and the impact of climate change on our physical risks including through our

residential and corporate real estate mortgage books.

Committee evaluation

During 2022, the GRC implemented the recommendations of the

external committee evaluation conducted by Lintstock in consultation

with the Group Company Secretary and Chief Compliance Officer in

December 2021. This included strengthening the focus of meeting

agendas, and continuing the GRC’s engagement with the Risk and

Compliance Executive Committee and principal subsidiary risk

committee chairs.

Continuing the commitment to regular evaluation, the Group

Company Secretary and Chief Governance Officer performed an

annual review of the effectiveness of the GRC in December 2022.

The evaluation concluded that the GRC continued to operate

effectively and in line with regulatory requirements, and identified

enhancements. The outcomes of the evaluation have been reported

to the Board, and the GRC will track the progress in implementing

recommendations during 2023.

Focus of future activities

The GRC’s focus for 2023 will include the following activities. It will:

• oversee risk transformation activities to develop even stronger risk

management capabilities;

• oversee the continued enhancement of the Group's risk appetite

and risk management framework, especially in light of continued

geopolitical and macroeconomic headwinds;

• continue to oversee treasury risk to strengthen our capital and

liquidity management capabilities, including proactive management

of interest rate risk in the banking book;

• continue to review and challenge the consistency of our risk

appetite statements, our financial resource plan, and the outcomes

from our stress testing exercise;

• monitor our ESG progress, including the delivery against the

climate commitments and the development of appropriate data

and model management tools and capabilities;

• continue the oversight of recovery and resolution planning

activities to assess our resolvability capabilities if such situation

arises;

• continue the oversight of the delivery of technology-related

programmes including the adoption of Cloud platforms, and

enhancement of the Group’s IT systems/platform;

• continue to oversee financial crime risk and the strengthening of

the financial crime control framework, including proactive

management by the business; and

• assess our strategic opportunities and risks including exposures to

digital currencies or assets and use of timely application of

technology such as machine learning or artificial intelligence.

HSBC Holdings plc Annual Report and Accounts 2022 275

Corporate governance

Directors’ remuneration report

Contents

276 Committee Chair’s statement

279 Executive remuneration at a glance

282 Annual report on Directors’ remuneration

298 Additional regulatory remuneration disclosures

All disclosures in the Directors’ remuneration report are unaudited

unless otherwise stated. Disclosures marked as audited should be

considered audited inthe context of financial statements taken as a

whole.

"This year we have refreshed our reward strategy to

inspire a dynamic culture as we focus on energising

for growth and delivering sustainable value to our

shareholders, customers and colleagues."

Dear Shareholder

I am pleased to present our 2022 Directors’ remuneration report on

behalf of the members of the Group Remuneration Committee, and

my first as Chair of the Committee. I would like to thank our previous

Chair, Pauline van der Meer Mohr, for her excellent stewardship of

the Committee.

I also thank you for your support of our remuneration resolutions at

the 2022 Annual General Meeting (‘AGM’). Our current policy and its

implementation received 96% of votes in favour.

In addition to our usual agenda, the Committee has been focused on

aligning performance measures and remuneration more closely with

our strategy. We have been engaging with our major shareholders

and other investor groups, who have shared valuable feedback.

We have refreshed our wider reward strategy and proposition for the

workforce in response to the new or elevated challenges we are

facing as we move beyond the Covid-19 pandemic, including the cost

of living pressures many of our colleagues are experiencing. The

commitments we make to colleagues are critical to support us in

energising for growth and delivering sustainable performance.

Performance in 2022

Financial performance

Financial performance in 2022 was supported by a rise in global

interest rates, which materially improved our net interest income, and

we maintained our strong focus on cost discipline, despite inflationary

pressures and continued investment in technology. While our revenue

outlook remains positive, there are continued risks around inflation

and increasing macroeconomic uncertainty in many of the markets in

which we operate.

Adjusted profit before tax increased by $3.4bn to $24.0bn, as a rise in

adjusted revenue of 18% to $55.3bn was partly offset by an adjusted

expected credit losses charge of $3.6bn, compared with a net release

in 2021 of $0.8bn, and growth in adjusted operating expenses of 1%.

Our return on average tangible equity (‘RoTE‘) was 9.9%, an increase

of 1.6% on 2021, and we have now exceeded our ambition of $120bn

of risk-weighted asset (‘RWA‘) gross saves since the start of our

programme in 2020.

Membership

Member since

Meeting

attendance in 2022

Dame Carolyn Fairbairn (Chair) Sept 2021 6/6

Geraldine Buckingham May 2022 4/4

Rachel Duan Sept 2021 6/6

James Forese May 2020 6/6

José Antonio Meade Kuribreña May 2021 6/6

Pauline van der Meer Mohr

Jan 2016 2/2

1 Pauline van der Meer Mohr stepped down from the Committee and

Board at the conclusion of the AGM on 29 April 2022.

In 2022, we approved dividends of $0.32 per share, equivalent to a

payout ratio of 44% of reported earnings per share. We are

establishing a dividend payout ratio of 50% of reported earnings per

share for 2023 and 2024, excluding material significant items, and we

intend to revert to paying quarterly dividends from the first quarter of

2023.

Non-financial performance

In our employee Snapshot survey, our Employee engagement and

Inclusion indices both increased by 1% year on year to 73% and 76%,

respectively, which are both above the financial services benchmarks.

The percentage of Black heritage colleagues in senior leadership

globally increased by 0.3% to 2.5%, meeting our stretch goal. The

percentage of women in senior leadership also increased by 1.6% to

33.3% since 2021, and we are on track to meet our commitment of

35% by 2025.

For customer satisfaction, net promoter score (’NPS’) performance

has been positive relative to our competitors in some areas of our

business, with work to do in others. In WPB, our NPS increased in the

UK and Hong Kong, and we were ranked in first place in Hong Kong.

In CMB, our NPS increased in Hong Kong but declined in the UK, and

we were ranked in second place in Hong Kong. In GBM, our global

NPS improved and our global rank remained in fifth place. In WPB and

CMB digital businesses in Hong Kong, we were ranked in first and

third places, respectively. In GBM globally, our digital trade finance

platforms maintained first place for the quality of platforms. Our

PayMe payments app was also ranked in second place for digital

wallets. In WPB, our NPS increased in mainland China and Singapore,

remained unchanged in Mexico, and in India saw a small decline. In

CMB, our NPS increased in mainland China, Singapore and Mexico,

and our rank positions in those markets either improved compared

with 2021 or were in the top three against competitors.

Workforce reward

Group variable pay pool

The Committee determined an overall variable pay pool of $3,359m

(2021: $3,495m) following a review of our performance against

financial and non-financial metrics set out in the Group risk

framework. The Committee considered our strong 2022 financial

performance, with a 17% increase in adjusted profit before tax, a

RoTE of 9.9% and adjusted cost growth of 1% year on year. The

Committee also considered the external environment, the challenging

economic outlook and projected outcomes across the market to

ensure we remain competitive to attract and retain talent.

The distribution of the pool was differentiated by business

performance. Overall year-on-year variable pay outcomes were

strongest in CMB, followed by WPB but down in GBM to reflect

relative performance. There was robust differentiation for individual

performance so that our highest performers received meaningful

variable pay increases on the previous year. We have protected

variable pay for junior colleagues, which was up on average,

recognising the inflationary and cost of living challenges experienced

across most of our markets.

In determining 2023 fixed pay increases, we considered the impact of

inflation in each country where we operate. Increases were targeted

towards more junior and middle management colleagues as fixed pay

is a larger proportion of their overall pay. Across the Group, there was

Report of the Directors | Corporate governance report | Directors’ remuneration report

276 HSBC Holdings plc Annual Report and Accounts 2022

an overall increase of 5.5% in fixed pay, compared with 3.6% for

2022. The level of increases varied by country, depending on the

economic situation and individual roles. There were no fixed pay

increases for most of our senior leaders, including our executive

Directors.

Supporting colleagues in 2022

We monitored the global economic situation carefully and took action

to support our colleagues according to the market, given local inflation

and cost of living pressures. We continued to support our colleagues

in those markets still significantly impacted by the pandemic. In

mainland China and Hong Kong, we provided care packages and

increased well-being sessions. In mainland China, we also delivered

food essentials and provided inconvenience allowances. In Argentina

and Türkiye, we made regular adjustments to fixed pay given the

continuing inflationary pressures. In Sri Lanka, we made one-off

payments and fixed pay increases during the year to address high

inflation. In the UK, we provided almost 17,000 junior colleagues with

a one-off payment of £1,500 to help with energy cost pressures.

We continued to focus on well-being, benefits, financial guidance,

employee assistance programmes and access to hardship funds, as

well as pay.

Key remuneration decisions for Directors

Executive Director changes

Georges Elhedery was appointed Group Chief Financial Officer from

1January 2023. Ewen Stevenson is leaving the Group on 30 April

2023 and will receive a payment in lieu of notice until 25 October

2023. All remuneration decisions in respect of this change were made

in accordance with our shareholder-approved policy, and are detailed

in the annual report on remuneration.

Georges Elhedery’s remuneration was set on appointment with a

base salary of £780,000 per annum, a fixed pay allowance of

£1,085,000 per annum, a pension allowance of 10% of his base salary

(in line with most UK employees) and variable remuneration and

benefits in accordance with our policy.

In recognition of the services that Ewen Stevenson provided to HSBC

during his tenure and the circumstances of his departure, he has been

treated as a good leaver for the purpose of unvested incentive

awards. He remained eligible for a 2022 annual incentive but will not

receive a long-term incentive award for the 2023 to 2025 performance

period.

Executive Directors‘ annual incentive

The Group's financial performance was reflected in the performance

against the measures in the executive Directors’ annual scorecards. In

particular, the Committee recognised: adjusted profit before tax was

$24.0bn, which represented an increase of 17% compared with 2021;

strong cost controls were demonstrated, despite inflationary

pressures and continued investment in technology, with adjusted

costs at $30.5bn; and RoTE was 9.9%, an improvement on the 8.3%

achieved in 2021.

Overall, combined with non-financial measures, this level of

performance resulted in a formulaic scorecard outcome of 79.32% of

the maximum opportunity for Noel Quinn (2021: 57.30%) and 76.65%

for Ewen Stevenson (2021: 60.43%). The increase relative to 2021

reflected performance against targets and is largely a result of

stronger financial performance in 2022.

The annual incentive scorecard is also subject to a risk and

compliance modifier, which provides the Committee with the

discretion to adjust down the overall scorecard outcome. Taking into

account the Group’s performance against risk metrics, inputs from

the Group Risk Committee and the overall accountability of the

executive Directors with regards to specific matters around capital

management in the year, the Committee used its judgement and

applied a downward adjustment of 5% and 15% to Noel Quinn’s and

Ewen Stevenson’s annual incentive outcomes, respectively. The

difference in adjustments reflected the degree of accountability and

relative proximity for capital management. This resulted in an adjusted

incentive outcome of 75.35% of maximum opportunity for Noel Quinn

and 65.15% for Ewen Stevenson. This represented amounts of

£2,164,000 for Noel Quinn (2021: £1,590,000) and £1,091,000 for

Ewen Stevenson (2021: £978,000).

The year-on-year increase in annual incentive for the Group Chief

Executive is based on a formulaic assessment of performance against

financial and non-financial targets set by the Board at the start of last

year, taking into account the Group’s 2022 financial plan and strategic

priorities and commitments.

While the variable pay pool is determined by the Group’s overall

performance, it is not set in a formulaic manner. Our approach is to

smooth the variable pay pool outcomes over time to protect overall

pay for colleagues from material volatility in performance caused by

market conditions. In years of lower Group performance, we protect

colleagues from significant downside in pay outcomes, including in

2020 when adjusted profit before tax fell 45% year on year, but the

variable pay pool decreased just 20%. In years of stronger

performance, such as in 2022, a similar approach is taken on the

upside.

The Committee carefully considered the executive Directors’ pay

outcomes in the context of pay decisions made for the wider

workforce and determined that these are an appropriate reflection of

Group, business and individual performance delivered in 2022.

Long-term incentive (‘LTI‘) for executive Directors

For LTI awards for the 2023 to 2025 performance period, we will

continue to use measures and targets relating to: RoTE; capital

reallocation to Asia; relative total shareholder return (‘TSR’); and

environmental impact.

Following feedback from some of our shareholders, the Committee

reviewed the TSR performance peer group, with the objective of

including more Asian peers to better reflect the balance of markets

and businesses of the Group. The new peer group will be used for the

relative TSR measure for LTI awards with a 2023 to 2025

performance period, and now includes Bank of China (Hong Kong),

China Merchants Bank and OCBC Bank. No change will be made to

the performance peer group for any LTI awards granted prior to the

2023 to 2025 LTI award.

For the 2023 to 2025 performance period: Noel Quinn will receive an

LTI award of £4,275,000 (320% of salary) in respect of his

performance for 2022; Georges Elhedery will receive an LTI award of

£1,248,000 (160% of salary) in respect of his performance for 2022

when he was not an executive Director; and Ewen Stevenson will not

receive an LTI award.

Ewen Stevenson participated in the LTI for the 2020 to 2022

performance period that will vest in March 2023. The TSR and RoTE

performance targets were not met and therefore these elements of

the award lapsed in full. The customers measure was determined to

be 57% met and therefore 19% of the overall award will vest on a

pro-rata basis over the next five years.

Executive Directors‘ fixed pay for 2023

The Committee decided that there will be no increase to the base

salary or fixed pay allowances for Noel Quinn for 2023. The fixed pay

for Georges Elhedery for 2023 was set on appointment.

Ordinarily, an increase would have been considered for Noel Quinn to

ensure that his total remuneration opportunity is competitive in the

market. However, given the broader economic context and

inflationary and cost of living pressures for colleagues across many of

our markets, we targeted increases to our more junior and lower paid

colleagues this year.

Looking ahead

We note the UK government’s consultation around the variable to

fixed pay ratio, and anticipate that this will eventually allow us to place

more emphasis on variable pay in the overall package. We will keep

our approach under review and consult with shareholders on any

potential changes to our overall remuneration framework for

executive Directors. In the meantime, our approach for 2023 will be

consistent with the current approved policy and regulatory

requirements.

We are committed to opening up a world of opportunity for all our

people in 2023 and beyond. Our refreshed reward proposition

articulates how we are building a dynamic culture where the best

HSBC Holdings plc Annual Report and Accounts 2022 277

Corporate governance

want to work, where we reward colleagues responsibly and reward

their successes. We will continue to do the right thing for our

colleagues, rewarding them fairly and supporting them to grow.

We continue to protect value for our shareholders and customers, and

manage our costs. We will also continue to engage with all our

stakeholders on executive pay matters.

We believe that our decisions on executive pay for 2022 have struck

the right balance for all stakeholders and are also fair relative to

performance. As Chair of the Committee, I hope you will support the

2022 Directors’ remuneration report, which will be subject to an

advisory vote at our 2023 AGM.

Dame Carolyn Fairbairn

Chair

Group Remuneration Committee

21 February 2023

Remuneration decisions in context

We have given serious consideration to how we manage competing variables when deciding pay outcomes this year. We feel the decisions

that have been made strike a balance between prioritising fixed pay increases for those who need it the most, and variable pay increases for

our most exceptional performers. We will continue to listen carefully to all stakeholders – colleagues, customers and shareholders, as well as

our regulators – in making these important judgements.

What are we doing to support colleagues? How was fixed and variable pay determined for executive

Directors?

A key aspect of the Committee’s activities this year has been ensuring

that we support our colleagues through the challenges that many are

facing. In recognition of the broader environment, we are spending

more on fixed pay than we have in recent years, and we have

increased the total funding by 5.5% globally. We want to make sure

that colleagues can avoid facing financial hardship, and we support the

senior leadership’s decision to focus fixed pay increases on our more

junior and middle management employees, where this is a larger

proportion of their overall pay.

We have taken a number of targeted actions to support our colleagues

during 2022, taking the local context into consideration, as detailed in

the Chair’s letter. This includes support for those particularly impacted

by inflationary pressures in Argentina, Türkiye and Sri Lanka. It also

includes support in mainland China and Hong Kong where colleagues

are still significantly impacted by the pandemic. In the UK, we

supported colleagues facing energy cost pressures.

We have continued to provide a wide range of resources to all our

colleagues globally, including wider support on financial guidance,

employee assistance programmes and access to hardship funds.

The Committee makes decisions on executive Director pay based on a

policy that is agreed with our shareholders. The performance against

targets in the executive Directors’ annual scorecards reflects their

individual contribution to the Group's strong financial performance in

2022.

We set clear targets at the start of the year, and then the Committee

assesses if they have been met or not. The annual incentive scorecard

is also subject to a risk and compliance modifier.

Overall, this has resulted in a higher annual incentive outcome for our

executive Directors for 2022. Details of these outcomes are set out in

our annual report on remuneration below.

There have been no fixed pay increases for our executive Directors.

How was fixed and variable pay funding determined for all

employees?

The Group has increased fixed pay funding by 5.5% for 2023,

compared with 3.6% for 2022.

We have allocated fixed pay by market, with outcomes differentiated

based on the economic circumstances, and particularly wage inflation,

in each market. We have taken into account the impact of the current

economic environment and targeted fixed pay increases towards

more junior and middle management colleagues where fixed pay is a

larger part of their total compensation and who may be most impacted

by inflation and cost of living pressures.

There have been no fixed pay increases for most of our senior leaders

for 2023, including our executive Directors.

The Group variable pay pool is determined by reviewing Group

performance against key financial and non-financial metrics. Although

we have improved our financial performance this year, we have kept

the pool broadly flat when compared with 2021. Our approach is to

smooth the variable pay pool outcomes over time to protect overall

pay for colleagues from material volatility in performance caused by

market conditions. Within the overall variable pay pool, there has been

significant differentiation to reward our best performing businesses

and recognise excellent individual performance.

Outcomes for colleagues vary significantly depending on their role,

business area and performance.

What are the key areas of focus for the Committee over the

coming year?

The Committee notes the UK government’s consultation around the

bonus cap, and we anticipate that this will eventually lead to a

remuneration structure with a greater focus on variable pay for

performance. We intend to review the remuneration arrangements for

our executive Directors in due course in light of the UK government’s

proposals, and will consult with shareholders on any potential changes

to our overall remuneration framework.

The Committee continues to keep the performance metrics used for

our executive scorecards under review to ensure that they continue to

support the successful execution of our strategy, while also taking

into account views of our major shareholders, and investor and

regulatory guidance in this area. As the Group continues to progress

on our environmental, social and governance (’ESG’) journey, the

Committee has discussed how we ensure our environmental and

social commitments continue to be appropriately reflected in the

performance scorecards for members of the Group Executive

Committee. This is an area the Committee intends to consider further

over the coming year.

Report of the Directors | Corporate governance report | Directors’ remuneration report

278 HSBC Holdings plc Annual Report and Accounts 2022

Executive remuneration at a glance

This section sets out an overview of our performance, our 2022 remuneration outcomes for executive Directors and a summary of the policy

approved by shareholders at our 2022 AGM, including how we will implement the policy in 2023.

Our performance

Adjusted profit before tax

$24.0bn

(2021: $20.6bn)

Net new invested assets

$80bn

(2021: $64bn)

Adjusted costs

$30.5bn

(2021: $30.1bn)

Return on average

tangible equity

9.9%

(2021: 8.3%)

Employee engagement

index

73%

(2021: 72%)

Inclusion index

76%

(2021: 75%)

Colleagues reporting

HSBC cares about their

well-being

70%

(up from 50% in 2016

when we first ran the

survey)

Percentage of women in

senior leadership roles

33.3%

(2021: 31.7%)

Remuneration outcomes for executive Directors

Summary remuneration outcomes for 2022 are set out below. Further details are set out in our annual report on remuneration.

Noel Quinn

Total remuneration (£000)

£10,522

£5,562

Salary and fixed pay allowance Pension and benefits

Annual incentive Long-term incentive

Notional returns on deferred cash

awarded in respect of prior role

Maximum opportunity

2022 total remuneration

Ewen Stevenson

Total remuneration (£000)

£6,167

£4,701

Salary and fixed pay allowance Pension and benefits

Annual incentive Long-term incentive

Replacement award

Maximum opportunity

2022 total remuneration

Annual incentive outcome

75.35%

24.65%

Achieved

Lapsed

65.15%

34.85%

Achieved

Lapsed

Shareholding (% of salary)

400%

513%

Shareholding

requirement

Current shareholding

300%

658%

Shareholding

requirement

Current shareholding

1 Executive Directors are expected to meet their shareholding guidelines within five years of the date of their appointment. Noel Quinn and Ewen

Stevenson were appointed on 5 August 2019 and 1 January 2019 respectively.

HSBC Holdings plc Annual Report and Accounts 2022 279

Corporate governance

Remuneration policy summary – executive Directors

This section summarises our remuneration policy for executive Directors. The policy was approved at the AGM on 29 April 2022. The full

remuneration policy can be found on pages 257 to 265 of our Annual Report and Accounts 2021 and in the Directors’ Remuneration Policy

Supplement, which is available under Group results and reporting in the 'Investors' section of www.hsbc.com.

Elements and objectives Operation Implementation in 2023

Base salary • Base salary is paid in cash on a monthly basis.

• Other than in exceptional circumstances, the base salary for the current executive

Directors will not increase by more than 15% above the level at the start of the policy

period in total for the duration of the policy.

Base salary will not be

increased for 2023 and will

remain as follows:

• Noel Quinn: £1,336,000

• Georges Elhedery:

£780,000

Fixed pay allowance (‘FPA’) • The FPA is granted in instalments of immediately vested shares.

• On vesting, shares equivalent to the net number of shares delivered (after those sold to

cover any income tax and social security) are subject to a retention period and released

annually on pro-rata basis over five years, starting from the March immediately following

the end of the financial year for which the shares are granted.

• Dividends are paid on the vested shares held during the vesting period.

FPA for 2023 will not be

increased for 2023 and will

remain as follows:

• Noel Quinn: £1,700,000

• Georges Elhedery:

£1,085,000

Cash in lieu of pension • Cash in lieu of pension is paid on a monthly basis as 10% of base salary.

• This allowance, as a percentage of salary, is aligned with the maximum contribution rate,

as a percentage of salary, that HSBC could make for a majority of employees who are

defined contribution members of the HSBC Bank (UK) Pension Scheme.

• No change to percentage of

base salary.

Annual incentive • The maximum opportunity for the annual incentive is up to 215% of base salary.

• Annual incentive performance is measured against an individual scorecard.

• At least 50% of any award is delivered in shares, which are normally immediately vested.

• On vesting, shares equivalent to the net number of shares that have vested (after those

sold to cover any income tax and social security payable) will be held for a retention period

of up to one year, or such period as required by regulators.

• Awards will be subject to clawback (i.e. repayment or recoupment of paid vested awards)

for a period of seven years from the date of award, extending to 10 years in the event of

an ongoing internal/regulatory investigation at the end of the seven-year period. Any

unvested awards will be subject to malus (i.e. reduction and/or cancellation) during any

applicable deferral period.

• No change to quantum.

• See page 286 for details of

2023 annual incentive

measures.

Long-term incentive (‘LTI’) • The maximum opportunity for LTI awards is up to 320% of base salary.

• The LTI award is granted if the Committee considers that there has been satisfactory

performance over the prior year and subject to a forward-looking three-year performance

period from the start of the financial year in which the awards are granted.

• At the end of the performance period, awards will vest in five equal instalments, with the

first vesting on or around the third anniversary of the grant date and the last instalment

vesting on or around the seventh anniversary of the grant date.

• On vesting, shares equivalent to the net number of shares that have vested (after those

sold to cover any income tax and social security payable) will be held for a retention period

of up to one year, or such period as required by regulators.

• Awards are subject to malus provisions prior to vesting. Vested shares are subject to

clawback for a period of seven years from the date of award, extending to 10 years in the

event of an ongoing internal/regulatory investigation at the end of the seven-year period.

• Awards may be entitled to dividend equivalents during the vesting period, paid on vesting.

Where awards do not receive dividend equivalents, the number of shares awarded can be

determined using the share price discounted for the expected dividend yield.

• No change to quantum.

• See page 285 for details of

performance measures for

the LTI awards with a 2023

to 2025 performance

period.

Benefits • Benefits include the provision of medical insurance, accommodation, car, club

membership, independent legal advice in relation to a matter arising out of the

performance of employment duties for HSBC, tax return assistance or preparation, and

travel assistance (including any associated tax due, where applicable).

• Additional benefits may also be provided when an executive is relocated or spends a

substantial proportion of his/her time in more than one jurisdiction for business needs.

• Benefits to be provided as

per policy. Details will be

disclosed in the Annual

Report and Accounts 2023

single figure of

remuneration table.

Shareholding guidelines Executive Directors are expected to satisfy the following shareholding requirement as a

percentage of base salary within five years from the date of their appointment:

• Group Chief Executive: 400%

• Group Chief Financial Officer: 300%

• No change to percentage of

base salary.

All-employee share plans Executive Directors are eligible to participate in all-employee share plans, such as HSBC

Sharesave, on the same basis as all other employees.

• Participation in any such

plans will be disclosed in

the Annual Report and

Accounts 2023, as required.

Report of the Directors | Corporate governance report | Directors’ remuneration report

280 HSBC Holdings plc Annual Report and Accounts 2022

Our approach to workforce reward

Our refreshed reward proposition

During 2022, the Committee refreshed our reward strategy, to

strengthen our focus on inspiring a dynamic culture where the best

want to work. This work was underpinned by comprehensive internal

and external research, including reviewing two years of feedback and

data from our Snapshot and pay surveys, and exit interviews about

what makes colleagues join, leave and engaged at HSBC.

Our workforce proposition is rooted in our purpose and values. Our

commitment to reward colleagues fairly, along with the opportunity to

do inspiring work and contribute within our international network,

creates a unique proposition for colleagues. Our refreshed principles

and supporting commitments articulate the experience for

employees, and provide a clear framework to creating a dynamic

culture where the best talent are motivated to deliver high

performance. These principles are:

• We will reward you responsibly through fixed pay security and

protection through core benefits, a competitive total compensation

opportunity, and pay equity with a more inclusive and sustainable

benefits proposition over time.

• We will recognise your success through our performance culture

and routines, including feedback and recognition, pay for

performance, and all employee share ownership opportunities.

• We will support you to grow through our proposition beyond pay,

with a focus on future skills and development, your mental,

physical, social and financial well-being, and flexibility in working

practices.

We live up to many of these commitments today. We will also set

new goals to continue to improve over time, with plans to focus on

improving colleague sentiment through more transparency and

structure in pay design, and better communications on how we make

reward decisions.

Aligned with these commitments, we have developed a roadmap to

build on our strong benefits and well-being programme, including

flexible working, and more inclusive and sustainable benefits.

We have set clear measures and key performance indicators to track

our progress, including by listening to colleague feedback.

Supporting colleagues in 2022

In 2022, our colleagues faced a backdrop of increasing economic

instability, with rising energy prices and inflation, which increased

their cost of living. While we continued to focus on making

responsible reward decisions for our colleagues through our annual

pay review, we also took a number of actions throughout 2022.

Given this context and our focus on pay security, we allocated more

to fixed pay increases than in prior years, and this was based on

consistent principles to help address the impact of rising inflation in

many of our locations.

In determining 2023 fixed pay increases, we considered the impact of

inflation in each market where we operate. Increases were targeted

towards more junior and middle management colleagues as fixed pay

is a larger proportion of their overall pay. Across the Group, there was

an overall increase of 5.5% in fixed pay, compared with 3.6% for

2022. The level of increases varied by market, depending on the

economic situation and individual roles.

The distribution of the variable pay pool was differentiated by

business performance. There was robust differentiation for individual

performance so that our highest performers received meaningful

variable pay increases on the previous year. We have protected

variable pay for junior colleagues, which is up on average, recognising

the inflationary and cost of living challenges experienced across most

of our markets.

Considering the macroeconomic environment and cost of living

challenges impacting colleagues, we provided specific support to

those most affected. For example, in the UK and the Channel Islands

we paid our more junior colleagues a one-off payment of £1,500 to

help with the cost of living pressures, driven primarily by rising energy

costs. In Argentina, Sri Lanka and Türkiye, where colleagues were

impacted by inflationary challenges, we gave our colleagues fixed pay

increases throughout the year. In other areas we provided our

colleagues support in the form of meal vouchers to help with rising

food costs, and we increased flexibility around how and where our

colleagues work. Some of our colleagues are still significantly

impacted by the pandemic and we have ensured support in these

specific markets. In mainland China and Hong Kong, we provided care

packages and increased well-being sessions. In mainland China, we

also delivered food essentials and provided inconvenience

allowances. Where colleagues have been impacted by the Russia-

Ukraine war we offered free independent and professional

counselling, alongside hosting regular public webinars to manage

topics such as stress and dealing with anxiety. Our colleagues in

Poland have been providing direct assistance to people crossing the

border and we quickly made available financial resources for them to

continue to directly support refugees.

The well-being of our people remained a critical focus in 2022, and in

particular, the financial well-being of our colleagues and their families.

Guided by data and colleague feedback, the pillars of our well-being

programme are mental, physical, financial and social well-being.

Despite the immense challenges, sentiment remained high. A total of

70% of colleagues believe HSBC genuinely cares about their well-

being. In a September survey, 84% of colleagues rated their mental

well-being as positive, 71% rated their overall physical well-being

positively and 60% of colleagues reported their financial well-being as

positive.

We measure our colleagues’ sentiment on performance and pay

through our annual pay review surveys. Considering the challenges

colleagues faced, it was encouraging to see that check-ins happened

regularly, with 66% of colleagues having frequent conversations with

their managers (2021: 60%). Our colleagues tell us that these have a

positive impact on their performance, development and well-being,

and are important in motivating them to perform at their best.

Throughout the year we recognise our colleagues for demonstrating

our values. The ‘At Our Best’ recognition online platform allows for

real-time recognition and communication of positive behaviours by

colleagues, in line with our purpose and values. We also run annual

spotlight campaigns, with the campaign in 2022 focusing on ESG

issues to recognise colleagues for exceptional actions in supporting

our need to work responsibly. Our colleagues made over 1.2 million

recognitions during 2022, a record high and an 11% increase on the

previous year.

HSBC Holdings plc Annual Report and Accounts 2022 281

Corporate governance

Annual report on Directors’

remuneration

This section sets out how our approved Directors’ remuneration

policy was implemented during 2022.

Determining executive Directors’ incentive

outcomes

(Audited)

For any annual incentive award to be made, each executive Director

must achieve a minimum standard of conduct and values-aligned

behaviour. For 2022, both executive Directors met this requirement.

The award is determined by applying the outcome of their annual

incentive scorecard to the maximum opportunity, which was set at

215% of salary. The scorecard measures, weightings and targets

were determined at the start of the financial year taking into account

the Group’s plan for 2022 and the Group’s strategic priorities and

commitments. For strategic measures, the assessment was against

targets set for employee diversity, survey results for employee

experience and customer satisfaction measures, as well as progress

made and momentum generated to achieve our strategic priorities.

The Group’s financial performance was reflected in the achievement

against the measures in the executive Directors’ annual scorecards. In

particular, the Committee recognised:

• adjusted profit before tax was $24.0bn, which represented an

increase of 17% compared with $20.6bn in 2021;

• strong cost controls were demonstrated, despite inflationary

pressures and continued investment in technology, with adjusted

costs at $30.5bn; and

• RoTE was 9.9%, an improvement on 8.3% in 2021.

Our Employee engagement and Inclusion indices in the Snapshot

survey both increased and were above the financial services

benchmarks. The percentage of Black heritage colleagues in senior

leadership globally increased, as did the percentage of women in

senior leadership. For customer satisfaction, NPS performance is

assessed with reference to rank movements against our competitors

and underlying NPS scores. Performance details for employees and

customers measures are set out in the table in the section below.

Overall, this level of performance resulted in a formulaic scorecard

outcome of 79.32% of the maximum for Noel Quinn and 76.65% for

Ewen Stevenson.

The annual incentive scorecard is also subject to a risk and

compliance modifier, which provides the Committee with the

discretion to adjust down the overall scorecard outcome. Taking into

account the Group’s performance against risk metrics, inputs from

the Group Risk Committee and the overall accountability of the

executive Directors with regards to specific matters around capital

management in the year, the Committee used its judgement and

applied a downward adjustment of 5% to Noel Quinn’s annual

incentive outcome and 15% to Ewen Stevenson’s. The difference in

adjustments reflected the degree of accountability and relative

proximity for capital management. This resulted in an adjusted

incentive outcome of 75.35% of maximum opportunity for Noel Quinn

and 65.15% for Ewen Stevenson. This represented amounts of

£2,164,000 for Noel Quinn (2021: £1,590,000) and £1,091,000 for

Ewen Stevenson (2021: £978,000).

As detailed in the Chair’s letter, the Committee considered carefully

the executive Directors’ pay outcomes in the context of pay decisions

made for the wider workforce and determined that these were an

appropriate reflection of Group, business and individual performance

delivered in 2022.

Annual incentive scorecard assessment

(Audited)

Summary assessment

Minimum

(25%

payout)

Maximum

(100%

payout)

Noel Quinn Ewen Stevenson

Performance

Weighting

(%)

Assessment

(%)

Outcome

(%)

Weighting

(%)

Assessment

(%)

Outcome

(%)

Group adjusted profit before tax

($bn) 16.66 19.51 24.01 20.00 100.00 20.00 15.00 100.00 15.00

Group lending growth –

customer loans and advances

(third party) 2.96% 5.93% 1.45% 7.50 — — 5.00 — —

Growth in net new invested

assets ($bn) 52.36 76.17 79.83 7.50 100.00 7.50 5.00 100.00 5.00

Reported RoTE 3.00% 5.00% 9.90% 15.00 100.00 15.00 15.00 100.00 15.00

Group adjusted cost total ($bn) 30.87 29.47 30.47 10.00 46.43 4.64 10.00 46.43 4.64

Customer satisfaction

See following tables for commentary

15.00 60.33 9.05 15.00 60.33 9.05

Employee experience 15.00 87.50 13.13 15.00 87.50 13.13

Personal objectives 10.00 100.00 10.00 20.00 74.15 14.83

Total 100.00 79.32 100.00 76.65

Annual incentive formulaic

outcome (000)

£2,278 £1,284

Risk adjustments as a result of

Committee judgement (000)

£(114)

£(193)

15%

Annual incentive (000) £2,164 £1,091

Report of the Directors | Corporate governance report | Directors’ remuneration report

282 HSBC Holdings plc Annual Report and Accounts 2022

Strategic measures for Noel Quinn and Ewen Stevenson

Measures Weighting (%) Assessment considerations by the Committee Assessment (%) Outcome (%)

Customer

satisfaction

Maintain and

improve NPS

in the UK

and Hong

Kong, in

digital

markets, and

in key

growth

markets

15.00% • UK and Hong Kong (assessed at 59%). In WPB, our NPS improved in the

UK and Hong Kong, and we were ranked in first place in Hong Kong. In

CMB, our NPS improved in Hong Kong but fell in the UK, and we were

ranked in second place in Hong Kong. In GBM, our global NPS improved

and our global rank remained in fifth.

• Digital markets (assessed at 68%). In WPB and CMB digital businesses in

Hong Kong, we were ranked in first and third. In GBM globally, our digital

trade finance platforms maintained first place for the quality of platforms.

Our PayMe payments app was ranked in second place for digital wallets.

• Key growth markets (assessed at 54%). In WPB, our NPS improved in

mainland China and Singapore, remained unchanged in Mexico, and in India

saw a small decrease. In CMB, our NPS increased in mainland China,

Singapore and Mexico, and our rank positions in those markets either

improved compared with 2021 or were in the top three against

competitors.

60.33% 9.05%

Employee

experience

Improve

engagement,

and diversity

and inclusion

15.00% • Our Snapshot Employee engagement and Inclusion indices both increased

one percentage point year on year to 73% and 76%, respectively, above

maximum targets and the financial services benchmarks.

• The percentage of Black heritage colleagues in senior leadership increased

by 0.3% to 2.5%, meeting our maximum target.

• The percentage of women in senior leadership increased by 1.6% to 33.3%

since 2021, within the target range of 33.2% to 33.7%.

87.50% 13.13%

Personal objectives for Noel Quinn and Ewen Stevenson

For each executive Director, personal objectives were set at the start of the year and measured by the Committee with respect to key performance indicators under

our strategy levers.

Noel Quinn Weighting Assessment Performance achievement

Technology

transformation

2.5% 100% • The Committee's assessment reflects strong progress automating our organisation at scale against targets

set. Our Cloud adoption rate, which is the percentage of our technology services on the private or public

Cloud, increased to 35% (2021: 27%). At the end of 2022, approximately 49% of our WPB customers were

'mobile active' users (2021: 43%).

Execution of

inorganic initiatives

in Asia

2.5% 100% • The targets for inorganic initiatives were delivered in 2022. We completed the acquisition of L&T

Investment Management Limited, making us the 12th largest mutual fund management company in India,

bringing in $10.8bn assets under management and 2.4 million active portfolios. We raised our stake in

HSBC Qianhai in China to 90%, completed our acquisition of the remaining 50% shares in HSBC Life

Insurance in China. We renewed our exclusive life distribution partnership with Allianz in Asia, resulting in

the combined group being the fourth largest health insurer and seventh largest life insurer in Singapore.

Progress on exits

identified

2.5% 100% • The planned sales of our banking business in Canada, branch operations in Greece and business in Russia

were announced, reflecting strong progress in reshaping our portfolio.

Progress on

innovation

programmes

2.5% 100% • In CMB, we launched an industry-leading native bank account service with Oracle Netsuite Enterprise

Resource Planning. We also launched Business Go, a platform that brings together international SMEs with

providers of expert advice and business optimisation tools. In GBM, we launched HSBC Orion, our new

proprietary tokenisation platform used for digital bond issuance. In WPB, we launched our international

credit offering, allowing customers to gain access to credit in a new country based on credit history in their

home country.

Total

10% out of 10%

Ewen Stevenson Weighting Assessment Performance achievement

Finance for the

future

12% 67% • The financial implications of financed emissions targets for the oil and gas, and power and utilities sectors

and for the $750bn to $1tn target were included in our financial resource plan, meeting the objectives set.

• The second round of the climate biennial exploratory scenario and stress tests for the Monetary Authority

of Singapore and European Central Bank were completed, with no material issues.

• Plans have been delivered for IFRS 17 compliant reporting, in line with external reporting and disclosure

requirements.

• The Bank of England Resolvability Assessment Framework and regulatory reporting enhancement

objectives were delivered in line with the targets set.

• Resolved 100% of market risk RWA-related issues and over 80% of liquidity-related issues, which were

previously identified and managed under the regulatory reporting enhancement programme.

• The programme to deliver timely, accurate and complete customer-centric management information using

a single data Cloud platform, with enhanced controls and reduced operational risks, is on track to the

agreed scope, costs and timeline.

Global Finance

employee

experience and

function efficiency

4% 96% • Targets were met with increased Employee engagement index at 75% favourable (2021: 68%).

• Female representation in senior management roles across Finance increased to 32.1% (2021: 30.2%).

• Finance costs overall were within 2022 targets. The number of FTEs at the end of 2022 was slightly higher

than the maximum target, mainly due to growth in key areas where new capabilities are required.

Creating strong

corporate

development and

Group

transformation

functions

4% 75% • The Group Transformation function has made strong progress in aligning our change portfolio to the

Group's strategy and systematically documenting a full change inventory. Achievements include clear

reporting with associated costs on how the change portfolio is enabling the delivery of Group strategy, and

stronger governance of the change portfolio, with an expanded remit of the Transformation Oversight

Executive Committee to cover the entire change portfolio with improved accountability via targeted

reviews of high impact programmes.

• Major transactions included planned sales of our banking business in Canada, branch operations in Greece

and business in Russia were announced; the planned merger of Oman operations with Sohar International

Bank; the completion of the Axa Singapore acquisition; the sale of US domestic mass market retail

banking; and the acquisition of L&T Investment Management Limited in India.

Total

14.83% out of 20%

HSBC Holdings plc Annual Report and Accounts 2022 283

Corporate governance

Single figure of remuneration

(Audited)

The following table shows the single figure of total remuneration of each executive Director for 2022, together with comparative figures.

Single figure of remuneration

Noel Quinn Ewen Stevenson

(£000)

2022

2021

2022

2021

Base salary

1,329 1,288 775 751

Fixed pay allowance (’FPA’)

1,700 1,700 1,085 1,062

Cash in lieu of pension 133 129 77 75

Taxable benefits

119 95 7 3

Non-taxable benefits

86 71 50 42

Total fixed 3,367 3,283 1,994 1,933

Annual incentive 2,164 1,590 1,091 978

Notional returns

31 22 — —

Replacement award

— — 1,180 754

Long term incentive

— — 436 —

Total variable 2,195 1,612 2,707 1,732

Total fixed and variable 5,562 4,895 4,701 3,665

1 Executive Directors made the personal decision to donate 100% of their base salary increases for 2021 to charity. Ewen Stevenson also donated his

FPA increase for 2021 to charity. Figures in the table above are the gross figures before charitable donations.

2 Taxable benefits include the provision of medical insurance, car and tax return assistance (including any associated tax due, where applicable). Non-

taxable benefits include the provision of life assurance and other insurance cover.

3 The deferred cash awards granted in prior years include a right to receive notional returns for the period between the grant and vesting date. This is

determined by reference to a rate of return specified at the time of grant and paid annually, with the amount disclosed on a paid basis.

4 In 2019, Ewen Stevenson was granted replacement awards to replace unvested awards, which were forfeited as a result of him joining HSBC. The

awards, in general, match the performance, vesting and retention periods attached to the awards forfeited. The values included in the table for 2022

relate to his 2018 replacement award granted by the Royal Bank of Scotland Group plc, now renamed as NatWest Group plc ('NatWest') for

performance year 2018 and was subject to a pre-vest performance test assessed and disclosed by NatWest in its Annual Report and Accounts 2021

(page 158). As no adjustment was proposed for Ewen Stevenson by NatWest, a total of 241,988 shares granted in respect of his 2018 replacement

award ceased to be subject to performance conditions. These awards were granted at a share price of £6.643 and the HSBC share price was £4.8772

when the first tranche of these awards vested and all tranches were no longer subject to performance conditions, with no value attributable to share

price appreciation. The values included in the table for 2021 are explained in the Annual Report and Accounts 2021.

5 An LTI award over 476,757 shares was made in February 2020 (in respect of 2019) at a share price of £5.6220 for which the performance period

ended on 31 December 2022. The value has been computed based on a share price of £4.816, the average share price during the three-month period

to 31 December 2022. There is no value attributable to share price appreciation. See the following section for details of the assessment outcomes,

which resulted in 19% vesting due to performance.

Benefits

The values of the significant benefits in the single figure table

are set out in the following table

. The insurance benefit for Noel Quinn has

increased year on year because of the increase in premium at annual renewal.

Noel Quinn

(£000)

2022

2021

Insurance benefit (non-taxable) 82 67

Car and driver (UK and Hong Kong) 69 87

1 The insurance and car benefits for Ewen Stevenson are not included in the above table as they were not deemed significant.

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284 HSBC Holdings plc Annual Report and Accounts 2022

Long-term incentive (’LTI’) awards

(Audited)

LTI awards over 2020 to 2022 performance period

The 2019 LTI award was granted to Ewen Stevenson in February

2020. Noel Quinn did not receive a 2019 LTI award. Based on the

performance outcome, 90,584 shares will vest for Ewen Stevenson.

The awards will vest in five equal annual instalments commencing in

February 2023.

The Committee is mindful of executives not experiencing ’windfall

gains’ through the granting of LTI awards when a share price is

particularly low. We introduced an upfront windfall gains check for

2020 LTI awards. The Committee agreed that if the LTI grant share

price experienced a greater than 30% decline since the previous

grant, that an adjustment percentage equal to half the share price

percentage decline would be applied to the awards to mitigate the

potential for windfall gains. Although this was not in place for the

2019 LTI award, no pre-grant adjustment would have been applied if it

had been. The value of awards at vesting is less than at grant and the

Committee determined that there are no windfall gains to consider for

this award.

Assessment of the 2019 LTI award (performance period 1 January 2020 to 31 December 2022)

Measures (weighting)

Minimum

(25% payout)

Target

(50% payout)

Maximum

(100% payout) Actual Assessment Outcome

Average RoTE with CET1

underpin

(33.3%)

10.0% 11.0% 12.0% 9.9% 0.0% 0.00%

Relative TSR

(33.3%)

At median of the peer

group

Straight-line vesting

between minimum

and maximum

At upper quartile of

peer group

Below

median

0.0% 0.00%

Customers (33.3%)

Performance was assessed by the Committee based on:

• customer satisfaction scores at the start and end of the three-year performance

period for our global businesses in home and scale markets, which resulted in a

formulaic 64% outcome. This comprised:

– UK and Hong Kong (assessed at 58%) – in WPB and CMB, we were ranked

in first and second place in Hong Kong, with improved NPS scores. In GBM,

our global NPS improved and our global rank remained in fifth;

– Digital markets (assessed at 77%) – in WPB and CMB digital markets, we

were ranked in top three positions in Hong Kong, and in GBM globally, our

digital trade finance platforms were ranked in first place; and

– Key growth markets (assessed at 56%) – in WPB, our NPS increased in

mainland China, Singapore and Mexico, and in India saw a small decline, and

in CMB, our NPS increased in Mexico, with slight decreases in the other

markets, but our rank positions in all four markets were in the top three

against competitors.

• progress against customer objectives linked to our strategy over 2020 to 2022. It

was determined that it broadly represented target performance and therefore

50% of this element was achieved. The main items driving this assessment are

our growth in international and Premier customers and in specific growth

markets, where our overall performance has been broadly in line with plan and

expectations.

These two percentages (64% and 50%) averaged to 57%.

57.0% 19.00%

Total

19.00%

1 Awards vest on a straight-line basis for performance between the minimum, target and maximum levels of performance set in this table.

2 Assessed based on RoTE in the 2022 financial year, which was not met. The CET1 underpin was met.

3 The peer group was: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank, J.P. Morgan

Chase & Co., Lloyds Banking Group, Morgan Stanley, Standard Chartered and UBS Group.

LTI awards over 2023 to 2025 performance period

After taking into account performance for 2022, the Committee

decided to grant Noel Quinn an LTI award of £4,275,000.

The 2022 LTI awards will have a three-year performance period

starting 1 January 2023. During this period, performance will be

assessed based on four equally weighted measures: two financial

measures to incentivise value creation for our shareholders; a

measure linked to our climate ambitions; and relative total shareholder

return (’TSR’). This is consistent with the measures used for our last

LTI awards.

The Committee regularly reviews the TSR peer group to ensure it

remains an appropriate performance comparison, taking into account

strategic shifts in our geographical and business mix, notably future

growth investment in Asia and wealth business. Following feedback

from some of our shareholders, the Committee reviewed the TSR

performance peer group, with the objective of including more Asian

peers to better reflect the balance of markets and businesses of the

Group. The new peer group will be used for the relative TSR measure

for LTI awards for the 2023 to 2025 performance period and now

includes Bank of China (Hong Kong), China Merchants Bank and

OCBC Bank. No change will be made to the performance peer group

for subsisting LTI awards.

The LTI continues to be subject to a risk and compliance modifier,

which gives the Committee the discretion to adjust down the overall

outcome to ensure that the Group operates soundly when achieving

its financial targets. For this purpose, the Committee will receive

information including any risk metrics outside of tolerance for a

significant period of time and any risk management failures that have

resulted in significant customer detriment, reputational damage and/

or regulatory censure.

The RoTE and capital reallocation to Asia measures are also subject to

a CET1 underpin. If the CET1 ratio at the end of the performance

period is below the CET1 risk tolerance level set in the risk appetite

statement, then the assessment for these measures will be reduced

to nil.

As the awards are not entitled to dividend equivalents in accordance

with regulatory requirements, the number of shares to be awarded

will be adjusted to reflect the expected dividend yield of the shares

over the vesting period.

To the extent performance conditions are satisfied at the end of the

three-year performance period, the awards will vest in five equal

annual instalments commencing from around the third anniversary of

the grant date. On vesting, shares equivalent to the net number of

shares that have vested (after those sold to cover any income tax and

social security payable) will be held for a retention period of up to one

year, or such period as required by regulators.

HSBC Holdings plc Annual Report and Accounts 2022 285

Corporate governance

Measures

Performance conditions for LTI awards in respect of 2022 (performance period 1 January 2023 to 31 December 2025)

Minimum

(25% payout)

Target

(50% payout)

Maximum

(100% payout)

Weighting

RoTE with CET1 underpin

13.0% 14.3% 15.5% 25.0

Capital reallocation to Asia with CET1

underpin

49.0% 50.5% 52.0% 25.0

Transition to net

zero

Carbon reduction

(own emissions)

64.0% 68.0% 72.0%

25.0

Sustainable finance

and investment

$588.0bn $700.0bn $756.0bn

Relative TSR

At the median of the peer

group

Straight-line vesting between

minimum and maximum

At the upper quartile of the

peer group

25.0

Subject to risk and compliance modifier

1 Awards will vest on a straight-line basis for performance between the minimum, target and maximum levels of performance set in this table.

2 To be assessed based on RoTE at the end of the performance period. This metric will be subject to the CET1 underpin.

3 To be assessed based on share of Group tangible equity (on a reported basis and excluding associates) allocated to Asia by 31 December 2025. This

metric will be subject to the CET1 underpin.

4 Carbon reduction will be measured based on percentage reduction in total energy and travel emissions achieved by 31 December 2025 using 2019 as

the baseline. The sustainable finance and investment metric will assess the cumulative amount provided and facilitated over the period ending 31

December 2025.

5 The peer group for the 2022 award is: Bank of China (Hong Kong), Barclays, BNP Paribas, China Merchants Bank, Citigroup, DBS Group Holdings, JP

Morgan Chase & Co., Lloyds Banking Group, OCBC Bank, Standard Chartered and UBS Group.

Annual incentive measures for 2023

The 2023 annual incentive scorecard measures for our executive

Directors have been set to deliver growth and business

transformation. They were selected by the Committee after taking

into account the Group’s strategic pivot to Asia and feedback received

from our major shareholders during engagement in the year. The

targets have been set to reflect the Group’s 2023 plan, while

considering macroeconomic uncertainty, including the interest-rate

environment and rising inflation.

The Committee will continue to retain discretion to adjust the

formulaic outcomes of scorecards, taking into account factors such as

Group profits, wider business performance and stakeholder

experience, to ensure executive reward is aligned with underlying

Group performance and the broader stakeholder experience.

The weightings and performance measures for the 2023 annual

incentive award for executive Directors are disclosed below. In

previous years, the weightings were different for the Group Chief

Executive and Group Chief Financial Officer. For 2023, these have

been aligned, reflecting feedback from shareholders and to simplify

our approach. The performance targets are commercially sensitive

and it would be detrimental to the Group’s interests to disclose them

at the start of the financial year. Subject to commercial sensitivity, we

will disclose the targets for a given year in the Directors’

remuneration report for that year.

2023 annual incentive performance measures Weighting

Financial (subject to CET1 underpin)

60%

Reported profit before tax 15%

Reported operating expenses 15%

Reported Group RoTE 15%

Reported Asia RoTE 5%

Fee income growth 5%

Net new invested assets growth 5%

Stakeholders

30%

Customer satisfaction

(improvement in NPS scores/rank)

15%

Employee experience

(gender and ethnicity representation and Inclusion index

score)

15%

Personal objectives

Group Chief Executive: technology transformation,

innovation, and simplification of processes and organisation

Group Chief Financial Officer: regulatory priorities (regulatory

reporting enhancement programme, resolution recovery

planning, and ESG and climate), Finance change

transformation and digitisation, energised Finance

workforce, and liquidity usage and capital management

10%

Subject to risk and compliance modifier

Report of the Directors | Corporate governance report | Directors’ remuneration report

286 HSBC Holdings plc Annual Report and Accounts 2022

Scheme interests awarded during 2022

(Audited)

The table below sets out the scheme interests granted to executive Directors during 2022 in respect of performance year 2021, as disclosed in

the2021 Directors’ remuneration report. No non-executive Directors received scheme interests during the financial year.

Scheme awards in 2022

(Audited)

Type of interest

awarded

Basis on which

award made

Date of award

Face

value

awarded

£000

Percentage

receivable for

minimum

performance

Number of

awarded

End of

performance

period

Noel Quinn LTI deferred shares

% of salary

28 February 2022 5,290 25 983,339 31 December 2024

Ewen Stevenson LTI deferred shares

% of salary

28 February 2022 3,086 25 573,674 31 December 2024

1 The face value of the award has been computed using HSBC’s closing share price of £5.380 taken on 25 February 2022. LTI awards are conditional

share awards subject to a three-year forward-looking performance period and vest in five equal annual instalments, between the third and seventh

anniversary of the award date, subject to performance achieved. On vesting, awards will be subject to a one-year retention period. Awards are subject

to malus during the vesting period and clawback for a maximum period of 10 years from the date of the award.

2 In line with regulatory requirements, scheme interests awarded during 2022 were not eligible for dividend equivalents. In accordance with the

remuneration policy approved by shareholders at the 2019 AGM, the LTI award was determined at 320% of salary for Noel Quinn and 320% of salary

for Ewen Stevenson. The number of shares to be granted was determined by taking HSBC’s closing share price of £5.380 taken on 25February 2022,

and applying a discount based on HSBC’s expected dividend yield of 5% per annum for the vesting period (£4.201).

The above table does not include details of shares issued as part of the fixed pay allowance and shares issued as part of the 2021 annual

incentive award that vested on grant and were not subject to any further service or performance conditions. Details of the performance

measures and targets for the 2021 LTI award are below:

Measures

Minimum

(25% payout)

Target

(50% payout)

Maximum

(100% payout) Weighting %

RoTE (with CET

underpin)

8.0% 9.5% 11.0% 25.0

Capital reallocation to Asia (with CET1 underpin)

46.0% 48.0% 50.0% 25.0

Environment and

sustainability

Carbon reduction

52.0% 56.0% 60.0%

25.0

Sustainable finance and

investment

$285.0bn $340.0bn $370.0bn

Relative TSR

At median of the

peer group

Straight-line vesting between

minimum and maximum

At upper quartile of

peer group

25.0

Performance conditions for LTI awards in respect of 2021 (performance period 1 January 2022 to 31 December 2024)

(Audited)

1 Awards will vest on a straight-line basis for performance between the minimum, target and maximum levels of performance set in this table.

2 To be assessed based on RoTE at the end of the performance period. The measure will also be subject to a CET1 underpin. If the CET1 ratio at the

end of the performance period is below the CET1 risk tolerance level set in the risk appetite statement, then the assessment for this measure will be

reduced to nil.

3 To be assessed based on share of Group tangible equity (on a constant currency basis and excluding associates) allocated to Asia by 31 December

2024. This metric will be subject to the CET1 underpin outlined above.

4 Carbon reduction will be measured based on percentage reduction in total energy and travel emissions achieved by 31 December 2024 using 2019 as

the baseline. The sustainable finance and investment metric will assess cumulative financing provided over the period commencing on 1 January 2020

and ending on 31 December 2024.

5 The peer group for the 2021 award is: Bank of America, Barclays, BNP Paribas, Citigroup, Credit Suisse Group, DBS Group Holdings, Deutsche Bank,

J.P. Morgan Chase & Co., Lloyds Banking Group, Morgan Stanley, Standard Chartered and UBS Group.

Executive Directors’ interests in shares

(Audited)

The shareholdings of executive Directors in 2022, including the

shareholdings of their connected persons, at 31 December 2022 (or

the date they stepped down from the Board, if earlier) are set out

below. The following table shows the comparison of shareholdings

with the company shareholding guidelines. There have been no

changes in the shareholdings of the executive Directors from

31December 2022 to the date of this report.

Individuals have five years from their appointment date to build up the

recommended levels of shareholding. In line with investor guidance,

for executive Directors, unvested shares that are not subject to

forward-looking performance conditions (on a net of tax basis) will

count towards their shareholding requirement under the shareholder-

approved policy.

The Committee reviews compliance with the shareholding

requirement and has full discretion in determining if any unvested

shares should be taken into consideration for assessing compliance

with this requirement, taking into account shareholder expectations

and guidelines. The Committee also has full discretion in determining

any penalties for non-compliance.

With regard to post-employment shareholding arrangements, we

believe that our remuneration structure achieves the objective of

ensuring there is ongoing alignment of executive Directors' interests

with shareholder experience post-cessation of their employment due

to the following features of the policy:

• Shares delivered to executive Directors as part of the fixed pay

allowance have a five-year retention period, which continues to

apply following a departure of an executive Director.

• Shares delivered as part of an annual incentive award are subject

to a one-year retention period, which continues to apply following

a departure of an executive Director.

• LTI awards have a seven-year vesting period with a one-year post-

vesting retention period, which is not accelerated on departure.

The weighted average holding period of an LTI award within HSBC

is therefore six years, in excess of the five-year holding period

typically implemented by FTSE-listed companies. When an

executive Director ceases employment as a good leaver under our

policy, any LTI awards granted will continue to be released over a

period of up to eight years, subject to the outcome of performance

conditions.

HSBC operates a policy under which individuals are not permitted to

enter into any personal hedging strategies in relation to HSBC shares

subject to a vesting and/or retention period.

HSBC Holdings plc Annual Report and Accounts 2022 287

Corporate governance

(Audited)

Shareholding

guidelines

(% of salary)

Shareholding at

31 Dec 2022

(% of salary)

At 31 Dec 2022

Scheme interests

interests

(number

of shares)

options

Shares awarded

subject to deferral

without

performance

conditions

with

performance

conditions

Executive Directors

Noel Quinn

400% 513% 1,422,650 — 415,771 2,101,893

Ewen Stevenson

300% 658% 1,064,626 — 383,587 1,687,628

1 The gross number of shares is disclosed. A portion will be sold at vesting to cover any income tax and social security that falls due at the time of

vesting.

2 The value of the shareholding is calculated using an average of the daily closing share prices in the three months to 31 December 2022 (£4.816).

3 At 31 December 2022, Noel Quinn and Ewen Stevenson did not hold any options under the HSBC Holdings Savings-Related Share Option Plan (UK).

4 The amount for Ewen Stevenson reflects the award granted in May 2019, replacing the 2015 to 2018 LTIs forfeited by the Royal Bank of Scotland

Group plc, now renamed as NatWest Group plc (’NatWest’), and is subject to any performance adjustments assessed and disclosed in the relevant

NatWest Annual Report and Accounts.

5 LTI awards granted in February 2021 and 2022 are subject to the performance conditions as set out in the preceding sections above.

6 Executive Directors are expected to meet their shareholding guidelines within five years of the date of their appointment (Noel Quinn and Ewen

Stevenson were appointed on 5 August 2019 and 1 January 2019, respectively).

Service contracts

The service contracts of executive Directors do not have a fixed term.

The notice periods of executive Directors are set at the discretion of

the Committee, taking into account market practice, governance

considerations, and the skills and experience of the particular

candidate at that time.

Service agreements for each executive Director are available for

inspection at HSBC Holdings’ registered office. Consistent with

the best interests of the Group, the Committee will seek to minimise

termination payments. Directors may be eligible for a payment in

relation tostatutory rights.

Contract date (rolling)

Notice period

(Director and HSBC)

Noel Quinn 18 March 2020 12 months

Ewen Stevenson 1 December 2018 12 months

Total pension entitlements

(Audited)

No employees who served as executive Directors during the year

have a right to amounts under any HSBC final salary pension scheme

for their services as executive Directors or are entitled to additional

benefits in the event of early retirement. There is no retirement age

set for Directors, but the normal retirement age for colleagues is 65.

Payments to past Directors

(Audited)

No payments were made to, or in respect of, former Directors inthe

year in excess of the minimum threshold of £50,000 set for this

purpose.

Payments for loss of office

(Audited)

Departure terms for Ewen Stevenson

Ewen Stevenson is leaving the Group on 30 April 2023. He will

receive payments totalling £703,519 from the Group in lieu of his

base salary and pension allowance from 1 January until 25 October

2023. He will also receive his fixed pay allowance in respect of the

same period, which totals £885,836, and will be awarded in

immediately vested shares. The fixed pay allowance will be subject to

a retention period and released on a pro-rata basis over five years.

Ewen Stevenson will not be eligible for an LTI award in respect of the

2022 performance year, or any annual incentive award in respect of

the 2023 performance year.

In accordance with the contractual terms agreed and our approved

Directors’ remuneration policy, Ewen Stevenson was granted good

leaver status in respect of his outstanding unvested share awards.

Good leaver status is conditional upon him not taking up a role with a

defined list of competitor financial services firms for a year from his

departure date. As a good leaver, his deferred share awards will

continue to vest and be released on their scheduled vesting dates,

subject to the relevant terms (including post-vesting retention periods,

malus and, where applicable, clawback). Any vesting of his LTI

awards will be pro-rated for the period up to the departure date and

will be subject to the relevant terms (including post-vesting retention

periods, malus and clawback) and the achievement of the required

performance conditions. For this purpose, his 2020 and 2021 LTI

awards have been pro-rated for time with the maximum number of

shares, being 495,597 and 254,966 respectively, still subject to

performance.

The Group will make a contribution towards Ewen Stevenson's legal

fees incurred in connection with his departure arrangements. In line

with the Directors' remuneration policy, Ewen Stevenson will be

eligible to receive certain post-departure benefits for a period of up to

seven years after the departure date.

Ewen Stevenson will receive no other compensation or payment for

the termination of his service agreement or his ceasing to be a

Director of the Group.

No other payments for loss of office were made to, or in respect of,

former or current Directors in the year.

External appointments

During 2022, executive Directors did not receive any fees from

external appointments.

Report of the Directors | Corporate governance report | Directors’ remuneration report

288 HSBC Holdings plc Annual Report and Accounts 2022

Summary of shareholder return and Group

Chief Executive remuneration

The graph shows HSBC TSR performance (based on the daily spot

Return Index in sterling) against the FTSE 100 Total Return Index for

the 10-year period ended 31 December 2022.

The FTSE100 Total Return Index has been chosen as a recognised

broad equity market index of which HSBC Holdings is a member. The

single figure remuneration for the Group Chief Executive over the

past 10years, together with the outcomes of the respective

annualincentive and LTI awards, are presented in the following table.

HSBC TSR and FTSE 100 Total Return Index

HSBC TSR FTSE 100 Total Return Index

Dec 2012 Dec 2013 Dec 2014 Dec 2015 Dec 2016 Dec 2017 Dec 2018 Dec 2019 Dec 2020 Dec 2021 Dec 2022

100%

200%

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

Group Chief Executive

Stuart

Gulliver

Stuart

Gulliver

Stuart

Gulliver

Stuart

Gulliver

Stuart

Gulliver

Stuart

Gulliver

John

Flint

John

Flint

Noel

Quinn

Noel

Quinn

Noel

Quinn

Noel

Quinn

Total single figure £000 8,033 7,619 7,340 5,675 6,086 2,387 4,582 2,922 1,977 4,154 4,895 5,562

Annual incentive

(% of maximum) 49% 54% 45% 64% 80% 76% 76% 61% 66% 32% 57% 75%

Long-term incentive

1,2,3

(% of maximum) 49% 44% 41% –% –% 100% –% –% –% –% –% –%

1 The 2012 annual incentive figure for Stuart Gulliver includes 60% of the annual incentive disclosed in the 2012 Directors’ remuneration report, which

was deferred for five years and subject to service conditions and satisfactory completion of the five-year deferred prosecution agreement with the US

Department of Justice, entered into in December 2012 (’AML DPA’) as determined by the Committee. The AML DPA performance condition was met

and the award vested in 2018. The value of the award at vesting was included in the 2018 single figure of remuneration and included as long-term

incentive for 2018.

2 Long-term incentive awards are included in the single figure for the year in which the performance period is deemed to be substantially completed.

For Group Performance Share Plan (’GPSP’) awards, this is the end of the financial year preceding the date of grant. GPSP awards shown in 2013 to

2015 are therefore related to awards granted in 2014 to 2016.

3 The GPSP was replaced by the LTI in 2016 and the value for GPSP is nil for 2016 as no GPSP award was made for 2016. LTI awards have a three-year

performance period and the first LTI award was made in February 2017. The value of the LTI awards expected to vest will be included in the total

single figure of remuneration of the year in which the performance period ends. Noel Quinn did not receive the 2019 LTI award that had a

performance period ended on 31 December 2022.

Voting results from Annual General Meeting

2022 Annual General Meeting voting results

For

Against

Withheld

Remuneration report (votes cast)

95.83% 4.17% ––

7,675,588,519 334,152,471 6,830,718

Remuneration policy (votes cast)

95.73%

4.27%

––

7,666,488,029 342,320,697 7,773,468

HSBC Holdings plc Annual Report and Accounts 2022 289

Corporate governance

Group Remuneration Committee

The Group Remuneration Committee is responsible for setting the

overarching principles, parameters and governance of the Group’s

remuneration framework for our colleagues, and the remuneration of

executive Directors, the Group Chairman and other senior Group

colleagues. The Committee regularly reviews the framework to

ensure it supports the Group’s purpose, values, culture and strategy,

as well as promoting sound risk management. The Committee also

reviews the framework to satisfy itself that it complies with the

regulatory requirements of multiple jurisdictions.

All members of the Committee are independent non-executive

Directors of HSBC Holdings plc. No Directors are involved in deciding

their own remuneration. A copy of the Committee’s terms of

reference can be found on our website at www.hsbc.com/who-we-

are/leadership-and-governance/board-committees.

The Committee met six times during 2022. Pauline van der Meer

Mohr stepped down from the Committee and the Board after the

2022 AGM, and was succeeded as Group Remuneration Committee

Chair by Dame Carolyn Fairbairn. Geraldine Buckingham was

appointed as a member of the Committee in June 2022. The

following is a summary of the Committee’s key activities during 2022.

Matters considered during 2022

Jan

Feb

May

Jul

Sep

Dec

Remuneration framework and governance

Group variable pay pool, workforce performance and pay matters, pay gap report, and employee insights

l l l l l l

Directors’ remuneration policy design

ô ô ô ô ô

Executive Director remuneration policy implementation, scorecards and pay proposals

l l l l l l

Remuneration for other senior executives of the Group

l l l l l l

Directors’ remuneration report

l l

ô ô ô

Regulatory, risk and governance

Information on material risk and audit events, and performance and remuneration impacts for individuals involved

l l l l l l

Regulatory updates, including approach and outcomes for the identification of Material Risk Takers

l l l l l l

Governance matters

l l l l l l

Principal subsidiaries

Matters from subsidiary committees

l l l l

Matter considered

Matter not considered

Advisers

The Committee received input and advice from different advisers on

specific topics during 2022. Deloitte provided independent advice to

the Committee. Deloitte also provided tax compliance and other

advisory services to the Group in 2022. Deloitte is a founding member

of the Remuneration Consultants Group and voluntarily operates

under the code of conduct in relation to executive remuneration

consulting in the UK.

The Committee also received advice from Willis Towers Watson on

market data and remuneration trends. Willis Towers Watson provides

actuarial support to Global Finance and benchmarking data and

services related to benefits administration for our Group employees.

The Committee was satisfied the advice provided by Deloitte and

Willis Towers Watson was objective and independent in 2022.

For 2022, total fees of £203,800 and £79,803 were incurred in relation

to remuneration advice provided by Deloitte and Willis Towers

Watson, respectively. This was based on pre-agreed fees and a time-

and-materials basis.

During the year, the Committee conducted a tender process for its

independent remuneration adviser. This involved participating firms

submitting proposals and meeting with the Committee Chair and

management. Following this process, Deloitte was reappointed as the

Committee’s independent advisers.

Attendees and interaction with other Board

committees

During the year, Noel Quinn as the Group Chief Executive provided

regular briefings to the Committee. In addition, the Committee

engaged with, and received updates from, the following:

• Mark Tucker, Group Chairman;

• Elaine Arden, Group Chief Human Resources Officer;

• Ewen Stevenson, who was Group Chief Financial Officer until

31December 2022;

• Jenny Craik, Group Head of Performance, Reward and Employee

Relations;

• Pam Kaur, Group Chief Risk and Compliance Officer;

• Bob Hoyt, Group Chief Legal Officer;

• Shawn Chen, former Global General Counsel for Litigation and

Regulatory Enforcement;

• Maureen Lewis, Interim Global General Counsel for Litigation and

Investigation; and

• Aileen Taylor, Group Company Secretary and Chief Governance

Officer.

The Committee also received feedback and input from the Group Risk

Committee and Group Audit Committee on risk, conduct and

compliance-related matters relevant to remuneration.

No Director is present at Group Remuneration Committee meetings

when their own remuneration is discussed.

In addition to the meetings above, the Group Risk Committee

convened two joint meetings with the Group Remuneration

Committee in September 2022 and December 2022. They reviewed

the Group’s risk and reward alignment framework, which is designed

to promote sound and effective risk management in meeting PRA and

FCA remuneration rules and expectations.

Committee effectiveness

The annual review of the effectiveness of the Board committees,

including the Group Remuneration Committee, was conducted

internally in 2022, led by the Group Company Secretary and Chief

Governance Officer. Overall, the review concluded that the

Committee continued to operate effectively and in line with regulatory

requirements.

Areas for continued enhancement were identified, including the need

to focus on: a differentiated, fair and transparent reward framework;

ESG performance metrics; and in particular, sustainability; the

development of climate performance measures aligned to strategic

net zero goals; and greater coordination with the Group Risk

Committee. Given the anticipated changes to remuneration

regulations and evolving shareholder views on remuneration, a

structured training programme will be developed and delivered by the

Committee’s independent remuneration advisers. The outcomes of

the 2022 annual review have been reported to the Board, and the

Group Remuneration Committee will track the progress in

implementing recommendations during 2023.

Report of the Directors | Corporate governance report | Directors’ remuneration report

290 HSBC Holdings plc Annual Report and Accounts 2022

Non-executive Directors

(Audited)

The following table shows the total fees and benefits of non-executive Directors for 2022, together with comparative figures for 2021.

Fees and benefits

(Audited)

Fees

Benefits

Total

(£000)

2022

2021

2022

2021

2022

2021

Geraldine Buckingham

155 — — — 155 —

Rachel Duan

225 67 5 — 230 67

Dame Carolyn Fairbairn

265 80 1 — 266 80

James Forese

689 572 — — 689 572

Steven Guggenheimer 262 250 10 — 272 250

Irene Lee

488 556 — — 488 556

José Antonio Meade Kuribreña

242 223 14 — 256 223

Pauline van der Meer Mohr

92 291 18 — 110 291

Eileen Murray

262 266 — — 262 266

David Nish 477 482 22 10 499 492

Jackson Tai 377 350 25 — 402 350

Mark Tucker 1,500 1,500 113 33 1,613 1,533

Total (£000) 5,034 4,637 208 43 5,242 4,680

Total ($000) 6,199 5,710 256 53 6,455 5,763

1 Fees are in line with the Directors’ remuneration policy that was approved at the 2022 AGM. No travel allowance was paid to non-executive Directors

during 2021 due to travel restrictions. The payment of the travel allowance of £4,000 per annum (pro-rata) was paid following the resumption of travel

by the Board in 2022.

2 Benefits include taxable expenses such as accommodation, travel and subsistence relating to attendance at Board and other meetings at HSBC

Holdings' registered offices. Amounts disclosed have been grossed up using a tax rate of 45%, where relevant.

3 Appointed to the Board and the Group Nomination & Corporate Governance Committee on 1 May 2022, and appointed as a member of the Group

Remuneration Committee and Group Risk Committee on 1 June 2022.

4 Appointed as a member of the Group Audit Committee on 1 June 2022.

5 Appointed as Chair of the Group Remuneration Committee effective 29 April 2022.

6 Stepped down as a member of the Group Audit Committee on 1 June 2022 and joined the Group Risk Committee on 1 June 2022. Includes fees of

£447,000 (2021: £332,000) in relation to his role as Chair of HSBC North America Holdings, Inc. This fee was deferred for 2022.

7 Retired from the Board effective 29 April 2022. Includes fees of £434,000 (2021: £380,000) in relation to her roles as non-executive Director and

Remuneration Committee Chair, Audit Committee member and Risk Committee member of The Hongkong and Shanghai Banking Corporation Limited

and non-executive Chair, Nomination Committee Chair and member of the Audit, Risk and Remuneration Committees of Hang Seng Bank Limited.

8 Retired from the Group Risk Committee on 1 June 2022. Appointed as the designated workforce engagement non-executive Director on 1 June 2022.

9 Retired from the Board effective 29 April 2022.

10 Retired from the Group Risk Committee on 1 June 2022, and appointed as a member of Group Audit Committee on 1 June 2022.

Non-executive Directors’ interests in shares

(Audited)

The shareholdings of persons who were non-executive Directors in

2022, including the shareholdings of their connected persons, at

31December2022, or date of cessation as a Director if earlier, are

set out below.

Non-executive Directors are expected to meet the shareholding

guidelines within five years of the date of their appointment. All non-

executive Directors who had been appointed for five years or more at

31 December 2022 met the guidelines.

Shareholding

guidelines (number

of shares)

Share interests

(number of shares)

Geraldine Buckingham (appointed to the Board on 1 May 2022) 15,000 15,000

Rachel Duan 15,000 15,000

Dame Carolyn Fairbairn 15,000 15,000

James Forese 15,000 115,000

Steven Guggenheimer 15,000 15,000

Irene Lee (retired on 29 Apr 2022) 15,000 15,000

José Antonio Meade Kuribreña 15,000 15,000

Eileen Murray 15,000 75,000

David Nish 15,000 50,000

Jackson Tai 15,000 66,515

Mark Tucker 15,000 307,352

Pauline van der Meer Mohr (retired on 29 Apr 2022) 15,000 15,000

HSBC Holdings plc Annual Report and Accounts 2022 291

Corporate governance

2023 fees for non-executive Directors

The table below sets out the 2023 fees for non-executive Directors.

2023 fees

Position

Non-executive Group Chairman

1,500,000

Non-executive Director (base fee) 127,000

Senior Independent Director 200,000

Group Risk Committee Chair 150,000

Member 40,000

Group Audit Committee and Group Remuneration Committee Chair 75,000

Member 40,000

Nomination & Corporate Governance Committee Chair ––

Member 33,000

Technology Governance Working Group Co-Chair 60,000

Designated workforce engagement non-executive Director 40,000

1 The Group Chairman does not receive a base fee or any other fee in respect of chairing of the Nomination & Corporate Governance Committee.

Service contracts

Non-executive Directors are appointed for fixed terms not exceeding

three years, which may be renewed subject to their re-election by

shareholders at AGMs. Non-executive Directors do not have service

contracts, but are bound by letters of appointment issued for and on

behalf of HSBC Holdings, which are available for inspection at HSBC

Holdings’ registered office. There are no obligations in the non-

executive Directors’ letters of appointment that could give rise to

remuneration payments or payments for loss of office.

2023 AGM

2024 AGM

2025 AGM

Geraldine Buckingham

James Forese Rachel Duan

Kalpana Morparia

Steven Guggenheimer Dame Carolyn Fairbairn

David Nish

Eileen Murray José Antonio Meade Kuribreña

Mark Tucker

1 Geraldine Bucking

ham

and Kalpana Morparia were appointed following the 2022 AGM and therefore their initial three-year appointment terms are subject

to approval of their election by shareholders at the 2023 AGM. Their initial three-year term of appointment will end at the conclusion of the 2026 AGM,

subject to annual re-election by shareholders’ at the relevant AGMs.

Our approach to workforce remuneration

Remuneration alignment with executive Directors

Total compensation, which comprises fixed and variable pay, is the key focus of our remuneration framework, with variable pay differentiated by

performance and demonstration of value-aligned behaviours. We set out below the key features and design characteristics of our remuneration

framework, which will apply on a Group-wide basis, subject to compliance with local laws:

Fixed pay

Attract and retain

employees with market

competitive pay for the

role, skills and

experience required.

• Fixed pay may include salary, fixed pay allowance, cash in lieu of pension and other cash

allowances in accordance with local market practice.

• It is based on predetermined criteria, non-discretionary, transparent and not reduced

based on performance.

• It represents a higher proportion of total compensation for more junior employees.

• Fixed pay may change to reflect an individual’s position, role or grade, cost of living in the

country, individual skills, capabilities and experience.

• Fixed pay is generally delivered in cash on a monthly basis.

• Consistent with approach for

Group colleagues except

fixed pay allowance paid in

shares.

Benefits

Support the physical,

mental and financial

health of a diverse

workforce in

accordance with local

market practice.

• Benefits may include, but are not limited to, the provision of a pension, medical insurance,

life insurance, health assessment and relocation support.

• Provision of medical

insurance, life insurance, car

and tax return assistance.

Group Chief Executive is

eligible to receive

accommodation and a car

benefit in Hong Kong.

Annual incentive

Incentivise and reward

performance based on

annual financial and

non-financial measures

consistent with the

medium- to long-term

strategy, stakeholder

interests and values-

aligned behaviours.

• All employees are eligible to be considered for a discretionary variable pay award.

Individual awards are determined against objectives for performance set at the start of the

year.

• Annual incentives represent a higher proportion of total compensation for more senior

employees and will be more closely aligned to Group and business performance as

seniority increases.

• Variable pay for Group employees identified as Material Risk Takers (’MRTs’) under

European Union Regulatory Technical Standard (’RTS’) 2021/923 is limited to 200% of

fixed pay, as approved by shareholders at the 2014 AGM held on 23 May 2014 (98% in

favour).

• Awards are generally paid in cash and shares. For MRTs, at least 50% of the awards are

in shares and/or where required by regulations, in units linked to asset management

funds.

• Annual incentive is

determined based on the

outcomes of annual

scorecard of financial and

non-financial measures.

• Executive Directors and

Group Executives are also

eligible to be considered for a

long-term incentive award,

which is subject to three-year

forward-looking performance

measures.

Overview of remuneration structure for employees

Approach for executive

Directors

Remuneration

components and

objectives Application for Group employees

Report of the Directors | Corporate governance report | Directors’ remuneration report

292 HSBC Holdings plc Annual Report and Accounts 2022

Buy-out awards

Support recruitment of

key individuals.

• Buy-out awards may be offered if an individual holds any outstanding unvested awards

that are forfeited on resignation from the previous employer.

• The terms of the buy-out awards will not be more generous than the terms attached to

the awards forfeited on cessation of employment with the previous employer.

• For new hires, the approach

is consistent with the

approach taken for

employees and policy

approved by shareholders.

Target variable

remuneration

Support recruitment of

key individuals.

• Target variable pay is an indicative value, which is awarded in exceptional circumstances

for new hires, and is limited to the individual's first year of employment only, and is

subject to a number of factors (such as the respective performance of the Group,

business unit and individual), and the final value paid remains at the full discretion of

HSBC.

• The exceptional circumstances would typically involve a critical new hire and would also

depend on the factors such as the seniority of the individual, where the new hire

candidate is forfeiting any awards and the timing of the hire during the performance year.

• For new hires, the approach

is consistent with the

approach taken for

employees and policy

approved by shareholders.

Deferral

Align employee

interests with the

medium- to long-term

strategy, stakeholder

interests and values-

aligned behaviours.

• A Group-wide deferral approach is applicable to all employees. A portion of annual

incentive awards above a specified threshold is deferred in shares vesting annually over a

three-year period (33% vesting on the first and second anniversaries of grant and 34% on

the third).

• For MRTs, awards are generally subject to a minimum 40% deferral (60% for awards of

£500,000 or more) over a minimum period of four years.

• A deferral period of five years is applied for senior management and individuals in

specified roles with managerial responsibilities as prescribed under the PRA and FCA

remuneration rules and seven years for individuals in PRA-designated senior management

functions.

• In line with the PRA and FCA remuneration rules, and in compliance with local regulations,

the deferral requirement for MRTs is not applied to individuals where their total variable

pay is £44,000 or less and variable pay is not more than one-third of total compensation.

For these individuals, the Group standard deferral applies.

• Individuals based outside the UK and identified as MRTs under local regulations, would be

subject to local requirements where necessary.

• All deferred awards are subject to malus provisions, subject to compliance with local

laws. Awards granted to MRTs on or after 1 January 2015 and awards granted to non-

MRTs on or after 1 January 2022 are subject to clawback.

• HSBC operates an anti-hedging policy for all employees, which prohibits employees from

entering into any personal hedging strategies in respect of HSBC securities.

• For all Group MRTs and the majority of local MRTs, excluding executive Directors, a

minimum 50% of the deferred awards is in HSBC shares and the rest into deferred cash.

Local regulatory requirements would also apply where necessary.

• For some employees in our asset management business, where required by the relevant

regulations, at least 50% of the deferred award is linked to fund units reflective of funds

managed by those entities, with the remaining portion in deferred cash awards.

• Variable pay awards made in HSBC shares or linked to relevant fund units granted to

MRTs are generally subject to a one-year retention period post-vesting.

• MRTs who are subject to a five-year deferral period, except senior management or

individuals in PRA- and FCA-designated senior management functions, have a six-month

retention period applied to their awards.

• Where an employee is subject to more than one regulation, the requirement specific to

the sector and/or country in which the individual is working is applied.

• All of the LTI award, or at

least 60% of the total

variable award (including LTI),

is deferred. The deferred

awards will vest in five equal

annual instalments, with the

first vesting on or around the

third anniversary of the grant

date and the last instalment

vesting on or around the

seventh anniversary of the

grant date.

• All deferred awards are in

HSBC shares and subject to a

post-vesting retention period

of one year.

Severance payments

Adhere to contractual

agreements with

involuntary leavers.

• Where an individual’s employment is terminated involuntarily for gross misconduct then,

subject to compliance with local laws, the Group’s policy is not to make any severance

payment in such cases and all outstanding unvested awards are forfeited.

• For other cases of involuntary termination of employment, the determination of any

severance will take into consideration the performance of the individual, contractual notice

period, applicable local laws and circumstances of the case.

• Generally, all outstanding unvested awards will normally continue to vest in line with the

applicable vesting dates. Where relevant, any performance conditions attached to the

awards, and malus and clawback provisions, will remain applicable to those awards.

• Severance amounts awarded to MRTs are not considered as variable pay for the purpose

of application of the deferral and variable pay cap rules under the PRA and FCA

remuneration rules where such amounts include: (i) payments of fixed remuneration that

would have been payable during the notice and/or consultation period; (ii) statutory

severance payments; (iii) payments determined in accordance with any approach

applicable in the relevant jurisdictions; and (iv) payments made to settle a potential or

actual dispute.

• Any payments will be in line

with the policy on loss of

office

Overview of remuneration structure for employees (continued)

Approach for executive

Directors

Remuneration

components and

objectives Application for Group employees

HSBC Holdings plc Annual Report and Accounts 2022 293

Corporate governance

Link between risk, performance and reward

Our remuneration practices promote sound and effective risk

management while supporting our business objectives and the

delivery of our strategy.

We set out below the key features of our framework, which help

enable us to achieve alignment between risk, performance and

reward, subject to compliance with local laws and regulations:

Variable pay

pool

Individual

performance

scorecard

• Assessment of individual performance is made with reference to clear and relevant financial and non-financial objectives. Objectives

for senior management take into account appropriate measures linked to sustainability risks, such as: reduction in carbon footprint;

facilitating financing to help clients with their transition to net zero; employee diversity targets; and risk and compliance measures.

A mandatory global risk objective is included in the scorecard of all other employees. All employees receive a behaviour rating as

well as a performance rating, which ensures performance is assessed not only on what is achieved but also on how it is achieved.

Control

function staff

• The performance and reward of individuals in control functions, including risk and compliance employees, are assessed according to

a balanced scorecard of objectives specific to the functional role they undertake.

• Their remuneration is determined independent of the performance of the business areas they oversee.

• The Committee is responsible for approving the remuneration for the Group Chief Risk and Compliance Officer and Group Head of

Internal Audit.

• Group policy is for control functions staff to report into their respective function. Remuneration decisions for senior functional roles

are made by the global function head.

• Remuneration is carefully benchmarked with the market and internally to ensure it is set at an appropriate level.

Variable pay

adjustments

and conduct

recognition

• Variable pay awards may be adjusted downwards in circumstances including:

– detrimental conduct, including conduct that brings HSBC into disrepute;

– involvement in events resulting in significant operational losses, or events that have caused or have the potential to cause

significant harm to HSBC; and

– non-compliance with the values-aligned behaviours and other mandatory requirements or policies.

• Rewarding positive conduct may take the form of use of our global recognition programme, At Our Best, or positive adjustments to

variable pay awards.

Malus Malus can be applied to unvested deferred awards (up to 100% of awards) granted in prior years in circumstances including:

• detrimental conduct, including conduct that brings the business into disrepute;

• past performance being materially worse than originally reported;

• restatement, correction or amendment of any financial statements; and

• improper or inadequate risk management.

Clawback Clawback can be applied to vested or paid awards granted to MRTs on or after 1 January 2015 (and awards granted to non-MRTs on

or after 1 January 2022) for a period of seven years, extended to 10 years for employees in PRA and FCA designated senior

management functions in the event of ongoing internal/regulatory investigation at the end of the seven-year period. Clawback may be

applied in circumstances including:

• participation in, or responsibility for, conduct that results in significant losses;

• failing to meet appropriate standards and propriety;

• reasonable evidence of misconduct or material error that would justify, or would have justified, summary termination of a contract

of employment; and

• a material failure of risk management suffered by HSBC or a business unit in the context ofGroup risk-management standards,

policies and procedures.

Sales

incentives

• We generally do not operate commission-based sales plans, unless aligned with local market practice and with appropriate

safeguards to avoid incentivising inappropriate sales behaviours.

Identification

of MRTs

• We identify individuals as MRTs based on the qualitative and quantitative criteria set out in the RTS and using the following key

principles that underpin HSBC’s identification process:

– MRTs are identified at Group, HSBC Bank (consolidated) and HSBC UK Bank level.

– MRTs are also identified at other solo regulated entity level as required by the regulations.

– When identifying an MRT, HSBC considers an employee’s role within its matrix management structure. The global business

and function that an individual works within takes precedence, followed by the geographical location in which they work.

• We also identify additional MRTs based on our own internal criteria, which include compensation thresholds and individuals in

certain roles and grades who otherwise would not be identified as MRTs under the criteria prescribed in the RTS.

Framework

elements Application

The Group variable pay pool is expected to reflect Group performance, based on a range of financial, non-financial and contextual

factors. We use a countercyclical funding methodology, with both a floor and a ceiling, with the payout ratio generally reducing as

performance increases to avoid pro-cyclicality. The floor recognises that even in challenging times, remaining competitive is important.

The ceiling recognises that at higher levels of performance it is not always necessary to continue to increase the variable pay pool,

thereby limiting the risk of inappropriate behaviour to drive financial performance.

The main quantitative and qualitative performance and risk metrics used for assessment of performance include:

• Group and business unit financial performance, taking into account contextual factors driving performance, and capital

requirements;

• current and future risks, taking into consideration performance against the risk appetite, financial and resourcing plan and global

conduct outcomes; and

• fines, penalties and provisions for customer redress, which are automatically included in the Committee’s definition of profit for

determining the pool.

In the event that the Group was unable to distribute dividends to shareholders for reasons such as capital adequacy, then the Group

may determine that as a year of weak performance. In such a year, the Group may withhold some, or all, variable pay for employees

including unvested share awards, using the metrics outlined above as a basis for that determination.

Report of the Directors | Corporate governance report | Directors’ remuneration report

294 HSBC Holdings plc Annual Report and Accounts 2022

Pay ratio

The following table shows the ratio between the total pay of the

Group Chief Executive and the lower quartile, median and upper

quartile pay of our UK employees.

Total pay ratio

Method

Lower

quartile Median

Upper

quartile

2022 A 167:1 95:1 49:1

2021 A 154:1 90:1 46:1

2020 A 139:1 85:1 43:1

2019 A 169:1 105:1 52:1

Total pay and benefits amounts used to calculate the ratio

(£) Method

Lower quartile Median Upper quartile

Total

pay and

benefits

Total

salary

Total

pay and

benefits

Total

salary

Total

pay and

benefits

Total

salary

2022 A 33,284 24,615 58,257 41,000 113,778 95,000

2021 A 31,727 27,666 54,678 41,500 106,951 84,000

2020 A 29,833 23,264 48,703 36,972 96,386 75,000

2019 A 28,920 24,235 46,593 41,905 93,365 72,840

The increase in median ratio is primarily driven by a higher annual

incentive payout than in 2021 to the Group Chief Executive, reflecting

the improvement in the financial performance of the Group. This is

described further in the Committee Chair‘s letter.

The total pay and benefits for the median employee for 2022 was

£58,257, a 6.5% increase compared with 2021.

Our UK workforce comprises a diverse mix of employees across

different businesses and levels of seniority, from junior cashiers in our

retail branches to senior executives managing our global business

units. We aim to deliver market-competitive pay for each role, taking

into consideration the skills and experience required for the business.

Pay structure varies across roles in order to deliver an appropriate mix

of fixed and variable pay. Junior employees have a greater portion of

their pay delivered in a fixed component, which does not vary with

performance and allows them to predictably meet their day-to-day

needs. Our senior management, including executive Directors,

generally have a higher portion of their total compensation opportunity

structured as variable pay and linked to the performance of the Group,

given their role and ability to influence the strategy and performance

of the Group. Executive Directors also have a higher proportion of

their variable pay delivered in shares, which vest over a period of

seven years with a post-vesting retention period of one year. During

this deferral and retention period, the awards are linked to the share

price so the value of award realised by them after the vesting and

retention period will be aligned to the performance of the Group.

We are satisfied that the median pay ratio is consistent with the pay,

reward and progression policies for our UK workforce, taking into

account the diverse mix of our UK employees, the compensation

structure mix applicable to each role and our objective of delivering

market competitive pay for each role subject to Group, business and

individual performance.

Our ratios have been calculated using the option ‘A’ methodology

prescribed under the UK Companies (Miscellaneous Reporting)

Regulations 2018. Under this option, the ratios are calculated using

full-time equivalent pay and benefits of all employees providing

services in the UK at 31 December 2022. We believe this approach

provides accurate information and representation of the ratios. The

ratio has been computed taking into account the pay and benefits of

nearly 35,000 UK employees, other than the individual performing the

role of Group Chief Executive. We calculated our pay quartiles and

benefits information for our UK employees using:

• full-time equivalent annualised fixed pay, which includes salary and

allowances, at 31 December 2022;

• variable pay awards for 2022;

• return on deferred cash awards granted in prior years. The

deferred cash portion of the annual incentive granted in prior years

includes a right to receive notional returns for the period between

the grant date and vesting date, which is determined by reference

to a rate of return specified at the time of grant. A payment of

notional return is made annually and the amount is disclosed on a

paid basis in the year in which the payment is made;

• gains realised from exercising awards from taxable employee

share plans; and

• full-time equivalent value of taxable benefits and pension

contributions.

Full-time equivalent fixed pay and benefits for each employee have

been calculated by using each employee’s data as at 31 December

2022. Where an employee works part-time, fixed pay and benefits are

grossed up, where appropriate, to full-time equivalent. One-off

benefits have not been included in calculating the ratios as these are

not permanent in nature and in some cases, depending on individual

circumstances, may not truly reflect a benefit to the employee.

Total pay and benefits for the Group Chief Executive is the single

figure of remuneration table for Noel Quinn. Total remuneration does

not include an LTI as he has not received an LTI award with a

performance period that ended during 2022. In a year in which the

value of an LTI is included in the single figure table of remuneration,

the ratios could be higher.

Given differences in business mix and size; employment and

compensation practices; methodologies for computing pay ratios; and

assumptions used by companies, the reported ratios may not be

comparable to our international and listed peers on the FTSE 100.

Relative importance of spend on pay

The following chart shows the change in:

• total staff pay between 2021 and 2022; and

• dividends and share buy-backs in respect of 2021 and 2022.

In 2022, total spend on pay was slightly lower than in 2021, while the

distribution to shareholders increased by 29% compared with 2021,

reflecting a higher dividend and the capital return to shareholders

through the $1bn share buy-back announced in February 2022, which

concluded in 2022. Dividends include an approximation of the amount

payable in April 2023 in relation to the second interim dividend of

$0.23 per ordinary share.

Relative importance of spend on pay

Total return to

shareholder

2022 —

$8,144m $1,000m $9,144m

↑

29%

2021 —

$5,070m $2,000m $7,070m

Employee pay

2022 —

$18,366m

↓

-2%

2021 —

$18,742m

Employee pay Dividends Share buy-back

HSBC Holdings plc Annual Report and Accounts 2022 295

Corporate governance

Comparison of Directors’ and employees’

pay

The following table compares the changes in each Director’s salary,

taxable benefits and annual incentive between 2020 and 2022 with

the percentage change in each of those elements of pay for UK-based

employees of HSBC Group Management Services Limited, the

employing entity of the executive Directors.

There were no changes to the fees or benefits of the non-executive

Directors between 2022 and 2020. The year-on-year percentage

change in fees noted in the table below is primarily driven by any pro-

rated fees received by the non-executive Director for 2022 and/or

2021 and/or 2020 based on time served by them on the Board and

the relevant Board committees and any additional responsibilities

taken on by the non-executive Director during each year. The value of

benefits received by the non-executive Directors reflect the taxable

expense reimbursements claimed, and the associated gross-up tax, in

relation to attending the Board meetings in each year. Non-executive

Directors who joined after 1 January 2022 are not included, which

includes Geraldine Buckingham who joined on 1 May 2022.

Annual percentage change in remuneration

2020

2021

2022

Director/employees

Base

salary/fees Benefits

Annual

incentive

Base

salary/fees Benefits

Annual

incentive

Base

salary/fees Benefits

Annual

incentive

Executive Directors

Noel Quinn

151.7%

353.7%

20.2%

1.7%

-48.9%

99.0%

3.2%

25.3%

36.1%

Ewen Stevenson (retired on 31

December 2022)

2.6% -25.0% -58.4% 1.8% -75.0% 117.3% 3.2% 133.3% 11.6%

Non-executive Directors

Kathleen Casey (retired on 24

April 2020)

-65.0% 200.0%

— — — — — — —

Laura Cha

(retired on 28 May

2021)

97.0%

— —

-58.8%

— — — — —

Henri de Castries

(retired on 28

May 2021)

4,5

4.1% -75.0%

—

-59.4% 2,100.0%

— — — —

Rachel Duan

— — — — — —

235.8%

— —

Dame Carolyn Fairbairn

— — — — — —

231.1%

— —

James Forese

— — —

257.5%

— —

20.5%

— —

Steven Guggenheimer

— — —

86.6%

— —

4.8%

— —

Irene Lee (retired on 29 April

2022)

20.3% -100.0%

—

1.8%

— —

-12.2%

— —

José Antonio Meade Kuribreña

28.7%

100.0%

—

10.4%

-100.0%

—

8.5%

— —

Pauline van der Meer Mohr

(retired on 29 April 2022)

17.7% -75.0%

—

-6.7% -100.0%

—

-68.4%

— —

Heidi Miller

(retired on 28 May

2021)

4,5

1.1% -100.0%

—

-60.3% 171.4%

— — — —

Eileen Murray

— — —

121.7%

— —

-1.5%

— —

David Nish

108.7%

-50.0%

—

0.4%

25.0%

—

-1.0%

120.0%

—

Sir Jonathan Symonds (retired

on 18 February 2020)

-86.5% -4.8%

— — — — — — —

Jackson Tai

-10.8%

-78.9%

—

-1.4%

-100.0%

—

7.7%

— —

Mark Tucker

—

-77.5%

— —

-36.5%

— —

242.4%

—

Employee group

2.0%

2.3%

-20.0%

1.0%

1.3%

25.2%

3.1%

7.0%

3.7%

1 Noel Quinn and Ewen Stevenson both voluntarily waived the cash portion of their 2020 annual incentive. The year-on-year percentage change

between 2020 and 2021 would be -1% for Noel Quinn and 9% for Ewen Stevenson without this cash waiver.

2 Noel Quinn succeeded John Flint as interim Group Chief Executive with effect from 5 August 2019 and was appointed permanently into the role on

17March 2020. The annual percentage change in 2020 for Noel Quinn is based on remuneration reported in his 2019 single figure of remuneration (for

the period 5 August 2019 to 31 December 2019) and his 2020 single figure of remuneration (for the period 1 January 2020 to 31 December 2020).

Based on his annualised 2019 compensation as an executive Director, his percentage change in salary, benefits and annual incentive was 2.1%,

85.2% and -50.9%, respectively for 2020.

3 In some instances, non-executive Directors may have served only part of the year resulting in large year-on-year percentage changes in fees and/or

benefits. Page 291 provides the underlying single figure of remuneration for non-executive Directors used to calculate the figures above.

4 Retired from the Board during 2021 and therefore fees received during 2021 were lower than the fees received in 2020.

5 There was no change to the benefit provided. The year-on-year change reflected the increase in taxable expense reimbursement claimed in 2021 for

attending Board and other meetings at HSBC Holdings’ registered offices.

6 Appointed as member of the Group Audit Committee on 1 June 2022.

7 Appointed as Chair of the Group Remuneration Committee effective 29 April 2022.

8 Appointed as non-executive Chair of HSBC North America Holdings, Inc in 2021. Fees for 2021 included fees in relation to this role.

9 Joined the Board during 2020 and therefore received fees for only part of 2020.

10 Received no taxable benefits in 2021, resulting in a 100% reduction from 2021.

11 Employee group consists of individuals employed by HSBC Group Management Services Ltd, the employing entity of the executive Directors, as no

individuals are employed directly by HSBC Holdings.

Report of the Directors | Corporate governance report

296 HSBC Holdings plc Annual Report and Accounts 2022

Policy alignment with UK Corporate Governance Code

The table below details how the Group Remuneration Committee addresses the principles set out in the UK Corporate Governance Code in

respect of the Directors' remuneration policy:

Provision Approach

Clarity • The Committee regularly engages and consults with key shareholders to take into account

shareholder feedback and to ensure there is transparency on our policy and its implementation.

• Details of our remuneration practices and our remuneration policy for Directors are published and

available to all our employees.

Remuneration arrangements should be

transparent and promote effective engagement

with shareholders and the workforce.

Simplicity

• Our Directors' remuneration policy has been designed so that it is easy to understand and

transparent, while complying with the provisions set out in the UK Corporate Governance Code

and the remuneration rules of the UK's PRA and FCA, as well as meeting the expectations of our

shareholders. The objective of each remuneration element is explained and the amount paid in

respect of each element of pay is clearly set out.

Remuneration structures should avoid complexity

and their rationale and operation should be easy

to understand.

Risk

• In line with regulatory requirements, our remuneration practices promote sound and effective risk

management while supporting our business objectives.

• The Group Chief Risk and Compliance Officer attends Committee meetings and updates the

Committee on the overall risk profile of the Group. The Committee also seeks inputs from the

Group Risk Committee when making remuneration decisions.

• Risk and conduct considerations are taken into account in setting the variable pay pool, from

which any executive Director variable pay is funded.

• Executive Directors' annual incentive and LTI scorecards include a mix of financial and non-

financial measures. Financial measures in the scorecards are subject to a CET1 capital underpin to

ensure CET1 capital remains within risk tolerance levels while achieving financial targets. In

addition, the overall scorecard outcome is subject to a risk and compliance modifier.

• The deferred portion of any awards granted to executive Directors is subject to a seven-year

deferral period during which our malus policy can be applied. All variable pay awards that have

vested are subject to our clawback policy for a period of up to seven years from the award date

(extending to 10 years where an investigation is ongoing).

Remuneration structures should identify and

mitigate against reputational and other risks from

excessive rewards, as well as behavioural risks

that can arise from target-based incentive plans.

Predictability

• The charts set out in our shareholder approved policy report (available in our Annual Report and

Accounts 2021) show how the total value of remuneration and its composition vary under different

performance scenarios for executive Directors.

The range of possible values of rewards to

individual Directors and any other limits or

discretions should be identified and explained at

the time of approving the policy.

Proportionality

• The annual incentive and LTI scorecards reward achievement of our financial and resource plan

targets, as well as long-term financial and shareholder value creation targets.

• The Committee retains the discretion to adjust the annual incentive and LTI payout based on the

outcome of the relevant scorecards, if it considers that the payout determined does not

appropriately reflect the overall position and performance of the Group during the performance

period.

The link between individual awards, the delivery

of strategy and the long-term performance of the

Group should be clear and outcomes should not

reward poor performance.

Alignment with culture

• In order for any annual incentive award to be made, each executive Director must achieve a

required behaviour rating, which is assessed by reference to the HSBC Values.

• Annual incentive and LTI scorecards contain non-financial measures linked to our wider social

obligations. These include measures related to reducing the environmental impact of our

operations, improving customer satisfaction, diversity and employee engagement.

• Each year senior employees participate in a 360 degree survey, which gathers feedback on values-

aligned behaviours from peers, direct reports, skip level reports and managers.

Incentive schemes should drive behaviours

consistent with the Group's purpose, values and

strategy.

HSBC Holdings plc Annual Report and Accounts 2022 297

Corporate governance

Additional regulatory remuneration

disclosures

This section provides disclosures required under the Hong Kong

Ordinances, Hong Kong Listing Rules and the Pillar 3 remuneration

disclosures.

For the purpose of the Pillar 3 remuneration disclosures, executive

Directors and non-executive Directors are considered to be members

of the management body. Members of the Group Executive

Committee other than the executive Directors are considered as

senior management.

MRT remuneration disclosures

The following tables set out the remuneration disclosures for

individuals identified as MRTs for HSBC Holdings.

Remuneration information for individuals who are only identified as

MRTs at HSBC Bank plc, HSBC UK Bank plc or other solo-regulated

entity levels is included, where relevant, in those entities’ disclosures.

The 2022 variable pay information included in the following tables is

based on the market value of awards. For share awards, the market

value is based on HSBC Holdings’ share price at the date of grant

(unless indicated otherwise). For cash awards, it is the value of

awards expected to be paid to the individual over the deferral period.

Remuneration awarded for the financial year (REM1)

Supervisory

function

Management

function

Other senior

management

Other

identified

staff

Fixed

remuneration

Number of identified staff 12.0 2.0 18.9 1,203.1

Total fixed pay ($m) 6.4 6.3 43.6 656.8

of which: cash-based ($m)

6.4 2.9 43.6 656.8

of which: shares or equivalent ownership interests ($m)

— 3.4 — —

of which: share-linked instruments or equivalent non-cash instruments ($m) — — — —

of which: other instruments ($m) — — — —

of which: other forms ($m) — — — —

Variable

remuneration

Number of identified staff 12.0 2.0 18.9 1,203.1

Total variable remuneration ($m)

4,5

— 11.0 65.4 641.0

of which: cash-based ($m) — 1.6 30.0 321.0

– of which: deferred ($m) — — 17.9 151.9

of which: shares or equivalent ownership interests ($m)

— 9.4 35.4 305.9

– of which: deferred ($m) — 7.8 23.3 170.0

of which: share-linked instruments or equivalent non-cash instruments ($m) — — — 8.7

– of which: deferred ($m) — — — 4.7

of which: other instruments ($m) — — — —

– of which: deferred ($m) — — — —

of which: other forms ($m) — — — 5.4

– of which: deferred ($m) — — — 3.3

Total remuneration ($m) 6.4 17.3 109.0 1,297.8

1 Cash-based fixed remuneration is paid immediately.

2 Paid in HSBC shares. Vested shares are subject to a retention period of up to one year.

3 Variable pay awarded in respect of 2022. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the variable

component of remuneration for any one year is limited to 200% of fixed component of the total remuneration.

4 The Group has used the discount rate under PRA remuneration rule 15.13 for 7 individuals for the purpose of calculating the ratio between fixed and

variable components of 2022 total remuneration.

5 27 identified staff members were exempt from the application of the remuneration structure requirements for MRTs under the PRA and FCA

remuneration rules. Their total remuneration is $6.2m, of which $5.1m is fixed pay and $1.1m is variable remuneration.

Special payments to staff whose professional activities have a material impact on institutions’ risk profile (REM2)

Supervisory

function

Management

function

Other senior

management

Other

identified

staff

Guaranteed variable remuneration awards

Number of identified staff — — — —

Total amount ($m) — — — —

– of which guaranteed variable remuneration awards paid during the financial year, that are not

taken into account in the bonus cap ($m)

— — — —

Severance payments awarded in previous periods, that have been paid out during the financial year

Number of identified staff — — — —

Total amount ($m) — — — —

Severance payments awarded during the financial year

Number of identified staff — — — 59.8

Total amount ($m) — — — 26.9

– of which paid during the financial year ($m) — — — 21.1

– of which deferred ($m) — — — —

– of which severance payments paid during the financial year, that are not taken into account in

the bonus cap ($m)

— — — 26.9

– of which highest payment that has been awarded to a single person ($m) — — — 2.2

1 No guaranteed variable remuneration was awarded in 2022. HSBC would offer a guaranteed variable remuneration award in exceptional

circumstances for new hires, and for the first year of employment only. It would typically involve a critical new hire, and would also depend on factors

such as the seniority of the individual, whether the new hire candidate has any competing offers and the timing of the hire during the performance

year.

2 Includes payments such as payment in lieu of notice, statutory severance, outplacement service, legal fees, ex-gratia payments and settlements

(excludes pre-existing benefit entitlements triggered on terminations).

Report of the Directors | Corporate governance report

298 HSBC Holdings plc Annual Report and Accounts 2022

Deferred remuneration at 31 December

(REM3)

Total amount

of deferred

remuneration

awarded for

performance

periods

of which:

due to

vest in

the

financial

year

of which:

vesting in

subsequent

financial

years

Amount of

performance

adjustment

made in the

financial year

to deferred

remuneration

that was due

to vest in the

financial year

Amount of

performance

adjustment

made in the

financial year

to deferred

remuneration

that was due

to vest in

future

performance

years

Total

amount of

adjustment

during the

financial

year due to

ex post

implicit

adjustments

Total amount

of deferred

remuneration

awarded

before the

financial year

actually paid

out in the

financial year

Total amount

of deferred

remuneration

awarded for

performance

period that

has vested

but is subject

to retention

periods

Supervisory function — — — — — — — —

Cash-based — — — — — — — —

Shares — — — — — — — —

Share-linked instruments — — — — — — — —

Other instruments — — — — — — — —

Other forms — — — — — — — —

Management function 31.1 2.6 28.5 -2.4 — 1.9 2.7 1.0

Cash-based 2.9 0.5 2.4 — — — 0.5 —

Shares 28.2 2.1 26.1 -2.4 — 1.9 2.2 1.0

Share-linked instruments — — — — — — — —

Other instruments — — — — — — — —

Other forms — — — — — — — —

Other senior management 114.3 15.7 98.6 — — 3.0 16.0 3.0

Cash-based 43.3 6.4 36.9 — — — 6.5 —

Shares 70.0 8.5 61.5 — — 2.9 8.7 2.7

Share-linked instruments 1.0 0.8 0.2 — — 0.1 0.8 0.3

Other instruments — — — — — — — —

Other forms — — — — — — — —

Other identified staff 853.1 232.5 620.6 — — 21.6 235.4 38.1

Cash-based 359.1 85.2 273.9 — — — 86.0 —

Shares 474.2 139.0 335.2 — — 21.6 142.1 34.9

Share-linked instruments 13.9 5.4 8.5 — — 0.7 5.5 2.4

Other instruments — — — — — — — —

Other forms 5.9 2.9 3.0 — — -0.7 1.8 0.8

Total amount 998.5 250.8 747.7 -2.4 — 26.5 254.1 42.1

1 This table provides details of balances and movements during performance year 2022. For details of variable pay awards granted for 2022, refer to the

’Remuneration awarded for the financial year’ table. Deferred remuneration is made in cash and/or shares. Share-based awards are made in HSBC

shares.

Identified staff - remuneration by band

(REM4)

Identified staff that are high

earners as set out in Article

450(i) CRR

€1,000,000 – 1,500,000 246

€1,500,000 – 2,000,000 107

€2,000,000 – 2,500,000 48

€2,500,000 – 3,000,000 26

€3,000,000 – 3,500,000 12

€3,500,000 – 4,000,000 8

€4,000,000 – 4,500,000 7

€4,500,000 – 5,000,000 5

€5,000,000 – 6,000,000 6

€6,000,000 – 7,000,000 2

€7,000,000 – 8,000,000 3

€8,000,000 – 9,000,000 1

€9,000,000 – 10,000,000 1

€10,000,000 – 11,000,000 —

€11,000,000 – 12,000,000 1

1 Table prepared in euros in accordance with Article 450 of the European Union Capital Requirements Regulation, using the exchange rates published by

the European Commission for financial programming and budget for December of the reported year as published on its website.

HSBC Holdings plc Annual Report and Accounts 2022 299

Corporate governance

Information on remuneration of staff whose professional activities have a material impact on institutions’ risk profile (REM5)

Management body

Business areas

Total

Supervisory

function

Management

function Total

Investment

banking

Retail

banking

Asset

management

Corporate

function

Independent

internal

control

function

All

other

Total number of

identified staff

1,236.0

– of which members of

the Board

12.0 2.0 14.0

– of which senior

management

2.0 2.0 — 6.9 2.0 6.0

– of which other

identified staff

548.5 228.0 32.0 151.0 172.0 71.6

Total remuneration of

identified staff ($m)

6.4 17.3 23.7 704.8 225.2 40.5 189.0 123.8 123.5

– of which variable

remuneration ($m)

— 11.0 11.0 368.6 107.6 21.0 92.4 53.9 62.9

– of which fixed

remuneration ($m) 6.4 6.3 12.7 336.2 117.6 19.5 96.6 69.9 60.6

1 Variable pay awarded in respect of 2022. In accordance with shareholder approval received on 23 May 2014 (98% in favour), for each MRT the variable

component of remuneration for any one year is limited to 200% of fixed component of the total remuneration.

Directors’ emoluments

The details of compensation paid to executive and non-executive Directors for the year ended 31 December 2022 are set out below:

Emoluments

Noel Quinn

Ewen Stevenson

Non-executive Directors

2022

2021

2022

2021

2022

2021

£000

Directors' base salary, allowances and benefits in kind 3,367 3,283 1,994 1,933

Non-executive Directors' fees and benefits in kind 5,242 4,680

Pension contributions — — — — — —

Performance-related pay paid or receivable

6,439 5,721 1,091 3,388 — —

Inducements to join paid or receivable — — 1,180 754 — —

Compensation for loss of office — — — — — —

Notional return on deferred cash 31 22 — — — —

Total 9,837 9,026 4,265 6,075 5,242 4,680

Total ($000) 12,113 12,414 5,252 8,356 6,455 5,763

1 Fees and benefits in kind for 2021 reflects the population as per the single figure table for non-executive Directors, which excludes individuals who

have stepped down from the Board during 2021.

2 Includes the value of the deferred and LTI awards at grant.

The aggregate amount of Directors’ emoluments (including both

executive Directors and non-executive Directors) for the year ended

31 December 2022 was $23,820,419. As per our policy, benefits in

kind mayinclude, but are not limited to, the provision of medical

insurance, income protection insurance, health assessment,

lifeassurance, club membership, tax assistance, car benefit, travel

assistance, provision of company owned-accommodation and

relocation costs (including any tax due on thesebenefits, where

applicable). Post-employment medical insurance benefit was provided

to former Directors, including Douglas Flint valued at £6,706 ($8,258),

Stuart Gulliver valued at £6,706 ($8,258), John Flint valued at £9,996

($12,309), and Marc Moses valued at £15,851 ($19,519). Tax return

support was also provided to John Flint valued at £5,441 ($6,700), and

Marc Moses valued at £2,500 ($3,079). The total aggregate value of

benefits provided to former executive Directors was £47,200

($58,123). The aggregate value of Director retirement benefits for

current Directors is nil. Amounts are converted into US dollars based

on the average year-to-date exchange rates for the respective year.

There were payments under retirement benefit arrangements with

two former Directors of $405,660. The provision at 31 December

2022 in respect of unfunded pension obligations to former Directors

amounted to $5,387,659. This relates to unfunded unapproved

retirement benefits schemes.

Emoluments of senior management and five highest paid

employees

The following tables set out the details of emoluments paid to senior

management, which in this case comprises executive Directors and

members of the Group Executive Committee, for the year ended

31December 2022, or for the period of appointment in 2022 as a

Director or member of the Group Executive Committee. Details of the

remuneration paid to the five highest paid employees, comprising one

executive Director and four Group Executives, for the year ended

31December 2021, are also presented.

Emoluments

£000s

Five highest paid employees

Senior management

Basic salaries, allowances and benefits in kind 13,404 41,639

Pension contributions 99 611

Performance-related pay paid or receivable

23,237 56,616

Inducements to join paid or receivable — —

Compensation for loss of office — —

Total 36,740 98,866

Total ($000) 45,242 121,745

1 Includes the value of deferred shares awards at grant.

Report of the Directors | Corporate governance report

300 HSBC Holdings plc Annual Report and Accounts 2022

Emoluments by bands

Hong Kong dollars US dollars

Number of highest paid

employees

Number of senior

management

$10,500,001 – $11,000,000 $1,340,909 – $1,404,762 — 1

$19,500,001 – $20,000,000 $2,490,259 – $2,554,112 — 1

$24,000,001 – $24,500,000 $3,064,935 – $3,128,787 — 1

$25,500,001 – $26,000,000 $3,256,493 – $3,320,346 — 1

$29,500,001 – $30,000,000 $3,767,315 – $3,831,168 — 1

$39,500,001 – $40,000,000 $5,044,371 – $5,108,224 — 1

$41,000,001 – $41,500,000 $5,235,930 – $5,299,782 — 1

$44,000,001 – $44,500,000 $5,619,047 – $5,682,899 — 1

$44,500,001 – $45,000,000 $5,682,899 – $5,746,752 — 1

$45,500,001 – $46,000,000 $5,810,605 – $5,874,458 — 1

$52,500,001 – $53,000,000 $6,704,544 – $6,768,397 — 1

$53,000,001 – $53,500,000 $6,768,397 – $6,832,250 — 1

$55,500,001 – $56,000,000 $7,087,661 – $7,151,514 — 1

$56,500,001 – $57,000,000 $7,215,367 – $7,279,219 — 1

$60,500,001 – $61,000,000 $7,726,189 – $7,790,042 — 1

$61,000,001 – $61,500,000 $7,790,042 – $7,853,894 — 1

$64,000,001 – $64,500,000 $8,173,158 – $8,237,011 1 1

$69,000,001 – $69,500,000 $8,811,686 – $8,875,539 1 1

$76,000,001 – $76,500,000 $9,705,626 – $9,769,478 1 1

$82,500,001 – $83,000,000 $10,535,712 – $10,599,565 1 1

$135,000,001 – $135,500,000 $17,240,256 – $17,304,109 1 1

Share capital and other related

disclosures

Share buy-back programme

On 20 April 2022, HSBC Holdings concluded a share buy-back

programme of its ordinary shares of $0.50 each that had been

announced in October 2021. Under this buy-back programme in 2022,

a total of 191,466,093 ordinary shares were repurchased for

cancellation on UK trading venues, including the London Stock

Exchange, BATS, Chi-X, Turquoise and/or Aquis Exchange.

On 3 May 2022, HSBC Holdings commenced a further share buy-back

programme of its ordinary shares of $0.50 each up to a maximum

consideration of $1.0bn. This programme concluded on 28 July 2022,

with 86,606,357 ordinary shares repurchased for cancellation on the

UK trading venues and 70,066,800 ordinary shares repurchased for

cancellation on The Stock Exchange of Hong Kong Limited (’HKEx’).

The purpose of both buy-back programmes was to reduce HSBC’s

number of outstanding ordinary shares.

As at 31 December 2022, the total number of ordinary shares

purchased and cancelled during the year was 348,139,250,

representing a nominal value of $174,069,625 and an aggregate

consideration paid by HSBC of £1,426,598,865 on the UK trading

venues and HK$3,514,580,618 on the HKEx. The shares cancelled

represent 1.72% of the shares in issue and 1.74% of the shares in

issue, excluding treasury shares.

The table that follows outlines details of the shares purchased and

cancelled on a monthly basis during 2022.

Number

of shares

purchased and

cancelled

Highest price

paid per share

Lowest price

paid per share

Average price

paid per share

Aggregate

price paid

First share buy-back on UK trading venues in 2022

Month shares cancelled

Jan-22 25,382,519 5.2700 4.4555 4.9784 126,363,981

Feb-22 19,064,151 5.5510 5.1530 5.3395 101,793,492

Mar-22 72,125,062 5.4040 4.4935 4.9129 354,343,000

Apr-22 74,894,361 5.4100 5.1460 5.2608 394,002,122

Total 191,466,093 976,502,595

Number

of shares

purchased and

cancelled

Highest price

paid per share

Lowest price

paid per share

Average price

paid per share

Aggregate

price paid

Second share buy-back on UK trading venues in 2022

Month shares cancelled

May-22 21,447,447 5.2700 4.7800 4.9911 107,047,291

Jun-22 31,082,904 5.4960 4.9780 5.2729 163,897,398

Jul-22 33,126,211 5.5530 5.0840 5.2598 174,235,941

Aug-22 949,795 5.2170 5.1230 5.1755 4,915,640

Total 86,606,357 450,096,270

HSBC Holdings plc Annual Report and Accounts 2022 301

Corporate governance

Number of

purchased and

cancelled

Highest price

paid per share

Lowest price

paid per share

Average price

paid per share

Aggregate

price paid

Second share buy-back on HKEx in 2022 (HK$) (HK$) (HK$) (HK$)

Month shares purchased

May-22 5,244,800 52.8500 46.5000 50.8537 266,717,438

Jun-22 31,582,400 52.7000 48.2500 50.8657 1,606,461,400

Jul-22 33,239,600 52.3000 47.4000 49.3809 1,641,401,780

Total 70,066,800 3,514,580,618

Dividends

Dividends for 2022

An interim dividend of $0.09 for the 2022 half-year was paid on

29September 2022. For further details of the dividends approved in

2022, see Note 8 on the financial statements.

On 21 February 2023, the Directors approved a second interim

dividend for 2022 of $0.23 per ordinary share, making a total of $0.32

for the 2022 full-year. The second interim dividend for 2022 will be

payable on 27 April 2023 in cash in US dollars, or in sterling or Hong

Kong dollars at exchange rates to be determined on 17April2023. As

the second interim dividend for 2022 was approved after

31December 2022, it has not been included in the balance sheet of

HSBC as a liability. The distributable reserves of HSBC Holdings at

31December 2022 were $35.2bn.

A quarterly dividend of £0.01 per Series A sterling preference share

was paid on 15 March, 15 June, 15 September and 15December

2022.

Dividends for 2023

The Group intends to pay quarterly dividends during 2023.

A dividend of £0.01 per Series A sterling preference share was

approved on 21 February 2023 for payment on 15 March 2023.

Share capital

Issued share capital

The nominal value of HSBC Holdings’ issued share capital paid upat

31 December 2022 was $10,146,803,705 divided into 20,293,607,410

ordinary shares of $0.50 each and one non-cumulative preference

share of £0.01, representing approximately 100.00% and 0.00%

respectively of the nominal value of HSBC Holdings’ total issued

share capital paid up at 31 December 2022.

Rights, obligations and restrictions attaching to shares

The rights and obligations attaching to each class of ordinary and non-

cumulative preference shares in our share capital are set out in full in

our Articles of Association. The Articles of Association may be

amended by special resolution of the shareholders and can be found

on our website at www.hsbc.com/who-we-are/leadership-and-

governance/board-responsibilities.

Ordinary shares

HSBC Holdings has one class of ordinary share, which carries no right

to fixed income. There are no voting restrictions on the issued

ordinary shares, all of which are fully paid. On a show of hands, each

member present has the right to one vote at general meetings. On a

poll, each member present or voting by proxy is entitled to one vote

for every $0.50 nominal value of share capital held.

There are no specific restrictions on transfers of ordinary shares,

which are governed by the general provisions of the Articles of

Association and prevailing legislation.

Information on the policy adopted by the Board for paying interim

dividends on the ordinary shares may be found in the ’Shareholder

information’ section on page 418.

Dividend waivers

HSBC Holdings’ employee benefit trusts, which hold shares in HSBC

Holdings in connection with the operation of its share plans, have

lodged standing instructions to waive dividends on shares held by

them that have not been allocated to employees. Shares held by

custodians in connection with the vesting of employee share awards

also lodged instructions to waive dividends. The total amount of

dividends waived during 2022 was $10.7m.

Preference shares

The preference shares, which have preferential rights to income and

capital, do not, in general, confer a right to attend and vote at general

meetings.

There are three classes of preference shares in the share capital of

HSBC Holdings: non-cumulative US dollar preference shares of $0.01

each (‘dollar preference shares’); non-cumulative preference shares of

£0.01 each (‘sterling preference shares’); and non-cumulative

preference shares of €0.01 (‘euro preference shares’).

The sterling preference share in issue is a Series A sterling preference

share. There are no dollar preference shares or euro preference

shares in issue.

Information on dividends approved for 2021 and 2022 may be found

in Note 8 on the financial statements on page 359.

Further details of the rights and obligations attaching to the HSBC

Holdings’ issued share capital may be found in Note 32 on the

financial statements.

Compliance with Hong Kong Listing Rule 13.25A(2)

HSBC Holdings has been granted a waiver from strict compliance

with Rule 13.25A(2) of the Rules Governing the Listing of Securities

on the Stock Exchange of Hong Kong.

Under this waiver, HSBC’s obligation to file a Next Day Return

following the issue of new shares, pursuant to the vesting of share

awards granted under its share plans to persons who arenot

Directors, would only be triggered where it falls within one of the

circumstances set out under Rule 13.25A(3).

Share capital changes in 2022

In addition to the share buy-back programme, the following events

occurred during the year in relation to the ordinary share capital of

HSBC Holdings:

Scrip dividends

There were no scrip dividends issued during the year.

Report of the Directors | Corporate governance report

302 HSBC Holdings plc Annual Report and Accounts 2022

All-employee share plans

HSBC Holdings

ordinary shares issued

Aggregate

nominal value

Market value per share

from

HSBC International Employee Share Purchase Plan 234,830 117,415 4.9385 5.1

1 In respect of the HSBC Holdings Savings Related Share Option Plan (UK), no new shares were issued under this plan. All exercises were satisfied by

market purchased shares. See page 309 for details of options granted, exercised and lapsed.

HSBC share plans

HSBC Holdings

ordinary shares issued

Aggregate

nominal value

Market value per share

from to

$ £ £

Vesting of awards under the HSBC Share Plan 2011 9,991,391 4,995,696 4.789 5.498

Authorities to allot and to purchase shares and

pre-emption rights

At the AGM in 2022, shareholders renewed the general authority for

the Directors to allot new shares up to 13,475,996,328 ordinary

shares, 15,000,000 non-cumulative preference shares of £0.01 each,

15,000,000 non-cumulative preference shares of $0.01 each and

15,000,000 non-cumulative preference shares of €0.01 each.

Shareholders also renewed the authority for the Directors to make

market purchases of up to 2,021,399,449 ordinary shares. The

Directors exercised their market purchase authority from both the

2021 and 2022 AGMs and purchased 348,139,250 ordinary shares

during the year.

In addition, shareholders gave authority for the Directors to grant

rights to subscribe for, or to convert any security into, no more than

4,042,798,898 ordinary shares in relation to anyissue by HSBC

Holdings or any member of the Group of contingent convertible

securities that automatically convert intoor are exchanged for

ordinary shares in HSBC Holdings in prescribed circumstances. For

further details on the issue of contingent convertible securities, see

Note 32 on the financial statements.

Other than as disclosed in the tables above headed ‘Share capital

changes in 2022’, the Directors did not allot any shares during 2022.

Debt securities

In 2022, HSBC Holdings issued the equivalent of $25.4bn of debt

securities in the public capital markets in a range of currencies and

maturities in the form of senior and subordinated securities to ensure

it meets the current and proposed regulatory rules, including those

relating to the availability of adequate total loss-absorbing capacity.

For details of capital instruments and subordinated bail-inable debt,

see Notes 29 and 32 on pages 393 and 402.

Treasury shares

In accordance with the terms of a waiver granted by the Hong Kong

Stock Exchange on 19 December 2005, HSBC Holdings willcomply

with the applicable law and regulation in the UK in relation to the

holding of any shares in treasury and with the conditions of the waiver

in connection with any shares it may hold in treasury. At

31December2022, pursuant to Chapter 6 of the UK Companies Act

2006, 325,273,407 ordinary shares were held in treasury. This was

the maximum number of shares held at any time during 2022,

representing 1.60% of the shares in issue as at 31 December 2022.

The nominal value of shares held in treasury was $162,636,704.

Notifiable interests in share capital

During 2022, HSBC Holdings did not receive any notification of major

holdings of voting rights pursuant to the requirements of Rule 5 of the

Disclosure Guidance and Transparency Rules (’Rule 5 of the DTRs’).

On 13 February 2023, pursuant to Rule 5 of the DTRs, Norges Bank

gave notice that on 10 February 2023 it had the following: a direct

interest in HSBC Holdings ordinary shares of 598,657,162; and

qualifying financial instruments with 9,249,895 voting rights that may

be acquired if the instruments are exercised or converted,

representing 2.998% and 0.046% respectively, of the total voting

rights at that date.

No further notifications had been received between 31 December

2022 and 15 February 2023. Previous notifications received are as

follows:

• BlackRock, Inc. gave notice on 3 March 2020 that on 2March

2020 it had the following: an indirect interest in HSBC Holdings

ordinary shares of 1,235,558,490; qualifying financial instruments

with 7,294,459 voting rights that may be acquired if the

instruments are exercised or converted; and financial instruments

with a similar economic effect to qualifying financial instruments,

which refer to 2,441,397 voting rights, representing 6.07%, 0.03%

and 0.01%, respectively, of the total voting rights at 2 March 2020.

• Ping An Asset Management Co., Ltd. gave notice on 6December

2017 that on 4 December 2017 it had an indirect interest in HSBC

Holdings ordinary shares of 1,007,946,172, representing 5.04% of

the total voting rights at that date.

At 31 December 2022, according to the register maintained by HSBC

Holdings pursuant to section 336 of the Securities and Futures

Ordinance of Hong Kong:

• BlackRock, Inc. gave notice on 9 March 2022 that on 4 March

2022 it had the following interests in HSBC Holdings ordinary

shares: a long position of 1,701,656,169 shares and a short

position of 19,262,061 shares, representing 8.27% and 0.09%,

respectively, of the ordinary shares in issue at that date.

• Ping An Asset Management Co., Ltd. gave notice on

25September 2020 that on 23 September 2020 it had a long

position of 1,655,479,531 in HSBC Holdings ordinary shares,

representing 8.00% of the ordinary shares in issue at that date.

Sufficiency of float

In compliance with the Rules Governing the Listing of Securities on

The Stock Exchange of Hong Kong Limited, at least 25% of the total

issued share capital has been held by the public at all times during

2022 and up to the date of this report.

Dealings in HSBC Holdings listed securities

The Group has policies and procedures that, except where permitted

by statute and regulation, prohibit specified transactions in respect of

its securities listed on The Stock Exchange of Hong Kong Limited.

Except for dealings as intermediaries or as trustees by subsidiaries of

HSBC Holdings, and purchases by HSBC Holdings under the share

buy-back programme, neither HSBC Holdings nor any of its

subsidiaries has purchased, sold or redeemed any of its securities

listed on TheStock Exchange of Hong Kong Limited during the year

ended 31December 2022.

HSBC Holdings plc Annual Report and Accounts 2022 303

Corporate governance

Directors’ interests

Pursuant to the requirements of the UK Listing Rules and according to

the register of Directors’ interests maintained by HSBC Holdings

pursuant to section 352 of the Securities and Futures Ordinance of

Hong Kong, the Directors of HSBC Holdings at 31 December 2022

had certain interests, all beneficial unless otherwise stated, in the

shares or debentures of HSBC Holdings and its associated

corporations.

Save as stated in the following table, no further interests were held

by Directors, and no Directors or their connected persons were

awarded or exercised any right to subscribe for any shares or

debentures in any HSBC corporation during the year.

No Directors held any short position as defined in the Securities and

Futures Ordinance of Hong Kong in the shares or debentures of

HSBC Holdings and its associated corporations.

Directors’ interests – shares and debentures

At 31 Dec 2022 or date of cessation, if earlier

At 1 Jan 2022, or

date of

appointment,

if later

Beneficial

owner

Child

under 18

or spouse

Jointly

with

another

person Trustee

Total

interests

HSBC Holdings ordinary shares

Geraldine Buckingham

(appointed to the Board on 1 May 2022) — 15,000 — — — 15,000

Rachel Duan

— 15,000 — — — 15,000

Dame Carolyn Fairbairn — 15,000 — — — 15,000

James Forese

115,000 115,000 — — — 115,000

Steven Guggenheimer

15,000 — — 15,000 — 15,000

Irene Lee (retired on 29 Apr 2022) 15,000 15,000 — — — 15,000

José Antonio Meade Kuribreña

15,000 15,000 — — — 15,000

Eileen Murray

75,000 75,000 — — — 75,000

David Nish 50,000 — 50,000 — — 50,000

Noel Quinn

1,131,278 1,422,650 — — — 1,422,650

Ewen Stevenson

838,154 1,064,626 — — — 1,064,626

Jackson Tai

1,3

66,515 32,800 11,965 21,750 — 66,515

Mark Tucker 307,352 307,352 — — — 307,352

Pauline van der Meer Mohr (retired on 29 Apr 2022) 15,000 15,000 — — — 15,000

1 Geraldine Buckingham has an interest in 3,000, Rachel Duan has an interest in 3,000, James Forese has an interest in 23,000, Steven Guggenheimer

has an interest in 3,000, José Antonio Meade Kuribreña has an interest in 3,000, Eileen Murray has an interest in 15,000 and Jackson Tai has an

interest in 13,303 listed American Depositary Shares (’ADS’), which are categorised as equity derivatives under Part XV of the Securities and Futures

Ordinance of Hong Kong. Each ADS represents five HSBC Holdings ordinary shares.

2 Executive Directors’ other interests in HSBC Holdings ordinary shares arising from the HSBC Holdings Savings-Related Share Option Plan (UK) and the

HSBC Share Plan 2011 are set out in the Scheme interests in the Directors’ remuneration report on page 276. At 31December 2022, the aggregate

interests under the Securities and Futures Ordinance of Hong Kong in HSBC Holdings ordinary shares, including interests arising through employee

share plans and the interests above were: Noel Quinn – 3,940,314; and Ewen Stevenson – 3,135,841. Each Director’s total interests represents

approximately 0.02% of the shares in issue and 0.02% of the shares in issue excluding treasury shares.

3 Jackson Tai has a non-beneficial interest in 11,965 shares of which he is custodian.

There have been no changes in the shares or debentures of the

current Directors from 31 December 2022 to the date of this report.

Listing Rule 9.8.4 and other disclosures

This section of the Annual Report and Accounts 2022 forms part of

and includes certain disclosures required in the Report of the

Directors incorporated by cross-reference, including under Listing

Rule 9.8.4 and otherwise as applicable by law.

Content Page references

Long-term incentives 285

Dividend waivers 302

Dividends 302

Share buy-back 301

Emoluments waivers 291

Emissions 47

Energy efficiency 49, 57, 59

Principal activities of HSBC 12, 31, 108, 382

Business review and future developments 11–42, 44, 133, 142, 409

Board governance

Appointment and re-election of Directors

A rigorous selection process is followed for the appointment of

Directors. Appointments are made on merit and candidates are

considered against objective criteria, having regard to the benefits of a

diverse Board. Appointments are made in accordance with HSBC

Holdings’ Articles of Association. The Nomination & Corporate

Governance Committee report sets out further details of the Board

selection process.

The Board may at any time appoint any person as a Director or

secretary, either to fill a vacancy or as an additional officer. The Board

may appoint any Director or secretary to hold any employment or

executive office, and may revoke or terminate any such appointment.

Non-executive Directors are appointed for an initial three-year term

and, subject to continued satisfactory performance based upon an

assessment by the Group Chairman and the Nomination & Corporate

Governance Committee, are proposed for re-election by shareholders

at each AGM. They typically serve two three-year terms, with any

individual's appointment beyond six years to be for a rolling one-year

term and subject to thorough review and challenge with reference to

the needs of the Board. Where Directors are appointed beyond six

years, an explanation is provided in the Annual Report and Accounts.

Shareholders vote at each AGM on whether to elect and re-elect

individual Directors. All Directors that stood for election and re-

election at the 2022 AGM were elected and re-elected by

shareholders.

Report of the Directors | Corporate governance report

304 HSBC Holdings plc Annual Report and Accounts 2022

None of the Directors who retired during the year or who are not

offering themselves for re-election at the 2023 AGM have raised

concerns about the operation of the Board or the management of the

company.

No executive Director is involved in deciding their own remuneration

outcome.

Commitments

The terms and conditions of the appointments of non-executive

Directors are set out in a letter of appointment, which includes the

expectations of them and the estimated time required to perform

their role. Letters of appointment of each non-executive Director are

available for inspection at the registered office of HSBC Holdings. The

anticipated time commitment for a non-executive Director serving on

the Board and as a member of any committee is no more than 75

days per annum. Directors who also chair a large committee are

expected to commit up to 100 days per annum with the Senior

Independent Director expected to serve an additional 30 days per

annum. The time commitment of the Group Risk Committee chair is

up to 150 days per annum. Any additional time commitment

connected with Board-related appointments will be confirmed

separately.

Board approval is required for any non-executive Directors’ external

commitments, with consideration given to their total time

commitments and potential conflicts of interest.

Conflicts of interest

The Board has an established policy and set of procedures, reviewed

and amended in 2022, to ensure that the Board’s management of

Directors’ conflicts of interest is effective. The Board has the power

to authorise conflicts where they arise, in accordance with the

Companies Act 2006 and HSBC Holdings’ Articles of Association.

Details of all Directors’ conflicts of interest are recorded in the

responsibility for the ongoing review of the conflicts register be

conducted by the Board, having previously been overseen by the

Nomination & Corporate Governance Committee. Upon appointment,

new Directors are advised of the policy and procedures for managing

conflicts. Directors are required to notify the Board of any actual or

potential conflicts of interest and to update the Board with any

changes to the facts and circumstances surrounding such conflicts.

Directors are requested to review and confirm their own and their

respective closely associated persons’ outside interests and

appointments twice each year. The Board has considered, and

authorised (with or without conditions) where appropriate, potential

conflicts as they have arisen during the year in accordance with its

conflicts policy and procedures. All non-executive Directors are re-

vetted by the compliance team every three years following

appointment and as part of such process all conflicts checks are

refreshed.

Joint Company Secretary

Aileen Taylor is the Group Company Secretary and Chief Governance

Officer.

In addition to being appointed as Deputy Group Secretary in

December 2021, for administrative purposes, Hannah Ashdown (46)

was also appointed in October 2022 as Joint Company Secretary. She

is a Fellow of the Chartered Governance Institute UK and Ireland.

Hannah has over 20 years’ governance and regulatory experience

across multiple sectors including financial services, asset

management, energy, leisure and retail.

Directors’ indemnity

The Articles of Association of HSBC Holdings contain a qualifying

third-party indemnity provision, which entitles Directors and other

officers to be indemnified out of the assets of HSBC Holdings against

claims from third parties in respect of certain liabilities.

HSBC Holdings has granted, by way of deed poll, indemnities to the

Directors, including former Directors, against certain liabilities arising

in connection with their position as a Director of HSBC Holdings or of

any Group company. Directors are indemnified to the maximum

extent permitted by law.

The indemnities that constitute a ’qualifying third-party indemnity

provision’, as defined by section 234 of the Companies Act 2006,

remained in force for the whole of the financial year (or, in the case of

Directors appointed during 2022, from the date of their appointment).

The deed poll is available for inspection at the registered office of

HSBC Holdings.

Additionally, Directors and pension trustees have the benefit of both

Directors’ and officers’, and pension trustees’, liability insurances.

Qualifying pension scheme indemnities have also been granted to the

trustees of the Group’s pension schemes, which were in force for the

whole of the financial year and remain in force as at the date of this

report.

Contracts of significance

During 2022, none of the Directors had a material interest, directly or

indirectly, in any contract of significance with any HSBC company.

During the year, all Directors were reminded of their obligations in

respect of transacting in HSBC securities and following specific

enquiry all Directors have confirmed that they have complied with

their obligations.

Shareholder engagement and communication

The Board is directly accountable to, and gives high priority to

communicating with, HSBC’s shareholders. Information about HSBC

and its activities is provided to shareholders in its Interim Reports and

the Annual Report and Accounts as well as on www.hsbc.com.

As set out in the Section 172(1) statement on page 20, the Board

seeks to understand investor needs through ongoing dialogue

between members of the Board and institutional investors throughout

the year. For examples of such engagement, see ’Board decision

making and engagement with stakeholders’ on page 20, the Board’s

engagement with shareholders on page 256 and the Group

Remuneration Committee Chair's letter on page 276. During 2022,

approximately 570 meetings were held with institutional investors and

analysts globally.

Our shareholder communications policy summarises how we

communicate with our shareholders, including through financial

reporting, general shareholder meetings, investor and analyst

meetings and our website. The policy is reviewed annually by the

Board, and in 2022 the Board confirmed that it was satisfied with its

implementation and effectiveness. The policy can be found at

www.hsbc.com/who-we-are/leadership-and-governance/board-

responsibilities.

We also publish our current and past financial results, investor

presentations and shareholder information such as dividend payments

and shareholder meeting details. Stock exchange announcements are

also accessible on our website along with information for fixed

income investors. For further details, see www.hsbc.com/investors.

Directors are encouraged to develop an understanding of the views of

shareholders. Enquiries from individuals on matters relating to their

shareholdings and HSBC’s business are welcomed.

Any individual or institutional investor can make an enquiry by

contacting the investor relations team, Group Chairman, Group Chief

Executive, Group Chief Financial Officer and Group Company

Secretary and Chief Governance Officer. Our Senior Independent

Director is also available to shareholders if they have concerns that

cannot be resolved or for which the normal channels would not be

appropriate. He can be contacted via the Group Company Secretary

and Chief Governance Officer at 8 Canada Square, London E14 5HQ.

Annual General Meeting

The AGM in 2023 is planned to be held in Birmingham, UK at

11:00am on Friday, 5 May 2023. Information on how to vote and

participate, both in advance and on the day, can be found in the

Notice of the 2023 AGM, which will be sent to shareholders on 24

March 2023 and be available on www.hsbc.com/agm. A live webcast

will be available on www.hsbc.com. A recording of the proceedings

will be available on www.hsbc.com shortly after the conclusion of the

AGM. Shareholders should monitor our website and announcements

for any changes to these arrangements. Shareholders may send

enquiries to the Board in writing via the Group Company Secretary

and Chief Governance Officer, HSBC Holdings plc, 8 Canada Square,

London E14 5HQ or by sending an email to

[email protected].

HSBC Holdings plc Annual Report and Accounts 2022 305

Corporate governance

General meetings and resolutions

Shareholders may require the Directors to call a general meeting

other than an AGM, as provided by the UK Companies Act 2006. A

valid request to call a general meeting may be made by members

representing at least 5% of the paid-up capital of HSBC Holdings as

carries the right of voting at its general meetings (excluding any paid-

up capital held as treasury shares). A request must state the general

nature of the business to be dealt with at the meeting and may

include the text of a resolution that may properly be moved and is

intended to be moved at the meeting. At any general meeting

convened on such request, no business may be transacted except

that stated by the requisition or proposed by the Board.

Shareholders may request the Directors to send a resolution to

shareholders for consideration at an AGM, as provided by the UK

Companies Act 2006. A valid request must be made by

(i)membersrepresenting at least 5% of the paid-up capital of HSBC

Holdings as carries the right of voting at its general meetings

(excluding any paid-up capital held as treasury shares), or (ii) at least

100 members who have a right to vote on the resolution at the AGM

in question and hold shares in HSBC Holdings on which there has

been paid up an average sum, per member, of at least £100.

The request must be received by HSBC Holdings not later than (i) six

weeks before the AGM in question; or (ii) if later, the time at which

the notice of AGM is published.

A request may be in hard copy form or in electronic form, and must

be authenticated by the person or persons making it. A request may

be made in writing to HSBC Holdings at its UK address, referred to in

the paragraph above or by sending an email to

[email protected].

Articles of Association

New Articles of Association were approved at the 2022 AGM. The

principal changes included updates and changes to articles on hybrid

meetings, general meetings, untraceable shareholders, Director share

qualification, Directors’ reappointment, Directors’ written resolutions,

distribution in specie and dividend forfeiture. The Articles of

Association can be found at www.hsbc.com/who-we-are/leadership-

and-governance/board-responsibilities. For further details of the 2022

Notice of AGM, see www.hsbc.com/agm.

Events after the balance sheet date

For details of events after the balance sheet date, see Note 37 on the

financial statements.

Change of control

The Group is not party to any significant agreements that take effect,

alter or terminate following a change of control of the Group. The

Group does not have agreements with any Director or employee that

would provide compensation for loss of office or employment

resulting from a takeover bid.

Branches

The Group provides a wide range of banking and financial services

through branches and offices in the UK and overseas.

Research and development activities

During the ordinary course of business, the Group develops new

products and services within the global businesses.

Political donations

HSBC does not make any political donations or incur political

expenditure within the ordinary meaning of those words. We have no

intention of altering this policy. However, the definitions of political

donations, political parties, political organisations and political

expenditure used in the UK Companies Act 2006 are very wide. As a

result, they may cover routine activities that form part of the normal

business activities of the Group and are an accepted part of engaging

with stakeholders. To ensure that neither the Group nor any of its

subsidiaries inadvertently breaches the UK Companies Act 2006,

authority is sought from shareholders at the AGM to make political

donations.

HSBC provides administrative support to two political action

committees (’PACs’) in the US funded by voluntary political

contributions by eligible employees. We do not control the PACs, and

all decisions regarding the amounts and recipients of contributions are

directed by a voluntary Board Finance Committee, which consists of

contributing eligible employees. The PACs recorded combined

political donations of $100,250 during 2022 (2021: $15,500).

Charitable contributions

For details of charitable contributions, see page 84.

Internal control

The Board is responsible for maintaining and reviewing the

effectiveness of risk management and internal control systems, and

for determining the level and type of risks the Group is willing to take

in achieving its strategic objectives.

To meet this requirement and to discharge its obligations under the

FCA Handbook and the PRA Handbook, procedures have been

designed: for safeguarding assets against unauthorised use or

disposal; for maintaining proper accounting records; and for ensuring

the reliability and usefulness of financial information used within the

business or for publication.

These procedures provide reasonable assurance against material

misstatement, errors, losses or fraud. They are designed to provide

effective internal control within the Group and accord with the

Financial Reporting Council‘s guidance for Directors issued in 2014,

on risk management, internal control and related financial and

business reporting. The procedures have been in place throughout the

year and up to 21 February 2023, the date ofapproval of the Annual

Report and Accounts 2022.

The key risk management and internal control procedures include the

following:

Global Principles

The Group’s Global Principles set an overarching standard for all

policies and procedures and are fundamental to the Group’s risk

management structure. They inform and connect our purpose, values,

strategy and risk management principles, guiding us to do the right

thing and treat our customers and our colleagues fairly at all times.

Risk management framework

The risk management framework supports our Global Principles. It

outlines the key principles and practices that we employ in managing

material risks. It applies to all categories of risk and supports a

consistent approach in identifying, assessing, managing and reporting

the risks we accept and incur in our activities.

Delegation of authority within limits set by the Board

Subject to certain matters reserved for the Board, the Group Chief

Executive has been delegated authority limits and powers within

which to manage the day-to-day affairs of the Group, including the

right to sub-delegate those limits and powers. Each relevant Group

Executive Committee member or executive Director has delegated

authority within which to manage the day-to-day affairs of the

business or function for which he or she is accountable.

Delegation of authority from the Board requires those individuals to

maintain a clear and appropriate apportionment of significant

responsibilities and to oversee the establishment and maintenance of

systems of control that are appropriate to their business or function.

Authorities to enter into credit and market risk exposures

aredelegated with limits to line management of Group companies.

However, credit proposals with specified higher-risk characteristics

require the concurrence of the appropriate global function. Credit and

market risks are measured and reported at subsidiary company level

and aggregated for risk concentration analysis on a Group-wide basis.

Risk identification and monitoring

Systems and procedures are in place to identify, assess, control and

monitor the material risk types facing HSBC as set out in the risk

management framework. The Group‘s risk measurement and

reporting systems are designed to help ensure that material risks are

captured with all the attributes necessary to support well-founded

Report of the Directors | Corporate governance report

306 HSBC Holdings plc Annual Report and Accounts 2022

decisions, that those attributes are accurately assessed and that

information is delivered in a timely manner for those risks to be

successfully managed and mitigated.

Changes in market conditions/practices

Processes are in place to identify new risks arising from changes in

market conditions/practices or customer behaviours, which could

expose the Group to heightened risk of loss or reputational damage.

The Group employs a top and emerging risks process to provide

forward-looking views of issues with the potential to threaten the

execution of our strategy or operations over the medium to long term.

We remain committed to investing in the reliability and resilience of

our IT systems and critical services, including those provided by third

parties, that support all parts of our business. We do so to help

protect our customers, affiliates and counterparties, and to help

ensure that we minimise any disruption to services that could result in

reputational and regulatory consequences. In our approach to defend

against these threats, we invest in business and technical controls to

help us detect, manage and recover from issues, including data loss,

in a timely manner.

We continue our focus on the quality and timeliness of the data used

to inform management decisions, through measures such as early

warning indicators, prudent active risk management of our risk

appetite, and ensuring regular communication with our Board and

other key stakeholders.

Responsibility for risk management

All employees are responsible for identifying and managing risk within

the scope of their role as part of the three lines of defence model.

This is an activity-based model to delineate management

accountabilities and responsibilities for risk management and the

control environment. The second line of defence sets the policy and

guidelines for managing specific risk areas, provides advice and

guidance in relation to the risk, and challenges the first line of defence

(the risk owners) on effective risk management.

The Board delegated authority to the GAC and it reviewed the

independence, autonomy and effectiveness of the Group’s policies

and procedures on whistleblowing, including the procedures for the

protection of staff who raise concerns of detrimental treatment.

Strategic plans

Strategic plans are prepared for global businesses, global functions

and geographical regions within the framework of the Group’s overall

strategy. Financial resource plans, informed by detailed analysis of

risk appetite describing the types and quantum of risk that the Group

is prepared to take in executing its strategy, are prepared and adopted

by all major Group operating companies and set out the key business

initiatives and the likely financial effects of those initiatives.

The effectiveness of the Group’s system of risk management and

internal control is reviewed regularly by the Board, the GRC and the

GAC.

During 2022, the GRC continued to focus on the oversight of risk

transformation activities to strengthen our risk management

capabilities and to develop a best-in-class Risk function. In 2023, the

GRC will continue to focus on overseeing emerging risks and

potential risks arising from new products and offerings.

The GRC and the GAC received assurance from executive

management that a thorough risk assessment had been undertaken

and controls were in place to mitigate the risks arising from the

Group’s key activities. Necessary actions will be taken to remedy any

failings or weaknesses identified from these activities.

Internal control over financial reporting

HSBC is required to comply with section 404 of the US Sarbanes-

Oxley Act of 2002 and assess its effectiveness of internal control over

financial reporting at 31 December 2022. In 2014, the GAC endorsed

the adoption of the principles of the Committee of Sponsoring

Organizations of the Treadway Commission (’COSO’) 2013

framework for the monitoring of risk management and internal control

systems to satisfy the requirements of section 404 of the Sarbanes-

Oxley Act.

The key risk management and internal control procedures over

financial reporting include the following:

Entity level controls

The primary mechanism through which comfort over risk

management and internal control systems is achieved is through

assessments of the effectiveness of controls to manage risk, and the

reporting of issues on a regular basis through the various risk

management and risk governance forums. Entity level controls are a

defined suite of internal controls that have a pervasive influence over

the entity as a whole and meet the principles of the COSO

framework. They include controls related to the control environment,

such as the Group's values and ethics, the promotion of effective risk

management and the overarching governance exercised by the Board

and its non-executive committees. The design and operational

effectiveness of entity level controls are assessed annually as part of

the assessment of the effectiveness of internal controls over financial

reporting. If issues are significant to the Group, they are escalated to

the GRC and also to the GAC, if concerning financial reporting

matters.

Process level transactional controls

Key process level controls that mitigate the risk of financial

misstatement are identified, recorded and monitored in accordance

with the risk framework. This includes the identification and

assessment of relevant control issues against which action plans are

tracked through to remediation. Further details of HSBC’s approach to

risk management can be found on page 132. The GAC has continued

to receive regular updates on HSBC’s ongoing activities for improving

the effective oversight of end-to-end business processes, and

management continued to identify opportunities for enhancing key

controls, such as through the use of automation technologies.

Financial reporting

The Group’s financial reporting process is controlled using

documented accounting policies and reporting formats, supported by

detailed instructions and guidance on reporting requirements, issued

to all reporting entities within the Group in advance of each reporting

period end. The submission of financial information from each

reporting entity is supported by a certification by the responsible

financial officer and analytical review procedures at reporting entity

and Group levels.

Group Disclosure and Controls Committee

Chaired by the Group Chief Financial Officer, the Group Disclosure

and Controls Committee supports the discharge of the Group’s

obligations under relevant legislation and regulation including the UK

and Hong Kong listing rules, the UK Market Abuse Regulation and US

Securities and Exchange Commission rules. In so doing, the Group

Disclosure and Controls Committee is empowered to determine

whether a new event or circumstance should be disclosed, including

the form and timing of such disclosure, and review certain material

disclosures made or to be made by the Group. The membership of

the Group Disclosure and Controls Committee consists of senior

management, including the Group Chief Financial Officer, Group Chief

Risk and Compliance Officer, Group Chief Legal Officer, and Group

Company Secretary and Chief Governance Officer. The Group’s

brokers, external auditors and its external legal counsel also attend as

required. The integrity of disclosures is underpinned by structures and

processes within the Global Finance and Group Risk and Compliance

functions that support rigorous analytical review of financial reporting

and the maintenance of proper accounting records. As required by the

Sarbanes-Oxley Act, the Group Chief Executive and the Group Chief

Financial Officer have certified that the Group’s disclosure controls

and procedures were effective as at the end of the period covered by

the Annual Report and Accounts 2022.

The annual review of the effectiveness of the Group’s system of risk

management and internal control over financial reporting was

conducted with reference to the COSO 2013 framework. Based on

the assessment performed, the Directors concluded that for the year

ended 31 December 2022, the Group’s internal control over financial

reporting was effective.

PwC has audited the effectiveness of HSBC’s internal control over

financial reporting and has given an unqualified opinion.

HSBC Holdings plc Annual Report and Accounts 2022 307

Corporate governance

Other information included in the Annual

Report and Accounts 2022

We include other non-statutory information in the Annual Report and

Accounts to enable a broader perspective of our performance for the

period, including ESG and regulatory capital and liquidity information.

We highlight on pages 14 and 264 that we are seeking to enhance our

governance, process, systems and controls in both areas, although

the scale and nature of the challenges differ between reporting areas.

Our improvements in regulatory reporting are to ensure this reporting

is produced to a comparable standard of control as our financial

reporting. ESG reporting is fast evolving, with few globally consistent

reporting standards and a high reliance on external data. The GAC

provides oversight to our reporting improvements in both areas, and

is also focused on increasing the level of internal and external

assurance in these areas, in line with wider market developments (set

out on page 264).

Going concern

The Board, having made appropriate enquiries, is satisfied that the

Group as a whole has adequate resources to continue operations for a

period of at least 12 months from the date of this report, and it

therefore continues to adopt the going concern basis in preparing the

financial statements.

For further details, see page 42.

Employees

At 31 December 2022, HSBC had a total workforce equivalent to

219,000 full-time employees compared with 220,000 at the endof

2021. Our main centres of employment were India with

approximately 39,000 employees, the UK with 33,000, mainland

China with 32,000, Hong Kong with 27,000, Mexico with 17,000 and

France with 6,000.

Our business spans many cultures, communities and continents. We

aspire to provide a high-performing environment where our

colleagues can fulfil their potential by building their skills and

capabilities while focusing on the development of a diverse and

inclusive culture. We use employee surveys to assess progress and

make changes. We want to provide an open culture, where our

colleagues feel connected and supported to speak up, and where our

leaders encourage and use feedback. Where we make organisational

changes, we support our colleagues, in particular where there are job

impacts.

Employee relations

We consult with and, where appropriate, negotiate with employee

representative bodies where we have them. It is our policy to

maintain well-developed communications and consultation

programmes with all employee representative bodies. There have

been no material disruptions to our operations from labour disputes

during the past five years.

We are committed to complying with the applicable employment laws

and regulations in the jurisdictions in which we operate, including in

relation to working hours and rest periods. HSBC’s global

employment practices and relations policy provides the framework

and controls through which we seek to uphold that commitment.

Diversity and inclusion

Our customers, colleagues and communities span many cultures and

continents. We value difference and believe that diversity makes us

stronger. We are dedicated to building a diverse and connected

workforce where everyone feels a sense of belonging. In 2022, we

introduced a social well-being index that measures the

connectedness of our colleagues as we embrace hybrid working

practices.

Our Group People Committee, which is made up of Group Executive

Committee members, governs our diversity and inclusion agenda. It

meets regularly to agree actions to improve diverse representation

and build a more inclusive culture where our colleagues can bring

their best selves to work. Members of our Group Executive

Committee are held to account for the actions they take on diversity

via aspirational targets contained within their performance scorecards.

We expect all colleagues at HSBC to treat each other with dignity and

respect to ensure an inclusive environment. Our policies make it clear

that we do not tolerate unlawful discrimination, bullying or

harassment on any grounds.

To align our approach to inclusion best practices, we participate in

global diversity benchmarks that help us to identify improvement

opportunities. We also track a large number of diversity and inclusion

metrics, including those included in the Group executive scorecards,

which enable us to pinpoint inclusion barriers and enable us to take

action where required. Our approach to diversity and inclusion is set

out on page 74 alongside our goals and progress.

Further details of our diversity and inclusion activity, alongside our

Gender and Ethnicity Pay Gap Reports 2022, can be found at

www.hsbc.com/diversitycommitments.

Employment of people with a disability

We strongly believe in providing equal opportunities for all employees.

The employment of people with a disability is included in this

commitment. The recruitment, training, development and promotion

of people with a disability are based on the aptitudes and abilities of

the individual. Should employees become disabled during their

employment with us, efforts are made to continue their employment.

Where necessary, we will provide appropriate training, facilities and

reasonable equipment.

Employee development

We aim to build a dynamic, inclusive culture where the best want to

develop the skills and experiences that help them fulfil their potential.

This determines how we develop our people and recruit, identify and

nurture talent. A range of resources bring this to life including:

• HSBC University, our platform for learning and development with

specific business and technical academies;

• our My HSBC Career portal, which offers career development

information and resources; and

• HSBC Talent Marketplace, our new online platform that uses AI to

provide opportunities to learn as we work.

Everyone at HSBC annually completes global mandatory training. It

plays a critical role in shaping our culture by ensuring everyone is

focused on issues that are fundamental to working at HSBC, from

sustainability, to financial crime risk, to our intolerance of bullying and

harassment.

As the opportunities we face change, we provide development to key

groups of colleagues through business and technical academies. This

includes our risk academy, which helps us to develop broad

capabilities in traditional areas of risk like financial crime but also in

emerging risk issues like climate risk and the ethics of AI and data.

Our approach to learning is skills based. Our academies work with our

businesses to identify the key skills and capabilities we need in the

future. Alongside this, we help colleagues identify, assess and

develop the skills that match their ambition and aspirations.

Our platform for learning content is Degreed. This helps colleagues

identify, assess and develop key skills through internal and external

training materials in a way that suits them. Content can range from

quick videos, articles or podcasts to packaged programmes or

learning pathways.

In 2021, we launched the HSBC Talent MarketPlace, an AI-based

platform, which matches colleagues to projects and experiences

based on their aspirations. In 2022, we rolled the platform out to an

additional 83,000 colleagues and we will continue the global roll-out in

2023.

Effective people management and impactful leadership remain critical

to our ability to energise for growth. Following the success of our

refreshed executive development curriculum in 2021, we launched a

new programme for our Managing Director colleagues in 2022. This

combines internal programmes and business school activities with

targeted technical programmes on key topics and skills.

Health and safety

We are committed to providing a safe and healthy working

environment for everyone. We have adopted global policies,

mandatory procedures, and incident and information reporting

systems across the organisation that reflect our core values and are

Report of the Directors | Corporate governance report

308 HSBC Holdings plc Annual Report and Accounts 2022

aligned to international standards. Our global health and safety

performance is subject to ongoing monitoring and assurance to

ensure we are compliant with relevant laws and regulations.

Our chief operating officers have overall responsibility for engendering

a positive health and safety culture and ensuring that global policies,

procedures and systems are put into practice locally. They also have

responsibility for ensuring all local legal requirements are met.

We delivered a range of programmes in 2022 to help us understand

and manage our health and safety risks:

• We continued to provide enhancements to our workplaces globally

to minimise the risks of Covid-19, including enhanced cleaning,

improved ventilation and social distancing measures, as well as

reviewing and adjusting our risk control measures as government

restrictions were lifted.

• We reinforced our advice and risk assessment and control

methodology on working from home for employees adopting a

hybrid work style, providing more awareness and best practices on

good ergonomics and well-being.

• We delivered health and safety training and awareness to 240,000

of our employees and contractors globally, ensuring roles and

responsibilities were clear and understood.

• We completed the annual safety inspection on all of our buildings

globally, subject to local Covid-19 restrictions, to ensure we were

meeting our standards and continuously improving our safety

performance.

• We continued to focus on enhancing the safety culture in our

supply chain through our SAFER Together programme, covering

the five key elements of best practice safety culture, including

speaking up about safety, and recognising excellence. Our 2022

safety climate survey results showed that we continue to maintain

a positive safety culture that is significantly above the industry

average. A particular strength that the survey identified is our

encouragement of colleagues to make suggestions on how to

improve health and safety.

• We expanded our guidance and training programme for our

construction partners, focusing on our key markets globally, to

reduce the likelihood of accidents occurring by helping them

understand and deliver industry-leading health and safety

performance. More than 3,400 construction workers received

safety passporting training across 20 countries.

• Our Eat Well Live Well programme continued educating and

informing our colleagues on how to make healthy food and drink

choices. Launched in 2019, and now live in 12 markets across all

regions, the programme has helped to shift HSBC employee diets

towards more sustainable choices, with a more than 50% rise in

healthy food options being selected in our workplace catering

outlets since launch. Furthermore, with digital health tools and

over 50 healthy and plant-forward recipes created by chefs

available online, employees are supported to continue to make

healthy choices when away from the workplace.

• Protection of our colleagues and operations is of critical

importance and we have effective controls in place to protect our

people from natural disasters (such as storms and earthquakes). In

2022, there were 38 named storms that passed over 1,667 of our

buildings, resulting in no injuries or material business impact.

Employee health and safety

2022

2021

2020

Rate of workplace fatalities per 100,000 employees

—

Number of major injuries to employees

All injury rate per 100,000 employees

Lost days due to work injury

485

358

449

1 Fractures, dislocation, concussion, loss of consciousness, overnight

admission to hospital.

Remuneration

HSBC’s pay and performance strategy is designed to reward

competitively the achievement of long-term sustainable performance

and attract and motivate the very best people, regardless of gender,

ethnicity, age, disability or any other factor unrelated to performance

or experience with the Group, while performing their role in the long-

term interests of our stakeholders.

For further details of the Group’s approach to remuneration, see

page292.

Employee share plans

Share options and discretionary awards of shares granted under

HSBC share plans align the interests of employees with the creation

of shareholder value. The following table sets out the particulars of

outstanding options, including those held by employees working

under employment contracts that are regarded as ‘continuous

contracts’ for the purposes of the Hong Kong Employment Ordinance.

The options were granted at nil consideration. No options have been

granted to substantial shareholders and suppliers of goods or

services, nor in excess of the individual limit for each share plan. No

options were cancelled by HSBC during the year.

A summary for each plan of the total number of the options that were

granted, exercised or lapsed during 2022 is shown in the following

table. Further details required to be disclosed pursuant to Chapter 17

of the Rules Governing the Listing of Securities on The Stock

Exchange of Hong Kong Limited are available on our website at

www.hsbc.com/who-we-are/leadership-and-governance/remuneration

and on the website of The Stock Exchange of Hong Kong Limited at

www.hkex.com.hk, or can be obtained upon request from the Group

Company Secretary and Chief Governance Officer, 8 Canada Square,

London E14 5HQ.

Particulars of options held by Directors of HSBC Holdings are set out

on page 287.

Note 5 on the financial statements gives details of share-based

payments, including discretionary awards of shares granted under

HSBC share plans.

All-employee share plans

HSBC operates all-employee share option plans under which options

are granted over HSBC ordinary shares. Subject to leaver provisions,

options are normally exercisable after three orfive years. During

2022, options were granted by reference to the average market value

of HSBC Holdings ordinary shares on the five business days

immediately preceding the invitation date, then applying a discount of

20%. The closing price for HSBC Holdings ordinary shares quoted on

the London Stock Exchange on 26 September2022, the day before

the options were granted and as derived from the Daily Official List,

was £5.0160.

The HSBC Holdings Savings-Related Share Option Plan (UK) will

expire on 24 April 2030, by which time the plan may be extended with

approval from shareholders, unless the Directors resolve to terminate

the plan at an earlier date.

The HSBC International Employee Share Purchase Plan was

introduced in 2013 and now includes employees based in

31 jurisdictions, although no options are granted under this plan.

During 2022, approximately 189,000 employees were offered

participation in these plans.

HSBC Holdings Savings-Related Share Option Plan (UK)

HSBC Holdings ordinary shares

Dates of awards

Exercise price

Usually exercisable

Granted

Exercised

Lapsed

from

1 Jan 2022

during year

31 Dec 2022

(£)

22 Sep 2015 27 Sep 2022 2.6270 5.9640 1 Nov 2020 28 Apr 2028 123,196,850 8,928,527 3,483,332 12,991,322 115,650,723

1 Options over HSBC ordinary shares granted in response to approximately 9,564 applications from HSBC employees in the UK on 27 September 2022.

2 The weighted average closing price of the shares immediately before the dates on which options were exercised was £5.0534.

HSBC Holdings plc Annual Report and Accounts 2022 309

Corporate governance

Statement of compliance

The statement of corporate governance practices set out on pages

239 to 311 and the information referred to therein constitutes the

’Corporate governance report’ and ’Report of the Directors’ of HSBC

Holdings. The websites referred to do not form part of this report.

Relevant corporate governance codes, role profiles and policies

UK Corporate Governance Code www.frc.org.uk

Hong Kong Corporate

Governance Code (set out in

Appendix 14 to theRules

Governing the Listing of

Securities on the Stock

Exchange ofHong Kong Limited

('HKEx'))

www.hkex.com.hk

Descriptions of the roles and

responsibilities of the:

– Group Chairman

– Group Chief Executive

– Senior Independent Director

– Board

www.hsbc.com/who-we-are/

leadership-and-governance/board-

responsibilities

Board and senior management www.hsbc.com/who-we-are/

leadership-and-governance

Roles and responsibilities of the

Board’s committees

www.hsbc.com/who-we-are/

leadership-and-governance/board-

committees

Board’s policies on:

– diversity and inclusion

– shareholder communication

– human rights

– remuneration practices and

governance

www.hsbc.com/who-we-are/

leadership-and-governance/board-

responsibilities

Global Internal Audit Charter www.hsbc.com/who-we-are/

leadership-and-governance/

corporate-governance-codes/

internal-control

HSBC is subject to corporate governance requirements in both the UK

and Hong Kong. During 2022, save to the extent referred to in the

next paragraph, HSBC complied with the provisions and requirements

of both the UK and Hong Kong Corporate Governance Codes.

Dame Carolyn Fairbairn was appointed as Chair to the Group

Remuneration Committee on 29 April 2022 and has been a member

of such committee since September 2021. In approving Dame

Carolyn Fairbairn's appointment, the Board considered the UK

Corporate Governance Code expectation that the Chair has served at

least 12 months as a member on the committee before assuming the

position of Chair. Before her appointment she had served on the

Group Remuneration Committee for eight months. However, given

her previous experience as both a member and chair of the

remuneration committees of other UK listed companies, the Board

approved the appointment of Dame Carolyn Fairbairn as Chair.

Under the Hong Kong Code, the audit committee should be

responsible for the oversight of all risk management and internal

control systems. HSBC’s Group Risk Committee is responsible for

oversight of internal control, other than internal control over financial

reporting, and risk management systems. This is permitted under the

UK Corporate Governance Code.

HSBC Holdings has codified obligations for transactions in Group

securities in accordance with the requirements of the UK Market

Abuse Regulation and the rules governing the listing of securities on

HKEx, save that the HKEx has granted waivers from strict compliance

with the rules that take into account accepted practices in the UK,

particularly in respect of employee share plans. During the year, all

Directors were reminded of their obligations in respect of transacting

in HSBC Group securities. Following specific enquiry all Directors

have confirmed that they have complied with their obligations.

On behalf of the Board

Mark E Tucker

Group Chairman

HSBC Holdings plc

Registered number 617987

21 February 2023

Report of the Directors | Corporate governance report

310 HSBC Holdings plc Annual Report and Accounts 2022

Directors’ responsibility statement

The Directors are responsible for preparing the Annual Report and

Accounts 2022, the Directors’ remuneration report and the financial

statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements

for each financial year. Under that law, the Directors have prepared

the parent company (‘Company’) and Group financial statements in

accordance with UK-adopted international accounting standards. The

company has also prepared financial statements in accordance with

international financial reporting standards adopted pursuant to

Regulation (EC) N0 1606/2002 as it applies in the European Union. In

preparing these financial statements, the Directors have also elected

to comply with International Financial Reporting Standards issued by

the International Accounting Standards Board (IFRSs as issued by

IASB). Under company law, the Directors must not approve the

financial statements unless they are satisfied that they give a true and

fair view of the state of affairs of the Company and Group, and of the

profit or loss of the Company and Group for that period. In preparing

these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them

consistently;

• make judgements and accounting estimates that are reasonable

and prudent;

• state whether applicable UK-adopted international accounting

standards, international financial reporting standards adopted

pursuant to Regulation (EC) No 1606/2002 as it applies in the

European Union and IFRSs issued by IASB have been followed,

subject to any material departures disclosed and explained in the

financial statements; and

• prepare the financial statements on a going concern basis unless it

is inappropriate to presume that the Company and Group will

continue in business.

The Directors are also responsible for safeguarding the assets of the

Company and the Group and hence for taking reasonable steps for

the prevention and detection of fraud and other irregularities.

The Directors are responsible for keeping adequate accounting

records that are sufficient to show and explain the Company’s

transactions, and disclose with reasonable accuracy at any time the

financial position of the Company and the Group and enable them to

ensure that the financial statements and the Directors’ remuneration

report comply with the Companies Act 2006 and, as regards the

Group financial statements, Article 4 of the IAS Regulation.

The Directors are responsible for the maintenance and integrity of the

Annual Report and Accounts 2022 as they appear on the Company’s

website. Legislation in the United Kingdom governing the preparation

and dissemination of financial statements may differ from legislation

in other jurisdictions.

The Directors consider that the Annual Report and Accounts 2022,

taken as a whole, is fair, balanced and understandable, and provides

the information necessary for shareholders to assess the Company’s

position and performance, business model and strategy.

Each of the Directors, whose names and functions are listed in the

‘Report of the Directors: Corporate governance report’ on pages 240

to 243 of the Annual Report and Accounts 2022, confirms that, to the

best of their knowledge:

• the Group financial statements, which have been prepared in

accordance with UK-adopted international accounting standards,

international financial reporting standards adopted pursuant to

Regulation (EC) No 1606/2002 as it applies in the European Union

and IFRSs issued by IASB, give a true and fair view of the assets,

liabilities, financial position, and profit or loss of the Group; and

• the management report represented by the Report of the

Directors includes a fair review of the development and

performance of the business and the position of the Group,

together with a description of the principal risks and uncertainties

that it faces.

The Group Audit Committee has responsibility, delegated to it from

the Board, for overseeing all matters relating to external financial

reporting. The Group Audit Committee report on page 262 sets out

how the Group Audit Committee discharges its responsibilities.

Disclosure of information to auditors

In accordance with section 418 of the Companies Act 2006, the

Directors’ report includes a statement, in the case of each Director in

office as at the date the Report of the Directors is approved, that:

• so far as the Director is aware, there is no relevant audit

information of which the Company’s auditors are unaware; and

• they have taken all the steps they ought to have taken as a

Director in order to make themselves aware of any relevant audit

information and to establish that the Company’s auditors are

aware of that information.

On behalf of the Board

Mark E Tucker

Group Chairman

HSBC Holdings plc

Registered number 617987

21 February 2023

HSBC Holdings plc Annual Report and Accounts 2022 311

Corporate governance

Building on our international

connections

We aim to collaborate internationally to make a dierence

for our customers. In May 2022, we supported a Hong

Kong-based client with its investment in one of London’s

tallest skyscrapers. We helped C C Land Holdings Limited

with a £605m reﬁnancing of The Leadenhall Building in the

City of London ﬁnancial district. The international property

development and investment company bought the 225-metre

tall tower in 2017 for £1.15bn, in what was the second biggest

sale of a UK building at the time. The reﬁnancing was co-

ordinated by colleagues from our UK and Hong Kong

teams, and incorporated support from three other banks.

The ﬁnancial statements provide detailed

information and notes on our income,

balance sheet, cash ﬂows and changes

in equity, alongside a report from our

independent auditors.

313 Report of Independent Registered Public

Accounting Firm to the Board of Directors

and Shareholders of HSBC Holdings plc

324 Financial statements

335 Notes on the ﬁnancial statements

Financial

statements

312 HSBC Holdings plc Annual Report and Accounts 2022

Independent auditors’ report to the members of HSBC

Holdings plc

Report on the audit of the financial statements

Opinion

In our opinion, HSBC Holdings plc’s group financial statements and company financial statements (the “financial statements”)

• give a true and fair view of the state of the group’s and of the company’s affairs as at 31 December 2022 and of the group’s and company’s

profit and the group’s and company’s cash flows for the year then ended;

• have been properly prepared in accordance with UK-adopted international accounting standards; and

• have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements, included within the Annual Report and Accounts 2022 (the “Annual Report”), which comprise: the

consolidated and company balance sheets as at 31 December 2022; the consolidated and company income statements and the consolidated and

company statements of comprehensive income for the year then ended, the consolidated and company statements of cash flows for the year

then ended, the consolidated and company statements of changes in equity for the year then ended; and the notes to the financial statements,

which include a description of the significant accounting policies and other explanatory information. Certain notes to the financial statements

have been presented elsewhere in the Annual Report, rather than in the notes to the financial statements. These are cross-referenced from the

financial statements and are identified as ‘(Audited)’. The relevant disclosures are included in the Risk review section on pages 131 to 238 and

the Directors remuneration report disclosures on pages 276 to 301.

Our opinion is consistent with our reporting to the Group Audit Committee ('GAC').

Separate opinion in relation to international financial reporting standards adopted

pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union

As explained in note 1.1(a) to the financial statements, the group and company, in addition to applying UK-adopted international accounting

standards, have also applied international financial reporting standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the

European Union.

In our opinion, the group and company financial statements have been properly prepared in accordance with international financial reporting

standards adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union.

Separate opinion in relation to IFRSs as issued by the IASB

As explained in note 1.1(a) to the financial statements, the group and company, in addition to applying UK-adopted international accounting

standards, have also applied international financial reporting standards (IFRSs) as issued by the International Accounting Standards Board (IASB).

In our opinion, the group and company financial statements have been properly prepared in accordance with IFRSs as issued by the IASB.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (“ISAs (UK)”), International Standards on Auditing issued by

the International Auditing and Assurance Standards Board (“ISAs”) and applicable law. Our responsibilities under ISAs (UK) and ISAs are further

described in the Auditors’ responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we

have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We remained independent of the group in accordance with the ethical requirements that are relevant to our audit of the financial statements in

the UK, which includes the FRC’s Ethical Standard, as applicable to listed public interest entities, and the International Code of Ethics for

Professional Accountants (including International Independence Standards) issued by the International Ethics Standards Board for Accountants

(IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with these requirements.

To the best of our knowledge and belief, we declare that non-audit services prohibited by either the FRC’s Ethical Standard or Article 5(1) of

Regulation (EU) No 537/2014 were not provided to the company or its controlled undertakings.

Other than those disclosed in note 6, we have provided no non-audit services to the company or its controlled undertakings in the period under

audit.

HSBC Holdings plc Annual Report and Accounts 2022 313

Financial statements

Our audit approach

Overview

Audit scope

• This was the fourth year that it has been my responsibility to form this opinion on behalf of PricewaterhouseCoopers LLP, who you first

appointed on 31 March 2015 in relation to that year's audit. In addition to forming this opinion, in this report we have also provided

information on how we approached the audit, how it changed from the previous year and details of the significant discussions that we had

with the GAC.

Key audit matters

• Expected credit losses - Impairment of loans and advances (group)

• Impairment of investment in associate - Bank of Communications Co., Ltd ('BoCom') (group)

• Investments in subsidiaries (company)

• Valuation of defined benefit pension obligations (group)

• Held for sale accounting (group)

Materiality

• Overall group materiality: US$1bn (2021: US$970m) based on 5% of adjusted profit before tax.

• Overall company materiality: US$950m (2021: US$920m) based on 0.75% of total assets. This would result in an overall materiality of

US$2bn and was therefore reduced below the group materiality.

• Performance materiality: US$750m (2021: US$725m) (group) and US$712m (2021: US$690m) (company).

The scope of our audit

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements.

Key audit matters

Key audit matters are those matters that, in the auditors’ professional judgement, were of most significance in the audit of the financial

statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud)

identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and

directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were

addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a

separate opinion on these matters.

This is not a complete list of all risks identified by our audit.

Held for sale accounting (group) is a new key audit matter this year. Otherwise, the key audit matters below are consistent with last year.

Report of Independent Registered Public Accounting Firm to the Board of Directors and

Shareholders of HSBC Holdings plc

314 HSBC Holdings plc Annual Report and Accounts 2022

Expected credit losses – Impairment of loans and advances (group)

Nature of the key audit matter

Determining expected credit losses (‘ECL’) involves management judgement and is subject to a high degree of estimation uncertainty.

Management makes various assumptions when estimating ECL. The significant assumptions that we focused on in our audit included those with

greater levels of management judgement and for which variations had the most significant impact on ECL. These included assumptions made in

determining forward looking economic scenarios and their probability weightings (specifically the central and downside scenarios given these have the

most material impact on ECL) and estimating management judgemental adjustments and significant discounted cash flows for material credit impaired

exposures in relation to the China offshore unsecured commercial real estate portfolio.

The level of estimation uncertainty and judgement has remained high during 2022 as a result of the uncertain macroeconomic and geopolitical

environment, high levels of inflation and a rising global interest rate environment, as well as developments in China’s commercial real estate sector.

Macroeconomic conditions vary between territories and industries, leading to uncertainty around judgements made in determining the severity and

probability weighting of macroeconomic variable forecasts across the different economic scenarios used in ECL models.

The modelling methodologies used to estimate ECL are developed using historical experience. The impact of the prevailing macroeconomic conditions

has also resulted in certain limitations in the reliability of these methodologies to forecast the extent and timing of future customer defaults and

therefore estimate ECL. In addition, modelling methodologies do not incorporate all factors that are relevant to estimating ECL, such as differentiating

the impact on industry sectors and economic conditions. These limitations are addressed with management judgemental adjustments, the

measurement of which is inherently judgemental and subject to a high level of estimation uncertainty, in particular in relation to the China commercial

real estate offshore portfolio.

Management makes other assumptions which are less judgemental or for which variations have a less significant impact on ECL. These assumptions

include:

• the methodologies used in quantitative scorecards for determining customer risk ratings (‘CRRs’);

• estimating expected cash flows and collateral valuations for credit impaired corporate exposures, other than in relation to the China commercial real

estate offshore portfolio;

• model methodologies themselves; and

• quantitative and qualitative criteria used to assess significant increases in credit risk.

Matters discussed with the Group Audit Committee

We held discussions with the GAC covering governance and controls over ECL, with a significant focus on the uncertain prevailing macroeconomic

conditions and developments in China’s commercial real estate sector. We discussed a number of areas, including:

• the severity of macroeconomic scenarios, and their related probability weightings, across territories;

• management judgemental adjustments and the nature and extent of analysis used to support those adjustments;

• significant assumptions used to estimate the discounted cash inflow projections for defaulted exposures in relation to unsecured offshore China

commercial real estate;

• management’s policies, governance and controls over model validation and monitoring; and

• the disclosures made in relation to ECL, in particular, the impact of adjustments on determining ECL.

How our audit addressed the Key Audit Matter

We assessed the design and effectiveness of governance and controls over the estimation of ECL. We observed management’s review and challenge

in governance forums for (1) the determination of macroeconomic scenarios and their probability weightings, and (2) the assessment of ECL for Retail

and Wholesale portfolios, including the assessment of model limitations and any resulting management judgemental adjustments.

We also tested controls over:

• model validation and monitoring;

• credit reviews that determine customer risk ratings for wholesale customers;

• the identification of credit impaired triggers;

• the input of critical data into source systems and the flow and transformation of critical data from source systems to impairment models and

management judgemental adjustments;

• the calculation and approval of management judgemental adjustments to modelled outcomes; and

• approval of significant individual impairments.

We involved our economic experts in assessing the significant assumptions made in determining the severity and probability weighting of

macroeconomic variables (“MEV”) forecasts. These assessments considered the sensitivity of ECL to variations in the severity and probability

weighting of MEV forecasts. We involved our modelling experts in assessing the appropriateness of the significant assumptions and methodologies

used for models and certain management judgemental adjustments. We independently re-performed the calculations for a sample of those models

and certain management judgemental adjustments. In respect of unsecured offshore China commercial real estate, we involved our business recovery

experts in assessing certain significant management judgemental adjustments and discounted cash flows for a sample of credit impaired exposures.

We further considered whether the judgements made in selecting the significant assumptions would give rise to indicators of possible management

bias.

In addition, we performed substantive testing over:

• the compliance of ECL methodologies and assumptions with the requirements of IFRS 9;

• the appropriateness and application of the quantitative and qualitative criteria used to assess significant increases in credit risk;

• a sample of critical data used in ECL models and to estimate management judgemental adjustments;

• assumptions and critical data for a sample of credit impaired wholesale exposures; and

• a sample of CRRs applied to the wholesale exposures.

We evaluated and tested the Credit Risk disclosures made in the Annual Report.

Relevant references in the Annual Report and Accounts 2022

• Credit risk disclosures, page 145.

• Group Audit Committee Report, page 262.

• Note 1.2(d):Financial instruments measured at amortised cost, page 340.

• Note 1.2(i): Impairment of amortised cost and FVOCI financial assets, page 341.

HSBC Holdings plc Annual Report and Accounts 2022 315

Financial statements

Impairment of investment in associate – Bank of Communications Co., Ltd (‘BoCom’) (group)

Nature of the key audit matter

At 31 December 2022, the fair value of the investment in BoCom, based on the share price, was US$15.2bn lower than the carrying value (‘CV’) of

US$23.3bn.

This is an indicator of potential impairment. An impairment test was performed by management, with supporting sensitivity analysis, using the higher

of fair value and value in use (‘VIU’). The VIU was $0.2bn in excess of the CV. On this basis, management concluded no impairment was required.

The methodology in the VIU model is dependent on various assumptions, both short term and long term in nature. These assumptions, which are

subject to estimation uncertainty, are derived from a combination of management’s judgement, analysts’ forecasts and market data. The significant

assumptions that we focused our audit on were those with greater levels of management judgement and for which variations had the most significant

impact on the VIU. Specifically, these included:

• the discount rate;

• short term assumptions for operating income growth rate, cost-income ratio, and expected credit losses;

• long term assumptions for profit and asset growth rates, expected credit losses, and effective tax rates; and

• capital related assumptions (risk-weighted assets as a percentage of total assets, capital adequacy ratio and tier 1 capital adequacy ratio).

Matters discussed with the Group Audit Committee

We discussed the appropriateness of the VIU methodology and significant assumptions with the GAC, giving consideration to the macroeconomic

environment, the outlook for the Chinese banking market and the fair value, which has been lower than the carrying value for approximately 11 years.

We also discussed the disclosures made in relation to BoCom, including reasonably possible alternatives for the significant assumptions, the use of

sensitivity analysis to explain estimation uncertainty and the changes in certain assumptions that would result in the VIU being equal to the CV.

How our audit addressed the Key Audit Matter

We tested controls in place over the significant assumptions and the model used to determine the VIU. We assessed the appropriateness of the

methodology used, and the mathematical accuracy of the calculations, to estimate the VIU. In respect of the significant assumptions, our testing

included the following:

• challenging the appropriateness of the significant assumptions and, where relevant, their interrelationships;

• obtaining evidence for data supporting significant assumptions including historic experience, external market information, third-party sources

including analysts reports, information from BoCom management and historically available BoCom public information;

• assessing the impact on the VIU of reasonable variations in certain significant assumptions, both individually and in aggregate;

• determining a reasonable range for the discount rate used within the model, with the assistance of our valuation experts, and comparing it to the

discount rate used by management; and

• assessing whether the judgements made in deriving the significant assumptions give rise to indicators of possible management bias.

We observed the meetings between management and BoCom management, held specifically to identify facts and circumstances impacting

assumptions relevant to the determination of the VIU.

Representations were obtained from management that assumptions used were consistent with information currently available to the group.

We evaluated and tested the disclosures made in the Annual Report in relation to BoCom.

Relevant references in the Annual Report and Accounts 2022

• Group Audit Committee Report, page 262.

• Note 1.2(a): Critical accounting estimates and judgements, page 338.

• Note 18: Interests in associates and joint ventures, page 379.

Report of Independent Registered Public Accounting Firm to the Board of Directors and

Shareholders of HSBC Holdings plc

316 HSBC Holdings plc Annual Report and Accounts 2022

Investments in subsidiaries (company)

Nature of the key audit matter

Management reviewed investments in subsidiaries for indicators of impairment and indicators that impairment charges recognised in prior periods may

no longer exist or may have decreased in accordance with IAS 36 as at 31 December 2022. Where indicators have been identified management

estimated the recoverable amount using the higher of value in use (‘VIU’) or fair value less cost to sell. Management’s assessment resulted in a partial

reversal of an impairment charge of US$2.5bn in relation to the investment in HSBC Overseas Holdings (UK) Limited (‘HOHU’), which is an immediate

holding company of certain businesses in North America. This resulted in investment in subsidiaries of $US167.5bn at 31 December 2022.

The methodology used to estimate the recoverable amount is dependent on various assumptions, both short term and long term in nature. These

assumptions, which are subject to estimation uncertainty, are derived from a combination of management’s judgement, experts engaged by

management and market data. The significant assumptions that we focused our audit on were those with greater levels of management judgement

and for which variations had the most significant impact on the recoverable amount. Specifically, these included:

• HSBC’s business plan for 2023 to 2027 focusing on revenue, cost and ECL forecasts including the impact of climate change risk;

• regulatory capital requirements;

• long term growth rates; and

• discount rates.

Matters discussed with the Group Audit Committee

We discussed the partial reversal of the impairment charge for HOHU, the appropriateness of methodologies used and significant assumptions with

the GAC, giving consideration to the macroeconomic outlook and HSBC’s strategy. We considered reasonable possible alternatives for significant

assumptions.

How our audit addressed the Key Audit Matter

We tested controls in place over significant assumptions and the model used to determine the recoverable amounts. We assessed the

appropriateness of the methodology used, and tested the mathematical accuracy of the calculations, to estimate the recoverable amounts. In respect

of the significant assumptions, our testing included the following:

• challenging the achievability of management’s business plan and the prospects for HSBC’s businesses, as well as considering the achievement of

historic forecasts;

• obtaining and evaluating evidence relating to significant assumptions, from a combination of historical experience and external market and other

financial information;

• assessing whether the cash flows included in the model were in accordance with the relevant accounting standard;

• assessing the sensitivity of the VIU to reasonable variations in significant assumptions, both individually and in aggregate; and

• determining a reasonable range for the discount rate used within the model, with the assistance of our valuation experts, and comparing it to the

discount rate used by management.

We evaluated and tested the disclosures made in the Annual Report in relation to investment in subsidiaries.

Relevant references in the Annual Report and Accounts 2022

• Note 19: Investments in subsidiaries, page 382.

Valuation of defined benefit pensions obligations (group)

Nature of the key audit matter

The group has a defined benefit obligation of US$25.7bn, of which US$18.8bn relates to HSBC Bank (UK) pension scheme.

The valuation of the defined benefit obligation for HSBC Bank (UK) pension scheme is dependent on a number of actuarial assumptions. Management

uses an actuarial expert to determine the valuation of the defined benefit obligations. The valuation methodology uses a number of market based

inputs and other financial and demographic assumptions. The significant assumptions that we focused our audit on were those with greater levels of

management judgement and for which variations had the most significant impact on the liability. Specifically, these included the discount rate, inflation

rate and mortality rate.

Matters discussed with the Group Audit Committee

We discussed with the GAC the methodologies and significant assumptions used by management to determine the value of the defined benefit

obligation.

How our audit addressed the Key Audit Matter

We tested governance and controls in place over the methodologies and the significant assumptions, including those in relation to the use of

management’s experts. We also evaluated the objectivity and competence of management’s expert involved in the valuation of the defined benefit

obligation.

We assessed the appropriateness of the methodology used, and tested the accuracy of the calculation, to estimate the liability. In respect of the

significant assumptions, we used our actuarial experts to understand the judgements made by management and their actuarial expert in determining

the significant assumptions and compared these assumptions to our independently compiled expected ranges based on market observable indices and

the knowledge and opinions of our actuarial experts.

We evaluated and tested the disclosures made in the Annual Report in relation to the defined benefit pension obligation.

Relevant references in the Annual Report and Accounts 2022

• Group Audit Committee Report, page 262.

• Note 1.2(k): Critical accounting estimates and judgements, page 345.

• Note 5: Employee compensation and benefits, page 351.

HSBC Holdings plc Annual Report and Accounts 2022 317

Financial statements

Held for sale accounting (group)

Nature of the key audit matter

The group has agreements to sell a number of businesses as part of executing its strategy. This has resulted in US$115.9bn of assets and US$114.6bn

of liabilities being classified as held for sale as at 31 December 2022, in relation to businesses in France, Canada, Russia and Greece. In addition to the

assets and liabilities classified as held for sale, a loss of US$2.4bn has also been recognised in 2022 in relation to the sale of the business in France.

For the assets and liabilities to be classified as held for sale, the sale needs to be considered highly probable and expected to complete within 12

months of the date of classification. We focused our audit on the areas with greater levels of management judgement relating to the highly probable

threshold being met including the expected timing of completion, the appropriateness of disclosures relating to the highly probable assessment and

the loss recognised in relation to the sale of the business in France.

Matters discussed with the Group Audit Committee

We discussed with the GAC the judgements made by management in determining if the highly probable thresholds were met as at 31 December

2022. We also discussed the appropriateness of the disclosure made in the Annual Report which explained how management had concluded that

transactions met the highly probable threshold as at 31 December 2022.

How our audit addressed the Key Audit Matter

We tested governance and controls in place over the management process to determine if the highly probable threshold had been met on assets and

liabilities classified as held for sale.

We assessed the key judgments made by management to determine whether the highly probable thresholds were met as at 31 December 2022,

including their assessment of remaining actions to complete the transactions, any regulatory requirements that need to be met, and the likelihood and

expected timing of the transactions being approved by relevant regulators and shareholders.

We also tested the completeness and accuracy of the assets and liabilities that were classified as held for sale and the loss on sale recognised in

relation to the French business. We evaluated and tested the disclosures made in the Annual Report in relation to assets and liabilities classified as

held for sale.

Relevant references in the Annual Report and Accounts 2022

• Group Audit Committee Report, page 262.

• Note 1.2(o): Critical accounting estimates and judgements, page 347.

• Note 23: Assets held for sale and liabilities of disposal groups held for sale, page 389.

How we tailored the audit scope

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a

whole, taking into account the structure of the group and the company, the accounting processes and controls, and the industry in which they

operate.

The risks that HSBC faces are diverse, with the interdependencies between them being numerous and complex. In performing our risk

assessment we engaged with a number of stakeholders to ensure we appropriately understood and considered these risks and their

interrelationships. This includes stakeholders within HSBC and our own experts within PwC. This engagement covered external factors across

the geopolitical, macroeconomic and regulatory and accounting landscape, the impact of climate change risk as well as the internal environment

at HSBC, driven by strategy and transformation.

We evaluated and challenged management's assessment of the impact of climate change risk, which is set out on page 46, including their

conclusion that there is no material impact on the financial statements. In making this evaluation we considered management’s use of stress

testing and scenario analysis to arrive at the conclusion that there is no material impact on the financial statements. We considered

management's assessment on the areas in the financial statements most likely to be impacted by climate risk, including:

• the impact on ECL on loans and advances to customers, for both physical and transition risk;

• the forecast cashflows from management’s five year business plan and long term growth rates used in estimating recoverable amounts as

part of impairment assessments of investments in subsidiaries, goodwill and intangible assets;

• the impact of climate related terms on the solely payments of principal and interest test for classification and measurement of loans and

advances to customers; and

• climate risks relating to contingent liabilities as HSBC faces increased reputational, legal and regulatory risk as it progresses towards its

climate ambition.

HSBC’s progress on their ESG targets is not included within the scope of this audit. We were engaged separately to provide independent limited

assurance to the Directors over the following ESG data:

• the 2019 and 2020 on-balance sheet financed emissions for 6 sectors in total (page 50);

• the cumulative progress made by HSBC on providing and facilitating sustainable financing and investments (page 57); and

• HSBC’s own operations’ scope 1, 2 and 3 (limited to business travel) greenhouse gas emissions data for 2022 (page 62); and supply chain

greenhouse gas emissions for purchased goods and services, and capital goods for 2021 and 2022 (page 64).

The independent limited assurance reports, which explain the scope of our work and the procedures undertaken can be found on:

www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre. The work performed for a limited assurance report is

substantially less than the work performed for our financial audit, which provides reasonable assurance.

Through our risk assessment, we tailored our determination as to which entities and balances we needed to perform testing over to support our

Group opinion, taking into consideration the complex and disaggregated group structure, the accounting processes and controls as well as the

industry in which they operate. The risks of material misstatement can be reduced to an acceptable level by testing the most financially

significant entities within the Group and those that drive particular significant risks identified as part of our risk assessment. This ensures that

sufficient coverage has been obtained for each financial statement line item (FSLI). We continually assessed risks and changed the scope of our

audit where necessary.

Our risk assessment and scoping identified certain entities (collectively the Significant Subsidiaries) for which we obtained audit opinions. We

obtained full scope audit opinions for the consolidated financial position and performance of The Hongkong and Shanghai Banking Corporation

Limited, HSBC Bank plc, and HSBC North America Holdings Inc. We also obtained full scope audit opinions for the company financial position

and performance of HSBC UK Bank plc, HSBC Bank Canada and HSBC Mexico S.A. Banco. We obtained audit opinions over specific balances for

Report of Independent Registered Public Accounting Firm to the Board of Directors and

Shareholders of HSBC Holdings plc

318 HSBC Holdings plc Annual Report and Accounts 2022

HSBC Bank Middle East Limited - UAE Operations. The audits for HSBC Bank plc and HSBC UK Bank plc were performed by other PwC teams in

the UK. All other audits were performed by other PwC network firms.

We continued to incorporate elements of unpredictability into our audit scoping, extending the scope of work performed for both The Hongkong

and Shanghai Banking Corporation India Branch, and HSBC Bank (China) Limited. These entities are also in scope for The Hongkong and

Shanghai Banking Corporation Limited. This was undertaken with consideration of both the relative profitability of these entities in the region and

the Group’s strategy.

Group-wide audit approach

HSBC has entity level controls that have a pervasive influence across the group, as well as other global and regional governance and controls

over aspects of financial reporting, such as those operated by the Global Risk function for expected credit losses. A significant amount of IT and

operational processes and controls relevant to financial reporting are undertaken in operations centres run by Digital Business Services ('DBS').

Whilst these operations centres are not separate components, the IT and operational processes and controls are relevant to the financial

information of the Significant Subsidiaries. Financial reporting processes and controls are also performed centrally in HSBC's Group Finance

function and finance operation centres (‘Finance Operations’), including the impairment assessment of goodwill and intangible assets, the

consolidation of the group's results, the preparation of financial statements, and management's oversight controls relevant to the group's

financial reporting.

Group-wide processes or processes in DBS and Finance Operations are subject to specified audit procedures or an audit over specific FSLIs.

These procedures primarily relate to testing of IT general controls, forward looking economic scenarios for ECL, operating expenses, intangible

assets, valuation of financial instruments, intercompany eliminations, reconciliations and consolidation as well as payroll. For these areas, we

either performed audit work ourselves, or directed and provided oversight of the audit work performed by PwC teams in the UK, Poland, China,

Sri Lanka, Malaysia, India, Mexico and the Philippines. Some of this work was relied upon by the PwC teams auditing the Significant

Subsidiaries. This audit work, together with analytical review procedures and assessing the outcome of local external audits, also mitigated the

risk of material misstatement for balances in entities that were not part of a Significant Subsidiary.

Significant Subsidiaries audit approach

In March 2022, we held a meeting in Dubai with the partners and senior staff from the Group audit team and the PwC teams who undertake

audits of the Significant Subsidiaries and the Operations Centres. The meeting focused primarily on reconnecting as a team after virtual

interactions throughout the Covid-19 pandemic, reassessing our approach to auditing HSBC’s businesses, changes at HSBC and in our PwC

teams, and how we continue to innovate and improve the quality of the audit. We also discussed our significant audit risks.

We asked the partners and teams reporting to us on the Significant Subsidiaries to work to assigned materiality levels reflecting the size of the

operations they audited. The performance materiality levels ranged from US$712m to US$50m. Certain Significant Subsidiaries were audited to a

local statutory audit materiality that was a lower level than our allocated group materiality.

We designed global audit approaches for the products and services that substantially make up HSBC's global businesses, such as lending,

deposits and derivatives. These approaches were provided to the partners and teams performing audit testing for the Significant Subsidiaries.

We were in active dialogue throughout the year with the partners and teams responsible for the audits of the Significant Subsidiaries, including

consideration of how they planned and performed their work. Senior members of our team undertook at least one in-person site visit prior to the

year end where a full scope audit was requested. We attended Audit Committee meetings for some of the Significant Subsidiaries. We also

attended meetings with management for each of these Significant Subsidiaries at the year-end.

The audit of The Hongkong and Shanghai Banking Corporation Limited in Hong Kong relied upon work performed by other teams in Hong Kong

and the PwC network firms in India, mainland China and Singapore. Similarly, the audit of HSBC Bank plc in the UK relied upon work performed

by other teams in the UK and the PwC network firms in France and Germany. We considered how the audit partners and teams for the

Significant Subsidiaries instructed and provided oversight to the work performed in these locations. Collectively, Significant Subsidiaries covered

84% of total assets and 69% of total operating income.

Using the work of others

We have increased our use of evidence provided by others through our reliance on management assurance testing of controls across the group.

This included testing of controls performed by management themselves in certain low risk areas including reconciliations, footnote disclosure

controls and certain automated controls. We re-performed a portion of the testing to ensure appropriate quality of testing, as well as assessing

the competence and objectivity of those performing the testing.

We also used the work of PwC experts, for example economic experts for our work around the severity and probability weighting of

macroeconomics variables as part of the expected credit loss allowance and actuaries on the estimates used in determining pension liabilities.

An increasing number of controls are operated on behalf of HSBC by third parties. We obtained audit evidence from work that is scoped and

provided by other auditors that are engaged by those third parties. For example, we obtained a report evidencing the testing of external systems

and controls supporting HSBC's payroll and HR processes.

HSBC Holdings plc Annual Report and Accounts 2022 319

Financial statements

Materiality

The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together

with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the

individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the

financial statements as a whole.

Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:

Financial statements – group Financial statements – company

Overall materiality

US$1bn (2021: US$970m). US$950m (2021: US$920m).

How we determined it 5% of adjusted profit before tax. 0.75% of total assets. This would result in an overall

materiality of US$2bn and was therefore reduced below the

group materiality.

Rationale for benchmark

applied

We believe a standard benchmark of 5% of adjusted profit

before tax is an appropriate qualitative indicator of

materiality, although certain items could also be material for

qualitative reasons. This benchmark is standard for listed

entities and consistent with the wider industry. We

selected adjusted profit because, as discussed on page29,

management believes it best reflects the performance of

HSBC and how the group is run. We excluded the

adjustments made by management on page 29 for certain

customer redress programmes and fair value movements

of financial instruments, as in our opinion they are recurring

items that form part of ongoing business performance.

A benchmark of total assets has been used, as the

company's primary purpose is to act as a holding company

with investments in the group's subsidiaries, not to

generate operating profits and therefore a profit based

measure is not relevant.

We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected

misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and

extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance

materiality was 75% (2021: 75%) of overall materiality, amounting to US$750m (2021: US$725m) for the group financial statements and

US$712m (2021: US$690m) for the company financial statements.

In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation

risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate.

We agreed with the GAC that we would report to them misstatements identified during our audit above US$50m (group audit) (2021: US$48m)

and US$50m (company audit) (2021: US$48m) as well as misstatements below those amounts that, in our view, warranted reporting for

qualitative reasons.

Conclusions relating to going concern

Our evaluation of the directors’ assessment of the group's and the company’s ability to continue to adopt the going concern basis of accounting

included:

• performing a risk assessment to identify factors that could impact the going concern basis of accounting, including both internal risks (i.e.

strategy execution) and external risks (i.e. macroeconomic conditions);

• understanding and evaluating the group's financial forecasts and the group's stress testing of liquidity and regulatory capital, including the

severity of the stress scenarios that were used;

• understanding and evaluating credit rating agency ratings and actions; and

• reading and evaluating the adequacy of the disclosures made in the financial statements in relation to going concern.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or

collectively, may cast significant doubt on the group's and the company’s ability to continue as a going concern for a period of at least twelve

months from when the financial statements are authorised for issue.

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the

financial statements is appropriate.

However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the group's and the company's

ability to continue as a going concern.

In relation to the directors’ reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw

attention to in relation to the directors’ statement in the financial statements about whether the directors considered it appropriate to adopt the

going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report.

Reporting on other information

The other information comprises all of the information in the Annual Report other than the financial statements and our auditors’ report thereon.

The directors are responsible for the other information.

Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to

the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our

responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial

statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material

inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the

financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a

material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities.

Report of Independent Registered Public Accounting Firm to the Board of Directors and

Shareholders of HSBC Holdings plc

320 HSBC Holdings plc Annual Report and Accounts 2022

With respect to the Strategic Report and Report of the Directors, we also considered whether the disclosures required by the UK Companies Act

2006 have been included.

Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as

described below.

Strategic report and Report of the Directors

In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic Report and Report of the Directors

for the year ended 31 December 2022 is consistent with the financial statements and has been prepared in accordance with applicable legal

requirements.

In light of the knowledge and understanding of the group and company and their environment obtained in the course of the audit, we did not

identify any material misstatements in the Strategic Report and Report of the Directors.

Directors’ Remuneration

In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act

2006.

Corporate governance statement

The Listing Rules require us to review the directors’ statements in relation to going concern, longer-term viability and that part of the corporate

governance statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code specified for our review.

Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other

information section of this report.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance

statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to

add or draw attention to in relation to:

• the directors’ confirmation that they have carried out an appropriate assessment of the emerging and principal risks;

• the disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an

explanation of how these are being managed or mitigated;

• the directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of

accounting in preparing them, and their identification of any material uncertainties to the group’s and company’s ability to continue to do so

over a period of at least twelve months from the date of approval of the financial statements;

• the directors’ explanation as to their assessment of the group's and company’s prospects, the period this assessment covers and why the

period is appropriate; and

• the directors’ statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its

liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications

or assumptions.

Our review of the directors’ statement regarding the longer-term viability of the group and company was substantially less in scope than an audit

and only consisted of making inquiries and considering the directors’ process supporting their statement; checking that the statement is in

alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the

financial statements and our knowledge and understanding of the group and company and their environment obtained in the course of the audit.

In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate

governance statement is materially consistent with the financial statements and our knowledge obtained during the audit:

• the directors’ statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the

information necessary for the members to assess the group’s and company's position, performance, business model and strategy;

• the section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and

• the section of the Annual Report describing the work of the GAC.

We have nothing to report in respect of our responsibility to report when the directors’ statement relating to the company’s compliance with the

Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors.

Responsibilities for the financial statements and the audit

Responsibilities of the directors for the financial statements

As explained more fully in the Directors' responsibility statement, the directors are responsible for the preparation of the financial statements in

accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such

internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement,

whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group’s and the company’s ability to continue as a going

concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either

intend to liquidate the group or the company or to cease operations, or have no realistic alternative but to do so.

Auditors’ responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,

whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is

not a guarantee that an audit conducted in accordance with ISAs (UK) and ISAs will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to

influence the economic decisions of users taken on the basis of these financial statements.

HSBC Holdings plc Annual Report and Accounts 2022 321

Financial statements

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities,

outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of

detecting irregularities, including fraud, is detailed below.

Based on our understanding of the group and industry, we identified that the principal risks of non-compliance with laws and regulations related

to breaches of financial crime laws and regulations and regulatory compliance, including regulatory reporting requirements and conduct of

business, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered

those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management’s

incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined

that the principal risks were related to posting inappropriate journal entries in relation to cost targets, and management bias in accounting

estimates. The group engagement team shared this risk assessment with the component auditors so that they could include appropriate audit

procedures in response to such risks in their work. Audit procedures performed by the group engagement team and/or component auditors

included:

• review of correspondence with and reports from regulators, including the Prudential Regulation Authority ('PRA') and Financial Conduct

Authority ('FCA');

• reviewed reporting to the GAC and GRC in respect of compliance and legal matters;

• enquiries of management and review of internal audit reports, insofar as they related to the financial statements;

• obtain legal confirmations from legal advisors relating to material litigation and compliance matters;

• assessment of matters reported on the group's whistleblowing programmes and the results of management's investigation of such matters,

insofar as they related to the financial statements;

• challenging assumptions and judgements made by management in its significant accounting estimates, in particular in relation to the

determination of expected credit losses, the impairment assessment of the investment in BoCom, valuation of defined benefit pensions

obligations, investment in subsidiaries and valuation of financial instruments;

• obtaining confirmations from third parties to confirm the existence of a sample of transactions and balances; and

• identifying and testing journal entries, including those posted with certain descriptions, posted and approved by the same individual,

backdated journals or posted by infrequent and unexpected users.

There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with

laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a

material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment

by, for example, forgery or intentional misrepresentations, or through collusion.

Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques.

However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to

target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a

conclusion about the population from which the sample is selected.

A further description of our responsibilities for the audit of the financial statements in accordance with ISAs (UK) is located on the FRC’s website

at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditors’ report.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We

also:

• identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and

perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our

opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve

collusion, forgery, intentional omissions, misrepresentations, or the override of internal control;

• obtain an understanding of internal controls relevant to the audit in order to design audit procedures that are appropriate in the circumstances,

but not for the purpose of expressing an opinion on the effectiveness of the Group’s and company’s internal controls;

• evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by

management;

• conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained,

whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s and company’s ability to

continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the

related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are

based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to

cease to continue as a going concern;

• evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the

consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation; and

• obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group and

company to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance

of the Group and company audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant

audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding

independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence,

and where applicable, actions taken to eliminate threats or safeguards applied.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit

of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s

report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a

matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh

the public interest benefits of such communication.

Use of this report

This report, including the opinions, has been prepared for and only for the company’s members as a body in accordance with Chapter 3 of Part

16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other

Report of Independent Registered Public Accounting Firm to the Board of Directors and

Shareholders of HSBC Holdings plc

322 HSBC Holdings plc Annual Report and Accounts 2022

purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior

consent in writing.

Other required reporting

Companies Act 2006 exception reporting

Under the Companies Act 2006 we are required to report to you if, in our opinion:

• we have not obtained all the information and explanations we require for our audit; or

• adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches

not visited by us; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• the company financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting

records and returns.

We have no exceptions to report arising from this responsibility.

Appointment

Following the recommendation of the Group Audit Committee ('GAC'), we were appointed by the members on 31 March 2015 to audit the

financial statements for the year ended 31 December 2015 and subsequent financial periods. The period of total uninterrupted engagement is

eight years, covering the years ended 31 December 2015 to 31 December 2022.

Other matter

As required by the Financial Conduct Authority Disclosure Guidance and Transparency Rule 4.1.14R, these financial statements form part of the

ESEF-prepared annual financial report filed on the National Storage Mechanism of the Financial Conduct Authority in accordance with the ESEF

Regulatory Technical Standard (‘ESEF RTS’). This auditors’ report provides no assurance over whether the annual financial report has been

prepared using the single electronic format specified in the ESEF RTS.

Scott Berryman (Senior Statutory Auditor)

for and on behalf of PricewaterhouseCoopers LLP

Chartered Accountants and Statutory Auditors

London

21 February 2023

HSBC Holdings plc Annual Report and Accounts 2022 323

Financial statements

Contents

324 Consolidated income statement

325 Consolidated statement of comprehensive income

326 Consolidated balance sheet

327 Consolidated statement of cash flows

328 Consolidated statement of changes in equity

331 HSBC Holdings income statement

331 HSBC Holdings statement of comprehensive income

332 HSBC Holdings balance sheet

333 HSBC Holdings statement of cash flows

334 HSBC Holdings statement of changes in equity

Consolidated income statement

for the year ended 31 December

2022

2021

2020

Notes*

Net interest income 32,610 26,489 27,578

– interest income

1,2

55,059 36,188 41,756

– interest expense

(22,449) (9,699) (14,178)

Net fee income

11,451 13,097 11,874

– fee income 15,213 16,788 15,051

– fee expense (3,762) (3,691) (3,177)

Net income from financial instruments held for trading or managed on a fair value basis

10,469 7,744 9,582

Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives,

measured at fair value through profit or loss

(3,394) 4,053 2,081

Changes in fair value of designated debt and related derivatives

(77) (182) 231

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss

226 798 455

Gains less losses from financial investments (3) 569 653

Net insurance premium income

12,825 10,870 10,093

Impairment loss relating to the planned sale of our retail banking operations in France

(2,378) — —

Other operating income/(loss)

(133) 502 527

Total operating income 61,596 63,940 63,074

Net insurance claims and benefits paid and movement in liabilities to policyholders

(9,869) (14,388) (12,645)

Net operating income before change in expected credit losses and other credit impairment charges 51,727 49,552 50,429

Change in expected credit losses and other credit impairment charges (3,592) 928 (8,817)

Net operating income 48,135 50,480 41,612

Employee compensation and benefits

(18,366) (18,742) (18,076)

General and administrative expenses (11,091) (11,592) (11,115)

Depreciation and impairment of property, plant and equipment and right-of-use assets

(2,157) (2,261) (2,681)

Amortisation and impairment of intangible assets (1,716) (1,438) (2,519)

Goodwill impairment

— (587) (41)

Total operating expenses (33,330) (34,620) (34,432)

Operating profit 14,805 15,860 7,180

Share of profit in associates and joint ventures

2,723 3,046 1,597

Profit before tax 17,528 18,906 8,777

Tax expense

(858) (4,213) (2,678)

Profit for the year 16,670 14,693 6,099

Attributable to:

– ordinary shareholders of the parent company 14,822 12,607 3,898

– preference shareholders of the parent company — 7 90

– other equity holders 1,213 1,303 1,241

– non-controlling interests 635 776 870

Profit for the year 16,670 14,693 6,099

Basic earnings per ordinary share

0.75 0.62 0.19

Diluted earnings per ordinary share

0.74 0.62 0.19

* For Notes on the financial statements, see page 335.

1 Interest income includes $48,134m (2021: $30,916m; 2020: $35,293m) of interest recognised on financial assets measured at amortised cost and

$6,386m (2021: $4,337m; 2020: $5,614m) of interest recognised on financial assets measured at fair value through other comprehensive income.

2 Interest income is calculated using the effective interest method and comprises interest recognised on financial assets measured at either amortised

cost or fair value through other comprehensive income.

3 Interest expense includes $20,798m (2021: $8,227m; 2020: $12,426m) of interest on financial instruments, excluding interest on financial liabilities

held for trading or designated or otherwise mandatorily measured at fair value.

4 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.

5 Includes impairment of goodwill of $425m.

6 Other operating income includes a loss on net monetary positions of $678m (2021: $224m, 2020: $128m) as a result of applying IAS 29 ‘Financial

Reporting in Hyperinflationary Economies’.

7 Includes depreciation of the right-of-use assets of $723m (2021: $878m; 2020: $1,029m).

Financial statements

324 HSBC Holdings plc Annual Report and Accounts 2022

Consolidated statement of comprehensive income

for the year ended 31 December

2022

2021

2020

Profit for the year 16,670 14,693 6,099

Other comprehensive income/(expense)

Items that will be reclassified subsequently to profit or loss when specific conditions are met:

Debt instruments at fair value through other comprehensive income (5,468) (2,139) 1,750

– fair value gains/(losses) (7,261) (2,270) 2,947

– fair value gains transferred to the income statement on disposal (20) (464) (668)

– expected credit (recoveries)/losses recognised in the income statement 67 (49) 48

– income taxes 1,746 644 (577)

Cash flow hedges (3,655) (664) 471

– fair value gains/(losses) (4,207) 595 (157)

– fair value (gains)/losses reclassified to the income statement (758) (1,514) 769

– income taxes 1,310 255 (141)

Share of other comprehensive income/(expense) of associates and joint ventures (367) 103 (73)

– share for the year (367) 103 (73)

Exchange differences (9,931) (2,393) 4,855

Items that will not be reclassified subsequently to profit or loss:

Fair value gains on property revaluation 280 — —

Remeasurement of defined benefit asset/liability (1,031) (274) 834

– before income taxes (1,723) (107) 1,223

– income taxes 692 (167) (389)

Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes in

own credit risk

1,922 531 167

– before income taxes 2,573 512 190

– income taxes (651) 19 (23)

Equity instruments designated at fair value through other comprehensive income 107 (446) 212

– fair value gains/(losses) 107 (443) 212

– income taxes — (3) —

Effects of hyperinflation 842 315 193

Other comprehensive income/(expense) for the year, net of tax (17,301) (4,967) 8,409

Total comprehensive income/(expense) for the year (631) 9,726 14,508

Attributable to:

– ordinary shareholders of the parent company (2,393) 7,765 12,146

– preference shareholders of the parent company — 7 90

– other equity holders 1,213 1,303 1,241

– non-controlling interests 549 651 1,031

Total comprehensive income/(expense) for the year (631) 9,726 14,508

HSBC Holdings plc Annual Report and Accounts 2022 325

Financial statements

Consolidated balance sheet

31 Dec

2022

2021

Notes*

Assets

Cash and balances at central banks 327,002 403,018

Items in the course of collection from other banks 7,297 4,136

Hong Kong Government certificates of indebtedness 43,787 42,578

Trading assets

218,093 248,842

Financial assets designated and otherwise mandatorily measured at fair value through profit or loss

45,063 49,804

Derivatives

284,146 196,882

Loans and advances to banks 104,882 83,136

Loans and advances to customers 924,854 1,045,814

Reverse repurchase agreements – non-trading 253,754 241,648

Financial investments

425,564 446,274

Assets held for sale

115,919 3,411

Prepayments, accrued income and other assets

156,866 136,571

Current tax assets 1,230 970

Interests in associates and joint ventures

29,254 29,609

Goodwill and intangible assets

21,321 20,622

Deferred tax assets

7,498 4,624

Total assets 2,966,530 2,957,939

Liabilities and equity

Liabilities

Hong Kong currency notes in circulation 43,787 42,578

Deposits by banks 66,722 101,152

Customer accounts 1,570,303 1,710,574

Repurchase agreements – non-trading 127,747 126,670

Items in the course of transmission to other banks 7,864 5,214

Trading liabilities

72,353 84,904

Financial liabilities designated at fair value

127,327 145,502

Derivatives

285,764 191,064

Debt securities in issue

78,149 78,557

Liabilities of disposal groups held for sale

114,597 9,005

Accruals, deferred income and other liabilities

133,240 114,773

Current tax liabilities 1,135 698

Liabilities under insurance contracts

114,844 112,745

Provisions

1,958 2,566

Deferred tax liabilities

2,422 4,673

Subordinated liabilities

22,290 20,487

Total liabilities 2,770,502 2,751,162

Equity

Called up share capital

10,147 10,316

Share premium account

14,664 14,602

Other equity instruments 19,746 22,414

Other reserves (9,141) 6,460

Retained earnings 152,068 144,458

Total shareholders’ equity 187,484 198,250

Non-controlling interests

8,544 8,527

Total equity 196,028 206,777

Total liabilities and equity 2,966,530 2,957,939

1 ‘Assets held for sale’ in 2021, including $2.4bn of loans and advances to customers in relation to our exit of mass market retail banking business in the

US, were reported within ‘Prepayments, accrued income and other assets’ in the Annual Report and Accounts 2021. Similarly, $8.8bn of customer

accounts classified as ‘Liabilities of disposal groups’ were previously presented within ‘Accruals, deferred income and other liabilities’.

* For Notes on the financial statements, see page 335.

The accompanying notes on pages 335 to 417 and the audited sections in the Risk review on pages 131 to 238 (including ‘Measurement

uncertainty and sensitivity analysis of ECL estimates’ on pages 153 to 162, and ‘Directors’ remuneration report’ on pages 276 to 301 form an

integral part of these financial statements.

These financial statements were approved by the Board of Directors on 21 February 2023 and signed on its behalf by:

Mark E Tucker Georges Elhedery

Group Chairman Group Chief Financial Officer

Financial statements

326 HSBC Holdings plc Annual Report and Accounts 2022

Consolidated statement of cash flows

for the year ended 31 December

2022

2021

2020

Profit before tax 17,528 18,906 8,777

Adjustments for non-cash items:

Depreciation, amortisation and impairment 3,873 4,286 5,241

Net loss/(gain) from investing activities

(647)

(541)

Share of profits in associates and joint ventures (2,723) (3,046) (1,597)

Loss on disposal of subsidiaries, businesses, associates and joint ventures 2,639 — —

Change in expected credit losses gross of recoveries and other credit impairment charges 3,907 (519) 9,096

Provisions including pensions 635 1,063 1,164

Share-based payment expense 400 467 433

Other non-cash items included in profit before tax (1,084) 510 (906)

Elimination of exchange differences

49,127 18,937 (25,749)

Changes in operating assets and liabilities

Change in net trading securities and derivatives 20,181 (9,226) 13,150

Change in loans and advances to banks and customers 31,799 (11,014) (14,131)

Change in reverse repurchase agreements – non-trading (23,405) 552 9,950

Change in financial assets designated and otherwise mandatorily measured at fair value 8,344 (4,254) (1,962)

Change in other assets

(10,771)

19,899

(19,610)

Change in deposits by banks and customer accounts (91,194) 95,703 226,723

Change in repurchase agreements – non-trading 4,344 14,769 (28,443)

Change in debt securities in issue 12,518 (16,936) (9,075)

Change in financial liabilities designated at fair value (13,647) (11,425) (6,630)

Change in other liabilities 15,978 (10,935) 20,323

Dividends received from associates 944 808 761

Contributions paid to defined benefit plans (194) (509) (495)

Tax paid

(2,776)

(3,077)

(4,259)

Net cash from operating activities 26,434 104,312 182,220

Purchase of financial investments (520,600) (493,042) (496,669)

Proceeds from the sale and maturity of financial investments 495,049 521,190 476,990

Net cash flows from the purchase and sale of property, plant and equipment (1,285) (1,086) (1,446)

Net cash flows from purchase/(disposal) of customer and loan portfolios (3,530) 3,059 1,362

Net investment in intangible assets (3,125) (2,479) (2,064)

Net cash flow from acquisition and disposal of subsidiaries, businesses, associates and joint ventures (989) (106) (603)

Net cash from investing activities (34,480) 27,536 (22,430)

Issue of ordinary share capital and other equity instruments — 1,996 1,497

Cancellation of shares (2,285) (707) —

Net purchases of own shares for market-making and investment purposes (91) (1,386) (181)

Net cash flow from change in stake of subsidiaries (197) — —

Redemption of preference shares and other equity instruments (2,266) (3,450) (398)

Subordinated loan capital issued 7,300 — —

Subordinated loan capital repaid

(1,777) (864) (3,538)

Dividends paid to shareholders of the parent company and non-controlling interests (6,970) (6,383) (2,023)

Net cash from financing activities (6,286) (10,794) (4,643)

Net increase/(decrease) in cash and cash equivalents (14,332) 121,054 155,147

Cash and cash equivalents at 1 Jan 574,032 468,323 293,742

Exchange differences in respect of cash and cash equivalents (38,029) (15,345) 19,434

Cash and cash equivalents at 31 Dec

521,671 574,032 468,323

Cash and cash equivalents comprise:

– cash and balances at central banks 327,002 403,018 304,481

– items in the course of collection from other banks 7,297 4,136 4,094

– loans and advances to banks of one month or less 72,295 55,705 51,788

– reverse repurchase agreements with banks of one month or less 68,682 76,658 65,086

– treasury bills, other bills and certificates of deposit less than three months 26,727 28,488 30,023

– cash collateral and net settlement accounts

19,445

11,241

17,194

– cash and cash equivalents held for sale

8,087

—

– less: items in the course of transmission to other banks

(7,864)

(5,214)

(4,343)

Cash and cash equivalents at 31 Dec

521,671 574,032 468,323

Interest received was $55,664m (2021: $40,175m; 2020: $45,578m), interest paid was $22,856m (2021: $12,695m; 2020:$17,440m) and

dividends received (excluding dividends received from associates, which are presented separately above) were $1,638m (2021: $1,898m; 2020:

$1,158m).

1 Adjustment to bring changes between opening and closing balance sheet amounts to average rates. This is not done on a line-by-line basis, as details

cannot be determined without unreasonable expense.

2 Subordinated liabilities changes during the year are attributable to repayments of $(1.8)bn (2021: $(0.9)bn; 2020: $(3.5)bn)of securities. Non-cash

changes during the year included foreign exchange gains/(losses) of $(1.1)bn (2021: $(0.3)bn; 2020: $0.5bn) and fair value gains/(losses) of $(3.1)bn

(2021: $(1.0)bn; 2020: $1.1bn).

3 At 31December 2022, $59.3bn (2021: $33.6bn; 2020: $41.9bn) was not available for use by HSBC, due to a range of restrictions, including currency

exchange and other restrictions, of which $22.1bn (2021: $15.4bn; 2020: $16.9bn) related to mandatory deposits at central banks.

4 Includes $6.5bn of cash and balances at central banks (excluding the expected cash contribution as part of the planned sale of our retail banking

operations in France. For further details, see Note 23); $1.3bn of reverse repurchase agreements with banks of one month or less and $0.2bn of loans

and advances to banks of one month or less.

HSBC Holdings plc Annual Report and Accounts 2022 327

Financial statements

Consolidated statement of changes in equity

for the year ended 31 December

Other reserves

Called up

capital

and

premium

Other

equity

instru-

ments

Retained

earnings

3,4

Financial

assets

FVOCI

reserve

Cash

flow

hedging

reserve

Foreign

exchange

reserve

Merger

and other

reserves

4,5

Total

share-

holders’

equity

Non-

controlling

interests

Total

equity

At 1 Jan 2022 24,918 22,414 144,458 (634) (197) (22,769) 30,060 198,250 8,527 206,777

Profit for the year — — 16,035 — — — — 16,035 635 16,670

Other comprehensive income (net of

tax)

— — 1,368 (5,325) (3,613) (9,819) 174 (17,215) (86) (17,301)

– debt instruments at fair value

through other comprehensive

income

— — — (5,417) — — — (5,417) (51) (5,468)

– equity instruments designated at fair

value through other comprehensive

income

— — — 92 — — — 92 15 107

– cash flow hedges — — — — (3,613) — — (3,613) (42) (3,655)

– changes in fair value of financial

liabilities designated at fair value

upon initial recognition arising from

changes in own credit risk — — 1,922 — — — — 1,922 — 1,922

– property revaluation

— — — — — — 174 174 106 280

– remeasurement of defined benefit

asset/liability — — (1,029) — — — — (1,029) (2) (1,031)

– share of other comprehensive

income of associates and joint

ventures

— — (367) — — — — (367) — (367)

– effects of hyperinflation — — 842 — — — — 842 — 842

– exchange differences — — — — — (9,819) — (9,819) (112) (9,931)

Total comprehensive income for the

year

— — 17,403 (5,325) (3,613) (9,819) 174 (1,180) 549 (631)

Shares issued under employee

remuneration and shareplans

67 — (67) — — — — — — —

Dividends to shareholders — — (6,544) — — — — (6,544) (426) (6,970)

Redemption of securities

— (2,668) 402 — — — — (2,266) — (2,266)

Transfers

— — (2,499) — — — 2,499 — — —

Cost of share-based payment

arrangements

— — 400 — — — — 400 — 400

Cancellation of shares

(174) — (1,000) — — — 174 (1,000) — (1,000)

Other movements — — (485) 3 2 — 304 (176) (106) (282)

At 31 Dec 2022 24,811 19,746 152,068 (5,956) (3,808) (32,588) 33,211 187,484 8,544 196,028

Financial statements

328 HSBC Holdings plc Annual Report and Accounts 2022

Consolidated statement of changes in equity (continued)

for the year ended 31 December

Other reserves

Called up

capital and

premium

Other

equity

instru-

ments

Retained

earnings

3,4

Financial

assets at

FVOCI

reserve

Cash

flow

hedging

reserve

Foreign

exchange

reserve

Merger

and other

reserves

4,5

Total

share-

holders’

equity

Non-

controlling

interests

Total

equity

At 1 Jan 2021 24,624 22,414 140,572 1,816 457 (20,375) 26,935 196,443 8,552 204,995

Profit for the year — — 13,917 — — — — 13,917 776 14,693

Other comprehensive income (net of

tax)

— — 661 (2,455) (654) (2,394) — (4,842) (125) (4,967)

– debt instruments at fair value

through other comprehensive

income — — — (2,105) — — — (2,105) (34) (2,139)

– equity instruments designated at fair

value through other comprehensive

income — — — (350) — — — (350) (96) (446)

– cash flow hedges — — — — (654) — — (654) (10) (664)

– changes in fair value of financial

liabilities designated at fair value

upon initial recognition arising from

changes in own credit risk — — 531 — — — — 531 — 531

– remeasurement of defined benefit

asset/liability — — (288) — — — — (288) 14 (274)

– share of other comprehensive

income of associates and joint

ventures

— — 103 — — — — 103 — 103

– effects of hyperinflation — — 315 — — — — 315 — 315

– exchange differences — — — — — (2,394) — (2,394) 1 (2,393)

Total comprehensive income for the

year

— — 14,578 (2,455) (654) (2,394) — 9,075 651 9,726

Shares issued under employee

remuneration and shareplans 354 — (336) — — — — 18 — 18

Capital securities issued

— 2,000 (4) — — — — 1,996 — 1,996

Dividends to shareholders — — (5,790) — — — — (5,790) (593) (6,383)

Redemption of securities

— (2,000) — — — — — (2,000) — (2,000)

Transfers

— — (3,065) — — — 3,065 — — —

Cost of share-based payment

arrangements

— — 467 — — — — 467 — 467

Cancellation of shares

(60) — (2,004) — — — 60 (2,004) — (2,004)

Other movements — — 40 5 — — — 45 (83) (38)

At 31 Dec 2021 24,918 22,414 144,458 (634) (197) (22,769) 30,060 198,250 8,527 206,777

HSBC Holdings plc Annual Report and Accounts 2022 329

Financial statements

Consolidated statement of changes in equity (continued)

for the year ended 31 December

Other reserves

Called up

capital and

premium

Other

equity

instru-

ments

Retained

earnings

3,4

Financial

assets at

FVOCI

reserve

Cash

flow

hedging

reserve

Foreign

exchange

reserve

Merger

and other

reserves

4,5

Total

share-

holders’

equity

Non-

controlling

interests

Total

equity

At 1 Jan 2020 24,278 20,871 136,679 (108) (2) (25,133) 27,370 183,955 8,713 192,668

Profit for the year — — 5,229 — — — — 5,229 870 6,099

Other comprehensive income (net of

tax)

— — 1,118 1,913 459 4,758 — 8,248 161 8,409

– debt instruments at fair value

through other comprehensive

income — — — 1,746 — — — 1,746 4 1,750

– equity instruments designated at fair

value through other comprehensive

income — — — 167 — — 167 45 212

– cash flow hedges

— — — — 459 — — 459 12 471

– changes in fair value of financial

liabilities designated at fair value due

to movement in own credit risk

— — 167 — — — — 167 — 167

– remeasurement of defined benefit

asset/liability

— — 831 — — — — 831 3 834

– share of other comprehensive

income of associates and joint

ventures

— — (73) — — — — (73) — (73)

– effects of hyperinflation

— — 193 — — — — 193 — 193

– exchange differences

— — — — — 4,758 — 4,758 97 4,855

Total comprehensive income for the

year

— — 6,347 1,913 459 4,758 — 13,477 1,031 14,508

Shares issued under employee

remuneration and shareplans

346 — (339) — — — — 7 — 7

Capital securities issued

— 1,500 (3) — — — — 1,497 — 1,497

Dividends to shareholders — — (1,331) — — — — (1,331) (692) (2,023)

Redemption of securities

— — (1,450) — — — — (1,450) — (1,450)

Transfers

—

435

—

(435)

—

Cost of share-based payment

arrangements

— — 434 — — — — 434 — 434

Other movements — 43 (200) 11 — — — (146) (500) (646)

At 31 Dec 2020 24,624 22,414 140,572 1,816 457 (20,375) 26,935 196,443 8,552 204,995

1 In 2021, HSBC Holdings issued $2,000m of additional tier 1 instruments on which there were $4m of external issue costs. In 2020, HSBC Holdings

issued $1,500m of additional tier 1 instruments.

2 During 2022, HSBC Holdings redeemed €1,500m 5.250% perpetual subordinated contingent convertible capital securities and SGD1,000m 5.875%

perpetual subordinated contingent convertible capital securities. For further details, see Note 32. In 2021, HSBC Holdings redeemed $2,000m 6.875%

perpetual subordinated contingent convertible capital securities. In 2020, HSBC Holdings called and later redeemed $1,450m 6.20% non-cumulative US

dollar preference shares.

3 At 31 December 2022, retained earnings included 554,452,437 treasury shares (2021: 558,397,704; 2020: 509,825,249). These include treasury shares

held within HSBC’s insurance business’s retirement funds for the benefit of policyholders or beneficiaries within employee trusts for the settlement of

shares expected to be delivered under employee share schemes or bonus plans, and the market-making activities in Markets and Securities Services.

4 Cumulative goodwill amounting to $5,138m has been charged against reserves in respect of acquisitions of subsidiaries prior to 1January 1998,

including $3,469m charged against the merger reserve arising on the acquisition of HSBC Bank plc. The balance of$1,669m has been charged against

retained earnings.

5 Statutory share premium relief under section 131 of the Companies Act 1985 was taken in respect of the acquisition of HSBC Bank plc in 1992, HSBC

Continental Europe in 2000 and HSBC Finance Corporation in 2003, and the shares issued were recorded at their nominal value only. In HSBC’s

consolidated financial statements, the fair value differences of $8,290m in respect of HSBC Continental Europe and $12,768m in respect of HSBC

Finance Corporation were recognised in the merger reserve. The merger reserve created on theacquisition of HSBC Finance Corporation subsequently

became attached to HSBC Overseas Holdings (UK) Limited, following a number of intra-Group reorganisations. During 2009, pursuant to section 131 of

the Companies Act 1985, statutory share premium relief was taken in respect of the rights issue and $15,796m was recognised in the merger reserve.

6 Permitted transfers from the merger reserve to retained earnings were made when the investment in HSBC Overseas Holdings (UK) Limited was

previously impaired. In 2020, an impairment of $435m was recognised and a permitted transfer of this amount was made from the merger reserve to

retained earnings. During 2022 and 2021, part-reversals of these impairments resulted in transfers from retained earnings back to the merger reserve

of $2,499m and $3,065m respectively.

7 For further details, see Note 32. In October 2021, HSBC announced a share buy-back of up to $2.0bn, which was completed in April 2022. Additionally,

HSBC announced a share buy-back of up to $1.0bn in February 2022, which concluded on 28 July 2022.

Financial statements

330 HSBC Holdings plc Annual Report and Accounts 2022

HSBC Holdings income statement

for the year ended 31 December

2022

2021

2020

Notes*

Net interest expense (3,074) (2,367) (2,632)

– interest income 937 380 473

– interest expense (4,011) (2,747) (3,105)

Fee (expense)/income (3) (5) (12)

Net income from financial instruments held for trading or managed on a fair value basis

2,129 110 801

Changes in fair value of designated debt and related derivatives

2,144 349 (326)

Changes in fair value of other financial instruments mandatorily measured at fair value through profit

or loss

(2,409) (420) 1,141

Gains less losses from financial investments 58 — —

Dividend income from subsidiaries 9,478 11,404 8,156

Other operating income 91 230 1,889

Total operating income 8,414 9,301 9,017

Employee compensation and benefits

(41) (30) (56)

General and administrative expenses (1,586) (1,845) (4,276)

Reversal of impairment/(impairment) of subsidiaries 2,493 3,065 (435)

Total operating expenses 866 1,190 (4,767)

Profit before tax 9,280 10,491 4,250

Tax (charge)/credit

3,077 343 (165)

Profit for the year 12,357 10,834 4,085

* For Notes on the financial statements, see page 335.

1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.

2 The tax credit includes $2.2bn arising from the recognition of a deferred tax asset from historical tax losses in HSBC Holdings. This was a result of

improved profit forecasts for the UK tax group, which accelerated the expected utilisation of these losses and reduced uncertainty regarding their

recoverability. The amounts recorded within profit before tax with respect to dividend income from subsidiaries and reversal of impairment of

subsidiaries are not subject to tax.

HSBC Holdings statement of comprehensive income

for the year ended 31 December

2022

2021

2020

Profit for the year 12,357 10,834 4,085

Other comprehensive income/(expense)

Items that will not be reclassified subsequently to profit or loss:

Changes in fair value of financial liabilities designated at fair value upon initial recognition arising from changes

in own credit risk

326 267 176

– before income taxes 435 259 176

– income taxes (109) 8 —

Other comprehensive income/(expense) for the year, net of tax 326 267 176

Total comprehensive income for the year 12,683 11,101 4,261

HSBC Holdings plc Annual Report and Accounts 2022 331

Financial statements

HSBC Holdings balance sheet

31 Dec 2022

31 Dec 2021

Notes*

Assets

Cash and balances with HSBC undertakings 3,210 2,590

Financial assets with HSBC undertakings designated and otherwise mandatorily measured at fair value 52,322 51,408

Derivatives

3,801 2,811

Loans and advances to HSBC undertakings 26,765 25,108

Financial investments 19,466 26,194

Prepayments, accrued income and other assets 5,242 1,513

Current tax assets 464 122

Investments in subsidiaries 167,542 163,211

Intangible assets 189 215

Deferred tax assets 2,100 —

Total assets at 31 Dec 281,101 273,172

Liabilities and equity

Liabilities

Amounts owed to HSBC undertakings 314 111

Financial liabilities designated at fair value

32,123 32,418

Derivatives

6,922 1,220

Debt securities in issue

66,938 67,483

Accruals, deferred income and other liabilities 1,969 4,240

Subordinated liabilities

19,727 17,059

Deferred tax liabilities — 311

Total liabilities 127,993 122,842

Equity

Called up share capital

10,147 10,316

Share premium account 14,664 14,602

Other equity instruments 19,746 22,414

Merger and other reserves 40,555 37,882

Retained earnings 67,996 65,116

Total equity 153,108 150,330

Total liabilities and equity at 31 Dec 281,101 273,172

* For Notes on the financial statements, see page 335.

The accompanying notes on pages 335 to 417 and the audited sections in the Risk review on pages 131 to 238 (including ‘Measurement

uncertainty and sensitivity analysis of ECL estimates’ on pages 153 to 162), and ‘Directors’ remuneration report’ on pages 276 to 301 form an

integral part of these financial statements.

These financial statements were approved by the Board of Directors on 21 February 2023 and signed on its behalf by:

Mark E Tucker Georges Elhedery

Group Chairman Group Chief Financial Officer

Financial statements

332 HSBC Holdings plc Annual Report and Accounts 2022

HSBC Holdings statement of cash flows

for the year ended 31 December

2022

2021

2020

Profit before tax 9,280 10,491 4,250

Adjustments for non-cash items (2,500) (2,954) 442

– depreciation, amortisation and impairment/expected credit losses (2,428) (2,976) 87

– share-based payment expense 1 2 1

– other non-cash items included in profit before tax (73) 20 354

Changes in operating assets and liabilities

Change in loans to HSBC undertakings (1,657) 3,364 (327)

Change in financial assets with HSBC undertakings designated and otherwise mandatorily measured at fair value (914) (4,409) (3,289)

Change in net trading securities and net derivatives 4,712 47 (1,657)

Change in other assets 51 (226) (633)

Change in financial investments 196 20 449

Change in debt securities in issue (5,625) (2,833) 3,063

Change in financial liabilities designated at fair value (4,755) (1,396) 1,258

Change in other liabilities (3,394) (691) 1,366

Tax received 215 32 270

Net cash from operating activities (4,391) 1,445 5,192

Purchase of financial investments (21,481) (16,966) (11,652)

Proceeds from the sale and maturity of financial investments 17,165 16,074 9,342

Net cash outflow from acquisition of or increase in stake of subsidiaries (5,696) (1,337) (2,558)

Repayment of capital from subsidiaries 3,860 2,000 1,516

Net investment in intangible assets (39) (26) (33)

Net cash from investing activities (6,191) (255) (3,385)

Issue of ordinary share capital and other equity instruments 67 2,334 1,846

Redemption of preference shares and other equity instruments (2,266) (3,450) —

Purchase of treasury shares (438) (28) —

Cancellation of shares (2,298) (707) —

Subordinated loan capital issued 7,300 — —

Subordinated loan capital repaid — — (1,500)

Debt securities issued 18,076 19,379 15,951

Debt securities repaid (10,094) (5,569) (16,577)

Dividends paid on ordinary shares (5,330) (4,480) —

Dividends paid to holders of other equity instruments (1,214) (1,310) (1,331)

Net cash from financing activities 3,803 6,169 (1,611)

Net increase/(decrease) in cash and cash equivalents (6,779) 7,359 196

Cash and cash equivalents at 1 January 13,535 6,176 5,980

Cash and cash equivalents at 31 Dec 6,756 13,535 6,176

Cash and cash equivalents comprise:

– cash at bank with HSBC undertakings 3,210 2,590 2,913

– cash collateral and net settlement accounts 3,544 93 249

– treasury and other eligible bills 2 10,852 3,014

Interest received was $2,410m (2021: $1,636m; 2020: $1,952m), interest paid was $3,813m (2021: $2,724m; 2020: $3,166m) and dividends

received were $9,478m (2021: $11,404m; 2020:$8,156m).

HSBC Holdings plc Annual Report and Accounts 2022 333

Financial statements

HSBC Holdings statement of changes in equity

for the year ended 31 December

Other

reserves

Called up

capital

premium

Other

equity

instruments

Retained

earnings

Merger

and other

reserves

Total

shareholders’

equity

$m $m $m $m $m $m

At 1 Jan 2022 10,316 14,602 22,414 65,116 37,882 150,330

Profit for the year — — — 12,357 — 12,357

Other comprehensive income (net of tax) — — — 326 — 326

– changes in fair value of financial liabilities designated at fair value due to

movement in own credit risk

— — — 326 — 326

Total comprehensive income for the year

— — —

12,683 — 12,683

Shares issued under employee share plans 5 62 — (161) — (94)

Capital securities issued

— — — —

— —

Cancellation of shares

2,3

(174) — — (1,001) 174 (1,001)

Dividends to shareholders — — — (6,544) — (6,544)

Redemption of capital securities —

—

(2,668)

402

— (2,266)

Transfers

— — — (2,499)

2,499 —

Other movements

— — — —

— —

At 31 Dec 2022 10,147 14,664 19,746 67,996 40,555 153,108

At 1 Jan 2021 10,347 14,277 22,414 65,005 34,757 146,800

Profit for the year — — — 10,834 — 10,834

Other comprehensive income (net of tax) — — — 267 — 267

– changes in fair value of financial liabilities designated at fair value due to

movement in own credit risk

— — — 267 — 267

Total comprehensive income for the year — — — 11,101 — 11,101

Shares issued under employee share plans 29 325 — (103) — 251

Capital securities issued — — 2,000 (20) — 1,980

Cancellation of shares

(60) — — (2,004) 60 (2,004)

Dividends to shareholders — — — (5,790) — (5,790)

Redemption of capital securities — — (2,000) — — (2,000)

Transfers

— — — (3,065) 3,065 —

Other movements — — — (8) — (8)

At 31 Dec 2021 10,316 14,602 22,414 65,116 37,882 150,330

At 1 Jan 2020 10,319 13,959 20,743 62,484 37,539 145,044

Profit for the year — — — 4,085 — 4,085

Other comprehensive income (net of tax) — — — 176 — 176

– changes in fair value of financial liabilities designated at fair value due to

movement in own credit risk — — — 176 — 176

Total comprehensive income for the year — — — 4,261 — 4,261

Shares issued under employee share plans 28 318 — 2,540 (2,347) 539

Capital securities issued — — 1,500 (15) — 1,485

Dividends to shareholders — — — (1,331) — (1,331)

Redemption of capital securities — — — (1,450) — (1,450)

Transfers

— — — 435 (435) —

Other movements

— — 171 (1,919) — (1,748)

At 31 Dec 2020 10,347 14,277 22,414 65,005 34,757 146,800

Dividends per ordinary share at 31 December 2022 were $0.27 (2021: $0.22; 2020: nil).

1 At 31 December 2022, retained earnings included 331,874,221 ($2,615m) treasury shares (2021: 329,871,829 ($2,542m); 2020: 326,766,253

($2,521m)).

2 On 26 October 2021, HSBC announced a share buy-back of up to $2.0bn, which was completed on 20 April 2022.

3 On 3 May 2022, HSBC announced a share buy-back of up to $1.0bn, which was completed on 28 July 2022.

4 Permitted transfers from the merger reserve to retained earnings were made when the investment in HSBC Overseas Holdings (UK) Limited was

previously impaired. In 2022, a part-reversal of this impairment resulted in a transfer from retained earnings back to the merger reserve of $2,499m

(2021: $3,065m). At 31 December 2020, an additional impairment of $435m was recognised and a permitted transfer of this amount was made from

the merger reserve to retained earnings.

5 Includes an adjustment to retained earnings for a repayment of capital by a subsidiary of $1,650m, which had been recognised as dividend income in

2019.

Financial statements

334 HSBC Holdings plc Annual Report and Accounts 2022

Notes on the financial statements

Contents

335

Basis of preparation and significant accounting

policies

386

Goodwill and intangible assets

389

Prepayments, accrued income and other assets

348 2 Net fee income

389

Assets held for sale and liabilities of disposal groups held for sale

349 3 Net income from financial instruments measured at fair

value through profit or loss

391

Trading liabilities

391

Financial liabilities designated at fair value

349

Insurance business

392

Debt securities in issue

351

Employee compensation and benefits

392

Accruals, deferred income and other liabilities

356

Auditors’ remuneration

392

Provisions

357

Tax

393

Subordinated liabilities

359

Dividends

396 30 Maturity analysis of assets, liabilities and off-balance sheet

commitments

360

Earnings per share

360

Segmental analysis

401

Offsetting of financial assets and financial liabilities

363

Trading assets

402

Called up share capital and other equity instruments

363

Fair values of financial instruments carried at fairvalue

404

Contingent liabilities, contractual commitments and guarantees

370

Fair values of financial instruments not carried at fair value

405

Finance lease receivables

371 14 Financial assets designated and otherwise mandatorily

measured at fair value through profit or loss

405

Legal proceedings and regulatory matters

408

Related party transactions

372

Derivatives

409

Events after the balance sheet date

376

Financial investments

409

HSBC Holdings’ subsidiaries, joint ventures and associates

378 17

Assets pledged, collateral received and assets

transferred

379

Interests in associates and joint ventures

382

Investments in subsidiaries

384

Structured entities

Basis of preparation and significant accounting policies

1.1 Basis of preparation

(a) Compliance with International Financial Reporting Standards

The consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings comply with UK-adopted international

accounting standards and with the requirements of the Companies Act 2006, and have also applied international financial reporting standards

adopted pursuant to Regulation (EC) No 1606/2002 as it applies in the European Union. These financial statements are also prepared in

accordance with International Financial Reporting Standards (‘IFRSs’) as issued by the International Accounting Standards Board (‘IASB’),

including interpretations issued by the IFRS Interpretations Committee, as there are no applicable differences from IFRSs as issued by the IASB

for the periods presented. There were no unendorsed standards effective for the year ended 31December2022 affecting these consolidated

and separate financial statements.

Standards adopted during the year ended 31 December 2022

There were no new accounting standards or interpretations that had a significant effect on HSBC in 2022. Accounting policies have been

consistently applied.

(b) Differences between IFRSs and Hong Kong Financial Reporting Standards

There are no significant differences between IFRSs and Hong Kong Financial Reporting Standards in terms of their application to HSBC, and

consequently there would be no significant differences had the financial statements been prepared in accordance with Hong Kong Financial

Reporting Standards. The ‘Notes on the financial statements’, taken together with the ‘Report of the Directors’, include the aggregate of all

disclosures necessary to satisfy IFRSs and Hong Kong reporting requirements.

Minor amendments to IFRSs

The IASB has not published any minor amendments effective from 1 January 2022 that are applicable to HSBC. However, the IASB has

published a number of minor amendments to IFRSs that are effective from 1 January 2023 and 1 January 2024. HSBC expects they will have an

insignificant effect, when adopted, on the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.

New IFRSs

IFRS 17 ‘Insurance Contracts’

IFRS 17 ‘Insurance Contracts’ was issued in May 2017, with amendments to the standard issued in June 2020 and December 2021. Following

the amendments, IFRS 17 is effective for annual reporting periods beginning on or after 1 January 2023 and is applied retrospectively, with

comparatives restated from 1 January 2022. IFRS 17 has been adopted in its entirety for use in the UK while it has been adopted by the EU

subject to certain optional exemptions.

IFRS 17 sets out the requirements that the Group will apply in accounting for insurance contracts it issues, reinsurance contracts it holds, and

investment contracts with discretionary participation features.

The Group is at an advanced stage in the implementation of IFRS 17, having put in place accounting policies, data and models, and made

progress with preparing 2022 comparative data. We set out below our expectations of the impact of IFRS 17 compared with our current

accounting policy for insurance contracts, which is set out in Note 1.2(j) on page 344.

HSBC Holdings plc Annual Report and Accounts 2022 335

Financial statements

Under IFRS 17, no present value of in-force business (‘PVIF’) asset is recognised. Instead, the measurement of the insurance contracts liability is

based on groups of insurance contracts and will include fulfilment cash flows, as well as the contractual service margin (‘CSM’), which

represents the unearned profit.

To identify groups of insurance contracts, individual contracts subject to similar dominant risk and managed together are identified as a portfolio

of insurance contracts. Each portfolio is further separated by profitability group and issue date into periodic cohorts.

The fulfilment cash flows comprise:

• the best estimates of future cash flows, including amounts expected to be collected from premiums and payouts for claims, benefits and

expenses, which are projected using assumptions based on demographic and operating experience;

• an adjustment for the time value of money and financial risks associated with the future cash flows; and

• an adjustment for non-financial risk that reflects the uncertainty about the amount and timing of future cash flows.

In contrast to the Group’s IFRS 4 accounting where profits are recognised upfront, the CSM will be systematically recognised in revenue, as

services are provided over the expected coverage period of the group of contracts without any change to the overall profit of the contracts.

Losses resulting from the recognition of onerous contracts are recognised in the income statement immediately.

The CSM is adjusted depending on the measurement model of the group of insurance contracts. While the general measurement model

(‘GMM’) is the default measurement model under IFRS 17, the Group expects that the majority of its contracts will be accounted for under the

variable fee approach (‘VFA’), which is mandatory to apply for insurance contracts with direct participation features upon meeting the eligibility

criteria.

IFRS 17 requires entities to apply the standard retrospectively as if it had always applied, using the full retrospective approach (‘FRA’) unless it is

impracticable. When the FRA is impracticable such as when there is a lack of sufficient and reliable data, an entity has an accounting policy

choice to use either the modified retrospective approach (‘MRA’) or the fair value approach (‘FVA’). HSBC will apply the FRA for new business

from 2018 at the earliest, subject to practicability, and the FVA for the majority of contracts for which the FRA is impracticable. Where the FVA is

used, the measurement takes into account the cost of capital that a market participant within the jurisdiction would be expected to hold based

on the asset and liability positions on the transition date.

The Group will make use of the option to re-designate eligible financial assets held to support insurance liabilities, currently measured at

amortised cost, as financial assets measured at fair value through profit or loss. Following re-designation, interest income earned on these

financial assets will no longer be shown in ‘net interest income’, and will instead form part of ‘net income/(expense) from assets and liabilities of

insurance businesses, including related derivatives, measured at fair value through profit or loss’ in accordance with HSBC’s income and

expense policy set out in Note 1.2(b) on page 339.

The Group will also make use of the risk mitigation option for a number of economic offsets between the VFA contracts and reinsurance

contracts held that meet the requirements, and the other comprehensive income (‘OCI’) option to a limited extent for some contracts.

Impact of IFRS 17

Changes to equity on transition are driven by the elimination of the PVIF asset, the re-designation of certain eligible financial assets in the scope

of IFRS 9, the remeasurement of insurance liabilities and assets under IFRS 17, and the recognition of the CSM.

IFRS 17 requires the use of current market values for the measurement of insurance liabilities. The shareholder’s share of the investment

experience and assumption changes will be absorbed by the CSM and released over time to profit or loss under the VFA. For contracts

measured under GMM, the shareholder’s share of the investment volatility is recorded in profit or loss as it arises. Under IFRS 17, operating

expenses will be lower as directly attributable costs will be incorporated in the CSM and recognised in the insurance service result.

While the profit over the life of an individual contract will be unchanged, its emergence will be later under IFRS 17.

All of these impacts will be subject to deferred tax.

Estimates of the opening balance sheet as at 1 January 2022 have been calculated and are presented below, showing separately the impact on

the total assets, liabilities and equity of our insurance manufacturing operations and Group equity. These estimates are based on accounting

policies, assumptions, judgements and estimation techniques that remain subject to change.

Assets

Liabilities

Equity

$bn

Balance sheet values at 1 January 2022 under IFRS 4 144.6 127.6 17.0 206.8

Removal of PVIF (9.5) — (9.5) (9.5)

Replacement of IFRS 4 liabilities with IFRS 17 (0.4) 7.3 (7.7) (8.1)

Removal of IFRS 4 liabilities and recording of IFRS 17 fulfilment cash (0.3) (2.2) 1.9 1.9

IFRS 17 contractual service margin (0.1) 9.5 (9.6) (10.0)

Remeasurement effect of IFRS 9 re-designations 4.9 — 4.9 4.9

Tax effect 0.6 (1.6) 2.2 2.2

Estimated balance sheet values at 1 January 2022 under IFRS 17 140.2 133.3 6.9 196.3

Impact of transition to IFRS 17, at 1 January 2022 Insurance manufacturing operations Group

PVIF of $9.5bn less deferred tax of $1.7bn constitute the overall estimated reduction in intangible assets, after tax, of $7.8bn on transition to

IFRS 17.

The Group’s accounting for insurance contracts considers a broader set of cash flows than those arising within the insurance manufacturing

entities. This includes the effect of eliminating intra-Group fees associated with distribution of policies through the Group’s banking channels and

directly attributable costs incurred by other Group entities. These factors lead to an increase to the Group CSM after inclusion of distribution

activities of approximately $0.4bn, with a consequential reduction to Group’s equity of approximately $0.4bn after the inclusion of deferred tax.

(d) Foreign currencies

HSBC’s consolidated financial statements are presented in US dollars because the US dollar and currencies linked to it form the major currency

bloc in which HSBC transacts and funds its business. The US dollar is also HSBC Holdings’ functional currency because the US dollar and

currencies linked to it are the most significant currencies relevant to the underlying transactions, events and conditions of its subsidiaries, as well

as representing a significant proportion of its funds generated from financing activities.

Notes on the financial statements

336 HSBC Holdings plc Annual Report and Accounts 2022

Transactions in foreign currencies are recorded at the rate of exchange on the date of the transaction. Assets and liabilities denominated in

foreign currencies are translated at the rate of exchange at the balance sheet date, except non-monetary assets andliabilities measured at

historical cost, which are translated using the rate of exchange at the initial transaction date. Exchange differences are included in other

comprehensive income or in the income statement depending on where the gain or loss on the underlying item is recognised. Except for

subsidiaries operating in hyperinflationary economies (see Note 1.2(p)), in the consolidated financial statements, the assets and liabilities of

branches, subsidiaries, joint ventures and associates whose functional currency is not US dollars are translated into the Group’s presentation

currency at the rate of exchange at the balance sheet date, while their results are translated into US dollars at the average rates of exchange for

the reporting period. Exchange differences arising are recognised in other comprehensive income. On disposal of a foreign operation, exchange

differences previously recognised in other comprehensive income are reclassified to the income statement.

(e) Presentation of information

Certain disclosures required by IFRSs have been included in the sections marked as (‘Audited’) in the Annual Report and Accounts 2022 as

follows:

• Disclosures concerning the nature and extent of risks relating to insurance contracts and financial instruments are included in the ‘Risk

review’ on pages 131 to 238.

• The ‘Own funds disclosure’ is included in the ‘Risk review’ on page 206.

• Disclosures relating to HSBC’s securitisation activities and structured products are included in the ‘Risk review’ on pages 131 to238.

HSBC follows the UK Finance Disclosure Code. The UK Finance Disclosure Code aims to increase the quality and comparability of UK banks’

disclosures and sets out five disclosure principles together with supporting guidance agreed in 2010. In line with the principles of the UK Finance

Disclosure Code, HSBC assesses good practice recommendations issued from time to time by relevant regulators and standard setters, and will

assess the applicability and relevance of such guidance, enhancing disclosures where appropriate.

(f) Critical accounting estimates and judgements

The preparation of financial information requires the use of estimates and judgements about future conditions. In view of the inherent

uncertainties and the high level of subjectivity involved in the recognition or measurement of items, highlighted as the ‘critical accounting

estimates and judgements’ in section 1.2 below, it is possible that the outcomes in the next financial year could differ from those on which

management’s estimates are based. This could result in materially different estimates and judgements from those reached by management for

the purposes of these financial statements. Management’s selection of HSBC’s accounting policies that contain critical estimates and

judgements reflects the materiality of the items to which the policies are applied and the high degree of judgement and estimation uncertainty

involved.

Management has considered the impact of climate-related risks on HSBC’s financial position and performance. While the effects of climate

change are a source of uncertainty, as at 31 December 2022 management do not consider there to be a material impact on our critical

judgements and estimates from the physical, transition and other climate-related risks in the short to medium term. In particular management

has considered the known and observable potential impact of climate-related risks of associated judgements and estimates in our value in use

calculations.

(g) Segmental analysis

HSBC’s Chief Operating Decision Maker is the Group Chief Executive, who is supported by the rest of the Group Executive Committee (‘GEC’),

which operates as a general management committee under the direct authority of the Board. Operating segments are reported in a manner

consistent with the internal reporting provided to the Group Chief Executive and the GEC.

Measurement of segmental assets, liabilities, income and expenses is in accordance with the Group’s accounting policies. Segmental income

and expenses include transfers between segments, and these transfers are conducted at arm’s length. Shared costs are included in segments

on the basis of the actual recharges made.

(h) Going concern

The financial statements are prepared on a going concern basis, as the Directors are satisfied that the Group and parent company have the

resources to continue in business for the foreseeable future. In making this assessment, the Directors have considered a wide range of

information relating to present and future conditions, including future projections of profitability, cash flows, capital requirements and capital

resources. These considerations include stressed scenarios that reflect the uncertainty in structural changes from the Covid-19 pandemic, the

Russia-Ukraine war, disrupted supply chains globally, slower Chinese economic activity, climate change and other top and emerging risks, as

well as from the related impacts on profitability, capital and liquidity.

1.2 Summary of significant accounting policies

(a) Consolidation and related policies

Investments in subsidiaries

Where an entity is governed by voting rights, HSBC consolidates when it holds – directly or indirectly – the necessary voting rights to pass

resolutions by the governing body. In all other cases, the assessment of control is more complex and requires judgement of other factors,

including having exposure to variability of returns, power to direct relevant activities, and whether power is held as agent or principal.

Business combinations are accounted for using the acquisition method. The amount of non-controlling interest is measured either atfair value or

at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets. This election is made foreach business

combination. HSBC Holdings’ investments in subsidiaries are stated at cost less impairment losses.

Impairment testing is performed where there is an indication of impairment, by comparing the recoverable amount of the relevant investment to

its carrying amount.

HSBC Holdings plc Annual Report and Accounts 2022 337

Financial statements

Critical accounting estimates and judgements

Investments in subsidiaries are tested for impairment when there is an indication that the investment may be impaired, which involves estimations of

value in use reflecting management’s best estimate of the future cash flows of the investment and the rates used to discount these cash flows, both of

which are subject to uncertain factors as follows:

Judgements Estimates

• The accuracy of forecast cash flows is subject to a

high degree of uncertainty in volatile market

conditions. Where such circumstances are

determined to exist, management re-tests for

impairment more frequently than once a year

when indicators of impairment exist. This ensures

that the assumptions on which the cash flow

forecasts are based continue to reflect current

market conditions and management's best

estimate of future business prospects.

• The future cash flows of each investment are sensitive to the cash flows projected for the

periods for which detailed forecasts are available and to assumptions regarding the long-term

pattern of sustainable cash flows thereafter. Forecasts are compared with actual performance

and verifiable economic data, but they reflect management’s view of future business

prospects at the time of the assessment.

• The rates used to discount future expected cash flows can have a significant effect on their

valuation, and are based on the costs of equity assigned to the investment. The cost of equity

percentage is generally derived from a capital asset pricing model and the market implied cost

of equity, which incorporates inputs reflecting a number of financial and economic variables,

including the risk-free interest rate in the country concerned and a premium for the risk of the

business being evaluated. These variables are subject to fluctuations in external market rates

and economic conditions beyond management’s control.

• Key assumptions used in estimating impairment in subsidiaries are described in Note 19.

Goodwill

Goodwill is allocated to cash-generating units (’CGUs’) for the purpose of impairment testing, which is undertaken at the lowest level at which

goodwill is monitored for internal management purposes. HSBC’s CGUs are based on geographical regions subdivided by global business,

except for Global Banking and Markets, for which goodwill is monitored on a global basis.

Impairment testing is performed at least once a year, or whenever there is an indication of impairment, by comparing the recoverable amount of

a CGU with its carrying amount.

Goodwill is included in a disposal group if the disposal group is a CGU to which goodwill has been allocated or it is an operation within such a

CGU. The amount of goodwill included in a disposal group is measured on the basis of the relative values of the operation disposed of and the

portion of the CGU retained.

Critical accounting estimates and judgements

The review of goodwill and non-financial assets (see Note 1.2(n)) for impairment reflects management’s best estimate of the future cash flows of the

CGUs and the rates used to discount these cash flows, both of which are subject to uncertain factors as follows:

Judgements

Estimates

• The accuracy of forecast cash flows is subject to

a high degree of uncertainty in volatile market

conditions. Where such circumstances are

determined to exist, management re-tests

goodwill for impairment more frequently than

once a year when indicators of impairment exist.

This ensures that the assumptions on which the

cash flow forecasts are based continue to reflect

current market conditions and management’s

best estimate of future business prospects.

• The future cash flows of the CGUs are sensitive to the cash flows projected for the periods for

which detailed forecasts are available and to assumptions regarding the long-term pattern of

sustainable cash flows thereafter. Forecasts are compared with actual performance and

verifiable economic data, but they reflect management’s view of future business prospects at

the time of the assessment.

• The rates used to discount future expected cash flows can have a significant effect on their

valuation, and are based on the costs of equity assigned to individual CGUs. The cost of equity

percentage is generally derived from a capital asset pricing model and market implied cost of

equity, which incorporates inputs reflecting a number of financial and economic variables,

including the risk-free interest rate in the country concerned and a premium for the risk of the

business being evaluated. These variables are subject to fluctuations in external market rates

and economic conditions beyond management’s control.

• Key assumptions used in estimating goodwill and non-financial asset impairment are described

in Note 21.

HSBC sponsored structured entities

HSBC is considered to sponsor another entity if, in addition to ongoing involvement with the entity, it had a key role in establishing that entity or

in bringing together relevant counterparties so the transaction that is the purpose of the entity could occur. HSBC is generally not considered a

sponsor if the only involvement with the entity is merely administrative.

Interests in associates and joint arrangements

Joint arrangements are investments in which HSBC, together with one or more parties, has joint control. Depending on HSBC’s rights and

obligations, the joint arrangement is classified as either a joint operation or a joint venture.

HSBC classifies investments inentities over which it has significant influence, and that are neither subsidiaries nor joint arrangements, as

associates.

HSBC recognises its share of the assets, liabilities and results in a joint operation. Investments in associates and interests in joint ventures are

recognised using the equity method. The attributable share of the results and reserves of joint ventures and associates is included in the

consolidated financial statements of HSBC based on either financial statements made up to 31 December or pro-rated amounts adjusted for any

material transactions or events occurring between the date the financial statements are available and 31 December.

Investments in associates and joint ventures are assessed at each reporting date and tested for impairment when there is an indication that the

investment may be impaired. Goodwill on acquisitions of interests in joint ventures and associates is not tested separately for impairment, but is

assessed as part of the carrying amount of the investment.

Notes on the financial statements

338 HSBC Holdings plc Annual Report and Accounts 2022

Critical accounting estimates and judgements

The most significant critical accounting estimates relate to the assessment of impairment of our investment in Bank of Communications Co. Limited

(‘BoCom’), which involves estimations of value in use:

Judgements Estimates

• Management’s best estimate of BoCom’s earnings is based on management’s

explicit forecasts over the short to medium term and the capital maintenance

charge, which is management’s forecast of the earnings that need to be withheld

in order for BoCom to meet capital requirements over the forecast period, both of

which are subject to uncertain factors.

• Key assumptions used in estimating BoCom’s value in use, the sensitivity of the

value in use calculations to different assumptions and a sensitivity analysis that

shows the changes in key assumptions that would reduce the excess of value in

use over the carrying amount (the ‘headroom’) to nil are described in Note 18.

(b) Income and expense

Operating income

Interest income and expense

Interest income and expense for all financial instruments, excluding those classified as held for trading or designated at fair value, are recognised

in ‘Interest income’ and ‘Interest expense’ in the income statement using the effective interest method. However, as an exception to this,

interest on debt instruments issued by HSBC for funding purposes that are designated under the fair value option to reduce an accounting

mismatch and on derivatives managed in conjunction with those debt instruments is included in interest expense.

Interest on credit-impaired financial assets is recognised using the rate of interest used to discount the future cash flows for the purpose of

measuring the impairment loss.

Non-interest income and expense

HSBC generates fee income from services provided at a fixed price over time, such as account service and card fees, or when HSBC delivers a

specific transaction at a point in time, such as broking services and import/export services. With the exception of certain fund management and

performance fees, all other fees are generated at a fixed price. Fund management and performance fees can be variable depending on the size

of the customer portfolio and HSBC’s performance as fund manager. Variable fees are recognised when all uncertainties are resolved. Fee

income is generally earned from short-term contracts with payment terms that do not include a significant financing component.

HSBC acts as principal in the majority of contracts with customers, with the exception of broking services. For most brokerage trades, HSBC

acts as agent in the transaction and recognises broking income net of fees payable to other parties in the arrangement.

HSBC recognises fees earned on transaction-based arrangements at a point in time when it has fully provided the service to the customer.

Where the contract requires services to be provided over time, income is recognised on a systematic basis over the life of the agreement.

Where HSBC offers a package of services that contains multiple non-distinct performance obligations, such as those included in account service

packages, the promised services are treated as a single performance obligation. If a package of services contains distinct performance

obligations, such as those including both account and insurance services, the corresponding transaction price is allocated to each performance

obligation based on the estimated stand-alone selling prices.

Dividend income is recognised when the right to receive payment is established. This is the ex-dividend date for listed equity securities, and

usually the date when shareholders approve the dividend for unlisted equity securities.

Net income/(expense) from financial instruments measured at fair value through profit or loss includes the following:

• ‘Net income from financial instruments held for trading or managed on a fair value basis’: This comprises net trading income, which includes

all gains and losses from changes in the fair value of financial assets and financial liabilities held for trading and other financial instruments

managed on a fair value basis, together with the related interest income, expense and dividends, excluding the effect of changes in the credit

risk of liabilities managed on a fair value basis. It also includes all gains and losses from changes in the fair value of derivatives that are

managed in conjunction with financial assets and liabilities measured at fair value through profit or loss.

• ‘Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value through profit

or loss’: This includes interest income, interest expense and dividend income in respect of financial assets and liabilities measured at fair

value through profit or loss; and those derivatives managed in conjunction with the above that can be separately identifiable from other

trading derivatives.

• ‘Changes in fair value of designated debt instruments and related derivatives’: Interest paid on debt instruments and interest cash flows on

related derivatives is presented in interest expense where doing so reduces an accounting mismatch.

• ‘Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss’: This includes interest on

instruments that fail the solely payments of principal and interest test, see (d) below.

The accounting policies for insurance premium income are disclosed in Note 1.2(j).

All financial instruments are initially recognised at fair value. Fair value is the price that would be received to sell an asset or paid totransfer a

liability in an orderly transaction between market participants at the measurement date. The fair value of a financial instrument on initial

recognition is generally its transaction price (that is, the fair value of the consideration given or received). However, if there is a difference

between the transaction price and the fair value of financial instruments whose fair value is based ona quoted price in an active market or a

valuation technique that uses only data from observable markets, HSBC recognises the difference as a trading gain or loss at inception (a ‘day 1

gain or loss’). In all other cases, the entire day 1 gain or loss is deferred and recognised in the income statement over the life of the transaction

until the transaction matures, is closed out, the valuation inputs become observable or HSBC enters into an offsetting transaction. The fair value

of financial instruments is generally measured on an individual basis. However, in cases where HSBC manages a group of financial assets and

liabilities according to its net market or credit risk exposure, the fair value of the group of financial instruments is measured on a net basis but the

underlying financial assets and liabilities are presented separately in the financial statements, unless they satisfy the IFRS offsetting criteria.

HSBC Holdings plc Annual Report and Accounts 2022 339

Financial statements

Critical accounting estimates and judgements

The majority of valuation techniques employ only observable market data. However, certain financial instruments are classified on the basis of valuation

techniques that feature one or more significant market inputs that are unobservable, and for them, the measurement of fair value is more judgemental:

Judgements Estimates

• An instrument in its entirety is classified as valued using significant unobservable

inputs if, in the opinion of management, greater than 5% of the instrument’s

valuation is driven by unobservable inputs.

• ‘Unobservable’ in this context means that there is little or no current market data

available from which to determine the price at which an arm’s length transaction

would be likely to occur. It generally does not mean that there is no data available

at all upon which to base a determination of fair value (consensus pricing data

may, for example, be used).

• Details on the Group’s level 3 financial instruments and the

sensitivity of their valuation to the effect of applying reasonably

possible alternative assumptions in determining their fair value

are set out in Note 12.

(d) Financial instruments measured at amortised cost

Financial assets that are held to collect the contractual cash flows and which contain contractual terms that give rise on specified dates to cash

flows that are solely payments of principal and interest are measured at amortised cost. Such financial assets include most loans and advances

to banks and customers and some debt securities. In addition, most financial liabilities are measured at amortised cost. HSBC accounts for

regular way amortised cost financial instruments using trade date accounting. The carrying value of these financial assets at initial recognition

includes any directly attributable transactions costs.

HSBC may commit to underwriting loans on fixed contractual terms for specified periods of time. When the loan arising from the lending

commitment is expected to be sold shortly after origination, the commitment to lend is recorded as a derivative. When HSBC intends tohold the

loan, the loan commitment is included in the impairment calculations set out below.

Non-trading reverse repurchase, repurchase and similar agreements

When debt securities are sold subject to a commitment to repurchase them at a predetermined price (‘repos’), they remain on the balance sheet

and a liability is recorded in respect of the consideration received. Securities purchased under commitments to resell (‘reverse repos’) are not

recognised on the balance sheet and an asset is recorded in respect of the initial consideration paid. Non-trading repos and reverse repos are

measured at amortised cost. The difference between the sale and repurchase price or between the purchase and resale price is treated as

interest and recognised in net interest income over the life of the agreement.

Contracts that are economically equivalent to reverse repo or repo agreements (such as sales or purchases of debt securities entered into

together with total return swaps with the same counterparty) are accounted for similarly to, and presented together with, reverse repo or repo

agreements.

(e) Financial assets measured at fair value through other comprehensive income

Financial assets held for a business model that is achieved by both collecting contractual cash flows and selling and which contain contractual

terms that give rise on specified dates to cash flows that are solely payments of principal and interest are measured at fair value through other

comprehensive income (‘FVOCI’). These comprise primarily debt securities. They are recognised on the trade date when HSBC enters into

contractual arrangements to purchase and are normally derecognised when they are either sold or redeemed. They are subsequently

remeasured at fair value and changes therein (except for those relating to impairment, interest income and foreign currency exchange gains and

losses) are recognised in other comprehensive income until the assets are sold. Upon disposal, the cumulative gains or losses in other

comprehensive income are recognised in the income statement as ‘Gains less losses from financial instruments’. Financial assets measured at

FVOCI are included in the impairment calculations set out below and impairment is recognised in profit or loss.

(f) Equity securities measured at fair value with fair value movements presented in other comprehensive income

The equity securities for which fair value movements are shown in other comprehensive income are business facilitation and other similar

investments where HSBC holds the investments other than to generate a capital return. Dividends from such investments are recognised in

profit or loss. Gains or losses on the derecognition of these equity securities are not transferred to profit or loss. Otherwise, equity securities are

measured at fair value through profit or loss.

(g) Financial instruments designated at fair value through profit or loss

Financial instruments, other than those held for trading, are classified in this category if they meet one or more of the criteria set out below and

are so designated irrevocably at inception:

• The use of the designation removes or significantly reduces an accounting mismatch.

• A group of financial assets and liabilities or a group of financial liabilities is managed and its performance is evaluated on a fair value basis, in

accordance with a documented risk management or investment strategy.

• The financial liability contains one or more non-closely related embedded derivatives.

Designated financial assets are recognised when HSBC enters into contracts with counterparties, which is generally on trade date, and are

normally derecognised when the rights to the cash flows expire or are transferred. Designated financial liabilities are recognised when HSBC

enters into contracts with counterparties, which is generally on settlement date, and are normally derecognised when extinguished. Subsequent

changes in fair values are recognised in the income statement in ‘Net income from financial instruments held for trading or managed on a fair

value basis’ or ‘Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives, measured at fair value

through profit or loss’ or ‘Changes in fair value of designated debt and related derivatives’ except for the effect of changes in the liabilities’ credit

risk, which is presented in ‘Other comprehensive income’, unless that treatment would create or enlarge an accounting mismatch in profit or

loss.

Under the above criteria, the main classes of financial instruments designated by HSBC are:

• Debt instruments for funding purposes that are designated to reduce an accounting mismatch: The interest and/or foreign exchange exposure

on certain fixed-rate debt securities issued has been matched with the interest and/or foreign exchange exposure on certain swaps as part of

a documented risk management strategy.

Notes on the financial statements

340 HSBC Holdings plc Annual Report and Accounts 2022

• Financial assets and financial liabilities under unit-linked and non-linked investment contracts: A contract under which HSBC does not accept

significant insurance risk from another party is not classified as an insurance contract, other than investment contracts with discretionary

participation features (‘DPF’), but is accounted for as a financial liability. Customer liabilities under linked and certain non-linked investment

contracts issued by insurance subsidiaries are determined based on the fair value of the assets held in the linked funds. If no fair value

designation was made for the related assets, at least some of the assets would otherwise be measured at either fair value through other

comprehensive income or amortised cost. The related financial assets and liabilities are managed and reported to management on a fair value

basis. Designation at fair value of the financial assets and related liabilities allows changes in fair values to be recorded in the income

statement and presented in the same line.

• Financial liabilities that contain both deposit and derivative components: These financial liabilities are managed and their performance

evaluated on a fair value basis.

(h) Derivatives

Derivatives are financial instruments that derive their value from the price of underlying items such as equities, interest rates or other indices.

Derivatives are recognised initially and are subsequently measured at fair value through profit or loss. Derivatives are classified as assets when

their fair value is positive or as liabilities when their fair value is negative. This includes embedded derivatives in financial liabilities, which are

bifurcated from the host contract when they meet the definition of a derivative on a stand-alone basis.

Where the derivatives are managed with debt securities issued by HSBC that are designated at fair value where doing so reduces an accounting

mismatch, the contractual interest is shown in ‘Interest expense’ together with the interest payable on the issued debt.

Hedge accounting

When derivatives are not part of fair value designated relationships, if held for risk management purposes they are designated in hedge

accounting relationships where the required criteria for documentation and hedge effectiveness are met. HSBC uses these derivatives or, where

allowed, other non-derivative hedging instruments in fair value hedges, cash flow hedges or hedges of net investments in foreign operations as

appropriate to the risk being hedged.

Fair value hedge

Fair value hedge accounting does not change the recording of gains and losses on derivatives and other hedging instruments, but results in

recognising changes in the fair value of the hedged assets or liabilities attributable to the hedged risk that would not otherwise be recognised in

the income statement. If a hedge relationship no longer meets the criteria for hedge accounting, hedge accounting is discontinued and the

cumulative adjustment to the carrying amount of the hedged item is amortised to the income statement on a recalculated effective interest rate,

unless the hedged item has been derecognised, in which case it is recognised in the income statement immediately.

Cash flow hedge

The effective portion of gains and losses on hedging instruments is recognised in other comprehensive income and the ineffective portion of the

change in fair value of derivative hedging instruments that are part of a cash flow hedge relationship is recognised immediately in the income

statement within ‘Net income from financial instruments held for trading or managed on a fair value basis’. The accumulated gains and losses

recognised in other comprehensive income are reclassified to the income statement in the same periods in which the hedged item affects profit

or loss. When a hedge relationship is discontinued, or partially discontinued, any cumulative gain or loss recognised in other comprehensive

income remains in equity until the forecast transaction is recognised in the income statement. When a forecast transaction is no longer expected

to occur, the cumulative gain or loss previously recognised in other comprehensive income is immediately reclassified to the income statement.

Net investment hedge

Hedges of net investments in foreign operations are accounted for in a similar way to cash flow hedges. The effective portion of gains and

losses on the hedging instrument is recognised in other comprehensive income and other gains and losses are recognised immediately in the

income statement. Gains and losses previously recognised in other comprehensive income are reclassified to the income statement on the

disposal, or part-disposal, of the foreign operation.

Derivatives that do not qualify for hedge accounting

Non-qualifying hedges are derivatives entered into as economic hedges of assets and liabilities for which hedge accounting was not applied.

(i) Impairment of amortised cost and FVOCI financial assets

Expected credit losses (‘ECL’) are recognised for loans and advances to banks and customers, non-trading reverse repurchase agreements, other

financial assets held at amortised cost, debt instruments measured at fair value through other comprehensive income (‘FVOCI’), and certain loan

commitments and financial guarantee contracts. At initial recognition, an allowance (or provision in the case of some loan commitments and

financial guarantees) is required for ECL resulting from default events that are possible within the next 12 months, or less, where the remaining

life is less than 12 months (’12-month ECL’). In the event of a significant increase in credit risk, an allowance (or provision) is required for ECL

resulting from all possible default events over the expected life of the financial instrument (‘lifetime ECL’). Financial assets where 12-month ECL

is recognised are considered to be ‘stage 1’; financial assets which are considered to have experienced a significant increase in credit risk are in

‘stage 2’; and financial assets for which there is objective evidence of impairment so are considered to be in default or otherwise credit impaired

are in ‘stage 3’. Purchased or originated credit-impaired financial assets (‘POCI’) are treated differently as set out below.

Credit impaired (stage 3)

HSBC determines that a financial instrument is credit impaired and in stage 3 by considering relevant objective evidence, primarily whether

contractual payments of either principal or interest are past due for more than 90 days, there are other indications that the borrower is unlikely to

pay such as that a concession has been granted to the borrower for economic or legal reasons relating to the borrower’s financial condition, or

the loan is otherwise considered to be in default.

If such unlikeliness to pay is not identified at an earlier stage, it is deemed to occur when an exposure is 90 days past due, even where

regulatory rules permit default to be defined based on 180 days past due. Therefore, the definitions of credit impaired and default are aligned as

far as possible so that stage 3 represents all loans that are considered defaulted or otherwise credit impaired.

Interest income is recognised by applying the effective interest rate to the amortised cost amount, i.e. gross carrying amount less ECL

allowance.

HSBC Holdings plc Annual Report and Accounts 2022 341

Financial statements

Write-off

Financial assets (and the related impairment allowances) are normally written off, either partially or in full, when there is no realistic prospect of

recovery. Where loans are secured, this is generally after receipt of any proceeds from the realisation of security. In circumstances where the

net realisable value of any collateral has been determined and there is no reasonable expectation of further recovery, write-off may be earlier.

Forbearance

Loans are identified as forborne and classified as either performing or non-performing when HSBC modifies the contractual terms due to

financial difficulty of the borrower. Non-performing forborne loans are stage 3 and classified as non-performing until they meet the cure criteria,

as specified by applicable credit risk policy (for example, when the loan is no longer in default and no other indicators of default have been

present for at least 12 months). Any amount written off as a result of any modification of contractual terms upon entering forbearance would not

be reversed.

In 2022, the Group adopted the EBA Guidelines on the application of definition of default for our retail portfolios, which affect credit risk policies

and our reporting in respect of the status of loans as credit impaired principally due to forbearance (or curing thereof). Further details are provided

under ‘Forborne loans and advances’ on page 146.

Performing forborne loans are initially stage 2 and remain classified as forborne until they meet applicable cure criteria (for example, they

continue to not be in default and no other indicators of default are present for a period of at least 24 months). At this point, the loan is either

stage 1 or stage 2 as determined by comparing the risk of a default occurring at the reporting date (based on the modified contractual terms) and

the risk of a default occurring at initial recognition (based on the original, unmodified contractual terms).

A forborne loan is derecognised if the existing agreement is cancelled and a new agreement is made on substantially different terms, or if the

terms of an existing agreement are modified such that the forborne loan is a substantially different financial instrument. Any new loans that arise

following derecognition events in these circumstances would generally be classified as POCI and will continue to be disclosed as forborne.

Loan modifications other than forborne loans

Loan modifications that are not identified as forborne are considered to be commercial restructurings. Where a commercial restructuring results

in a modification (whether legalised through an amendment to the existing terms or the issuance of a new loan contract) such that HSBC’s rights

to the cash flows under the original contract have expired, the old loan is derecognised and the new loan is recognised at fair value. The rights to

cash flows are generally considered to have expired if the commercial restructure is at market rates and no payment-related concession has

been provided. Modifications of certain higher credit risk wholesale loans are assessed for derecognition, having regard to changes in contractual

terms that either individually or in combination are judged to result in a substantially different financial instrument. Mandatory and general offer

loan modifications that are not borrower specific, for example market-wide customer relief programmes generally do not result in derecognition,

but their stage allocation is determined considering all available and supportable information under our ECL impairment policy. Changes made to

these financial instruments that are economically equivalent and required by interest rate benchmark reform do not result in the derecognition or

a change in the carrying amount of the financial instrument, but instead require the effective interest rate to be updated to reflect the change of

the interest rate benchmark.

Significant increase in credit risk (stage 2)

An assessment of whether credit risk has increased significantly since initial recognition is performed at each reporting period by considering the

change in the risk of default occurring over the remaining life of the financial instrument. The assessment explicitly or implicitly compares the risk

of default occurring at the reporting date compared with that at initial recognition, taking into account reasonable and supportable information,

including information about past events, current conditions and future economic conditions. The assessment is unbiased, probability-weighted,

and to the extent relevant, uses forward-looking information consistent with that used in the measurement of ECL. The analysis of credit risk is

multifactor. The determination of whether a specific factor is relevant and its weight compared with other factors depends on the type of

product, the characteristics of the financial instrument and the borrower, and the geographical region. Therefore, it is not possible to provide a

single set of criteria that will determine what is considered to be a significant increase in credit risk, and these criteria will differ for different

types of lending, particularly between retail and wholesale. However, unless identified at an earlier stage, all financial assets are deemed to have

suffered a significant increase in credit risk when 30 days past due. In addition, wholesale loans that are individually assessed, which are typically

corporate and commercial customers, and included on a watch or worry list, are included in stage 2.

For wholesale portfolios, the quantitative comparison assesses default risk using a lifetime probability of default (‘PD’), which encompasses a

wide range of information including the obligor’s customer risk rating (‘CRR’), macroeconomic condition forecasts and credit transition

probabilities. For origination CRRs up to 3.3, significant increase in credit risk is measured by comparing the average PD for the remaining term

estimated at origination with the equivalent estimation at the reporting date. The quantitative measure of significance varies depending on the

credit quality at origination as follows:

Origination CRR Significance trigger – PD to increase by

0.1–1.2

15bps

2.1–3.3

30bps

For CRRs greater than 3.3 that are not impaired, a significant increase in credit risk is considered to have occurred when the origination PD has

doubled. The significance of changes in PD was informed by expert credit risk judgement, referenced to historical credit migrations and to

relative changes in external market rates.

Notes on the financial statements

342 HSBC Holdings plc Annual Report and Accounts 2022

For loans originated prior to the implementation of IFRS 9, the origination PD does not include adjustments to reflect expectations of future

macroeconomic conditions since these are not available without the use of hindsight. In the absence of this data, origination PD must be

approximated assuming through-the-cycle PDs and through-the-cycle migration probabilities, consistent with the instrument’s underlying

modelling approach and the CRR at origination. For these loans, the quantitative comparison is supplemented with additional CRR deterioration-

based thresholds, as set out in the table below:

Origination CRR

Additional significance criteria – number of CRR grade notches

deterioration required to identify as significant credit

deterioration(stage 2) (> or equal to)

0.1

5 notches

1.1–4.2

4 notches

4.3–5.1

3 notches

5.2–7.1

2 notches

7.2–8.2

1 notch

8.3

0 notch

Further information about the 23-grade scale used for CRR can be found on page 146.

For retail portfolios, default risk is assessed using a reporting date 12-month PD derived from credit scores, which incorporate all available

information about the customer. This PD is adjusted for the effect of macroeconomic forecasts for periods longer than 12months and is

considered to be a reasonable approximation of a lifetime PD measure. Retail exposures are first segmented into homogenous portfolios,

generally by country, product and brand. Within each portfolio, the stage 2 accounts are defined as accounts with an adjusted 12-month PD

greater than the average 12-month PD of loans in that portfolio 12 months before they become 30 days past due. The expert credit risk

judgement is that no prior increase in credit risk is significant. This portfolio-specific threshold therefore identifies loans with a PD higher than

would be expected from loans that are performing as originally expected and higher than that which would have been acceptable at origination. It

therefore approximates a comparison of origination to reporting date PDs.

As additional data becomes available, the retail transfer criteria approach continues to be refined to utilise a more relative approach for certain

portfolios. These enhancements take advantage of the increase in origination-related data in the assessment of significant increases in credit risk

by comparing remaining lifetime PD to the comparable remaining term lifetime PD at origination based on portfolio-specific origination segments.

These enhancements resulted in significant migrations of loans to customers gross carrying amounts from stage 1 to stage 2, but did not have a

significant impact on the overall ECL for these portfolios in 2022 due to low loan-to-value ratios.

Unimpaired and without significant increase in credit risk (stage 1)

ECL resulting from default events that are possible within the next 12 months (‘12-month ECL’) are recognised for financial instruments that

remain in stage 1.

Purchased or originated credit impaired

Financial assets that are purchased or originated at a deep discount that reflects the incurred credit losses are considered to be POCI. This

population includes new financial instruments recognised in most cases following the derecognition of forborne loans. The amount of change in

lifetime ECL for a POCI loan is recognised in profit or loss until the POCI loan is derecognised, even if the lifetime ECL are less than the amount

of ECL included in the estimated cash flows on initial recognition.

Movement between stages

Financial assets can be transferred between the different categories (other than POCI) depending on their relative increase in credit risk since

initial recognition. Financial instruments are transferred out of stage 2 if their credit risk is no longer considered to be significantly increased since

initial recognition based on the assessments described above. In the case of non-performing forborne loans, such financial instruments are

transferred out of stage 3 when they no longer exhibit any evidence of credit impairment and meet the curing criteria as described above.

Measurement of ECL

The assessment of credit risk and the estimation of ECL are unbiased and probability-weighted, and incorporate all available information which is

relevant to the assessment including information about past events, current conditions and reasonable and supportable forecasts of future

events and economic conditions at the reporting date. In addition, the estimation of ECL should take into account the time value of money and

considers other factors such as climate-related risks.

In general, HSBC calculates ECL using three main components: a probability of default (‘PD’), a loss given default (’LGD’) and the exposure at

default (‘EAD’).

The 12-month ECL is calculated by multiplying the 12-month PD, LGD and EAD. Lifetime ECL is calculated using the lifetime PD instead. The

12-month and lifetime PDs represent the probability of default occurring over the next 12 months and the remaining maturity of the instrument

respectively.

The EAD represents the expected balance at default, taking into account the repayment of principal and interest from the balance sheet date to

the default event together with any expected drawdowns of committed facilities. The LGD represents expected losses on the EAD given the

event of default, taking into account, among other attributes, the mitigating effect of collateral value at the time it is expected to be realised and

the time value of money.

HSBC Holdings plc Annual Report and Accounts 2022 343

Financial statements

HSBC makes use of the Basel II IRB framework where possible, with recalibration to meet the differing IFRS 9 requirements as set out in the

following table:

Model Regulatory capital IFRS 9

• Through the cycle (represents long-run average PD throughout

a full economic cycle)

• The definition of default includes a backstop of90+ days past

due, although this has been modified to 180+ days past due

for some portfolios, particularly UK and US mortgages

• Point in time (based on current conditions, adjusted totake into

account estimates of future conditions that will impact PD)

• Default backstop of 90+ days past due for all portfolios

EAD

• Cannot be lower than current balance • Amortisation captured for term products

LGD

• Downturn LGD (consistent losses expected to be suffered

during a severe but plausible economic downturn)

• Regulatory floors may apply to mitigate risk of underestimating

downturn LGD due to lack of historical data

• Discounted using cost of capital

• All collection costs included

• Expected LGD (based on estimate of loss given default

including the expected impact of future economic conditions

such as changes in value of collateral)

• No floors

• Discounted using the original effective interest rate of the loan

• Only costs associated with obtaining/selling collateral included

Other

• Discounted back from point of default to balance sheet date

While 12-month PDs are recalibrated from Basel II models where possible, the lifetime PDs are determined by projecting the 12-month PD using

a term structure. For the wholesale methodology, the lifetime PD also takes into account credit migration, i.e. a customer migrating through the

CRR bands over its life.

The ECL for wholesale stage 3 is determined on an individual basis using a discounted cash flow (‘DCF’) methodology. The expected future cash

flows are based on the credit risk officer’s estimates as of the reporting date, reflecting reasonable and supportable assumptions and projections

of future recoveries and expected future receipts of interest.

Collateral is taken into account if it is likely that the recovery of the outstanding amount will include realisation of collateral based on its estimated

fair value of collateral at the time of expected realisation, less costs for obtaining and selling the collateral.

The cash flows are discounted at a reasonable approximation of the original effective interest rate. For significant cases, cash flows under four

different scenarios are probability-weighted by reference to the economic scenarios applied more generally by the Group and the judgement of

the credit risk officer in relation to the likelihood of the work-out strategy succeeding or receivership being required. For less significant cases,

the effect of different economic scenarios and work-out strategies is approximated and applied as an adjustment to the most likely outcome.

Period over which ECL is measured

Expected credit loss is measured from the initial recognition of the financial asset. The maximum period considered when measuring ECL (be it

12-month or lifetime ECL) is the maximum contractual period over which HSBC is exposed to credit risk. However, where the financial

instrument includes both a drawn and undrawn commitment and the contractual ability to demand repayment and cancel the undrawn

commitment does not serve to limit HSBC’s exposure to credit risk to the contractual notice period, the contractual period does not determine

the maximum period considered. Instead, ECL is measured over the period HSBC remains exposed to credit risk that is not mitigated by credit

risk management actions. This applies to retail overdrafts and credit cards, where the period is the average time taken for stage 2 exposures to

default or close as performing accounts, determined on a portfolio basis and ranging from between two and six years. In addition, for these

facilities it is not possible to identify the ECL on the loan commitment component separately from the financial asset component. As a result, the

total ECL is recognised in the loss allowance for the financial asset unless the total ECL exceeds the gross carrying amount of the financial asset,

in which case the ECL is recognised as a provision. For wholesale overdraft facilities, credit risk management actions are taken no less frequently

than on an annual basis.

Forward-looking economic inputs

HSBC applies multiple forward-looking global economic scenarios determined with reference to external forecast distributions representative of

its view of forecast economic conditions. This approach is considered sufficient to calculate unbiased expected credit losses in most economic

environments. In certain economic environments, additional analysis may be necessary and may result in additional scenarios or adjustments, to

reflect a range of possible economic outcomes sufficient for an unbiased estimate. The detailed methodology is disclosed in ‘Measurement

uncertainty and sensitivity analysis of ECL estimates’ on page 153.

Critical accounting estimates and judgements

The calculation of the Group’s ECL under IFRS 9 requires the Group to make a number of judgements, assumptions and estimates. The most significant

are set out below:

Judgements Estimates

• Defining what is considered to be a significant increase in credit risk

• Determining the lifetime and point of initial recognition of overdrafts and credit cards

• Selecting and calibrating the PD, LGD and EAD models, which support the calculations,

including making reasonable and supportable judgements about how models react to current

and future economic conditions

• Selecting model inputs and economic forecasts, including determining whether sufficient and

appropriately weighted economic forecasts are incorporated to calculate unbiased expected

loss

• Making management adjustments to account for late-breaking events, model and data

limitations and deficiencies, and expert credit judgements

• Selecting applicable recovery strategies for certain wholesale credit-impaired loans

• The section ‘Measurement uncertainty and

sensitivity analysis of ECL estimates’, marked as

audited from page 153, sets out the

assumptions used in determining ECL, and

provides an indication of the sensitivity of the

result to the application of different weightings

being applied to different economic assumptions

(j) Insurance contracts

A contract is classified as an insurance contract where HSBC accepts significant insurance risk from another party by agreeing to compensate

that party on the occurrence of a specified uncertain future event. An insurance contract may also transfer financial risk, but is accounted for as

Notes on the financial statements

344 HSBC Holdings plc Annual Report and Accounts 2022

an insurance contract if the insurance risk is significant. In addition, HSBC issues investment contracts with discretionary participation features

(‘DPF‘), which are also accounted for as insurance contracts as required by IFRS 4 ‘Insurance Contracts’.

Net insurance premium income

Premiums for life insurance contracts are accounted for when receivable, except in unit-linked insurance contracts where premiums are

accounted for when liabilities are established. Reinsurance premiums are accounted for in the same accounting period as the premiums for the

direct insurance contracts to which they relate.

Net insurance claims and benefits paid and movements in liabilities to policyholders

Gross insurance claims for life insurance contracts reflect the total cost of claims arising during the year, including claim handling costs and any

policyholder bonuses allocated in anticipation of a bonus declaration.

Maturity claims are recognised when due for payment. Surrenders are recognised when paid or at an earlier date on which, following notification,

the policy ceases to be included within the calculation of the related insurance liabilities. Death claims are recognised when notified.

Reinsurance recoveries are accounted for in the same period as the related claim.

Liabilities under insurance contracts

Liabilities under non-linked life insurance contracts are calculated by each life insurance operation based on local actuarial principles. Liabilities

under unit-linked life insurance contracts are at least equivalent to the surrender or transfer value, which is calculated by reference to the value of

the relevant underlying funds or indices.

Future profit participation on insurance contracts with DPF

Where contracts provide discretionary profit participation benefits to policyholders, liabilities for these contracts include provisions for the future

discretionary benefits to policyholders. These provisions reflect the actual performance of the investment portfolio to date and management’s

expectation of the future performance of the assets backing the contracts, as well as other experience factors such as mortality, lapses and

operational efficiency, where appropriate. The benefits to policyholders may be determined by the contractual terms, regulation, or past

distribution policy.

Investment contracts with DPF

While investment contracts with DPF are financial instruments, they continue to be treated as insurance contracts as required by IFRS 4. The

Group therefore recognises the premiums for these contracts as revenue and recognises as an expense the resulting increase in the carrying

amount of the liability.

In the case of net unrealised investment gains on these contracts, whose discretionary benefits principally reflect the actual performance of the

investment portfolio, the corresponding increase in the liabilities is recognised in either the income statement or other comprehensive income,

following the treatment of the unrealised gains on the relevant assets. In the case of net unrealised losses, a deferred participating asset is

recognised only to the extent that its recoverability is highly probable. Movements in the liabilities arising from realised gains and losses on

relevant assets are recognised in the income statement.

Present value of in-force long-term insurance business

HSBC recognises the value placed on insurance contracts and investment contracts with DPF, which are classified as long-term and in-force at

the balance sheet date, as an asset. The asset represents the present value of the equity holders’ interest in the issuing insurance companies’

profits expected to emerge from these contracts written at the balance sheet date. The present value of in-force business (‘PVIF’) is determined

by discounting those expected future profits using appropriate assumptions in assessing factors such as future mortality, lapse rates and levels

of expenses, and a risk discount rate that reflects the risk premium attributable to the respective contracts. The PVIF incorporates allowances for

both non-market risk and the value of financial options and guarantees. The PVIF asset is presented gross of attributable tax in the balance sheet

and movements in the PVIF asset are included in ‘Other operating income’ on a gross of tax basis.

(k) Employee compensation and benefits

Share-based payments

HSBC enters into both equity-settled and cash-settled share-based payment arrangements with its employees as compensation for the provision

of their services.

The vesting period for these schemes may commence before the legal grant date if the employees have started to render services in respect of

the award before the legal grant date, where there is a shared understanding of the terms and conditions of the arrangement. Expenses are

recognised when the employee starts to render service to which the award relates.

Cancellations result from the failure to meet a non-vesting condition during the vesting period, and are treated as an acceleration of vesting

recognised immediately in the income statement. Failure to meet a vesting condition by the employee is not treated as a cancellation, and the

amount of expense recognised for the award is adjusted to reflect the number of awards expected to vest.

Post-employment benefit plans

HSBC operates a number of pension schemes including defined benefit, defined contribution and post-employment benefit schemes.

Payments to defined contribution schemes are charged as an expense as the employees render service.

Defined benefit pension obligations are calculated using the projected unit credit method. The net charge to the income statement mainly

comprises the service cost and the net interest on the net defined benefit asset or liability, and is presented in operating expenses.

Remeasurements of the net defined benefit asset or liability, which comprise actuarial gains and losses, return on plan assets excluding interest

and the effect of the asset ceiling (if any, excluding interest), are recognised immediately in other comprehensive income. The net defined

benefit asset or liability represents the present value of defined benefit obligations reduced by the fair value of plan assets (see Note 1.2 (c)),

after applying the asset ceiling test, where the net defined benefit surplus is limited to the present value of available refunds and reductions in

future contributions to the plan.

The costs of obligations arising from other post-employment plans are accounted for on the same basis as defined benefit pension plans.

HSBC Holdings plc Annual Report and Accounts 2022 345

Financial statements

Critical accounting estimates and judgements

The most significant critical accounting estimates relate to the determination of key assumptions applied in calculating the defined benefit pension

obligation for the principal plan.

Judgements Estimates

• A range of assumptions could be applied, and different assumptions could

significantly alter the defined benefit obligation and the amounts recognised in

profit or loss or OCI.

• The calculation of the defined benefit pension obligation includes assumptions

with regard to the discount rate, inflation rate, pension payments and deferred

pensions, pay and mortality. Management determines these assumptions in

consultation with the plan’s actuaries.

• Key assumptions used in calculating the defined benefit pension obligation for the

principal plan and the sensitivity of the calculation to different assumptions are

described in Note 5.

(l) Tax

Income tax comprises current tax and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to

items recognised in other comprehensive income or directly in equity, in which case the tax is recognised in the same statement as the related

item appears.

Current tax is the tax expected to be payable on the taxable profit for the year and on any adjustment to tax payable in respect of previous years.

HSBC provides for potential current tax liabilities that may arise on the basis of the amounts expected to be paid to the tax authorities.

Deferred tax is recognised on temporary differences between the carrying amounts of assets and liabilities in the balance sheet, and the

amounts attributed to such assets and liabilities for tax purposes. Deferred tax is calculated using the tax rates expected to apply in the periods

in which the assets will be realised or the liabilities settled.

In assessing the probability and sufficiency of future taxable profit, management considers the availability of evidence to support the recognition

of deferred tax assets, taking into account the inherent risks in long-term forecasting, including climate change-related, and drivers of recent

history of tax losses where applicable. Management also considers the future reversal of existing taxable temporary differences and tax planning

strategies, including corporate reorganisations.

Current and deferred tax are calculated based on tax rates and laws enacted, or substantively enacted, by the balance sheet date.

Critical accounting estimates and judgements

The recognition of deferred tax assets depends on judgements and estimates.

Judgements Estimates

• Specific judgements supporting deferred tax assets are described in

Note7.

• The recognition of deferred tax assets is sensitive to estimates of

future cash flows projected for periods for which detailed forecasts

are available and to assumptions regarding the long-term pattern of

cash flows thereafter, on which forecasts of future taxable profit

are based, and which affect the expected recovery periods and the

pattern of utilisation of tax losses and tax credits. See Note 7 for

further detail.

The Group does not consider there to be a significant risk of a material adjustment to the carrying amount of deferred tax assets in the next

financial year but does consider this to be an area that is inherently judgemental.

(m) Provisions, contingent liabilities and guarantees

Provisions

Provisions are recognised when it is probable that an outflow of economic benefits will be required to settle a present legal or constructive

obligation that has arisen as a result of past events and for which a reliable estimate can be made.

Critical accounting estimates and judgements

The recognition and measurement of provisions requires the Group to make a number of judgements, assumptions and estimates. The most significant

are set out below:

Judgements Estimates

• Determining whether a present obligation exists. Professional advice is

taken on the assessment of litigation and similar obligations.

• Provisions for legal proceedings and regulatory matters typically require a

higher degree of judgement than other types of provisions. When matters

are at an early stage, accounting judgements can be difficult because of

the high degree of uncertainty associated with determining whether a

present obligation exists, and estimating the probability and amount of any

outflows that may arise. As matters progress, management and legal

advisers evaluate on an ongoing basis whether provisions should be

recognised, revising previous estimates as appropriate. At more advanced

stages, it is typically easier to make estimates around a better defined set

of possible outcomes.

• Provisions for legal proceedings and regulatory matters remain very

sensitive to the assumptions used in the estimate. There could be a

wider range of possible outcomes for any pending legal

proceedings, investigations or inquiries. As a result it is often not

practicable to quantify a range of possible outcomes for individual

matters. It is also not practicable to meaningfully quantify ranges of

potential outcomes in aggregate for these types of provisions

because of the diverse nature and circumstances of such matters

and the wide range of uncertainties involved.

Notes on the financial statements

346 HSBC Holdings plc Annual Report and Accounts 2022

Contingent liabilities, contractual commitments and guarantees

Contingent liabilities

Contingent liabilities, which include certain guarantees and letters of credit pledged as collateral security, and contingent liabilities related to legal

proceedings or regulatory matters, are not recognised in the financial statements but are disclosed unless the probability of settlement is

remote.

Financial guarantee contracts

Liabilities under financial guarantee contracts that are not classified as insurance contracts are recorded initially at their fair value, which is

generally the fee received or present value of the fee receivable.

HSBC Holdings has issued financial guarantees and similar contracts to other Group entities. HSBC elects to account for certain guarantees as

insurance contracts in HSBC Holdings’ financial statements, in which case they are measured and recognised as insurance liabilities. This

election is made on a contract-by-contract basis, and is irrevocable.

(n) Impairment of non-financial assets

Software under development is tested for impairment at least annually. Other non-financial assets are property, plant and equipment, intangible

assets (excluding goodwill) and right-of-use assets. They are tested for impairment at the individual asset level when there is indication of

impairment at that level, or at the CGU level for assets that do not have a recoverable amount at the individual asset level. In addition,

impairment is also tested at the CGU level when there is indication of impairment at that level. For this purpose, CGUs are considered to be the

principal operating legal entities divided by global business.

Impairment testing compares the carrying amount of the non-financial asset or CGU with its recoverable amount, which is the higher of the fair

value less costs of disposal or the value in use. The carrying amount of a CGU comprises the carrying value of its assets and liabilities, including

non-financial assets that are directly attributable to it and non-financial assets that can be allocated to it on a reasonable and consistent basis.

Non-financial assets that cannot be allocated to an individual CGU are tested for impairment at an appropriate grouping of CGUs. The recoverable

amount of the CGU is the higher of the fair value less costs of disposal of the CGU, which is determined by independent and qualified valuers

where relevant, and the value in use, which is calculated based on appropriate inputs (see Note 21).

When the recoverable amount of a CGU is less than its carrying amount, an impairment loss is recognised in the income statement to the extent

that the impairment can be allocated on a pro-rata basis to the non-financial assets by reducing their carrying amounts to the higher of their

respective individual recoverable amount or nil. Impairment is not allocated to the financial assets in a CGU.

Impairment losses recognised in prior periods for non-financial assets is reversed when there has been a change in the estimate used to

determine the recoverable amount. The impairment loss is reversed to the extent that the carrying amount of the non-financial assets would not

exceed the amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised in prior

periods.

Critical accounting estimates and judgements

The review of goodwill and other non-financial assets for impairment reflects management’s best estimate of the future cash flows of the CGUs and

the rates used to discount these cash flows, both of which are subject to uncertain factors as described in the Critical accounting estimates and

judgements in Note 1.2(a).

(o) Non-current assets and disposal groups held for sale

HSBC classifies non-current assets or disposal groups (including assets and liabilities) as held for sale when their carrying amounts will be

recovered principally through sale rather than through continuing use. To be classified as held for sale, the non-current asset or disposal group

must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or

disposal groups), and the sale must be highly probable. For a sale to be highly probable, the appropriate level of management must be

committed to a plan to sell the asset (or disposal group) and an active programme to locate a buyer and complete the plan must have been

initiated. Further, the asset (or disposal group) must be actively marketed for sale at a price that is reasonable in relation to its current fair value.

In addition, the sale should be expected to qualify as a completed sale within one year from the date of classification and actions required to

complete the plan should indicate that it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

Held for sale assets and disposal groups are measured at the lower of their carrying amount and fair value less costs to sell except for those

assets and liabilities that are not within the scope of the measurement requirements of IFRS 5. If the carrying amount of the non-current asset

(or disposal group) is greater than the fair value less costs to sell, an impairment loss for any initial or subsequent write down of the asset or

disposal group to fair value less costs to sell is recognised. Any such impairment loss is first allocated against the non-current assets that are in

scope of IFRS 5 for measurement. This first reduces the carrying amount of any goodwill allocated to the disposal group, and then to the other

non-current assets of the disposal group pro rata on the basis of the carrying amount of each asset in the disposal group. Thereafter, any

impairment loss in excess of the carrying value of the non-current assets in scope of IFRS 5 for measurement is recognised against the total

assets of the disposal group.

Critical accounting judgements

The classification as held for sale depends on certain judgements:

Judgements

Management judgement is required in determining whether the IFRS 5 held for sale criteria are met, including whether a sale is highly probable and

expected to complete within one year of classification. The exercise of judgement will normally consider the likelihood of successfully securing any

necessary regulatory or political approvals which are almost always required for sales of banking businesses. For large and complex plans judgement

will also include an assessment of the enforceability of any binding sale agreement, the nature and magnitude of any disincentives for non-

performance, and the ability of the counterparty to undertake necessary pre-completion preparatory work, comply with conditions precedent, and

otherwise be able to comply with contractual undertakings to achieve completion within the expected timescale. Once classified as held for sale,

judgement is required to be applied on a continuous basis to ensure that classification remains appropriate in future accounting periods.

(p) Hyperinflationary accounting

Hyperinflationary accounting is applied to those subsidiary operations in countries where the three-year cumulative inflation rate is approaching or

exceeding 100%. In 2022, this affected the Group’s operations in Argentina and Türkiye. The Group applies IAS 29 to the underlying financial

information of relevant subsidiaries to restate their local currency results and financial position so as to be stated in terms of the measuring unit

current at the end of the reporting period. Those restated results are translated into the Group’s presentation currency of US dollars for

HSBC Holdings plc Annual Report and Accounts 2022 347

Financial statements

consolidation at the closing rate at the balance sheet date. Group comparatives are not restated for inflation and consequential adjustments to

the opening balance sheet in relation to hyperinflationary subsidiaries are presented in other comprehensive income. The hyperinflationary gain

or loss in respect of the net monetary position of the relevant subsidiary is included in profit or loss.

When applying hyperinflation accounting for the first time, the underlying financial information is restated in terms of the measuring unit current

at the end of the reporting period as if the relevant economy had always been hyperinflationary. Group comparatives are not restated for such

historic adjustments.

Net fee income

Net fee income by global business

2022

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

Funds under management 1,769 105 503 — 2,377

Cards 2,146 313 32 — 2,491

Credit facilities 100 776 598 — 1,474

Broking income 575 40 634 — 1,249

Account services 337 718 356 1 1,412

Unit trusts 682 14 — — 696

Underwriting 1 2 443 (5) 441

Global custody 140 14 767 — 921

Remittances 72 378 348 1 799

Imports/exports — 475 159 — 634

Insurance agency commission 283 16 1 — 300

Other 1,423 1,082 2,382 (2,468) 2,419

Fee income 7,528 3,933 6,223 (2,471) 15,213

Less: fee expense (2,497) (240) (3,464) 2,439 (3,762)

Net fee income 5,031 3,693 2,759 (32) 11,451

2021

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

Funds under management

1,984

126

546

—

2,656

Cards 1,949 240 23 1 2,213

Credit facilities 103 833 690 1 1,627

Broking income 863 69 669 — 1,601

Account services 429 677 340 6 1,452

Unit trusts 1,065 23 — — 1,088

Underwriting 4 6 1,009 (2) 1,017

Global custody 167 24 787 — 978

Remittances 75 357 343 — 775

Imports/exports 1 474 145 — 620

Insurance agency commission 324 17 — — 341

Other 1,305 1,077 2,503 (2,465) 2,420

Fee income 8,269 3,923 7,055 (2,459) 16,788

Less: fee expense (2,375) (284) (3,452) 2,420 (3,691)

Net fee income 5,894 3,639 3,603 (39) 13,097

2020

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

Funds under management 1,686 126 477 — 2,289

Cards 1,564 360 25 — 1,949

Credit facilities 93 740 626 — 1,459

Broking income 862 61 616 — 1,539

Account services 431 598 264 — 1,293

Unit trusts 881 18 — — 899

Underwriting 5 9 1,002 (1) 1,015

Global custody 189 22 723 — 934

Remittances 77 313 288 (1) 677

Imports/exports — 417 160 — 577

Insurance agency commission 307 17 1 — 325

Other 1,123 893 2,369 (2,290) 2,095

Fee income 7,218 3,574 6,551 (2,292) 15,051

Less: fee expense (1,810) (349) (3,284) 2,266 (3,177)

Net fee income 5,408 3,225 3,267 (26) 11,874

Notes on the financial statements

348 HSBC Holdings plc Annual Report and Accounts 2022

Net fee income included $6,410m of fees earned on financial assets that were not at fair value through profit or loss, other than amounts

included in determining the effective interest rate (2021: $6,742m; 2020: $5,858m), $1,613m of fees payable on financial liabilities that were not

at fair value through profit or loss, other than amounts included in determining the effective interest rate (2021: $1,520m; 2020:$1,260m),

$3,506m of fees earned on trust and other fiduciary activities (2021: $3,849m; 2020: $3,426m) and $422m of fees payable relating to trust and

other fiduciary activities (2021: $305m; 2020: $267m).

Net income from financial instruments measured at fair value through

profit or loss

2022

2021

2020

Net income/(expense) arising on:

Net trading activities 2,576 6,668 11,074

Other instruments managed on a fair value basis 7,893 1,076 (1,492)

Net income from financial instruments held for trading or managed on a fair value basis 10,469 7,744 9,582

Financial assets held to meet liabilities under insurance and investment contracts (3,720) 4,134 2,481

Liabilities to customers under investment contracts 326 (81) (400)

Net income/(expense) from assets and liabilities of insurance businesses, including related derivatives,

measured at fair value through profit or loss

(3,394) 4,053 2,081

Derivatives managed in conjunction with HSBC’s issued debt securities (7,086) (2,811) 2,619

Other changes in fair value 7,009 2,629 (2,388)

Changes in fair value of designated debt and related derivatives

(77) (182) 231

Changes in fair value of other financial instruments mandatorily measured at fair value through profit

or loss 226 798 455

Year ended 31 Dec 7,224 12,413 12,349

1 The debt instruments, issued for funding purposes, are designated under the fair value option to reduce an accounting mismatch.

HSBC Holdings

2022

2021

2020

Net income/(expense) arising on:

– trading activities 2,094 87 (336)

– other instruments managed on a fair value basis 35 23 1,137

Net income from financial instruments held for trading or managed on a fair value basis 2,129 110 801

Derivatives managed in conjunction with HSBC Holdings-issued debt securities (1,529) (625) 694

Other changes in fair value 3,673 974 (1,020)

Changes in fair value of designated debt and related derivatives 2,144 349 (326)

Changes in fair value of other financial instruments mandatorily measured at fair value through profit or loss (2,409) (420) 1,141

Year ended 31 Dec 1,864 39 1,616

Insurance business

Net insurance premium income

Non-linked

insurance

Linked life

insurance

Investment

contracts

with DPF

Total

Gross insurance premium income 11,685 824 1,547 14,056

Reinsurers’ share of gross insurance premium income (1,226) (5) — (1,231)

Year ended 31 Dec 2022 10,459 819 1,547 12,825

Gross insurance premium income 8,529 1,027 1,873 11,429

Reinsurers’ share of gross insurance premium income (555) (4) — (559)

Year ended 31 Dec 2021 7,974 1,023 1,873 10,870

Gross insurance premium income 8,321 579 1,563 10,463

Reinsurers’ share of gross insurance premium income (362) (8) — (370)

Year ended 31 Dec 2020 7,959 571 1,563 10,093

1 This table is presented after elimination of inter-company transactions between our insurance manufacturing operations and other Group entities.

2 Discretionary participation features.

HSBC Holdings plc Annual Report and Accounts 2022 349

Financial statements

Net insurance claims and benefits paid and movement in liabilities to policyholders

Non-linked

insurance

Linked life

insurance

Investment

contracts

with DPF

Total

Gross claims and benefits paid and movement in liabilities 11,008 (124) 183 11,067

– claims, benefits and surrenders paid 4,032 680 1,845 6,557

– movement in liabilities 6,976 (804) (1,662) 4,510

Reinsurers’ share of claims and benefits paid and movement in liabilities (1,206) 8 — (1,198)

– claims, benefits and surrenders paid (1,005) (7) — (1,012)

– movement in liabilities (201) 15 — (186)

Year ended 31 Dec 2022 9,802 (116) 183 9,869

Gross claims and benefits paid and movement in liabilities 10,474 1,134 3,332 14,940

– claims, benefits and surrenders paid 2,929 1,023 2,142 6,094

– movement in liabilities 7,545 111 1,190 8,846

Reinsurers’ share of claims and benefits paid and movement in liabilities (543) (9) — (552)

– claims, benefits and surrenders paid (343) (7) — (350)

– movement in liabilities (200) (2) — (202)

Year ended 31 Dec 2021 9,931 1,125 3,332 14,388

Gross claims and benefits paid and movement in liabilities 10,050 1,112 1,853 13,015

– claims, benefits and surrenders paid 3,695 900 2,083 6,678

– movement in liabilities 6,355 212 (230) 6,337

Reinsurers’ share of claims and benefits paid and movement in liabilities (366) (4) — (370)

– claims, benefits and surrenders paid (430) (10) — (440)

– movement in liabilities 64 6 — 70

Year ended 31 Dec 2020 9,684 1,108 1,853 12,645

1 This table is presented after elimination of inter-company transactions between our insurance manufacturing operations and other Group entities.

2 Discretionary participation features.

Liabilities under insurance contracts

Non-linked

insurance

Linked life

insurance

Investment

contracts

with DPF

Total

Gross liabilities under insurance contracts at 1 Jan 2022 79,475 6,513 26,757 112,745

Claims and benefits paid (4,032) (680) (1,845) (6,557)

Increase in liabilities to policyholders 11,008 (124) 183 11,067

Exchange differences and other movements

2,004 (313) (4,102) (2,411)

Gross liabilities under insurance contracts at 31 Dec 2022 88,455 5,396 20,993 114,844

Reinsurers’ share of liabilities under insurance contracts (4,247) (10) — (4,257)

Net liabilities under insurance contracts at 31 Dec 2022 84,208 5,386 20,993 110,587

Gross liabilities under insurance contracts at 1 Jan 2021 72,464 6,449 28,278 107,191

Claims and benefits paid (2,929) (1,023) (2,142) (6,094)

Increase in liabilities to policyholders 10,474 1,134 3,332 14,940

Exchange differences and other movements

(534) (47) (2,711) (3,292)

Gross liabilities under insurance contracts at 31 Dec 2021 79,475 6,513 26,757 112,745

Reinsurers’ share of liabilities under insurance contracts (3,638) (30) — (3,668)

Net liabilities under insurance contracts at 31 Dec 2021 75,837 6,483 26,757 109,077

1 This table is presented after elimination of inter-company transactions between our insurance manufacturing operations and other Group entities.

2 Discretionary participation features.

3 ‘Exchange differences and other movements’ includes movements in liabilities arising from net unrealised investment gains recognised in other

comprehensive income.

The key factors contributing to the movement in liabilities to policyholders included movements in the market value of assets supporting

policyholder liabilities, death claims, surrenders, lapses, new business, the declaration of bonuses and other amounts attributable to

policyholders.

Notes on the financial statements

350 HSBC Holdings plc Annual Report and Accounts 2022

Employee compensation and benefits

2022

2021

2020

Employee compensation and benefits

18,366 18,742 18,076

Capitalised wages and salaries 922 870 1,320

Gross employee compensation and benefits for the year ended 31 Dec 19,288 19,612 19,396

Consists of:

Wages and salaries 16,954 17,072 17,072

Social security costs 1,413 1,503 1,378

Post-employment benefits 921 1,037 946

Year ended 31 Dec 19,288 19,612 19,396

1 Employee compensation and benefits are presented net of software capitalisation costs in the income statement.

Average number of persons employed by HSBC during the year by global business

2022

2021

2020

Wealth and Personal Banking 135,676 138,026 144,615

Commercial Banking 48,004 44,992 45,631

Global Banking and Markets 48,597 48,179 49,055

Corporate Centre 365 359 411

Year ended 31 Dec 232,642 231,556 239,712

1 Average number of persons employed represents the number of persons with contracts of service with the Group.

Average number of persons employed by HSBC during the year by geographical region

2022

2021

2020

Europe 58,145 60,919 64,886

Asia 132,257 127,673 129,923

Middle East and North Africa 9,541 9,329 9,550

North America 12,242 13,845 15,430

Latin America 20,457 19,790 19,923

Year ended 31 Dec 232,642 231,556 239,712

1 Average number of persons employed represents the number of persons with contracts of service with the Group.

Reconciliation of total incentive awards granted to income statement charge

2022

2021 2020

Total incentive awards approved for the current year 3,359 3,495 2,659

Less: deferred bonuses awarded, expected to be recognised in future periods (343) (379) (239)

Total incentives awarded and recognised in the current year 3,016 3,116 2,420

Add: current year charges for deferred bonuses from previous years 239 270 286

Other (22) 4 2

Income statement charge for incentive awards 3,233 3,390 2,708

Share-based payments

‘Wages and salaries’ includes the effect of share-based payments arrangements, of which $400m was equity settled (2021: $467m;

2020:$434m), as follows:

2022

2021

2020

Conditional share awards 402 479 411

Savings-related and other share award option plans 22 27 51

Year ended 31 Dec 424 506 462

HSBC share awards

Award Policy

Deferred share awards

(including annual

incentive awards, long-

term incentive (‘LTI’)

awards delivered in

shares) and Group

Performance Share

Plans (‘GPSP’)

An assessment of performance over the relevant period ending on 31 December is used to determine the amount ofthe

award to be granted.

• Deferred awards generally require employees to remain in employment over the vesting period and are generally not

subject to performance conditions after the grant date. An exception to these are LTI awards, which are subject to

performance conditions.

• Deferred share awards generally vest over a period of three, four, five or seven years.

• Vested shares may be subject to a retention requirement post-vesting.

• Awards are subject to malus and clawback provisions.

International Employee

Share Purchase Plan

(‘ShareMatch’)

The plan was first introduced in Hong Kong in 2013 and now includes employees based in 31 jurisdictions.

• Shares are purchased in the market each quarter up to a maximum value of £750, or the equivalent in local currency.

• Matching awards are added at a ratio of one free share for every three purchased. In mainland China, matching awards

are settled in cash.

• Matching awards vest subject to continued employment and the retention of the purchased shares for a maximum period

of two years and nine months.

HSBC Holdings plc Annual Report and Accounts 2022 351

Financial statements

Movement on HSBC share awards

2022

2021

Number

(000s)

Conditional share awards outstanding at 1 Jan 109,364 103,473

Additions during the year 90,190 75,549

Released in the year (67,718) (63,635)

Forfeited in the year (5,590) (6,023)

Conditional share awards outstanding at 31 Dec 126,246 109,364

Weighted average fair value of awards granted ($) 5.60 6.49

HSBC share option plans

Main plans Policy

Savings-related share

option plans (‘Sharesave’)

• From 2014, employees eligible for the UK plan could save up to £500 per month with the option to use the savings

to acquire shares.

• These are generally exercisable within six months following either the third or fifth anniversary of the

commencement of a three-year or five-year contract, respectively.

• The exercise price is set at a 20% (2021: 20%) discount to the market value immediately preceding the date of

invitation.

Calculation of fair values

The fair values of share options are calculated using a Black-Scholes model. The fair value of a share award is based on the share price at the

date of the grant.

Movement on HSBC share option plans

Savings-related

share option plans

Number

WAEP

(000s) £

Outstanding at 1 Jan 2022 123,197 2.85

Granted during the year

8,928 4.24

Exercised during the year

(3,483) 3.49

Expired during the year (9,047) 3.55

Forfeited during the year (3,944) 2.79

Outstanding at 31 Dec 2022 115,651 2.89

– of which exercisable 4,029 4.11

Weighted average remaining contractual life (years) 2.26

Outstanding at 1 Jan 2021 130,953 2.97

Granted during the year

15,410 3.15

Exercised during the year

(3,878) 3.80

Expired during the year (11,502) 3.53

Forfeited during the year (7,786) 3.97

Outstanding at 31 Dec 2021 123,197 2.85

– of which exercisable 4,949 4.05

Weighted average remaining contractual life (years) 3.02

1 Weighted average exercise price.

2 The weighted average fair value of options granted during the year was $1.45 (2021: $0.85).

3 The weighted average share price at the date the options were exercised was $6.22 (2021: $5.87).

Post-employment benefit plans

The Group operates pension plans throughout the world for its employees. ‘Pension risk management processes’ on page 205 contains details

of the policies and practices associated with these pension plans, some of which are defined benefit plans. The largest defined benefit plan is

the HBUK section of the HSBC Bank (UK) Pension Scheme (‘the principal plan’), created as a result of the HSBC Bank (UK) Pension Scheme

being fully sectionalised in 2018 to meet the requirements of the Banking Reform Act. For further details of how the trustee of the HSBC Bank

(UK) Pension Scheme manages climate risk, see ’Managing risk for our stakeholders’ on page 64.

HSBC holds on its balance sheet the net surplus or deficit, which is the difference between the fair value of plan assets and the discounted value

of scheme liabilities at the balance sheet date for each plan. Surpluses are only recognised to the extent that they are recoverable through

reduced contributions in the future or through potential future refunds from the schemes. In assessing whether a surplus is recoverable, HSBC

has considered its current right to obtain a future refund or a reduction in future contributions together with the rights of third parties such as

trustees.

The principal plan

The principal plan has a defined benefit section and a defined contribution section. The defined benefit section was closed to future benefit

accrual in 2015, with defined benefits earned by employees at that date continuing to be linked to their salary while they remain employed by

HSBC. The plan is overseen by an independent corporate trustee, who has a fiduciary responsibility for the operation of the plan. Its assets are

held separately from the assets of the Group.

The investment strategy of the plan is to hold the majority of assets in bonds, with the remainder in a diverse range of investments. It also

includes some interest rate swaps to reduce interest rate risk, inflation swaps to reduce inflation risk and longevity swaps to reduce the impact

of longer life expectancy.

Notes on the financial statements

352 HSBC Holdings plc Annual Report and Accounts 2022

The principal plan is subject to the statutory funding objective requirements of the UK Pensions Act 2004, which requires that it be funded to at

least the level of technical provisions (an actuarial estimate of the assets needed to provide for the benefits already built up under the plan).

Where a funding valuation is carried out and identifies a deficit, the employer and trustee are required to agree to a deficit recovery plan.

The latest funding valuation of the plan at 31 December 2019 was carried out by Colin G Singer of Willis Towers Watson Limited, who is a

Fellow of the UK Institute and Faculty of Actuaries, using the projected unit credit method. At that date, the market value of the plan’s assets

was £31.1bn ($41.1bn) and this exceeded the value placed on its liabilities on an ongoing basis by £2.5bn ($3.3bn), giving a funding level of

109%. These figures include defined contribution assets amounting to £2.4bn ($3.2bn). The main differences between the assumptions used for

assessing the defined benefit liabilities for this funding valuation and those used for IAS 19 are that an element of prudence is contained in the

funding valuation assumptions for discount rate, inflation rate and life expectancy. The funding valuation is used to judge the amount of cash

contributions the Group needs to put into the pension scheme. It will always be different to the IAS 19 accounting surplus, which is an

accounting rule concerning employee benefits and shown on the balance sheet of our financial statements. The next funding valuation will be

performed in 2023, with an effective date of 31 December 2022. The plan is estimated to remain in a comfortable surplus relative to the funding

liabilities as at the end of 2022, based on assumptions consistent with those used to determine the funding liabilities for the 2019 valuation.

The actuary also assessed the value of the liabilities if the plan were to have been stopped and an insurance company asked to secure all future

pension payments. This is generally larger than the amount needed on the ongoing basis described above because an insurance company would

use more prudent assumption which allow for reserves and include an explicit allowance for the future administrative expenses ofthe plan.

Under this approach, the amount of assets needed was estimated to be £33bn ($44bn) at 31 December 2019.

The trust deed gives the ability for HSBC UK to take a refund of surplus assets after the plan has been run down such that no further

beneficiaries remain. In assessing whether a surplus is recoverable, HSBC UK has considered its right to obtain a future refund together

with the rights of third parties such as trustees. On this basis, any net surplus in the HBUK section of the plan is recognised in HSBC UK’s

financial statements and the Group’s financial statements,

Guaranteed minimum pension equalisation

Following a judgment issued by the High Court of Justice of England and Wales in 2018, we estimated the financial effect of equalising benefits

in respect of guaranteed minimum pension (‘GMP’) equalisation, and any potential conversion of GMPs into non-GMP benefits, to be an

approximate 0.9% increase in the principal plan’s liabilities, or £187m ($239m). This was recognised in the income statement in 2018. A further

judgment by the High Court on 20 November 2020 ruled that GMPs should also be equalised for those who had previously transferred benefits

from the principal plan to another arrangement, with £13m ($17m) consequently being recognised in 2020. We continue to assess the impact of

GMP equalisation. In 2022, the trustee and HSBC UK agreed to adopt a simplified approach for all members to implement GMP equalisation.

This resulted in an increase to the liabilities of £5m ($6m) and has been recognised as a past service cost through profit and loss.

Income statement charge

2022

2021

2020

Defined benefit pension plans 42 243 146

Defined contribution pension plans 852 767 775

Pension plans 894 1,010 921

Defined benefit and contribution healthcare plans 27 27 25

Year ended 31 Dec 921 1,037 946

Net assets/(liabilities) recognised on the balance sheet in respect of defined benefit plans

Fair value of

plan assets

Present value of

defined benefit

obligations

Effect of

limit on plan

surpluses Total

Defined benefit pension plans 32,171 (25,693) — 6,478

Defined benefit healthcare plans 96 (388) — (292)

At 31 Dec 2022 32,267 (26,081) — 6,186

Total employee benefit liabilities (within Note 27 ‘Accruals, deferred income and other

liabilities’)

(1,096)

Total employee benefit assets (within Note 22 ‘Prepayments, accrued income and

other assets’)

7,282

Defined benefit pension plans 51,431 (42,277) (23) 9,131

Defined benefit healthcare plans 103 (572) — (469)

At 31 Dec 2021 51,534 (42,849) (23) 8,662

Total employee benefit liabilities (within Note 27 ‘Accruals, deferred income and other

liabilities’)

(1,607)

Total employee benefit assets (within Note 22 ‘Prepayments, accrued income and other

assets’)

10,269

HSBC Holdings

Employee compensation and benefit expense in respect of HSBC Holdings’ employees in 2022 amounted to $41m (2021: $30m). The average

number of persons employed during 2022 was 42 (2021: 54). A small number of employees are members of defined benefit pension plans.

These employees are members of the HSBC Bank (UK) Pension Scheme. HSBC Holdings pays contributions to such plan for its own employees

in accordance with the schedules of contributions determined by the trustees of the plan and recognises these contributions as an expense as

they fall due.

HSBC Holdings plc Annual Report and Accounts 2022 353

Financial statements

Defined benefit pension plans

Net asset/(liability) under defined benefit pension plans

Fair value of plan

assets

Present value of

defined benefit

obligations

Effect of the asset

ceiling

Net defined benefit

asset/(liability)

Principal

plan

Other

plans

Principal

plan

Other

plans

Principal

plan

Other

plans

Principal

plan

Other

plans

At 1 Jan 2022 41,384 10,047 (32,255) (10,022) — (23) 9,129 2

Service cost — — (30) (170) — — (30) (170)

– current service cost — — (12) (161) — — (12) (161)

– past service cost and gains/(losses) fromsettlements — — (18) (9) — — (18) (9)

Net interest income/(cost) on the net defined benefit asset/

(liability) 703 198 (546) (202) — (1) 157 (5)

Remeasurement effects recognised in other

comprehensive income (11,505) (2,181) 9,532 2,360 — (3) (1,973) 176

– return on plan assets (excluding interest income) (11,505) (2,181) — — — — (11,505) (2,181)

– actuarial gains/(losses) financial assumptions — — 10,543 2,383 — — 10,543 2,383

– actuarial gains/(losses) demographic assumptions

— —

(123) 24 — — (123) 24

– actuarial gains/(losses) experience adjustments

— —

(888) (47) — — (888) (47)

– other changes — — — — — (3) — (3)

Exchange differences (4,288) (180) 3,325 35 — 2 (963) (143)

Benefits paid (1,222) (616) 1,222 686 — — — 70

Other movements

49 (218) (35) 407 — 25 14 214

At 31 Dec 2022 25,121 7,050 (18,787) (6,906) — — 6,334 144

At 1 Jan 2021 42,505 10,485 (33,005) (10,990) — (44) 9,500 (549)

Service cost — — (55) (276) — — (55) (276)

– current service cost — — (14) (206) — — (14) (206)

– past service cost and losses fromsettlements — — (41) (70) — — (41) (70)

Net interest income/(cost) on the net defined benefit asset/

(liability) 613 172 (473) (174) — (1) 140 (3)

Remeasurement effects recognised in other

comprehensive income (377) 7 (271) 471 — 22 (648) 500

– return on plan assets (excluding interest income) (377) 7 — — — — (377) 7

– actuarial gains/(losses) financial assumptions — — 611 315 — — 611 315

– actuarial gains/(losses) demographic assumptions — — (447) 64 — — (447) 64

– actuarial gains/(losses) experience adjustments — — (435) 92 — — (435) 92

– other changes — — — — — 22 — 22

Exchange differences (361) (94) 283 138 — — (78) 44

Benefits paid (1,396) (645) 1,396 712 — — — 67

Other movements

400 122 (130) 97 — — 270 219

At 31 Dec 2021 41,384 10,047 (32,255) (10,022) — (23) 9,129 2

1 For further details of the principal plan, see page 352.

2 Other movements include contributions by HSBC, contributions by employees, administrative costs and taxes paid by plan.

HSBC expects to make $129m of contributions to defined benefit pension plans during 2023, consisting of $13m for the principal plan and

$116m for other plans. Benefits expected to be paid from the plans to retirees over each of the next five years, and in aggregate for the five

years thereafter, are as follows:

Benefits expected to be paid from plans

2023

2024

2025

2026

2027

2028-2032

The principal plan

1,2

1,234 1,275 1,317 1,359 1,403 7,737

Other plans

433 439 445 428 452 2,231

1 The duration of the defined benefit obligation is 13.2 years for the principal plan under the disclosure assumptions adopted (2021: 17.3 years) and 10.2

years for all other plans combined (2021: 12.7 years).

2 For further details of the principal plan, see page 352.

Notes on the financial statements

354 HSBC Holdings plc Annual Report and Accounts 2022

Fair value of plan assets by asset classes

31 Dec 2022

31 Dec 2021

Value

Quoted

market price

in active

market

No quoted

market price

in active

market

Thereof

HSBC

Value

Quoted

market price

in active

market

No quoted

market price

in active

market

Thereof

HSBC

The principal plan

Fair value of plan assets 25,121 13,915 11,206 510 41,384 36,270 5,114 1,037

– equities

112 — 112 — 197 5 192 —

– bonds

14,764 14,301 463 — 36,295 35,612 683 —

– derivatives 1,203 — 1,203 510 1,864 — 1,864 1,037

– property 842

— 842 — 1,094 — 1,094 —

– other

8,200 (386) 8,586 — 1,934 653 1,281 —

Other plans

Fair value of plan assets 7,050 5,848 1,202 37 10,047 8,248 1,799 52

– equities 639 486 153 2 892 668 224 5

– bonds 4,986 4,537 449 4 7,080 6,490 590 5

– derivatives 4 (1) 5 — 7 (13) 20 —

– property 109 104 5 — 123 119 4 —

– other 1,312 722 590 31 1,945 984 961 42

1 The fair value of plan assets includes derivatives entered into with HSBC Bank plc as detailed in Note 36.

2 For further details on the principal plan, see page 352.

3 Includes $112m (2021: $192m) in relation to private equities.

4 Principal plan bonds includes fixed income bonds of $5,285m (2021: $18,315m) and index-linked bonds of $9,479m (2021: $18,160m).

5 Other assets within the principal plan includes $8,586m (2021: $1,281m) of unquoted pooled investment vehicles, of which the majority of the

underlying assets are invested in bonds.

Post-employment defined benefit plans’ principal actuarial financial assumptions

HSBC determines the discount rates to be applied to its obligations in consultation with the plans’ local actuaries, on the basis of current average

yields of high-quality (AA-rated or equivalent) debt instruments with maturities consistent with those of the defined benefit obligations.

Key actuarial assumptions for the principal plan

Discount rate

Inflation rate (RPI)

Inflation rate (CPI)

Rate of increase for pensions

Rate of pay increase

% % % % %

At 31 Dec 2022 4.93 3.39 2.84 3.27 3.34

At 31 Dec 2021 1.90 3.45 3.20 3.30 3.45

1 For further details on the principal plan, see page 352.

Mortality tables and average life expectancy at age 60

for the principal plan

Mortality

table

Life expectancy at age 60 for

a male member currently:

Life expectancy at age 60 for

a female member currently:

Aged 60 Aged 40 Aged 60 Aged 40

At 31 Dec 2022 SAPS S3

27.1 28.6 28.4 29.9

At 31 Dec 2021 SAPS S3 27.3 28.8 28.5 30.1

1 For further details of the principal plan, see page 352.

2 Self-administered pension scheme (‘SAPS’) S3 table, with different tables and multipliers adopted based on gender, pension amount and member

status, reflecting the Scheme’s actual mortality experience. Improvements are projected in accordance with the Continuous Mortality Investigation’s

CMI 2021 core projection model with an initial addition to improvement of 0.25% per annum, a long-term rate of improvement of 1.25% per annum,

and a 5% weighting to 2020 and 2021 mortality experience reflecting updated long-term view on mortality improvements post-pandemic.

The effect of changes in key assumptions on the principal plan

Impact on HBUK section of the

HSBC Bank (UK) Pension Scheme obligation

Financial impact of increase Financial impact of decrease

2022

2021

2022

2021

Discount rate – increase/decrease of 0.25% (582) (1,337) 612 1,425

Inflation rate (RPI and CPI) – increase/decrease of 0.25% 466 1,211 (446) (980)

Pension payments and deferred pensions – increase/decrease of 0.25% 551 1,267 (519) (1,177)

Pay – increase/decrease of 0.25% 10 20 (10) (20)

Change in mortality – increase of 1 year 470 1,387 N/A N/A

1 For further details of the principal plan, see page 352.

2 Sensitivities allow for HSBC UK’s convention of rounding pension assumptions during 2022 to the nearest 0.01% (2021: 0.05%). The degree of

rounding has been increased to align with market practice.

HSBC Holdings plc Annual Report and Accounts 2022 355

Financial statements

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely

to occur, and changes in some of the assumptions may be correlated. When calculating the sensitivity of the defined benefit obligation to

significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit

method at the end of the reporting period) has been applied as when calculating the defined benefit asset recognised in the balance sheet. The

methods and types of assumptions used in preparing the sensitivity analysis did not change compared with the prior period.

Directors’ emoluments

Details of Directors’ emoluments, pensions and their interests are disclosed in the Directors’ remuneration report on page 276.

Auditor’s remuneration

2022

2021

2020

Audit fees payable to PwC

97.6 88.1 92.9

Other audit fees payable 1.6 2.0 1.0

Year ended 31 Dec 99.2 90.1 93.9

Fees payable by HSBC to PwC

2022

2021

2020

Fees for HSBC Holdings’ statutory audit

21.9 19.5 21.9

Fees for other services provided to HSBC 126.2 109.9 108.3

– audit of HSBC’s subsidiaries 75.7 68.6 71.0

– audit-related assurance services

26.4 18.7 17.2

– other assurance services

4,5

24.1 22.6 20.1

Year ended 31 Dec 148.1 129.4 130.2

1 Audit fees payable to PwC in 2022 included adjustments made to the prior year audit fee after finalisation of the 2021 financial statements.

2 Fees payable to PwC for the statutory audit of the consolidated financial statements of HSBC and the separate financial statements of HSBC Holdings.

They include amounts payable for services relating to the consolidation returns of HSBC Holdings’ subsidiaries, which are clearly identifiable as being in

support of the Group audit opinion.

3 Including services for assurance and other services that relate to statutory and regulatory filings, including interim reviews.

4 Including permitted services relating to attestation reports on internal controls of a service organisation primarily prepared for and used by third-party

end user, including comfort letters.

5 Includes reviews of PRA regulatory reporting returns.

No fees were payable by HSBC to PwC as principal auditor for the following types of services: internal audit services and services related to

litigation, recruitment and remuneration.

Fees payable by HSBC’s associated pension schemes to PwC

2022

2021

2020

$000

Audit of HSBC’s associated pension schemes 480 382 316

Year ended 31 Dec 480 382 316

No fees were payable by HSBC’s associated pension schemes to PwC as principal auditor for the following types of services: internal audit

services, other assurance services, services related to corporate finance transactions, valuation and actuarial services, litigation, recruitment and

remuneration, and information technology.

In addition to the above, the estimated fees paid to PwC by third parties associated with HSBC amounted to $13.1m (2021: $6.3m;

2020:$12.3m). In these cases, HSBC was connected with the contracting party and may therefore have been involved in appointing PwC. These

fees arose from services such as auditing mutual funds managed by HSBC and reviewing the financial position of corporate concerns that

borrow from HSBC.

Fees payable for non-audit services for HSBC Holdings are not disclosed separately because such fees are disclosed on a consolidated basis for

the Group.

Notes on the financial statements

356 HSBC Holdings plc Annual Report and Accounts 2022

Tax

Tax expense

2022

2021

2020

Current tax

2,991 3,250 2,700

– for this year 3,271 3,182 2,883

– adjustments in respect of prior years (280) 68 (183)

Deferred tax (2,133) 963 (22)

– origination and reversal of temporary differences (2,236) 874 (341)

– effect of changes in tax rates (293) 132 58

– adjustments in respect of prior years 396 (43) 261

Year ended 31 Dec

858 4,213 2,678

1 Current tax included Hong Kong profits tax of $604m (2021: $813m; 2020: $888m). The Hong Kong tax rate applying to the profits of subsidiaries

assessable in Hong Kong was 16.5% (2021: 16.5%; 2020: 16.5%).

2 In addition to amounts recorded in the income statement, a tax credit of $145m (2021: charge of $7m) was recorded directly to equity.

Tax reconciliation

The tax charged to the income statement differs from the tax charge that would apply if all profits had been taxed at the UK corporation tax rate

as follows:

2022 2021 2020

Profit before tax 17,528 18,906 8,777

Tax expense

Taxation at UK corporation tax rate of 19.00% 3,329 19.0 3,592 19.0 1,668 19.0

Impact of differently taxed overseas profits in overseas locations 374 2.1 280 1.5 178 2.0

UK banking surcharge 283 1.6 332 1.8 (113) (1.3)

Items increasing tax charge in 2022:

– local taxes and overseas withholding taxes 550 3.1 360 1.9 228 2.6

– other permanent disallowables 202 1.2 236 1.2 333 3.8

– impacts of hyperinflation 171 1.0 68 0.4 65 0.7

– adjustments in respect of prior period liabilities 116 0.7 25 0.1 78 0.9

– tax impact of planned sale of French retail banking business 115 0.7 (434) (2.3) — —

– bank levy 59 0.3 93 0.5 202 2.3

– movements in provisions for uncertain tax positions 27 0.2 15 0.1 4 —

– non-deductible goodwill write-down 3 — 178 0.9 — —

– impact of differences between French tax basis and IFRSs — — 434 2.3 — —

Items reducing tax charge in 2022:

– movements in unrecognised UK deferred tax (2,191) (12.5) 294 1.6 444 5.1

– non-taxable income and gains (825) (4.7) (641) (3.4) (515) (5.8)

– effect of profits in associates and joint ventures (504) (2.9) (414) (2.2) (250) (2.8)

– non-UK movements in unrecognised deferred tax (312) (1.8) (67) (0.4) 608 6.9

– impact of changes in tax rates (293) (1.7) 132 0.7 58 0.6

– deductions for AT1 coupon payments (246) (1.4) (270) (1.4) (310) (3.5)

Year ended 31 December 2022 858 4.9 4,213 22.3 2,678 30.5

The Group’s profits are taxed at different rates depending on the country or territory in which the profits arise. The key applicable tax rates for

2022 include Hong Kong (16.5%), the US (21%) and the UK (19%). If the Group’s profits were taxed at the statutory rates of the countries in

which the profits arose, then the tax rate for the year would have been 22.7% (2021: 22.3%).

The effective tax rate for the year of 4.9% was lower than in the previous year (2021: 22.3%). The effective tax rate for the year reduced by

14.3% as a result of the recognition of previously unrecognised losses in the UK of $2.2bn and France of $0.3bn, in light of improved forecast

profitability.

During 2022, legislation was enacted to reduce the rate of the UK banking surcharge from 8% to 3% from 1 April 2023, decreasing the Group’s

2022 tax charge by $173m due to the remeasurement of deferred tax balances. The main rate of UK corporation tax will increase from 19% to

25% from 1 April 2023.

Accounting for taxes involves some estimation because tax law is uncertain and its application requires a degree of judgement, which authorities

may dispute. Liabilities are recognised based on best estimates of the probable outcome, taking into account external advice where appropriate.

Exposures relating to legacy tax cases were reassessed during 2022, resulting in a charge of $27m to the income statement. We do not expect

significant liabilities to arise in excess of the amounts provided. HSBC only recognises current and deferred tax assets where recovery is

probable.

HSBC Holdings plc Annual Report and Accounts 2022 357

Financial statements

Movement of deferred tax assets and liabilities

Loan

impairment

provisions

Unused tax

losses and

tax credits

Financial

assets at

FVOCI

Insurance

business

Cash flow

hedges

Retirement

obligations Other Total

Assets 1,162 2,001 84 — 176 109 1,690 5,222

Liabilities — — (254) (1,640) (22) (2,928) (427) (5,271)

At 1 Jan 2022 1,162 2,001 (170) (1,640) 154 (2,819) 1,263 (49)

Income statement 6 2,425 — 170 — 217 (685) 2,133

Other comprehensive income — — 1,679 — 1,159 692 (642) 2,888

Foreign exchange and other adjustments 7 (36) (79) 35 (42) 237 (18) 104

At 31 Dec 2022 1,175 4,390 1,430 (1,435) 1,271 (1,673) (82) 5,076

Assets

1,175 4,390 1,430 — 1,271 — 1,571 9,837

Liabilities

— — — (1,435) — (1,673) (1,653) (4,761)

Assets 1,242 1,821 99 — 25 — 2,850 6,037

Liabilities — — (896) (1,622) (70) (2,306) (973) (5,867)

At 1 Jan 2021 1,242 1,821 (797) (1,622) (45) (2,306) 1,877 170

Income statement (89) 161 — (43) — (336) (656) (963)

Other comprehensive income (5) 33 634 — 212 (205) 115 784

Foreign exchange and other adjustments 14 (14) (7) 25 (13) 28 (73) (40)

At 31 Dec 2021 1,162 2,001 (170) (1,640) 154 (2,819) 1,263 (49)

Assets

1,162 2,001 84 — 176 109 1,690 5,222

Liabilities

— — (254) (1,640) (22) (2,928) (427) (5,271)

1 After netting off balances within countries, the balances as disclosed in the accounts are as follows: deferred tax assets of $7,498m (2021: $4,624m)

and deferred tax liabilities of $2,422m (2021: $4,673m).

In applying judgement in recognising deferred tax assets, management has assessed all available information, including future business profit

projections and the track record of meeting forecasts. Management’s assessment of the likely availability of future taxable profits against which

to recover deferred tax assets is based on the most recent financial forecasts approved by management, which cover a five-year period and are

extrapolated where necessary, and takes into consideration the reversal of existing taxable temporary differences and past business

performance. When forecasts are extrapolated beyond five years, a number of different scenarios are considered, reflecting difference

downward risk adjustments, in order to assess the sensitivity of our recognition and measurement conclusions in the context of such longer-

term forecasts.

The Group’s deferred tax asset of $7.5bn (2021: $4.6bn) included $3.9bn (2021: $0.8bn) of deferred tax assets relating to the UK, $3.3bn (2021:

$2.6bn) of deferred tax assets relating to the US and a net deferred asset of $0.7bn (2021: $0.0bn) in France.

The net UK deferred tax asset of $3.9bn excluded a $1.8bn deferred tax liability arising on the UK pension scheme surplus, the reversal of which

is not taken into account when estimating future taxable profits. The UK deferred tax assets are supported by forecasts of taxable profit, also

taking into consideration the history of profitability in the relevant businesses. The majority of the deferred tax asset relates to tax attributes

which do not expire and are forecast to be recovered within five years and as such are less sensitive to changes in long-term profit forecasts.

The net UK deferred tax asset includes $2.2bn of previously unrecognised losses that were recognised in the UK in the period in light of

improved forecast profitability in the UK group. Sensitivity regarding the recognition and measurement of that deferred tax asset relates to

ongoing experience outcome of UK profitability versus forecast, taking into account the non-expiring nature of the underlying attributes.

The net US deferred tax asset of $3.3bn included $1.3bn related to US tax losses, of which $1.1bn expire in 10 to 15 years. Management

expects the US deferred tax asset to be substantially recovered within 14 years, with the majority recovered in the first eight years.

The net deferred tax asset in France of $0.7bn included $0.7bn related to tax losses, which are expected to be substantially recovered within

nine to 18 years. Following recognition of $0.3bn of previously unrecognised deferred tax asset on losses, deferred tax is now recognised in full

in respect of France.

Unrecognised deferred tax

The amount of gross temporary differences, unused tax losses and tax credits for which no deferred tax asset is recognised in the balance sheet

was $9.2bn (2021: $16.9bn). This amount included unused UK tax losses of $3.5bn (2021: $10.5bn), which arose prior to 1 April 2017 and can

only be recovered against future taxable profits of HSBC Holdings. No deferred tax was recognised on these losses due to the absence of

convincing evidence regarding the availability of sufficient future taxable profits against which to recover them. Deferred tax asset recognition is

reassessed at each balance sheet date based on the available evidence. Of the total amounts unrecognised, $3.6bn (2021: $10.9bn) had no

expiry date, $1.2bn (2021: $0.7bn) was scheduled to expire within 10 years and the remaining balance is expected to expire after ten years.

Deferred tax is not recognised in respect of the Group’s investments in subsidiaries and branches where HSBC is able to control the timing of

remittance or other realisation and where remittance or realisation is not probable in the foreseeable future. The aggregate temporary differences

relating to unrecognised deferred tax liabilities arising on investments in subsidiaries and branches is $11.7bn (2021: $12.7bn) and the

corresponding unrecognised deferred tax liability was $0.7bn (2021: $0.8bn).

Notes on the financial statements

358 HSBC Holdings plc Annual Report and Accounts 2022

Dividends

Dividends to shareholders of the parent company

2022

2021

2020

Per

share Total

Per

share Total

Per

share Total

Dividends paid on ordinary shares

In respect of previous year:

– second interim dividend 0.18 3,576 0.15 3,059 — —

In respect of current year:

– first interim dividend 0.09 1,754 0.07 1,421 — —

Total 0.27 5,330 0.22 4,480 — —

Total dividends on preference shares classified as equity (paid quarterly)

— — 4.99 7 62.00 90

Total coupons on capital securities classified as equity

1,214 1,303 1,241

Dividends to shareholders 6,544 5,790 1,331

1 HSBC Holdings called $1,450m 6.20% non-cumulative US dollar preference shares on 10 December 2020. The security was redeemed and cancelled

on 13 January 2021.

Total coupons on capital securities classified as equity

2022

2021

2020

Total

First call date Per security $m $m $m

Perpetual subordinated contingent convertible securities

$2,000m issued at 6.875%

Jun 2021 $68.750 — 69 138

$2,250m issued at 6.375% Sep 2024 $63.750 143 143 143

$2,450m issued at 6.375% Mar 2025 $63.750 156 156 156

$3,000m issued at 6.000% May 2027 $60.000 180 180 180

$2,350m issued at 6.250%

Mar 2023 $62.500 147 147 147

$1,800m issued at 6.500% Mar 2028 $65.000 117 117 117

$1,500m issued at 4.600%

Jun 2031 $46.000 69 69 —

$1,000m issued at 4.000%

Mar 2026 $40.000 40 20 —

$1,000m issued at 4.700%

Mar 2031 $47.000 47 24 —

€1,500m issued at 5.250%

Sep 2022 €52.500 76 93 90

€1,000m issued at 6.000% Sep 2023 €60.000 63 70 67

€1,250m issued at 4.750% Jul 2029 €47.500 65 72 67

£1,000m issued at 5.875% Sep 2026 £58.750 70 80 74

SGD1,000m issued at 4.700%

Jun 2022 SGD47.000 14 35 35

SGD750m issued at 5.000% Sep 2023 SGD50.000 27 28 27

Total 1,214 1,303 1,241

1 Discretionary coupons are paid semi-annually on the perpetual subordinated contingent convertible securities, in denominations of each security’s

issuance currency 1,000 per security.

2 This security was called by HSBC Holdings on 15 April 2021 and was redeemed and cancelled on 1 June 2021.

3 This security was called by HSBC Holdings on 30 January 2023 and is expected to be redeemed and cancelled on 23 March 2023.

4 This security was issued by HSBC Holdings on 17 December 2020. The first call date commences six calendar months prior to the reset date of

17June2031.

5 This security was issued by HSBC Holdings on 9 March 2021. The first call date commences six calendar months prior to the reset date of

9September 2026.

6 This security was issued by HSBC Holdings on 9 March 2021. The first call date commences six calendar months prior to the reset date of

9September 2031.

7 This security was called by HSBC Holdings on 9 August 2022 and was redeemed and cancelled on 16 September 2022.

8 This security was called by HSBC Holdings on 4 May 2022 and was redeemed and cancelled on 8 June 2022.

After the end of the year, the Directors approved a second interim dividend in respect of the financial year ended 31 December 2022 of $0.23

per ordinary share, a distribution of approximately $4,593m. The second interim dividend for 2022 will be payable on 27 April 2023 to holders on

the Principal Register in the UK, the Hong Kong Overseas Branch Register or the Bermuda Overseas Branch Register on 3March2023. No

liability was recorded in the financial statements in respect of the second interim dividend for 2022.

On 4 January 2023, HSBC paid a coupon on its €1,250m subordinated capital securities, representing a total distribution of €30m ($31m).No

liability was recorded in the balance sheet at 31 December 2022 in respect of this coupon payment.

HSBC Holdings plc Annual Report and Accounts 2022 359

Financial statements

Earnings per share

Basic earnings per ordinary share is calculated by dividing the profit attributable to ordinary shareholders of the parent company by the weighted

average number of ordinary shares outstanding, excluding own shares held. Diluted earnings per ordinary share is calculated by dividing the basic

earnings, which require no adjustment for the effects of dilutive potential ordinary shares, by the weighted average number of ordinary shares

outstanding, excluding own shares held, plus the weighted average number of ordinary shares that would be issued on conversion of dilutive

potential ordinary shares.

Profit attributable to the ordinary shareholders of the parent company

2022

2021

2020

Profit attributable to shareholders of the parent company 16,035 13,917 5,229

Dividend payable on preference shares classified as equity — (7) (90)

Coupon payable on capital securities classified as equity (1,213) (1,303) (1,241)

Year ended 31 Dec 14,822 12,607 3,898

Basic and diluted earnings per share

2022

2021

2020

Profit

Number

of shares

Per

Profit

Number

of shares

Per

share Profit

Number

of shares

Per

(millions)

Basic

14,822 19,849 0.75 12,607 20,197 0.62 3,898 20,169 0.19

Effect of dilutive potential

ordinary shares

137 105 73

Diluted

14,822 19,986 0.74 12,607 20,302 0.62 3,898 20,242 0.19

1 Weighted average number of ordinary shares outstanding (basic) or assuming dilution (diluted).

The number of anti-dilutive employee share options excluded from the weighted average number of dilutive potential ordinary shares is 9.4

million (2021: 8.6million; 2020: 14.6 million).

Segmental analysis

The Group Chief Executive, supported by the rest of the Group Executive Committee (‘GEC’), is considered the Chief Operating Decision Maker

(‘CODM’) for the purposes of identifying the Group’s reportable segments. Global business results are assessed by the CODM on the basis of

adjusted performance that removes the effects of significant items and currency translation from reported results. Therefore, we present these

results on an adjusted basis as required by IFRSs. The 2021 and 2020 adjusted performance information is presented on a constant currency

basis. The 2021 and 2020 income statements are converted at the average rates of exchange for 2022, and the balance sheets at 31 December

2021 and 31 December 2020 at the prevailing rates of exchange on 31 December 2022.

Our operations are closely integrated and, accordingly, the presentation of data includes internal allocations of certain items of income and

expense. These allocations include the costs of certain support services and global functions to the extent that they can be meaningfully

attributed to global businesses. While such allocations have been made on a systematic and consistent basis, they necessarily involve a degree

of subjectivity. Costs that are not allocated to global businesses are included in Corporate Centre.

Where relevant, income and expense amounts presented include the results of inter-segment funding along with inter-company and inter-

business line transactions. All such transactions are undertaken on arm’s length terms. The intra-Group elimination items for the global

businesses are presented in Corporate Centre.

Our global businesses

We provide a comprehensive range of banking and related financial services to our customers in our three global businesses. The products and

services offered to customers are organised by these global businesses.

• Wealth and Personal Banking (‘WPB’) provides a full range of retail banking and wealth products to our customers from personal banking to

ultra high net worth individuals. Typically, customer offerings include retail banking products, such as current and savings accounts,

mortgages and personal loans, credit cards, debit cards and local and international payment services. We also provide wealth management

services, including insurance and investment products, global asset management services, investment management and private wealth

solutions for customers with more sophisticated and international requirements.

• Commercial Banking (‘CMB’) offers a broad range of products and services to serve the needs of our commercial customers, including small

and medium-sized enterprises, mid-market enterprises and corporates. These include credit and lending, international trade and receivables

finance, treasury management and liquidity solutions (payments and cash management and commercial cards), commercial insurance and

investments. CMB also offers customers access to products and services offered by other global businesses, such as Global Banking and

Markets, which include foreign exchange products, raising capital on debt and equity markets and advisory services.

• Global Banking and Markets (‘GBM’) provides tailored financial solutions to major government, corporate and institutional clients and private

investors worldwide. The client-focused business lines deliver a full range of banking capabilities including financing, advisory and transaction

services, a markets business that provides services in credit, rates, foreign exchange, equities, money markets and securities services, and

principal investment activities.

Notes on the financial statements

360 HSBC Holdings plc Annual Report and Accounts 2022

HSBC adjusted profit before tax and balance sheet data

2022

Wealth and

Personal

Banking

Commercial

Banking

Global

Banking and

Markets

Corporate

Centre Total

Net operating income/(expense) before change in expected credit losses

and other credit impairment charges

24,367 16,215 15,359 (596) 55,345

– external 21,753 16,715 19,598 (2,721) 55,345

– inter-segment 2,614 (500) (4,239) 2,125 —

– of which: net interest income/(expense) 18,137 11,867 5,303 (2,706) 32,601

Change in expected credit losses and other credit impairment recoveries (1,137) (1,858) (587) (10) (3,592)

Net operating income/(expense) 23,230 14,357 14,772 (606) 51,753

Total operating expenses (14,726) (6,642) (9,325) 227 (30,466)

Operating profit/(loss) 8,504 7,715 5,447 (379) 21,287

Share of profit in associates and joint ventures 29 1 (2) 2,695 2,723

Adjusted profit before tax 8,533 7,716 5,445 2,316 24,010

Share of HSBC’s adjusted profit before tax 35.5 32.1 22.7 9.7 100.0

Adjusted cost efficiency ratio 60.4 41.0 60.7 38.1 55.0

Adjusted balance sheet data

Loans and advances to customers (net) 423,553 308,094 192,852 355 924,854

Interests in associates and joint ventures 508 15 108 28,623 29,254

Total external assets 889,450 606,698 1,321,076 149,306 2,966,530

Customer accounts 779,310 458,714 331,844 435 1,570,303

2021

Net operating income/(expense) before change in expected credit losses and

other credit impairment charges

20,963 12,538 13,982 (463) 47,020

– external 20,725 12,423 15,590 (1,718) 47,020

– inter-segment 238 115 (1,608) 1,255 —

– of which: net interest income/(expense) 13,458 8,308 3,844 (716) 24,894

Change in expected credit losses and other credit impairment (charges)/

recoveries

213 225 313 3 754

Net operating income/(expense) 21,176 12,763 14,295 (460) 47,774

Total operating expenses (14,489) (6,554) (9,250) 189 (30,104)

Operating profit/(loss) 6,687 6,209 5,045 (271) 17,670

Share of profit in associates and joint ventures 34 1 — 2,898 2,933

Adjusted profit before tax 6,721 6,210 5,045 2,627 20,603

Share of HSBC’s adjusted profit before tax 32.6 30.1 24.5 12.8 100.0

Adjusted cost efficiency ratio 69.1 52.3 66.2 40.8 64.0

Adjusted balance sheet data

Loans and advances to customers (net) 461,047 330,683 198,779 688 991,197

Interests in associates and joint ventures 489 12 116 27,469 28,086

Total external assets 888,028 586,392 1,157,327 174,073 2,805,820

Customer accounts 819,319 480,201 322,435 592 1,622,547

2020

Net operating income/(expense) before change in expected credit losses and

other credit impairment charges

21,481 12,889 14,696 (218) 48,848

– external 19,521 13,278 17,635 (1,586) 48,848

– inter-segment 1,960 (389) (2,939) 1,368 —

– of which: net interest income/(expense) 14,752 8,997 4,314 (1,324) 26,739

Change in expected credit losses and other credit impairment (charges)/

recoveries

(2,878) (4,710) (1,227) — (8,815)

Net operating income/(expense) 18,603 8,179 13,469 (218) 40,033

Total operating expenses (14,536) (6,475) (8,895) (539) (30,445)

Operating profit/(loss) 4,067 1,704 4,574 (757) 9,588

Share of profit in associates and joint ventures 6 (1) — 2,102 2,107

Adjusted profit before tax 4,073 1,703 4,574 1,345 11,695

Share of HSBC’s adjusted profit before tax 34.8 14.6 39.1 11.5 100.0

Adjusted cost efficiency ratio 67.7 50.2 60.5 (247.2) 62.3

Adjusted balance sheet data

Loans and advances to customers (net) 436,105 320,084 211,510 1,151 968,850

Interests in associates and joint ventures 437 15 128 25,142 25,722

Total external assets 828,309 530,203 1,238,781 184,030 2,781,323

Customer accounts 788,043 439,889 310,757 540 1,539,229

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

HSBC Holdings plc Annual Report and Accounts 2022 361

Financial statements

Reported external net operating income is attributed to countries and territories on the basis of the location of the branch responsible for

reporting the results or advancing the funds:

2022

2021

2020

Reported external net operating income by country/territory

51,727 49,552 50,429

– UK 11,767 10,909 9,163

– Hong Kong 15,894 14,245 15,783

– US 3,893 3,795 4,474

– France 136 2,179 1,753

– other countries 20,037 18,424 19,256

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

Adjusted results reconciliation

2022

2021

2020

Adjusted

Significant

items Reported Adjusted

Currency

translation

Significant

items Reported Adjusted

Currency

translation

Significant

items Reported

$m $m $m $m $m $m $m $m $m $m $m

Revenue

55,345 (3,618) 51,727 47,020 3,074 (542) 49,552 48,848 1,523 58 50,429

ECL (3,592) — (3,592) 754 174 — 928 (8,815) (2) — (8,817)

Operating expenses (30,466) (2,864) (33,330) (30,104) (2,181) (2,335) (34,620) (30,445) (1,170) (2,817) (34,432)

Share of profit in

associates and joint

ventures

2,723 — 2,723 2,933 113 — 3,046 2,107 (48) (462) 1,597

Profit/(loss) before tax 24,010 (6,482) 17,528 20,603 1,180 (2,877) 18,906 11,695 303 (3,221)

8,777

1 Net operating income before change in expected credit losses and other credit impairment charges, also referred to as revenue.

Adjusted balance sheet reconciliation

2022

2021

2020

Reported and

adjusted Adjusted

Currency

translation Reported Adjusted

Currency

translation Reported

$m $m $m $m $m $m $m

Loans and advances to customers (net) 924,854 991,197 54,617 1,045,814 968,850 69,137 1,037,987

Interests in associates and joint ventures 29,254 28,086 1,523 29,609 25,722 962 26,684

Total external assets 2,966,530 2,805,820 152,119 2,957,939 2,781,323 202,841 2,984,164

Customer accounts 1,570,303 1,622,547 88,027 1,710,574 1,539,229 103,551 1,642,780

Adjusted profit reconciliation

2022

2021

2020

Year ended 31 Dec

Adjusted profit before tax 24,010 20,603 11,695

Significant items (6,482) (2,877) (3,221)

– customer redress programmes (revenue) 8 11 (21)

– disposals, acquisitions and investment in new businesses (revenue)

(2,799) — (10)

– fair value movements on financial instruments

(579) (242) 264

– restructuring and other related costs (revenue)

(248) (307) (170)

– customer redress programmes (operating expenses) 31 (49) 54

– disposals, acquisitions and investment in new businesses (operating expenses) (18) — —

– impairment of goodwill and other intangible assets 4 (587) (1,090)

– past service costs of guaranteed minimum pension benefits equalisation — — (17)

– restructuring and other related costs (operating expenses)

(2,881) (1,836) (1,908)

– settlements and provisions in connection with legal and other regulatory matters — — (12)

– impairment of goodwill (share of profit in associates and joint ventures)

— — (462)

– currency translation on significant items 133 151

Currency translation 1,180 303

Reported profit before tax 17,528 18,906 8,777

1 Includes losses from classifying businesses as held for sale as part of the broader restructuring of our European business, of which $2.4bn relates

to the planned sale of the retail banking operations in France in 2022.

2 Includes fair value movements on non-qualifying hedges and debit valuation adjustments on derivatives.

3 Comprises gains and losses relating to the business update in February 2020, including losses associated with the RWA reduction programme.

4 Includes impairment of software intangible assets of $128m (2021: $21m, 2020: $189m) of the total software intangible asset impairment of $147m

(2021: $146m, 2020: $1,347m) and impairment of tangible assets of $332m (2021: $75m, 2020: $197m).

5 During 2020, The Saudi British Bank (’SABB’), an associate of HSBC, impaired the goodwill that arose following the merger with Alawwal bank in 2020.

HSBC‘s post-tax share of the goodwill impairment was $462m.

Notes on the financial statements

362 HSBC Holdings plc Annual Report and Accounts 2022

11 Trading assets

2022

2021

Treasury and other eligible bills 22,897 23,110

Debt securities 78,126 89,944

Equity securities 88,026 109,614

Trading securities 189,049 222,668

Loans and advances to banks

8,769 7,767

Loans and advances to customers

20,275 18,407

Year ended 31 Dec 218,093 248,842

1 Loans and advances to banks and customers include reverse repos, stock borrowing and other accounts.

Fair values of financial instruments carried at fair value

Control framework

Fair values are subject to a control framework designed to ensure that they are either determined or validated by a function independent of the

risk taker.

Where fair values are determined by reference to externally quoted prices or observable pricing inputs to models, independent price

determination or validation is used. For inactive markets, HSBC sources alternative market information, with greater weight given to information

that is considered to be more relevant and reliable. Examples of the factors considered are price observability, instrument comparability,

consistency of data sources, underlying data accuracy and timing of prices.

For fair values determined using valuation models, the control framework includes development or validation by independent support functions

of the model logic, inputs, model outputs and adjustments. Valuation models are subject to a process of due diligence before becoming

operational and are calibrated against external market data on an ongoing basis.

Changes in fair value are generally subject to a profit and loss analysis process and are disaggregated into high-level categories including portfolio

changes, market movements and other fair value adjustments.

The majority of financial instruments measured at fair value are in GBM. GBM’s fair value governance structure comprises its Finance function,

Valuation Committees and a Valuation Committee Review Group. Finance is responsible for establishing procedures governing valuation and

ensuring fair values are in compliance with accounting standards. The fair values are reviewed by the Valuation Committees, which consist of

independent support functions. These committees are overseen by the Valuation Committee Review Group, which considers all material

subjective valuations.

Financial liabilities measured at fair value

In certain circumstances, HSBC records its own debt in issue at fair value, based on quoted prices in an active market for the specific instrument.

When quoted market prices are unavailable, the own debt in issue is valued using valuation techniques, the inputs for which are either based on

quoted prices in an inactive market for the instrument or are estimated by comparison with quoted prices in an active market for similar

instruments. In both cases, the fair value includes the effect of applying the credit spread that is appropriate to HSBC’s liabilities. The change in

fair value of issued debt securities attributable to the Group’s own credit spread is computed as follows: for each security at each reporting date,

an externally verifiable price is obtained or a price is derived using credit spreads for similar securities for the same issuer. Then, using

discounted cash flow, each security is valued using an appropriate market discount curve. The difference in the valuations is attributable to the

Group’s own credit spread. This methodology is applied consistently across all securities.

Structured notes issued and certain other hybrid instruments are reported as financial liabilities designated at fair value. Thecredit spread applied

to these instruments is derived from the spreads at which HSBC issues structured notes.

Gains and losses arising from changes in the credit spread of liabilities issued by HSBC, recorded in other comprehensive income, reverse over

the contractual life of the debt, provided that the debt is not repaid at a premium or a discount.

Fair value hierarchy

Fair values of financial assets and liabilities are determined according to the following hierarchy:

• Level 1 – valuation technique using quoted market price. These are financial instruments with quoted prices for identical instruments in active

markets that HSBC can access at the measurement date.

• Level 2 – valuation technique using observable inputs. These are financial instruments with quoted prices for similar instruments in active

markets or quoted prices for identical or similar instruments in inactive markets and financial instruments valued using models where all

significant inputs are observable.

• Level 3 – valuation technique with significant unobservable inputs. These are financial instruments valued using valuation techniques where

one or more significant inputs are unobservable.

HSBC Holdings plc Annual Report and Accounts 2022 363

Financial statements

Financial instruments carried at fair value and bases of valuation

2022

2021

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Recurring fair value measurements at 31 Dec

Assets

Trading assets 148,592 64,684 4,817 218,093 180,423 65,757 2,662 248,842

Financial assets designated and otherwise mandatorily

measured at fair value through profit or loss

15,978 13,019 16,066 45,063 17,937 17,629 14,238 49,804

Derivatives 2,917 279,265 1,964 284,146 2,783 191,621 2,478 196,882

Financial investments 182,231 71,621 2,965 256,817 247,745 97,838 3,389 348,972

Liabilities

Trading liabilities 44,787 27,092 474 72,353 63,437 20,682 785 84,904

Financial liabilities designated at fair value 1,130 115,765 10,432 127,327 1,379 136,243 7,880 145,502

Derivatives 2,400 280,444 2,920 285,764 1,686 186,290 3,088 191,064

The table below provides the fair value levelling of assets held for sale and liabilities of disposal groups that have been classified as held for sale

in accordance with IFRS 5. For further details, see Note 23.

Financial instruments carried at fair value and bases of valuation – assets and liabilities held for sale

2022

2021

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Recurring fair value measurements at 31 Dec

Assets

Trading assets 2,932 244 — 3,176 — — — —

Financial assets designated and otherwise mandatorily

measured at fair value through profit or loss

— 14 47 61 — — — —

Derivatives — 866 — 866 — — — —

Financial investments 11,184 — — 11,184 — — — —

Liabilities

Trading liabilities 2,572 182 — 2,754 — — — —

Financial liabilities designated at fair value — 3,523 — 3,523 — — — —

Derivatives — 813 — 813 — — — —

Transfers between Level 1 and Level 2 fair values

Assets

Liabilities

Financial

investments

Trading

assets

Designated and otherwise

mandatorily measured

at fair value Derivatives

Trading

liabilities

Designated

at fair

value Derivatives

At 31 Dec 2022

Transfers from Level 1 to Level 2 4,721 5,284 743 — 113 — —

Transfers from Level 2 to Level 1 8,208 5,964 1,214 — 233 — —

At 31 Dec 2021

Transfers from Level 1 to Level 2 8,477 6,553 1,277 103 181 — 212

Transfers from Level 2 to Level 1 6,007 4,132 768 — 638 — —

Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of

levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.

Fair value adjustments

We adopt the use of fair value adjustments when we take into consideration additional factors not incorporated within the valuation model that

would otherwise be considered by a market participant. We classify fair value adjustments as either ‘risk-related’ or ‘model-related’. The majority

of these adjustments relate to GBM. Movements in the level of fair value adjustments do not necessarily result in the recognition of profits or

losses within the income statement. For example, as models are enhanced, fair value adjustments may no longer be required. Similarly, fair

value adjustments will decrease when the related positions are unwound, but this may not result in profit or loss.

Notes on the financial statements

364 HSBC Holdings plc Annual Report and Accounts 2022

Global Banking and Markets fair value adjustments

2022

2021

GBM

Corporate

Centre GBM

Corporate

Centre

Type of adjustment

Risk-related 650 40 868 42

– bid-offer 426 — 412 —

– uncertainty 86 — 66 1

– credit valuation adjustment 245 35 228 35

– debit valuation adjustment (175) — (92) —

– funding fair value adjustment 68 5 254 6

Model-related 61 — 57 —

– model limitation 61 — 57 —

Inception profit (Day 1 P&L reserves) 97 — 106 —

At 31 Dec 808 40 1,031 42

The reduction in fair value adjustments was driven by changes to derivative exposures and the credit environment, including HSBC’s own credit.

Bid-offer

IFRS 13 ‘Fair Value Measurement’ requires the use of the price within the bid-offer spread that is most representative of fair value. Valuation

models will typically generate mid-market values. The bid-offer adjustment reflects the extent to which bid-offer costs would be incurred if

substantially all residual net portfolio market risks were closed using available hedging instruments or by disposing of or unwinding the position.

Uncertainty

Certain model inputs may be less readily determinable from market data and/or the choice of model itself may be more subjective. Inthese

circumstances, an adjustment may be necessary to reflect the likelihood that market participants would adopt more conservative values for

uncertain parameters and/or model assumptions than those used in HSBC’s valuation model.

Credit and debit valuation adjustments

The credit valuation adjustment (‘CVA’) is an adjustment to the valuation of over-the-counter (‘OTC’) derivative contracts to reflect the possibility

that the counterparty may default and that HSBC may not receive the full market value of the transactions.

The debit valuation adjustment (‘DVA’) is an adjustment to the valuation of OTC derivative contracts to reflect the possibility that HSBC may

default, and that it may not pay the full market value of the transactions.

HSBC calculates a separate CVA and DVA for each legal entity, and for each counterparty to which the entity has exposure. With the exception

of central clearing parties, all third-party counterparties are included in the CVA and DVA calculations, and these adjustments are not netted

across Group entities.

HSBC calculates the CVA by applying the probability of default (‘PD’) of the counterparty, conditional on the non-default of HSBC, toHSBC’s

expected positive exposure to the counterparty and multiplying the result by the loss expected in the event of default. Conversely, HSBC

calculates the DVA by applying the PD of HSBC, conditional on the non-default of the counterparty, to the expected positive exposure of the

counterparty to HSBC and multiplying the result by the loss expected in the event of default. Bothcalculations are performed over the life of the

potential exposure.

For most products HSBC uses a simulation methodology, which incorporates a range of potential exposures over the life of the portfolio, to

calculate the expected positive exposure to a counterparty. The simulation methodology includes credit mitigants, such as counterparty netting

agreements and collateral agreements with the counterparty.

The methodologies do not, in general, account for ‘wrong-way risk’. Wrong-way risk is an adverse correlation between the counterparty’s

probability of default and the mark-to-market value of the underlying transaction. The risk can either be general, perhaps related to the currency

of the issuer country, or specific to the transaction concerned. When there is significant wrong-way risk, a trade-specific approach is applied to

reflect this risk in the valuation.

Funding fair value adjustment

The funding fair value adjustment (‘FFVA’) is calculated by applying future market funding spreads to the expected future funding exposure of

any uncollateralised component of the OTC derivative portfolio. The expected future funding exposure is calculated by a simulation methodology,

where available, and is adjusted for events that may terminate the exposure, such as the default of HSBC or the counterparty. The FFVA and

DVA are calculated independently.

Model limitation

Models used for portfolio valuation purposes may be based upon a simplified set of assumptions that do not capture all current and future

material market characteristics. In these circumstances, model limitation adjustments are adopted.

Inception profit (Day 1 P&L reserves)

Inception profit adjustments are adopted when the fair value estimated by a valuation model is based on one or more significant unobservable

inputs. The accounting for inception profit adjustments is discussed in Note 1.

HSBC Holdings plc Annual Report and Accounts 2022 365

Financial statements

Fair value valuation bases

Financial instruments measured at fair value using a valuation technique with significant unobservable inputs – Level 3

Assets

Liabilities

Financial

investments

Trading

assets

Designated

and otherwise

mandatorily

measured at

fair value

through profit

or loss Derivatives Total

Trading

liabilities

Designated

at fair

value Derivatives Total

Private equity including strategic

investments 647 19 15,652 — 16,318 92 — — 92

Asset-backed securities 438 208 95 — 741 — — — —

Structured notes — — — — — — 10,432 — 10,432

Other derivatives — — — 1,964 1,964 — — 2,920 2,920

Other portfolios 1,880 4,590 319 — 6,789 382 — — 382

At 31 Dec 2022 2,965 4,817 16,066 1,964 25,812 474 10,432 2,920 13,826

Private equity including strategic

investments

544 2 13,732 — 14,278 9 — — 9

Asset-backed securities 1,008 132 1 — 1,141 — — — —

Structured notes — — — — — — 7,879 — 7,879

Other derivatives — — — 2,478 2,478 — — 3,088 3,088

Other portfolios 1,837 2,528 505 — 4,870 776 1 — 777

At 31 Dec 2021 3,389 2,662 14,238 2,478 22,767 785 7,880 3,088 11,753

Level 3 instruments are present in both ongoing and legacy businesses. Loans held for securitisation, derivatives with monolines, certain ‘other

derivatives’ and predominantly all Level 3 asset-backed securities are legacy positions. HSBC has the capability to hold these positions.

Private equity including strategic investments

The fair value of a private equity investment (including strategic investments) is estimated on the basis of an analysis of the investee’s financial

position and results, risk profile, prospects and other factors; by reference to market valuations for similar entities quoted in an active market; the

price at which similar companies have changed ownership; or from published net asset values (‘NAV’) received. If necessary, adjustments are

made to the NAV of funds to obtain the best estimate of fair value.

Asset-backed securities

While quoted market prices are generally used to determine the fair value of the asset-backed securities (‘ABSs’), valuation models are used to

substantiate the reliability of the limited market data available and to identify whether any adjustments to quoted market prices are required. For

certain ABSs, such as residential mortgage-backed securities, the valuation uses an industry standard model with assumptions relating to

prepayment speeds, default rates and loss severity based on collateral type, and performance, as appropriate. The valuations output is

benchmarked for consistency against observable data for securities of a similar nature.

Structured notes

The fair value of Level 3 structured notes is derived from the fair value of the underlying debt security, and the fair value of the embedded

derivative is determined as described in the paragraph below on derivatives. These structured notes comprise principally equity-linked notes

issued by HSBC, which provide the counterparty with a return linked to the performance of equity securities and other portfolios.

Examples of the unobservable parameters include long-dated equity volatilities and correlations between equity prices, and interest and foreign

exchange rates.

Derivatives

OTC derivative valuation models calculate the present value of expected future cash flows, based upon ‘no arbitrage’ principles. For many vanilla

derivative products, the modelling approaches used are standard across the industry. For more complex derivative products, there may be some

differences in market practice. Inputs to valuation models are determined from observable market data wherever possible, including prices

available from exchanges, dealers, brokers or providers of consensus pricing. Certain inputs may not be observable in the market directly, but

can be determined from observable prices via model calibration procedures or estimated from historical data or other sources.

Notes on the financial statements

366 HSBC Holdings plc Annual Report and Accounts 2022

Reconciliation of fair value measurements in Level 3 of the fair value hierarchy

Movement in Level 3 financial instruments

Assets

Liabilities

Financial

investments

Trading

assets

Designated and

otherwise

mandatorily

measured at fair

value through

profit or loss Derivatives

Trading

liabilities

Designated

at fair

value Derivatives

At 1 Jan 2022 3,389 2,662 14,238 2,478 785 7,880 3,088

Total gains/(losses) recognised in profit orloss (4) (245) 159 390 (52) (1,334) 1,014

– net income/(losses) from financial instruments held

for trading or managed on a fair value basis

— (245) — 390 (52) — 1,014

– changes in fair value of other financial instruments

mandatorily measured at fair value through profit or

loss

— — 159 — — (1,334) —

– gains less losses from financial investments at fair

value through other comprehensive income

(4) — — — — — —

Total gains/(losses) recognised in other comprehensive

income (‘OCI’)

(325) (137) (217) (219) (11) (345) (226)

– financial investments: fair value gains/ (losses) (203) — — — — 82 —

– exchange differences (122) (137) (217) (219) (11) (427) (226)

Purchases 1,048 3,436 4,330 — 178 — —

New issuances 1 — — — 8 4,183 —

Sales (245) (1,102) (783) — (152) (94) —

Settlements (463) (1,273) (1,729) (918) (644) 182 (993)

Transfers out (523) (442) (39) (409) (18) (1,296) (632)

Transfers in 87 1,918 107 642 380 1,256 669

At 31 Dec 2022 2,965 4,817 16,066 1,964 474 10,432 2,920

Unrealised gains/(losses) recognised in profit or loss

relating to assets and liabilities held at 31Dec 2021

— (100) (148) 707 2 100 2,779

– net income/(losses) from financial instruments held

for trading or managed on a fair value basis

— (100) — 707 2 — 2,779

– changes in fair value of other financial instruments

mandatorily measured at fair value through profit or

loss

— — (148) — — 100 —

At 1 Jan 2021 3,654 2,499 11,477 2,670 162 5,306 4,188

Total gains/(losses) recognised in profit orloss (10) (378) 1,753 2,237 16 (836) 2,583

– net income/(losses) from financial instruments held

for trading or managed on a fair value basis

— (378) — 2,237 16 — 2,583

– changes in fair value of other financial instruments

mandatorily measured at fair value through profit or

loss

— — 1,753 — — (836) —

– gains less losses from financial investments at fair

value through other comprehensive income

(10) — — — — — —

Total gains/(losses) recognised in other comprehensive

income (‘OCI’)

(521) (18) (285) (27) (8) (61) (26)

– financial investments: fair value gains/ (losses) (428) — — — — — —

– exchange differences (93) (18) (285) (27) (8) (61) (26)

Purchases 1,025 1,988 3,692 — 1,014 1 —

New issuances — — — — 35 5,969 —

Sales (580) (473) (1,216) — (4) (27) —

Settlements (336) (747) (1,049) (2,347) (681) (2,922) (3,962)

Transfers out (383) (1,027) (184) (418) (7) (704) (734)

Transfers in 540 818 50 363 258 1,154 1,039

At 31 Dec 2021 3,389 2,662 14,238 2,478 785 7,880 3,088

Unrealised gains/(losses) recognised in profit or loss

relating to assets and liabilities held at 31Dec 2020 — (309) 1,509 1,298 — 166 (969)

– net income/(losses) from financial instruments held

for trading or managed on a fair value basis

— (309) — 1,298 — — (969)

– changes in fair value of other financial instruments

mandatorily measured at fair value through profit or

loss

— — 1,509 — — 166 —

1 Included in ‘financial investments: fair value gains/(losses)’ in the current year and ‘exchange differences’ in the consolidated statement of

comprehensive income.

Transfers between levels of the fair value hierarchy are deemed to occur at the end of each quarterly reporting period. Transfers into and out of

levels of the fair value hierarchy are primarily attributable to observability of valuation inputs and price transparency.

HSBC Holdings plc Annual Report and Accounts 2022 367

Financial statements

Effect of changes in significant unobservable assumptions to reasonably possible

alternatives

Sensitivity of fair values to reasonably possible alternative assumptions

2022

2021

Reflected in profit or loss

Reflected in OCI

Reflected in profit or loss

Reflected in OCI

Favourable

changes

Un-

favourable

changes

Favourable

changes

Un-

favourable

changes

Favourable

changes

Un-

favourable

changes

Favourable

changes

Un-

favourable

changes

Derivatives, trading assets and trading

liabilities

264 (291) — — 143 (146) — —

Financial assets and liabilities designated

and otherwise mandatorily measured at

fair value through profit or loss 914 (911) — — 849 (868) — —

Financial investments 11 (11) 65 (55) 20 (20) 113 (112)

At 31 Dec 1,189 (1,213) 65 (55) 1,012 (1,034) 113 (112)

1 ‘Derivatives, trading assets and trading liabilities’ are presented as one category to reflect the manner in which these instruments are risk-managed.

The sensitivity analysis aims to measure a range of fair values consistent with the application of a 95% confidence interval. Methodologies take

account of the nature of the valuation technique employed, as well as the availability and reliability of observable proxy and historical data.

When the fair value of a financial instrument is affected by more than one unobservable assumption, the above table reflects the most

favourable or the most unfavourable change from varying the assumptions individually.

Key unobservable inputs to Level 3 financial instruments

The following table lists key unobservable inputs to Level 3 financial instruments and provides the range of those inputs at 31December 2022.

Quantitative information about significant unobservable inputs in Level 3 valuations

Fair value 2022 2021

Assets Liabilities

Valuation

techniques

Key unobservable

inputs

Full range

of inputs

Full range

of inputs

$m $m Lower Higher Lower Higher

Private equity including strategic

investments

16,318 92 See below See below

Asset-backed securities

741 —

– collateralised loan/debt obligation 188 —

Market proxy Bid quotes — 92 — 100

– other ABSs

553 —

Market proxy Bid quotes — 99 — 100

Structured notes — 10,432

– equity-linked notes — 6,833

Model – Option model Equity volatility 6% 142% 6% 124%

Model – Option model Equity correlation 32% 99% 22% 99%

– Foreign exchange-linked notes — 2,694 Model – Option model

Foreign exchange

volatility 3% 37% 1% 99%

– other

— 905

Derivatives 1,964 2,920  

– interest rate derivatives

560 710  

securitisation swaps

259 209 Model – Discounted cash flow Prepayment rate 5% 10% 5% 10%

long-dated swaptions 53 67 Model – Option model

Interest rate

volatility 8% 53% 15% 35%

other

248 434

– Foreign exchange derivatives

445 304

Foreign exchange options 404 274 Model – Option model

Foreign exchange

volatility 1% 46% 1% 99%

other

41 30

– equity derivatives

850 1,658

long-dated single stock options 415 502 Model – Option model Equity volatility 7% 153% 4% 138%

other

435 1,156

– credit derivatives

109 248

Other portfolios

6,789 382

– repurchase agreements

750 328 Model – Discounted cash flow Interest rate curve 1% 9% 1% 5%

– other

6,039 54

At 31 Dec 2022 25,812 13,826

1 ‘Other’ includes a range of smaller asset holdings.

Notes on the financial statements

368 HSBC Holdings plc Annual Report and Accounts 2022

Private equity including strategic investments

Given the bespoke nature of the analysis in respect of each private equity holding, it is not practical to quote a range of key unobservable inputs.

The key unobservable inputs would be price and correlation. The valuation approach includes using a range of inputs that include company

specific financials, traded comparable companies multiples, published net asset values and qualitative assumptions, which are not directly

comparable or quantifiable.

Prepayment rates

Prepayment rates are a measure of the anticipated future speed at which a loan portfolio will be repaid in advance of the due date. They vary

according to the nature of the loan portfolio and expectations of future market conditions, and may be estimated using a variety of evidence,

such as prepayment rates implied from proxy observable security prices, current or historical prepayment rates and macroeconomic modelling.

Market proxy

Market proxy pricing may be used for an instrument when specific market pricing is not available but there is evidence from instruments with

common characteristics. In some cases it might be possible to identify a specific proxy, but more generally evidence across a wider range of

instruments will be used to understand the factors that influence current market pricing and the manner of that influence.

Volatility

Volatility is a measure of the anticipated future variability of a market price. It varies by underlying reference market price, and by strike and

maturity of the option. Certain volatilities, typically those of a longer-dated nature, are unobservable and are estimated from observable data. The

range of unobservable volatilities reflects the wide variation in volatility inputs by reference market price. The core range is significantly narrower

than the full range because these examples with extreme volatilities occur relatively rarely within the HSBC portfolio.

Correlation

Correlation is a measure of the inter-relationship between two market prices and is expressed as a number between minus one and one. It is

used to value more complex instruments where the payout is dependent upon more than one market price. There is a wide range of instruments

for which correlation is an input, and consequently a wide range of both same-asset correlations and cross-asset correlations is used. In general,

the range of same-asset correlations will be narrower than the range of cross-asset correlations.

Unobservable correlations may be estimated based upon a range of evidence, including consensus pricing services, HSBC trade prices, proxy

correlations and examination of historical price relationships. The range of unobservable correlations quoted in the table reflects the wide

variation in correlation inputs by market price pair.

Credit spread

Credit spread is the premium over a benchmark interest rate required by the market to accept lower credit quality. In a discounted cash flow

model, the credit spread increases the discount factors applied to future cash flows, thereby reducing the value of an asset. Credit spreads may

be implied from market prices and may not be observable inmore illiquid markets.

Inter-relationships between key unobservable inputs

Key unobservable inputs to Level 3 financial instruments may not be independent of each other. As described above, market variables may be

correlated. This correlation typically reflects the manner in which different markets tend to react to macroeconomic or other events.

Furthermore, the effect of changing market variables on the HSBC portfolio will depend on HSBC’s net risk position in respect of each variable.

HSBC Holdings

Basis of valuing HSBC Holdings’ financial assets and liabilities measured at fair value

2022

2021

Valuation technique using observable inputs: Level 2

Assets at 31 Dec

– derivatives 3,801 2,811

– designated and otherwise mandatorily measured at fair value through profit or loss 52,322 51,408

Liabilities at 31 Dec

– designated at fair value 32,123 32,418

– derivatives 6,922 1,220

HSBC Holdings plc Annual Report and Accounts 2022 369

Financial statements

Fair values of financial instruments not carried at fair value

Fair values of financial instruments not carried at fair value and bases of valuation

Fair value

Carrying

amount

Quoted market

price Level 1

Observable

inputs Level 2

Significant

unobservable

inputs Level 3 Total

At 31 Dec 2022

Assets

Loans and advances to banks 104,882 — 104,074 814 104,888

Loans and advances to customers 924,854 — 8,768 904,288 913,056

Reverse repurchase agreements – non-trading 253,754 — 253,668 — 253,668

Financial investments – at amortised cost 168,746 90,629 67,419 626 158,674

Liabilities

Deposits by banks 66,722 — 66,831 — 66,831

Customer accounts 1,570,303 — 1,570,209 — 1,570,209

Repurchase agreements – non-trading 127,747 — 127,500 — 127,500

Debt securities in issue 78,149 — 76,640 381 77,021

Subordinated liabilities 22,290 — 22,723 — 22,723

At 31 Dec 2021

Assets

Loans and advances to banks 83,136 — 82,220 1,073 83,293

Loans and advances to customers 1,045,814 — 10,287 1,034,288 1,044,575

Reverse repurchase agreements – non-trading 241,648 — 241,531 121 241,652

Financial investments – at amortised cost 97,302 38,722 63,022 523 102,267

Liabilities

Deposits by banks 101,152 — 101,149 — 101,149

Customer accounts 1,710,574 — 1,710,733 — 1,710,733

Repurchase agreements – non-trading 126,670 — 126,670 — 126,670

Debt securities in issue 78,557 — 78,754 489 79,243

Subordinated liabilities 20,487 — 26,206 — 26,206

Fair values of financial instruments not carried at fair value and bases of valuation – assets and disposal groups held for sale

Fair value

Carrying

amount

Quoted market

price Level 1

Observable

inputs Level 2

Significant

unobservable

inputs Level 3

Total

At 31 Dec 2022

Assets

Loans and advances to banks 253 — 257 — 257

Loans and advances to customers 80,687 — 111 78,048 78,159

Reverse repurchase agreements – non-trading 4,646 — 4,646 — 4,646

Financial investments – at amortised cost 6,165 6,042 — — 6,042

Liabilities

Deposits by banks 64 — 64 — 64

Customer accounts 85,274 — 85,303 — 85,303

Repurchase agreements – non-trading 3,266 — 3,266 — 3,266

Debt securities in issue 12,928 — 12,575 — 12,575

Subordinated liabilities 8 — 7 — 7

At 31 Dec 2021

Assets

Loans and advances to banks 3 — 3 — 3

Loans and advances to customers 3,056 — 363 2,808 3,171

Liabilities

Deposits by banks 87 — 87 — 87

Customer accounts 8,750 — 8,750 — 8,750

Other financial instruments not carried at fair value are typically short term in nature and reprice to current market rates frequently. Accordingly,

their carrying amount is a reasonable approximation of fair value. They include cash and balances at central banks, items in the course of

collection from and transmission to other banks, Hong Kong Government certificates of indebtedness and Hong Kong currency notes in

circulation, all of which are measured at amortised cost.

Notes on the financial statements

370 HSBC Holdings plc Annual Report and Accounts 2022

Valuation

Fair value is an estimate of the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market

participants at the measurement date. It does not reflect the economic benefits and costs that HSBC expects to flow from an instrument’s cash

flow over its expected future life. Our valuation methodologies and assumptions in determining fair values for which no observable market prices

are available may differ from those of other companies.

Loans and advances to banks and customers

To determine the fair value of loans and advances to banks and customers, loans are segregated, as far as possible, into portfolios of similar

characteristics. Fair values are based on observable market transactions, when available. When they are unavailable, fair values are estimated

using valuation models incorporating a range of input assumptions. These assumptions may include: value estimates from third-party brokers

reflecting over-the-counter trading activity; forward-looking discounted cash flow models, taking account of expected customer prepayment

rates, using assumptions that HSBC believes are consistent with those that would be used by market participants in valuing such loans; new

business rates estimates for similar loans; and trading inputs from other market participants including observed primary and secondary trades.

From time to time, we may engage a third-party valuation specialist to measure the fair value of a pool of loans.

The fair value of loans reflects expected credit losses at the balance sheet date and estimates of market participants’ expectations of credit

losses over the life of the loans, and the fair value effect of repricing between origination and the balance sheet date. For credit-impaired loans,

fair value is estimated by discounting the future cash flows over the time period they are expected to be recovered.

Financial investments

The fair values of listed financial investments are determined using bid market prices. The fair values of unlisted financial investments are

determined using valuation techniques that incorporate the prices and future earnings streams of equivalent quoted securities.

Deposits by banks and customer accounts

The fair values of on-demand deposits are approximated by their carrying value. For deposits with longer-term maturities, fair values are

estimated using discounted cash flows, applying current rates offered for deposits of similar remaining maturities.

Debt securities in issue and subordinated liabilities

Fair values in debt securities in issue and subordinated liabilities are determined using quoted market prices at the balance sheet date where

available, or by reference to quoted market prices for similar instruments.

Repurchase and reverse repurchase agreements – non-trading

Fair values of repurchase and reverse repurchase agreements that are held on a non-trading basis provide approximate carrying amounts. This is

due to the fact that balances are generally short dated.

HSBC Holdings

The methods used by HSBC Holdings to determine fair values of financial instruments for the purposes of measurement and disclosure are

described above.

Fair values of HSBC Holdings’ financial instruments not carried at fair value on the balance sheet

2022

2021

Carrying amount

Fair value

Carrying amount

Fair value

Assets at 31 Dec

Loans and advances to HSBC undertakings 26,765 26,962 25,108 25,671

Financial investments – at amortised cost 19,466 19,314 26,194 26,176

Liabilities at 31 Dec

Debt securities in issue 66,938 65,364 67,483 69,719

Subordinated liabilities 19,727 20,644 17,059 21,066

1 Fair values (other than Level 1 financial investments) were determined using valuation techniques with observable inputs (Level 2).

Financial assets designated and otherwise mandatorily measured at fair

value through profit or loss

2022

2021

Designated at

fair value

Mandatorily

measured at

fair value Total

Designated at

fair value

Mandatorily

measured at

fair value Total

Securities 3,079 38,529 41,608 2,251 42,062 44,313

– treasury and other eligible bills 649 95 744 599 31 630

– debt securities 2,430 3,969 6,399 1,652 5,177 6,829

– equity securities — 34,465 34,465 — 36,854 36,854

Loans and advances to banks and customers — 1,841 1,841 — 4,307 4,307

Other — 1,614 1,614 — 1,184 1,184

At 31 Dec 3,079 41,984 45,063 2,251 47,553 49,804

HSBC Holdings plc Annual Report and Accounts 2022 371

Financial statements

Derivatives

Notional contract amounts and fair values of derivatives by product contract type held by HSBC

Notional contract amount

Fair value – Assets

Fair value – Liabilities

Trading

Hedging

Trading

Hedging

Total

Trading

Hedging

Total

Foreign exchange 8,434,453 38,924 122,203 525 122,728 123,088 166 123,254

Interest rate 15,213,232 276,589 285,438 5,066 290,504 287,877 3,501 291,378

Equities 570,410 — 9,325 — 9,325 9,176 — 9,176

Credit 183,995 — 1,091 — 1,091 1,264 — 1,264

Commodity and other 78,413 — 1,485 — 1,485 1,679 — 1,679

Gross total fair values 24,480,503 315,513 419,542 5,591 425,133 423,084 3,667 426,751

Offset (Note 31) (140,987) (140,987)

At 31 Dec 2022 24,480,503 315,513 419,542 5,591 284,146 423,084 3,667 285,764

Foreign exchange 7,723,034 43,839 79,801 1,062 80,863 77,670 207 77,877

Interest rate 14,470,539 162,921 151,631 1,749 153,380 146,808 966 147,774

Equities 659,142 — 12,637 — 12,637 14,379 — 14,379

Credit 190,724 — 2,175 — 2,175 3,151 — 3,151

Commodity and other 74,159 — 1,205 — 1,205 1,261 — 1,261

Gross total fair values 23,117,598 206,760 247,449 2,811 250,260 243,269 1,173 244,442

Offset (Note 31) (53,378) (53,378)

At 31 Dec 2021 23,117,598 206,760 247,449 2,811 196,882 243,269 1,173 191,064

The notional contract amounts of derivatives held for trading purposes and derivatives designated in hedge accounting relationships indicate the

nominal value of transactions outstanding at the balance sheet date. They do not represent amounts at risk.

Derivative assets and liabilities increased during 2022, driven by yield curve movements and changes in foreign exchange rates.

Notional contract amounts and fair values of derivatives by product contract type held by HSBC Holdings with subsidiaries

Notional contract amount

Assets

Liabilities

Trading

Hedging

Trading

Hedging

Total

Trading

Hedging

Total

Foreign exchange 60,630 — 502 — 502 1,683 — 1,683

Interest rate 34,322 81,873 2,386 913 3,299 826 4,413 5,239

At 31 Dec 2022 94,952 81,873 2,888 913 3,801 2,509 4,413 6,922

Foreign exchange 36,703 — 384 — 384 377 — 377

Interest rate 35,970 45,358 712 1,715 2,427 769 74 843

At 31 Dec 2021 72,673 45,358 1,096 1,715 2,811 1,146 74 1,220

Use of derivatives

For details regarding the use of derivatives, see page 220 under ‘Market risk’.

Trading derivatives

Most of HSBC’s derivative transactions relate to sales and trading activities. Sales activities include the structuring and marketing of derivative

products to customers to enable them to take, transfer, modify or reduce current or expected risks. Trading activities include market-making and

risk management. Market-making entails quoting bid and offer prices to other market participants for the purpose of generating revenue based

on spread and volume. Risk management activity is undertaken to manage the risk arising from client transactions, with the principal purpose of

retaining client margin. Other derivatives classified as held for trading include non-qualifying hedging derivatives.

Substantially all of HSBC Holdings’ derivatives entered into with subsidiaries are managed in conjunction with financial liabilities designated at fair

value.

Derivatives valued using models with unobservable inputs

The difference between the fair value at initial recognition (the transaction price) and the value that would have been derived had valuation

techniques used for subsequent measurement been applied at initial recognition, less subsequent releases, is as shown in the following table:

Unamortised balance of derivatives valued using models with significant unobservable inputs

2022

2021

Unamortised balance at 1 Jan 106 104

Deferral on new transactions 191 311

Recognised in the income statement during the year: (192) (308)

– amortisation (112) (177)

– subsequent to unobservable inputs becoming observable (3) (4)

– maturity, termination or offsetting derivative (77) (127)

Exchange differences (8) (1)

Unamortised balance at 31 Dec

97 106

1 This amount is yet to be recognised in the consolidated income statement.

Notes on the financial statements

372 HSBC Holdings plc Annual Report and Accounts 2022

Hedge accounting derivatives

HSBC applies hedge accounting to manage the following risks: interest rate and foreign exchange risks. Further details on how these risks arise

and how they are managed by the Group can be found in the ‘Risk review’.

Hedged risk components

HSBC designates a portion of cash flows of a financial instrument or a group of financial instruments for a specific interest rate or foreign

currency risk component in a fair value or cash flow hedge. The designated risks and portions are either contractually specified or otherwise

separately identifiable components of the financial instrument that are reliably measurable. Risk-free or benchmark interest rates generally are

regarded as being both separately identifiable and reliably measurable, except for the Interest Rate Benchmark Reform Phase 2 transition where

HSBC designates alternative benchmark rates as the hedged risk which may not have been separately identifiable upon initial designation,

provided HSBC reasonably expects it will meet the requirement within 24 months from the first designation date. The designated risk

components account for a significant portion of the overall changes in fair value or cash flows of the hedged items.

HSBC uses net investment hedges to hedge the structural foreign exchange risk related to net investments in foreign operations including

subsidiaries and branches whose functional currencies are different from that of the parent. When hedging with foreign exchange forward

contracts, the spot rate component of the foreign exchange risk is designated as the hedged risk.

Fair value hedges

HSBC enters into fixed-for-floating-interest-rate swaps to manage the exposure to changes in fair value caused by movements in market interest

rates on certain fixed-rate financial instruments that are not measured at fair value through profit or loss, including debt securities held and

issued.

HSBC hedging instrument by hedged risk

Hedging instrument

Carrying amount

Notional amount

Assets

Liabilities

Balance sheet

presentation

Change in fair value

Hedged risk

Interest rate

162,062 4,973 2,573 Derivatives 4,064

At 31 Dec 2022 162,062 4,973 2,573 4,064

Interest rate

90,556 1,637 1,410 Derivatives 1,330

At 31 Dec 2021 90,556 1,637 1,410 1,330

1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions

outstanding at the balance sheet date. They do not represent amounts at risk.

2 Used in effectiveness testing, which uses the full fair value change of the hedging instrument not excluding any component.

3 The hedged risk ‘interest rate’ includes inflation risk.

HSBC hedged item by hedged risk

Hedged item

Ineffectiveness

Carrying amount

Accumulated fair value hedge adjustments

included in carrying amount

Change in

fair value

Recognised

in profit

and loss

Assets

Liabilities

Assets

Liabilities

Balance sheet

presentation

Profit and loss

presentation

Hedged risk

Interest rate

82,792 (5,100)

Financial investments

measured at fair value

through other

comprehensive income

(8,005)

(59)

Net income from

financial instruments

held for trading or

managed on a fair

value basis

3,415 (210)

Loans and advances to

customers

(233)

519

(18) Reverse repos (17)

49,180 (2,006) Debt securities in issue 4,138

83 — Deposits by banks

(5)

At 31 Dec 2022 86,726 49,263 (5,328) (2,006) (4,122) (59)

Interest rate

68,059 1,199

Financial assets designated

and otherwise mandatorily

measured at fair value through

other comprehensive income

(1,932)

(36)

Net income from

financial instruments

held for trading or

managed on a fair

value basis

2 (3) Loans and advances to banks (3)

3,066 9

Loans and advances to

customers

(41)

14,428 992 Debt securities in issue 609

86 1 Deposits by banks 1

At 31 Dec 2021 71,127 14,514 1,205 993 (1,366) (36)

1 Used in effectiveness testing, which comprise an amount attributable to the designated hedged risk that can be a risk component.

2 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be adjusted

for hedging gains and losses were assets of $252m (2021: $1,061m) for FVOCI assets and liabilities of $916m (2021: $15m) for debt issued.

3 The hedged risk ‘interest rate’ includes inflation risk.

HSBC Holdings plc Annual Report and Accounts 2022 373

Financial statements

HSBC Holdings hedging instrument by hedged risk

Hedging instrument

Carrying amount

Notional amount

1,4

Assets

Liabilities

Balance sheet

presentation

Change in fair value

Hedged risk

Interest rate

81,873 913 4,413 Derivatives (5,599)

At 31 Dec 2022 81,873 913 4,413 (5,599)

Interest rate

45,358 1,715 74 Derivatives (1,515)

At 31 Dec 2021 45,358 1,715 74 (1,515)

1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions

outstanding at the balance sheet date; they do not represent amounts at risk.

2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component.

3 The hedged risk ‘interest rate’ includes foreign exchange risk.

4 The notional amount of non-dynamic fair value hedges is equal to $81,873m (2021: $45,358m), of which the weighted-average maturity date is June

2028 and the weighted-average swap rate is 2.33% (2021: 1.30%). The majority of these hedges are internal to the Group.

HSBC Holdings hedged item by hedged risk

Hedged item

Ineffectiveness

Carrying amount

Accumulated fair value

hedge adjustments

included in carrying

amount

Change in

fair value

Recognised

profit and

loss

Assets

Liabilities

Assets

Liabilities

Balance sheet

presentation

Profit and loss

presentation

Hedged risk

Interest rate

68,223 (3,829)

Debt securities

in issue 6,258 (34)

Net income from

financial instruments

held for trading or

managed on a fair value

basis

6,812 (789)

Loans and

advances to banks (693)

At 31 Dec 2022 6,812 68,223 (789) (3,829) 5,565 (34)

Interest rate

39,154 1,408

Debt securities

in issue 1,599 (21)

Net income from financial

instruments held for

trading or managed on a

fair value basis

7,863 (104)

Loans and

advances to banks (104)

At 31 Dec 2021 7,863 39,154 (104) 1,408 1,495 (21)

1 Used in effectiveness testing; comprising amount attributable to the designated hedged risk that can be a risk component.

2 The accumulated amount of fair value adjustments remaining in the statement of financial position for hedged items that have ceased to be adjusted

for hedging gains and losses were liabilities of $971m (2021: $54.4m) for debt issued.

3 The hedged risk ‘interest rate’ includes foreign exchange risk.

Sources of hedge ineffectiveness may arise from basis risk, including but not limited to the discount rates used for calculating the fair value of

derivatives, hedges using instruments with a non-zero fair value, and notional and timing differences between the hedged items and hedging

instruments.

For some debt securities held, HSBC manages interest rate risk in a dynamic risk management strategy. The assets in scope of this strategy are

high-quality fixed-rate debt securities, which may be sold to meet liquidity and funding requirements.

The interest rate risk of the HSBC fixed-rate debt securities issued is managed in a non-dynamic risk management strategy.

Cash flow hedges

HSBC’s cash flow hedging instruments consist principally of interest rate swaps and cross-currency swaps that are used to manage the

variability in future interest cash flows of non-trading financial assets and liabilities, arising due to changes in market interest rates and foreign-

currency basis.

HSBC applies macro cash flow hedging for interest rate risk exposures on portfolios of replenishing current and forecasted issuances of non-

trading assets and liabilities that bear interest at variable rates, including rolling such instruments. The amounts and timing of future cash flows,

representing both principal and interest flows, are projected for each portfolio of financial assets and liabilities on the basis of their contractual

terms and other relevant factors, including estimates of prepayments and defaults. The aggregate cash flows representing both principal

balances and interest cash flows across all portfolios are used to determine the effectiveness and ineffectiveness. Macro cash flow hedges are

considered to be dynamic hedges.

HSBC also hedges the variability in future cash flows on foreign-denominated financial assets and liabilities arising due to changes in foreign

exchange market rates with cross-currency swaps, which are considered dynamic hedges.

Notes on the financial statements

374 HSBC Holdings plc Annual Report and Accounts 2022

Hedging instrument by hedged risk

Hedging instrument

Hedged item

Ineffectiveness

Carrying amount

Change in

fair value

Change in fair

value

Recognised

in profit and

loss

Profit and loss

presentation

Notional

amount

Assets Liabilities

Balance

sheet

presentation

Hedged risk

Foreign currency 8,781 418 166 Derivatives 659 659 —

Net income from

financial instruments

held for trading or

managed on a fair

value basisInterest rate 114,527 93 950 Derivatives (4,997) (4,973) (24)

At 31 Dec 2022 123,308 511 1,116 (4,338) (4,314) (24)

Foreign currency 17,930 827 207 Derivatives 987 987 —

Net income from

financial instruments

held for trading or

managed on a fair

value basis

Interest rate 72,365 112 217 Derivatives (519) (500) (19)

At 31 Dec 2021 90,295 939 424 468 487 (19)

1 The notional contract amounts of derivatives designated in qualifying hedge accounting relationships indicate the nominal value of transactions

outstanding at the balance sheet date. They do not represent amounts at risk.

2 Used in effectiveness testing; comprising the full fair value change of the hedging instrument not excluding any component.

3 Used in effectiveness assessment; comprising amount attributable to the designated hedged risk that can be a risk component.

Sources of hedge ineffectiveness may arise from basis risk, including but not limited to timing differences between the hedged items and

hedging instruments and hedges using instruments with a non-zero fair value.

Reconciliation of equity and analysis of other comprehensive income by risk type

Interest rate

Foreign currency

Cash flow hedging reserve at 1 Jan 2022 8 (205)

Fair value gains/(losses) (4,973) 659

Fair value (gains)/losses reclassified from the cash flow hedge reserve to the income statement in respect of:

Hedged items that have affected profit or loss

325 (926)

Income taxes 1,123 28

Others 130 23

Cash flow hedging reserve at 31 Dec 2022 (3,387) (421)

Cash flow hedging reserve at 1 Jan 2021 495 (37)

Fair value gains/(losses) (500) 987

Fair value (gains)/losses reclassified from the cash flow hedge reserve to the income statement in respect of:

Hedged items that have affected profit or loss (217) (1,177)

Income taxes 185 25

Others 45 (3)

Cash flow hedging reserve at 31 Dec 2021 8 (205)

1 Hedged items that have affected profit or loss are primarily recorded within interest income.

Net investment hedges

The Group applies hedge accounting in respect of certain net investments in non-US dollar functional currency foreign operations for changes in

spot exchange rates only. Hedging could be undertaken for Group structural exposure to changes in the US dollar to foreign currency exchange

rates using forward foreign exchange contracts or by financing with foreign currency borrowings. The aggregate positions at the reporting date

and the performance indicators of both live and de-designated hedges are summarised below. There were no amounts reclassified to the profit

and loss account during the accounting periods presented.

Hedges of net investment in foreign operations

Carrying value

Nominal

amount

Amounts

recognised in

OCI

Hedge ineffectiveness

recognised in income

statement

Derivative

assets

Derivative

liabilities

Description of hedged risk

2022

Pound sterling-denominated structural foreign exchange 264 — 14,000 1,447 —

Swiss franc-denominated structural foreign exchange — (21) 727 111 —

Hong Kong dollar-denominated structural foreign exchange — (19) 4,597 (2) —

Other structural foreign exchange

— (117) 10,819 375 —

Total 264 (157) 30,143 1,931 —

2021

Pound sterling-denominated structural foreign exchange 229 — 15,717 (126) —

Swiss franc-denominated structural foreign exchange — (8) 809 101 —

Hong Kong dollar-denominated structural foreign exchange 7 — 4,992 5 —

Other structural foreign exchange

7 — 4,387 6 —

Total 243 (8) 25,906 (14) —

1 Other currencies include New Taiwan dollar, Singapore dollar, Canadian dollar, Omani rial, South Korean won, Indian rupee, Indonesian rupiah, euro,

Mexican peso, Qatari riyal, Kuwaiti dinar, Saudi riyal and United Arab Emirates dirham.

HSBC Holdings plc Annual Report and Accounts 2022 375

Financial statements

Interest rate benchmark reform: Amendments to IFRS 9 and IAS 39 ‘Financial Instruments’

HSBC has applied both the first set of amendments (‘Phase 1’) and the second set of amendments (‘Phase 2’) to IFRS 9 and IAS 39 applicable to

hedge accounting. The hedge accounting relationships that are affected by Phase 1 and Phase 2 amendments are presented in the balance

sheet as ‘Financial assets designated and otherwise mandatorily measured at fair value through other comprehensive income’, ‘Loans and

advances to customers’, ‘Debt securities in issue’ and ‘Deposits by banks’. The notional value of the derivatives impacted by the Ibor reform,

including those designated in hedge accounting relationships, is disclosed on page 138 in the section ‘Financial instruments impacted by the Ibor

reform’. For further details on Ibor transition, see ‘Top and emerging risks‘ on page 137.

During 2022, the Group transitioned all of its hedging instruments referencing sterling Libor, European Overnight Index Average rate (‘Eonia’) and

Japanese yen Libor. The Group also transitioned some of the hedging instruments referencing US dollar Libor. There is no significant judgement

applied for these benchmarks to determine whether and when the transition uncertainty has been resolved.

The most significant Ibor benchmark in which the Group continues to have hedging instruments is US dollar Libor. It is expected that the

transition out of US dollar Libor hedging derivatives will be completed by the second quarter of 2023. These transitions do not necessitate new

approaches compared with any of the mechanisms used so far for transition and it will not be necessary to change the transition risk

management strategy.

For some of the Ibors included under the ‘Other’ header in the table below, judgement has been needed to establish whether a transition is

required, since there are Ibor benchmarks that are subject to computation methodology improvements and insertion of fallback provisions

without full clarity being provided by their administrators on whether these Ibor benchmarks will be demised.

The notional amounts of interest rate derivatives designated in hedge accounting relationships do not represent the extent of the risk exposure

managed by the Group but they are expected to be directly affected by market-wide Ibor reform and in scope of Phase 1 amendments and are

shown in the table below. The cross-currency swaps designated in hedge accounting relationships and affected by Ibor reform are not significant

and have not been presented below.

Hedging instrument impacted by Ibor reform

Hedging instrument

Impacted by Ibor reform

Not impacted

by Ibor

reform

Notional

amount

€

Other

Total

$m $m

Fair value hedges 12,756 — 2,015 12,643 27,414 134,648 162,062

Cash flow hedges 8,865 — — 27,830 36,695 77,832 114,527

At 31 Dec 2022 21,621 — 2,015 40,473 64,109 212,480 276,589

Fair value hedges 6,178 — 18,525 6,615 31,318 59,238 90,556

Cash flow hedges 7,954 — 100 8,632 16,686 55,679 72,365

At 31 Dec 2021 14,132 — 18,625 15,247 48,004 114,917 162,921

1 The notional contract amounts of interest rate derivatives designated in qualifying hedge accounting relationships indicate the nominal value of

transactions outstanding at the balance sheet date and they do not represent amounts at risk.

2 The notional contract amounts of euro interest rate derivatives impacted by Ibor reform mainly comprise hedges with a Euribor benchmark, which are

‘Fair value hedges’ of $12,756m (31 December 2021: $6,178m) and ‘Cash flow hedges’ of $8,865m (31 December 2021: $7,954m).

3 Other benchmarks impacted by Ibor reform comprise mainly of Canadian dollar offered rate (‘CDOR’), Hong Kong interbank offered rate (‘HIBOR’) and

Mexican interbank equilibrium interest rate (‘TIIE’) related derivatives.

Hedging instrument impacted by Ibor reform held by HSBC Holdings

Hedging instrument

Impacted by Ibor reform

Not impacted

by Ibor

reform

Notional

amount

€

Other

Total

$m $m

Fair value hedges 15,210 — 2,000 1,336 18,546 63,327 81,873

At 31 Dec 2022 15,210 — 2,000 1,336 18,546 63,327 81,873

Fair value hedges 9,944 — 20,035 1,458 31,437 13,921 45,358

At 31 Dec 2021 9,944 — 20,035 1,458 31,437 13,921 45,358

Financial investments

Carrying amount of financial investments

2022

2021

Financial investments measured at fair value through other comprehensive income 256,817 348,972

– treasury and other eligible bills 86,749 100,158

– debt securities 168,264 246,998

– equity securities 1,696 1,770

– other instruments 108 46

Debt instruments measured at amortised cost 168,747 97,302

– treasury and other eligible bills 35,282 21,634

– debt securities 133,465 75,668

At 31 Dec 425,564 446,274

Notes on the financial statements

376 HSBC Holdings plc Annual Report and Accounts 2022

Equity instruments measured at fair value through other comprehensive income

Fair value

Dividends

recognised

Type of equity instruments

Investments required by central institutions 690 24

Business facilitation 954 28

Others 52 2

At 31 Dec 2022 1,696 54

Investments required by central institutions 766 17

Business facilitation 954 24

Others 50 3

At 31 Dec 2021 1,770 44

Weighted average yields of investment debt securities

Up to 1

year

1 to 5

years

5 to 10

years

Over 10

years

Yield

Debt securities measured at fair value through other comprehensive income

US Treasury 1.0 1.3 1.3 2.3

US Government agencies 4.7 0.9 3.2 2.5

US Government-sponsored agencies 1.1 1.7 2.1 1.7

UK Government 0.5 0.8 0.4 1.3

Hong Kong Government 1.3 1.6 1.7 —

Other governments 2.3 3.0 2.9 3.7

Asset-backed securities 6.7 0.2 2.7 2.4

Corporate debt and other securities 3.4 1.8 2.5 2.2

Debt securities measured at amortised cost

US Treasury 10.2 3.4 3.8 2.8

US Government agencies — 2.9 7.2 3.2

US Government-sponsored agencies 2.9 2.4 3.2 3.3

UK Government — — 0.7 0.9

Hong Kong Government 1.9 3.8 2.2 4.5

Other governments 2.1 4.2 3.6 3.8

Asset-backed securities 4.0 4.7 — 7.7

Corporate debt and other securities 3.2 3.2 3.3 4.0

The maturity distributions of ABSs are presented in the above table on the basis of contractual maturity dates. The weighted average yield for

each range of maturities is calculated by dividing the annualised interest income for the year ended 31 December 2022 by the book amount of

debt securities at that date. The yields do not include the effect of related derivatives.

HSBC Holdings

HSBC Holdings carrying amount of financial investments

2022

2021

Debt instruments measured at amortised cost

– treasury and other eligible bills 12,796 19,508

– debt securities 6,670 6,686

At 31 Dec 19,466 26,194

Weighted average yields of investment debt securities

Up to 1

year

1 to 5

years

5 to 10

years

Over 10

years

Yield

Debt securities measured at amortised cost

US Treasury 0.3 2.8 — —

The weighted average yield for each range of maturities is calculated by dividing the annualised interest income for the year ended 31December

2022 by the book amount of debt securities at thatdate. The yields do not include the effect ofrelated derivatives.

HSBC Holdings plc Annual Report and Accounts 2022 377

Financial statements

Assets pledged, collateral received and assets transferred

Assets pledged

Financial assets pledged as collateral

2022

2021

Treasury bills and other eligible securities 18,364 9,613

Loans and advances to banks 10,198 412

Loans and advances to customers 27,627 55,370

Debt securities 60,542 66,629

Equity securities 26,902 34,472

Other 67,576 45,396

Assets pledged at 31 Dec 211,209 211,892

Assets pledged as collateral include all assets categorised as encumbered in the disclosure on page 89 of the Pillar 3 Disclosures at

31December 2022, except for assets held for sale.

The amount of assets pledged to secure liabilities may be greater than the book value of assets utilised as collateral. For example, in the case of

securitisations and covered bonds, the amount of liabilities issued plus mandatory over-collateralisation is less than the book value of the pool of

assets available for use as collateral. This is also the case where assets are placed with a custodian or a settlement agent that has a floating

charge over all the assets placed to secure any liabilities under settlement accounts.

These transactions are conducted under terms that are usual and customary for collateralised transactions including, where relevant, standard

securities lending and borrowing, repurchase agreements and derivative margining. HSBC places both cash and non-cash collateral in relation to

derivative transactions.

Hong Kong currency notes in circulation are secured by the deposit of funds in respect of which the Hong Kong Government certificates of

indebtedness are held.

Financial assets pledged as collateral which the counterparty has the right to sell or repledge

2022

2021

Trading assets 56,894 69,719

Financial investments 27,841 12,416

At 31 Dec 84,735 82,135

Collateral received

The fair value of assets accepted as collateral relating primarily to standard securities lending, reverse repurchase agreements, swaps of

securities and derivative margining that HSBC is permitted to sell or repledge in the absence of default was $449,896m (2021:$476,455m). The

fair value of any such collateral sold or repledged was $228,245m (2021: $271,582m).

HSBC is obliged to return equivalent securities. These transactions are conducted under terms that are usual and customary to standard

securities lending, reverse repurchase agreements and derivative margining.

Assets transferred

The assets pledged include transfers to third parties that do not qualify for derecognition, notably secured borrowings such as debt securities

held by counterparties as collateral under repurchase agreements and equity securities lent under securities lending agreements, as well as

swaps of equity and debt securities. For secured borrowings, the transferred asset collateral continues to be recognised in full while a related

liability, reflecting the Group’s obligation to repurchase the assets for a fixed price at a future date, is also recognised on the balance sheet.

Where securities are swapped, the transferred asset continues to be recognised in full. There is no associated liability as the non-cash collateral

received is not recognised on the balance sheet. The Group is unable to use, sell or pledge the transferred assets for the duration of the

transaction, and remains exposed to interest rate risk and credit risk on these pledged assets. With the exception of ‘Other sales’ in the

following table, the counterparty’s recourse is not limited to the transferred assets.

Transferred financial assets not qualifying for full derecognition and associated financial liabilities

Carrying amount of: Fair value of:

Transferred

assets

Associated

liabilities

Transferred

assets

Associated

liabilities

Net

position

At 31 Dec 2022

Repurchase agreements 52,604 48,501

Securities lending agreements 39,134 4,613

At 31 Dec 2021

Repurchase agreements 51,135 48,180

Securities lending agreements 43,644 2,918

Other sales (recourse to transferred assets only) 3,826 3,826 3,830 3,842 (12)

1 Excludes assets classified as held for sale.

Notes on the financial statements

378 HSBC Holdings plc Annual Report and Accounts 2022

Interests in associates and joint ventures

Carrying amount of HSBC’s interests in associates and joint ventures

2022

2021

Interests in associates 29,127 29,515

Interests in joint ventures 127 94

Interests in associates and joint ventures 29,254 29,609

Principal associates of HSBC

2022

2021

Carrying amount

Fair value

Carrying amount

Fair value

Bank of Communications Co., Limited 23,307 8,141 23,616 8,537

The Saudi British Bank 4,494 6,602 4,426 5,599

1 Principal associates are listed on recognised stock exchanges. The fair values are based on the quoted market prices of the shares held (Level 1 in the

fair value hierarchy).

At 31 Dec 2022

Country of incorporation

and principal place of

business Principal activity

HSBC’s interest

Bank of Communications Co., Limited People’s Republic of China Banking services 19.03

The Saudi British Bank Saudi Arabia Banking services 31.00

Share of profit in associates and joint ventures

2022

2021

Bank of Communications Co., Limited 2,377 2,461

The Saudi British Bank 342 276

Other associates and joint ventures 4 309

Share of profit in associates and joint ventures 2,723 3,046

A list of all associates and joint ventures is set out in Note 38.

Bank of Communications Co., Limited

The Group’s investment in Bank of Communications Co., Limited (‘BoCom’) is classified as an associate. Significant influence in BoCom was

established with consideration of all relevant factors, including representation on BoCom’s Board of Directors and participation in a resource and

experience sharing agreement (‘RES’). Under the RES, HSBC staff have been seconded to assist in the maintenance of BoCom’s financial and

operating policies. Investments in associates are recognised using the equity method of accounting in accordance with IAS 28 ‘Investments in

Associates and Joint Ventures', whereby the investment is initially recognised at cost and adjusted thereafter for the post-acquisition change in

the Group’s share of BoCom’s net assets. An impairment test is required if there is any indication of impairment.

Impairment testing

At 31 December 2022, the fair value of the Group’s investment in BoCom had been below the carrying amount for approximately 11 years. As a

result, the Group performed an impairment test on the carrying amount, which confirmed that there was no impairment at 31December 2022 as

the recoverable amount as determined by a value-in-use (‘VIU’) calculation was higher than the carrying value.

At 31 Dec 2022

At 31 Dec 2021

VIU

Carrying value

Fair value

VIU

Carrying value

Fair value

$bn

BoCom 23.5 23.3 8.1 24.8 23.6 8.5

The headroom, which is defined as the extent to which the VIU exceeds the carrying value, decreased by $1.0bn compared with 31 December

2021. The decrease in headroom was principally due to revisions to management’s best estimates of BoCom‘s future earnings in the short to

medium term, and the impact from BoCom’s actual performance.

In future periods, the VIU may increase or decrease depending on the effect of changes to model inputs. The main model inputs are described

below and are based on factors observed at period-end. The factors that could result in a change in the VIU and an impairment include a short-

term underperformance by BoCom, a change in regulatory capital requirements or an increase in uncertainty regarding the future performance of

BoCom resulting in a downgrade of the forecast of future asset growth or profitability. An increase in the discount rate could also result in a

reduction of VIU and an impairment.

If the Group did not have significant influence in BoCom, the investment would be carried at fair value rather than the current carrying value.

Basis of recoverable amount

The impairment test was performed by comparing the recoverable amount of BoCom, determined by a VIU calculation, with its carrying amount.

The VIU calculation uses discounted cash flow projections based on management’s best estimates of future earnings available to ordinary

shareholders prepared in accordance with IAS 36 ’Impairment of Assets’. Significant management judgement is required in arriving at the best

estimate.

There are two main components to the VIU calculation. The first component is management’s best estimate of BoCom’s earnings. Forecast

earnings growth over the short to medium term are lower than recent (within the last five years) historical actual growth and reflect the

uncertainty arising from the current economic outlook. Reflecting management‘s intent to continue to retain its investment, earnings beyond the

HSBC Holdings plc Annual Report and Accounts 2022 379

Financial statements

short to medium term are then extrapolated into perpetuity using a long-term growth rate to derive a terminal value, which comprises the

majority of the VIU. The second component is the capital maintenance charge (‘CMC’), which is management’s forecast of the earnings that

need to be withheld in order for BoCom to meet capital requirements over the forecast period, meaning that CMC is deducted when arriving at

management’s estimate of future earnings available to ordinary shareholders. The principal inputs to the CMC calculation include estimates of

asset growth, the ratio of risk-weighted assets to total assets and the expected capital requirements. An increase in the CMC as a result of a

change to these principal inputs would reduce VIU. Additionally, management considers other qualitative factors, to ensure that the inputs to the

VIU calculation remain appropriate.

Key assumptions in value-in-use calculation

We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:

• Long-term profit growth rate: 3% (2021: 3%) for periods after 2026, which does not exceed forecast GDP growth in mainland China and is

similar to forecasts by external analysts.

• Long-term asset growth rate: 3% (2021: 3%) for periods after 2026, which is the rate that assets are expected to grow to achieve long-term

profit growth of 3%.

• Discount rate: 10.04% (2021: 10.03%), which is based on a capital asset pricing model (‘CAPM’), using market data. The discount rate used is

within the range of 8.4% to 10.4% (2021: 8.7% to 10.1%) indicated by the CAPM. While the CAPM range sits at the lower end of the range

adopted by selected external analysts of 8.8% to 13.5% (2021: 9.9% to 13.5%), we continue to regard the CAPM range as the most

appropriate basis for determining this assumption.

• Expected credit losses (‘ECL’) as a percentage of customer advances: ranges from 0.99% to 1.05% (2021: 0.98% to 1.12%) in the short to

medium term, reflecting reported credit experience through the ongoing Covid-19 pandemic in mainland China followed by an expected

reversion to recent historical levels. For periods after 2026, the ratio is 0.97% (2021: 0.97%), which is higher than BoCom’s average ECL as a

percentage of customer advances in recent years prior to the pandemic.

• Risk-weighted assets as a percentage of total assets: ranges from 61.0% to 64.4% (2021: 61.0% to 62.4%) in the short to medium term,

reflecting higher risk-weights in the short term followed by an expected reversion to recent historical levels. For periods after 2026, the ratio

is 61.0% (2021: 61.0%), which is similar to BoCom’s actual results in recent years.

• Operating income growth rate: ranges from 1.9% to 7.7% (2021: 5.1% to 6.2%) in the short to medium term, which is lower than BoCom’s

actual results in recent years and is similar to the forecasts disclosed by external analysts. This reflects BoCom’s most recent actual results,

global trade tensions and industry developments in mainland China.

• Cost-income ratio: ranges from 35.5% to 36.3% (2021: 35.5% to 36.1%) in the short to medium term. These ratios are similar to BoCom‘s

actual results in recent years and forecasts disclosed by external analysts.

• Effective tax rate (‘ETR’): ranges from 4.4% to 15.0% (2021: 6.8% to 15.0%) in the short to medium term, reflecting BoCom’s actual results

and an expected increase towards the long-term assumption through the forecast period. For periods after 2026, the rate is 15.0% (2021:

15.0%), which is higher than the recent historical average, and aligned to the minimum tax rate as proposed by the OECD/G20 Inclusive

Framework on Base Erosion and Profit Shifting.

• Capital requirements: capital adequacy ratio of 12.5% (2021: 12.5%) and tier 1 capital adequacy ratio of 9.5% (2021: 9.5%), based on

BoCom’s capital risk appetite and capital requirements respectively.

The following table shows the change to each key assumption in the VIU calculation that on its own would reduce the headroom tonil:

Key assumption Changes to key assumption to reduce headroom to nil

• Long-term profit growth rate • Decrease by 4 basis points

• Long-term asset growth rate • Increase by 3 basis points

• Discount rate • Increase by 5 basis points

• Expected credit losses as a percentage of customer advances • Increase by 1 basis points

• Risk-weighted assets as a percentage of total assets • Increase by 26 basis points

• Operating income growth rate • Decrease by 5 basis points

• Cost-income ratio • Increase by 15 basis points

• Long-term effective tax rate • Increase by 46 basis points

• Capital requirements – capital adequacy ratio • Increase by 5 basis points

• Capital requirements – tier 1 capital adequacy ratio • Increase by 175 basis points

The following table further illustrates the impact on VIU of reasonably possible changes to key assumptions. This reflects the sensitivity of the

VIU to each key assumption on its own and it is possible that more than one favourable and/or unfavourable change may occur at the same time.

The selected rates of reasonably possible changes to key assumptions are based on external analysts’ forecasts, statutory requirements and

other relevant external data sources, which can change period to period.

Notes on the financial statements

380 HSBC Holdings plc Annual Report and Accounts 2022

Sensitivity of VIU to reasonably possible changes in key assumptions

Favourable change

Unfavourable change

Increase in

VIU

Decrease in

VIU

bps

$bn

bps

$bn

At 31 Dec 2022

Long-term profit growth rate

75 3.6 27.1 (71) (2.7) 20.8

Long-term asset growth rate

(71) 3.1 26.6 75 (4.1) 19.4

Discount rate (164) 6.9 30.4 136 (3.7) 19.8

Expected credit losses as a percentage

of customer advances

2022 to 2026: 95

2027 onwards: 91

1.9 25.4

2022 to 2026: 120

2027 onwards: 104 (2.9) 20.6

Risk-weighted assets as a percentage of total assets (118) 0.1 23.6 239 (2.3) 21.2

Operating income growth rate 44 1.3 24.8 (83) (2.5) 21.0

Cost-income ratio (122) 1.0 24.5 174 (2.1) 21.4

Long-term effective tax rate (426) 1.5 25.0 1,000 (3.6) 19.9

Capital requirements – capital adequacy ratio — — 23.5 191 (6.3) 17.2

Capital requirements – tier 1 capital adequacy ratio — — 23.5 266 (3.2) 20.3

At 31 Dec 2021

Long-term profit growth rate

87 4.2 29.0 (69) (2.7) 22.1

Long-term asset growth rate

(69) 2.9 27.7 87 (4.7) 20.1

Discount rate (133) 5.4 30.2 207 (5.3) 19.5

Expected credit losses as a percentage

of customer advances

2021 to 2025: 103

2026 onwards: 91

1.5 26.3

2021 to 2025: 121

2026 onwards: 105

(2.7) 22.1

Risk-weighted assets as a percentage of total assets (111) 0.2 25.0 280 (2.1) 22.7

Operating income growth rate 37 1.0 25.8 (58) (1.8) 23.0

Cost-income ratio (152) 1.7 26.5 174 (1.7) 23.1

Long-term effective tax rate (104) 0.3 25.1 1,000 (3.6) 21.2

Capital requirements – capital adequacy ratio — — 24.8 325 (10.0) 14.8

Capital requirements – tier 1 capital adequacy ratio — — 24.8 364 (6.5) 18.3

1 The reasonably possible ranges of the long-term profit growth rate and long-term asset growth rate assumptions reflect the close relationship between

these assumptions, which would result in offsetting changes to each assumption.

Considering the interrelationship of the changes set out in the table above, management estimates that the reasonably possible range of VIU is

$16.9bn to $28.7bn (2021: $19.0bn to $29.3bn). The range is based on impacts set out in the table above arising from the favourable/

unfavourable change in the earnings in the short to medium term, the long-term expected credit losses as a percentage of customer advances,

and a 50bps increase/decrease in the discount rate. All other long-term assumptions and the basis of the CMC have been kept unchanged when

determining the reasonably possible range of the VIU. Impairment, if determined, would be recognised in the income statement. The impact on

the Group’s CET1 ratio is expected to be minimal in the event of an impairment, as the adverse impact on CET1 capital from the impairment

would be offset by the favourable impact from a lower carrying value.

Selected financial information of BoCom

The statutory accounting reference date of BoCom is 31 December. For the year ended 31 December 2022, HSBC included the associate’s

results on the basis of the financial statements for the 12 months ended 30 September 2022, taking into account any known changes in the

subsequent period from 1 October 2022 to 31 December 2022 that would have materially affected the results.

Selected balance sheet information of BoCom

At 30 Sep

2022

2021

Cash and balances at central banks 114,390 123,194

Due from and placements with banks and other financial institutions 99,802 98,932

Loans and advances to customers 1,022,223 993,956

Other financial assets 549,364 541,577

Other assets 55,884 47,679

Total assets 1,841,663 1,805,338

Due to and placements from banks and other financial institutions 277,185 287,057

Deposits from customers 1,144,297 1,099,266

Other financial liabilities 237,521 228,135

Other liabilities 35,543 40,070

Total liabilities 1,694,546 1,654,528

Total equity 147,117 150,810

Reconciliation of BoCom’s total shareholders’ equity to the carrying amount in HSBC’s consolidated financial statements

At 30 Sep

2022

2021

HSBC’s share of total shareholders’ equity 22,828 23,097

Goodwill 479 519

Carrying amount 23,307 23,616

HSBC Holdings plc Annual Report and Accounts 2022 381

Financial statements

Selected income statement information of BoCom

For the 12 months ended 30 Sep

2022

2021

Net interest income 25,314 24,582

Net fee and commission income 6,854 7,170

Credit and impairment losses (9,712) (9,701)

Depreciation and amortisation (2,351) (2,297)

Tax expense (598) (1,045)

Profit for the year 13,582 14,199

Other comprehensive income (245) (368)

Total comprehensive income 13,337 13,831

Dividends received from BoCom 749 692

The Saudi British Bank

The Group’s investment in The Saudi British Bank (‘SABB’) is classified as an associate. HSBC is the largest shareholder in SABB with a

shareholding of 31%. Significant influence in SABB is established via representation on the Board of Directors. Investments in associates are

recognised using the equity method of accounting in accordance with IAS 28, as described previously for BoCom.

Impairment testing

There were no indicators of impairment at 31 December 2022. The fair value of the Group’s investment in SABB of $6.6bn was above the

carrying amount of $4.5bn.

Investments in subsidiaries

Main subsidiaries of HSBC Holdings

At 31 Dec 2022

Place of

incorporation or

registration

HSBC’s

interest

Share class

Europe

HSBC Bank plc England and Wales 100

£1 Ordinary, $0.01 Non-Cumulative Third Dollar

Preference

HSBC UK Bank plc England and Wales 100 £1 Ordinary

HSBC Continental Europe France 99.99 €5 Actions

HSBC Trinkaus & Burkhardt GmbH Germany 99.99 €1 Ordinary

Asia

Hang Seng Bank Limited Hong Kong 62.14 HK$5 Ordinary

HSBC Bank (China) Company Limited

People’s Republic of

China 100 CNY1 Ordinary

HSBC Bank Malaysia Berhad Malaysia 100 RM0.5 Ordinary

HSBC Life (International) Limited Bermuda 100 HK$1 Ordinary

The Hongkong and Shanghai Banking Corporation Limited Hong Kong 100 Ordinary no par value

Middle East and North Africa

HSBC Bank Middle East Limited United Arab Emirates 100

$1 Ordinary and $1 Cumulative Redeemable Preference

North America

HSBC Bank Canada Canada 100 Common no par value and Preference no par value

HSBC Bank USA, N.A. US 100 $100 Common and $0.01 Preference

Latin America

HSBC Mexico, S.A., Institución de Banca Múltiple,

Grupo Financiero HSBC

Mexico 99.99 MXN2 Ordinary

1 Main subsidiaries are either held directly or indirectly via intermediate holding companies.

Details of the debt, subordinated debt and preference shares issued by the main subsidiaries to parties external to the Group are included in

Note 26 ‘Debt securities in issue’ and Note 29 ‘Subordinated liabilities’, respectively.

A list of all related undertakings is set out in Note 38. The principal countries of operation are the same as the countries and territories of

incorporation except for HSBC Life (International) Limited, which operates mainly in Hong Kong.

HSBC is structured as a network of regional banks and locally incorporated regulated banking entities. Each bank is separately capitalised in

accordance with applicable prudential requirements and maintains a capital buffer consistent with the Group’s risk appetite for the relevant

country or region. HSBC’s capital management process is incorporated in the annual operating plan, which is approved by the Board.

HSBC Holdings is the primary provider of equity capital to its subsidiaries and also provides them with non-equity capital where necessary. These

investments are substantially funded by HSBC Holdings’ issuance of equity and non-equity capital, and by profit retention.

As part of its capital management process, HSBC Holdings seeks to maintain a balance between the composition of its capital and its investment

in subsidiaries. Subject to this, there is no current or foreseen impediment to HSBC Holdings’ ability to provide funding for such investments.

During 2022, consistent with the Group’s capital plan, the Group’s subsidiaries did not experience any significant restrictions on paying dividends

or repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned dividends or payments. However, the

ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other things, their respective local regulatory

capital and banking requirements, exchange controls, statutory reserves, and financial and operating performance.

Notes on the financial statements

382 HSBC Holdings plc Annual Report and Accounts 2022

The amount of guarantees by HSBC Holdings in favour of other Group entities is set out in Note 33.

Information on structured entities consolidated by HSBC where HSBC owns less than 50% of the voting rights is included in Note 20 ‘Structured

entities’. In each of these cases, HSBC controls and consolidates an entity when it is exposed, or has rights, to variable returns from its

involvement with the entity and has the ability to affect those returns through its power over the entity.

Impairment testing of investments in subsidiaries

At each reporting period end, HSBC Holdings reviews investments in subsidiaries for indicators of impairment. An impairment is recognised

when the carrying amount exceeds the recoverable amount for that investment. The recoverable amount is the higher of the investment’s fair

value less costs of disposal and its VIU, in accordance with the requirements of IAS 36. The VIU is calculated by discounting management’s cash

flow projections for the investment. The cash flows represent the free cash flows based on the subsidiary’s binding capital requirements.

We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:

• Management’s judgement in estimating future cash flows: The cash flow projections for each investment are based on the latest approved

plans, which include forecast capital available for distribution based on the capital requirements of the subsidiary, taking into account

minimum and core capital requirements. For the impairment test at 31 December 2022, cash flow projections until the end of 2027 were

considered in line with our internal planning horizon. Our cash flow projections include known and observable climate-related opportunities

and costs associated with our sustainable products and operating model.

• Long-term growth rates: A long-term growth rate is used to extrapolate the free cash flows in perpetuity. The growth rate reflects inflation for

the country or territory within which the investment operates, and is based on the long-term average growth rates.

• Discount rates: The rate used to discount the cash flows is based on the cost of capital assigned to each investment, which is derived using a

CAPM. CAPM depends on a number of inputs reflecting financial and economic variables, including the risk-free rate and a premium to reflect

the inherent risk of the business being evaluated. These variables are based on the market’s assessment of the economic variables and

management’s judgement. The discount rates for each investment are refined to reflect the rates of inflation for the countries or territories

within which the investment operates. In addition, for the purposes of testing investments for impairment, management supplements this

process by comparing the discount rates derived using the internally generated CAPM, with cost of capital rates produced by external sources

for businesses operating in similar markets. The impacts from climate risk are included to the extent that they are observable in discount rates

and asset prices.

The net increase in investments in subsidiaries was partly due to the reversal of impairment of HSBC Overseas Holdings (UK) Limited of $2.5bn.

The recoverable amount of HSBC Overseas Holdings (UK) Limited is supported by the recoverable amounts of its subsidiaries, of which the

principal subsidiaries are HSBC North America Holdings Limited, HSBC Bank Canada and HSBC Bank Bermuda Limited. As HSBC Overseas

Holdings (UK) Limited has entered into a sales purchase agreement with Royal Bank of Canada to dispose of HSBC Bank Canada the sales

purchase agreement has been used to support the recoverable amount of $10.8bn (inclusive of the preferred shares) under a fair value less costs

of disposal basis. The fair value less costs of disposal of HSBC Bank Canada is at a $3.7bn premium to the book value recorded in HSBC

Overseas Holdings (UK) Limited. The cumulative impairment for HSBC Overseas Holdings (UK) Limited at 31 December 2022 was $4.7bn (2021:

$7.2bn). The carrying value was $32.8bn at 31 December 2022 (2021: $33.1bn). In 2022, in addition to the planned sale of our banking business

in Canada, there has been demonstrable performance of the underlying subsidiaries and an increase in interest rate forecasts. These factors

provide us with observable indications that HSBC Overseas Holdings (UK) Limited’s value has increased, which has led to the reversal of

impairment in HSBC Holdings. However, a distribution of the proceeds from the planned sale of HSBC Bank Canada to HSBC Holdings from

HSBC Overseas Holdings (UK) Limited could lead to a future impairment.

Impairment test results

Investments

Recoverable amount

Discount rate

Long-term growth

At 31 Dec 2022

HSBC North America Holdings Limited 18,363 10.00 2.22

HSBC Bank Bermuda Limited 2,471 10.40 1.87

At 31 Dec 2021

HSBC North America Holdings Limited 20,560 9.20 3.50

HSBC Bank Bermuda Limited 1,643 9.50 1.71

Sensitivities of key assumptions in calculating VIU

At 31 December 2022, the recoverable amount of HSBC Overseas Holdings (UK) Limited remained sensitive to reasonably possible changes in

key assumptions impacting its principal subsidiaries, notably HSBC North America Holdings Limited and HSBC Bank Bermuda Limited.

In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of each input to

the model. These include the external range of observable discount rates, historical performance against forecast, and risks attaching to the key

assumptions underlying cash flow.

HSBC Holdings plc Annual Report and Accounts 2022 383

Financial statements

The following table presents a summary of the key assumptions underlying the most sensitive inputs to the model for HSBC North America

Holdings Limited and HSBC Bank Bermuda Limited, the key risks attaching to each, and details of a reasonably possible change to assumptions

where, in the opinion of management, these could result in an impairment.

Reasonably possible changes in key assumptions

Input Key assumptions Associated risks Reasonably possible

change

Investment

HSBC North America

Holdings Limited and HSBC

Bank Bermuda Limited

(subsidiaries of HSBC

Overseas Holdings (UK)

Limited)

Free cash flows projections

• Level of interest rates and

yield curves.

• Competitors’ positions

within the market.

• Strategic actions relating

to revenue and costs are

not achieved.

• Free cash flow projections

decrease by 10%.

Discount rate • Discount rate used is a

reasonable estimate of a

suitable market rate for

the profile of the

business.

• External evidence arises

to suggest that the rate

used is not appropriate to

the business.

• Discount rate increases

by 1%.

Sensitivity of VIU to reasonably possible changes in key assumptions

In $bn (unless otherwise stated)

HSBC North

America Holdings

Limited

HSBC Bank

Bermuda Limited

At 31 December 2022

VIU

18.4

2.5

Impact on VIU

100bps increase in the discount rate – single variable

(1.7) (0.2)

10% decrease in forecast profitability – single variable

(1.8) (0.2)

1 The recoverable amount of HSBC Overseas Holding (UK) Limited represents the aggregate of recoverable amounts of the underlying subsidiaries.

Single variable sensitivity analysis on a single subsidiary may therefore not be representative of the aggregate impact of the change in the variable.

Subsidiaries with significant non-controlling interests

2022

2021

Hang Seng Bank Limited

Proportion of ownership interests and voting rights held by non-controlling interests 37.86% 37.86%

Place of business Hong Kong Hong Kong

Profit attributable to non-controlling interests 520 708

Accumulated non-controlling interests of the subsidiary 7,683 7,597

Dividends paid to non-controlling interests 361 568

Summarised financial information:

– total assets 240,679 230,866

– total liabilities 218,892 209,315

– net operating income before changes in expected credit losses and other credit impairment charges 4,325 4,280

– profit for the year 1,375 1,872

– total comprehensive income for the year 1,269 1,686

Structured entities

HSBC is mainly involved with both consolidated and unconsolidated structured entities through the securitisation of financial assets, conduits

and investment funds, established either by HSBC or a third party.

Consolidated structured entities

Total assets of HSBC’s consolidated structured entities, split by entity type

Conduits Securitisations HSBC managed funds Other Total

$bn

At 31 Dec 2022 4.2 7.2 4.8 7.5 23.7

At 31 Dec 2021 4.4 10.0 6.3 8.4 29.1

Conduits

HSBC has established and manages two types of conduits: securities investment conduits (‘SICs’) and multi-seller conduits.

Securities investment conduits

The SICs purchase highly rated ABSs to facilitate tailored investment opportunities.

• At 31 December 2022, Solitaire, HSBC’s principal SIC, held $1.3bn of ABSs (2021: $1.6bn). It is currently funded entirely by commercial paper

(‘CP’) issued to HSBC. At 31 December 2022, HSBC held $1.5bn of CP (2021: $1.8bn).

Notes on the financial statements

384 HSBC Holdings plc Annual Report and Accounts 2022

Multi-seller conduit

HSBC’s multi-seller conduit was established to provide access to flexible market-based sources of finance for its clients. Currently, HSBC bears

risk equal to the transaction-specific facility offered to the multi-seller conduit, amounting to $6.2bn at 31December 2022 (2021:$6.7bn). First

loss protection is provided by the originator of the assets, and not by HSBC, through transaction-specific credit enhancements. A layer of

secondary loss protection is provided by HSBC in the form of programme-wide enhancement facilities.

Securitisations

HSBC uses structured entities to securitise customer loans and advances it originates in order to diversify its sources of funding for asset

origination and capital efficiency purposes. The loans and advances are transferred by HSBC to the structured entities for cash or synthetically

through credit default swaps, and the structured entities issue debt securities to investors.

HSBC managed funds

HSBC has established a number of money market and non-money market funds. Where it is deemed to be acting as principal rather than agent

in its role as investment manager, HSBC controls these funds.

Other

HSBC has entered into a number of transactions in the normal course of business, which include asset and structured finance transactions

where it has control of the structured entity. In addition, HSBC is deemed to control anumber of third-party managed funds through its

involvement as a principal in the funds.

Unconsolidated structured entities

The term ‘unconsolidated structured entities’ refers to all structured entities not controlled by HSBC. The Group entersinto transactions with

unconsolidated structured entities in the normal course of business to facilitate customer transactions and for specific investment opportunities.

Nature and risks associated with HSBC interests in unconsolidated structured entities

Securitisations

HSBC

managed

funds

Non-HSBC

managed

funds Other Total

Total asset values of the entities ($m)

0–500 85 338 1,321 41 1,785

500–2,000 8 102 929 4 1,043

2,000–5,000 — 28 388 — 416

5,000–25,000 — 18 206 — 224

25,000+ — 5 24 — 29

Number of entities at 31 Dec 2022 93 491 2,868 45 3,497

$bn

Total assets in relation to HSBC’s interests in the unconsolidated

structured entities 2.5 10.7 19.7 2.6 35.5

– trading assets — 0.4 0.1 — 0.5

– financial assets designated and otherwise mandatorily measured at

fair value — 9.7 18.7 — 28.4

– loans and advances to customers 2.5 — 0.5 1.9 4.9

– financial investments — 0.6 0.4 — 1.0

– other assets — — — 0.7 0.7

Total liabilities in relation to HSBC’s interests in the unconsolidated

structured entities — — — 0.4 0.4

– other liabilities — — — 0.4 0.4

Other off-balance sheet commitments 0.2 1.5 4.6 1.8 8.1

HSBC’s maximum exposure at 31 Dec 2022 2.7 12.2 24.3 4.0 43.2

Total asset values of the entities ($m)

0–500 96 294 1,408 37 1,835

500–2,000 11 116 911 3 1,041

2,000–5,000 — 33 435 — 468

5,000–25,000 — 14 197 — 211

25,000+ — 4 11 — 15

Number of entities at 31 Dec 2021 107 461 2,962 40 3,570

$bn

Total assets in relation to HSBC’s interests in the unconsolidated

structured entities 4.8 10.8 18.6 3.8 38.0

– trading assets — 0.2 2.4 0.1 2.7

– financial assets designated and otherwise mandatorily measured at

fair value

— 10.0 15.5 — 25.5

– loans and advances to customers 4.8 — 0.1 3.0 7.9

– financial investments — 0.6 0.6 — 1.2

– other assets — — — 0.7 0.7

Total liabilities in relation to HSBC’s interests in the unconsolidated

structured entities — — — 0.4 0.4

– other liabilities — — — 0.4 0.4

Other off-balance sheet commitments 0.1 0.9 4.6 1.2 6.8

HSBC’s maximum exposure at 31 Dec 2021 4.9 11.7 23.2 4.6 44.4

HSBC Holdings plc Annual Report and Accounts 2022 385

Financial statements

The maximum exposure to loss from HSBC’s interests in unconsolidated structured entities represents the maximum loss it could incur as a

result of its involvement with these entities regardless of the probability of the loss being incurred.

• For commitments, guarantees and written credit default swaps, the maximum exposure to loss is the notional amount of potential future

losses.

• For retained and purchased investments and loans to unconsolidated structured entities, the maximum exposure to loss is the carrying value

of these interests at the balance sheet reporting date.

The maximum exposure to loss is stated gross of the effects of hedging and collateral arrangements that HSBC has entered into in order to

mitigate the Group’s exposure to loss.

Securitisations

HSBC has interests in unconsolidated securitisation vehicles through holding notes issued by these entities. In addition, HSBC has investments

in ABSs issued by third-party structured entities.

HSBC managed funds

HSBC establishes and manages money market funds and non-money market investment funds to provide customers with investment

opportunities. Further information on funds under management is provided on page 115.

HSBC, as fund manager, may be entitled to receive management and performance fees based on the assets under management. HSBC may

also retain units in these funds.

Non-HSBC managed funds

HSBC purchases and holds units of third-party managed funds in order to facilitate business and meet customer needs.

Other

HSBC has established structured entities in the normal course of business, such as structured credit transactions for customers, to provide

finance to public and private sector infrastructure projects, and for asset and structured finance transactions.

In addition to the interests disclosed above, HSBC enters into derivative contracts, reverse repos and stock borrowing transactions with

structured entities. These interests arise in the normal course of business for the facilitation of third-party transactions and risk management

solutions.

HSBC sponsored structured entities

The amount of assets transferred to and income received from such sponsored structured entities during 2022 and 2021 was not significant.

Goodwill and intangible assets

2022

2021

Goodwill 4,156 5,033

Present value of in-force long-term insurance business 9,900 9,453

Other intangible assets

7,265 6,136

At 31 Dec 21,321 20,622

1 Included within other intangible assets is internally generated software with a net carrying value of $6,166m (2021: $5,430m). During the year,

capitalisation of internally generated software was $2,663m (2021: $2,373m), impairment was $125m (2021: $137m) and amortisation was $1,447m

(2021: $1,183m).

Movement analysis of goodwill

2022

2021

Gross amount

At 1 Jan 22,215 23,135

Exchange differences (776) (905)

Reclassified to held for sale and additions

(2,485) —

Other 11 (15)

At 31 Dec 18,965 22,215

Accumulated impairment losses

At 1 Jan (17,182) (17,254)

Impairment losses

— (587)

Exchange differences 482 659

Reclassified to held for sale

1,891 —

At 31 Dec (14,809) (17,182)

Net carrying amount at 31 Dec 4,156 5,033

1 Includes goodwill allocated to disposal groups as a result of the planned sales of our retail banking operations in France, banking business in Canada

and branch operations in Greece, offset by goodwill arising from the acquisition of L&T Investment Management Limited. For further details, see

Note23.

2 Full impairment of goodwill allocated to Latin America – WPB.

Notes on the financial statements

386 HSBC Holdings plc Annual Report and Accounts 2022

Goodwill

Impairment testing

The Group’s impairment test in respect of goodwill allocated to each cash-generating unit (‘CGU’) is performed at 1 October each year. A review

for indicators of impairment is undertaken at each subsequent quarter-end and at 31 December 2022. No indicators of impairment were

identified as part of these reviews.

Basis of the recoverable amount

The recoverable amount of all CGUs to which goodwill has been allocated was equal to its value in use (‘VIU’) at each respective testing date.

The VIU is calculated by discounting management’s cash flow projections for the CGU. The key assumptions used in the VIU calculation for each

individually significant CGU that is not impaired are discussed below.

Key assumptions in VIU calculation – significant CGUs at 1 October 2022

Carrying

amount at

1Oct 2022

of which

goodwill

Value in

use at

1Oct 2022

Discount

rate

Growth

rate

beyond

initial

cash flow

Carrying

amount at

1Oct2021

of which

goodwill

Value in use

at 1Oct

2021

Discount

rate

Growth rate

beyond

initial cash

flow

projections

Europe – WPB 15,215 2,643 46,596 9.9 2.0 18,780 3,556 29,799 9.2 1.8

At 1 October 2022, aggregate goodwill of $1,464m (1 October 2021: $2,108m) had been allocated to CGUs that were not considered individually

significant. The Group’s CGUs do not carry on their balance sheets any significant intangible assets with indefinite useful lives, other than

goodwill.

Management’s judgement in estimating the cash flows of a CGU

The cash flow projections for each CGU are based on forecast profitability plans approved by the Board and minimum capital levels required to

support the business operations of a CGU. The Board challenges and endorses planning assumptions in light of internal capital allocation

decisions necessary to support our strategy, current market conditions and macroeconomic outlook. For the 1 October 2022 impairment test,

cash flow projections until the end of 2027 were considered, in line with our internal planning horizon. Key assumptions underlying cash flow

projections reflect management’s outlook on interest rates and inflation, as well as business strategy, including the scale of investment in

technology and automation. Our cash flow projections include known and observable climate-related opportunities and costs associated with our

sustainable products and operating model. As required by IFRSs, estimates of future cash flows exclude estimated cash inflows or outflows that

are expected to arise from restructuring initiatives before an entity has a constructive obligation to carry out the plan, and would therefore have

recognised a provision for restructuring costs.

Discount rate

The rate used to discount the cash flows is based on the cost of equity assigned to each CGU, which is derived using a capital asset pricing

model (‘CAPM’) and market implied cost of equity. CAPM depends on a number of inputs reflecting financial and economic variables, including

the risk-free rate and a premium to reflect the inherent risk of the business being evaluated. These variables are based on the market’s

assessment of the economic variables and management’s judgement. The discount rates for each CGU are refined to reflect the rates of

inflation for the countries within which the CGU operates. In addition, for the purposes of testing goodwill for impairment, management

supplements this process by comparing the discount rates derived using the internally generated CAPM, with the cost of equity rates produced

by external sources for businesses operating in similar markets. The impacts of climate-risk are included to the extent that they are observable in

discount rates and asset prices.

Long-term growth rate

The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective within the Group of business

units making up the CGUs. These growth rates reflect inflation for the countries within which the CGU operates or from which it derives

revenue.

Sensitivities of key assumptions in calculating VIU

At 1 October 2022, given the extent by which VIU exceeds carrying amount, the Europe – WPB CGU was not sensitive to reasonably possible

adverse changes in key assumptions supporting the recoverable amount. In making an estimate of reasonably possible changes to assumptions,

management considers the available evidence in respect of each input to the VIU calculation, such as the external range of discount rates

observable, historical performance against forecast and risks attaching to the key assumptions underlying cash flow projections. None of the

remaining CGUs are individually significant.

Other intangible assets

Impairment testing

Impairment of other intangible assets is assessed in accordance with our policy explained in Note 1.2(n) by comparing the net carrying amount of

CGUs containing intangible assets with their recoverable amounts. Recoverable amounts are determined by calculating an estimated VIU or fair

value, as appropriate, for each CGU. No significant impairment was recognised during the year.

Key assumptions in VIU calculation

We used a number of assumptions in our VIU calculation, in accordance with the requirements of IAS 36:

• Management’s judgement in estimating future cash flows: We considered past business performance, current market conditions and our

macroeconomic outlook to estimate future earnings. As required by IFRSs, estimates of future cash flows exclude estimated cash inflows or

outflows that are expected to arise from restructuring initiatives before an entity has a constructive obligation to carry out the plan, and would

therefore have recognised a provision for restructuring costs. For some businesses, this means that the benefit of certain strategic actions

may not be included in the impairment assessment, including capital releases. Our cash flow projections include known and observable

climate-related opportunities and costs associated with our sustainable products and operating model.

HSBC Holdings plc Annual Report and Accounts 2022 387

Financial statements

• Long-term growth rates: The long-term growth rate is used to extrapolate the cash flows in perpetuity because of the long-term perspective

of the businesses within the Group.

• Discount rates: Rates are based on a combination of CAPM and market-implied calculations considering market data for the businesses and

geographies in which the Group operates. The impacts of climate-risk are included to the extent that they are observable in discount rates and

asset prices.

Future software capitalisation

We will continue to invest in digital capabilities to meet our strategic objectives. However, software capitalisation within businesses where

impairment was identified will not resume until the performance outlook for each business indicates future profits are sufficient to support

capitalisation. The cost of additional software investment in these businesses will be recognised as an operating expense until such time.

Sensitivity of estimates relating to non-financial assets

As explained in Note 1.2(a), estimates of future cash flows for CGUs are made in the review of goodwill and non-financial assets for impairment.

Non-financial assets include other intangible assets shown above, and owned property, plant and equipment and right-of-use assets (see

Note22). The most significant sources of estimation uncertainty are in respect of the goodwill balances disclosed above. There are no non-

financial asset balances relating to individual CGUs which involve estimation uncertainty that represents a significant risk of resulting in a material

adjustment to the results and financial position of the Group within the next financial year.

Non-financial assets are widely distributed across CGUs within the legal entities of the Group, including Corporate Centre assets that cannot be

allocated to CGUs and are therefore tested for impairment at consolidated level. The recoverable amounts of other intangible assets, owned

property, plant and equipment, and right-of-use assets cannot be lower than individual asset fair values less costs to dispose, where relevant. At

31 December 2022, none of the CGUs were sensitive to reasonably possible adverse changes in key assumptions supporting the recoverable

amount. In making an estimate of reasonably possible changes to assumptions, management considers the available evidence in respect of each

input to the VIU calculation, such as the external range of discount rates observable, historical performance against forecast and risks attaching

to the key assumptions underlying cash flow projections.

Present value of in-force long-term insurance business

When calculating the present value of in-force long-term (‘PVIF’) insurance business, expected cash flows are projected after adjusting for a

variety of assumptions made by each insurance operation to reflect local market conditions, and management’s judgement of future trends and

uncertainty in the underlying assumptions is reflected by applying margins (as opposed to a cost of capital methodology) including valuing the

cost of policyholder options and guarantees using stochastic techniques.

Financial Reporting Committees of each key insurance entity meet on a quarterly basis to review and approve PVIF assumptions. All changes to

non-economic assumptions, economic assumptions that are not observable and model methodologies must be approved by the Financial

Reporting Committee.

Movements in PVIF

2022

2021

At 1 Jan 9,453 9,435

Acquisitions 271 —

Change in PVIF of long-term insurance business 263 130

– value of new business written during the year 1,322 1,090

– expected return

(785) (903)

– assumption changes and experience variances (see below) (252) (105)

– other adjustments (22) 48

Exchange differences and other movements (87) (112)

At 31 Dec 9,900 9,453

1 ‘Expected return’ represents the unwinding of the discount rate and reversal of expected cash flows for the period.

Assumption changes and experience variances

Included within this line item are:

• $875m decrease (2021: $59m increase) in PVIF due to rising interest rates, which is directly offset within the valuation of liabilities under

insurance contracts;

• $72m decrease (2021: $324m decrease) reflecting the future expected sharing of returns with policyholders on contracts with discretionary

participation features (‘DPF’), to the extent this sharing is not already included in liabilities under insurance contracts; and

• $695m increase (2021: $160m increase) driven by other assumptions changes and experience variances.

Key assumptions used in the computation of PVIF for main life insurance operations

Economic assumptions are set in a way that is consistent with observable market values. The valuation of PVIF is sensitive to observed market

movements and the impact of such changes is included in the sensitivities presented below.

2022

2021

Hong Kong France

Weighted average risk-free rate 3.85 2.80 1.40 0.69

Weighted average risk discount rate 7.33 4.44 5.20 1.55

Expense inflation 3.00 4.26 3.00 1.80

1 For 2022, the calculation of France’s PVIF assumes a risk discount rate of 4.44% (2021: 1.55%) plus a risk margin of $100m (2021: $215m).

Notes on the financial statements

388 HSBC Holdings plc Annual Report and Accounts 2022

Sensitivity to changes in economic assumptions

The Group sets the risk discount rate applied to the PVIF calculation by starting from a risk-free rate curve and adding explicit allowances for risks

not reflected in the best-estimate cash flow modelling. Where the insurance operations provide options and guarantees to policyholders, the cost

of these options and guarantees is accounted for as a deduction from the PVIF asset, unless the cost of such guarantees is already allowed for

as an explicit addition to liabilities under insurance contracts. For further details of these guarantees and the impact of changes in economic

assumptions on our insurance manufacturing subsidiaries, see page 237.

Sensitivity to changes in non-economic assumptions

Policyholder liabilities and PVIF are determined by reference to non-economic assumptions, including mortality and/or morbidity, lapse rates and

expense rates. For further details on the impact of changes in non-economic assumptions on our insurance manufacturing operations, see

page238.

Prepayments, accrued income and other assets

2022

2021

Prepayments and accrued income 10,316 8,233

Settlement accounts 19,565 17,713

Cash collateral and margin receivables 63,421 42,171

Bullion 15,752 15,283

Endorsements and acceptances 8,407 11,229

Reinsurers’ share of liabilities under insurance contracts (Note 4) 4,257 3,668

Employee benefit assets (Note 5) 7,282 10,269

Right-of-use assets 2,219 2,985

Owned property, plant and equipment 10,365 10,255

Other accounts 15,282 14,765

At 31 Dec 156,866 136,571

Prepayments, accrued income and other assets include $113,383m (2021: $91,045m) of financial assets, the majority of which are measured at

amortised cost.

Assets held for sale and liabilities of disposal groups held for sale

2022

2021

Held for sale at 31 December

Disposal groups 118,055 2,921

Unallocated impairment losses

(2,385) —

Non-current assets held for sale 249 490

Assets held for sale 115,919 3,411

Liabilities of disposal groups held for sale 114,597 9,005

1 This represents impairment losses in excess of the carrying value of the non-current assets, excluded from the measurement scope of IFRS 5.

Disposal groups

Planned sale of our retail banking operations in France

On 25 November 2021, HSBC Continental Europe signed a framework agreement with Promontoria MMB SAS (‘My Money Group’) and its

subsidiary Banque des Caraïbes SA, regarding the planned sale of HSBC Continental Europe’s retail banking operations in France. The sale,

which is subject to regulatory approvals and the satisfaction of other relevant conditions, includes: HSBC Continental Europe’s French retail

banking operations; the Crédit Commercial de France (‘CCF’) brand; and HSBC Continental Europe’s 100% ownership interest in HSBC SFH

(France) and its 3% ownership interest in Crédit Logement.

The framework agreement has a long-stop date of 31 May 2024, if the sale has not closed by that point, the agreement will terminate, although

that date can be extended by either party to 30 November 2024 in certain circumstances or with the agreement of both parties. We have agreed

a detailed plan with My Money Group with the aim of completing the sale in the second half of 2023, subject to regulatory approvals, agreement

and implementation of necessary financing structures, and the completion of the operational transfer, including customer and data migrations. In

this regard the framework agreement imposes certain obligations on the parties in planning for completion.

Given the scale and complexity of the business being sold, there is risk of delay in the implementation of this plan. The disposal group was

classified as held for sale for the purposes of IFRS 5 as at 30 September 2022, reflecting the prevailing judgements concerning likelihood of the

framework agreement’s timetable being achieved. The assets and liabilities classified as held for sale were determined in accordance with the

framework agreement, and are subject to change as the detailed transition plan is executed. This classification and consequential

remeasurement resulted in an impairment loss of $2.4bn, which included impairment of goodwill of $0.4bn and related transaction costs. At 31

December 2022, we reassessed the likelihood of completion, taking account of the most recent correspondence with My Money Group

concerning the implementation of the plan and related developments. As a result of this reassessment, the likelihood of completion in 2023 is

judged to be highly probable. As such, and in accordance with IFRS 5, the disposal group continues to be classified as held for sale.

The disposal group will be remeasured at the lower of the carrying amount and fair value less costs to sell at each reporting period. Any

remaining gains or losses not previously recognised, including from the recycling of foreign currency translation reserves and the reversal of any

remaining deferred tax assets and liabilities, will be recognised on completion.

HSBC Holdings plc Annual Report and Accounts 2022 389

Financial statements

Planned sale of our banking business in Canada

On 29 November 2022, HSBC Holdings plc announced its wholly-owned subsidiary, HSBC Overseas Holdings (UK) Limited, entered into an

agreement for the planned sale of its banking business in Canada to Royal Bank of Canada. Completion of the transaction is expected in late

2023, subject to regulatory and governmental approval.

The majority of the estimated gain on sale of $5.7bn (inclusive of the recycling of an estimated $0.6bn of accumulated foreign currency

translation reserve losses) will be recognised on completion, reduced by earnings recognised by the Group in the period to completion. The

estimated pre-tax profit on the sale will be recognised through a combination of the consolidation of HSBC Canada’s results into the Group’s

financial statements (between the 30 June 2022 net asset reference date and until completion), and the remaining gain on sale recognised at

completion. There would be no tax on the gain recognised at completion. At 31 December 2022, total assets of $90bn and total liabilities of

$85bn met the criteria to be classified as held for sale in accordance with IFRS 5.

Planned sale of our branch operations in Greece

On 24 May 2022, HSBC Continental Europe signed a sale and purchase agreement for the planned sale of its branch operations in Greece to

Pancreta Bank SA. Completion of the transaction is subject to regulatory approval, and is currently expected to occur in the first half of 2023. At

31December2022, the disposal group included $0.4bn of loans and advances to customers and $2.3bn of customer accounts, which met the

criteria to be classified as held for sale. In the second quarter of 2022, we recognised a loss of $0.1bn, including goodwill impairment, upon

reclassification as held for sale in accordance with IFRS 5. On completion accumulated foreign currency translation reserves will be recycled to

the income statement.

Planned sale of our business in Russia

On 30 June 2022, following a strategic review of our business in Russia, HSBC Europe BV (a wholly-owned subsidiary of HSBC Bank plc)

entered into an agreement for the planned sale of its wholly-owned subsidiary HSBC Bank (RR) (Limited Liability Company). Completion of the

transaction is subject to regulatory and governmental approval, and is currently expected to occur in the first half of 2023. In 2022, a $0.3bn loss

on the planned sale was recognised, upon reclassification as held for sale in accordance with IFRS 5. On completion accumulated foreign

currency translation reserves will be recycled to the income statement.

At 31 December 2022, the major classes of assets and associated liabilities of disposal groups held for sale, including allocated impairment

losses, were as follows:

Canada

Retail banking

operations in France

Other Total

$m $m $m $m

Assets of disposal groups held for sale

Cash and balances at central banks 4,664 71 1,811 6,546

Trading assets 3,168 — 8 3,176

Financial assets designated and otherwise mandatorily measured at fair value

through profit or loss 13 47 1 61

Derivatives 866 — — 866

Loans and advances to banks 99 — 154 253

Loans and advances to customers 55,197 25,029 350 80,576

Reverse repurchase agreements – non-trading 4,396 — 250 4,646

Financial investments

17,243 — 106 17,349

Goodwill 225 — — 225

Prepayments, accrued income and other assets 4,256 75 26 4,357

Total assets at 31 December 2022 90,127 25,222 2,706 118,055

Liabilities of disposal groups held for sale

Trading liabilities 2,751 — 3 2,754

Deposits by banks 62 — 2 64

Customer accounts 60,606 22,348 2,320 85,274

Repurchase agreements – non-trading 3,266 — — 3,266

Financial liabilities designated at fair value — 3,523 — 3,523

Derivatives 806 7 — 813

Debt securities in issue 11,602 1,326 — 12,928

Subordinated liabilities 8 — — 8

Accruals, deferred income and other liabilities 5,727 159 81 5,967

Total liabilities at 31 December 2022 84,828 27,363 2,406 114,597

Expected date of completion Second half of 2023 Second half of 2023

Operating segment All global businesses WPB

1 Includes financial investments measured at fair value through other comprehensive income of $11,184m and debt instruments measured at amortised

cost of $6,165m

Retail banking

operations in France

Net assets/(liabilities) classified as held for sale

(2,063)

Expected cash contribution

4,094

Disposal group post-cash contribution

2,031

1 Excludes impairment loss allocated against the non-current assets that are in scope of IFRS 5 measurement of $78m.

2 The contributions are reported within ‘Cash and balances at central banks’ on the Group’s consolidated balance sheet.

3 ‘Disposal group post-cash contribution’ includes the net asset value of the transferring business of €1.6bn ($1.8bn) and $0.2bn of additional items to

which a nil value is ascribed per the framework agreement.

Notes on the financial statements

390 HSBC Holdings plc Annual Report and Accounts 2022

Under the financial terms of the planned transaction, HSBC Continental Europe will transfer the business with a net asset value of €1.6bn

($1.8bn), subject to adjustment (upwards or downwards) in certain circumstances, for a consideration of €1. Any required increase to the net

asset value of the business to achieve the net asset value of €1.6bn ($1.8bn) will be satisfied by the inclusion of additional cash. The value of

cash contribution will be determined by the net asset or liability position of the disposal group at the point of completion. Based upon the net

liabilities of the disposal group at 31 December 2022, HSBC would be expected to include a cash contribution of $4.1bn as part of the planned

transaction.

Completed business disposals

Mass market retail banking business in the US

On 26 May 2021, we announced our intention to exit our mass market retail banking business in the US, including our Personal and Advance

propositions, as well as retail business banking, and rebranding approximately 20 to 25 of our retail branches into international wealth centres to

serve our Premier and Jade customers. In conjunction with the execution of this strategy, HSBC Bank USA, N.A. entered into definitive sale

agreements with Citizens Bank and Cathay Bank to sell 90 of our retail branches along with substantially all residential mortgage, unsecured and

retail business banking loans and all deposits in our branch network not associated with our Premier, Jade and Private Banking customers. As a

result of entering into these sale agreements, assets and liabilities related to the agreements were transferred to held for sale during the second

quarter of 2021.

In February 2022, we completed the sale of the branch disposal group and recognised a net gain on sale of $0.2bn (including subsequent closing

adjustments). Included in the sale were $2.1bn of loans and advances to customers and $6.9bn of customer accounts. Certain assets under

management associated with our mass market retail banking operations were also transferred. The remaining branches not sold or rebranded

have been closed.

Business acquisitions

The following acquisitions form part of our strategy to become a market leader in Asian wealth management:

• On 28 January 2022, HSBC Insurance (Asia-Pacific) Holdings Limited, a subsidiary of the Group, notified the shareholders of CanaraHSBC

Life Insurance Company Limited (‘Canara HSBC’) of its intention to increase its shareholding in Canara HSBC up to 49%. HSBC currently has

a 26% shareholding, which is accounted for as an associate. Any increase in shareholding is subject to agreement with other shareholders in

Canara HSBC, as well as internal and regulatory approvals. Established in 2008, Canara HSBC is a life insurance company based in India.

• On 11 February 2022, HSBC Insurance (Asia-Pacific) Holdings Limited completed the acquisition of 100% of AXA Insurance Pte Limited (‘AXA

Singapore’) for $0.5bn. A gain on acquisition of $0.1bn was recorded, reflecting the excess of the fair value of net assets acquired (gross

assets of $4.5bn and gross liabilities of $3.9bn) over the acquisition price. The legal integration of AXA Singapore with HSBC’s pre-existing

insurance operations in the country concluded on 1 February 2023.

• On 6 April 2022, The Hongkong and Shanghai Banking Corporation Limited, a subsidiary of the Group, announced it had increased its

shareholding in HSBC Qianhai Securities Limited, a partially-owned subsidiary, for $0.2bn from 51% to 90%.

• On 23 June 2022, HSBC Insurance (Asia) Limited, a subsidiary of the Group, acquired the remaining 50% equity interest in HSBC Life

Insurance Company Limited for $0.2bn. Headquartered in Shanghai, HSBC Life Insurance Company Limited offers a comprehensive range of

insurance solutions covering annuity, whole life, critical illness and unit-linked insurance products.

• On 25 November 2022, HSBC Asset Management (India) Private Ltd, a subsidiary of the Group, completed the acquisition of L&T Investment

Management Limited from L&T Finance Holdings Limited for $0.4bn, recognised primarily as intangibles and goodwill. L&T Investment

Management Limited is the investment manager of the L&T Mutual Fund, with assets under management of $9.4bn on completion.

Trading liabilities

2022

2021

Deposits by banks

9,332 4,243

Customer accounts

10,724 9,424

Other debt securities in issue (Note 26) 978 1,792

Other liabilities – net short positions in securities 51,319 69,445

At 31 Dec 72,353 84,904

1 ‘Deposits by banks’ and ‘Customer accounts’ include fair value repos, stock lending and other amounts.

Financial liabilities designated at fair value

HSBC

2022

2021

Deposits by banks and customer accounts

19,171 16,703

Liabilities to customers under investment contracts 5,380 5,938

Debt securities in issue (Note 26) 93,140 112,761

Subordinated liabilities (Note 29) 9,636 10,100

At 31 Dec 127,327 145,502

1 Structured deposits placed at HSBC Bank USA are insured by the Federal Deposit Insurance Corporation, a US government agency, up to $250,000 per

depositor.

The carrying amount of financial liabilities designated at fair value was $8,124m less than the contractual amount at maturity (2021: $827m

more). The cumulative amount of change in fair value attributable to changes in credit risk was a profit of $234m (2021: loss of $2,084m).

HSBC Holdings plc Annual Report and Accounts 2022 391

Financial statements

HSBC Holdings

2022

2021

Debt securities in issue (Note 26) 25,423 26,818

Subordinated liabilities (Note 29) 6,700 5,600

At 31 Dec 32,123 32,418

The carrying amount of financial liabilities designated at fair value was $2,405m less than the contractual amount at maturity

(2021:$1,766mmore). The cumulative amount of change in fair value attributable to changes in credit risk was a loss of $516m (2021:$951m).

Debt securities in issue

HSBC

2022

2021

Bonds and medium-term notes 145,240 166,537

Other debt securities in issue 27,027 26,573

Total debt securities in issue 172,267 193,110

Included within:

– trading liabilities (Note 24) (978) (1,792)

– financial liabilities designated at fair value (Note 25) (93,140) (112,761)

At 31 Dec 78,149 78,557

HSBC Holdings

2022

2021

Debt securities 92,361 94,301

Included within:

– financial liabilities designated at fair value (Note 25) (25,423) (26,818)

At 31 Dec 66,938 67,483

Accruals, deferred income and other liabilities

2022

2021

Accruals and deferred income 12,353 10,466

Settlement accounts 18,176 15,226

Cash collateral and margin payables 70,292 50,226

Endorsements and acceptances 8,379 11,232

Employee benefit liabilities (Note 5) 1,096 1,607

Lease liabilities 2,767 3,586

Other liabilities 20,177 22,430

At 31 Dec 133,240 114,773

Accruals, deferred income and other liabilities include $125,890m (2021: $111,887m) of financial liabilities, the majority of which are measured at

amortised cost.

Provisions

Restructuring

costs

Legal

proceedings

and regulatory

matters

Customer

remediation

Other

provisions Total

Provisions (excluding contractual commitments)

At 1 Jan 2022 383 619 386 558 1,946

Additions 434 271 60 206 971

Amounts utilised (288) (393) (106) (168) (955)

Unused amounts reversed (87) (82) (109) (125) (403)

Exchange and other movements 3 (6) (36) (74) (113)

At 31 Dec 2022 445 409 195 397 1,446

Contractual commitments

At 1 Jan 2022 620

Net change in expected credit loss provision and other movements (108)

At 31 Dec 2022 512

Total provisions

At 31 Dec 2021 2,566

At 31 Dec 2022 1,958

Notes on the financial statements

392 HSBC Holdings plc Annual Report and Accounts 2022

Restructuring

costs

Legal

proceedings

and regulatory

matters

Customer

remediation

Other

provisions Total

Provisions (excluding contractual commitments)

At 1 Jan 2021 671 756 858 305 2,590

Additions 347 249 192 471 1,259

Amounts utilised (499) (316) (548) (58) (1,421)

Unused amounts reversed (170) (59) (113) (124) (466)

Exchange and other movements 34 (11) (3) (36) (16)

At 31 Dec 2021 383 619 386 558 1,946

Contractual commitments

At 1 Jan 2021 1,088

Net change in expected credit loss provision and other movements (468)

At 31 Dec 2021 620

Total provisions

At 31 Dec 2020 3,678

At 31 Dec 2021 2,566

1 Contractual commitments include the provision for contingent liabilities measured under IFRS 9 ‘Financial Instruments’ in respect of financial

guarantees and the expected credit loss provision on off-balance sheet guarantees and commitments.

Further details of ‘Legal proceedings and regulatory matters’ are set out in Note 35. Legal proceedings include civil court, arbitration or tribunal

proceedings brought against HSBC companies (whether by way of claim or counterclaim) or civil disputes that may, if not settled, result in court,

arbitration or tribunal proceedings. Regulatory matters refer to investigations, reviews and other actions carried out by, or in response to the

actions of, regulators or law enforcement agencies in connection with alleged wrongdoing by HSBC.

Customer remediation refers to HSBC’s activities to compensate customers for losses or damages associated with a failure to comply with

regulations or to treat customers fairly. Customer remediation is often initiated by HSBC in response to customer complaints and/or industry

developments in sales practices and is not necessarily initiated by regulatory action.

For further details of the impact of IFRS 9 on undrawn loan commitments and financial guarantees, presented in ‘Contractual commitments’, see

Note 33. This provision results from the adoption of IFRS 9 and has no comparatives. Further analysis of the movement in the expected credit

loss provision is disclosed within the ’Reconciliation of allowances for loans and advances to banks and customers including loan commitments

and financial guarantees’ table on page 163.

Subordinated liabilities

HSBC’s subordinated liabilities

2022

2021

At amortised cost 22,290 20,487

– subordinated liabilities 20,547 18,640

– preferred securities 1,743 1,847

Designated at fair value (Note 25) 9,636 10,100

– subordinated liabilities 9,636 10,100

– preferred securities — —

At 31 Dec 31,926 30,587

Issued by HSBC subsidiaries 6,094 9,112

Issued by HSBC Holdings 25,832 21,475

Subordinated liabilities rank behind senior obligations and generally count towards the capital base of HSBC. Capital securities may be called and

redeemed by HSBC subject to prior notification to the PRA and, where relevant, the consent of the local banking regulator. If not redeemed at

the first call date, coupons payable may reset or become floating rate based on relevant market rates. Onsubordinated liabilities other than

floating rate notes, interest is payable at fixed rates of up to 10.176%.

The balance sheet amounts disclosed in the following table are presented on an IFRS basis and do not reflect the amount that the instruments

contribute to regulatory capital, principally due to regulatory amortisation and regulatory eligibility limits.

HSBC Holdings plc Annual Report and Accounts 2022 393

Financial statements

HSBC’s subsidiaries subordinated liabilities in issue

2022

2021

First call date

Maturity date

Additional tier 1 capital securities guaranteed by HSBC Holdings

1,2

$900m 10.176% non-cumulative step-up perpetual preferred securities, series 2

Jun 2030 900 900

900 900

Additional tier 1 capital securities guaranteed by HSBC Bank plc

1,2

£700m 5.844% non-cumulative step-up perpetual preferred securities

4,5

Nov 2031 684 947

684 947

Tier 2 securities issued by HSBC Bank plc

$750m Undated floating rate primary capital notes Jun 1990 750 750

$500m Undated floating rate primary capital notes Sep 1990 500 500

$300m Undated floating rate primary capital notes, series 3 Jun 1992 300 300

$300m 7.65% subordinated notes

— May 2025 170 300

1,720 1,850

£300m 6.50% subordinated notes

— Jul 2023 162 406

£350m 5.375% callable subordinated step-up notes

2,7,8

Nov 2025 Nov 2030 73 539

£500m 5.375% subordinated notes

— Aug 2033 186 900

£225m 6.25% subordinated notes

— Jan 2041 56 303

£600m 4.75% subordinated notes

— Mar 2046 230 805

707 2,953

2,427 4,803

Tier 2 securities issued by The Hongkong and Shanghai Banking Corporation Limited

$400m Primary capital undated floating rate notes (third series) Jul 1991 400 400

400 400

Tier 2 securities issued by HSBC Bank Malaysia Berhad

MYR500m 5.05% subordinated bonds

2,9

Nov 2022 Nov 2027 — 120

— 120

Tier 2 securities issued by HSBC USA Inc.

$250m 7.20% subordinated debentures

— Jul 2097 223 222

223 222

Tier 2 securities issued by HSBC Bank USA, N.A.

$1,000m 5.875% subordinated notes

— Nov 2034 339 456

$750m 5.625% subordinated notes

— Aug 2035 366 489

$700m 7.00% subordinated notes — Jan 2039 700 697

1,405 1,642

Tier 2 securities issued by HSBC Bank Canada

Other subordinated liabilities each less than $150m

2,11

Oct 1996 Nov 2083 — 9

— 9

Securities issued by other HSBC subsidiaries

Other subordinated liabilities each less than $200m

55 69

Subordinated liabilities issued by HSBC subsidiaries at 31 Dec 6,094 9,112

1 See paragraph below, ‘Guaranteed by HSBC Holdings or HSBC Bank plc’.

2 These securities are ineligible for inclusion in the capital base of HSBC.

3 The interest rate payable after June 2030 is the sum of the three-month Libor plus 4.98%.

4 The interest rate payable after November 2031 is the sum of the compounded daily Sonia rate plus 2.0366%.

5 The value of the security partially decreased as a result of a fair value hedge gain. The instrument was held at amortised cost in 2021.

6 HSBC Bank plc tendered for this security in November 2022. The principal balance is $180m. The original notional value of the security was $300m.

7 HSBC Bank plc tendered for these securities in November 2022. The principal balances are £135m, £61m, £157m, £70m and £237m, respectively. The

original notional values of these securities were £300m, £350m, £500m, £225m and £600m respectively.

8 These securities qualified as tier 2 capital for HSBC under CRR II until 31 December 2021 by virtue of the application of grandfathering provisions. The

interest rate payable after November 2025 is the sum of the compounded daily Sonia rate plus 1.6193%.

9 These securities were fully repaid in November 2022.

10 HSBC tendered for these securities in November 2019. The principal balances are $357m and $383m respectively. The original notional values of these

securities were $1,000m and $750m, respectively.

11 Liability accounts for HSBC Bank Canada have been reclassified to ‘Liabilities of disposal groups held for sale’.

12 These securities are included in the capital base of HSBC, in accordance with the grandfathering provisions under CRR II. In 2022, securities of $11m

matured and were redeemed.

HSBC Holdings’ subordinated liabilities

2022

2021

At amortised cost 19,727 17,059

Designated at fair value (Note 25) 6,700 5,600

At 31 Dec 26,427 22,659

Notes on the financial statements

394 HSBC Holdings plc Annual Report and Accounts 2022

HSBC Holdings’ subordinated liabilities in issue

First call

Maturity

2022

2021

date

Tier 2 securities issued by HSBC Holdings

Amounts owed to third parties

$2,000m 4.25% subordinated notes

2,3

— Mar 2024 1,941 2,072

$1,500m 4.25% subordinated notes

— Aug 2025 1,450 1,615

$1,500m 4.375% subordinated notes

— Nov 2026 1,450 1,641

$264m 7.625% subordinated notes

1,4

— May 2032 308 536

$223m 7.625% subordinated notes

2,6

— May 2032 223 —

$125m 7.35% subordinated notes

1,4

— Nov 2032 143 241

$97m 7.35% subordinated notes

2,6

— Nov 2032 97 —

$1,431m 6.50% subordinated notes

1,5

— May 2036 1,461 2,032

$569m 6.50%subordinated notes

2,6

— May 2036 568 —

$1,515m 6.50% subordinated notes

1,5

— Sep 2037 1,178 2,825

$985m 6.50% subordinated notes

2,6

— Sep 2037 977 —

$961m 6.80% subordinated notes

1,5

— Jun 2038 953 1,491

$539m 6.80% subordinated notes

2,6

— Jun 2038 540 —

$1,500m 5.25% subordinated notes

— Mar 2044 1,447 1,946

$2,000m 4.762% subordinated notes

Mar 2032 Mar 2033 1,766 —

$2,000m 8.113% subordinated notes

Nov 2032 Nov 2033 2,008 —

£650m 5.75% subordinated notes

— Dec 2027 775 1,040

£650m 6.75% subordinated notes

— Sep 2028 816 877

£750m 7.00% subordinated notes

— Apr 2038 817 1,082

£900m 6.00% subordinated notes

— Mar 2040 776 1,320

£1,000m 8.201% subordinated notes

Aug 2029 Nov 2034 1,252 —

€1,500m 3.0% subordinated notes

— Jun 2025 1,492 1,737

€1,000m 3.125% subordinated notes

—

Jun 2028 991 1,304

€1,250m 6.364% subordinated notes

Nov 2027 Nov 2032 1,316 —

SGD900m 5.25%subordinated notes

Jun 2027 Jun 2032 694 —

JPY11,900m 2.50% subordinated notes

Sep 2027 Sep 2032 88 —

25,527 21,759

Amounts owed to HSBC undertakings

$900m 10.176% subordinated step-up cumulative notes Jun 2030 Jun 2040 900 900

900 900

At 31 Dec 26,427 22,659

1 Amounts owed to third parties represent securities included in the capital base of HSBC as tier 2 securities in accordance with the grandfathering

provisions under CRR II.

2 These securities are included in the capital base of HSBC as fully CRR II-compliant tier 2 securities on an end point basis.

3 These subordinated notes are measured at amortised cost in HSBC Holdings, where the interest rate risk is hedged using a fair value hedge, while

they are measured at fair value in the Group.

4 These securities were subjected to a tender and an exchange offer exercise in September 2022. The original principal amounts were $488m and

$222m, respectively, and are now $264m and $125m.

5 These securities were subjected to an exchange offer exercise in September 2022. The original principal amounts were $2,000m, $2,500m and

$1,500m, respectively, and are now $1,431m, $1,515m and $961m.

6 These subordinated notes were issued under an exchange offer exercise in September 2022.

HSBC Holdings plc Annual Report and Accounts 2022 395

Financial statements

Guaranteed by HSBC Holdings or HSBC Bank plc

Capital securities guaranteed by HSBC Holdings or HSBC Bank plc were issued by the Jersey limited partnerships. The proceeds of these were

lent to the respective guarantors by the limited partnerships in the form of subordinated notes. They qualified as additional tier 1 capital for HSBC

under CRR II until 31 December 2021 by virtue of the application of grandfathering provisions. The capital security guaranteed by HSBC Bank plc

also qualified as additional tier1 capital for HSBC Bank plc (on a solo and a consolidated basis) under CRRII until 31 December 2021 by virtue of

the same grandfathering process. Since 31 December 2021, these securities have no longer qualified as regulatory capital for HSBC or HSBC

Bank plc.

These preferred securities, together with the guarantee, are intended to provide investors with rights to income and capital distributions and

distributions upon liquidation of the relevant issuer that are equivalent to the rights that they would have had if they had purchased non-

cumulative perpetual preference shares ofthe relevant issuer. There are limitations on the payment of distributions if such payments are

prohibited under UK banking regulations or other requirements, if a payment would cause a breach of HSBC’s capital adequacy requirements, or

if HSBC Holdings or HSBC Bank plc has insufficient distributable reserves (as defined).

HSBC Holdings and HSBC Bank plc have individually covenanted that, if prevented under certain circumstances from paying distributions on the

preferred securities in full, they will not pay dividends or other distributions in respect oftheir ordinary shares, or repurchase or redeem their

ordinary shares, until the distribution on the preferred securities has been paid in full.

If the consolidated total capital ratio of HSBC Holdings falls below the regulatory minimum required or if the Directors expect it to do so in the

near term, provided that proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Holdings, the holders’

interests in the preferred securities guaranteed by HSBC Holdings will be exchanged for interests in preference shares issued by HSBC Holdings

that have economic terms which are in all material respects equivalent to the preferred securities and their guarantee.

If the preferred securities guaranteed by HSBC Bank plc are outstanding in November 2048, or if the total capital ratio of HSBC Bank plc (on a

solo or consolidated basis) falls below the regulatory minimum required, or if the Directors expect it to do so in the near term, provided that

proceedings have not been commenced for the liquidation, dissolution or winding up of HSBC Bank plc, the holders’ interests in the preferred

security guaranteed by HSBC Bank plc will be exchanged for interests in preference shares issued by HSBC Bank plc that have economic terms

which are in all material respects equivalent to the preferred security and its guarantee.

Tier 2 securities

Tier 2 capital securities are either perpetual or dated subordinated securities on which there is an obligation to pay coupons. These capital

securities are included within HSBC’s regulatory capital base as tier 2 capital under CRR II, either as fully eligible capital or by virtue of the

application of grandfathering provisions. In accordance with CRR II, the capital contribution of all tier 2 securities is amortised for regulatory

purposes in their final five years before maturity.

Maturity analysis of assets, liabilities and off-balance sheet commitments

The table on page 397 provides an analysis of consolidated total assets, liabilities and off-balance sheet commitments by residual contractual

maturity at the balance sheet date. These balances are included in the maturity analysis as follows:

• Trading assets and liabilities (including trading derivatives but excluding reverse repos, repos and debt securities in issue) are included in the

‘Due not more than 1 month’ time bucket, because trading balances are typically held for short periods of time.

• Financial assets and liabilities with no contractual maturity (such as equity securities) are included in the ‘Due over 5years’ time bucket.

Undated or perpetual instruments are classified based on the contractual notice period, which the counterparty of the instrument is entitled to

give. Where there is no contractual notice period, undated or perpetual contracts are included in the ‘Dueover 5 years’ time bucket.

• Non-financial assets and liabilities with no contractual maturity are included in the ‘Due over 5 years’ time bucket.

• Financial instruments included within assets and liabilities of disposal groups held for sale are classified on the basis of the contractual

maturity of the underlying instruments and not on the basis of the disposal transaction.

• Liabilities under insurance contracts included in ‘other financial liabilities’, are irrespective of contractual maturity included in the ‘Due over 5

years’ time bucket in the maturity table provided below. An analysis of the expected maturity of liabilities under insurance contracts based on

undiscounted cash flows is provided on page 238. Liabilities under investment contracts areclassified in accordance with their contractual

maturity. Undated investment contracts are included in the ‘Due over 5 years’ time bucket, although such contracts are subject to surrender

and transfer options by the policyholders.

• Loan and other credit-related commitments are classified on the basis of the earliest date they can be drawn down.

Notes on the financial statements

396 HSBC Holdings plc Annual Report and Accounts 2022

HSBC

Maturity analysis of assets, liabilities and off-balance sheet commitments

Due not

than

1 month

Due over

1 month

but not

than

3 months

Due over

3 months

but not

than

6 months

Due over

6 months

but not

than

9 months

Due over

9 months

but not

than

1 year

Due over

1 year

but not

than

2 years

Due over

2 years

but not

than

5 years

Due over

5 years Total

Financial assets

Cash and balances at central banks 327,002 — — — — — — — 327,002

Items in the course of collection from other

banks

7,297 — — — — — — — 7,297

Hong Kong Government certificates of

indebtedness

43,787 — — — — — — — 43,787

Trading assets 213,234 1,333 1,343 338 425 808 222 390 218,093

Financial assets designated or otherwise

mandatorily measured at fair value 2,778 101 370 658 (53) 645 2,005 38,559 45,063

Derivatives 281,710 133 30 21 64 261 1,052 875 284,146

Loans and advances to banks 72,241 13,963 8,364 880 2,344 3,058 3,900 132 104,882

Loans and advances to customers 139,935 75,487 58,983 35,642 33,738 100,027 173,306 307,736 924,854

– personal 41,835 9,142 6,664 5,754 5,779 18,375 51,104 273,487 412,140

– corporate and commercial 84,956 60,064 45,719 24,427 22,627 68,514 108,590 31,135 446,032

– financial 13,144 6,281 6,600 5,461 5,332 13,138 13,612 3,114 66,682

Reverse repurchase agreements – non-trading 171,173 51,736 16,164 5,840 2,776 3,999 2,066 — 253,754

Financial investments 46,997 79,912 31,629 12,301 13,581 41,968 79,410 119,766 425,564

Assets held for sale

33,781 3,755 3,452 3,044 3,263 15,369 40,017 14,697 117,378

Accrued income and other financial assets 99,409 6,249 3,772 616 777 546 303 1,708 113,380

Financial assets at 31 Dec 2022 1,439,344 232,669 124,107 59,340 56,915 166,681 302,281 483,863 2,865,200

Non-financial assets — — — — — — — 101,330 101,330

Total assets at 31 Dec 2022 1,439,344 232,669 124,107 59,340 56,915 166,681 302,281 585,193 2,966,530

Off-balance sheet commitments received

Loan and other credit-related commitments 27,340 — — — — — — — 27,340

Financial liabilities

Hong Kong currency notes in circulation 43,787 — — — — — — — 43,787

Deposits by banks 46,994 359 3,510 205 136 1,455 13,737 326 66,722

Customer accounts 1,388,297 93,108 47,712 14,244 17,295 4,719 4,607 321 1,570,303

– personal 657,413 55,252 35,430 10,431 12,374 2,835 2,351 2 776,088

– corporate and commercial 555,539 31,624 10,385 3,080 3,824 1,667 2,146 274 608,539

– financial 175,345 6,232 1,897 733 1,097 217 110 45 185,676

Repurchase agreements – non-trading 121,193 3,804 685 170 645 1,250 — — 127,747

Items in the course of transmission to other

banks 7,864 — — — — — — — 7,864

Trading liabilities 66,027 5,668 281 113 113 116 35 — 72,353

Financial liabilities designated at

fair value

16,431 7,399 6,561 4,307 5,326 19,287 34,885 33,131 127,327

– debt securities in issue: covered bonds — — — — — — — — —

– debt securities in issue: unsecured 7,057 3,621 4,792 3,156 4,289 16,234 29,940 23,510 92,599

– subordinated liabilities and preferred

securities

— — — — — 1,971 3,675 3,990 9,636

– other 9,374 3,778 1,769 1,151 1,037 1,082 1,270 5,631 25,092

Derivatives 284,414 73 18 46 57 171 849 136 285,764

Debt securities in issue 4,514 7,400 7,476 4,745 3,585 9,198 19,240 21,991 78,149

– covered bonds — — — — — — 601 — 601

– otherwise secured 705 28 40 38 36 124 656 1,346 2,973

– unsecured 3,809 7,372 7,436 4,707 3,549 9,074 17,983 20,645 74,575

Liabilities of disposal groups held for sale

76,928 4,342 5,374 6,599 8,606 2,343 8,653 1,479 114,324

Accruals and other financial liabilities 104,224 9,384 4,785 1,022 1,626 1,111 2,018 1,720 125,890

Subordinated liabilities — — 11 160 — — 1,689 20,430 22,290

Total financial liabilities at 31 Dec 2022 2,160,673 131,537 76,413 31,611 37,389 39,650 85,713 79,534 2,642,520

Non-financial liabilities — — — — — — — 127,982 127,982

Total liabilities at 31 Dec 2022 2,160,673 131,537 76,413 31,611 37,389 39,650 85,713 207,516 2,770,502

Off-balance sheet commitments given

Loan and other credit-related commitments 825,781 184 75 59 210 242 975 328 827,854

– personal 242,953 2 3 — 110 199 811 300 244,378

– corporate and commercial 449,843 176 72 59 84 43 163 28 450,468

– financial 132,985 6 — — 16 — 1 — 133,008

1 Unallocated impairment losses in relation to disposal groups of $2.4bn and non-financial assets of $1bn that are both are presented within assets held

for sale on the balance sheet have been included within non-financial assets in the table above.

2 $0.3bn of non-financial liabilities that are presented within liabilities of disposal groups held for sale on the balance sheet have been included within

non-financial liabilities in the table above.

HSBC Holdings plc Annual Report and Accounts 2022 397

Financial statements

Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)

Due not

than

1 month

Due over

1 month

but not

than

3 months

Due over

3 months

but not

than

6 months

Due over

6 months

but not

more than

9 months

Due over

9 months

but not

more than

1 year

Due over

1 year

but not

more than

2 years

Due over

2 years

but not

more than

5 years

Due over

5 years Total

Financial assets

Cash and balances at central banks 403,018 — — — — — — — 403,018

Items in the course of collection from other

banks

4,136 — — — — — — — 4,136

Hong Kong Government certificates of

indebtedness 42,578 — — — — — — — 42,578

Trading assets 244,422 2,403 440 194 468 621 294 — 248,842

Financial assets designated at fair value 4,968 89 585 515 224 855 1,852 40,716 49,804

Derivatives 195,701 164 85 110 233 91 310 188 196,882

Loans and advances to banks 55,572 10,889 5,469 1,078 1,512 5,321 3,134 161 83,136

Loans and advances to customers 160,583 82,531 69,380 42,459 42,651 107,393 220,746 320,071 1,045,814

– personal 50,573 11,373 8,934 8,022 7,766 25,271 78,373 284,922 475,234

– corporate and commercial 97,554 64,511 52,548 29,341 28,749 72,441 127,527 32,664 505,335

– financial 12,456 6,647 7,898 5,096 6,136 9,681 14,846 2,485 65,245

Reverse repurchase agreements – non-trading 155,997 49,392 18,697 9,386 3,661 2,672 1,843 — 241,648

Financial investments 47,084 68,034 33,233 20,638 21,779 49,903 80,367 125,236 446,274

Assets held for sale

58 — — — 180 11 549 2,033 2,831

Accrued income and other financial assets 79,019 5,932 2,935 536 357 254 263 1,689 90,985

Financial assets at 31 Dec 2021 1,393,136 219,434 130,824 74,916 71,065 167,121 309,358 490,094 2,855,948

Non-financial assets — — — — — — — 101,991 101,991

Total assets at 31 Dec 2021 1,393,136 219,434 130,824 74,916 71,065 167,121 309,358 592,085 2,957,939

Off-balance sheet commitments received

Loan and other credit-related commitments 49,061 — — — — — — — 49,061

Financial liabilities

Hong Kong currency notes in circulation 42,578 — — — — — — — 42,578

Deposits by banks 63,660 2,695 2,419 238 125 14,653 16,734 628 101,152

Customer accounts 1,615,025 51,835 19,167 8,007 9,710 3,143 3,585 102 1,710,574

– personal 802,777 24,725 12,038 5,961 5,255 2,304 2,242 26 855,328

– corporate and commercial 623,459 22,980 5,654 1,762 3,402 706 1,167 33 659,163

– financial 188,789 4,130 1,475 284 1,053 133 176 43 196,083

Repurchase agreements – non-trading 117,625 4,613 1,716 292 142 975 377 930 126,670

Items in the course of transmission to other

banks

5,214 — — — — — — — 5,214

Trading liabilities 79,789 3,810 346 218 223 445 73 — 84,904

Financial liabilities designated at fair value 18,080 9,437 4,514 3,287 4,485 17,422 42,116 46,161 145,502

– debt securities in issue: covered bonds — 1,137 — — — 1,481 1,160 — 3,778

– debt securities in issue: unsecured 9,916 5,967 2,823 2,259 3,462 14,758 34,515 35,282 108,982

– subordinated liabilities and preferred

securities

— — — — — — 5,371 4,729 10,100

– other 8,164 2,333 1,691 1,028 1,023 1,183 1,070 6,150 22,642

Derivatives 190,233 46 11 30 25 100 288 331 191,064

Debt securities in issue 7,053 7,777 5,664 6,880 1,703 9,045 20,254 20,181 78,557

– covered bonds — — — 997 — 996 860 — 2,853

– otherwise secured 957 164 42 31 193 896 1,696 1,207 5,186

– unsecured 6,096 7,613 5,622 5,852 1,510 7,153 17,698 18,974 70,518

Liabilities of disposal groups held for sale 8,753 6 9 9 8 31 68 11 8,895

Accruals and other financial liabilities 82,996 10,311 5,621 1,094 1,064 1,917 2,339 2,818 108,160

Subordinated liabilities — 1 11 — — 417 2,055 18,003 20,487

Total financial liabilities at 31 Dec 2021 2,231,006 90,531 39,478 20,055 17,485 48,148 87,889 89,165 2,623,757

Non-financial liabilities — — — — — — — 127,405 127,405

Total liabilities at 31 Dec 2021 2,231,006 90,531 39,478 20,055 17,485 48,148 87,889 216,570 2,751,162

Off-balance sheet commitments given

Loan and other credit-related commitments 813,491 121 133 228 254 78 931 238 815,474

– personal 239,207 34 34 54 108 32 688 238 240,395

– corporate and commercial 456,498 76 91 168 143 46 243 — 457,265

– financial 117,786 11 8 6 3 — — — 117,814

Notes on the financial statements

398 HSBC Holdings plc Annual Report and Accounts 2022

HSBC Holdings

Maturity analysis of assets, liabilities and off-balance sheet commitments (continued)

Due not

than

1 month

Due over

1 month

but not

more than

3 months

Due over

3 months

but not

more than

6 months

Due over

6 months

but not

more than

9 months

Due over

9 months

but not

more than

1 year

Due over

1 year

but not

more than

2 years

Due over

2 years

but not

more than

5 years

Due

over

5 years Total

Financial assets

Cash at bank and in hand:

– balances with HSBC undertakings 3,210 — — — — — — — 3,210

Derivatives 2,889 — — — — — 796 116 3,801

Loans and advances to HSBC undertakings — 2,163 240 — — 2,035 4,414 17,913 26,765

Financial assets with HSBC undertakings

designated and otherwise mandatorily

measured at fair value — — — — — 9,007 16,230 27,085 52,322

Financial investments 1,517 2,712 8,870 1,020 2,194 3,153 — — 19,466

Accrued income and other financial assets 68 4,147 179 90 4 — 14 — 4,502

Total financial assets at 31 Dec 2022 7,684 9,022 9,289 1,110 2,198 14,195 21,454 45,114

110,066

Non-financial assets — — — — — — — 171,035

171,035

Total assets at 31 Dec 2022 7,684 9,022 9,289 1,110 2,198 14,195 21,454 216,149

281,101

Financial liabilities

Amounts owed to HSBC undertakings 48 266 — — — — — — 314

Financial liabilities designated at fairvalue — — — — — 1,447 16,459 14,217 32,123

– debt securities in issue — — — — — 1,447 12,784 11,192 25,423

– subordinated liabilities and preferred

securities

— — — — — — 3,675 3,025 6,700

Derivatives 2,540 — 35 — 102 460 1,638 2,147 6,922

Debt securities in issue — — 1,972 448 714 11,046 25,380 27,378 66,938

Accruals and other financial liabilities 722 450 648 61 35 — 14 31 1,961

Subordinated liabilities — — — — — 1,941 1,492 16,294 19,727

Total financial liabilities 31 Dec 2022 3,310 716 2,655 509 851 14,894 44,983 60,067

127,985

Non-financial liabilities — — — — — — — 8 8

Total liabilities at 31 Dec 2022 3,310 716 2,655 509 851 14,894 44,983 60,075

127,993

Financial assets

Cash at bank and in hand:

– balances with HSBC undertakings 2,590 — — — — — — — 2,590

Derivatives 1,101 — — — — 23 585 1,102 2,811

Loans and advances to HSBC undertakings 120 750 341 — 3,017 5,608 13,333 1,939 25,108

Loans and advances to HSBC undertakings

designated at fair value

— 1,759 250 1,019 — 5,987 19,455 22,938 51,408

Financial investments in HSBC undertakings 8,377 7,166 3,014 1,346 3,026 3,265 — — 26,194

Accrued income and other financial assets 129 874 108 58 4 — — — 1,173

Total financial assets at 31Dec2021 12,317 10,549 3,713 2,423 6,047 14,883 33,373 25,979 109,284

Non-financial assets — — — — — — — 163,888 163,888

Total assets at 31 Dec 2021 12,317 10,549 3,713 2,423 6,047 14,883 33,373 189,867 273,172

Financial liabilities

Amounts owed to HSBC undertakings — 111 — — — — — — 111

Financial liabilities designated at fair value 397 2,484 — — — 1,364 11,276 16,897 32,418

– debt securities in issue 397 2,484 — — — 1,364 8,020 14,553 26,818

– subordinated liabilities and preferred

securities

— — — — — — 3,256 2,344 5,600

Derivatives 1,167 — — — — 5 1 47 1,220

Debt securities in issue 1,051 — — — — 8,525 29,889 28,018 67,483

Accruals and other financial liabilities 1,778 730 1,612 68 12 — — 40 4,240

Subordinated liabilities — — — — — — 3,809 13,250 17,059

Total financial liabilities at 31Dec 2021 4,393 3,325 1,612 68 12 9,894 44,975 58,252 122,531

Non-financial liabilities — — — — — — — 311 311

Total liabilities at 31 Dec 2021 4,393 3,325 1,612 68 12 9,894 44,975 58,563 122,842

HSBC Holdings plc Annual Report and Accounts 2022 399

Financial statements

Contractual maturity of financial liabilities

The following table shows, on an undiscounted basis, all cash flows relating to principal and future coupon payments (except for trading liabilities

and derivatives not treated as hedging derivatives). For this reason, balances in the following table do not agree directly with those in our

consolidated balance sheet. Undiscounted cash flows payable in relation to hedging derivative liabilities areclassified according to their

contractual maturities. Trading liabilities and derivatives not treated as hedging derivatives are included in the ‘Due not more than 1 month’ time

bucket and not by contractual maturity.

In addition, loan and other credit-related commitments and financial guarantees are generally not recognised on our balance sheet. The

undiscounted cash flows potentially payable under loan and other credit-related commitments and financial guarantees are classified on the basis

of the earliest date they can be called.

Cash flows payable by HSBC under financial liabilities by remaining contractual maturities

Due not

than 1

month

Due over

1 month but

not more

than

3 months

Due over

3 months but

not more than

1 year

Due over

1 year but

not

more than

5 years

Due over

5 years Total

Deposits by banks 47,082 406 4,024 16,050 359 67,921

Customer accounts 1,387,125 96,474 80,608 9,961 346 1,574,514

Repurchase agreements – non-trading 121,328 3,852 1,535 1,268 — 127,983

Trading liabilities 72,353 — — — — 72,353

Financial liabilities designated at fair value 16,687 7,859 18,740 63,606 43,475 150,367

Derivatives 283,512 171 1,181 2,222 1,059 288,145

Debt securities in issue 4,329 8,217 17,522 34,283 26,428 90,779

Subordinated liabilities 37 168 1,395 7,321 32,946 41,867

Other financial liabilities

153,597 8,670 5,994 3,230 1,704 173,195

2,086,050 125,817 130,999 137,941 106,317 2,587,124

Loan and other credit-related commitments 825,781 184 344 1,217 328 827,854

Financial guarantees

18,696 25 62 — — 18,783

At 31 Dec 2022 2,930,527 126,026 131,405 139,158 106,645 3,433,761

Proportion of cash flows payable in period 85% 4% 4% 4% 3%

Deposits by banks 63,684 2,712 2,800 31,294 643 101,133

Customer accounts 1,613,065 54,092 37,219 7,093 138 1,711,607

Repurchase agreements – non-trading 117,643 4,615 2,157 1,359 935 126,709

Trading liabilities 84,904 — — — — 84,904

Financial liabilities designated at fair value 18,335 9,760 13,606 63,834 50,953 156,488

Derivatives 190,354 192 190 1,792 1,332 193,860

Debt securities in issue 7,149 7,958 15,142 32,651 21,911 84,811

Subordinated liabilities 119 168 848 6,741 28,347 36,223

Other financial liabilities

129,706 9,842 7,664 4,577 2,697 154,486

2,224,959 89,339 79,626 149,341 106,956 2,650,221

Loan and other credit-related commitments 813,471 121 615 1,029 238 815,474

Financial guarantees

27,774 6 9 6 — 27,795

At 31 Dec 2021 3,066,204 89,466 80,250 150,376 107,194 3,493,490

Proportion of cash flows payable in period 88% 3% 2% 4% 3%

1 Excludes financial liabilities of disposal groups.

2 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.

HSBC Holdings

HSBC Holdings’ primary sources of liquidity are dividends received from subsidiaries, interest on and repayment of intra-Group loans and

securities, and interest earned on its own liquid funds. HSBC Holdings also raises funds in the debt capital markets to meet the Group’s

minimum requirement for own funds and eligible liabilities. HSBC Holdings uses this liquidity to meet its obligations, including interest and

principal repayments on external debt liabilities, operating expenses and collateral on derivative transactions.

HSBC Holdings is also subject to contingent liquidity risk by virtue of credit-related commitments and guarantees and similar contracts issued

relating to its subsidiaries. Such commitments and guarantees are only issued after due consideration of HSBC Holdings’ ability to finance the

commitments and guarantees and the likelihood of the need arising.

HSBC Holdings actively manages the cash flows from its subsidiaries to optimise the amount of cash held at the holding company level. During

2022, consistent with the Group’s capital plan, the Group’s subsidiaries did not experience any significant restrictions on paying dividends or

repaying loans and advances. Also, there are no foreseen restrictions envisaged with regard to planned dividends or payments. However, the

ability of subsidiaries to pay dividends or advance monies to HSBC Holdings depends on, among other things, their respective local regulatory

capital and banking requirements, exchange controls, statutory reserves, and financial and operating performance.

HSBC Holdings currently has sufficient liquidity to meet its present requirements.

Liquidity risk in HSBC Holdings is overseen by Holdings ALCO. This risk arises because of HSBC Holdings’ obligation to make payments to debt

holders as they fall due and to pay its operating expenses. The liquidity risk related to these cash flows is managed by matching external debt

obligations with internal loan cash flows and by maintaining an appropriate liquidity buffer that is monitored byHoldings ALCO.

The balances in the following table are not directly comparable with those on the balance sheet of HSBC Holdings as the table incorporates, on

an undiscounted basis, all cash flows relating to principal and future coupon payments (except for derivatives not treated as hedging derivatives).

Notes on the financial statements

400 HSBC Holdings plc Annual Report and Accounts 2022

Undiscounted cash flows payable in relation to hedging derivative liabilities are classified according to their contractual maturities. Derivatives not

treated as hedging derivatives are included in the ‘On demand’ time bucket.

In addition, loan commitments and financial guarantees and similar contracts are generally not recognised on our balance sheet. The

undiscounted cash flows potentially payable under financial guarantees and similar contracts are classified on thebasis of the earliest date on

which they can be called.

Cash flows payable by HSBC Holdings under financial liabilities by remaining contractual maturities

Due not

than 1

month

Due over 1

month but

not

more than 3

months

Due over 3

months but

not more

than

1 year

Due over 1

year but not

more than 5

years

Due over

5 years Total

Amounts owed to HSBC undertakings 48 266 — — — 314

Financial liabilities designated at fair value 11 72 1,139 22,921 19,196 43,339

Derivatives 1,182 177 1,089 4,231 1,321 8,000

Debt securities in issue — 544 4,899 44,608 32,540 82,591

Subordinated liabilities 46 161 1,068 8,262 27,045 36,582

Other financial liabilities 721 458 745 14 31 1,969

2,008 1,678 8,940 80,036 80,133 172,795

Loan commitments — — — — — —

Financial guarantees

17,707 — — — — 17,707

At 31 Dec 2022 19,715 1,678 8,940 80,036 80,133 190,502

Amounts owed to HSBC undertakings — 111 — — — 111

Financial liabilities designated at fair value 473 2,611 621 15,017 17,557 36,279

Derivatives 1,223 9 51 414 585 2,282

Debt securities in issue 1,196 276 1,286 43,360 30,800 76,918

Subordinated liabilities 81 155 722 7,222 20,777 28,957

Other financial liabilities 1,778 730 1,692 — 40 4,240

4,751 3,892 4,372 66,013 69,759 148,787

Loan commitments — — — — — —

Financial guarantees

13,746 — — — — 13,746

At 31 Dec 2021 18,497 3,892 4,372 66,013 69,759 162,533

1 Excludes performance guarantee contracts to which the impairment requirements in IFRS 9 are not applied.

Offsetting of financial assets and financial liabilities

In the offsetting of financial assets and financial liabilities, the net amount is reported in the balance sheet when the offset criteria are met. This

is achieved when there is a legally enforceable right to offset the recognised amounts and there is either an intention to settle on a net basis, or

realise the asset and settle the liability simultaneously.

In the following table, the ‘Amounts not set off in the balance sheet’ include transactions where:

• the counterparty has an offsetting exposure with HSBC and a master netting or similar arrangement is in place with a right to set off only in

the event of default, insolvency or bankruptcy, or the offset criteria are otherwise not satisfied; and

• cash and non-cash collateral (debt securities and equities) has been received/pledged for derivatives and reverse repurchase/repurchase,

stock borrowing/lending and similar agreements to cover net exposure in the event of a default or other predetermined events.

The effect of over-collateralisation is excluded.

‘Amounts not subject to enforceable netting agreements’ include contracts executed in jurisdictions where the rights of offset may not be

upheld under the local bankruptcy laws, and transactions where a legal opinion evidencing enforceability of the right of offset may not have been

sought, or may have been unable to obtain.

For risk management purposes, the net amounts of loans and advances to customers are subject to limits, which are monitored and the relevant

customer agreements are subject to review and updated, as necessary, to ensure the legal right to set off remains appropriate.

HSBC Holdings plc Annual Report and Accounts 2022 401

Financial statements

Offsetting of financial assets and financial liabilities

Amounts subject to enforceable netting arrangements

Amounts not

subject to

enforceable

netting

arrangements

Total

Amounts not set off in the

balance sheet

Gross

amounts

Amounts

offset

Net

amounts

the

balance

sheet

Financial

instruments,

including

non-cash

collateral

Cash

collateral

Net

amount

Financial assets

Derivatives (Note 15)

419,006 (140,987) 278,019 (236,373) (36,486) 5,160 6,127 284,146

Reverse repos, stock borrowing and similar

agreements classified as:

– trading assets 24,372 (236) 24,136 (24,106) (29) 1 1,367 25,503

– non-trading assets 335,193 (102,888) 232,305 (231,432) (449) 424 21,689 253,994

Loans and advances to customers

28,337 (12,384) 15,953 (13,166) — 2,787 267 16,220

At 31 Dec 2022 806,908 (256,495) 550,413 (505,077) (36,964) 8,372 29,450 579,863

Derivatives (Note 15)

244,694 (53,378) 191,316 (151,304) (36,581) 3,431 5,566 196,882

Reverse repos, stock borrowing and similar

agreements classified as:

– trading assets 21,568 (222) 21,346 (21,272) (71) 3 1,729 23,075

– non-trading assets 353,066 (136,932) 216,134 (215,769) (165) 200 25,731 241,865

Loans and advances to customers

27,045 (10,919) 16,126 (13,065) — 3,061 327 16,453

At 31 Dec 2021 646,373 (201,451) 444,922 (401,410) (36,817) 6,695 33,353 478,275

Financial liabilities

Derivatives (Note 15)

419,994 (140,987) 279,007 (239,235) (29,276) 10,496 6,757 285,764

Repos, stock lending and similar

agreements

classified as:

– trading liabilities 20,027 (236) 19,791 (19,790) — 1 4 19,795

– non-trading liabilities 206,827 (102,888) 103,939 (103,296) (249) 394 23,808 127,747

Customer accounts

37,164 (12,384) 24,780 (13,166) — 11,614 14 24,794

At 31 Dec 2022 684,012 (256,495) 427,517 (375,487) (29,525) 22,505 30,583 458,100

Derivatives (Note 15)

239,597 (53,378) 186,219 (163,359) (18,225) 4,635 4,845 191,064

Repos, stock lending and similar

agreements

classified as:

– trading liabilities 13,540 (222) 13,318 (13,318) — — 17 13,335

– non-trading liabilities 235,042 (136,932) 98,110 (97,816) (203) 91 28,560 126,670

Customer accounts

40,875 (10,919) 29,956 (13,065) — 16,891 17 29,973

At 31 Dec 2021 529,054 (201,451) 327,603 (287,558) (18,428) 21,617 33,439 361,042

1 The disclosure has been enhanced in 2022 to support consistency across Group entities. All financial instruments (whether recognised on our balance

sheet or as non-cash collateral received or pledged) are presented within ‘financial instruments, including non-cash collateral‘, as balance sheet

classification has no effect on the rights of offset associated with financial instruments. Comparative data have been re-presented accordingly.

2 These exposures continue to be secured by financial collateral, but we may not have sought or been able to obtain a legal opinion evidencing

enforceability of the right of offset.

3 At 31 December 2022, the amount of cash margin received that had been offset against the gross derivatives assets was $8,357m (2021:$4,469m).

The amount of cash margin paid that had been offset against the gross derivatives liabilities was $10,918m (2021: $9,479m).

4 For the amount of repos, reverse repos, stock lending, stock borrowing and similar agreements recognised on the balance sheet within ‘Trading

assets’ of $25,503m (2021: $23,075m) and ‘Trading liabilities’ of $19,795m (2021: $13,335m), see the ‘Funding sources and uses’ table on page 210.

5 At 31 December 2022, the total amount of ‘Loans and advances to customers’ was $924,854m (2021: $1,045,814m), of which $15,953m (2021:

$16,126m) was subject to offsetting.

6 At 31 December 2022, the total amount of ‘Customer accounts’ was $1,570,303m (2021: $1,710,574m), of which $24,780m (2021:$29,956m) was

subject to offsetting.

Called up share capital and other equity instruments

Called up share capital and share premium

HSBC Holdings ordinary shares of $0.50 each, issued and fully paid

2022

2021

Number

At 1 Jan 20,631,520,439 10,316 20,693,621,100 10,347

Shares issued under HSBC employee share plans 10,226,221 5 58,266,053 29

Shares issued in lieu of dividends — — — —

Less: Shares repurchased and cancelled 348,139,250 174 120,366,714 60

At 31 Dec

20,293,607,410 10,147 20,631,520,439 10,316

Notes on the financial statements

402 HSBC Holdings plc Annual Report and Accounts 2022

HSBC Holdings share premium

2022

2021

At 31 Dec 14,664 14,602

Total called up share capital and share premium

2022

2021

At 31 Dec 24,811 24,918

1 All HSBC Holdings ordinary shares in issue, excluding 325,273,407 shares held in treasury, confer identical rights, including in respect of capital,

dividends and voting.

HSBC Holdings 6.20% non-cumulative US dollar preference shares, Series A of $0.01

The 6.20% non-cumulative US dollar preference shares, Series A of $0.01 each were called by HSBC Holdings on 10 December 2020 and were

redeemed and cancelled on 13 January 2021.

HSBC Holdings non-cumulative preference share of £0.01

The one non-cumulative sterling preference share of £0.01 (‘sterling preference share’) has been in issue since 29 December 2010 and is held by

a subsidiary of HSBC Holdings. Dividends are paid quarterly at the sole and absolute discretion of the Board. The sterling preference share

carries no rights of conversion into ordinary shares of HSBC Holdings and no right to attend or vote at shareholder meetings of HSBC Holdings.

These securities can be redeemed by HSBC Holdings at any time, subject to prior approval by the PRA.

Other equity instruments

HSBC Holdings has included two types of additional tier 1 capital securities in its tier 1 capital, including the contingent convertible securities

described below. These are accounted for as equity because HSBC does not have an obligation to transfer cash or a variable number of its own

ordinary shares to holders under any circumstances outside its control. See Note 29 for additional tier 1 securities accounted for as liabilities.

Additional tier 1 capital – contingent convertible securities

HSBC Holdings continues to issue contingent convertible securities that are included in its capital base as fully CRR II-compliant additional tier 1

capital securities on an end point basis. These securities are marketed principally and subsequently allotted to corporate investors and fund

managers. The net proceeds of the issuances are typically used for HSBC Holdings’ general corporate purposes and to further strengthen its

capital base to meet requirements under CRR II. These securities bear a fixed rate of interest until their initial call dates. After the initial call dates,

if they are not redeemed, the securities will bear interest at rates fixed periodically in advance for five-year periods based on credit spreads, fixed

at issuance, above prevailing market rates. Interest on the contingent convertible securities will be due and payable only at the sole discretion of

HSBC Holdings, and HSBC Holdings has sole and absolute discretion at all times to cancel for any reason (in whole or part) any interest payment

that would otherwise be payable on any payment date. Distributions will not be paid if they are prohibited under UK banking regulations or if the

Group has insufficient reserves or fails to meet the solvency conditions defined in the securities’ terms.

The contingent convertible securities are undated and are repayable at the option of HSBC Holdings in whole typically at the initial call date or on

any fifth anniversary after this date. In addition, the securities are repayable at the option of HSBC in whole for certain regulatory or tax reasons.

Any repayments require the prior consent of the PRA. These securities rank pari passu with HSBC Holdings’ sterling preference shares and

therefore rank ahead of ordinary shares. The contingent convertible securities will be converted into fully paid ordinary shares of HSBC Holdings

at a predetermined price, should HSBC’s consolidated non-transitional CET1 ratio fall below 7.0%. Therefore, in accordance with the terms of the

securities, if the non-transitional CET1 ratio breaches the 7.0% trigger, the securities will convert into ordinary shares at fixed contractual

conversion prices in the issuance currencies of the relevant securities, subject to anti-dilution adjustments.

HSBC’s additional tier 1 capital – contingent convertible securities in issue which are accounted for in equity

First call

date

2022

2021

$2,250m 6.375% perpetual subordinated contingent convertible securities Sep 2024 2,250 2,250

$2,450m 6.375% perpetual subordinated contingent convertible securities Mar 2025 2,450 2,450

$3,000m 6.000% perpetual subordinated contingent convertible securities May 2027 3,000 3,000

$2,350m 6.250% perpetual subordinated contingent convertible securities

Mar 2023 2,350 2,350

$1,800m 6.500% perpetual subordinated contingent convertible securities Mar 2028 1,800 1,800

$1,500m 4.600% perpetual subordinated contingent convertible securities

Dec 2030 1,500 1,500

$1,000m 4.000% perpetual subordinated contingent convertible securities

Mar 2026

1,000 1,000

$1,000m 4.700% perpetual subordinated contingent convertible securities

Mar 2031 1,000 1,000

€1,500m 5.250% perpetual subordinated contingent convertible securities

Sep 2022 — 1,945

€1,000m 6.000% perpetual subordinated contingent convertible securities Sep 2023 1,123 1,123

€1,250m 4.750% perpetual subordinated contingent convertible securities Jul 2029 1,422 1,422

£1,000 5.875% perpetual subordinated contingent convertible securities Sep 2026 1,301 1,301

SGD1,000m 4.700% perpetual subordinated contingent convertible securities

Jun 2022 — 723

SGD750m 5.000% perpetual subordinated contingent convertible securities Sep 2023 550 550

At 31 Dec 19,746 22,414

1 This security was called by HSBC Holdings on 30 January 2023 and is expected to be redeemed and cancelled on 23 March 2023.

2 This security was issued by HSBC Holdings on 17 December 2020. The first call date is six calendar months prior to the reset date of 17 June 2031.

3 This security was issued by HSBC Holdings on 9 March 2021. The first call date is six calendar months prior to the reset date of 9 September 2026.

4 This security was issued by HSBC Holdings on 9 March 2021. The first call date is six calendar months prior to the reset date of 9 September 2031.

5 This security was called by HSBC Holdings on 9 August 2022 and was redeemed and cancelled on 16 September 2022.

6 This security was called by HSBC Holdings on 4 May 2022 and was redeemed and cancelled on 8 June 2022.

HSBC Holdings plc Annual Report and Accounts 2022 403

Financial statements

Shares under option

For details of the options outstanding to subscribe for HSBC Holdings ordinary shares under the HSBC Holdings Savings-Related Share Option

Plan (UK), see Note 5.

Aggregate options outstanding under these plans

31 Dec 2022

31 Dec 2021

Number of

HSBC Holdings

ordinary shares

Usual period of

exercise Exercise price

Number of

HSBC Holdings

ordinary shares

Usual period of

exercise Exercise price

115,650,723 2021 to 2028 £2.6270–£5.9640 123,196,850 2020 to 2027 £2.6270–5.9640

Maximum obligation to deliver HSBC Holdings ordinary shares

At 31 December 2022, the maximum obligation to deliver HSBC Holdings ordinary shares under all of the above option arrangements and the

HSBC International Employee Share Purchase Plan, together with long-term incentive awards and deferred share awards granted under the

HSBC Share Plan 2011, was 240,612,019 (2021: 224,974,433). The total number of shares at 31December 2022 held by employee benefit trusts

that may be used to satisfy such obligations to deliver HSBC Holdings ordinary shares was 12,315,711 (2021: 9,297,415).

Contingent liabilities, contractual commitments and guarantees

HSBC HSBC Holdings

2022

2021

2022

2021

Guarantees and other contingent liabilities:

– financial guarantees 18,783 27,795 17,707 13,746

– performance and other guarantees 88,240 85,534

— —

– other contingent liabilities 676 858 90 133

At 31 Dec 107,699 114,187 17,797 13,879

Commitments:

– documentary credits and short-term trade-related transactions 8,241 8,827 — —

– forward asset purchases and forward deposits placed 50,852 47,184 — —

– standby facilities, credit lines and other commitments to lend 768,761 759,463 — —

At 31 Dec 827,854 815,474 — —

1 Financial guarantees by HSBC Holdings are all in favour of other Group entities.

2 Includes $618,788m of commitments at 31 December 2022 (31 December 2021: $627,637m), to which the impairment requirements in IFRS 9 are

applied where HSBC has become party to an irrevocable commitment.

The preceding table discloses the nominal principal amounts of off-balance sheet liabilities and commitments for the Group, which represent the

maximum amounts at risk should the contracts be fully drawn upon and the clients default. As a significant portion of guarantees and

commitments are expected to expire without being drawn upon, the total of the nominal principal amounts is not indicative of future liquidity

requirements. The expected credit loss provision relating to guarantees and commitments under IFRS 9 is disclosed in Note 28.

The majority of the guarantees have a term of less than one year, while guarantees with terms of more than one year are subject to HSBC’s

annual credit review process.

Contingent liabilities arising from legal proceedings, regulatory and other matters against Group companies are excluded from this note but are

disclosed in Notes 28 and 35.

Financial Services Compensation Scheme

The Financial Services Compensation Scheme (‘FSCS’) provides compensation, up to certain limits, to eligible customers of financial services

firms that are unable, or likely to be unable, to pay claims against them. The FSCS may impose a further levy on the group to the extent the

industry levies imposed to date are not sufficient to cover the compensation due to customers in any future possible collapse. The ultimate FSCS

levy to the industry as a result of a collapse cannot be estimated reliably. It is dependent on various uncertain factors including the potential

recovery of assets by the FSCS, changes in the level of protected products (including deposits and investments) and the population of FSCS

members at the time. In December 2022, the FCA announced that it expects to review various elements of the scheme to ensure consumers

are appropriately and proportionately protected, with costs distributed across industry levy payers in a fair and sustainable way, with a view to

deliver the majority of changes by the end of the 2023/24 financial year.

Associates

HSBC’s share of associates’ contingent liabilities, contractual commitments and guarantees amounted to $64.8bn at 31 December 2022 (2021:

$63.5bn). No matters arose where HSBC was severally liable.

Notes on the financial statements

404 HSBC Holdings plc Annual Report and Accounts 2022

Finance lease receivables

HSBC leases a variety of assets to third parties under finance leases, including transport assets (such as aircraft), property and general plant and

machinery. At the end of lease terms, assets may be sold to third parties or leased for further terms. Rentals are calculated to recover the cost of

assets less their residual value, and earn finance income.

The table below excludes finance lease receivables reclassified on the balance sheet to ‘Assets held for sale’ in accordance with IFRS 5. Net

investment in finance leases of $1,502m was reclassified to ‘Assets held for sale’ as a result of the planned sale of our banking business in

Canada.

2022

2021

Total future

minimum

payments

Unearned

finance

income

Present

value

Total future

minimum

payments

Unearned

finance

income

Present

value

Lease receivables:

No later than one year 2,159 (236) 1,923 3,298 (303) 2,995

One to two years 1,652 (201) 1,451 2,303 (242) 2,061

Two to three years 1,391 (161) 1,230 1,645 (192) 1,453

Three to four years 906 (131) 775 1,225 (146) 1,079

Four to five years 613 (112) 501 795 (113) 682

Later than one year and no later than fiveyears 4,562 (605) 3,957 5,968 (693) 5,275

Later than five years 4,064 (736) 3,328 4,044 (528) 3,516

At 31 Dec 10,785 (1,577) 9,208 13,310 (1,524) 11,786

Legal proceedings and regulatory matters

HSBC is party to legal proceedings and regulatory matters in a number of jurisdictions arising out of its normal business operations. Apart from

the matters described below, HSBC considers that none of these matters are material. The recognition of provisions is determined in accordance

with the accounting policies set out in Note 1. While the outcomes of legal proceedings and regulatory matters are inherently uncertain,

management believes that, based on the information available to it, appropriate provisions have been made in respect of these matters as at

31December 2022 (see Note 28). Where an individual provision is material, the fact that a provision has been made is stated and quantified,

except to the extent that doing so would be seriously prejudicial. Any provision recognised does not constitute an admission of wrongdoing or

legal liability. It is not practicable to provide an aggregate estimate ofpotential liability for our legal proceedings and regulatory matters as a class

of contingent liabilities.

Bernard L. Madoff Investment Securities LLC

Various non-US HSBC companies provided custodial, administration and similar services to a number of funds incorporated outside the US

whose assets were invested with Bernard L. Madoff Investment Securities LLC (‘Madoff Securities’). Based on information provided by Madoff

Securities as at 30 November 2008, the purported aggregate value of these funds was $8.4bn, including fictitious profits reported by Madoff.

Based on information available to HSBC, the funds’ actual transfers to Madoff Securities minus their actual withdrawals from Madoff Securities

during the time HSBC serviced the funds are estimated to have totalled approximately $4bn. Various HSBC companies have been named as

defendants in lawsuits arising out of Madoff Securities’ fraud.

US litigation: The Madoff Securities Trustee has brought lawsuits against various HSBC companies and others, seeking recovery of transfers

from Madoff Securities to HSBC in an amount not specified, and these lawsuits remain pending in the US Bankruptcy Court for the Southern

District of New York (the ‘US Bankruptcy Court’).

Certain Fairfield entities (together, ‘Fairfield’) (in liquidation since July 2009) have brought a lawsuit in the US against fund shareholders, including

HSBC companies that acted as nominees for clients, seeking restitution of redemption payments. In August 2022, the US District Court for the

Southern District of New York (the ‘New York District Court’) affirmed earlier decisions by the US Bankruptcy Court that dismissed the majority

of the liquidators’ claims (against most of the HSBC companies). In September 2022, the remaining defendants before the US Bankruptcy Court

sought leave to appeal and the liquidators filed appeals to the US Court of Appeals for the Second Circuit, which are currently pending.

Meanwhile, proceedings before the US Bankruptcy Court with respect to the remaining claims are ongoing.

UK litigation: The Madoff Securities Trustee has filed a claim against various HSBC companies in the High Court of England and Wales, seeking

recovery of transfers from Madoff Securities to HSBC. The claim has not yet been served and the amount claimed has not been specified.

Cayman Islands litigation: In February 2013, Primeo Fund (‘Primeo’) (in liquidation since April 2009) brought an action against HSBC Securities

Services Luxembourg (‘HSSL’) and Bank of Bermuda (Cayman) Limited (now known as HSBC Cayman Limited), alleging breach of contract and

breach of fiduciary duty and claiming monetary damages. Following dismissal of Primeo’s action by the lower and appellate courts in the Cayman

Islands, in 2019, Primeo appealed to the UK Privy Council. During 2021, the UK Privy Council held two separate hearings in connection with

Primeo’s appeal. Judgment was given against HSBC in respect of the first hearing and judgment is pending in respect of the second hearing.

Luxembourg litigation: In April 2009, Herald Fund SPC (‘Herald’) (in liquidation since July 2013) brought an action against HSSL before the

Luxembourg District Court, seeking restitution of cash and securities that Herald purportedly lost because of Madoff Securities’ fraud, or money

damages. The Luxembourg District Court dismissed Herald’s securities restitution claim, but reserved Herald’s cash restitution and money

damages claims. Herald has appealed this judgment to the Luxembourg Court of Appeal, where the matter is pending. In late 2018, Herald

brought additional claims against HSSL and HSBC Bank plc before the Luxembourg District Court, seeking further restitution and damages.

In October 2009, Alpha Prime Fund Limited (‘Alpha Prime’) brought an action against HSSL before the Luxembourg District Court, seeking the

restitution of securities, or the cash equivalent, or money damages. In December 2018, Alpha Prime brought additional claims seeking damages

against various HSBC companies. These matters are currently pending before the Luxembourg District Court.

In December 2014, Senator Fund SPC (‘Senator’) brought an action against HSSL before the Luxembourg District Court, seeking restitution of

securities, or the cash equivalent, or money damages. In April 2015, Senator commenced a separate action against the Luxembourg branch of

HSBCBank plc asserting identical claims. In December 2018, Senator brought additional claims against HSSL and HSBC Bank plc Luxembourg

branch, seeking restitution of Senator’s securities or money damages. These matters are currently pending before the Luxembourg District

Court.

HSBC Holdings plc Annual Report and Accounts 2022 405

Financial statements

There are many factors that may affect the range of possible outcomes, and any resulting financial impact, of the various Madoff-related

proceedings described above, including but not limited to the multiple jurisdictions in which the proceedings have been brought. Based upon the

information currently available, management’s estimate of the possible aggregate damages that might arise asa result of all claims in the various

Madoff-related proceedings is around $600m, excluding costs and interest. Due to uncertainties and limitations of this estimate, any possible

damages that might ultimately arise could differ significantly from this amount.

Anti-money laundering and sanctions-related matters

In December 2012, HSBC Holdings entered into a number of agreements, including an undertaking with the UK Financial Services Authority

(replaced with a Direction issued by the UK Financial Conduct Authority (‘FCA’) in 2013 and again in 2020) as well as a cease-and-desist order

with the US Federal Reserve Board (‘FRB’), both of which contained certain forward-looking anti-money laundering (‘AML’) and sanctions-related

obligations. For several years thereafter, HSBC retained a Skilled Person under section 166 of the Financial Services and Markets Act and an

Independent Consultant under the FRB cease-and-desist order to produce periodic assessments of the Group’s AML and sanctions compliance

programme. The Skilled Person completed its engagement in the second quarter of 2021, and the FCA determined that no further Skilled Person

work is required. Separately, the Independent Consultant’s engagement is now complete and, in August 2022, the FRB terminated its cease-

and-desist order.

Since November 2014, a number of lawsuits have been filed in federal courts in the US against various HSBC companies and others on behalf of

plaintiffs who are, or are related to, victims of terrorist attacks in the Middle East. In each case, it is alleged that the defendants aided and

abetted the unlawful conduct of various sanctioned parties in violation of the US Anti-Terrorism Act. Nine actions remain pending in federal

courts and HSBC’s motions to dismiss have been granted in five of these cases. In September 2022 and January 2023, respectively, the

appellate courts affirmed the dismissals of two of the cases, and the plaintiffs’ requests for review of these decisions by the full appellate courts

have been denied. The dismissals in the other cases are subject to appeal. The four remaining actions are at an early stage.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of the pending matters, including the

timing or any possible impact on HSBC, which could be significant.

London interbank offered rates, European interbank offered rates and other benchmark

interest rate investigations and litigation

Euro interest rate derivatives: In December 2016, the European Commission (‘EC’) issued a decision finding that HSBC, among other banks,

engaged in anti-competitive practices in connection with the pricing of euro interest rate derivatives, and the EC imposed a fine on HSBC based

on a one-month infringement in 2007. The fine was annulled in 2019 and a lower fine was imposed in 2021. In January 2023, the European Court

of Justice dismissed an appeal by HSBC and upheld the EC’s findings on HSBC’s liability. A separate appeal by HSBC concerning the amount of

the fine remains pending before the General Court of the European Union.

US dollar Libor: Beginning in 2011, HSBC and other panel banks have been named as defendants in a number of private lawsuits filed in the US

with respect to the setting of US dollar Libor. The complaints assert claims under various US federal and state laws, including antitrust and

racketeering laws and the Commodity Exchange Act (‘US CEA’). The lawsuits include individual and putative class actions, most of which have

been transferred and/or consolidated for pre-trial purposes before the New York District Court. HSBC has reached class settlements with five

groups of plaintiffs, and the court has approved these settlements. HSBC has also resolved several of the individual actions, although a number

of other US dollar Libor-related actions remain pending.

Singapore interbank offered rate (‘Sibor’) and Singapore swap offer rate (‘SOR’): In 2016, The Hongkong and Shanghai Banking Corporation

Limited and other panel banks were named as defendants in a putative class action filed in the New York District Court on behalf of persons who

transacted in products related to the Sibor and SOR benchmark rates. The complaint alleged, among other things, misconduct related to these

benchmark rates in violation of US antitrust, commodities and racketeering laws, and state law.

In October 2021, The Hongkong and Shanghai Banking Corporation Limited reached a settlement-in-principle with the plaintiffs to resolve this

action, the agreement for which was executed in May 2022. The court granted final approval of the settlement in November 2022.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of the pending matters, including the

timing or any possible impact on HSBC, which could be significant.

Foreign exchange-related investigations and litigation

In December 2016, Brazil’s Administrative Council of Economic Defense initiated an investigation into the onshore foreign exchange market and

identified a number of banks, including HSBC, as subjects of its investigation, which remains ongoing.

In June 2020, the Competition Commission of South Africa, having initially referred a complaint for proceedings before the South African

Competition Tribunal in February 2017, filed a revised complaint against 28 financial institutions, including HSBC Bank plc and HSBC Bank USA

N.A. (‘HSBC Bank USA’), for alleged anti-competitive behaviour in the South African foreign exchange market. In December 2021, a hearing on

HSBC Bank plc’s and HSBC Bank USA’s applications to dismiss the revised complaint took place before the South African Competition Tribunal,

where a decision remains pending.

Beginning in 2013, various HSBC companies and other banks have been named as defendants in a number of putative class actions filed in, or

transferred to, the New York District Court arising from allegations that the defendants conspired to manipulate foreign exchange rates. HSBC

has reached class settlements with two groups of plaintiffs, including direct and indirect purchasers of foreign exchange products, and the court

has granted final approval of these settlements. A putative class action by a group of retail customers of foreign exchange products remains

pending.

In 2018, complaints alleging foreign exchange-related misconduct were filed in the New York District Court and the High Court of England and

Wales against HSBC and other defendants by certain plaintiffs that opted out of the direct purchaser class action settlement in the US. In

December 2022, HSBC reached a settlement-in-principle with the plaintiffs to resolve these matters. The settlement remains subject to the

negotiation of definitive documentation. Additionally, in January 2023, HSBC reached a settlement-in-principle with plaintiffs in Israel to resolve a

class action lawsuit filed in the local courts alleging foreign exchange-related misconduct. The settlement remains subject to the negotiation of

definitive documentation and court approval. Lawsuits alleging foreign exchange-related misconduct remain pending against HSBC and other

banks in courts in Brazil. It is possible that additional civil actions will be initiated against HSBC in relation to its historical foreign exchange

activities.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

Notes on the financial statements

406 HSBC Holdings plc Annual Report and Accounts 2022

Precious metals fix-related litigation

Gold: Beginning in December 2015, numerous putative class actions were filed in the Ontario and Quebec Superior Courts of Justice against

various HSBC companies and other financial institutions. The plaintiffs allege that, among other things, from January 2004 to March 2014, the

defendants conspired to manipulate the price of gold and gold derivatives in violation of the Canadian Competition Act and common law. These

actions are ongoing.

Silver: Beginning in July 2014, numerous putative class actions were filed in federal district courts in New York, naming HSBC and other

members of The London Silver Market Fixing Limited as defendants. The complaints, which were consolidated in the New York District Court,

allege that, from January 2007 to December 2013, the defendants conspired to manipulate the price of silver and silver derivatives for their

collective benefit in violation of US antitrust laws, the US CEA and New York state law. In February 2022, following the conclusion of pre-class

certification discovery, the defendants filed a motion seeking to dismiss the plaintiffs’ antitrust claims, which remains pending.

In April 2016, two putative class actions were filed in the Ontario and Quebec Superior Courts of Justice against various HSBC companies and

other financial institutions. The plaintiffs in both actions allege that, from January 1999 to August 2014, the defendants conspired to manipulate

the price of silver and silver derivatives in violation of the Canadian Competition Act and common law. These actions are ongoing.

Platinum and palladium: Between late 2014 and early 2015, numerous putative class actions were filed in the New York District Court, naming

HSBC and other members of The London Platinum and Palladium Fixing Company Limited as defendants. The complaints allege that, from

January 2008 to November 2014, the defendants conspired to manipulate the price of platinum group metals and related financial products for

their collective benefit in violation of US antitrust laws and the US CEA. In March 2020, the court granted the defendants‘ motion to dismiss the

plaintiffs’ third amended complaint but granted the plaintiffs leave to re-plead certain claims. The plaintiffs have filed an appeal.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of these matters, including the timing or

any possible impact on HSBC, which could besignificant.

Film finance litigation

In June 2020, two separate investor groups issued claims against HSBC UK Bank plc (as successor to HSBC Private Bank (UK) Limited (‘PBGB‘))

in the High Court of England and Wales in connection with PBGB’s role in the development of Eclipse film finance schemes. These actions are

ongoing.

In April 2021, HSBC UK Bank plc (as successor to PBGB) was served with a claim issued in the High Court of England and Wales in connection

with PBGB’s role in the development of the Zeus film finance schemes. In October 2022, this claim was discontinued.

Based on the facts currently known, it is not practicable at this time for HSBC to predict the resolution of the pending matters, including the

timing or any possible impact on HSBC, which could be significant.

Other regulatory investigations, reviews and litigation

HSBC Holdings and/or certain of its affiliates are subject to a number of other investigations and reviews by various regulators and competition

and law enforcement authorities, as well as litigation, in connection with various matters relating to the firm’s businesses and operations,

including:

• investigations by tax administration, regulatory and law enforcement authorities in Argentina, India and elsewhere in connection with

allegations of tax evasion or tax fraud, money laundering and unlawful cross-border banking solicitation;

• an investigation by the US Commodity Futures Trading Commission (‘CFTC‘) regarding interest rate swap transactions related to bond

issuances, among other things. HSBC has reached a settlement-in-principle with the CFTC’s Division of Enforcement to resolve this

investigation. The settlement is subject to final approval by the CFTC;

• investigations by the CFTC and US Securities and Exchange Commission (‘SEC‘) concerning compliance with records preservation

requirements relating to the use of unapproved electronic messaging platforms for business communications. HSBC has reached

settlements-in-principle with the CFTC’s and SEC’s Divisions of Enforcement to resolve these investigations. The settlements are subject to

the negotiation of definitive documentation and final approval by the CFTC and SEC;

• an investigation by the PRA in connection with depositor protection arrangements in the UK;

• an investigation by the FCA in connection with collections and recoveries operations in the UK;

• an investigation by the UK Competition and Markets Authority into potentially anti-competitive arrangements involving historical trading

activities relating to certain UK-based fixed income products and related financial instruments;

• a putative class action brought in the New York District Court relating to the Mexican government bond market;

• two group actions pending in the US courts and a claim issued in the High Court of England and Wales in connection with HSBC Bank plc’s

role as a correspondent bank to Stanford International Bank Ltd from 2003 to 2009; and

• litigation brought against various HSBC companies in the US courts relating to residential mortgage-backed securities, based primarily on (a)

claims brought against HSBC Bank USA in connection with its role as trustee on behalf of various securitisation trusts; and (b) claims against

several HSBC companies seeking that the defendants repurchase various mortgage loans.

There are many factors that may affect the range of outcomes, and the resulting financial impact, of these matters, which could be significant.

HSBC Holdings plc Annual Report and Accounts 2022 407

Financial statements

Related party transactions

Related parties of the Group and HSBC Holdings include subsidiaries, associates, joint ventures, post-employment benefit plans for HSBC

employees, Key Management Personnel (‘KMP’) as defined by IAS 24, close family members of KMP and entities that are controlled or jointly

controlled by KMP or their close family members. KMP are defined as those persons having authority and responsibility for planning, directing

and controlling the activities of HSBC Holdings. These individuals also constitute ‘senior management’ for the purposes of the Hong Kong Listing

Rules. In applying IAS 24, it was determined that for this financial reporting period all KMP included Directors, former Directors and senior

management listed on pages 240 to 246 except for the roles of Group Chief Legal Officer, Group Head of Internal Audit, Group Chief Human

Resources Officer, Group Chief Sustainability Officer, Group Head of Strategy, Group Chief Communications and Brand Officer, and Group

Company Secretary and Chief Governance Officer who do not meet the criteria for KMP as provided for in the standard.

Particulars of transactions with related parties are tabulated below. The disclosure of the year-end balance and the highest amounts outstanding

during the year is considered to be the most meaningful information to represent the amount of the transactions and outstanding balances

during the year.

Key Management Personnel

Details of Directors’ remuneration and interests in shares are disclosed in the ‘Directors’ remuneration report’ on pages 276 to 301.

IAS24‘Related Party Disclosures’ requires the following additional information for key management compensation.

Compensation of Key Management Personnel

2022

2021

2020

Short-term employee benefits 52 50 39

Post-employment benefits 1 — —

Other long-term employee benefits 8 6 5

Share-based payments 26 27 20

Year ended 31 Dec 87 83 64

Shareholdings, options and other securities of Key Management Personnel

2022

2021

(000s)

Number of options held over HSBC Holdings ordinary shares under employee share plans 35 35

Number of HSBC Holdings ordinary shares held beneficially and non-beneficially 18,185 13,529

Number of other HSBC securities held 228 228

At 31 Dec 18,448 13,792

Advances and credits, guarantees and deposit balances during the year with Key Management Personnel

2022

2021

Balance at

31Dec

Highest amounts

outstanding

during year

Balance at

31 Dec

Highest amounts

outstanding

during year

Key Management Personnel

Advances and credits

16 25 373 401

Guarantees — — 25 45

Deposits 53 123 284 3,190

1 Advances and credits entered into by subsidiaries of HSBC Holdings plc during 2022 with Directors and former Directors, disclosed pursuant to section

413 of the Companies Act 2006, totalled $2.5m (2021: $2.8m) and the total value of guarantees entered into on behalf of the Directors and former

Directors was $nil (2021: $nil).

Some of the transactions were connected transactions as defined by the Rules Governing The Listing of Securities on The Stock Exchange of

Hong Kong Limited, but were exempt from any disclosure requirements under the provisions of those rules. The above transactions were made

in the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable transactions with

persons of a similar standing or, where applicable, with other employees. The transactions did not involve more than the normal risk of

repayment or present other unfavourable features.

Associates and joint ventures

The Group provides certain banking and financial services to associates and joint ventures including loans, overdrafts, interest and non-interest

bearing deposits and current accounts. Details of the interests in associates and joint ventures are given in Note 18.

Transactions and balances during the year with associates and joint ventures

2022

2021

Highest balance

during the year

Balance at

31 Dec

Highest balance

during the year

Balance at

31 Dec

Unsubordinated amounts due from joint ventures 140 90 160 96

Unsubordinated amounts due from associates 7,378 6,594 4,527 4,188

Amounts due to associates 2,548 1,295 3,397 1,070

Amounts due to joint ventures 57 53 102 44

Fair value of derivative assets with associates 1,205 841 936 465

Fair value of derivative liabilities with associates 4,319 3,648 696 555

Guarantees and commitments 513 293 1,016 347

Notes on the financial statements

408 HSBC Holdings plc Annual Report and Accounts 2022

The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and

security, as for comparable transactions with third-party counterparties.

Post-employment benefit plans

At 31 December 2022, $2.9bn (2021: $3.4bn) of HSBC post-employment benefit plan assets were under management by HSBC companies,

earning management fees of $13m in 2022 (2021: $14m). At 31 December 2022, HSBC’s post-employment benefit plans had placed deposits of

$369m (2021:$476m) with its banking subsidiaries, earning interest payable to the schemes of nil (2021: nil). The above outstanding balances

arose from the ordinary course of business and on substantially the same terms, including interest rates and security, as for comparable

transactions with third-party counterparties.

The combined HSBC Bank (UK) Pension Scheme enters into swap transactions with HSBC to manage inflation and interest rate sensitivity of its

liabilities and selected assets. At 31 December 2022, the gross notional value of the swaps was $6.6bn (2021: $7.4bn). These swaps had a

positive fair value to the scheme of $0.5bn (2021: $1.0bn); and HSBC had delivered collateral of $0.5bn (2021: $1.0bn) to the scheme in respect

of these arrangements. All swaps were executed at prevailing market rates and within standard market bid/offer spreads.

HSBC Holdings

Details of HSBC Holdings’ subsidiaries are shown in Note 38.

Transactions and balances during the year with subsidiaries

2022

2021

Highest balance

during the year

Balance at

31 Dec

Highest balance

during the year

Balance at

31 Dec

Assets

Cash and balances with HSBC undertakings 7,421 3,210 3,397 2,590

Financial assets with HSBC undertakings designated and otherwise mandatorily

measured at fair value

52,322 52,322 64,686 51,408

Derivatives 5,380 3,801 4,187 2,811

Loans and advances to HSBC undertakings 26,765 26,765 27,142 25,108

Prepayments, accrued income and other assets 4,893 4,803 1,555 1,135

Investments in subsidiaries 167,542 167,542 163,211 163,211

Total related party assets at 31 Dec 264,323 258,443 264,178 246,263

Liabilities

Amounts owed to HSBC undertakings 314 314 340 111

Derivatives 8,318 6,922 2,872 1,220

Accruals, deferred income and other liabilities 1,375 429 2,036 1,732

Subordinated liabilities 900 900 900 900

Total related party liabilities at 31 Dec 10,907 8,565 6,148 3,963

Guarantees and commitments 17,707 17,707 16,477 13,746

The above outstanding balances arose in the ordinary course of business and on substantially the same terms, including interest rates and

security, as for comparable transactions with third-party counterparties.

Some employees of HSBC Holdings are members of the HSBC Bank (UK) Pension Scheme, which is sponsored by a separate Group company.

HSBC Holdings incurs a charge for these employees equal to the contributions paid into the scheme on their behalf. Disclosure in relation to the

scheme is made in Note 5.

Events after the balance sheet date

A second interim dividend for 2022 of $0.23 per ordinary share (a distribution of approximately $4,593m) was approved by the Directors after

31December 2022. HSBC Holdings called $2,350m 6.250% perpetual subordinated contingent convertible securities on 30 January 2023. The

security is expected to be redeemed and be cancelled on 23 March 2023. HSBC Holdings also exercised the call option on AUD350m and

AUD650m MREL on 13 January 2023 callable on 16 February 2023. The redemption took place on 16 February 2023. These accounts were

approved by the Board of Directors on 21 February 2023 and authorised for issue.

HSBC Holdings’ subsidiaries, joint ventures and associates

In accordance with section 409 of the Companies Act 2006 a list of HSBC Holdings plc subsidiaries, joint ventures and associates, the registered

office addresses and the effective percentages of equity owned at 31 December 2022 are disclosed below.

Unless otherwise stated, the share capital comprises ordinary or common shares that are held by Group subsidiaries. The ownership percentage

is provided for each undertaking. The undertakings below are consolidated by HSBC unless otherwise indicated.

HSBC Holdings plc Annual Report and Accounts 2022 409

Financial statements

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

452 TALF Plus ABS Opportunities SPV LLC 100.00

452 TALF SPV LLC 100.00

Almacenadora Banpacifico S.A. (In

Liquidation)

99.99

Assetfinance December (F) Limited

100.00

Assetfinance December (H) Limited 100.00

Assetfinance December (P) Limited 100.00

Assetfinance December (R) Limited 100.00

Assetfinance June (A) Limited 100.00

Assetfinance June (D) Limited 100.00

Assetfinance Limited 100.00

Assetfinance March (B) Limited 100.00

Assetfinance March (D) Limited 100.00

Assetfinance March (F) Limited 100.00

Assetfinance September (F) Limited 100.00

Assetfinance September (G) Limited 100.00

AXA Insurance Pte. Ltd. 100.00

1, 20

B&Q Financial Services Limited 100.00

Banco HSBC S.A. 100.00

Banco Nominees (Guernsey) Limited

100.00

Banco Nominees 2 (Guernsey) Limited

100.00

Banco Nominees Limited 100.00

Beau Soleil Limited Partnership N/A

0, 46

Beijing Miyun HSBC Rural Bank Company

Limited

100.00

12, 24

BentallGreenOak China Real Estate

Investments L.P.

N/A

0, 1, 25

Canada Crescent Nominees (UK) Limited 100.00

Canada Square Nominees (UK) Limited 100.00

Capco/Cove, Inc. 100.00

Card-Flo #1, Inc. 100.00

Card-Flo #3, Inc. 100.00

CC&H Holdings LLC 100.00

CCF & Partners Asset Management Limited 100.00 (99.99)

CCF Holding (Liban) S.A.L. (In Liquidation) 74.99

Charterhouse Administrators (D.T.) Limited 100.00 (99.99)

Charterhouse Management Services Limited 100.00 (99.99)

Charterhouse Pensions Limited 100.00

Chongqing Dazu HSBC Rural Bank Company

Limited

100.00

12, 29

Chongqing Fengdu HSBC Rural Bank

Company Limited

100.00

12, 30

Chongqing Rongchang HSBC Rural Bank

Company Limited

100.00

12, 31

COIF Nominees Limited N/A

0, 18

Corsair IV Financial Services Capital Partners -

B, LP

N/A

0, 1, 32

Dalian Pulandian HSBC Rural Bank Company

Limited

100.00

12, 33

Decision One Mortgage Company, LLC N/A

0, 34

Dem 9 100.00 (99.99)

4, 35

Dempar 1 100.00 (99.99)

4, 35

Desarrollo Turistico, S.A. de C.V. (In

Liquidation)

100.00 (99.99)

Electronic Data Process México, S.A. de C.V. 100.00

1, 16

Eton Corporate Services Limited 100.00

Far East Leasing SA (In Dissolution) 100.00

Flandres Contentieux S.A. 100.00 (99.99)

Foncière Elysées 100.00 (99.99)

Fujian Yongan HSBC Rural Bank Company

Limited

100.00

12, 37

Fulcher Enterprises Company Limited 100.00 (62.14)

Fundacion HSBC, A.C. 100.00 (99.99)

11, 16

Giller Ltd. 100.00

GPIF Co-Investment, LLC N/A

0, 15

Griffin International Limited 100.00

Grupo Financiero HSBC, S. A. de C. V. 99.99

Guangdong Enping HSBC Rural Bank

Company Limited

100.00

12, 39

Guangzhou HSBC Real Estate Company Ltd

100.00

1, 12, 40

Hang Seng (Nominee) Limited 100.00 (62.14)

Hang Seng Bank (China) Limited 100.00 (62.14)

Hang Seng Bank (Trustee) Limited 100.00 (62.14)

Hang Seng Bank Limited 62.14

Hang Seng Bullion Company Limited 100.00 (62.14)

Hang Seng Credit Limited 100.00 (62.14)

Hang Seng Data Services Limited 100.00 (62.14)

Hang Seng Finance Limited 100.00 (62.14)

Hang Seng Financial Information Limited 100.00 (62.14)

Hang Seng Indexes (Netherlands) B.V. 100.00 (62.14)

1, 42

Hang Seng Indexes Company Limited 100.00 (62.14)

Hang Seng Insurance Company Limited 100.00 (62.14)

Hang Seng Investment Management Limited 100.00 (62.14)

Hang Seng Investment Services Limited 100.00 (62.14)

Hang Seng Life Limited (In Liquidation) 100.00 (62.14)

Hang Seng Qianhai Fund Management

Company Limited

70.00 (43.49)

12, 44

Hang Seng Real Estate Management Limited 100.00 (62.14)

Hang Seng Securities Limited 100.00 (62.14)

Hang Seng Security Management Limited 100.00 (62.14)

HASE Wealth Limited 100.00 (62.14)

1, 38

Haseba Investment Company Limited 100.00 (62.14)

HFC Bank Limited (In Liquidation) 100.00

High Time Investments Limited 100.00 (62.14)

HLF 100.00 (99.99)

Honey Blue Enterprises Limited 100.00

1, 46

Honey Green Enterprises Ltd. 100.00

Honey Grey Enterprises Limited 100.00

1, 46

Honey Silver Enterprises Limited 100.00

1, 46

Household International Europe Limited (In

Liquidation)

100.00

Household Pooling Corporation 100.00

Housing (USA) LLP N/A

0, 1, 27

HSBC (BGF) Investments Limited 100.00

HSBC (General Partner) Limited 100.00

2, 79

HSBC (Guernsey) GP PCC Limited 100.00

HSBC (Kuala Lumpur) Nominees Sdn Bhd 100.00

HSBC (Malaysia) Trustee Berhad 100.00

HSBC (Singapore) Nominees Pte Ltd 100.00

HSBC Agency (India) Private Limited 100.00

HSBC Alternative Investments Limited 100.00

HSBC Amanah Malaysia Berhad 100.00

HSBC Americas Corporation (Delaware) 100.00

HSBC Argentina Holdings S.A.

100.00

HSBC Asia Holdings B.V.

100.00

HSBC Asia Holdings Limited

100.00

2, 46

HSBC Asia Pacific Holdings (UK) Limited 100.00

HSBC Asset Finance (UK) Limited 100.00

HSBC Asset Finance M.O.G. Holdings (UK)

Limited

100.00

HSBC Asset Management (Fund Services UK)

Limited

100.00

1, 18

HSBC Asset Management (India) Private

Limited

100.00

HSBC Asset Management (Japan) Limited 100.00

HSBC Assurances Vie (France) 100.00 (99.99)

HSBC Australia Holdings Pty Limited 100.00

HSBC BANK (CHILE) 100.00 (99.99)

HSBC Bank (China) Company Limited 100.00

12, 57

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

Notes on the financial statements

410 HSBC Holdings plc Annual Report and Accounts 2022

HSBC Bank (General Partner) Limited 100.00

HSBC Bank (Mauritius) Limited 100.00

HSBC Bank (RR) (Limited Liability Company) N/A

0, 13, 59

HSBC Bank (Singapore) Limited 100.00

HSBC Bank (Taiwan) Limited 100.00

HSBC Bank (Uruguay) S.A. 100.00

HSBC Bank (Vietnam) Ltd. 100.00

HSBC Bank A.S. 100.00 (99.99)

HSBC Bank Argentina S.A. 99.99

HSBC Bank Armenia cjsc 100.00

HSBC Bank Australia Limited 100.00

HSBC Bank Bermuda Limited 100.00

HSBC Bank Canada 100.00

HSBC Bank Capital Funding (Sterling 1) LP N/A

0, 79

HSBC Bank Capital Funding (Sterling 2) LP N/A

0, 79

HSBC Bank Egypt S.A.E 94.54

HSBC Bank Malaysia Berhad 100.00

HSBC Bank Malta p.l.c. 70.03

HSBC Bank Middle East Limited 100.00

HSBC Bank Middle East Limited

Representative Office Morocco SARL (In

Liquidation)

100.00

HSBC Bank Oman S.A.O.G. 51.00

HSBC Bank Pension Trust (UK) Limited 100.00

HSBC Bank plc 100.00

2, 18

HSBC Bank USA, National Association 100.00

HSBC Branch Nominee (UK) Limited 100.00

HSBC Brasil Holding S.A. 100.00

HSBC Broking Forex (Asia) Limited 100.00

HSBC Broking Futures (Asia) Limited

100.00

HSBC Broking Futures (Hong Kong) Limited 100.00

HSBC Broking Securities (Asia) Limited 100.00

HSBC Broking Securities (Hong Kong) Limited 100.00

HSBC Broking Services (Asia) Limited 100.00

HSBC Canadian Covered Bond (Legislative)

GP Inc.

100.00

HSBC Canadian Covered Bond (Legislative)

Guarantor Limited Partnership

N/A

0, 72

HSBC Capital (USA), Inc. 100.00

HSBC Capital Funding (Dollar 1) L.P. N/A

HSBC Card Services Inc. 100.00

HSBC Casa de Bolsa, S.A. de C.V., Grupo 100.00 (99.99)

HSBC Cayman Limited 100.00

HSBC Cayman Services Limited 100.00

HSBC City Funding Holdings 100.00

HSBC Client Holdings Nominee (UK) Limited 100.00

HSBC Client Nominee (Jersey) Limited 100.00

HSBC Columbia Funding, LLC N/A

0, 15

HSBC Continental Europe 99.99

HSBC Corporate Advisory (Malaysia) Sdn Bhd 100.00

HSBC Corporate Finance (Hong Kong) Limited 100.00

HSBC Corporate Secretary (UK) Limited 100.00

2, 18

HSBC Corporate Trustee Company (UK)

Limited

100.00

HSBC Custody Nominees (Australia) Limited 100.00

HSBC Custody Services (Guernsey) Limited 100.00

HSBC Daisy Investments (Mauritius) Limited 100.00

HSBC Diversified Loan Fund General Partner

Sarl

N/A

HSBC Electronic Data Processing

(Guangdong) Limited

100.00

12, 77

HSBC Electronic Data Processing (Malaysia)

Sdn Bhd

100.00

HSBC Electronic Data Processing

(Philippines), Inc.

99.99

HSBC Electronic Data Processing India

Private Limited

100.00

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

HSBC Electronic Data Processing Lanka

(Private) Limited

100.00

HSBC Electronic Data Service Delivery

(Egypt) S.A.E.

100.00

HSBC Epargne Entreprise (France) 100.00 (99.99)

HSBC Equipment Finance (UK) Limited 100.00

HSBC Equity (UK) Limited 100.00

HSBC Europe B.V. 100.00

HSBC Executor & Trustee Company (UK)

Limited

100.00

HSBC Factoring (France) 100.00 (99.99)

HSBC Finance (Netherlands) 100.00

2, 18

HSBC Finance Corporation 100.00

HSBC Finance Limited 100.00

HSBC Finance Mortgages Inc. 100.00

HSBC Finance Transformation (UK) Limited 100.00

HSBC Financial Advisors Singapore Pte. Ltd. 100.00

1, 20

HSBC Financial Services (Lebanon) s.a.l. 99.65

HSBC Financial Services (Uruguay) S.A. (In

Liquidation)

100.00

HSBC FinTech Services (Shanghai) Company

Limited

100.00

HSBC Global Asset Management (Bermuda)

Limited

100.00

3, 23

HSBC Global Asset Management (Canada)

Limited

100.00

HSBC Global Asset Management

(Deutschland) GmbH

100.00

HSBC Global Asset Management (France) 100.00 (99.99)

HSBC Global Asset Management (Hong

Kong) Limited

100.00

HSBC Global Asset Management (Malta)

Limited

100.00 (70.03)

HSBC Global Asset Management (México),

S.A. de C.V., Sociedad Operadora de Fondos

de Inversión, Grupo Financiero HSBC

100.00 (99.99)

HSBC Global Asset Management (Singapore)

Limited

100.00

HSBC Global Asset Management

(Switzerland) AG

100.00

4, 89

HSBC Global Asset Management (Taiwan)

Limited

100.00

HSBC Global Asset Management (UK)

Limited

100.00

HSBC Global Asset Management (USA) Inc. 100.00

HSBC Global Asset Management Argentina

S.A. Sociedad Gerente de Fondos Comunes

de Inversión

100.00

HSBC Global Asset Management Holdings

(Bahamas) Limited

100.00

HSBC Global Asset Management Limited 100.00

2, 18

HSBC Global Custody Nominee (UK) Limited 100.00

HSBC Global Custody Proprietary Nominee

(UK) Limited

100.00

1, 18

HSBC Global Services (Canada) Limited 100.00

HSBC Global Services (China) Holdings

Limited

100.00

HSBC Global Services (Hong Kong) Limited 100.00

HSBC Global Services (UK) Limited 100.00

HSBC Global Services Limited 100.00

2, 18

HSBC Global Shared Services (India) Private

Limited (In Liquidation)

99.99

1, 50

HSBC Group Management Services Limited 100.00

HSBC Group Nominees UK Limited 100.00

2, 18

HSBC Holdings B.V. 100.00

HSBC IM Pension Trust Limited 100.00

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

HSBC Holdings plc Annual Report and Accounts 2022 411

Financial statements

HSBC Infrastructure Debt GP 1 S.à r.l. N/A

0, 93

HSBC Infrastructure Debt GP 2 S.à r.l. N/A

0, 93

HSBC Infrastructure Limited 100.00

HSBC Institutional Trust Services (Asia) 100.00

HSBC Institutional Trust Services (Bermuda)

Limited

100.00

HSBC Institutional Trust Services (Mauritius)

Limited

100.00

HSBC Institutional Trust Services (Singapore)

Limited

100.00

HSBC Insurance (Asia) Limited 100.00

HSBC Insurance (Asia-Pacific) Holdings

Limited

100.00

HSBC Insurance (Bermuda) Limited 100.00

HSBC Insurance (Singapore) Pte. Limited 100.00

HSBC Insurance Agency (USA) Inc. 100.00

HSBC Insurance Brokerage Company Limited

100.00

1, 96

HSBC Insurance Brokers Greater China

Limited

100.00

1, 46

HSBC Insurance Holdings Limited 100.00

2, 18

HSBC Insurance SAC 1 (Bermuda) Limited 100.00

HSBC Insurance SAC 2 (Bermuda) Limited 100.00

1, 23

HSBC Insurance Services Holdings Limited 100.00

HSBC International Finance Corporation

(Delaware)

100.00

HSBC International Trustee (BVI) Limited 100.00

HSBC International Trustee (Holdings) Pte.

Limited

100.00

HSBC International Trustee Limited 100.00

HSBC Inversiones S.A. 100.00

HSBC InvestDirect (India) Private Limited 100.00

HSBC InvestDirect Financial Services (India)

Limited

99.99 (99.98)

HSBC InvestDirect Sales & Marketing (India)

Limited

98.99 (98.98)

HSBC InvestDirect Securities (India) Private

Limited

99.99

HSBC Investment and Insurance Brokerage,

Philippines Inc.

99.99

100

HSBC Investment Bank Holdings B.V. 100.00

HSBC Investment Bank Holdings Limited 100.00

HSBC Investment Company Limited 100.00

2, 18

HSBC Investment Funds (Canada) Inc. 100.00

HSBC Investment Funds (Hong Kong) Limited 100.00

HSBC Investment Funds (Luxembourg) SA 100.00

101

HSBC Invoice Finance (UK) Limited 100.00

102

HSBC Issuer Services Common Depositary

Nominee (UK) Limited

100.00

HSBC Issuer Services Depositary Nominee

(UK) Limited

100.00

HSBC Latin America B.V. 100.00

HSBC Latin America Holdings (UK) Limited 100.00

2, 18

HSBC Leasing (Asia) Limited 100.00

HSBC Life (Bermuda) Limited 100.00

HSBC Life (Cornell Centre) Limited 100.00

HSBC Life (Edwick Centre) Limited 100.00

HSBC Life (International) Limited 100.00

HSBC Life (Property) Limited 100.00

HSBC Life (Tsing Yi Industrial) Limited 100.00

HSBC Life (UK) Limited 100.00

HSBC Life (Workshop) Limited 100.00

1, 95

HSBC Life Assurance (Malta) Limited 100.00 (70.03)

HSBC Life Insurance Company Limited 100.00

12, 57

HSBC LU Nominees Limited 100.00

HSBC Management (Guernsey) Limited

100.00

103

HSBC Markets (USA) Inc. 100.00

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

HSBC Marking Name Nominee (UK) Limited 100.00

HSBC Master Trust Trustee Limited 100.00

HSBC Mexico, S.A., Institucion de Banca

Multiple, Grupo Financiero HSBC

99.99

HSBC Middle East Asset Co. LLC 100.00

104

HSBC Middle East Holdings B.V. 100.00

2, 68

HSBC Middle East Leasing Partnership N/A

0, 68

HSBC Middle East Securities L.L.C 100.00

105

HSBC Mortgage Corporation (Canada) 100.00

HSBC Mortgage Corporation (USA) 100.00

HSBC Nominees (Asing) Sdn Bhd 100.00

HSBC Nominees (Hong Kong) Limited 100.00

HSBC Nominees (New Zealand) Limited 100.00

106

HSBC Nominees (Tempatan) Sdn Bhd 100.00

HSBC North America Holdings Inc. 100.00

3, 15

HSBC Operational Services GmbH 80.00

HSBC Overseas Holdings (UK) Limited 100.00

2, 18

HSBC Overseas Investments Corporation

(New York)

100.00

107

HSBC Overseas Nominee (UK) Limited 100.00

HSBC Participaciones (Argentina) S.A. 100.00

HSBC PB Corporate Services 1 Limited 100.00

HSBC PB Services (Suisse) SA 100.00

108

HSBC Pension Trust (Ireland) DAC 100.00

109

HSBC Pensiones, S.A. (In Liquidation) 100.00

HSBC PI Holdings (Mauritius) Limited 100.00

HSBC Portfoy Yonetimi A.S. 100.00

HSBC Preferential LP (UK) 100.00

HSBC Private Bank (Luxembourg) S.A. 100.00

101

HSBC Private Bank (Suisse) SA 100.00

108

HSBC Private Bank (UK) Limited 100.00

HSBC Private Banking Holdings (Suisse) SA 100.00

108

HSBC Private Banking Nominee 3 (Jersey)

Limited

100.00

HSBC Private Equity Investments (UK)

Limited

100.00

HSBC Private Investment Counsel (Canada)

Inc.

100.00

HSBC Private Markets Management SARL N/A

0, 110

HSBC Private Trustee (Hong Kong) Limited 100.00

HSBC Professional Services (India) Private

Limited

100.00

HSBC Property (UK) Limited 100.00

HSBC Property Funds (Holding) Limited 100.00

HSBC Provident Fund Trustee (Hong Kong)

Limited

100.00

HSBC Qianhai Securities Limited 90.00

12, 111

HSBC Real Estate Leasing (France) 100.00 (99.99)

HSBC REGIO Fund General Partner S.à r.l. 100.00

1, 93

HSBC REIM (France) 100.00 (99.99)

HSBC Retirement Benefits Trustee (UK)

Limited

100.00

1, 2, 18

HSBC Retirement Services Limited 100.00

1, 18

HSBC Saudi Arabia, Closed Joint Stock

Company

66.19

112

HSBC Savings Bank (Philippines) Inc. 99.99

113

HSBC Securities (Canada) Inc. 100.00

HSBC Securities (Egypt) S.A.E. (In

Liquidation)

100.00 (94.65)

HSBC Securities (Japan) Co., Ltd. 100.00

1, 53

HSBC Securities (Japan) Limited 100.00

HSBC Securities (Singapore) Pte Limited 100.00

HSBC Securities (South Africa) (Pty) Limited 100.00

114

HSBC Securities (Taiwan) Corporation Limited 100.00

HSBC Securities (USA) Inc. 100.00

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

Notes on the financial statements

412 HSBC Holdings plc Annual Report and Accounts 2022

HSBC Securities and Capital Markets (India)

Private Limited

99.99

HSBC Securities Brokers (Asia) Limited 100.00

HSBC Securities Investments (Asia) Limited 100.00

HSBC Securities Services (Bermuda) Limited 100.00

HSBC Securities Services (Guernsey) Limited 100.00

HSBC Securities Services (Ireland) DAC 100.00

109

HSBC Securities Services (Luxembourg) S.A. 100.00

101

HSBC Securities Services Holdings (Ireland)

DAC

100.00

109

HSBC Securities Services Nominees Limited 100.00

1, 46

HSBC Seguros de Retiro (Argentina) S.A. 100.00 (99.99)

HSBC Seguros de Vida (Argentina) S.A. 100.00 (99.99)

HSBC Seguros, S.A de C.V., Grupo Financiero

HSBC

100.00 (99.99)

HSBC Service Company Germany GmbH 100.00 (99.99)

1, 87

HSBC Service Delivery (Polska) Sp. z o.o. 100.00

115

HSBC Services (France) 100.00 (99.99)

HSBC Services Japan Limited 100.00

HSBC Services USA Inc. 100.00

116

HSBC Servicios Financieros, S.A. de C.V 100.00 (99.99)

HSBC Servicios, S.A. DE C.V., Grupo

Financiero HSBC

100.00 (99.99)

HSBC SFH (France) 100.00 (99.99)

4, 54

HSBC SFT (C.I.) Limited 100.00

HSBC Software Development (Guangdong)

Limited

100.00

117

HSBC Software Development (India) Private

Limited

100.00

118

HSBC Software Development (Malaysia) Sdn

Bhd

100.00

HSBC Specialist Investments Limited 100.00

HSBC Technology & Services (China) Limited 100.00

HSBC Technology & Services (USA) Inc. 100.00

HSBC Titan GmbH & Co. KG

100.00

(99.99)

1, 87

HSBC Transaction Services GmbH 100.00

(99.99)

6, 87

HSBC Trinkaus & Burkhardt (International)

S.A.

100.00 (99.99)

119

HSBC Trinkaus & Burkhardt Gesellschaft fur

Bankbeteiligungen mbH

100.00 (99.99)

HSBC Trinkhaus & Burkhardt GmbH 100.00 (99.99)

HSBC Trinkaus Europa Immobilien-Fonds Nr.

5 GmbH

100.00 (99.99)

HSBC Trinkaus Family Office GmbH 100.00 (99.99)

6, 87

HSBC Trinkaus Real Estate GmbH 100.00 (99.99)

6, 87

HSBC Trust Company (Canada) 100.00

HSBC Trust Company (Delaware), National

Association

100.00

HSBC Trust Company (UK) Limited 100.00

HSBC Trustee (C.I.) Limited 100.00

HSBC Trustee (Cayman) Limited 100.00

120

HSBC Trustee (Guernsey) Limited 100.00

HSBC Trustee (Hong Kong) Limited 100.00

HSBC Trustee (Singapore) Limited 100.00

HSBC UK Bank plc 100.00

2, 17

HSBC UK Client Nominee Limited 100.00

HSBC UK Covered Bonds LLP N/A

0, 17

HSBC UK Holdings Limited 100.00

2, 18

HSBC USA Inc. 100.00

107

HSBC Ventures USA Inc. 100.00

HSBC Violet Investments (Mauritius) Limited 100.00

HSBC Wealth Client Nominee Limited 100.00

1, 17

HSBC Yatirim Menkul Degerler A.S. 100.00

HSI Asset Securitization Corporation 100.00

HSI International Limited 100.00 (62.14)

HSIL Investments Limited 100.00

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

Hubei Macheng HSBC Rural Bank Company

Limited

100.00

121

Hubei Suizhou Cengdu HSBC Rural Bank

Company Limited

100.00

12, 122

Hubei Tianmen HSBC Rural Bank Company

Limited

100.00

123

Hunan Pingjiang HSBC Rural Bank Company

Limited

100.00

12, 124

Imenson Limited 100.00 (62.14)

INKA Internationale Kapitalanlagegesellschaft

mbH

100.00 (99.99)

Inmobiliaria Bisa, S.A. de C.V. 99.98

Inmobiliaria Grufin, S.A. de C.V. 100.00 (99.99)

Inmobiliaria Guatusi, S.A. de C.V. 100.00 (99.99)

James Capel (Nominees) Limited 100.00

James Capel (Taiwan) Nominees Limited 100.00

John Lewis Financial Services Limited 100.00

Keyser Ullmann Limited 100.00 (99.99)

L&T Investment Management Limited 100.00 (99.99)

1, 52

Lion Corporate Services Limited 100.00

Lion International Corporate Services Limited 100.00

1, 99

Lion International Management Limited 100.00

Lion Management (Hong Kong) Limited 100.00

1, 46

Lyndholme Limited 100.00

Marks and Spencer Financial Services plc 100.00

125

Marks and Spencer Unit Trust Management

Limited

100.00

125

Maxima S.A. AFJP (In Liquidation) 99.98

Midcorp Limited 100.00

Midland Bank (Branch Nominees) Limited 100.00

Midland Nominees Limited 100.00

MIL (Cayman) Limited 100.00

MP Payments Group Limited 100.00

1, 18

MP Payments Operations Limited

100.00

1, 18

MP Payments UK Limited 100.00

1, 18

MW Gestion SA 100.00

Prudential Client HSBC GIS Nominee (UK) 100.00

PT Bank HSBC Indonesia 99.99 (98.93)

126

PT HSBC Sekuritas Indonesia 85.00

126

R/CLIP Corp. 100.00

Real Estate Collateral Management Company 100.00

Republic Nominees Limited 100.00

RLUKREF Nominees (UK) One Limited 100.00

1, 18

RLUKREF Nominees (UK) Two Limited 100.00

1, 18

S.A.P.C. - Ufipro Recouvrement 99.99

Saf Baiyun 100.00 (99.99)

4, 35

Saf Guangzhou 100.00 (99.99)

4, 35

SCI HSBC Assurances Immo 100.00 (99.99)

Serai Limited 100.00

Serai Technology Development (Shanghai)

Limited

100.00

1, 12, 57

SFM 100.00 (99.99)

SFSS Nominees (Pty) Limited 100.00

114

Shandong Rongcheng HSBC Rural Bank

Company Limited

100.00

12, 127

Shenzhen HSBC Development Company Ltd 100.00

1, 12, 128

Sico Limited 100.00

129

SNC Les Oliviers D'Antibes 60.00 (59.99)

11, 54

SNCB/M6 - 2008 A 100.00 (99.99)

SNCB/M6-2007 A 100.00 (99.99)

4, 35

SNCB/M6-2007 B 100.00 (99.99)

4, 35

Société Française et Suisse 100.00 (99.99)

Somers Dublin DAC 100.00 (99.99)

109

Somers Nominees (Far East) Limited 100.00

Sopingest 100.00 (99.99)

South Yorkshire Light Rail Limited 100.00

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

HSBC Holdings plc Annual Report and Accounts 2022 413

Financial statements

St Cross Trustees Limited 100.00

Sun Hung Kai Development (Lujiazui III)

Limited

100.00

12, 57

Swan National Limited 100.00

The Hongkong and Shanghai Banking

Corporation Limited

100.00

5, 46

The Venture Catalysts Limited 100.00

Tooley Street View Limited 100.00

2, 18

Tower Investment Management 100.00

130

Trinkaus Australien Immobilien Fonds Nr. 1

Brisbane GmbH & Co. KG

100.00 (99.99)

Trinkaus Australien Immobilien-Fonds Nr. 1

Treuhand-GmbH

100.00 (99.99)

6, 87

Trinkaus Europa Immobilien-Fonds Nr.3

Objekt Utrecht Verwaltungs-GmbH

100.00 (99.99)

Trinkaus Immobilien-Fonds

Geschaeftsfuehrungs-GmbH

100.00 (99.99)

6, 87

Trinkaus Immobilien-Fonds Verwaltungs-

GmbH

100.00 (99.99)

6, 87

Trinkaus Private Equity Management GmbH 100.00 (99.99)

Trinkaus Private Equity Verwaltungs GmbH 100.00 (99.99)

6, 87

Tropical Nominees Limited 100.00

Turnsonic (Nominees) Limited 100.00

Valeurs Mobilières Elysées 100.00 (99.99)

Wardley Limited 100.00

Wayfoong Nominees Limited 100.00

Westminster House, LLC N/A

0, 15

Woodex Limited 100.00

Yan Nin Development Company Limited 100.00 (62.14)

Subsidiaries

% of share class

held by immediate

parent company

(or by the Group

where this varies)

Footnotes

Joint ventures

The undertakings below are joint ventures and equity accounted.

Joint ventures

% of share class

held by

immediate parent

company (or by

the Group where

this varies)

Footnotes

Climate Asset Management Limited

40.00

1, 131

Global Payments Technology Mexico S.A. De

C.V

50.00

HCM Holdings Limited (In Liquidation) 50.99

Pentagreen Capital Pte. Ltd

50.00

1, 132

ProServe Bermuda Limited 50.00

133

The London Silver Market Fixing Limited N/A

0 1, 134

Vaultex UK Limited 50.00

135

Associates

The undertakings below are associates and equity accounted.

Associates

% of share class

held by

immediate parent

company (or by

the Group where

this varies)

Footnotes

Bank of Communications Co., Ltd. 19.03

136

Barrowgate Limited 15.31

137

BGF Group PLC 24.61

138

Bud Financial Limited 5.36

1, 139

Canara HSBC Life Insurance Company

Limited

26.00

140

Contour Pte Ltd 12.65

1, 141

Divido Financial Services Limited 5.56

1, 142

Electronic Payment Services Company (Hong

Kong) Limited

38.66

Episode Six Limited 7.02

1, 143

EPS Company (Hong Kong) Limited 38.66

EURO Secured Notes Issuer 16.67

144

GZHS Research Co Ltd 20.50

145

HSBC Jintrust Fund Management Company

Limited

49.00

Liquidity Match LLC N/A

0, 1, 146

London Precious Metals Clearing Limited 30.00

1, 147

MENA Infrastructure Fund (GP) Ltd 33.33

145

Monese Ltd 5.39

1, 149

Quantexa Ltd 10.10

131

Services Epargne Entreprise 14.18

150

The London Gold Market Fixing Limited 25.00

134

The Saudi British Bank 31.00

152

Threadneedle Software Holdings Limited 6.56

1, 153

Trade Information Network Limited 16.67

1, 154

Trinkaus Europa Immobilien-Fonds Nr. 7

Frankfurt Mertonviertel KG

N/A

0, 87

Vizolution Limited

17.95

1, 155

We Trade Innovation Designated Activity

Company

9.88

1, 156

Notes on the financial statements

414 HSBC Holdings plc Annual Report and Accounts 2022

Footnotes for Note 38

Description of Shares

Where an entity is governed by voting rights, HSBC consolidates

when it holds – directly or indirectly – the necessary voting rights

to pass resolutions by the governing body. In all other cases, the

assessment of control is more complex and requires judgement of

other factors, including having exposure to variability of returns,

power to direct relevant activities, and whether power is held as

an agent or principal. HSBC’s consolidation policy is described in

Note 1.2(a).

1 Management has determined that these undertakings are

excluded from consolidation in the Group accounts as these

entities do not meet the definition of subsidiaries in accordance

with IFRS. HSBC’s consolidation policy is described in Note 1.2(a).

Directly held by HSBC Holdings plc

3 Preference Shares

4 Actions

5 Redeemable Preference Shares

6 GmbH Anteil

7 Limited and Unlimited Liability Shares

8 Liquidating Share Class

9 Nominal Shares

10 Non-Participating Voting Shares

11 Parts

Registered Capital Shares

Russian Limited Liability Company Shares

Stückaktien

15 c/o The Corporation Trust Company 1209 Orange Street,

Wilmington, Delaware, United States of America, 19801

Paseo de la Reforma 347 Col. Cuauhtemoc, Mexico, 06500

17 1 Centenary Square, Birmingham, United Kingdom, B1 1HQ

8 Canada Square, London, United Kingdom, E14 5HQ

5 Donegal Square South, Northern Ireland, Belfast, United

Kingdom, BT1 5JP

20 10 Marina Boulevard #48-01 Marina Bay Financial Centre,

Singapore, 018983

21 1909 Avenida Presidente Juscelino Kubitschek, 19° andar, Torre

Norte, São Paulo Corporate Towers, São Paulo, Brazil, 04551-903

22 Arnold House, St Julians Avenue, St Peter Port, Guernsey, GY1

3NF

37 Front Street, Hamilton, Bermuda, HM 11

First Floor, Xinhua Bookstore Xindong Road (SE of roundabout),

Miyun District, Beijing, China

25 Oak House Hirzel Street, St Peter Port, Guernsey, GY1 2NP

26 2929 Walden Avenue, Depew, New York, United States of

27 Corporation Service Company 251 Little Falls Drive, Wilmington,

Delaware, United States of America, 19808

28 Solidere - Rue Saad Zaghloul Immeuble - 170 Marfaa, P.O. Box

17 5476 Mar Michael, Beyrouth, Lebanon, 11042040

29 No 1, Bei Huan East Road Dazu County, Chongqing, China

No 107 Ping Du Avenue (E), Sanhe Town, Fengdu County,

Chongqing, China

31 No. 3, 5, 7, Haitang Erzhi Road Changyuan, Rongchang,

Chongqing, China, 402460

32 c/o Walkers Corporate Services Limited Walker House, 87 Mary

Street, George Town, Grand Cayman, Cayman Islands, KY1-9005

First & Second Floor, No.3 Nanshan Road, Pulandian , Dalian,

Liaoning, China

34 160 Mine Lake CT, Ste 200, Raleigh, North Carolina, United

States Of America, 27615-6417

35 38 avenue Kléber, Paris, France, 75116

36 MMG Tower, 23 floor Ave. Paseo del Mar Urbanizacion Costa del

Este, Panama

Registered offices

No. 1 1211 Yanjiang Zhong Road, Yongan, Fujian, China

38 83 Des Voeux Road Central, Hong Kong

No.44 Xin Ping Road Central, Encheng, Enping, Guangdong,

China, 529400

Room 311, Cheng Hui No. 2, Nan Sha Street, Nan Sha District,

Guangzhou, Guangdong, China

34/F, 36/F, Unit 031 of 45/F, and 46/F, Hang Seng Bank Tower,

1000 Lujiazui Ring Road, Pilot Free Trade Zone, Shanghai, China,

200120

42 Gustav Mahlerplein 2 1082 MA, Amsterdam, Netherlands

43 8/F, Prince’s Building, 10 Chater Road, Central, Hong Kong

44 1001, T2 Office Building, Qianhai Kerry Business Center, Qianhai

Avenue, Nanshan Street, Qianhai Shenzhen-Hong Kong

Cooperation Zone, Shenzhen, Guangdong, China

45 156 Great Charles Street, Queensway, Birmingham, West

Midlands, United Kingdom, B3 3HN

46 1 Queen’s Road, Central, Hong Kong

47 Commerce House, Wickhams Cay 1, P.O. Box 3140, Road Town,

Tortola, British Virgin Islands, VG1110

48 The Corporation Trust Company of Nevada 311 S. Division

Street, Carson City, Nevada, United States of America, 89703

Menara IQ, Lingkaran TRX, Tun Razak Exchange, Kuala Lumpur,

Malaysia, 55188

50 52/60 M G Road Fort, Mumbai, India, 400 001

51 557 Bouchard Level 20, Ciudad de Buenos Aires, Capital Federal,

Argentina, C1106ABG

52 9-11 Floors, NESCO IT Park Building No. 3 Western Express

Highway, Goregaon (East), Mumbai, India, 400063

HSBC Building 11-1, Nihonbashi 3-chome, Chuo-ku, Tokyo,

Japan, 103-0027

54 Immeuble Cœur Défense, 110 Esplanade du Général de Gaulle,

Courbevoie, France, 92400

55 Level 36, Tower 1, International Towers Sydney, 100 Barangaroo

Avenue, Sydney, New South Wales, Australia, 2000

56 Isidora Goyenechea 2800. 23rd Floor, Las Condes, Santiago,

Chile, 7550647

HSBC Building Shanghai ifc, 8 Century Avenue, Pudong,

Shanghai, China, 200120

IconEbene, Level 5 Office 1 (West Wing), Rue de L’institut,

Ebene, Mauritius

59 2 Paveletskaya Square Building 2, Moscow, Russian Federation,

115054

60 54F, 7 Xinyi Road Sec. 5, Xinyi District, Taipei, Taiwan

61 1266 Dr Luis Bonativa, 1266 Piso 30 (Torre IV WTC),

Montevideo, Uruguay, CP 11.000

62 The Metropolitan, 235 Dong Khoi Street, District 1, Ho Chi Minh

City, Viet Nam

63 Esentepe mah. Büyükdere Caddesi No.128, Istanbul, Türkiye,

34394

64 66 Teryan Street, Yerevan, Armenia, 0009

65 885 West Georgia Street, 3rd Floor, Vancouver, British Columbia,

Canada, V6C 3E9

306 Corniche El Nil, Maadi, Egypt, 11728

67 116 Archbishop Street, Valletta, Malta

401, Level 4 Gate Precinct Building 2, Dubai International

Financial Centre, P.O. Box 30444, Dubai, United Arab Emirates

Majer Consulting, Office 54/44, Building A1, Residence Ryad

Anfa, Boulevard Omar El Khayam, Casa Finance City (CFC),

Casablanca, Morocco

70 Al Khuwair Office, PO Box 1727, PC111 CPO Seeb, Muscat,

Oman

71 1800 Tysons Boulevard Suite 50, Tysons, Virginia, United States

of America, 22102

66 Wellington Street West, Suite 5300, Toronto, Ontario,

Canada, M5K 1E6

Registered offices

HSBC Holdings plc Annual Report and Accounts 2022 415

Financial statements

P.O. Box 1109, Strathvale House, Ground Floor, 90 North Church

Street , George Town, Grand Cayman, Cayman Islands,

KY1-1102

HSBC House Esplanade, St. Helier, Jersey, JE1 1HS

c/o Rogers Capital St. Louis Business Centre, Cnr Desroches &

St Louis Streets, Port Louis, Mauritius

49 avenue J.F. Kennedy, Luxembourg, 1855

4-17/F, Office Tower 2 TaiKoo Hui, No. 381 Tian He Road, Tian

He District, Guangzhou, Guangdong, China

Suite 1005, 10th Floor, Wisma Hamzah Kwong, Hing No. 1,

Leboh Ampang, Kuala Lumpur, Malaysia, 50100

Filinvest One Building, Northgate Cyberzone, Filinvest Corporate

City, Alabang, Muntinlupa City, Philippines

HSBC House, Plot No.8, Survey No.64 (Part), Hightec City Layout

Madhapur, Hyderabad, India, 500081

439, Sri Jayawardenapura Mawatha Welikada, Rajagiriya,

Colombo, Sri Lanka

Smart Village 28th Km Cairo- Alexandria Desert Road Building,

Cairo, Egypt

16 York Street, 6th Floor, Toronto, Ontario, Canada, M5J 0E6

Centre Ville 1341 Building, 4th Floor, Patriarche Howayek Street

(facing Beirut Souks), PO Box Riad El Solh, Lebanon, 9597

World Trade Center, Montevideo Avenida Luis Alberto de

Herrera 1248, Torre 1, Piso 15, Oficina 1502, Montevideo,

Uruguay, CP 11300

Room 655, Building A, No. 888, Huan Hu West Two Road, Lin

Gang New Area of Shanghai (Pilot) Free Trade Zone, Shanghai,

China

Hansaallee 3, Düsseldorf, Germany, 40549

80 Mill Street, Qormi, Malta, QRM 3101

26 Gartenstrasse, Zurich, Switzerland, 8002

24th Floor, 97-99, Sec.2, Tunhwa S. Road, Taipei, Taiwan

452 Fifth Avenue, New York, United States of America, NY10018

Mareva House, 4 George Street, Nassau, Bahamas

4 rue Peternelchen, Howald, Luxembourg, 2370

6th floor HSBC Centre 18, Cybercity, Ebene, Mauritius, 72201

18th Floor, Tower 1, HSBC Centre, 1 Sham Mong Road,

Kowloon, Hong Kong

Unit 201 Floor 2, Building 3, No. 12, Anxiang Street, Shunyi

District, Beijing, China

300 Delaware Avenue, Suite 1401, Wilmington, Delaware,

United States of America, 19801

Woodbourne Hall, Road Town, Tortola, British Virgin Islands, P.O.

Box 916

PO Box 71, Craigmuir Chambers, Road Town Tortola, British

Virgin Islands

100

5/F HSBC Centre 3058 Fifth Ave West, Bonifacio Global City,

Taguig City, Philippines

101

18 Boulevard de Kockelscheuer, Luxembourg, 1821

102

21 Farncombe Road Worthing, United Kingdom, BN11 2BW

103

Arnold House, St Julians Avenue, St Peter Port, Guernsey, GY1

1WA

104

345-6791, HSBC Tower, Burj Khalifa Community, Dubai, United

Arab Emirates

105

Office No.16, Owned by HSBC Bank Middle East Limited, Dubai

Branch, Bur Dubai, Burj Khalifa, Dubai, United Arab Emirates

106

HSBC Tower, Level 21, 188 Quay Street, Auckland, New

Zealand, 1010

107

The Corporation Trust Incorporated, 2405 York Road, Suite 201,

Lutherville Timonium, Maryland, United States of America,

21093

108

Quai des Bergues 9-17, Geneva, Switzerland, 1201

109

1 Grand Canal Square, Grand Canal Harbour, Dublin 2, Ireland,

D02 P820

Registered offices

110

5 rue Heienhaff, Senningerberg, Luxembourg, 1736

111

Block 27 A&B, Qianhai Enterprise Dream Park No. 63 Qianwan Yi

Road, Shenzhen-Hong Kong Cooperation Zone, Shenzhen, China,

518052

112

HSBC Building 7267 Olaya - Al Murrooj, Riyadh, Saudi Arabia,

12283 - 2255

113

Unit 1 GF The Commerical Complex Madrigal Avenue, Ayala

Alabang Village, Muntinlupa City, Philippines, 1780

114

1 Mutual Place, 107 Rivonia Road, Sandton, Gauteng, South

Africa, 2196

115

Kapelanka 42A , Krakow, Poland, 30-347

116

C T Corporation System 820 Bear Tavern Road, West Trenton,

New Jersey, United States of America, 08628

117

L22, Office Tower 2, Taikoo Hui, 381 Tianhe Road, Tianhe

District, Guangzhou, Guangdong, China

118

Business Bay, Wing 2, Tower B, Survey no 103, Hissa no. 2,

Airport road, Yerwada, Pune, India, 411006

119

16 Boulevard d’Avranches, Luxembourg, Luxembourg, L-1160

120

P.O. Box 309 Ugland House, Grand Cayman, Cayman Islands,

KY1-1104

121

No. 56 Yu Rong Street, Macheng, China, 438300

122

No. 205 Lie Shan Road Suizhou, Hubei, China

123

Building 3, Yin Zuo Di Jing Wan Tianmen New City, Tianmen,

Hubei Province, China

124

RM101, 102 & 106 Sunshine Fairview, Sunshine Garden,

Pedestrian Walkway, Pingjiang, China

125

Kings Meadow Chester Business Park , Chester, United

Kingdom, CH99 9FB

126

World Trade Center 1, Jalan Jenderal Sudirman Kavling 29 - 31,

Jakarta, Indonesia, 12920

127

No. 198-2 Chengshan Avenue (E), Rongcheng, China, 264300

128

Room 1303-13062 Marine Center Main Tower, 59 Linhai Road,

Nanshan District, Shenzhen, China

129

Woodbourne Hall, Road Town, Tortola, British Virgin Islands, P.O.

Box 3162

130

25 Main St. P.O. Box 694, Grand Cayman KY1 1107, Cayman

Islands, KY1 1107

131

Hill House, 1 Little New Street, London , United Kingdom, EC4A

3TR

132

60B Orchard Road #06-18, The Atrium @Orchard, Singapore,

238891

133

c/o MUFG Fund Services (Bermuda) Limited, Cedar House, 4th

Floor North, 41 Cedar Avenue, Hamilton, Bermuda, HM 12

134

c/o Hackwood Secretaries Limited, One Silk Street, London,

United Kingdom, EC2Y 8HQ

135

All Saints Triangle, Caledonian Road, London, United Kingdom,

N19UT

136

No.188, Yin Cheng Zhong Road China (Shanghai), Pilot Free

Trade Zone, Shanghai, China

137

50/F, Lee Garden One, 33 Hysan Avenue, Hong Kong

138

13-15 York Buildings, London, United Kingdom, WC2N 6JU

139

Linen Court, Floor 3, 10 East Road, London, United Kingdom, N1

6AD

140

Unit No. 208, 2nd Floor, Kanchenjunga Building 18, Barakhamba

Road, New Delhi, India, 110001

141

50 Raffles Place, #32-01 Singapore Land Tower, Singapore,

048623

142

Office 7, 35-37 Ludgate Hill, London, United Kingdom, EC4M

7JN

143

100 Town Square Place, Suite 201, Jersey City, New Jersey,

United States Of America, 07310

144

7th Floor, 62 Threadneedle Street, London, United Kingdom,

EC2R 8HP

145

Precinct Building 4, Level 3, Dubai International Financial Centre,

Dubai, United Arab Emirates, PO Box 506553

Registered offices

Notes on the financial statements

416 HSBC Holdings plc Annual Report and Accounts 2022

146

9/F Amtel Building, 148 des Voeux Road Central, Central, Hong

Kong

147

3 Avenue de l’Opera , Paris, France, 75001

148

Room 1303, 106 Feng Ze Dong Road, Nansha District,

Guangzhou, Guangdong, China

149

Eagle House, 163 City Road, London, United Kingdom, EC1V

1NR

150

32 rue du Champ de Tir, Nantes, France, 44300

151

Ernst-Schneider-Platz 1 , Duesseldorf, Germany, 40212

152

Al Amir Abdulaziz Ibn Mossaad Ibn Jalawi Street, Riyadh, Saudi

Arabia

153

2nd Floor, Regis House, 45 King William Street, London, United

Kingdom, EC4R 9AN

154

3 More London Riverside, London, United Kingdom, SE1 2AQ

155

Office Block A, Bay Studios Business Park, Fabian Way,

Swansea, Wales, United Kingdom, SA1 8QB

156

10 Earlsfort Terrace, Dublin, Ireland, DO2 T380

Registered offices

HSBC Holdings plc Annual Report and Accounts 2022 417

Financial statements

Shareholder information

Contents

418 Second Interim dividend for 2022

418 Interim dividends for 2023

418 Other equity instruments

418 2022 Annual General Meeting

419 Earnings releases and interim results

419 Shareholder enquiries and communications

420 Stock symbols

420 Investor relations

420 Where more information about HSBC is available

421 Taxation of shares and dividends

422 Approach to ESG reporting

424 Cautionary statement regarding forward-looking statements

426 Certain defined terms

427 Abbreviations

This section gives important information for our shareholders, including contact information. It also includes an overview of key abbreviations

and terminology used throughout the Annual Report and Accounts.

A glossary of terms used in the Annual Report and Accounts can be found in the Investors section of www.hsbc.com.

Second interim dividend for 2022

The Directors have approved a second interim dividend for 2022 of $0.23 per ordinary share. Information on the currencies in which

shareholders may elect to have the cash dividend paid will be sent to shareholders on or about 24 March2023. The interim dividend will be paid

in cash. The timetable for the interim dividend is:

Announcement 21 February 2023

Shares quoted ex-dividend in London, Hong Kong and Bermuda and American Depositary Shares (‘ADS’) quoted ex-dividend in New York 2 March 2023

Record date – London, Hong Kong, New York, Bermuda

3 March 2023

Mailing of Annual Report and Accounts 2022 and/or Strategic Report 2022 24 March 2023

Final date for dividend election changes including Investor Centre electronic instructions and revocations of standing instructions for dividend

elections

13 April 2023

Exchange rate determined for payment of dividends in sterling and Hong Kong dollars 17 April 2023

Payment date 27 April 2023

1 Removals to and from the Overseas Branch register of shareholders in Hong Kong will not be permitted on this date.

Interim dividends for 2023

For the financial year 2022, we achieved a dividend payout ratio within our 2022 target range of between 40% and 55% of reported earnings per

ordinary share (‘EPS’). As previously communicated, given our current returns trajectory, we are establishing a dividend payout ratio of 50% of

reported earnings per share for 2023 and 2024, excluding material significant items (including the planned sale of our retail banking operations in

France and the planned sale of our banking business in Canada). The Group intends to revert to paying quarterly dividends from the first quarter

of 2023. The dividend policy has the flexibility to adjust EPS for material significant items such as goodwill or intangibles impairments and may

be supplemented from time to time by buy-backs or special dividends, should the Group find itself in an excess capital position absent

compelling investment opportunities to deploy that excess.

Dividends are approved in US dollars and, at the election of the shareholder, paid in cash in one of, or in a combination of, US dollars, pounds

sterling and Hong Kong dollars.

Other equity instruments

Additional tier 1 capital – contingent convertible securities

HSBC continues to issue contingent convertible securities that are included in its capital base as fully CRR II-compliant additional tier 1 capital

securities. For further details on these securities, please refer to Note 32 on the financial statements.

HSBC issued no new perpetual contingent convertible securities during 2022.

2022 Annual General Meeting

With the exception of the shareholder requisitioned Resolution 19, which the Board recommended that shareholders vote against, and

resolution 17(b), which the Board withdrew from the agenda of the 2022 Annual General Meeting (‘AGM‘), all resolutions considered at the

2022 AGM held at 11:00am on 29 April 2022 at Queen Elizabeth Hall, Southbank Centre, Belvedere Road, London SE1 8XX, UK were passed on

a poll.

Additional information

418 HSBC Holdings plc Annual Report and Accounts 2022

Earnings releases and interim results

First and third quarter results for 2023 will be released on 2 May 2023 and 30 October 2023, respectively. The interim results for the six months

to 30 June 2023 will be issued on 1 August 2023.

Shareholder enquiries and communications

Enquiries

Any enquiries relating to shareholdings on the share register (for example, transfers of shares, changes of name or address, lost share

certificates or dividend cheques) should be sent to the Registrars at the address given below. The Registrars offer an online facility, Investor

Centre, which enables shareholders to manage their shareholding electronically.

Principal Register:

Hong Kong Overseas Branch Register:

Bermuda Overseas Branch Register:

Computershare Investor Services PLC Computershare Hong Kong Investor Investor Relations Team

The Pavilions Services Limited HSBC Bank Bermuda Limited

Bridgwater Road Rooms 1712-1716, 17th Floor 37 Front Street

Bristol BS99 6ZZ Hopewell Centre Hamilton HM 11

United Kingdom 183 Queen’s Road East Bermuda

Telephone: +44 (0) 370 702 0137 Hong Kong Telephone: +1 441 299 6737

Email via website: Telephone: +852 2862 8555 Email: [email protected]

www.investorcentre.co.uk/contactus Email: [email protected]

Investor Centre: Investor Centre: Investor Centre:

www.investorcentre.co.uk www.investorcentre.com/hk www.investorcentre.com/bm

Any enquiries relating to ADSs should be sent to the depositary:

The Bank of New York Mellon

Shareowner Services

P.O. Box 43006

Providence RI 02940-3078

USA

Telephone (US): +1 877 283 5786

Telephone (International): +1 201 680 6825

Email: [email protected]

Website: www.mybnymdr.com

If you have elected to receive general shareholder communications directly from HSBC Holdings, it is important to remember that your main

contact for all matters relating to your investment remains the registered shareholder, or custodian or broker, who administers the investment

on your behalf. Therefore, any changes or queries relating to your personal details and holding (including any administration of it) must continue

to be directed to your existing contact at your investment manager or custodian or broker. HSBC Holdings cannot guarantee dealing with

matters directed to it in error.

Shareholders who wish to receive a hard copy of the Annual Report and Accounts 2022 should contact HSBC’s Registrars. Please visit

www.hsbc.com/investors/investor-contacts for further information. You can also download an online version of the report from www.hsbc.com.

Electronic communications

Shareholders may at any time choose to receive corporate communications in printed form or to receive notifications of their availability on

HSBC’s website. To receive notifications of the availability of a corporate communication on HSBC’s website by email, or revoke or amend an

instruction to receive such notifications by email, go to www.hsbc.com/investors/shareholder-information/manage-your-shareholding. If you

provide an email address to receive electronic communications from HSBC, we will also send notifications of your dividend entitlements by

email. If you received a notification of the availability of this document on HSBC’s website and would like to receive a printed copy, or if you

would like to receive future corporate communications in printed form, please write or send an email (quoting your shareholder reference

number) to the appropriate Registrars at the address given above. Printed copies will be provided without charge.

HSBC Holdings plc Annual Report and Accounts 2022 419

Additional information

Chinese translation

A Chinese translation of the Annual Report and Accounts 2022 will be available upon request after 24 March 2023 from the Registrars:

Computershare Hong Kong Investor Services Limited

Computershare Investor Services PLC

Rooms 1712-1716, 17th Floor

The Pavilions

Hopewell Centre

Bridgwater Road

183 Queen’s Road East

Bristol BS99 6ZZ

Hong Kong

United Kingdom

Please also contact the Registrars if you wish to receive Chinese translations of future documents, or if you have received a Chinese translation

of this document and do not wish to receive them in future.

《2022 年報及賬目》備有中譯本，各界人士可於2023年3月24日之後，向上列股份登記處索閱。

閣下如欲於日後收取相關文件的中譯本，或已收到本文件的中譯本但不希望繼續收取有關譯本，均請聯絡股份登記處。

Stock symbols

HSBC Holdings ordinary shares trade under the following stock symbols:

London Stock Exchange

HSBA*

New York Stock Exchange (ADS)

HSBC

Hong Kong Stock Exchange

Bermuda Stock Exchange

HSBC.BH

*HSBC’s Primary market

Investor relations

Enquiries relating to HSBC’s strategy or operations may be directed to:

Richard O’Connor, Global Head of Investor Relations

Mark Phin, Head of Investor Relations, Asia-Pacific

HSBC Holdings plc

The Hongkong and Shanghai Banking

8 Canada Square

Corporation Limited

London E14 5HQ

1 Queen’s Road Central

United Kingdom

Hong Kong

Telephone: +44 (0) 20 7991 6590

Telephone: 852 2822 4908

Email: [email protected]

Where more information about HSBC is available

The Annual Report and Accounts 2022 and other information on HSBC may be downloaded from HSBC’s website: www.hsbc.com.

Reports, statements and information that HSBC Holdings files with the Securities and Exchange Commission are available at www.sec.gov.

Investors can also request hard copies of these documents upon payment of a duplicating fee by writing to the SEC at the Office of Investor

Education and Advocacy, 100 F Street N.E., Washington, DC 20549-0213 or by emailing [email protected]. Investors should call the

Commission at (1) 202 551 8090 if they require further assistance. Investors may also obtain the reports and other information that HSBC

Holdings files at www.nyse.com (telephone number (1) 212 656 3000).

HM Treasury has transposed the requirements set out under CRD IV and issued the Capital Requirements Country-by-Country Reporting

Regulations 2013. The legislation requires HSBC Holdings to publish additional information in respect of the year ended 31December 2022 by

31 December 2023. This information will be available on HSBC’s website: www.hsbc.com/tax.

Additional information

420 HSBC Holdings plc Annual Report and Accounts 2022

Taxation of shares and dividends

Taxation – UK residents

The following is a summary, under current law and the current

published practice of HM Revenue and Customs (‘HMRC’), of certain

UK tax considerations that are likely to be material to the ownership

and disposition of HSBC Holdings ordinary shares. The summary does

not purport to be a comprehensive description of all the tax

considerations that may be relevant to a holder of shares. In

particular, the summary deals with shareholders who are resident

solely in the UK for UK tax purposes and only with holders who hold

the shares as investments and who are the beneficial owners of the

shares, and does not address the tax treatment of certain classes of

holders such as dealers in securities. Holders and prospective

purchasers should consult their own advisers regarding the tax

consequences of an investment in shares in light of their particular

circumstances, including the effect of any national, state or local laws.

Taxation of dividends

Currently, no tax is withheld from dividends paid by HSBCHoldings.

UK resident individuals

UK resident individuals are generally entitled to a tax-free annual

allowance in respect of dividends received. The amount of the

allowance for the tax year beginning 6 April 2022 is £2,000. To the

extent that dividend income received by an individual in the relevant

tax year does not exceed the allowance, a nil tax rate will apply.

Dividend income in excess of this allowance will be taxed at 8.75%

for basic rate taxpayers, 33.75% for higher rate taxpayers and 39.35%

for additional rate taxpayers.

UK resident companies

Shareholders that are within the charge to UK corporation taxshould

generally be entitled to an exemption from UK corporation tax on any

dividends received from HSBC Holdings. However, the exemptions

are not comprehensive and are subject to anti-avoidance rules.

If the conditions for exemption are not met or cease to be satisfied, or

a shareholder within the charge to UK corporation tax elects for an

otherwise exempt dividend to be taxable, the shareholder will be

subject to UK corporation tax on dividends received from HSBC

Holdings at the rate of corporation tax applicable to that shareholder.

Taxation of capital gains

The computation of the capital gains tax liability arising on disposals of

shares in HSBC Holdings by shareholders subject to UK tax on capital

gains can be complex, partly depending on whether, for example, the

shares were purchased since April 1991, acquired in 1991 in

exchange for shares in The Hongkong and Shanghai Banking

Corporation Limited, or acquired subsequent to 1991 in exchange for

shares in other companies.

For capital gains tax purposes, the acquisition cost for ordinary shares

is adjusted to take account of subsequent rights and capitalisation

issues. Any capital gain arising on a disposal of shares in HSBC

Holdings by a UK company may also be adjusted to take account of

indexation allowance if the shares were acquired before 1 January

2018, although the level of indexation allowance that is given in

calculating the gain would be frozen at the value that would have

been applied to a disposal of those shares in December 2017. If in

doubt, shareholders are recommended to consult their professional

advisers.

Stamp duty and stamp duty reserve tax

Transfers of shares by a written instrument of transfer generally will

be subject to UK stamp duty at the rate of 0.5% of the consideration

paid for the transfer (rounded up to the next £5), and such stamp duty

is generally payable by the transferee. An agreement to transfer

shares, or any interest therein, normally will give rise to a charge to

stamp duty reserve tax at the rate of 0.5% of the consideration.

However, provided an instrument of transfer of the shares is

executed pursuant to the agreement and duly stamped before the

date on which the stamp duty reserve tax becomes payable, under

the current published practice of HMRC it will not be necessary to pay

the stamp duty reserve tax, nor to apply for such tax to be cancelled.

Stamp duty reserve tax is generally payable by the transferee.

Paperless transfers of shares within CREST, the UK’s paperless share

transfer system, are liable to stamp duty reserve tax at the rate of

0.5% of the consideration. In CREST transactions, the tax is

calculated and payment made automatically. Deposits of shares into

CREST generally will not be subject to stamp duty reserve tax, unless

the transfer into CREST is itself for consideration. Following the case

HSBC pursued before the European Court of Justice (Case C-569/07

HSBC Holdings plc and Vidacos Nominees Ltd v The Commissioners

for HM Revenue and Customs) and a subsequent case in relation to

depositary receipts, HMRC accepted that the charge to stamp duty

reserve tax at 1.5% on the issue of shares (and transfers integral to

capital raising) to a depositary receipt issuer or a clearance service

was incompatible with European Union law, and would not be

imposed.

Following the UK’s departure from the European Union and the expiry

of the transition period, the 1.5% stamp duty reserve tax charge on

issues of shares to overseas clearance services and depositary

receipt issuers is still disapplied, but no assurance can be given that

legislation will not be amended in the future to reintroduce the

charge.

Taxation – US residents

The following is a summary, under current law, of the principal UK tax

and US federal income tax considerations that are likely to be material

to the ownership and disposition of shares or American Depositary

Shares (‘ADSs’) by a holder that is a US holder, as defined below, and

who is not resident in the UK for UK tax purposes.

The summary does not purport to be a comprehensive description of

all of the tax considerations that may be relevant to a holder of shares

or ADSs. In particular, the summary deals only with US holders that

hold shares or ADSs as capital assets, and does not address the tax

treatment of holders that are subject to special tax rules. These

include banks, tax-exempt entities, insurance companies, dealers in

securities or currencies, persons that hold shares or ADSs as part of

an integrated investment (including a ‘straddle’ or ‘hedge’) comprised

of a share or ADS and one or more other positions, and persons that

own directly or indirectly 10% or more (by vote or value) of the stock

of HSBC Holdings. This discussion is based on laws, treaties, judicial

decisions and regulatory interpretations in effect on the date hereof,

all of which are subject to change.

For the purposes of this discussion, a ‘US holder’ is a beneficial holder

that is a citizen or resident of the United States, a US domestic

corporation or otherwise is subject to US federal income taxes on a

net income basis in respect thereof.

Holders and prospective purchasers should consult their own advisers

regarding the tax consequences of an investment in shares or ADSs

in light of their particular circumstances, including the effect of any

national, state or local laws.

Any US federal tax advice included in the Annual Report and Accounts

2022 is for informational purposes only. It was not intended or written

to be used, and cannot be used, for the purpose of avoiding US

federal tax penalties.

Taxation of dividends

Currently, no tax is withheld from dividends paid by HSBC Holdings.

For US tax purposes, a US holder must include cash dividends paid on

the shares or ADSs in ordinary income on the date that such holder or

the ADS depositary receives them, translating dividends paid in UK

pounds sterling into US dollars using the exchange rate in effect on

the date of receipt. A US holder that elects to receive shares in lieu of

a cash dividend must include in ordinary income the fair market value

of such shares on the dividend payment date, and the tax basis of

those shares will equal such fair market value.

Subject to certain exceptions for positions that are held for less than

61 days, and subject to a foreign corporation being considered a

‘qualified foreign corporation’ (which includes not being classified for

US federal income tax purposes as a passive foreign investment

company), certain dividends (‘qualified dividends’) received by an

individual US holder generally will be subject to US taxation at

preferential rates.

HSBC Holdings plc Annual Report and Accounts 2022 421

Additional information

Based on the company’s audited financial statements and relevant

market and shareholder data, HSBC Holdings does not believe that it

was a passive investment company for its 2022 taxable year and does

not anticipate becoming a passive foreign investment company in

2023 or the foreseeable future. Accordingly, dividends paid on the

shares or ADSs generally should be treated as qualified dividends.

Taxation of capital gains

Gains realised by a US holder on the sale or other disposition of

shares or ADSs normally will not be subject to UK taxation unless at

the time of the sale or other disposition the holder carries on a trade,

profession or vocation in the UK through a branch or agency or

permanent establishment and the shares or ADSs are or have been

used, held or acquired for the purposes of such trade, profession,

vocation, branch or agency or permanent establishment. Such gains

will be included in income for US tax purposes, and will be long-term

capital gains if the shares or ADSs were held for more than one year.

A long-term capital gain realised by an individual US holder generally

will be subject to US tax at preferential rates.

Inheritance tax

Shares or ADSs held by an individual whose domicile is determined to

be the US for the purposes of the United States–United Kingdom

Double Taxation Convention relating to estate and gift taxes (the

‘Estate Tax Treaty’) and who is not for such purposes a national of the

UK will not, provided any US federal estate or gift tax chargeable has

been paid, be subject to UK inheritance tax on the individual’s death

or on a lifetime transfer of shares or ADSs except in certain cases

where the shares or ADSs (i) are comprised in a settlement (unless, at

the time of the settlement, the settlor was domiciled in the US and

was not a national of the UK), (ii) are part of the business property of a

UK permanent establishment of an enterprise, or (iii) pertain to a UK

fixed base of an individual used for the performance of independent

personal services. In such cases, the Estate Tax Treaty generally

provides a credit against US federal tax liability for the amount of any

tax paid in the UK in a case where the shares or ADSs are subject to

both UK inheritance tax and to US federal estate or gift tax.

Stamp duty and stamp duty reserve tax – ADSs

If shares are transferred to a clearance service or American

Depositary Receipt (‘ADR’) issuer (which will include a transfer of

shares to the depositary) under the current published HMRC practice,

UK stamp duty and/or stamp duty reserve tax will be payable. The

stamp duty or stamp duty reserve tax is generally payable on the

consideration for the transfer and is payable at the aggregate rate of

1.5%.

The amount of stamp duty reserve tax payable on such a transfer will

be reduced by any stamp duty paid in connection with the same

transfer.

No stamp duty will be payable on the transfer of, or agreement to

transfer, an ADS, provided that the ADR and any separate instrument

of transfer or written agreement to transfer remain at all times

outside the UK, and provided further that any such transfer or written

agreement to transfer is not executed in the UK. No stamp duty

reserve tax will be payable on a transfer of, or agreement to transfer,

an ADS effected by the transfer of an ADR.

US information reporting and backup withholding tax

Distributions made on shares or ADSs and proceeds from the sale of

shares or ADSs that are paid within the US, or through certain

financial intermediaries to US holders, are subject to US information

reporting and may be subject to a US ‘backup’ withholding tax.

General exceptions to this rule happen when the US holder:

establishes that it is a corporation (other than an S corporation) or

other exempt holder; or provides a correct taxpayer identification

number, certifies that no loss of exemption from backup withholding

has occurred and otherwise complies with the applicable

requirements of the backup withholding rules. Holders that are not US

taxpayers generally are not subject to US information reporting or

backup withholding tax, but may be required to comply with

applicable certification procedures to establish that they are not US

taxpayers in order to avoid the application of such US information

reporting requirements or backup withholding tax to payments

received within the US or through certain financial intermediaries.

Approach to ESG reporting

The information set out in the ESG review on pages 43 to 96, taken

together with other information relating to ESG issues included in this

Annual Report and Accounts 2022, aims to provide key ESG

information and data relevant to our operations for the year ended

31December 2022. The data is compiled for the financial year

1January to 31 December 2022 unless otherwise specified.

Measurement techniques and calculations are explained next to data

tables where necessary. There are no significant changes from the

previous reporting period in terms of scope, boundary or

measurement of our reporting of ESG matters. Where relevant,

rationale is provided for any restatement of information or data that

has been previously published. We have also considered our

obligations under the Environmental, Social and Governance

Reporting Guide contained in Appendix 27 to The Rules Governing the

Listing of Securities on the Stock Exchange of Hong Kong Limited

(‘ESG Guide’) and under LR9.8.6R(8) of the Financial Conduct

Authority’s (‘FCA’) Listing Rules. We will continue to develop and

refine our reporting and disclosures on ESG matters in line with

feedback received from our investors and other stakeholders, and in

view of our obligations under the ESG Guide and the FCA’s Listing

Rules.

ESG Guide

We comply with the ‘comply or explain’ provisions in the ESG Guide,

save for certain items, which we describe in more detail below:

• A1(b) on relevant laws/regulations relating to air and greenhouse

gas emissions, discharges into water and land, and generation of

hazardous and non-hazardous waste: Taking into account the

nature of our business, we do not believe that there are relevant

laws and regulations in these areas that have significant impacts

on HSBC.

• A1.3 on total hazardous waste produced, A1.4 on total non-

hazardous waste produced: Taking into account the nature of our

business, we do not consider hazardous waste to be a material

issue for our stakeholders. As such, we report only on total waste

produced, which includes hazardous and non-hazardous waste.

• A1.6 on handling hazardous and non-hazardous waste: Taking into

account the nature of our business, we do not consider this to be

a material issue for our stakeholders. Notwithstanding this, we

continue to focus on the reduction and recycling of all waste.

Building on the success of our previous operational environmental

strategy, we are identifying key opportunities where we can

lessen our wider environmental impact, including waste

management. For further details, please see our ESG review on

page 62.

• A2.4 on sourcing water issue and water efficiency target: Taking

into account the nature of our business, we do not consider this to

be a material issue for our stakeholders. Notwithstanding this, we

have implemented measures to further reduce water consumption

through the installation of flow restrictors, auto-taps and low or

zero flush sanitary fittings and continue to track our water

consumption.

• A2.5 on packaging material, B6(b) on issues related to health and

safety and labelling relating to products and services provided,

B6.1 on percentage of total products sold or shipped subject to

recalls for safety and health reasons and B6.4 in recall procedures:

Taking into account the nature of our business, we do not consider

these to be material issues for our stakeholders.

This is aligned with the materiality reporting principle that is set out in

the ESG Guide. See ‘How we decide what to measure’ on page 45

for further information on how we determine what matters are

material to our stakeholders.

Additional information

422 HSBC Holdings plc Annual Report and Accounts 2022

TCFD recommendations and recommended

disclosures

As noted on page 17, we have considered our ‘comply or explain’

obligation under the FCA’s Listing Rules, and confirm that we have

made disclosures consistent with the TCFD Recommendations and

Recommended Disclosures in this Annual Report and Accounts 2022

save for certain items, which we describe below:

Targets setting

Metrics and targets (c) relating to short-term targets: For financed

emissions we do not plan to set 2025 targets. We set targets in line

with the Net-Zero Banking Alliance (‘NZBA‘) guidelines by setting

2030 targets. While the NZBA define 2030 as intermediate, we use

different time horizons for climate risk management. We define short

term as time periods up to 2025; medium term is between 2026 and

2035; and long term is between 2036 and 2050. These time periods

align to the Climate Action 100+ disclosure framework. In 2022, we

disclose interim 2030 targets for on-balance sheet financed emissions

for eight sectors as we outline on page 18. For the shipping sector,

we chose to defer setting a baseline and target until there is sufficient

reliable data to support our work, allowing us to more accurately track

progress towards net zero. We have chosen to defer setting targets

for facilitated emissions until the PCAF standard for capital markets is

published, which is expected in the first half of 2023. We aim to

update our targets and baselines to include both on- and off-balance

sheet activities following the publication of the industry standard for

capital markets methodology by PCAF. We intend to review the

financed emissions baselines and targets annually, where relevant, to

help ensure that they are aligned with market practice and current

climate science.

Metrics and targets (c) relating to capital deployment target: We do

not currently disclose a target for capital deployment. In relation to

capital deployment, since 2015, we have issued more than $2bn of

our own green bonds and structured green bonds with the capital

invested into a variety of green projects, including: green buildings,

renewable energy and clean transportation projects. In 2022, we are

internally reviewing and enhancing the green bond framework, with

further refinement to be undertaken in 2023. Our continued

monitoring of evolving taxonomies and practices over time could

result in revisions in our reporting going forward and lead to

differences year-on-year as compared with prior years. See the

HSBC’s Green Bond Report for further information.

Metrics and targets (c) relating to internal carbon prices: We do not

currently disclose internal carbon prices due to transitional challenges

such as developing the appropriate systems and processes, but we

considered carbon prices as an input for our climate scenario analysis

exercise. We expect to further enhance the disclosure in the medium

term as more data becomes available.

Impacts on financial planning and performance

Strategy (b) relating to financial planning and performance: We have

used climate scenarios to inform our organisation’s business, strategy

and financial planning. In 2022, we incorporated certain aspects of

sustainable finance and financed emissions within our financial

planning process. We do not currently fully disclose the impacts of

climate-related issues on financial planning, and particularly the impact

of climate-related issues on our financial performance (for example,

revenue and costs) and financial position (for example, assets and

liabilities), in each case due to lack of data and systems for compiling

the relevant financial impact. We expect to further enhance the

disclosure in the medium term as more data becomes available.

Strategy (b) related to transition plan: We do not currently disclose our

transition plan. We have committed to publish our own Group-wide

net zero transition plan in 2023. This plan will bring together our

climate strategy, science-based targets, and how we plan to embed

this into our processes, policies, governance and capabilities. It will

outline, in one place, not only our commitments, targets and approach

to net zero across the sectors and markets we serve, but how we are

transforming our organisation to embed net zero and finance the

transition.

Metrics and targets (a) relating to internal carbon prices and climate-

related opportunities metrics: We do not currently disclose internal

carbon price targets due to transitional challenges such as data

challenges. But we considered carbon prices as an input for our

climate scenario analysis exercise. In addition, we do not currently

fully disclose the proportion of revenue or proportion of assets, capital

deployment or other business activities aligned with climate-related

opportunities, including revenue from products and services designed

for a low-carbon economy, forward-looking metrics consistent with

our business or strategic planning time horizons. In relation to

sustainable finance revenue and assets we are disclosing certain

elements. We expect the data and system limitations related to

financial planning and performance, and climate-related opportunities

metrics to be addressed in the medium term as more reliable data

becomes available and technology solutions are implemented. We

expect to further enhance the disclosure in the medium term.

Impacts of transition and physical risk

Strategy (c) relating to quantitative scenario analysis: We do not

currently fully disclose the impacts of transition and physical risk

quantitatively, due to transitional challenges including data limitations

and evolving science and methodologies. In 2022, we have disclosed

the impairment impacts for our wholesale, retail and commercial real

estate portfolios in different climate scenarios. In addition, we have

disclosed losses on our retail mortgage book under three scenarios

and flood depths for specific markets. For our wholesale book we

have disclosed potential implications on our expected credit losses for

11 sectors under three scenarios. We have also disclosed a heat map

showing how we expect the risks to evolve over time.

Metrics and targets (a) relating to detailed climate-related risk

exposure metrics for physical and transition risks: We do not fully

disclose metrics used to assess the impact of climate-related physical

(chronic) and transitions (policy and legal, technology, market) risks on

retail lending, parts of wholesale lending and other financial

intermediary business activities (specifically credit exposure, equity

and debt holdings, or trading positions, each broken down by industry,

geography, credit quality, average tenor). We disclose the exposure to

six high risk wholesale sectors and the flood risk exposure and Energy

Performance Certificate breakdown for the UK portfolio. We are

aiming to develop the appropriate systems, data and processes to

provide these disclosures in future years.

Metrics and targets (c) on targets related to physical risk: We do not

currently disclose targets used to measure and manage physical risk.

This is due to transitional challenges including data limitations of

physical risk metrics. For retail, this is because we do not use targets

to measure and manage physical risk. Instead we have developed

exposure monitoring metrics and risk appetite where appropriate to

measure and manage physical risk. We also considered physical risk

as an input for our climate scenario analysis exercise.

We expect to further enhance the disclosure in medium term

considering the data limitations related to quantitative scenario

analysis, specific risk metrics and physical risk targets to be

addressed, more reliable data becoming available, and technology

solutions implemented.

Scope 3 emissions disclosure

Metrics and targets (b) relating to scope 3 emissions metrics: We

currently disclose partial scope 3 greenhouse gas emissions including

business travel, supply chain and financed emissions. In relation to

financed emissions, we published on-balance sheet financed

emissions for six sectors as detailed on page 18. Future disclosure on

financed emissions, and related risks is reliant on our customers

publicly disclosing their carbon emissions and related risks. We aim to

disclose financed emissions for additional sectors in our Annual

Report and Accounts 2023 and related disclosures. Our approach to

disclosure of financed emissions for additional sectors can be found

at: www.hsbc.com/who-we-are/esg-and-responsible-business/esg-

reporting-centre.

HSBC Holdings plc Annual Report and Accounts 2022 423

Additional information

Other matters

Strategy (b) relating to acquisitions/divestments: We have considered

the impact of climate-related issues on our businesses, strategy, and

financial planning, but not specifically in relation to acquisitions/

divestments. Due to transitional challenges such as process

limitations, we do not disclose the climate-related impact in these

areas. We will aim to further enhance our processes in relation to

acquisitions/divestments in the medium term.

Strategy (b) relating to access to capital: We have considered the

impact of climate-related issues on our businesses, strategy, and

financial planning. Our access to capital may be impacted by

reputational concerns as a result of climate action or inaction. In

addition, if we are perceived to mislead stakeholders on our business

activities or if we fail to achieve our stated net zero ambitions, we

could face reputational damage, impacting our revenue generating

ability and potentially our access to capital markets. We expect to

further enhance the disclosure in the medium term as more data

becomes available.

To manage these risks we have integrated climate risk into our

existing risk taxonomy, and incorporated it within the risk

management framework through the policies and controls for the

existing risks where appropriate.

Metrics and targets (c) relating to water usage target: We have

described the targets used by the organisation to manage climate-

related risks and opportunities and performance against targets.

However, taking into account the nature of our business, we do not

consider water usage to be a material target for our business and,

therefore, we have not included a target in this year’s disclosure.

With respect to our obligations under LR9.8.6R(8) of the FCA’s Listing

Rules, as part of considering what to measure and publicly report, we

perform an assessment to ascertain the appropriate level of detail to

be included in the climate-related financial disclosures that are set out

in our Annual Report and Accounts. Our assessment takes into

account factors such as the level of our exposure to climate-related

risks and opportunities, the scope and objectives of our climate-

related strategy, transitional challenges, and the nature, size and

complexity of our business. See ‘How we decide what to measure’

on page 45 for further information.

Cautionary statement regarding

forward-looking statements

The Annual Report and Accounts 2022 contains certain forward-

looking statements with respect to HSBC’s financial condition; results

of operations and business, including the strategic priorities; financial,

investment and capital targets; and ESG targets, commitments and

ambitions described herein.

Statements that are not historical facts, including statements about

HSBC’s beliefs and expectations, are forward-looking statements.

Words such as ‘may’, ‘will’, ‘should’, ‘expects’, ‘targets’, ‘anticipates’,

‘intends’, ‘plans’, ‘believes’, ‘seeks’, ‘estimates’, ‘potential’ and

‘reasonably possible’, or the negative thereof, other variations thereon

or similar expressions are intended to identify forward-looking

statements. These statements are based on current plans,

information, data, estimates and projections, and therefore undue

reliance should not be placed on them. Forward-looking statements

speak only as of the date they are made. HSBC makes no

commitment to revise or update any forward-looking statements to

reflect events or circumstances occurring or existing after the date of

any forward-looking statements. Written and/or oral forward-looking

statements may also be made in the periodic reports to the US

Securities and Exchange Commission, summary financial statements

to shareholders, proxy statements, offering circulars and

prospectuses, press releases and other written materials, and in oral

statements made by HSBC’s Directors, officers or employees to third

parties, including financial analysts. Forward-looking statements

involve inherent risks and uncertainties. Readers are cautioned that a

number of factors could cause actual results to differ, in some

instances materially, from those anticipated or implied in any forward-

looking statement. These include, but are not limited to:

• changes in general economic conditions in the markets in which

we operate, such as new, continuing or deepening recessions,

prolonged inflationary pressures and fluctuations in employment

and creditworthy customers beyond those factored into

consensus forecasts (including, without limitation, as a result of

the Russia-Ukraine war and, to a lesser extent, the Covid-19

pandemic); the Russia-Ukraine war and the Covid-19 pandemic and

their impact on global economies and the markets where HSBC

operates, which could have a material adverse effect on (among

other things) our financial condition, results of operations,

prospects, liquidity, capital position and credit ratings; deviations

from the market and economic assumptions that form the basis

for our ECL measurements (including, without limitation, as a

result of the Russia-Ukraine war, inflationary pressures and the

Covid-19 pandemic); potential changes in HSBC’s dividend policy;

changes in foreign exchange rates and interest rates, including the

accounting impact resulting from financial reporting in respect of

hyperinflationary economies; volatility in equity markets; lack of

liquidity in wholesale funding or capital markets, which may affect

our ability to meet our obligations under financing facilities or to

fund new loans, investments and businesses; geopolitical tensions

or diplomatic developments producing social instability or legal

uncertainty, such as the Russia-Ukraine war (including the

continuation and escalation thereof) and the related imposition of

sanctions and trade restrictions, supply chain restrictions and

disruptions, sustained increases in energy prices and key

commodities, claims of human rights violations, diplomatic

tensions, including between China and the US, the UK, the EU,

India and other countries, and developments in Hong Kong and

Taiwan, alongside other potential areas of tension, which may

adversely affect HSBC by creating regulatory, reputational and

market risks; the efficacy of government, customer, and HSBC’s

actions in managing and mitigating ESG risks, in particular climate

risk, nature-related risks and human rights risks, and in supporting

the global transition to net zero carbon emissions, each of which

can impact HSBC both directly and indirectly through our

customers and which may result in potential financial and non-

financial impacts; illiquidity and downward price pressure in

national real estate markets; adverse changes in central banks’

policies with respect to the provision of liquidity support to

financial markets; heightened market concerns over sovereign

creditworthiness in over-indebted countries; adverse changes in

the funding status of public or private defined benefit pensions;

societal shifts in customer financing and investment needs,

including consumer perception as to the continuing availability of

credit; exposure to counterparty risk, including third parties using

us as a conduit for illegal activities without our knowledge; the

discontinuation of certain key Ibors and the development of near

risk-free benchmark rates, as well as the transition of legacy Ibor

contracts to near risk-free benchmark rates, which exposes HSBC

to material execution risks, including in relation to the

effectiveness of its Ibor remediation strategy, and increases some

financial and non-financial risks; and price competition in the

market segments we serve;

• changes in government policy and regulation, including the

monetary, interest rate and other policies of central banks and

other regulatory authorities in the principal markets in which we

operate and the consequences thereof (including, without

limitation, actions taken as a result of the impact of the Russia-

Ukraine war on inflation and as a result of the Covid-19 pandemic);

initiatives to change the size, scope of activities and

interconnectedness of financial institutions in connection with the

implementation of stricter regulation of financial institutions in key

markets worldwide; revised capital and liquidity benchmarks,

which could serve to deleverage bank balance sheets and lower

returns available from the current business model and portfolio

mix; changes to tax laws and tax rates applicable to HSBC,

including the imposition of levies or taxes designed to change

business mix and risk appetite; the practices, pricing or

responsibilities of financial institutions serving their consumer

markets; expropriation, nationalisation, confiscation of assets and

changes in legislation relating to foreign ownership; the UK’s

relationship with the EU, which continues to be characterised by

uncertainty and political disagreement, particularly with respect to

Additional information

424 HSBC Holdings plc Annual Report and Accounts 2022

the regulation of financial services, despite the signing of the

Trade and Cooperation Agreement between the UK and the EU;

changes in UK macroeconomic and fiscal policy as a result of the

change in UK government leadership, which may result in

fluctuations in the value of the pound sterling; general changes in

government policy that may significantly influence investor

decisions; the costs, effects and outcomes of regulatory reviews,

actions or litigation, including any additional compliance

requirements; and the effects of competition in the markets where

we operate including increased competition from non-bank

financial services companies; and

• factors specific to HSBC, including our success in adequately

identifying the risks we face, such as the incidence of loan losses

or delinquency, and managing those risks (through account

management, hedging and other techniques); our ability to achieve

our financial, investment, capital and ESG targets, commitments

and ambitions (including with respect to the commitments set

forth in our thermal coal phase-out policy and our energy policy

and our targets to reduce our on-balance sheet financed emissions

in eight high-emitting sectors), which may result in our failure to

achieve any of the expected benefits of our strategic priorities;

model limitations or failure, including, without limitation, the

impact that high inflationary pressures, rising interest rates and the

consequences of the Covid-19 pandemic have had on the

performance and usage of financial models, which may require us

to hold additional capital, incur losses and/or use compensating

controls, such as judgemental post-model adjustments, to address

model limitations; changes to the judgements, estimates and

assumptions we base our financial statements on; changes in our

ability to meet the requirements of regulatory stress tests; a

reduction in the credit ratings assigned to us or any of our

subsidiaries, which could increase the cost or decrease the

availability of our funding and affect our liquidity position and net

interest margin; changes to the reliability and security of our data

management, data privacy, information and technology

infrastructure, including threats from cyber-attacks, which may

impact our ability to service clients and may result in financial loss,

business disruption and/or loss of customer services and data; the

accuracy and effective use of data, including internal management

information that may not have been independently verified,

changes in insurance customer behaviour and insurance claim

rates; our dependence on loan payments and dividends from

subsidiaries to meet our obligations; changes in accounting

standards, including the implementation of IFRS 17 ‘Insurance

Contracts’, which may have a material impact on the way we

prepare our financial statements and (with respect to IFRS 17) may

negatively affect the profitability of HSBC’s insurance business;

changes in our ability to manage third-party, fraud and reputational

risks inherent in our operations; employee misconduct, which may

result in regulatory sanctions and/or reputational or financial harm;

changes in skill requirements, ways of working and talent

shortages, which may affect our ability to recruit and retain senior

management and diverse and skilled personnel; and changes in

our ability to develop sustainable finance and climate-related

products consistent with the evolving expectations of our

regulators, and our capacity to measure the climate impact from

our financing activity (including as a result of data limitations and

changes in methodologies), which may affect our ability to achieve

our climate ambition, our targets to reduce financed emissions in

our high-emitting sectors portfolio and the commitments set forth

in our thermal coal phase-out policy and our energy policy, and

increase the risk of greenwashing. Effective risk management

depends on, among other things, our ability through stress testing

and other techniques to prepare for events that cannot be

captured by the statistical models it uses; our success in

addressing operational, legal and regulatory, and litigation

challenges; and other risks and uncertainties we identify in ‘Top

and emerging risks’ on pages 135 to 142.

Additional cautionary statement

regarding ESG and climate-related

data, metrics and forward-looking

statements

The Annual Report and Accounts 2022 contains a number of forward-

looking statements (as defined above) with respect to HSBC’s ESG

targets, commitments, ambitions, climate-related scenarios or

pathways and the methodologies we use to assess our progress in

relation to these (‘ESG-related forward-looking statements’).

In preparing the ESG-related information contained in the Annual

Report and Accounts 2022, HSBC has made a number of key

judgements, estimations and assumptions, and the processes and

issues involved are complex. We have used ESG and climate data,

models and methodologies that we consider, as of the date on which

they were used, to be appropriate and suitable to understand and

assess climate change risk and its impact, to analyse financed

emissions - and operational and supply chain emissions, to set ESG-

related targets and to evaluate the classification of sustainable finance

and investments. However, these data, models and methodologies

are new, are rapidly evolving and are not of the same standard as

those available in the context of other financial information, nor are

they subject to the same or equivalent disclosure standards, historical

reference points, benchmarks or globally accepted accounting

principles. In particular, it is not possible to rely on historical data as a

strong indicator of future trajectories, in the case of climate change

and its evolution. Outputs of models, processed data and

methodologies are also likely to be affected by underlying data quality,

which can be hard to assess and we expect industry guidance,

market practice, and regulations in this field to continue to change. In

light of the highly uncertain nature of the evolution of climate change

and its impact, HSBC may have to re-evaluate its progress towards its

ESG ambitions, commitments and targets in the future, update the

methodologies it uses or alter its approach to ESG and climate

analysis and may be required to amend, update and recalculate its

ESG disclosures and assessments in the future, as market practice

and data quality and availability develops rapidly. The ESG-related

forward-looking statements and metrics discussed in the Annual

Report and Accounts 2022 therefore carry an additional degree of

inherent risk and uncertainty.

No assurance can be given by or on behalf of the Group as to the

likelihood of the achievement or reasonableness of any projections,

estimates, forecasts, targets, commitments, ambitions, prospects or

returns contained herein. Readers are cautioned that a number of

factors, both external and those specific to HSBC, could cause actual

achievements, results, performance or other future events or

conditions to differ, in some cases materially, from those stated,

implied and/or reflected in any ESG-related forward-looking

statements or metrics due to a variety of risks, uncertainties and

other factors (including without limitation those referred to below):

• Climate change projection risk: this includes, for example, the

evolution of climate change and its impacts, changes in the

scientific assessment of climate change impacts, transition

pathways and future risk exposure and limitations of climate

scenario forecasts;

• Changes in the ESG regulatory landscape: this involves changes in

government approach and regulatory treatment in relation to ESG

disclosures and reporting requirements, and the current lack of a

single standardised regulatory approach to ESG across all sectors

and markets;

• Variation in reporting standards: ESG reporting standards are still

developing and are not standardised or comparable across all

sectors and markets, new reporting standards in relation to

different ESG metrics are still emerging;

• Data availability, accuracy, verifiability and data gaps: our

disclosures are limited by the availability of high quality data

needed to calculate financed emissions. Where data is not

available for all sectors or consistently year on year, there may be

an impact to our data quality scores. Whilst we expect our data

quality scores to improve over time, as companies continue to

HSBC Holdings plc Annual Report and Accounts 2022 425

Additional information

expand their disclosures to meet growing regulatory and

stakeholder expectations, there may be unexpected fluctuations

within sectors year on year, and/or differences between the data

quality scores between sectors. Any such changes in the

availability and quality of data over time could result in revisions to

reported data going forward, including on financed emissions,

meaning that such data may not be reconcilable or comparable

year-on year;

• Developing methodologies: the methodologies HSBC uses to

assess financed emissions and set ESG-related targets may

develop over time in line with market practice, regulation and/or

developments in science, where applicable. Any such

developments in methodologies could result in revisions to

reported data going forward, including on financed emissions or

the classification of sustainable finance and investments, meaning

that data outputs may not be reconcilable or comparable year-on

year. In addition, climate scenarios and the models that analyse

them have limitations that are sensitive to key assumptions and

parameters, which are themselves subject to some uncertainty,

and cannot fully capture all of the potential effects of climate,

policy and technology driven outcomes; and

• Risk management capabilities: governments’, customers’, and

HSBC’s actions may not be effective in supporting the global

transition to net zero carbon emissions and in managing and

mitigating ESG risks, including in particular climate risk, nature-

related risks and human rights risks, each of which can impact

HSBC both directly and indirectly through our customers, and

which may result in potential financial and non-financial impacts to

HBSC. In particular:

– we may not be able to achieve our ESG targets, commitments

and ambitions (including with respect to the commitments set

forth in our thermal coal phase-out policy, our energy policy and

our targets to reduce our on-balance sheet financed emissions

in our portfolio of selected high-emitting sectors), which may

result in our failure to achieve any of the expected benefits of

our strategic priorities; and

– we may not be able to develop sustainable finance and climate-

related products consistent with the evolving expectations of

our regulators, and our capacity to measure the climate impact

from our financing activity may diminish (including as a result of

data and model limitations and changes in methodologies),

which may affect our ability to achieve our climate ambition,

our targets to reduce our on-balance sheet financed emissions

in our portfolio of selected high-emitting sectors and the

commitments set forth in our thermal coal phase-out policy and

energy policy, and increase the risk of greenwashing.

HSBC makes no commitment to revise or update any ESG forward-

looking statements to reflect events or circumstances occurring or

existing after the date of any ESG forward-looking statements.

Written and/or oral ESG-related forward-looking statements may also

be made in our periodic reports to the US Securities and Exchange

Commission, summary financial statements to shareholders, proxy

statements, offering circulars and prospectuses, press releases and

other written materials, and in oral statements made by HSBC’s

Directors, officers or employees to third parties, including financial

analysts.

Our data dictionaries and methodologies for preparing the above ESG-

related metrics and third-party limited assurance reports can be found

on: www.hsbc.com/who-we-are/ esg-and-responsible-business/esg-

reportingcentre.

Certain defined terms

Unless the context requires otherwise, ‘HSBC Holdings’ means HSBC

Holdings plc and ‘HSBC’, the ‘Group’, ‘we’, ‘us’ and ‘our’ refer to

HSBC Holdings together with its subsidiaries. Within this document

the Hong Kong Special Administrative Region of the People’s

Republic of China is referred to as ‘Hong Kong’.

When used in the terms ‘shareholders’ equity’ and ‘total

shareholders’ equity’, ‘shareholders’ means holders of HSBC

Holdings ordinary shares and those preference shares and capital

securities issued by HSBC Holdings classified as equity. The

abbreviations ‘$m’, ‘$bn’ and ‘$tn’ represent millions, billions

(thousands of millions) and trillions of US dollars, respectively.

Additional information

426 HSBC Holdings plc Annual Report and Accounts 2022

Abbreviations

Currencies

£ British pound sterling

CA$ Canadian dollar

€ Euro

HK$ Hong Kong dollar

MXN Mexican peso

RMB Chinese renminbi

SGD Singapore dollar

$ United States dollar

ABS¹ Asset-backed security

ADR American Depositary Receipt

ADS American Depositary Share

AGM Annual General Meeting

AI Artificial intelligence

AIEA Average interest-earning assets

ALCO Asset and Liability Management Committee

AML Anti-money laundering

AML DPA

Five-year deferred prosecution agreement with the US

Department of Justice, entered into in December 2012

AT1 Additional tier 1

Basel

Committee

Basel Committee on Banking Supervision

Basel II¹ 2006 Basel Capital Accord

Basel III¹

Basel Committee’s reforms to strengthen globalcapital and

liquidity rules

Basel 3.1

Outstanding measures to be implemented from the Basel

III reforms

BGF Business Growth Fund, an investment firm that provides

growth capital for small and mid-sized businesses in the UK

and Ireland

BoCom Bank of Communications Co., Limited, one of China’s

largest banks

BoE Bank of England

Bps¹

Basis points. One basis point is equal to one-hundredth of a

percentage point

BVI British Virgin Islands

CAPM Capital asset pricing model

CDS¹ Credit default swap

CEA Commodity Exchange Act (US)

CET1¹ Common equity tier 1

CGUs Cash-generating units

CMB Commercial Banking, a global business

CMC Capital maintenance charge

CODM Chief Operating Decision Maker

COSO

2013 Committee of Sponsoring Organizations of the

Treadway Commission (US)

CP¹ Commercial paper

CRD IV¹ Capital Requirements Regulation and Directive

CRR¹ Customer risk rating

CRR II¹

Revised Capital Requirements Regulation and Directive, as

implemented

CSA Credit support annex

CSM Contractual service margin

CVA¹ Credit valuation adjustment

Deferred Shares Awards of deferred shares define the number ofHSBC

Holdings ordinary shares to which theemployee will

become entitled, generally between one and seven years

from the date of theaward, and normally subject to the

individual remaining in employment

DPD Days past due

DPF

Discretionary participation feature of insurance and

investment contracts

DVA¹ Debit valuation adjustment

EAD¹ Exposure at default

EBA European Banking Authority

EC European Commission

ECB European Central Bank

ECL Expected credit losses. In the income statement, ECL is

recorded as a change in expected credit losses and other

credit impairment charges. In the balance sheet, ECL is

recorded as an allowance for financial instruments to which

only the impairment requirements in IFRS 9 are applied

EEA European Economic Area

Eonia Euro Overnight Index Average

EPC Energy performance certificate

EPS Earnings per ordinary share

ESG Environmental, social and governance

EU European Union

Euribor Euro interbank offered rate

EVE Economic value of equity

FAST-Infra

Finance to Accelerate the Sustainable Transition-

Infrastructure

FCA Financial Conduct Authority (UK)

FFVA

Funding fair value adjustment estimation methodology on

derivative contracts

FPA Fixed pay allowance

FRB Federal Reserve Board (US)

FRC Financial Reporting Council

FSCS Financial Services Compensation Scheme

FTE Full-time equivalent staff

FTSE Financial Times Stock Exchange index

FVOCI¹ Fair value through other comprehensive income

FX Foreign exchange

GAAP Generally accepted accounting principles

GAC Group Audit Committee

GBM Global Banking and Markets, a global business

GDP Gross domestic product

GEC Group Executive Committee

GMP Guaranteed minimum pension

GPS Global Payments Solutions, the business formerly known as

Global Liquidity and Cash Management

GPSP Group Performance Share Plan

GRC Group Risk Committee

Group HSBC Holdings together with its subsidiary undertakings

GTRF Global Trade and Receivables Finance

Hang Seng Bank Hang Seng Bank Limited, one of Hong Kong’s largest banks

HKEx The Stock Exchange of Hong Kong Limited

HKMA Hong Kong Monetary Authority

HMRC HM Revenue and Customs

HNAH HSBC North America Holdings Inc.

Holdings ALCO HSBC Holdings Asset and Liability Management Committee

Hong Kong Hong Kong Special Administrative Region of thePeople’s

Republic of China

HQLA High-quality liquid assets

HSBC HSBC Holdings together with its subsidiary undertakings

HSBC Bank plc HSBC Bank plc, also known as the non-ring-fenced bank

HSBC Bank

Middle East

HSBC Bank Middle East Limited

HSBC Bank

USA

HSBC Bank USA, N.A., HSBC’s retail bank in theUS

HSBC Canada The sub-group, HSBC Bank Canada, HSBC Trust Company

Canada, HSBC Mortgage Corporation Canada and HSBC

Securities Canada, consolidated for liquidity purposes

HSBC

Continental

Europe

HSBC Continental Europe

HSBC Finance

HSBC Finance Corporation, the US consumer finance

company (formerly Household International, Inc.)

HSBC Holdings HSBC Holdings plc, the parent company of HSBC

HSBC Private

Bank (Suisse)

HSBC Private Bank (Suisse) SA, HSBC’s private bank in

Switzerland

HSBC UK HSBC UK Bank plc, also known as the ring-fenced bank

HSBC Holdings plc Annual Report and Accounts 2022 427

Additional information

HSBC USA The sub-group, HSBC USA Inc (the holding company of

HSBC Bank USA) and HSBC Bank USA, consolidated for

liquidity purposes

HSI HSBC Securities (USA) Inc.

HSSL HSBC Securities Services (Luxembourg)

HTIE HSBC International Trust Services (Ireland) Limited

IAS International Accounting Standards

IASB International Accounting Standards Board

Ibor Interbank offered rate

ICAAP Internal capital adequacy assessment process

ICMA International Capital Market Association

IEA International Energy Agency

IFRSs International Financial Reporting Standards

ILAAP Internal liquidity adequacy assessment process

IMA Internal model approach

IMM Internal model method

IRB¹ Internal ratings-based

ISDA International Swaps and Derivatives Association

JV Joint venture

KMP Key Management Personnel

LCR Liquidity coverage ratio

LGBTQ+

Lesbian, gay, bisexual, transgender and queer. The plus

sign denotes other non-mainstream groups on the

spectrums of sexual orientation and gender identity

LGD¹ Loss given default

Libor London interbank offered rate

Long term For our strategic goals, we define long term as five to six

years, commencing 1 January 2020

LTI Long-term incentive

LTV¹ Loan to value

Mainland China People’s Republic of China excluding HongKong and

Macau

Medium term For our strategic goals, we define medium term as three to

five years, commencing 1 January 2020

MENA Middle East and North Africa

MREL Minimum requirement for own funds and eligible liabilities

MRT¹ Material Risk Taker

MSS

Markets and Securities Services, HSBC’s capital markets

and securities services businesses in Global Banking and

Markets

Net operating

income

Net operating income before change in expected credit

losses and other credit impairment charges/Loan

impairment charges and other credit provisions, also

referred to as revenue

NGO Non-governmental organisation

NII Net interest income

NIM Net interest margin

NPS Net promoter score

NSFR Net stable funding ratio

NYSE New York Stock Exchange

NZBA Net-Zero Banking Alliance

OCI Other comprehensive income

OECD Organisation of Economic Co-operation and Development

OTC¹ Over-the-counter

PBT Profit before tax

PCAF Partnership for Carbon Accounting Financials

PD¹ Probability of default

Performance

shares¹

Awards of HSBC Holdings ordinary shares under employee

share plans that are subject to corporate performance

conditions

Ping An Ping An Insurance (Group) Company of China, Ltd, the

second-largest life insurer in the PRC

POCI Purchased or originated credit-impaired financial assets

PRA Prudential Regulation Authority (UK)

PRC People’s Republic of China

Principal plan HSBC Bank (UK) Pension Scheme

PVIF Present value of in-force long-term insurance business and

long-term investment contracts with DPF

PwC

The member firms of the PwC network, including

PricewaterhouseCoopers LLP

RAS Risk appetite statement

Repo¹ Sale and repurchase transaction

Reverse repo Security purchased under commitments to sell

RFR Risk-free rate

RMM Group Risk Management Meeting

RNIV Risk not in VaR

RoE Return on average ordinary shareholders’ equity

RoTE Return on average tangible equity

RWA¹ Risk-weighted asset

SABB The Saudi British Bank

SAPS Self-administered pension scheme

SASB Sustainability Accounting Standards Board

SBTi Science Based Targets initiative

SDG United Nation’s Sustainable Development Goals

SEC Securities and Exchange Commission (US)

ServCo group

Separately incorporated group of service companies

established in response to UK ring-fencing requirements

Sibor Singapore interbank offered rate

SIC Securities investment conduit

SICR Significant increase in credit risk

SME Small and medium-sized enterprise

SOFR Secured Overnight Financing Rate

Solitaire

Solitaire Funding Limited, a special purpose entity managed

by HSBC

Sonia Sterling Overnight Index Average

SPE¹ Special purpose entity

TCFD¹ Task Force on Climate-related Financial Disclosures

THBFIX Thai Baht Interest Rate Fixing

TNFD Taskforce on Nature-related Financial Disclosures

TSR¹ Total shareholder return

UAE United Arab Emirates

UK United Kingdom

UN United Nations

US United States of America

VaR¹ Value at risk

VIU Value in use

WEF World Economic Forum

WPB Wealth and Personal Banking, a global business

1 A full definition is included in the glossary to the Annual Report and

Accounts 2022 which is available at www.hsbc.com/investors.

Additional information

428 HSBC Holdings plc Annual Report and Accounts 2022

HSBC Holdings plc

Incorporated in England on 1 January 1959 with

limited liability under the UK Companies Act

Registered in England: number 617987

Registered Office and Group Head Office

8 Canada Square

London E14 5HQ

United Kingdom

Telephone: 44 020 7991 8888

Facsimile: 44 020 7992 4880

Web: www.hsbc.com

Registrars

Principal Register

Computershare Investor Services PLC

The Pavilions

Bridgwater Road

Bristol BS99 6ZZ

United Kingdom

Telephone: 44 0370 702 0137

Email: via website

Web: www.investorcentre.co.uk/contactus

Hong Kong Overseas Branch Register

Computershare Hong Kong Investor Services

Limited

Rooms 1712-1716, 17th floor

Hopewell Centre

183 Queen’s Road East

Hong Kong

Telephone: 852 2862 8555

Email: [email protected]

Web: www.investorcentre.com/hk

Bermuda Overseas Branch Register

Investor Relations Team

HSBC Bank Bermuda Limited

37 Front Street

Hamilton HM11

Bermuda

Telephone: 1 441 299 6737

Email: [email protected]

Web: www.investorcentre.com/bm

ADR Depositary

The Bank of New York Mellon

Shareowner Services

P.O. Box 43006

Providence RI 02940-3078

USA

Telephone (US): 1 877 283 5786

Telephone (International): 1 201 680 6825

Email: [email protected]

Web: www.mybnymdr.com

Corporate Brokers

Morgan Stanley & Co. International plc

25 Cabot Square

London E14 4QA

United Kingdom

Bank of America Securities

2 King Edward Street

London EC1A 1HQ

United Kingdom

HSBC Bank plc

8 Canada Square

London E14 5HQ

United Kingdom

No part of this publication may be reproduced, stored in a retrieval

system, or transmitted, in any form or by any means, electronic,

mechanical, photocopying, recording, or otherwise, without the prior

written permission of HSBC Holdings plc

Published by Global Finance, HSBC Holdings plc, London

and by Global Finance with Superunion (rest of Annual Report and

Accounts)

Printed by Park Communications Limited, London, on Nautilus

SuperWhite board and paper using vegetable oil-based inks. Made in

Austria, the stocks comprise 100% de-inked post-consumer waste.

Pulps used are totally chlorine-free.

The FSC® recycled logo identifies a paper that contains 100% post-

consumer recycled fibre certified in accordance with the rules of the

Forest Stewardship Council®.

HSBC Holdings plc Annual Report and Accounts 2022 429

Additional information

HSBCHoldingsplc

8CanadaSquare

LondonE145HQ

UnitedKingdom

Telephone:+44(0)2079918888

www.hsbc.com

Incorporated in England with limited liability

Registered number 617987

HSBC Holdings plc Strategic Report 2022