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Equator Principles

Since its launch in 2003, HSBC has been a signatory of the Equator Principles, a framework for managing the impacts on the environment and on local communities that may arise from financing large projects.

Project finance is a method of financing where lenders are repaid through revenues generated by the project, typically used to fund large, complex and expensive installations like power plants or mines. Until recently, the Principles only formally applied to project finance, but we have always voluntarily applied the Principles beyond project finance to corporate loans, where we know the proceeds will be used to finance a specific project. In 2013 a new framework of principles, "Equator Principles (EP) III" was agreed, introducing changes to the scope of public reporting requirements.

We report annually on the projects we have financed under the Equator Principles and our customers' compliance with our sector policies.

Reporting on the Equator Principles

The Equator Principles contain reporting requirements which must be followed by all signatories. We provide the following information which ensures that HSBC fulfils its Equator Principles reporting obligations.

Equator Principles Data Reporting

HSBC applies the Equator Principles to project finance advisory, project finance loans and export credit loans as set out in our Reporting Guidance. The table below contains details of signed advisory and approved lending transactions between 1 January 2011 and 31 December 2013.

Equator Principles: transactions vetted by HSBC
  2011 2012 2013
  Number Value (USDm) Number Value (USDm) Number Value (USDm)
Transactions approved 63 4,643 67 5,779 49 4,937
By mandate            
- Lending 42 4,643 48 5,779 31 4,937
- Advisory 21 0 19 0 18 0
Loans by category1            
- Category A 9 1,432 12 2,499 9 1,627
- Category B 24 2,274 26 2,781 19 3,083
- Category C 9 937 10 499 3 277
Loans according to scope of EP2            
Standard transactions 28 2,889 26 4,133 24 3,807
Extended transactions 14 1,754 22 1,646 7 1,130
Loans by region            
- Americas 9 948 13 1,457 8 1,187
- Asia-Pacific 12 1,349 13 1,568 9 2,178
- Europe, Middle East and Africa 21 2,346 22 2,754 14 1,572
Loans by industry sector            
Infrastructure 9 853 6 652 6 625
Mining and metals 3 411 6 726 5 1,300
Oil and gas 14 1,881 10 2,008 8 1,406
Power 10 931 21 2,095 9 1,276
Telecommunications 1 215 1 75 1 52
Transport 2 151 1 2 1 100
Other 3 200 3 221 1 178
Loans under additional EP3 reporting
Category A and B projects with an independent review - - 29 4,509 22 3,446
Category A, B and C projects in high-income OECD countries - - 11 1,772 12 2,262
Renewables 5 477 10 862 3 298
% of power 45 50 48 41 33 23
% of total 7 8 21 15 10 6

1Category A: projects with potentially significant adverse social or environmental impacts that are diverse, irreversible or unprecedented.
Category B: projects with potentially limited adverse social and environmental impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures
Category C: projects with minimal or no social or environmental impacts.

2 We extended Equator Principles to export credit loans (extended transactions), the procedures for which are presented in our Reporting Guidelines (www.hsbc.com/sus-assurance).

Equator Principles Implementation Reporting

The Equator Principles are embedded within HSBC's internal credit risk policies and procedures. There are four key phases for assessing such transactions:

  1. Impacts are assessed on their degree of potential impact and are categorised as either A (High), B (Medium) or C (Low).

    Category A – Projects with potential significant adverse social or environmental impacts that are diverse, irreversible or unprecedented;
    Category B – Projects with potential limited adverse social and environmental impacts that are few in number, generally site-specific, largely reversible and readily addressed through mitigation measures; and
    Category C – Projects with minimal or no social or environmental impacts.
  2. An action plan to address those impacts is developed.
  3. If the commercial, environmental and social risks are manageable and meet the standards set by the Principles and HSBC's own sector policies, an agreement to lend money is made, on the condition that the action plan is followed.
  4. The project's development in line with the action plan is monitored.

To ensure our Business and Risk teams have a good and up-to-date understanding of the Equator Principles, regular training is delivered throughout the year.

HSBC's implementation of the Equator Principles is independently assured by PriceWaterhouseCoopers. Please refer to the 2013 Assurance Report for further information.