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Equator Principles and Sector Policies

Sector Policies

We want to be sure that the way we do business takes into account any adverse impacts on local communities and the environment. So we’ve identified key sectors where such impacts are likely to arise, and created sector policies to guide the way we operate in these sectors.

We have developed policies which are based on international standards of good practice and developed in consultation with customers, industry associations, shareholders and non-governmental organisations (NGOs).

We follow these policies when we lend or provide financial services to projects or customers in these key sectors and we review them regularly so they remain up-to-date and relevant. Summaries of these policies are available at the bottom of this page.

We believe we can make a bigger contribution by remaining engaged with customers and helping them improve the environmental and social impacts of their businesses. However, we will exit relationships as a last resort, if satisfactory progress is not made and our policy requirements are not met.

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 within the project finance industry.

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.

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 2010 and 31 December 2012.

Equator Principles: transactions vetted by HSBC
  2010 2011 2012
  Number Value (USDm) Number Value (USDm) Number Value (USDm)
Transactions approved 76 6,707 63 4,643 67 5,779
By mandate            
- Lending 52 6,707 42 4,643 48 5,779
- Advisory 24 0 21 0 19 0
Loans by category1            
- Category A 6 1,644 9 1,432 12 2,499
- Category B 31 4,063 24 2,274 26 2,781
- Category C 15 1,000 9 937 10 499
Loans according to scope of EP2            
Standard transactions 25 3,173 28 2,889 26 4,133
Extended transactions 27 3,534 14 1,754 22 1,646
Loans by region            
- Americas 11 979 9 948 13 1,457
- Asia-Pacific 11 1,289 12 1,349 13 1,568
- Europe, Middle East and Africa 30 4,439 21 2,346 22 2,754
Loans by industry sector            
Infrastructure 9 1,382 9 853 6 652
Mining and metals 2 104 3 411 6 726
Oil and gas 8 1,214 14 1,881 10 2,008
Power 18 2,362 10 931 21 2,095
Telecommunications 8 439 1 215 1 75
Transport 1 2 2 151 1 2
Other 6 1,203 3 200 3 221
Loans under additional EP3 reporting
Category A and B projects with an independent review - - - - 29 4,509
Category A, B and C projects in high-income OECD countries - - - - 11 1,772
Renewables 6 888 5 477 10 862
% of power 32 38 45 50 48 41
% of total 12 13 7 8 21 15
Transactions declined3 0 - 0 - 0 -

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

3 In 2012 again no transactions have been declined as relationship managers are identifying potential challenges at an earlier stage in the process.

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.

Transactions are initially assessed against the requirements of the Principles by our Project and Export Finance teams. The proposals are then submitted for review and approval by the credit risk teams, with higher levels of approval required for higher risk transactions, eg Category A projects.

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

HSBC's implementation of the Equator Principles is independently assured by PriceWaterhouseCoopers. Please refer to the 2012 Assurance Report for further information.

Sector policies

Chemicals Industry Policy
Defence Equipment Sector Policy
Energy Sector Policy
Freshwater Infrastructure Policy
Mining and Metals Sector Policy
Forestry Policy
Agricultural Commodities Policy
World Heritage Sites and Ramsar Wetlands Policy