HSBC HOLDINGS(US:HSBC)2023-02-22 19:50Strategic Report This section provides an overview of HSBC's strategic priorities, financial performance highlights, and key risk management approaches Cautionary Statements Forward-looking statements in this report are subject to inherent risks from economic, geopolitical, regulatory, and ESG factors - Forward-looking statements are subject to numerous risks, including economic downturns, geopolitical tensions like the Russia-Ukraine war and China-US relations, regulatory changes, and the effectiveness of ESG risk mitigation33 - HSBC-specific risks include the ability to manage loan losses, achieve strategic and ESG targets, model limitations in high inflation environments, cyber-attack threats, and the ability to recruit and retain skilled personnel34 - ESG and climate-related data, metrics, and forward-looking statements are highlighted as having additional inherent risk due to evolving methodologies, data quality issues, and the uncertain nature of climate change, which may require future recalculations and amendments to disclosures3637 Highlights HSBC achieved strong adjusted profit and strategic progress in 2022, driven by net interest income growth and cost discipline 2022 Financial Performance vs 2021 | Metric | 2022 | Change vs 2021 | | :--- | :--- | :--- | | Reported Profit Before Tax | $17.5 billion | -$1.4 billion | | Adjusted Profit Before Tax | $24.0 billion | +$3.4 billion | | Reported Revenue | $51.7 billion | +4% | | Net Interest Margin (NIM) | 1.48% | +28 bps | | Expected Credit Losses (ECL) | $3.6 billion charge | vs $0.9 billion release in 2021 | | CET1 Capital Ratio | 14.2% | -1.6 ppt | - Strategic actions in 2022 included the planned sale of the Canadian banking business, surpassing the gross RWA reduction target with $128 billion in cumulative reductions, and achieving $5.6 billion in gross cost savings since the program began in 202069 - The company has set interim 2030 financed emissions targets for eight sectors and has provided and facilitated $210.7 billion in sustainable finance and investment since January 202069 - HSBC is targeting a Return on Tangible Equity (RoTE) of at least 12% for 2023 onwards and establishing a dividend payout ratio of 50% for 2023 and 2024. A special dividend of $0.21 per share will be considered upon completion of the Canada sale67 Who We Are HSBC is a global financial services organization serving 39 million customers across 62 markets, structured around three core businesses and a four-pillar strategy - HSBC serves around 39 million customers in 62 countries and territories, with total assets of $3.0 trillion777981 - The company's strategy is built on four key pillars: Focus on our strengths, Digitise at scale, Energise for growth, and Transition to net zero717273 - Operations are structured into three global businesses: Wealth and Personal Banking (WPB), Commercial Banking (CMB), and Global Banking and Markets (GBM)828385 Group Chairman's Statement The Chairman highlights strong adjusted profit, strategic transformation completion, and commitment to shareholder returns, while reaffirming the current strategy - Adjusted profit before tax was $24.0 billion, an increase of $3.4 billion from 2021, while reported profit before tax was $17.5 billion, impacted by a $2.4 billion impairment on the planned sale of the French retail operations99 - The Board is committed to higher capital distributions, setting a dividend payout ratio of 50% for 2023 and 2024, and intends to restore quarterly dividends from Q1 2023100 - A special dividend of $0.21 per share will be considered as a priority use of proceeds following the completion of the planned sale of the Canadian banking business, expected in late 2023101 - The Board has examined alternative structural options and concluded they would not deliver increased shareholder value, reaffirming that the current strategy is working effectively106109 Group Chief Executive's Review The CEO reviews the completed transformation, highlighting strategic repositioning, RWA reductions, strong asset growth, and improved financial targets - The transformation program has structurally repositioned the business by exiting non-strategic assets in the Americas and Europe, including the US mass market retail business and the planned sales of operations in France and Canada122 - The bank exceeded its RWA reduction target, achieving cumulative savings of $128 billion, which enabled capital reallocation towards Asia and the Middle East123 - Significant investment in growth areas, particularly Asian Wealth, attracted $80 billion of net new invested assets in 2022, of which $59 billion were in Asia125132 2022 Financial Performance Summary | Metric | 2022 Value | | :--- | :--- | | Adjusted Profit Before Tax | $24.0 billion | | Reported Profit Before Tax | $17.5 billion | | Reported Return on Tangible Equity (RoTE) | 9.9% | | Adjusted Revenue Growth | 18% | - HSBC is on track to achieve a RoTE of at least 12% from 2023 onwards and has set a dividend payout ratio of 50% for 2023 and 2024, with consideration of buy-backs brought forward to Q1 2023140142 Our Strategy HSBC's four-pillar strategy drives portfolio reshaping, capital reallocation to Asia, RWA reductions, and aims for over 12% RoTE from 2023 - The strategy is built on four pillars: Focus on our strengths, Digitise at scale, Energise for growth, and Transition to net zero158 Strategic Transformation Progress | Metric | Achievement | | :--- | :--- | | Gross RWA Reduction | $128 billion (Target: >$110 billion) | | Capital Allocation to Asia | 47% of Group tangible equity | | Technology Investment (2022) | $6.1 billion (up from $5.1 billion in 2019) | - The company has reshaped its portfolio through strategic exits in Europe and the Americas, including the US mass market retail business and planned sales of operations in France, Canada, Russia, and Greece150 - In 2022, Wealth and Personal Banking attracted $80 billion in net new invested assets, with $59 billion from Asia. Commercial Banking's fee income grew 8% to $3.7 billion160164166 - The strategy is expected to deliver a Return on Tangible Equity (RoTE) of over 12% from 2023 onwards, with substantial distribution capacity for 2023 and 2024184 ESG Overview HSBC's ESG strategy focuses on net zero transition, inclusion, and responsible conduct, with progress in financed emissions targets and diversity - The ESG strategy is focused on three pillars: Transition to net zero, Build inclusion and resilience, and Act responsibly187 Key ESG Metrics and Targets (2022 Performance) | Metric | 2022 Status | Target/Ambition | | :--- | :--- | :--- | | Financed Emissions Targets | 8 sectors | Achieve net zero in financed emissions by 2050 | | Sustainable Finance & Investment | $210.7 billion (cumulative) | $750 billion to $1 trillion by 2030 | | Net Zero in Own Operations | 58.5% GHG reduction | Achieve net zero by 2030 | | Women in Senior Leadership | 33.3% | 35% by 2025 | | Black Colleagues in Senior Leadership | 37% increase from 2020 | Double the number between 2020 and 2025 | - HSBC has made disclosures consistent with TCFD recommendations but notes exceptions, such as not setting 2025 financed emissions targets (focusing on 2030) and limitations in fully quantifying the financial impacts of climate-related risks and opportunities due to data challenges221223 - The company is actively supporting customers facing rising cost of living pressures, particularly in the UK, through digital resources, financial health checks, and tailored support like temporary reductions in overdraft costs and early closure of fixed-rate savers without penalty199201202 Remuneration HSBC's 2022 remuneration reflects strong performance with a reduced variable pay pool and targeted fixed pay increases for junior staff Executive Director Remuneration (2022 vs 2021) | Director (£'000) | 2022 Total | 2021 Total | | :--- | :--- | :--- | | Noel Quinn (Group CEO) | 5,562 | 4,895 | | Ewen Stevenson (Group CFO) | 4,701 | 3,665 | - The overall variable pay pool for Group employees was set at $3,359 million for 2022, compared to $3,495 million in 2021261 - For 2023, fixed pay increases were targeted at junior and middle management colleagues to address inflation, with an overall Group increase of 5.5%. Most senior leaders, including executive Directors, received no fixed pay increase263 - The company provided specific support for cost of living pressures, including a £1,500 one-off payment to nearly 17,000 junior colleagues in the UK and regular fixed pay adjustments in high-inflation markets like Argentina and Türkiye266 Financial Overview HSBC's 2022 financial performance saw adjusted profit growth driven by rising interest rates, despite reported profit impacts from impairments and ECLs Key Financial Metrics (2022 vs 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Reported Profit Before Tax | $17,528 million | $18,906 million | | Adjusted Profit Before Tax | $24,010 million | $20,603 million | | Reported Profit After Tax | $16,670 million | $14,693 million | | Return on Avg. Tangible Equity (RoTE) | 9.9% | 8.3% | | Net Interest Margin (NIM) | 1.48% | 1.20% | | Basic Earnings Per Share (EPS) | $0.75 | $0.62 | | Common Equity Tier 1 (CET1) Ratio | 14.2% | 15.8% | - Reported profit before tax decreased by 7% to $17.5 billion, mainly due to a $2.4 billion impairment on the planned sale of French retail operations and a $3.6 billion ECL charge, contrasting with a $0.9 billion release in 2021271291 - Adjusted profit before tax grew 17% to $24.0 billion, driven by an 18% increase in adjusted revenue to $55.3 billion from higher net interest income311313 - The company achieved its financial targets by delivering a RoTE of 9.9%, surpassing its RWA reduction goal with $128 billion in cumulative saves, and containing adjusted operating expense growth to 1%273274277 Global Businesses HSBC's global businesses, WPB, CMB, and GBM, delivered strong adjusted profit growth in 2022, driven by diverse revenue streams Adjusted Profit Before Tax by Global Business (2022 vs 2021) | Global Business | 2022 ($m) | 2021 ($m) | Change (%) | | :--- | :--- | :--- | :--- | | Wealth and Personal Banking | 8,533 | 6,721 | +27% | | Commercial Banking | 7,716 | 6,210 | +24% | | Global Banking and Markets | 5,445 | 5,045 | +8% | | Corporate Centre | 2,316 | 2,627 | -12% | Wealth and Personal Banking (WPB) WPB's adjusted profit rose 27% to $8.5 billion, driven by strong Personal Banking net interest income and $80 billion in new invested assets WPB Adjusted Financial Performance (2022) | Metric | Value ($m) | Change vs 2021 | | :--- | :--- | :--- | | Profit Before Tax | 8,533 | +27% | | Net Operating Income | 24,367 | +16% | | ECL Charge | (1,137) | vs $213 release | | Operating Expenses | 14,726 | +2% | - Personal Banking revenue grew 37% to $15.9 billion, driven by a $4.4 billion increase in net interest income due to rising interest rates and balance sheet growth in the UK, Asia, Mexico, and the Middle East339 - Wealth revenue decreased by 8% to $8.1 billion, impacted by a $1.4 billion adverse movement in market impacts in life insurance manufacturing. However, the business attracted $80 billion in net new invested assets, a 25% increase from 2021333339343 Commercial Banking (CMB) CMB's adjusted profit increased 24% to $7.7 billion, driven by strong revenue growth across products and regions, especially GPS CMB Adjusted Financial Performance (2022) | Metric | Value ($m) | Change vs 2021 | | :--- | :--- | :--- | | Profit Before Tax | 7,716 | +24% | | Net Operating Income | 16,215 | +29% | | ECL Charge | (1,858) | vs $225 release | | Operating Expenses | 6,642 | +1% | - Global Payments Solutions (GPS) revenue grew by over 100% to $6.8 billion, driven by a 149% increase in net interest income from higher rates and a 19% rise in fee income349352 - Global Trade and Receivables Finance (GTRF) revenue increased by 14% to $2.1 billion, supported by a 17% growth in average balances at improved margins349352 Global Banking and Markets (GBM) GBM's adjusted profit rose 8% to $5.4 billion, driven by strong GPS and Global Foreign Exchange performance, despite capital markets decline GBM Adjusted Financial Performance (2022) | Metric | Value ($m) | Change vs 2021 | | :--- | :--- | :--- | | Profit Before Tax | 5,445 | +8% | | Net Operating Income | 15,359 | +10% | | ECL Charge | (587) | vs $313 release | | Operating Expenses | 9,325 | +1% | - Markets and Securities Services revenue grew 14%, driven by a 33% increase in Global Foreign Exchange revenue to $4.2 billion due to elevated market volatility and client activity361368 - Banking revenue increased 17%, with Global Payments Solutions (GPS) revenue up 81% to $3.1 billion due to margin growth from rising interest rates. However, Capital Markets and Advisory revenue fell 37% in line with the reduced global fee pool361368 Corporate Centre Corporate Centre's adjusted profit decreased 12% to $2.3 billion, primarily due to a lower share of profit from associates Corporate Centre Adjusted Financial Performance (2022) | Metric | Value ($m) | Change vs 2021 | | :--- | :--- | :--- | | Profit Before Tax | 2,316 | -12% | | Net Operating Income | (596) | -29% | | Share of profit in associates and JVs | 2,695 | -7% | - The decrease in profit was primarily driven by a $0.2 billion (7%) reduction in the adjusted share of profit from associates and joint ventures, mainly from a lower share of profit from Business Growth Fund (BGF) compared to 2021371372 Risk Overview HSBC's 2022 risk management focused on geopolitical, macroeconomic, and climate risks, maintaining a robust risk appetite framework and stress testing - The primary external risks managed in 2022 were geopolitical tensions, global economic slowdown, and high inflation stemming from the Russia-Ukraine war and supply chain disruptions379380 Key Risk Appetite Metrics (2022) | Component | Measure | Risk Appetite | 2022 Performance | | :--- | :--- | :--- | :--- | | Capital | CET1 ratio | ≥13.0% | 14.2% | | ECL (WPB) | % of advances | ≤0.50% | 0.24% | | ECL (Wholesale) | % of advances | ≤0.45% | 0.40% | - Top externally driven risks include geopolitical and macroeconomic risks, technology and cybersecurity, evolving regulations, financial crime, Ibor transition, ESG risks, and digitalization416 - Top internally driven risks include workforce capability, risks from third-party services, model risk, data risk, and change execution risk416 Environmental, Social and Governance ('ESG') Review This section provides a comprehensive review of HSBC's environmental, social, and governance strategies and performance Our Approach to ESG HSBC's ESG approach integrates into its strategy, focusing on net zero, inclusion, and responsible conduct, with robust reporting standards - HSBC's ESG strategy is built on three pillars: Transition to net zero, Building inclusion and resilience, and Acting responsibly422425428 - Key progress includes facilitating $210.7 billion in sustainable finance, updating energy and thermal coal policies, setting financed emissions targets for eight sectors, and achieving 33.3% female representation in senior leadership431 - The company identifies material ESG topics for reporting through stakeholder engagement and consideration of standards like TCFD, SASB, and the Hong Kong Stock Exchange's ESG Guide433434 - Specific ESG metrics, including financed emissions, sustainable finance progress, and operational GHG emissions, are subject to independent third-party limited assurance to enhance data quality and transparency443 Environmental HSBC's environmental strategy targets net zero by 2050, setting financed emissions targets and updating policies, despite data challenges - HSBC has set interim 2030 targets for on-balance sheet financed emissions for eight sectors, including oil and gas, power and utilities, cement, iron, steel and aluminium, aviation, automotive, thermal coal power, and thermal coal mining477487 - The company has updated its energy policy to no longer provide new finance for new oil and gas fields and has expanded its thermal coal phase-out policy461474 - HSBC acknowledges significant reporting challenges, including data quality limitations, evolving methodologies, and the need for enhanced governance, which have led to the deferral of disclosures on facilitated emissions and thermal coal exposures462468470 - A Group-wide climate transition plan will be published in 2023, detailing the strategy, targets, and how these will be embedded into processes, governance, and capabilities473 Social HSBC's social strategy focuses on inclusion and resilience for employees, customers, and communities through diversity, well-being, and financial support - HSBC is on track to meet its goal of 35% women in senior leadership by 2025, having reached 33.3% in 2022. The number of Black senior leaders has increased by 37% since 2020711718 - Employee engagement remains strong, with a 73% score in the 2022 Snapshot survey, and the new Inclusion index scored 76%, both above the financial services benchmark752728 - The company is investing in future skills, launching a Sustainability Academy and an Accelerating Wealth Programme in Asia to support strategic priorities810813 - To support customer inclusion, HSBC launched a $1 billion Female Entrepreneur Fund and introduced processes to help Ukrainian refugees open bank accounts in the UK834823 - In 2022, the company donated $116.8 million to charitable programs and employees volunteered over 67,000 hours during work time843841 Governance HSBC maintains high governance standards, focusing on human rights, customer experience, financial crime, data privacy, and tax responsibility - The Board has overall responsibility for ESG strategy, supported by an executive-level ESG Committee. Governance activities are managed through a combination of specialist forums and regular committees853854 - In 2022, HSBC reviewed and identified five salient human rights issues inherent to its business: the right to decent work, right to equality, right to privacy, cultural and land rights, and right to dignity and justice863 - The company monitors over 1.2 billion transactions monthly for financial crime, filed over 73,000 suspicious activity reports in 2022, and screens 117 million customer records monthly for sanctions exposure928 - HSBC is committed to data privacy and cybersecurity, with over 97% of employees completing mandatory cybersecurity training and investment in controls to prevent, detect, and mitigate cyber threats958971980 Financial Review This section provides a detailed analysis of HSBC's financial performance, including key metrics, business segment results, and regulatory disclosures Financial Summary HSBC's 2022 financial summary shows increased net interest income, strong adjusted profit, and a robust balance sheet, despite reported profit impacts Consolidated Income Statement Summary (2022 vs 2021) | Metric ($m) | 2022 | 2021 | | :--- | :--- | :--- | | Net Interest Income | 32,610 | 26,489 | | Total Operating Income | 51,727 | 49,552 | | ECL Charge/(Release) | (3,592) | 928 | | Total Operating Expenses | (33,330) | (34,620) | | Profit Before Tax | 17,528 | 18,906 | | Profit After Tax | 16,670 | 14,693 | - Net interest income (NII) increased by 23% to $32.6 billion, and net interest margin (NIM) rose by 28 basis points to 1.48%, driven by global interest rate hikes10201021 - A net ECL charge of $3.6 billion was recorded, reflecting charges related to mainland China's commercial real estate sector and heightened economic uncertainty, compared to a $0.9 billion net release in 202110391040 - Total assets remained stable at $3.0 trillion. Loans and advances to customers decreased by $121 billion to $925 billion, primarily due to the reclassification of $81 billion of balances to held for sale (Canada and France retail)10661071 - The implementation of IFRS 17 'Insurance Contracts' from January 2023 is expected to reduce the earnings of the insurance business by approximately two-thirds on transition1004 Global Businesses and Geographical Regions This section details HSBC's financial performance by global business and geographical region, highlighting Asia's contribution and Europe's loss Adjusted Profit Before Tax by Global Business (2022) | Global Business | Adjusted PBT ($m) | | :--- | :--- | | Wealth and Personal Banking | 8,533 | | Commercial Banking | 7,716 | | Global Banking and Markets | 5,445 | | Corporate Centre | 2,316 | | Total | 24,010 | Reported Profit Before Tax by Geographical Region (2022) | Region | Reported PBT ($m) | | :--- | :--- | | Asia | 13,724 | | Middle East and North Africa | 1,700 | | North America | 1,666 | | Latin America | 853 | | Europe | (415) | - Significant items impacting reported results included a $2.8 billion charge for disposals and acquisitions (mainly the French retail impairment) and a $3.1 billion charge for restructuring costs312 Reconciliation of Alternative Performance Measures This section reconciles key alternative performance measures, such as RoTE, to reported IFRS figures, detailing adjustments for non-GAAP metrics RoTE Calculation (2022) | Metric | Value ($m) | | :--- | :--- | | Profit attributable to ordinary shareholders | 14,822 | | Adjustments for goodwill impairment & PVIF | 267 | | Profit for RoTE calculation | 15,089 | | Average ordinary shareholders' equity | 170,796 | | Adjustment for goodwill, PVIF & intangibles | (17,935) | | Average tangible equity | 152,861 | | Return on average tangible equity (RoTE) | 9.9% | - Return on average tangible equity (RoTE) excluding significant items was 11.6% in 2022, compared to 9.5% in 20211214 Net Asset Value per Share (2022) | Metric | Value ($) | | :--- | :--- | | Net asset value per ordinary share | 8.50 | | Tangible net asset value per ordinary share | 7.57 | Other Information This section covers governance, regulatory disclosures, internal controls, and compliance with various global financial regulations - Management concluded that the Group's disclosure controls and internal controls over financial reporting were effective as of December 31, 202212251228 - HSBC Group's lead consolidated regulator is the UK's Prudential Regulation Authority (PRA), with significant supervision also from the FCA (UK), HKMA (Hong Kong), ECB (Europe), and FRB/OCC/FDIC (US)123412351250 - The Group is subject to extensive prudential regulations, including the UK CRR, Basel 3.1 implementation (phased, with final elements expected in 2025), and MREL requirements for resolution planning124512461247 - Disclosures pursuant to Section 13(r) of the Securities Exchange Act detail legacy guarantees involving Iranian banks, a pension scheme for employees of a sanctioned Iranian bank, and other minor transactions, with no measurable gross revenue reported for most activities in 2022133413361341 Risk Review This section provides a comprehensive review of HSBC's risk management approach, top risks, and material banking risks Our Approach to Risk HSBC's risk approach is based on a three-lines-of-defence model, guided by risk appetite and robust stress testing for resilience - The risk management approach is guided by principles for financial position (strong capital), business practice (no appetite for customer detriment or inappropriate market conduct), and operating model (sustainable earnings)20432044 - The risk management framework is built on a three-lines-of-defence model: 1) Risk owners in the business, 2) The independent Group Risk and Compliance function, and 3) Global Internal Audit20502066 - Stress testing is a core component, used to understand vulnerabilities, inform capital and liquidity planning, and support recovery and resolution plans20702071 Top and Emerging Risks HSBC manages top and emerging risks, including geopolitical, macroeconomic, cybersecurity, and internal operational challenges - Key externally driven risks include: Geopolitical and macroeconomic instability (Russia-Ukraine war, inflation, China property sector), Technology and cybersecurity threats, complex Evolving regulatory environments, and Financial crime207920992101 - Key internally driven risks include: Workforce capability and retention challenges, risks from third-party service providers, Model risk exacerbated by economic volatility, Data risk from increasing data volumes, and Change execution risk for strategic initiatives213921442145 - The Russia-Ukraine war has led to significant sanctions, commodity price increases, and economic slowdown, while China's property sector and US-China tensions create further uncertainty207920832088 - Mitigating actions involve close monitoring of geopolitical events, stress testing portfolios, investing in technology and cyber defenses, enhancing third-party risk management, and continuous engagement with regulators209721002103 Risk Factors This section details key risk factors, including macroeconomic, geopolitical, regulatory, operational, and business-specific challenges - Macroeconomic & Geopolitical: The Russia-Ukraine war and COVID-19 pandemic continue to impact global economies, causing inflation, rising interest rates, and supply chain disruptions, which may increase ECLs and affect financial results21592160 - Regulatory & Legal: The Group is subject to numerous, evolving regulations (e.g., Basel 3.1, UK Consumer Duty, ESG rules) and faces risks of significant fines and litigation. The transition from IBOR to new benchmark rates presents legal, operational, and market risks222522282232 - Operational & Technology: The business is highly dependent on IT systems and faces significant cybersecurity threats. Failures could lead to service disruption and data breaches. The company also faces risks from model limitations, third-party suppliers, and data privacy controls225122542258 - Business & Financial: Inherent risks include reputational damage, deterioration in borrower credit quality, market fluctuations affecting income and portfolios, and the uncertainty of accounting judgements and estimates, particularly for ECLs and goodwill impairment228122982304 Areas of Special Interest This section highlights the ongoing risks from the COVID-19 pandemic, particularly its economic impact in mainland China and Hong Kong - The impact of the COVID-19 pandemic remains a risk, particularly in mainland China and Hong Kong, where public health restrictions adversely affected economic activity for much of 202223182319 - China's relaxation of COVID-19 restrictions in late 2022 could boost global growth but also poses risks of renewed inflation and potential new virus variants, which could dampen confidence and activity2320 Our Material Banking Risks HSBC identifies and manages material banking risks, including credit, treasury, market, climate, resilience, regulatory, financial crime, and model risks - Key banking risks include Credit, Treasury, Market, Climate, Resilience, Regulatory Compliance, Financial Crime, and Model Risk2322 - Credit risk arises from lending and is managed via a framework of policies, limits, and risk rating systems2322 - Treasury risk involves capital, liquidity, and funding, managed through risk appetite metrics, stress testing, and control of resources2322 - Climate risk is broken down into physical, transition, and greenwashing risks, and is managed through specific policies and stress testing2324 - Insurance-specific risks include Financial Risk (asset-liability mismatch) and Insurance Risk (underwriting losses)2326 Corporate Governance Report This section details HSBC's corporate governance framework, Board structure, activities, effectiveness, and remuneration practices The Board and Senior Management HSBC's Board and senior management comprise diverse, experienced members responsible for strategy and operations, with a focus on diversity - The Board is led by Group Chairman Mark E Tucker and includes Group CEO Noel Quinn and, as of January 2023, Group CFO Georges Elhedery135413561357 - The Board is composed of 12 members (as of Dec 31, 2022), with 67% male and 33% female representation14191420 - The Board meets the Parker Review target with three members (25%) from a minority ethnic group14231418 - Senior management, including the Group Executive Committee, supports the Group CEO in implementing strategy and managing day-to-day business1395 Governance Framework HSBC's governance framework ensures high standards, with the Board overseeing strategy and risk, supported by committees and a subsidiary framework - The Board is responsible for strategy, risk appetite, and overall corporate governance, with day-to-day management delegated to the Group Chief Executive14271434 - The Board delegates specific oversight to four main committees: Nomination & Corporate Governance, Group Audit, Group Risk, and Group Remuneration1454 - A subsidiary accountability framework ensures high governance standards are maintained across the Group's six principal subsidiaries, which oversee regional operations143914401441 - In 2022, José Antonio Meade Kuribreña was appointed as the designated non-executive Director for workforce engagement to strengthen the employee voice at the Board level1480 Board Activities in 2022 In 2022, the Board focused on strategic progress, ESG, financial planning, risk frameworks, and extensive shareholder engagement - The Board actively monitored the Group's strategy, including the conclusion of the transformation program and progress on the four strategic pillars15031504 - Significant time was dedicated to ESG, with the Board retaining overall responsibility for the strategy, overseeing reviews of net-zero policies and financed emissions target setting15061507 - The Board approved a dividend policy targeting a 50% payout ratio for 2023 and 2024, reflecting confidence in the Group's returns trajectory1510 - Key risk and regulatory frameworks were reviewed, including the Group's risk appetite, ICAAP, ILAAP, and the resolvability assessment framework1513 - Board members engaged extensively with shareholders, holding over 100 meetings with investors to discuss financial performance, strategy, and geopolitical risks1524 Board Effectiveness and Performance The 2022 internal evaluation found the Board effective, with recommendations for enhanced strategy tracking and stakeholder engagement - The 2022 internal evaluation found the Board and its committees to be operating effectively, with strong leadership from the Chairs15301532 - Key areas for focus in 2023 include enhancing the tracking of strategy execution, clarifying ESG and technology deliverable timelines, and increasing focus on customer engagement15321539 - Progress was made on 2021 actions, including strengthening Board composition, appointing a dedicated non-executive Director for workforce engagement, and holding joint committee meetings15361538 - An externally facilitated evaluation of the Board and its committees is planned for 2023, in line with best practice1529 Board Committees Board committees (Nomination, Audit, Risk, Remuneration) provided oversight on succession, financial reporting, risk management, and collaborated on key strategic areas - Nomination & Corporate Governance Committee: Focused on Board succession, appointing a new Group CFO and a new independent non-executive Director to strengthen Asia and banking experience. It also established a designated non-executive Director role for workforce engagement154415461548 - Group Audit Committee (GAC): Oversaw financial reporting, internal controls, and regulatory reporting assurance. A key activity was managing the statutory audit tender, which concluded with a recommendation to reappoint PwC for the 2025 year-end158215851601 - Group Risk Committee (GRC): Monitored significant geopolitical and macroeconomic risks, including the Russia-Ukraine war and rising inflation. It reviewed the Group's risk appetite, stress tests, and progress on the Resolvability Assessment Framework16691671 - The GAC and GRC held joint meetings with the Technology Governance Working Group to ensure coordinated oversight on critical areas like the 'Finance on the Cloud' transformation program and the Group's data strategy16391640 Directors' Remuneration Report This report details the 2022 Directors' remuneration, reflecting strong performance, a reduced variable pay pool, and targeted fixed pay increases - The total Group variable pay pool for 2022 was $3,359 million, slightly down from $3,495 million in 20211706 2022 Executive Director Single Figure of Remuneration | Director | Total Remuneration (£'000) | Annual Incentive (£'000) | | :--- | :--- | :--- | | Noel Quinn (Group CEO) | 5,562 | 2,164 | | Ewen Stevenson (Group CFO) | 4,701 | 1,091 | - The Committee applied a downward risk and compliance adjustment of 5% for the Group CEO and 15% for the Group CFO to their annual incentive outcomes due to specific capital management matters1767 - For 2023, there will be no fixed pay increases for executive Directors. Fixed pay increases averaging 5.5% across the Group were targeted at junior and middle management to address cost of living pressures17091725 - The TSR peer group for the 2023-2025 LTI award was updated to include more Asian peers (Bank of China HK, China Merchants Bank, OCBC) to better reflect the Group's strategic focus17221784 Financial Statements This section presents the consolidated financial statements of HSBC Holdings plc and its subsidiaries Additional Information This section provides supplementary information relevant to the financial report