Annual Financial Report - Part 1

HSBC Holdings PLC

21 February 2024

HSBC Holdings plc 2023 Annual Report and Accounts

In fulfilment of its obligations under section 4.1.3 and 6.3.5(1) of the Disclosure Guidance and Transparency Rules, HSBC Holdings plc (the "Company") hereby releases the unedited full text of its Annual Report and Accounts for the year ended 31 December 2023.

The document is now available on the Company's website at:

https://www.hsbc.com/investors/results-and-announcements/all-reporting/group

A copy of the above document has been submitted to the National Storage Mechanism and will shortly be available for inspection at: https://data.fca.org.uk/#/nsm/nationalstoragemechanism

HSBC Holdings plc

Annual Report and Accounts 2023

Opening up a world of opportunity

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.

Read more on our values and
strategy on pages 4 and 11.

Contents

Strategic report

1 Performance in 2023

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

25 Financial overview

30 Global businesses

37 Risk overview

40 Long-term viability and going
concern statement

Environmental, social and
governance ('ESG') review

42 Our approach to ESG

44 Environmental

75 Social

87 Governance

Financial review

100 Financial summary

111 Global businesses and legal
entities

130 Reconciliation of alternative
performance measures

Cover image: Opening up a world of opportunity

We connect people, capital and ideas across the world. By unlocking the true power of our international networks, we are able to deliver our purpose of opening up a world of opportunity.

Risk review

136 Our approach to risk

140 Top and emerging risks

145 Our material banking risks

Corporate governance report

239 Biographies of Directors and
senior management

262 Board committees

279 Directors' remuneration report

Financial statements

318 Independent auditors' report

329 Financial statements

341 Notes on the financial statements

Additional information

435 Shareholder information

444 Abbreviations

This Strategic Report was approved by the Board on 21 February 2024.

Mark E Tucker

Group Chairman

A reminder

The currency we report in is US dollars.

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:

Constant currency performance

We supplement our IFRS Accounting Standards figures with non-IFRS Accounting Standards 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.

IFRS 17 'Insurance Contracts'

From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data have been restated. For further details of our adoption of IFRS 17, see page 100.

None of the websites referred to in this Annual Report and Accounts 2023 for the year ended 31 December 2023 (including where a link is provided), and none of the information contained on such websites, are incorporated by reference in this report.

Performance in 2023

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.

Financial performance indicators

Our financial performance indicators demonstrate our continued focus on the delivery of sustainable returns for our shareholders and providing a strengthened platform for growth. They also provide insight into the performance that has driven the outcomes of our financial targets.

Read more on our financial performance in 2023 on pages 3 and 29.

For an explanation of performance against our key Group financial targets, see page 27.

For a reconciliation of our target basis operating expenses to reported operating expenses, see page 133.

For our financial targets we define medium term as three to four years and long term as five to six years, commencing 1 January 2024.

Return on average tangible equity

14.6%

(2022: 10.0%)

Profit before tax

$30.3bn

(2022: $17.1bn)

Operating expenses

$32.1bn

Target basis operating expenses up 6% to $31.6bn

(2022: $32.7bn)

Common equity tier 1 capital ratio

14.8%

(2022: 14.2%)

Dividend per share

$0.61

(2022 dividend per share: $0.32)

Strategic performance indicators

Our strategy supports our ambition of being the preferred international financial partner for our clients.

We are committed to building a business for the long term, developing relationships that last.

Read more on our strategy on pages 11 to 13.

Read more on multi-jurisdictional client revenue on page 111.

Read more on how we set and define our ESG metrics on page 16.

Read more on our definition of sustainable finance and investment on page 49.

We no longer report the metric 'Asia as a percentage of Group tangible equity'.

Net new invested assets

$84bn

Generated in 2023, of which $47bn were in Asia.

(2022: $80bn generated, of which $59bn were in Asia)

Wholesale multi-jurisdictional client revenue

61%

Wholesale client revenue generated by clients banking with us across multiple markets.

Digitally active Commercial Banking customers

83%

(2022: 78%)

Gender diversity

34.1%

Women in senior leadership roles.

(2022: 33.3%)

Sustainable finance and investment

$294.4bn

Cumulative total provided and facilitated since January 2020.

(2022: $210.7bn)

Highlights

Financial performance reflected net interest income growth, and we continued to make progress against our four strategic pillars.

Financial performance (vs 2022)

- Profit before tax rose by $13.3bn to $30.3bn, primarily reflecting revenue growth. This included a favourable year-on-year impact of $2.5bn relating to the sale of our retail banking operations in France, which completed on 1 January 2024, and a $1.6bn provisional gain recognised on the acquisition of Silicon Valley Bank UK Limited ('SVB UK') in 2023. These were partly offset by the recognition of an impairment charge in 2023 of $3.0bn relating to the investment in our associate, Bank of Communications Co., Limited ('BoCom'), which followed the reassessment of our accounting value-in-use. On a constant currency basis, profit before tax increased by $13.8bn to $30.3bn. Profit after tax increased by $8.3bn to $24.6bn.

- Revenue rose by $15.4bn or 30% to $66.1bn, including growth in net interest income ('NII') of $5.4bn, with rises in all of our global businesses due to the higher interest rate environment. Non-interest income increased by $10.0bn, reflecting a rise in trading and fair value income of $6.4bn, mainly in Global Banking and Markets. The associated funding costs reported in NII grew by $6.2bn. The increase also included the impact of the strategic transactions referred to above, partly offset by disposal losses of $1.0bn relating to repositioning and risk management activities in our hold-to-collect-and-sell portfolio.

-
Net interest margin ('NIM') of 1.66% increased by 24 basis points ('bps'), reflecting higher interest rates.

- Expected credit losses and other credit impairment charges ('ECL') were $3.4bn, a reduction of $0.1bn. The net charge in 2023 primarily comprised stage 3 charges, notably related to mainland China commercial real estate sector exposures. It also reflected continued economic uncertainty, rising interest rates and inflationary pressures. ECL were 33bps of average gross loans, including a 3bps reduction due to the inclusion of loans and advances classified as held for sale.

- Operating expenses fell by $0.6bn or 2% to $32.1bn, mainly due to the non-recurrence of restructuring and other related costs following the completion of our cost to achieve programme at the end of 2022. This more than offset higher technology costs, inflationary pressures and an increase in performance-related pay. We also incurred a higher UK bank levy and a charge relating to the Federal Deposit Insurance Corporation ('FDIC') special assessment in the US. Target basis operating expenses rose by 6%. This is measured on a constant currency basis, excluding notable items and the impact of the acquisition of SVB UK and related investments internationally. It also excludes the impact of retranslating the prior year results of hyperinflationary economies at constant currency.

-
Customer lending balances rose by $15bn on a reported basis, but fell by $3bn on a constant currency basis. Growth included a $7.8bn reclassification of secured loans in France from held for sale, an addition of $8bn from the acquisition of SVB UK, and higher mortgage balances in HSBC UK and Hong Kong. These increases were more than offset by a reduction in wholesale term lending, notably in Asia, and from business divestments in Oman and New Zealand.

- Customer accounts rose by $41bn on a reported basis, and $13bn on a constant currency basis, primarily in Wealth and Personal Banking, reflecting growth in Asia, partly offset by reductions in HSBC UK, reflecting cost of living pressures and the competitive environment, despite an increase of $6bn from the acquisition of SVB UK. There was also a reduction due to the sale of our business in Oman.

- Common equity tier 1 ('CET1') capital ratio of 14.8% rose by 0.6 percentage points, as capital generation was partly offset by dividends and share buy-backs.

- The Board has approved a fourth interim dividend of $0.31 per share, resulting in a total for 2023 of $0.61 per share. We also intend to initiate a share buy-back of up to $2.0bn, which we expect to complete by our first quarter 2024 results announcement.

Outlook

- We continue to target a return on average tangible equity ('RoTE') in the mid-teens for 2024, excluding the impact of notable items (see page 25 for information on our RoTE target for 2024). Our guidance reflects our current outlook for the global macroeconomic environment, including customer and financial markets activity.

- Based upon our current forecasts, we expect banking NII of at least $41bn for 2024. This guidance reflects our current modelling of a number of market dependent factors, including market-implied interest rates (as of mid-February 2024), as well as customer behaviour and activity levels, which we would also expect to impact our non-interest income. We do not reconcile our forward guidance on banking NII to reported NII.

- While our outlook for loan growth remains cautious for the first half of 2024, we continue to expect year-on-year customer lending percentage growth in the mid-single digits over the medium to long term.

- Given continued uncertainty in the forward economic outlook, we expect ECL charges as a percentage of average gross loans to be around 40bps in 2024 (including customer lending balances transferred to held for sale). We continue to expect our ECL charges to normalise towards a range of 30bps to 40bps of average loans over the medium to long term.

- We retain a Group-wide focus on cost discipline. We are targeting cost growth of approximately 5% for 2024 compared with 2023, on a target basis. This target reflects our current business plan for 2024, and includes an increase in staff compensation, higher technology spend and investment for growth and efficiency, in part mitigated by cost savings from actions taken during 2023.

- Our cost target basis for 2024 excludes the impact of the disposal of our retail banking business in France and the planned disposal of our banking business in Canada from the 2023 baseline. Our cost target basis is measured on a constant currency basis and excludes notable items and the impact of retranslating the prior year results of hyperinflationary economies at constant currency. We do not reconcile our forward guidance on target basis costs to reported operating expenses.

- We intend to continue to manage the CET1 capital ratio within our medium-term target range of 14% to 14.5%.

- Our dividend payout ratio target remains at 50% for 2024, excluding material notable items and related impacts. We have announced a further share buy-back of up to $2.0bn. Further buy-backs remain subject to appropriate capital levels.

Strategic transactions

- During 2023, we continued to acquire businesses that allow us to build scale and enhance our capabilities. In March, we acquired SVB UK, and subsequently launched HSBC Innovation Banking, which includes SVB UK and new teams in the US, Hong Kong and Israel, as well as in Denmark and Sweden, to deliver a globally connected, specialised banking proposition to support innovation businesses and their investors.

- As part of our ambition to be a leading wealth provider in Asia, we entered into an agreement to acquire Citi's retail wealth management portfolio in mainland China. This acquisition comprised the assets under management and deposits, and the associated wealth customers. We also announced a partnership with the fintech Tradeshift to launch a joint venture focusing on embedded finance solutions and financial services applications.

- We continue to make good progress on our strategic disposals. The planned sale of our banking business in Canada received government approval and is expected to complete in the first quarter of 2024. We completed the sale of our retail banking operations in France on 1 January 2024, as we reshape the organisation to focus on our international customer base. In addition, we announced the planned sale of our retail business in Mauritius, and also completed the sale of our operations in Greece, the merger of HSBC Bank Oman with Sohar International, and the sale of our New Zealand retail mortgage loan portfolio.

- While we remain committed to the sale of our business in Russia, the sale became less certain. As a result, the business is no longer classified as held for sale, the previously recognised loss has been reversed, and a broadly offsetting charge relating to recoverability was recognised in the fourth quarter of 2023.

- We remain committed to consider the payment of a special dividend of $0.21 per share as a priority use of the proceeds from the sale of our banking business in Canada in the first half of 2024. The remaining proceeds will accrue into CET1 capital in consideration for organic growth and investment, and we intend to use any excess capital to supplement share buy-backs. Upon completion, the sale is expected to result in an initial increase in the CET1 ratio of approximately 1.2 percentage points.

ESG highlights

Transition to net zero

- In January 2024, we published our first net zero transition plan, which is an important milestone in our journey to achieving our net zero ambition - helping our people, customers, investors and other stakeholders to understand our long-term vision, the challenges, uncertainties and dependencies that exist, the progress we are making and what we plan to do in the future. The plan includes details on our sectoral approach, and on our implementation plan to embed net zero across key areas of our organisation.

- Our net zero transition plan provides an overview of the progress we have made to date and what we plan to do next, although we acknowledge there is still much more to do. It will form the basis of further work on our journey to net zero over time, and we expect to review and update it periodically.

- Following the recent launch of the Partnership for Carbon Accounting Financials ('PCAF') accounting standard for capital markets, we have now set combined on-balance sheet financed emissions and facilitated emissions targets for two emissions-intensive sectors: oil and gas, and power and utilities, and report the combined progress for both sectors. We recognise that data, methodologies and standards for measuring emissions and for target setting will continue to evolve.

-
Since 2020, we have provided and facilitated $294.4bn of sustainable finance and investment, which was an increase of $83.7bn in the past year. Of our sustainable finance and investment progress to 31 December 2023, $258.3bn related to green and sustainable activities and $36.1bn related to social activities.

- Within our own operations, we have made a 57.3% reduction in our absolute greenhouse gas emissions from a 2019 baseline.

Build inclusion and resilience

- In 2023, 34.1% of senior leadership roles were held by women. We have a target to achieve 35% by 2025, which we are on track to achieve, although we recognise that progress in the past year has not been as fast paced as we would like. We also continued to work towards meeting our ethnicity goals.

- We continue to make the banking experience more accessible in both physical and digital spaces. We are working to ensure that our digital channels are usable by everyone, regardless of ability. We also expanded our efforts to support customers with disabilities in our branch spaces.

Act responsibly

- We aim to be a top-three bank for customer satisfaction. In 2023, we were ranked as a top three bank against our competitors in 58% of our six key markets across Wealth and Personal Banking and Commercial Banking, but we still have work to do to improve our rank position against competitors.

- We published guides to help our buyers and our suppliers better understand our net zero ambitions. The guides provide further details to support suppliers in understanding our sustainability expectations, as set out in our supplier code of conduct.

- We continued to raise awareness and develop our understanding of our salient human rights issues. In 2023, we provided practical guidance and training, where relevant, to our colleagues across the Group, on how to identify and manage human rights risk.

Who we are

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 values

Our values help define who we are as an organisation, and are key to our long-term success.

We value difference

Seeking out different 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

Our strategy

Our strategy supports our ambition of being the preferred international financial partner for our clients, centred around four key areas.

Focus

- Maintain leadership in scale markets

- Double-down on international connectivity

- Diversify our revenue

- Maintain cost discipline and reshape our portfolio

Digitise

- Deliver seamless customer experiences

- Ensure resilience and security

- Embrace disruptive technologies and partner with innovators

- Automate and simplify at scale

Energise

- Inspire leaders to drive performance and delivery

- Unlock our edge to enable success

- Deliver a unique and exceptional colleague experience

- Prepare our workforce for the future

Transition

- Support our customers

- Embed net zero into the way we operate

- Partner for systemic change

- Become net zero in our own operations and supply chain by 2030, and our financed emissions by 2050

For further details on progress made in each of our strategic areas, see pages 11 to 13.

Our global reach

Our global businesses serve around 42 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.

Assets of

$3.0tn

Operations in

Countries and territories

Approximately

42m

Customers bank with us

We employ approximately

221,000

Full-time equivalent staff

For further details of our customers and approach to geographical information, see page 110.

Our global We serve our customers through three global businesses.
businesses

On pages 30 to 36 we provide an overview of our performance in 2023 for each of our global businesses, as well as our Corporate Centre.

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.

For further details, see page 30.

In each of our global businesses, we focus on delivering growth in areas where we have distinctive capabilities and have significant opportunities.

Commercial Banking ('CMB')

Our global reach and expertise help domestic and international businesses around the world unlock their potential.

For further details, see page 32.

Each of the chief executive officers of our global businesses reports to our Group Chief Executive, who in turn reports to the Board of HSBC Holdings plc.

Global Banking and Markets ('GBM')

We provide a comprehensive range of financial services and products to corporates, governments and institutions.

For further details, see page 34.

Revenue by global business¹

Wealth and Personal Banking

Commercial Banking

Global Banking and Markets

1 Calculation is based on revenue of our global businesses excluding Corporate Centre. Corporate Centre had negative revenue of $199m in 2023.

Our stakeholders     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.

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

Group Chairman's statement

Mark E Tucker

Group Chairman

Against a challenging global economic and political backdrop, HSBC's strategy has delivered improved financial performance and increased returns for shareholders

The global economy performed better than expected in 2023, but growth remained sluggish and the economic environment was challenging for many of our customers. Although inflation fell globally, core inflation levels and interest rates remained elevated. There was also significant variability in growth from market to market and increased volatility within the banking sector. Our core purpose of 'opening up a world of opportunity' underlines our focus on helping our customers and clients to navigate this complexity and access growth, wherever it is.

Many of our customers and colleagues are living through very difficult times. Higher interest rates have had a significant impact on businesses and households, and we will remain conscious of this with interest rates expected to begin to fall back in 2024. The wars between Russia and Ukraine, and now between Israel and Hamas, are absolutely devastating. Our thoughts are with all those impacted, including our colleagues in those parts of the world, and their families and friends. Their resilience, professionalism and care for one another during these most testing of times has been, and is, exceptional.

Progress and performance

Turning to our performance, I want to again pay tribute to my colleagues. The record profit performance that we delivered in 2023 was supported by the impact of interest rates on our strong balance sheet, but it was also testament to the tireless efforts of our people around the world. I would like to thank them sincerely for their hard work, dedication and commitment to serving our customers.

In 2023, reported profit before tax was $30.3bn, which was an increase of $13.3bn compared with 2022. This was due mainly to higher revenue and a number of notable items. Our three global businesses delivered good revenue growth, and we ended the year with strong capital, funding and liquidity positions.

We remain committed to sharing the benefits of our improved performance with our shareholders. The Board approved a fourth quarterly dividend of $0.31 per share, bringing the total dividend for 2023 to $0.61 per share. Furthermore, in 2023 we announced three share buy-backs worth a total of $7bn and, today, have announced a further share buy-back of up to $2bn.

The planned sale of our banking operations in Canada received final approval from the Canadian government at the end of last year. Subject to completion of the transaction, which is expected in the first quarter of 2024, the Board will consider a special dividend of $0.21 per share, to be paid in the first half of 2024, as a priority use of the proceeds.

With this anticipated transaction and the completion of the sale of our retail banking business in France last month, our focus has moved to investing for growth, while maintaining efficiency. Two examples of growth opportunities last year were the agreed acquisition of Citi's retail wealth business in mainland China, which will help accelerate our Wealth strategy, and the acquisition of SVB UK, following the difficulties experienced by its US parent entity. Acquiring SVB UK was opportunistic, but the deal made excellent strategic sense for HSBC, and it also helped to protect clients, safeguard jobs and maintain financial stability.

Technology and sustainability are two of the trends transforming banking and the world around us. The opportunities from generative AI are among the most transformative within my working life. We are actively exploring a number of use cases, while also working to manage the associated risks.

Meanwhile the global climate challenge is becoming increasingly acute. Our presence in many of the sectors and markets where the need to reduce emissions is the greatest provides us with an opportunity to work with our clients to help address it. This is set out in our first net zero transition plan. The Board discussed and contributed to the net zero transition plan in depth. We believe that it is a realistic and ambitious assessment of the long-term journey ahead, as we continue to work with our clients on their transitions to a low-carbon future. It is clear there will be many uncertainties and dependencies, and that our approach will need to continue to evolve with the real world around us.

"Acquiring SVB UK was opportunistic, but the deal made excellent strategic sense for HSBC, and it also helped to protect clients, safeguard jobs and maintain financial stability."

Board operations

Our work on sustainability was one of the many topics discussed with our shareholders at our 2023 Annual General Meeting ('AGM') in May. Ahead of that, Noel and I were pleased to meet with Hong Kong shareholders at our Informal Shareholders' Meeting. At both meetings, we also discussed the resolutions that were requisitioned by shareholders on the Group's strategy and dividend policy. Shareholders expressed strong support for the Group's current strategy by voting overwhelmingly with the Board and against these resolutions at the AGM. This enabled the Board, my colleagues and our shareholders to focus on our shared objectives of serving our customers, driving stronger performance, and creating more value for our investors.

In 2023, the Board held meetings in London, Birmingham, Hong Kong, Paris, New York, Mumbai and Delhi. We also returned to Beijing and Shanghai last month. On each occasion, the Board engaged with clients, colleagues, government officials and regulators - with these discussions underlining that HSBC continues to have a key role connecting the world's trade and finance hubs.

There were a number of changes to the composition of the Board last year. At the 2023 AGM, we said farewell to Jackson Tai, who made an important, extensive and lasting contribution to the success of HSBC during his time as a non-executive Director. His leadership in strengthening risk and conduct governance and oversight was particularly critical through a period of significant change. We also announced in December that David Nish intends to retire from the Board at the 2024 AGM. David has made an invaluable contribution to the Board over the past eight years, particularly in recent years as Chair of the Group Audit Committee and as Senior Independent Director. I would like to thank him warmly for his consistent counsel and guidance.

I am pleased that Kalpana Morparia, Ann Godbehere, Brendan Nelson and Swee Lian Teo joined the Board during 2023. Each of them brings experience and expertise that is an asset to the Board. Specifically, Ann's extensive public-listed company board experience means that she is ideally placed to take over as Senior Independent Director, while Brendan's UK and international financial expertise and significant experience as audit chair at UK-listed companies will be particularly valuable as he takes over leadership of the Group Audit Committee.

Macroeconomic outlook

Looking ahead, 2024 is likely to be another eventful year. The slowing of inflation in the second half of 2023 means that monetary tightening now appears to be coming to an end. However, current inflation levels in many economies remain above their targets. As central banks continue to try to bridge this gap, voters head to the polls in a significant number of countries across the globe. The timing and outcomes of these elections will impact the decision making of governments and have geopolitical, as well as fiscal, implications. We will monitor the results closely, and take a long-term view of strategy, purpose and capital allocation, while cognisant of any short-term challenges.

Among these potential challenges are the increased uncertainties due to wars in Europe and the Middle East, and disruption to global trade and supply chains caused by these and attacks on shipping in the Red Sea. However, we remain cautiously optimistic about economic prospects for 2024. We expect growth to slow in the first half of the year and recover thereafter. We also expect the variable economic growth that has characterised recent years to continue.

The economies of south and south-east Asia carry good economic momentum into 2024. India and Vietnam are currently among the fastest-growing economies in the world, benefiting from competitive labour costs, supportive policies and changing supply chains. Chinese companies are among those increasingly looking towards these and other markets, as China's economic transformation towards high-quality growth and domestic consumption continues.

China's recovery after reopening was bumpier than expected, but its economy grew in line with its annual target of around 5% in 2023. We expect this to be maintained in 2024, with recently announced policy measures to support the property sector and local government debt gradually flowing through to the wider economy. Hong Kong's growth has moved along at a slower but healthy pace and is likely to remain in line with pre-pandemic levels.

As Asia continues to grow, a significant opportunity is emerging to connect it to another high-growth region. The Middle East region performed very well economically in 2023 and the outlook remains strong for 2024, notwithstanding the risks arising from conflicts in the region. As countries like Saudi Arabia and the UAE continue to diversify their economies, new opportunities are created to connect them to Asia, and Asia to them.

The US economy grew more quickly than expected in 2023 in the face of higher interest rates. Growth is likely to be lower in 2024, although it should remain higher than in Europe where growth remains subdued. The UK economy, which entered a technical recession at the end of 2023, has nonetheless been resilient. Headline inflation should fall in the first half of the year, with core inflation following by the end of 2024. This will of course determine the pace of interest rate cuts.

I would like to end by reiterating my thanks to my colleagues for all that they have done, and all that they continue to do, for HSBC. Their tireless efforts are reflected by our improved financial performance and increased returns for shareholders in 2023 - and I look forward to them securing the foundations for our future success.

Mark E Tucker

Group Chairman

21 February 2024

Group Chief Executive's review

Noel Quinn

Group Chief Executive

Our record profit performance in 2023 reflected the hard work of the last four years and the inherent strength of our balance sheet, supported by interest rates.

Return on average tangible equity

14.6%

(2022: 10%)

Profit before tax

$30.3bn

(2022: $17.1bn)

2023 was a very good year for HSBC. I would like to start by paying tribute to my colleagues for all that they did last year, and in the preceding three years. As I have said before, they have fully embraced our core purpose of 'opening up a world of opportunity' in all they do - from helping clients and customers to expand to new markets or move overseas, to digitising our business and helping our people to be their best, to our ongoing work on the transition to net zero.

Our performance last year was great credit to them. We delivered strong revenue growth across all three global businesses, supported by higher interest rates, which enabled us to deliver our best return on average tangible equity in more than a decade. As well as improving financial performance, our strategy is increasing shareholder returns. I am pleased that we have rewarded our shareholders for their loyalty with the highest full-year dividend per share since 2008, as well as three share buy-backs in 2023 totalling $7bn. In total, we returned $19bn to shareholders by way of dividend and share buy-backs in respect of 2023. In addition, we have today announced a further share buy-back of up to $2bn.

As we move into 2024, I am confident that there are opportunities ahead for us and our clients that can help us to sustain our good performance going into the next phase of the interest rate cycle.

The environment does, however, remain challenging. The wars in Europe and the Middle East are beyond comprehension on a human level, and my thoughts remain with all those impacted. Both conflicts also still have the potential to escalate further. That would first and foremost deepen the humanitarian crisis, but also likely lead to another wave of market and economic turmoil. Interest rates are expected to fall this year, which we believe should in turn help to increase economic activity. The outlook currently remains uncertain, however, and many of our customers remain concerned about their finances. In the midst of these challenges, we will stay focused on what we are here to do - which is to serve our customers and clients, and help them with any financial difficulties they face.

Financial performance

Our results are a testament to the way we stayed focused in 2023. Reported profit before tax was $30.3bn, which was $13.3bn higher than in 2022. This included a number of notable items, including a favourable year-on-year impact of $2.5bn relating to the sale of our retail banking operations in France and a $1.6bn provisional gain on the acquisition of SVB UK. These were offset by a valuation adjustment of $3.0bn relating to our investment in BoCom, which followed the reassessment of our accounting value-in-use in line with recent market developments in mainland China. This adjustment has no material impact on our capital, capital ratio and distribution capacity, and therefore no impact on our share buy-backs or dividends. We remain confident in the resilience of the Chinese economy, and the growth opportunities in mainland China over the medium to long term.

Reported revenue grew by 30% or $15.4bn, driven by an increase in net interest income of $5.4bn from all three global businesses. Non-interest income increased by $10bn, reflecting increased trading and fair value income of $6.4bn, mainly in Global Banking and Markets, and the favourable year-on-year impact from the impairment relating to the sale of our retail banking operations in France and provisional gain on the acquisition of SVB UK.

In 2023, we delivered a return on average tangible equity of 14.6%, or 15.6% excluding strategic transactions and the impairment on our investment in BoCom.

"I am confident that there are opportunities ahead for us and our clients that can help us to sustain our good performance going into the next phase of the interest rate cycle."

Our three global businesses performed well. In Commercial Banking, profit before tax was up by 76% to $13.3bn on a constant currency basis, driven by revenue increases across all our main legal entities. Within this, Global Payments Solutions revenue increased by 78% or $5.4bn on a constant currency basis, driven by higher margins reflecting higher interest rates and repricing. Fee income increased by 4% due to growth in transaction banking and higher volumes in cards and international payments, while our trade business performed well relative to the market and we increased our market share.

Global Banking and Markets delivered profit before tax of $5.9bn, up 26% compared with 2022, on a constant currency basis. Revenue grew by 10% on a constant currency basis, due to higher net interest income in Global Payments Solutions and Securities Services. In Wealth and Personal Banking, profit before tax of $11.5bn was $6.1bn higher than in 2022, on a constant currency basis. Revenue was up by 31% or $6.4bn on a constant currency basis, reflecting growth in Personal Banking and in Wealth, as well as the positive year-on-year impact relating to the sale of our French retail banking business. Within this, Wealth revenue of $7.5bn was up 8% or $0.6bn on a constant currency basis, with good growth in private banking and asset management.

Reported costs for 2023 were down by 2% compared with the previous year, as lower restructuring costs offset higher technology spending, inflation, higher performance-related pay and levies. On a target basis, costs increased by 6%, which was 1% higher than previously guided due to levies including a charge relating to the FDIC special assessment levy in the US. Our reported cost-efficiency ratio improved to 48.5% from 64.6% in 2022, supported by higher net interest income.

Our 2023 reported ECL charge of $3.4bn was $0.1bn lower than in 2022. This primarily comprised stage 3 net charges, notably related to mainland China commercial real estate sector exposures, and reflected the continued uncertainty within the global economy. After good capital generation in 2023, we ended the year with a CET1 ratio of 14.8%. We are able to pay a fourth interim dividend of $0.31 per share, bringing the total 2023 dividend to $0.61 per share, which is the highest since 2008.

From transform to sustain and grow

Looking forward, supportive interest rates and good underlying business growth have given us strong momentum. We continue to target a mid-teens return on average tangible equity. We are also, however, mindful of the interest rate cycle and the subsequent impact on net interest income. In 2023, we increased the size and duration of our structural hedges to reduce the sensitivity of banking net interest income to interest rate movements and help stabilise future earnings. We also see a number of growth opportunities within our strategy that play to our strengths.

The first is to further grow our international businesses, which remains our biggest differentiator and growth opportunity. International expansion remains a core strategy for corporates and institutions seeking to develop and expand, especially the mid-market corporates that HSBC is very well-positioned to serve. Rather than de-globalising, we are seeing the world re-globalise, as supply chains change and intra-regional trade flows increase. Our international network and presence in markets that are benefiting like the ASEAN region and Mexico help us to capitalise on these trends. As a result, our market-leading trade franchise facilitated more than $850bn of trade in 2023, while we are the second biggest payments company by revenue and we processed around $500tn of payments electronically in 2023. This helped to grow wholesale multi-jurisdictional client revenue from customers who bank with us in more than one market, by 29% in 2023. With multi-jurisdictional corporate customers in Commercial Banking generating around five times as much client revenue as an average domestic customer, we continue to focus on growing this further, especially in the mid-market segment where we have a competitive advantage and there is still potential to further extend our market leadership.

The second is to diversify our revenue. Building our wealth business to meet the rising demand for wealth management services, especially in Asia, has been a strategic priority. Last year, we attracted net new invested assets of $84bn, following $80bn in 2022 and $64bn in 2021, underlining the traction that we have gained. Our agreement to acquire Citi's retail wealth management portfolio in mainland China helps accelerate our plans. Another trend is the increasing demand for seamless, integrated, cross-border banking services, which innovation is helping us to deliver. We now have 1.3 million Global Money customers, up from 550,000 in 2022, and grew revenue from Wealth and Personal Banking international customers by 41% last year, from $7.2bn to $10.2bn. Critically, there was a 43% increase in new-to-bank international customers compared with 2022, driven by the new international proposition that we launched and continue to develop. As in wholesale, these international customers generate higher revenue, bringing in around three times as much as average domestic-only customers.

The third is continued growth in our two home markets. Our business is built on two very deep pools of liquidity in Hong Kong and the UK, which underpin our exceptional balance sheet strength and, therefore, all that we do as a business. Hong Kong and the UK are both also very profitable, well-connected markets. We are well positioned to capitalise on our positions as the number one bank in Hong Kong and a leading bank in the UK. Hong Kong's connectivity, both globally and to mainland China, are helping us to grow our franchise. We have increased our market share in trade in Hong Kong by 6.6 percentage points over the last three years, according to HKMA data. Meanwhile new-to-bank customers in Hong Kong increased by 36% over the same period as we have capitalised on the return of visitors from mainland China. In the UK, we have good traction in Commercial Banking and continue to grow market share in Wealth and Personal Banking. We are the leading bank for UK large corporates, with more than 70% market penetration last year, according to Coalition Greenwich. Euromoney also named us as the best bank in the UK for small and medium-sized enterprises, as digitisation helped to grow new-to-bank clients through Kinetic. We also increased our market share of UK mortgage stock, from 7.4% in 2020 to 8% in 2023, according to Bank of England data. As economic conditions improve and we continue to invest, we are confident in our ability to grow further in these critical markets.

Future growth levers

In 2023, we continued to build in areas we expect to drive future growth.

We brought in

$84bn

of net new invested assets in wealth.

We grew multi-jurisdictional wholesale revenue by

29%

from $15.8bn in 2022 to $20.4bn in 2023.

We have also continued to diversify our profit generation geographically across multiple markets. The positions that we have as a leading foreign bank in mainland China, India, Singapore, the UAE, Saudi Arabia and Mexico - all of which are also well connected to our international network - mean we are well placed to capture opportunities in these fast-growing economies. This was again evident as they all grew reported profits significantly in 2023, with mainland China (excluding associates), India, and Singapore each contributing in excess of $1bn of profits to the Group.

It is critical that we maintain tight cost discipline. This was challenging in 2023 in a high inflation environment, and will likely remain so in 2024. At the same time, we need to invest in growth, so we remain very focused on maintaining tight underlying costs. The sale of our French retail banking operations completed on 1 January 2024, and the planned sale of our banking business in Canada remains due to complete in the first quarter of 2024. A number of smaller exits remain underway as we continue to look at opportunities to reshape our portfolio. At the same time, our acquisition of SVB UK enabled us to create a bigger, new proposition in HSBC Innovation Banking, which combines deep sector specialisms with our balance sheet strength and global reach, ensuring we continue our long history of supporting entrepreneurs.

Driving cost savings enables us to invest in technology, which is the fourth opportunity. The digitisation of our business continues to improve customer experience and increase efficiency. Using AI to help price complex structural options in our Foreign Exchange business has cut execution times down from hours to minutes. We have also identified hundreds of opportunities to leverage generative AI, and will focus our efforts on use cases with tangible benefits for the Group and our customers.

Innovation also creates new avenues for growth. We recently launched Zing, which is our open market mobile platform focused on cross-border payments, initially available in the UK. It offers similar capabilities as Global Money does to our international Wealth and Personal Banking customers, but is targeted at non-HSBC customers and allows us to drive growth beyond our traditional customer footprint.

Underpinning all of this is our work to build a stronger performance culture, improve colleague experience and prepare our workforce for the future. This is important because achieving our ambitions depends on our 220,000 colleagues feeling motivated and believing in our strategy. In our most recent staff survey, I was pleased that the number of colleagues seeing the positive impact of our strategy in 2023 was up 11 percentage points on 2020, which is also above the financial services sector benchmark.

Finally, helping to finance the substantial investment needs of our customers in the transition to net zero is a growing commercial opportunity, as well as a necessity to mitigate rising financial and wider societal risks. Our first net zero transition plan shows how we intend to finance and support the transition to net zero and collaborate globally to help enable change at scale. It also sets out our roadmap for implementing net zero, which we will do by supporting our customers, embedding net zero into the way we operate and partnering for systemic change. We understand that our approach - including our own transition plan - will need to evolve over time to keep pace with both the evolving science and real economy decarbonisation across the sectors and geographies we serve.

Thank you

On a personal note, one of the most enjoyable parts of 2023 for me was spending time with many of my colleagues around the world. Reconnecting with them, and seeing first-hand their passion for serving our customers, pride in HSBC and ambitions for the future, was energising and inspiring. Leading HSBC is a privilege, and my colleagues are the main reason why.

2023 was a very good year for HSBC. We now have an opportunity to ensure that it becomes part of a longer-term trend of ongoing good performance and to secure the foundations for future success. I am confident that we have the opportunities, the platform and the team to enable us to get it done.

Noel Quinn

Group Chief Executive

21 February 2024

Our strategy

We are implementing our strategy across the four strategic pillars
aligned to our purpose, values and ambition.

Our strategy remains anchored around our four strategic pillars: 'Focus', 'Digitise', 'Energise' and 'Transition'.

We delivered a good set of results in 2023 supported by the interest rate environment and the execution of our strategy. Our

reported profit before tax was $30.3bn and we achieved a reported return on tangible equity of 14.6%, or 15.6% excluding the impact of strategic transactions and the impairment of our investment in BoCom. In our global businesses, WPB revenue increased by 31% on a constant currency basis, including a favourable year-on-year

impact relating to the sale of our retail banking business in France. In CMB, revenue increased by 40% on a constant currency basis, including a provisional gain on the acquisition of SVB UK. In addition, revenue in GBM increased by 10% on a constant currency basis.

Focus

Wholesale - double down on leadership in international connectivity

Our strength in international connectivity remains one of our key differentiators. We seek to partner with our clients as they expand internationally, and capitalise on opportunities arising from the reconfiguration of global supply chains.

In 2023, we grew wholesale multi-jurisdictional client revenue¹ by 29% since 2022, supported by the interest rate environment. These customers also generate more revenue with us. In CMB, multi-jurisdictional corporate clients generate approximately five times the revenue of a domestic-only corporate customer.

In addition, there was increased collaboration across markets. In GBM, cross-border client revenue from clients managed in the West and booked in the East increased by 39% from 2022.

Our ambition is to maintain strong, resilient returns through the interest rate cycle. As such, we are prioritising growing capital-light, fee-income generating businesses, such as transaction banking. In 2023, we processed around $500tn electronic payment transactions, ranking second by Global Payments Solutions revenue in the first half of 2023². We also facilitated over $850bn in trade and have been ranked first in revenue since 2018².

1 For further information and the basis of preparation for multi-jurisdictional client revenue, see page 134.

2 Global Payments Solutions and trade revenue rankings sourced from Coalition Greenwich.

WPB - build our international and wealth propositions

We continued to build our international and wealth propositions, taking advantage of the growth of wealth assets globally but especially in Asia. We amassed $84bn in net new invested assets in 2023, bringing total wealth invested assets to $1,191bn, an increase of 17% from 2022.

In 2023, our international strategy generated good results. We continued to attract international customers, who are either multi-jurisdictional, non-resident or resident foreigners, from our top 11 markets¹. We increased new-to-bank customers² in this segment by 43% since 2022, bringing total international customers to 6.7 million. These customers also each generated approximately three times the income compared with domestic customers. As a result, we increased revenue in this segment by 41% compared with 2022.

Customers increasingly demand seamless banking across geographies. We continued to enhance Global Money, our mobile proposition that allows customers to spend and send money in multiple currencies. The product gained traction with more than 750,000 new customers in 2023, taking total customers to over 1.3 million.

1 Top 11 markets include the UK, Hong Kong, Mexico, the US, India, Singapore, Malaysia, the UAE, Australia, mainland China and the Channel Islands and the Isle of Man.

2 New-to-bank customers includes both new to bank customers and those customers who have opened an account in a new market, including those who already bank with us in one or more other markets.

Focus continued

Maintain leadership in scale markets

We continued to take advantage of our strengths, especially our leading positions in our scale markets: Hong Kong and the UK.

Hong Kong

We have a well established business in Hong Kong, with $544bn in customer deposits and market leadership in a number of product areas¹.

In 2023, profit before tax was $10.7bn, an increase of 80% on a reported basis. In our wholesale businesses, we focused on maintaining our leading position across multiple products. In trade finance, our market share was 25.7%, an increase of 6.6 percentage points from 2020². We also continued to solidify our leadership position and grow our WPB business through the launch of a new Premier Elite proposition and acquisition of new customers, with new-to-bank WPB customers increasing by 36% from 2020, reaching 634,500 in 2023.

HSBC UK

HSBC UK has a universal franchise with $340bn in customer deposits. We are a market leader across multiple CMB products, including trade finance and cash management, according to Euromoney and Coalition Greenwich. We aim to take advantage of our international network to maintain this position in CMB and grow our international presence in WPB.

Profit before tax was $8.3bn in 2023, an increase of 84% on a reported basis, including a $1.6bn provisional gain on the acquisition of SVB UK. We continued to grow our CMB business and achieved a market penetration of more than 70% within the large corporate banking segment in 2023³. In our WPB business, we opened over 1 million new current accounts and continued to grow our mortgage stock market share in the UK, reaching 8.0% in 2023, an increase of 0.6 percentage points since 2020⁴.

634,500

New-to-bank WPB customers in Hong Kong

25.7%

Share of the trade finance market in Hong Kong²

>70%

UK large corporate banking market penetration in 2023³

8.0%

HSBC UK's mortgage stock market share⁴

1 Including deposits, assets, card spend and insurance. Source: Hong Kong Monetary Authority ('HKMA'), Hong Kong Insurance Authority.

2 Source: HKMA, 31 December 2023.

3 Source: Coalition Greenwich Voice of Client - 2023 European Large Corporate Cash Management Study.

4 Source: Bank of England.

Diversify our revenue

In addition to Hong Kong and the UK, five markets in particular represent growth opportunities for us. We aim to be the leader within the affluent and international customer segments in mainland China, India, Singapore and the UAE, and we are a market leader within retail banking in Mexico. These markets delivered strong results in 2023, with mainland China excluding BoCom, India and Singapore each delivering over $1bn in profit before tax. The UAE and Mexico each delivered profit before tax of over $0.8bn.

Mainland China

We have a strong client franchise in mainland China capitalising on our role as a bridge to support clients' international needs. We were ranked number one in foreign exchange by FX Markets Asia in 2023. We entered into an agreement to acquire Citi's retail wealth management portfolio, and supported by our expanded onshore Global Private Banking and our Pinnacle proposition, we grew our wealth invested assets by 53% compared with 2022.

India

We aim to continue growing our wholesale franchise by taking advantage of corporate supply chains. In 2023, we were ranked number one by Euromoney in cash management in India. We are also tapping into the wealth pools of the Indian diaspora with the launch of onshore Global Private Banking. In 2023, we were the top foreign bank for non-resident Indians in wealth¹.

Singapore

Our ambition is to be the primary wholesale offshore booking centre and wealth hub within the ASEAN region. In 2023, we were recognised by AsiaMoney as the Best International Bank in Singapore. Additionally, we grew our retail franchise, with a 76% increase in new-to-bank WPB international customers compared with 2022, supported by the launch of our new customer onboarding journey.

UAE

We are growing our institutional and international wholesale business from a strong foundation. In 2023, we were ranked number one in equity and debt capital markets in MENAT². Within wealth, following the launch of onshore Global Private Banking, we grew our wealth invested assets by 35% from 2022. We also grew international new-to-bank customers by 51% since 2022.

Mexico

Within our wholesale businesses, we continue to capitalise on trade flows between Mexico and North America. In 2023, we were ranked number one by Euromoney within trade finance in Mexico. In our wealth and retail businesses, we remain focused on delivering improved customer experience and growing our Global Private Banking business. In addition, over half of WPB client acquisitions in 2023 were referred by the wholesale businesses through our Employee Banking Solutions proposition.

1st

Foreign exchange ranking in mainland China Source: FX Markets Asia

1st

Cash management ranking in India Source: Euromoney

76%

Increase in new-to-bank WPB international customers in Singapore compared with 2022

35%

Increase in wealth invested assets in the UAE compared with 2022

51%

WPB client acquisition from wholesale referrals in Mexico

1 Source: Indian Mutual Fund Industry

2 Source: Dealogic

Focus continued

Maintain cost discipline and reshape our portfolio

In 2023, our costs were up by 6% on a target basis. Our aim is to maintain cost discipline by driving efficiencies in our operations and reinvesting cost savings in areas that will drive future growth. We are prioritising investments in transaction banking, wealth and international propositions, and product innovation. At the same time, we continue to reshape our portfolio through exits and bolt-on acquisitions.

We completed our exit from our retail banking operations in France, our WPB business in New Zealand, and our businesses in Greece and Oman. Further exits from Canada, Russia and Armenia are underway as well as in our retail banking business in Mauritius.

These exits will pave the way for investments in growth and efficiency areas such as HSBC

Innovation Banking, which was launched after the acquisition of SVB UK. We also entered into an agreement to acquire Citi's retail wealth management portfolio in mainland China in August 2023, and completed our purchase of SilkRoad Property Partners, a real estate fund manager in January 2024, which will be integrated into our asset management business.

Digitise

Improve customer experience and efficiency while investing in innovation

In 2023, we made progress on our goal to become a digital-first bank, and our customers have been increasingly adopting our digital services. In CMB, 83% of customers were digitally active, an increase of 5 percentage points since 2022. Our net promoter score for onboarding wholesale international clients in the last quarter of 2023 improved by 12 points when compared with the first three months of the year. At 54%, more than half of WPB customers were mobile active, an increase of 6 percentage points from 2022. Furthermore, a total of 75% of WPB's international customer accounts were opened digitally in 2023, an increase of 30 percentage points from 2022.

We are also focused on building future-ready business models by investing in open-market propositions. In 2023, we announced a partnership with Tradeshift to launch a new embedded finance solution in the first half of 2024, which will provide payment and financial services embedded into trade, e-commerce and marketplace experiences. In January 2024, in the UK we launched Zing, a mobile platform enabling cross-border payments available to non-HSBC consumers.

We are also investing in innovative technologies for the future. In 2024, we plan to both concentrate our efforts and increase

our investment in artificial intelligence ('Al'). At present, we employ Al in areas such as fraud detection and transaction monitoring.

We also launched Al Markets, a digital service that utilises natural language processing to enrich the way investors interact with global markets. Additionally, we are in the process of piloting numerous generative Al use cases in areas like developer augmentation, creative content generation and knowledge management, and have identified hundreds more potential opportunities.

Energise

Inspire a dynamic culture

We are opening up a world of opportunity for our colleagues by building an inclusive organisation that empowers and energises them. We intend to accomplish this by building a stronger performance culture, improving colleague experience and preparing a workforce for the future.

Our success is underpinned by our colleagues. In a changing world, we empower our colleagues by providing clarity of our strategy and opportunities for them to develop and have fulfilling careers. Our 2023 employee Snapshot survey showed that 73%

of our colleagues see the positive impact of our strategy, a 3 percentage point increase from 2022, and a 11 percentage point improvement from 2020. The survey also showed that 81% of our colleagues feel confident about HSBC's future, a 4 percentage point increase from 2022, and also a 11 percentage point improvement over 2020.

We remain focused on creating a diverse and inclusive environment. In 2023, 34.1% of

senior leadership roles were held by women, and we are on track to achieve our ambition of 35% by 2025. We also set a Group-wide ethnicity strategy to better represent the communities we serve, with 3.0% of leadership roles in the UK and US held by colleagues of Black heritage in 2023, against our ambition of 3.4% by 2025. Additionally, in 2023, over 37.8% of our senior leaders have identified as being from an Asian heritage background.

In the following 'ESG overview' section, we outline how we put our purpose and values into practice.

Transition

Support the transition to net zero

In 2020, we set out our ambition to become a net zero bank by 2050. Since then, we have taken a number of steps to execute on our ambition and manage climate risks. In January 2024, we published our first net zero transition plan, which provides an overview of the progress we have made to date and the actions being taken and planned to embed our net zero ambition across HSBC. It sets out how we intend to harness our strengths and capabilities in the areas where we believe we can support large-scale emissions reduction: transitioning industry, catalysing the new economy, and decarbonising trade and supply chains.

To support our customers through the transition to net zero and to a sustainable future, in 2020, we set out an ambition to provide and facilitate $750bn to $1tn of sustainable finance and investments by 2030. In 2023, we provided and facilitated $83.7bn of sustainable finance and investments, bringing our cumulative total since January 2020 to $294.4bn.

As part of our ambition to align our financed emissions to achieve net zero by 2050, we have set on-balance sheet or combined financed emissions targets for a number of emission-intensive sectors.

Work continues on the integration of ESG and climate analysis into HSBC Asset Management's actively managed product offerings to help ensure the ESG risks faced by companies are considered when making investment decisions and to assess ESG risks and opportunities that could impact investment performance.

We also made progress in our ambition to become net zero in our own operations and supply chain by 2030. In 2023, we reduced our absolute greenhouse gas emissions in our operations to 293,333 tonnes CO2e, which represents a 57.3% reduction from our 2019 baseline.

For further details on our climate ambition, see the following 'ESG overview' section.

ESG overview

We are taking steps to incorporate environmental, social and governance principles throughout the organisation, supporting the 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 customers, colleagues and communities. Our purpose is underpinned by our values: we value difference; we succeed together; we take responsibility; and we get it done.

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 economies, societies, supply chains and people's lives are interconnected. We recognise we can play an important role in helping to tackle ESG challenges. We focus our efforts on three areas: the transition to net zero, building inclusion and resilience, and acting responsibly.

Transition to net zero

In 2020, we set an ambition to become a net zero bank by 2050. Since then, we have made progress in support of this ambition - including providing and facilitating sustainable finance and investment for our customers, updating several of our sustainability and investment risk policies, and setting 2030 targets for financed emissions in a range of high-emitting sectors.

We recognise both the commercial opportunity of taking action to transition to net zero and the potential risks of inaction by society at large. In our net zero transition plan, we provide an overview of the actions we are taking and plan to take to support our customers, embed net zero into the way we operate and partner for systemic change. We also set out how we are starting to work to integrate nature and just transition considerations into our net zero approach.

We set out in more detail the steps we are taking on our climate ambitions in the ESG review on page 41.

Build inclusion and resilience

To help create long-term value for all stakeholders, we focus on fostering inclusion and building resilience for our colleagues, our customers and the communities we operate within.

For colleagues, we focus on creating an inclusive, healthy and rewarding environment as this helps us to attract, develop and retain the best talent, and we support their resilience through well-being and learning resources. We continue to make progress towards our goals for gender and ethnic diversity.

We strive to provide an inclusive and accessible banking experience for our customers. We do this by providing resources that help them manage their finances, and services that help them protect what they value.

We are developing an updated global philanthropy strategy that aligns with our ESG areas of focus: 'transition to net zero' and 'building inclusion and resilience'.

Act responsibly

We are focused on operating 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 on 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 15, we have set out ways that we have supported our stakeholders through a challenging year.

ESG disclosure map and directory

Transition to net zero	Our approach to the transition	Read more on our approach to the transition to net zero	Page 45
	Supporting our customers	Read more on our progress made against our $750bn to $1tn sustainable finance and investment ambition	Page 49
		Read more on our progress made against our ambition to achieve net zero in our financed emissions by 2050	Page 53
	Embedding net zero into the way we operate	Read more on our ambition to achieve net zero in our own operations and supply chain by 2030	Page 63
	Partnering for systemic change	Read more on how we partner externally in support of systemic change	Page 68
	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 69
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 76
Build inclusion and resilience	Pay gap disclosures		Page 77
Act responsibly	How we govern ESG	Read more on our approach to ESG governance and human rights	Page 88 Page 89
	Human rights and modern slavery disclosures		Page 88 Page 89
	How our ESG targets link to executive remuneration	Read more on our ESG targets embedded in executive remuneration	Page 16 Pages 284 to 298
ESG Data Pack	Detailed ESG information	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

Engaging with our stakeholders and our material ESG topics

We know that 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.

Our stakeholders	How we engage	Material topics highlighted by the engagement¹
Customers	Our customers' voices are heard through our interactions with them, surveys and by listening to their complaints.	- Customer advocacy - Cybersecurity - Employee training - Diversity and inclusion - Employee engagement - Supporting our customers - financed emissions - Embedding net zero into the way we operate - Sustainability risk policies, including thermal coal phase-out policy and energy policy - Net zero transition plan - Financial inclusion and community investment - Climate risk - Anti-bribery and corruption - Conduct and product responsibility - Supply chain management - Human rights
Employees	Our colleagues' voices are heard through our annual Snapshot survey, Exchange meetings, global jams, townhalls, leadership summits, and our 'speak-up' channels, including our global whistleblowing platform, HSBC Confidential.
Investors	We engage with our shareholders through our AGMs, virtual and in-person meetings, investor roadshows, conferences and our annual investor survey.
Communities	We engage with non-governmental organisations ('NGOs'), charities and other civil society groups through forums, summits and roundtables supporting ESG causes such as COP28. We engage directly on specific issues by taking part in working groups.
Regulators and governments	We proactively engage with regulators and governments to build strong relationships through virtual and in-person meetings and by responding to consultations individually and jointly via industry bodies.
Suppliers	Our code of conduct sets out our ambitions, targets and commitments on the environment, diversity and human rights, and outlines the minimum standards we expect of our suppliers. We engage with key suppliers in real estate, technology and other sectors through meetings.

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 of our disclosures, see our ESG review and ESG Data Pack, as well as our ESG reporting centre at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.

Supporting our customers in challenging economic times

We know that many of our customers continue to face difficult financial circumstances due to cost of living pressures, and we are working to support them. As the rising cost of living has been particularly high in the UK, one of our largest markets, most of our initiatives focused on supporting our UK personal and business customers. We have enhanced our range of digital resources available on our website and we are proactively approaching those most in need - both personal and business customers - to offer targeted support and help build their financial resilience.

Proactive support

For personal customers in financial difficulty, we have developed our digital services with improvements to the 'Rising cost of living' hub on our public website in the UK. Use of segmentation data has enabled us to take a proactive approach to supporting customers and offering targeted solutions to those who are identified as being most in need.

We have engaged with vulnerable customer groups through cost of living calls, targeted emails and direct mail. In 2023, we also:

- offered customers the option to switch mortgage rates early, extend their mortgage term with an option to reverse it at a later date, or pay interest only for six months, as part of our commitment to the new UK Mortgage Charter;

- offered a temporary reduction of fees on arranged overdrafts to help those most in need pay less;

- held over 1,000 financial well-being webinars, including 227 cost of living sessions for 50,000 customers and colleagues;

- helped more than 37,000 customers identify £2.9m in potential benefits by providing access to a benefits calculator tool via our website; and

- helped more than 130,000 customers generate a financial fitness score, and obtain tips on how to improve their financial resilience using our online financial fitness tool.

In the UK, CMB has continued to support commercial banking clients exhibiting signs of financial vulnerability. We reviewed client needs on a case-by-case basis and provided solutions including repayment holidays, extending loan repayments and offering extensions to collection periods. The use of data and front-line insights has improved our ability to identify financially vulnerable customers.

In 2023, we contacted targeted clients to help improve awareness of the support available, including communicating with over 178,000 SMEs and proactively making over 43,000 outbound calls.

Increasing understanding of fraud and scam risk and education on how to protect against becoming a victim continues to be another key area of focus. In 2023, we also:

- held fraud and scam awareness webinars to highlight recent trends and case studies, attended by approximately 4,300 customers;

- sent 2.1 million emails and 300,000 letters in quarterly campaigns to share our insights and enhance understanding of key fraud topics and trends; and

- published 44 articles and alerts on the HSBC Fraud and Cyber Awareness mobile app, covering a broad range of topics as well as any emerging threats and trends.

For further details of our work to support vulnerable communities and customers see page 85.

For further details on our conduct and product responsibilities, see the ESG review on page 96.

Our ESG ambitions, metrics and targets

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 track our progress against our environmental and social sustainability goals. They also help us to improve employee advocacy and the diversity of senior leadership, as well as strengthen our market conduct. The targets for these measures are linked to the pillars of our ESG

strategy: transition 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 Officer and Group Executives that underpin the ESG metrics in the table below.

For a summary of how all financial and non-financial metrics link to executive remuneration, see pages 284 to 298 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 we are doing, see the ESG review on page 41.

Environmental: Transition to net zero¹	Sustainable finance and investment²	Net zero in our own operations³	Financed emissions⁴
	$294.4bn	57.3%	7 sectors
	Cumulative total provided and facilitated since January 2020. (2022: $210.7bn) Ambition: Provide and facilitate $750bn to $1tn of sustainable finance and investment by 2030.	Reduction in absolute operational greenhouse gas emissions from 2019 baseline. (2022: 58.5%) Ambition: To be net zero in our own operations and supply chain by 2030.	Number of sectors where we have set financed emissions targets, comprising five on-balance sheet and two combined financed emissions targets. Ambition: Align our financed emissions to achieve net zero by 2050.
Social: Build inclusion and resilience	Gender diversity⁵	Black heritage⁵	Employee engagement⁶
	34.1%	3.0%	77%
	Senior leadership roles held by women. (2022: 33.3%) Ambition: Achieve 35% senior leadership roles held by women by 2025.	Senior leadership roles held by Black heritage colleagues in the UK and US combined (2022: 2.5% ) Ambition: 3.4% of senior leadership roles held by Black heritage colleagues in the UK and US combined by 2025.	Employee engagement score. (2022: 74%) Ambition: Maintain 72% in the employee Snapshot engagement index.
Governance: Acting responsibly	Conduct training⁷	Customer satisfaction⁸
	98%	3 out of 6	5 out of 6
	Employees who completed conduct training in 2023. (2022: 98%) Target: At least 98% of employees complete conduct and financial crime training each year.	WPB markets that sustained top-three rank and/or improved in customer satisfaction. (2022: 4 out of 6) Target: To be ranked top three and/or improve customer satisfaction rank.	CMB markets that sustained top-three rank and/or improved in customer satisfaction. (2022: 5 out of 6) Target: To be ranked top three and/or improve customer satisfaction rank

1 For further details of our approach to transition to net zero, methodology and PwC's limited assurance reports on financed emissions, sustainable finance and investment progress, and our own operations' scope 1, 2 and 3 (business travel and supply chain) greenhouse gas emissions data, see www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.

2 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 49. For details of how this target links with the scorecards, see page 284.

3 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 284.

4 See page 53 for further details of our targets, which include combined on-balance sheet financed emissions and facilitated emission targets for two emissions-intensive sectors: oil and gas, and power and utilities. The remaining five sectors for which we have set on-balance sheet financed emissions targets are: cement; iron, steel and aluminium; aviation; automotive; and thermal coal mining.

5 Senior leadership is classified as those at band 3 and above in our global career band structure. For further details, see the ESG review on page 77. For details of how this target links with the scorecards, see page 284. Colleagues in Canada are excluded from this disclosure to align with scorecards.

6 For further details, see the ESG review on page 79. For details of how this target links with the scorecards, see page 284.

7 The completion rate shown relates to the 'Fighting financial crime' training module in 2023 and covers permanent and non-permanent employees. The latest global conduct training 'Conduct matters and taking responsibility - 2023' was launched in December 2023 and will run through the first quarter.

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. Our WPB NPS ranking in mainland China is based on 2022 results. Due to data integrity challenges, we are unable to produce a 2023 ranking. For further details of customer satisfaction, see the ESG review on page 91. For further details of how this target links with the scorecards, see page 284.

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

The Financial Stability Board's Task Force on Climate-related Financial Disclosures ('TCFD') recommendations set an important framework for understanding and analysing climate-related risks, and we are committed to regular and 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 2023 and related disclosures. We recognise that further work lies ahead as we continue to develop our management and reporting capabilities. In 2023, we made certain enhancements to our disclosures. These include enhancing our merger and acquisition process to consider potential climate and sustainability-related targets, net zero transition plans and climate strategy, and how this relates to HSBC. In addition, we published our net zero transition plan.

We have considered our 'comply or explain' obligation under both the UK's Financial Conduct Authority's Listing Rules and Sections 414CA and 414CB of the UK Companies Act 2006, and confirm that we have made disclosures consistent with the TCFD Recommendations and Recommended Disclosures, including its annexes and supplemental guidance, 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 defines 2030 as intermediate, we use different time horizons for climate risk management. For climate, 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 2023, we disclosed interim 2030 targets for financed emissions for a number of sectors as we outline on page 18. Following this, we have now set combined on-balance sheet financed emissions and facilitated emissions targets for two emissions-intensive sectors: oil and gas, and power and utilities.

- The methodology and data used for financed emissions is evolving and we expect industry guidance, market practice, data availability, scenarios and regulatory disclosure requirements to continue to change, along with the shape of our own business. We expect to periodically review and, if required, update our methodologies, baselines, scenarios, and targets to reflect real economy decarbonisation and evolving guidance and data.

- 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, although nascent work is ongoing in these areas. 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 four out of 15 categories of scope 3 greenhouse gas emissions including business travel, supply chain and financed emissions. In relation to financed emissions, we publish on-balance sheet financed emissions for a number of sectors as detailed on page 18. We also publish facilitated emissions for the oil and gas, and power and utilities sectors. Future disclosures on financed emissions and related risks are reliant on our customers publicly disclosing their greenhouse gas emissions, targets and plans, and related risks. We recognise the need to provide early transparency on climate disclosures but balance this with the recognition that existing data and reporting processes require significant enhancements.

For a full summary of our TCFD disclosures, including detailed disclosure locations for additional information, see pages 69 to 74. The additional information section on page 440 provides further detail.

Backing renewable connections in South America

We helped to finance one of the largest transmission lines in South America, which will connect central and southern Chile to renewable energy generated in the north.

Conexión is building the Kimal-Lo Aguirre initiative after winning a tender from Chile's Minister of Energy in 2022. The project will aim to develop approximately 1,400km of critical infrastructure with the ability to carry up to 3,000 million watts of energy when scheduled to complete in 2029.

We provided a $160m equity bridge loan to support China Southern Power Grid's contribution to the project. China Southern Power Grid is the second largest electric power company in China. The funds will help unlock energy transition infrastructure required to support Chile in achieving its net zero goals.

How we measure our net zero progress

We are helping the transition to a net zero economy by transforming ourselves, and supporting our customers to make their own transitions. Our ambition is to align our financed emissions to net zero by 2050 or sooner.

Our net zero transition plan sets out how we intend to harness our strengths and capabilities in areas where we believe we can support large-scale emissions reduction: transitioning industry, catalysing the new economy, and decarbonising trade and supply chains. The plan also provides details on our sectoral approach, and on our implementation plan to embed net zero into the way we operate.

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 and sustainable finance and investment taxonomies are not consistent globally, and evolving taxonomies and practices could result in revisions in our sustainable finance reporting going forward.

To date, we have set 2030 financed emissions targets across energy, heavy industry and transport, specifically for the following sectors: oil and gas; power and utilities; cement; iron, steel and aluminium; aviation; automotive; and thermal coal mining.

Following a reduction in our exposure to the shipping sector after the strategic sale of part of our European shipping portfolio in 2023, and work undertaken to assess the materiality of our remaining portfolio from a financed emissions perspective, we have concluded that the remaining exposure as of year-end 2023 is not material enough to warrant setting a stand-alone target. This aligns with NZBA guidelines on sector inclusion for target setting. Due to ongoing data availability and quality challenges, we continue to assess our financed emissions for our real estate and agriculture sectors.

We recognise that there is a significant amount of uncertainty and complexity related to the transition, and that progress in the real economy will depend heavily on external factors including the policy and regulatory landscape across markets, the speed of technological innovation and growth, and economic and geopolitical events. In addition, climate science and the availability and quality of climate data continue to evolve, and the net zero-aligned scenarios upon which we have based our approach will also update over time to keep pace with real economy developments. Emissions and broader customer data is also expected to improve, as well as approaches and standards for greenhouse gas accounting and target setting. As a result of this, we expect to regularly refine and update our analysis as well as data collection and consolidation processes to accommodate new data sources and updated methodologies and scenarios, and intend to be transparent on any changes we make and why. As an example, our ESG review includes recalculated 2019 and 2020 financed emissions figures for the oil and gas, and power and utilities sectors. In addition, periodic updates to published net zero-aligned scenarios mean that it will be important that our net zero-aligned reference scenario choice, and by extension our target-setting approach, remain in step with the evolving real economy context and is informed by the latest science.

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 53.

Net zero implementation plan	Metrics and indicators
Supporting our customers	Sustainable finance and investment provided and facilitated ($bn)¹	$294.4bn cumulative progress since 2020 (for further breakdown see page 49)
	Number of sectors analysed for financed emissions²	We have set seven financed emissions targets, comprising five on-balance sheet and two combined financed emissions targets so far (see pages 53 to 62)
	Thermal coal financing exposures^{2, 3}	Our thermal coal financing drawn balance exposure was approximately $1bn as at 31 December 2020 (for further details, see page 67)
Embedding net zero into the way we operate	Percentage of absolute operational greenhouse gas emissions reduced⁴	57.3% reduction in absolute greenhouse gas emissions from 2019 baseline (see page 63)
	Percentage of renewable electricity sourced across our operations	Increase from 48.3% in 2022 to 58.4% (see page 63)
	Percentage of energy consumption reduced	26.3% reduction in energy consumption from 2019 baseline (see page 63)
Partnering for systemic change	Philanthropic investment in climate innovation ventures, renewable energy, and nature-based solutions	Committed $105m to our NGO partners since 2020, as part of the Climate Solutions Partnership (see page 68)

1 The detailed definitions of the contributing activities for sustainable finance and investment are available in our revised Sustainable Finance and Investment Data Dictionary 2023. 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.

2 For further details of our financed emissions methodology, exclusions and limitations, see our Financed Emissions and Thermal Coal Exposures Methodology at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.

3 Data is subject to independent limited assurance by PwC in accordance with ISAE 3000/ISAE 3410. For further details, see our Financed Emissions and Thermal Coal Exposures Methodology and PwC's limited assurance report at www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre.

4 Our reported scope 3 greenhouse gas emissions of our own operations in 2023 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 64 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.

Responsible business culture

We have a responsibility to help protect our customers, our communities and the integrity of the financial system.

Employee matters

We are building a responsible business culture that values difference, takes responsibility, seeks different perspectives and upholds good standards of conduct.

There may be times when our colleagues need to speak up about behaviours in the workplace. In the first instance we encourage colleagues to speak to their line manager, and our annual Snapshot survey showed that 86% of colleagues have trust in their direct manager. HSBC Confidential is our whistleblowing channel, which allows colleagues past and present to raise concerns confidentially and, if preferred, anonymously (subject to local laws). Our Snapshot survey showed that 80% of colleagues feel able to speak up when they see behaviours they consider to be wrong.

We promote an environment where our colleagues are treated with dignity and respect and we act where we find behaviours that fall short. Our inclusion index measures our colleagues' sense of belonging and psychological safety within the organisation, and in 2023 this increased to 78%.

We aspire to be an organisation that is representative of the communities in which we serve. We have committed to achieving a 35% representation of women in senior leadership roles (classified as those at band 3 and above in our global career band structure) by 2025. We remain on track, having achieved 34.1% in 2023.

We aspire to achieve a 3.4% representation of Black heritage colleagues in senior leadership roles across the UK and US combined by 2025. We are on track to achieve this, having increased our representation to 3.0% this year. We continue to make progress but we know there is more to be done.

To ensure we set representation goals that are locally relevant, we enable our employees to self-disclose ethnicity data. We have enabled 91% of our colleagues to disclose their ethnicity, with 62% currently choosing to do so, where this is legally permissible.

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, how we encourage our employees to speak up, and our approach to employee conduct, see the Social section of the ESG review on page 75.

Listening to our customers

We continue to listen, learn and act on our customers' feedback. We have implemented the net promoter system, enabling us to share customer feedback with our front-line teams and allowing them to respond directly to customers. We also have dedicated global forums to promote continuous improvement of our customers' experience.

Social matters

We invest in the long-term prosperity of the communities where we operate. We aim to provide people, especially those in marginalised and vulnerable communities, with the skills and knowledge needed to thrive through the transition to a sustainable future. For this reason, we focus our support on programmes that help build inclusion and resilience. We also support climate solutions and innovation, and contribute to disaster relief when needed. For examples of our programmes, see the 'Communities' section of the ESG review on page 86.

Human rights

As set out in our Human Rights Statement, we recognise the role of business in respecting human rights. Our approach is guided by the UN Guiding Principles on Business and Human Rights ('UNGPs') and the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct. Our Human Rights Statement, and annual statements under the UK's Modern Slavery Act, are available on www.hsbc.com/who-we-are/esg-and-responsible-business/esg-reporting-centre. For further details of our approach, see the 'Human rights' section of the ESG review on page 89.

Anti-corruption and anti-bribery

We are required to comply with all applicable anti-bribery and corruption laws in every market and jurisdiction in which we operate while focusing on the spirit of relevant laws and regulations to demonstrate our commitment to ethical behaviours and conduct as part of our environmental, social and corporate governance.

Environmental matters

For details of our climate ambition and carbon emission metrics, see the ESG review on page 44.

Group non-financial and sustainability information statement

This section primarily covers Group non-financial and sustainability information as required by applicable 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 37 to 39.

For further details of our TCFD disclosures, including alignment with sections 414CA and 414CB of the Companies Act 2006, see pages 69 to 74.

Training colleagues and partners on digital accessibility

With 'Digitise' being one of our strategic pillars, we are committed to improving how our customers can access our online and mobile services. We review against the Web Content Accessibility Guidelines for our websites in 23 markets and mobile apps in 18 markets, and engaged with more than 10,000 colleagues, partners and companies through our digital accessibility training and awareness programme in 2023. To share best practice externally, HSBC sponsored and hosted AbilityNet's Techshare Pro at our head office in the UK. Our work on digital accessibility was recognised through 11 awards in 2023, including in Hong Kong, where we were the only financial services provider to be recognised for our core banking apps.

Board decision making and engagement with stakeholders

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

Section 172(1) statement

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 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.

The following table includes instances where the Directors have had regard to section 172(1) factors (which are not mutually exclusive) when discussing certain matters in Board meetings and taking decisions where relevant. Some of these instances are explained in more detail in this section 172(1) statement and in the report of the Directors.

Section 172(1) factor		Where section 172(1) factor featured in Board considerations
	Likely consequences of any decision in the long term	- Group strategy - setting and monitoring - Mergers and acquisitions activity - Share capital activity - dividend and buy-back
	Interests of our employees	- Workforce engagement non-executive Director programme - Directors' workforce engagement activities - Annual employee Snapshot survey
	The need to foster our business relationships with suppliers, customers and others	- Annual statement under the UK Modern Slavery Act and human rights disclosure approvals - Directors' stakeholder engagement activities - Regular Board reports from Directors and executives
	Impact of our operations on the community and the environment	- Directors' engagement with community initiatives - Net zero transition plan - Participation at ESG events such as COP28 and representation at the World Economic Forum
	Our desire to maintain a reputation for high standards of business conduct	- The Financial Conduct Authority's new Consumer Duty obligations - Global mandatory training - Regular engagement with global regulators including presentations by the Prudential Regulation Authority and the Financial Conduct Authority to the Board
	Acting fairly between members of the company	- Annual General Meeting and Hong Kong Informal Shareholders' Meeting - Retail shareholder activities and investor policies' approvals - Directors' engagement with top investors

During 2023, the Board continued with an active stakeholder engagement programme, meeting numerous stakeholders in several international locations. For further details of how we engaged with our stakeholders, see pages 21 and 257.

On pages 22 and 23, we describe how the Board exercises its Directors' section 172(1) duty and takes into account the impact on relevant stakeholders when making principal decisions in order to support and deliver on the Group's strategy.

Directors' key engagements with stakeholders in 2023

Stakeholders

Engagement

Impact and outcomes

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 business customers, including customers of HSBC Innovation Banking, to discuss challenges and opportunities in key markets

- Meetings with business customers to discuss plans regarding the transition to net zero

- Board reporting on retail customer surveys including net promoter scores

- Visits to branches in the UK, Hong Kong and India to better understand customers' changing needs

- The Board's continued engagement with customers and potential customers around the world helps to further the Board's understanding of their purposes and business needs, and how they can be supported to achieve their varied goals.

- Meetings with customers help the Board understand how the Group can help customers transition to net zero.

- Customer surveys provide insights into how the Group can drive meaningful improvements in customer propositions outcomes.

- Retail branch visits help the Board see the positive impact of Group initiatives such as the No Fixed Address and Survivor Bank account propositions, and how opportunities are being realised for customers.

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, off-sites and employee Exchanges, as well as events that form part of the workforce engagement non-executive Director programme

- Interaction with respective employee resource groups across multiple events in many jurisdictions

- Participation in the annual Non-Executive Director Summit in Hong Kong

- Meeting with colleagues across jurisdictions allowed the Board to hear first-hand the employee voice on important issues.

- These interactions helped to ensure continued connectivity with the workforce, and inform the Board's decision making around people-specific matters. Employee engagement also helps the Board to put into perspective employee Snapshot survey results.

- Meeting with employee directors of Group subsidiaries helped to assure the Board that a consistent approach to governance has been adopted across the Group.

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 investor 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

- Board meeting attendance by one of our largest investors to discuss Group strategic execution and the wider market outlook

- Regular interactions with institutional and retail investors throughout the year helped the Board understand investor sentiment on material matters, such as strategy delivery and transition to net zero, and gauge investors' continued support for the Group.

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.

- Meetings with charities and NGOs on topics such as financial education for rural women in India, reintroducing biodiversity and endangered species in Europe and financial inclusion and resilience of people facing homelessness in the UK

- Meetings with Shelter to discuss the Group's partnership and to hear about the impact of the Hero Partnership initiative

- Forums, summits and roundtables supporting ESG causes, such as the Abu Dhabi Sustainability Week, COP28, New York Climate Week and London Climate Action Week

- Meetings with members of the Sustainable Markets Initiative Council to discuss future priorities

- The Directors' participation at a range of community initiatives helped them to understand the effect the Group has on local communities as an employer, sponsor, collaborator and supporter, and helped to break down barriers for certain communities to access our products.

- The Board's interaction with, and understanding of, the communities in which the Group operates helped the Board appreciate how the Group can influence meaningful change, including by educating, encouraging broader thinking, helping to shape policy and formulating solutions, creating supportive environments, and helping to achieve 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 achievement of our strategic aims.

- Various meetings across our key markets with heads of state, international leaders and government officials including ministers and ambassadors

- Regular meetings with, and presentations from, our many regulators, including in the UK and Hong Kong, and elsewhere

- Frequent and varied engagements between the Board and heads of state, international leaders, government officials and regulators provide an opportunity for open dialogue. It is also critical in ensuring that the Board understands and continues to meet its regulatory obligations.

- Meeting with international officials allows the Board to communicate the Group's strategy, perspectives and insights while ensuring that Directors remain abreast of political and regulatory developments. It also allows the Board to share perspectives on industry best practices.

Suppliers

We engage with suppliers, which helps us operate our business effectively and execute our strategy.

- Regular reports and updates to the Board from the Group Chief Operating Officer on supplier matters

- Meetings with key technology suppliers to discuss the Group's innovation ambitions and how they could further support HSBC's data requirements, including to inform and support its net zero ambitions

- Meetings with key suppliers in sectors such as real estate

- Meeting with our suppliers helps the Directors understand our suppliers' challenges and how we can work collaboratively to succeed, including in digitising at scale and 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. Such reporting and engagement supports the Board when approving the annual statement under the UK Modern Slavery Act.

Principal strategic 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. A key focus for the Board is setting, and monitoring execution against, the Group strategy. Principal decisions taken by the Board consider how the decision furthers the Group purpose, and aligns with one or all of the strategic pillars: 'Focus', 'Digitise', 'Energise' and 'Transition'.

The following examples demonstrate how the Board operated having regard to the duties of the Directors. Good governance practices adopted by the Board facilitate its key decision taking. Governance features as an agenda item at all scheduled Board meetings. Papers presented to the Board for consideration are expected to follow a template to help ensure that Directors get the right level of information to take informed decisions in keeping with their duties. The template requests authors to, among others things, describe the extent to which relevant stakeholders are engaged with, or impacted by, the matter under consideration, and whether this has influenced the recommendation to the Board.

Group strategy

stakeholder icons - Regulators and Governments/Customers/Employees/Investors

As part of the Board's responsibility to set, and monitor execution against, HSBC's strategy, Directors take into consideration the Group's strategies across the global businesses and legal entities. The Board continued to oversee the progression of the Group's divestment of non-core operations while targeting select acquisitions. One such principal decision taken during the year was the acquisition by HSBC UK Bank plc of SVB UK. In considering this opportunity, the Board took into account the views of key stakeholders, including UK regulators and the government. It also considered the potential impact of the acquisition on SVB UK customers, principally that their banking services would be maintained, backed by the strength, safety and security of HSBC. The Board also considered how the acquisition would enhance shareholder value, strengthen our CMB franchise, and further its ability to serve innovation and fast-growing firms in the technology and life sciences sectors, supporting our 'Focus' strategic pillar. Following the acquisition of SVB UK, HSBC Innovation Banking was launched in June 2023.

Senior management embarked on a programme of communication and interactions with customers, employees and investors by way of townhalls and Q&A sessions to help key stakeholders understand the rationale for the transaction and reiterate HSBC's support for its customers.

The Board continued its monitoring and oversight of the impacts flowing from its principal strategic decisions taken in the current and previous years, in particular the sale of the retail banking operations in France and the planned sale of the banking business in Canada. The Board met in order to agree amended terms to complete our France business sale. It was updated regularly, and provided input as appropriate, on actions required to ensure the successful completion of these transactions. It also liaised with relevant stakeholders such as governments, regulators, work councils, employees and customers, as necessary.

In this way, the Board effectively carried out its duties and assured itself that the principal strategic decisions taken were, and continue to be, most likely to promote the long-term success of the company.

During the course of the year, the Board continued a targeted focus on receiving relevant and succinct management information, including key metrics and data, to help demonstrate progress against strategic areas of interest. The Board considered how it should be informed, in the most transparent way, on the evolution of the Group's strategy from transformation to one focused on growth. The Board has agreed key performance indicators to help keep it informed on relevant areas of strategic progress, all of which are focused on four overarching perspectives: external commitments/key outcomes; key business drivers; sustainable financial performance; and the ability to transform and license to operate. These indicators will also be used to foster a culture of performance and discipline across the organisation and will be factored into executive Directors' scorecards.

Sustainability

icons - Regulators and Governments/Customers/Employees/Investors/Communities/Suppliers

The Board is responsible for the oversight of the Group's sustainability and ESG strategy setting and delivery, and monitors progress against execution of our net zero ambitions. Key outcomes are reviewed regularly by the Board. Directors also received training on ESG-related matters as part of their ongoing development.

The Board's understanding of the progress against the Group's ESG strategy was informed by the ESG dashboard. The data provided in this dashboard included key metrics that help the Board to monitor progress against the Group's ESG ambitions, including the transition to net zero, building inclusion and resilience, and acting responsibly. Additional details were provided on metrics relating to the roll-out of the Group's supplier code of conduct, female entrepreneurship and gender diversity in senior roles.

In 2023, the Board gave the Group Executive Committee feedback on the need to better define core areas of the Group's sustainability execution programme, a Group-wide programme to enable the delivery of our sustainability agenda. The core areas included accountability, governance, capability, investment in infrastructure and data. Governance was enhanced by the establishment of the Sustainability Execution Committee, with responsibility to oversee delivery of the sustainability execution programme. This committee reports to the Group Executive Committee, which receives regular updates on progress towards fulfilment of our net zero ambitions. It takes into account key stakeholder considerations and potential impacts on the Group's strategic direction for sustainability, and reports these to the Board, helping Directors take relevant decisions. In addition, three non-executive Directors participated in climate advisory panel meetings with external subject matter experts to discuss sustainability, including the Group's net zero transition plan.

Appreciating the importance of the Group's commitment to publish a net zero transition plan, the Board took the decision to establish a dedicated sub-group with responsibility for overseeing its finalisation, taking into consideration the implications for all our stakeholders and communication of the plan to the market. This sub-group included four non-executive Directors, the Group Chief Executive and the Group Chief Financial Officer, as well as other members of senior management. It took into consideration the short-term consequences on stakeholders, particularly for customers and investors, and balanced these against long-term benefits for the Group, the society in which we live, and the success of the company as a whole for the long term. Recommendations made to the Board by the sub-group, including stakeholder impacts, helped to inform the Board's deliberations, leading to its final approval of the net zero transition plan, published in January 2024.

Technology

stakeholder icons - Customers/Employees/Suppliers

In support of the strategic pillar 'Digitise', the Board continued its oversight of the Group's technology strategy, Vision 27, recognising that technology is an integral part of business success. In overseeing legal entity and global business strategies, the Board acts to promote connectivity of technology strategies across the organisation.

To help assure the Board that the Vision 27 initiatives remained strategically aligned and appropriately resourced, it supported the appointment of a third-party professional services firm to conduct a review. The third party engaged with employees from across the global businesses and functions to explore how the organisation was executing various technological initiatives.

The third party's review was facilitated by its attendance at the newly formed technology steering committee, overseen by the Board's Technology Governance Working Group. This steering committee comprised senior management including global business representatives to ensure that business views were well represented. The insights gained from the steering committee helped to form its reports to the Technology Governance Working Group, which in turn reports to the Board. It also attended a Board meeting in person to discuss the independent review. The findings from the report helped deepen the Board's understanding of contributing factors to the success of Vision 27.

As a result of the review and related Board discussions, in order to enhance governance around overseeing the progress of the Group's long-term technology strategy, the Board agreed that a new Board committee will be established in 2024 in place of the Technology Governance Working Group, to be chaired by a non-executive Director.

Financial performance and capital returns

stakeholder icons - Regulators and Governments/Customers/Employees/Investors

When taking its decision to approve the annual financial resource plan, the Board engaged in active deliberation, taking into account stakeholders' perspectives, including customers, employees and investors, as well as market perception and regulatory expectations. The Board considered the alignment between the Group's medium-term strategic and investment plans with projected performance throughout the annual financial resource plan. In addition, consideration was given to scenario analysis related to the macroeconomic and geopolitical environment to ascertain the risks - and potential mitigating actions - to best protect the Group's financial performance and capital returns.

In 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. To this end, in the Annual Report and Accounts 2022, the Board approved the Group's announcement regarding its intention to revert to paying quarterly dividends from the first quarter of 2023. Following discussion at the Board, subject to the completion of the sale of the banking business in Canada, the Board agreed its intention to consider the payment of a special dividend of $0.21 per share as a priority use of the proceeds generated by the completion of the transaction. On 21 February 2023, an interim dividend of $0.23 per share for the 2022 full-year was announced, followed by interim dividends of $0.10 each on 2 May 2023, 1 August 2023 and 30 October 2023. In approving the payment of the dividends, the Board took into account the interests of the shareholders and sought to act in the best interests of the members as a whole.

In addition to dividend payments, HSBC undertook share buy-backs of up to $2bn each commencing on 10 May 2023 and 3 August 2023, and commenced a further buy-back of up to $3bn on 1 November 2023. In considering the buy-backs, the Board (or the Chairman's Committee with delegated authority from the Board) took into account its stated intention to consider buy-backs subject to appropriate capital levels, the views of its regulators with regard to its regulatory capital requirements and, in particular, the benefit to shareholders, and determined that the buy-backs would promote the success of the company.

People and culture

stakeholder icons - Employees/Suppliers/Communities

Each Board meeting starts with a culture moment - a standing agenda item for one of the Board members, on a rotational basis, to share insights into their perceptions on how the Group culture is being lived. These perceptions help the Board to fulfil its responsibility of monitoring the Group's culture. They also serve to shape and frame discussions more generally in Board meetings.

The Board regularly considers updates on people and the workforce, supported by key metrics and culture insights. These updates help the Board understand employee sentiment, including any upward or downward trends, which informs considerations of how the tone from the top is being embedded. Regular reporting to the Board and/or its committees from the Group Chief Human Resources Officer includes metrics on attrition, whistleblowing, escalations, employee understanding of strategy and pay sentiment across our legal entities. This, together with the annual Snapshot survey results, demonstrate people-related challenges and successes across the Group and legal entities. In these ways the Board broadens its understanding of the interests of our employees, which in turn helps to shape its decisions or add value when asked to approve HR policy and other people-related matters.

The dedicated workforce engagement non-executive Director provides a regular report to Board meetings, which together with the Directors' own participation in arranged employment engagement activities, strengthen the Board's appreciation of what matters to employees, and help to inform decisions related to HR and people matters. An example of people and culture data and engagements assisting Board decision making in 2023 included the discussion held by the Board on a strategic focus around 'the workforce of the future' programme. This programme is looking at the key workforce skills necessary for the future, the role of technology in the workplace and development of a plan for its implementation. For further details of how we structure engagement between the Board and the workforce, see page 257.

The Board took the decision in 2023 to approve HSBC's new headquarters and to move to the new Panorama St Paul's development. This decision was facilitated by people data gathered from the Snapshot survey and other methods that demonstrated a desire from colleagues to continue to create an agile and technologically fit-for-purpose environment to work and succeed together. The Board took this decision knowing that a new purpose-built office and the continuation of a hybrid working model would enable the Group to continue to attract top talent, and provide them with collaboration spaces to support their success and well-being. The Board concluded the new headquarters would be in the best interests of the company for the long term. For further details of the new head office, see page 99.

Remuneration

The Group's financial and strategic performance is reflected in remuneration outcomes for colleagues.

Our reward principles and commitments to colleagues

Our goal is to deliver a unique and exceptional experience to colleagues so that we sustain our performance in competitive markets. Our reward principles and commitments centre on rewarding colleagues responsibly, recognising their success and supporting colleagues to grow.

Pay is a critical part of our proposition. We were encouraged by a nine percentage point improvement to 52% in colleagues' perceptions they are paid fairly because of actions we took through 2022. The Group Remuneration Committee remain very focused on the need to improve this further. For 2024, we are putting more structure in place to improve transparency and clarity about how we make pay decisions.

Rewarding colleagues responsibly

Fixed pay increases for 2024 were determined based on consistent principles to help address wage inflation in the markets where we operate.

As part of the 2023 pay review we introduced fixed pay ranges to help managers make fair and competitive fixed pay decisions and improve clarity for colleagues.

We will award an overall global fixed pay increase of 4.4% in 2024, compared with 5.5% for the previous year, reflecting lower wage inflation in many markets.

The level of increases vary by market, depending on the economic situation and individual roles.

To ensure fixed pay levels provide financial security to colleagues, we established Living Wage benchmarks for every market and have been certified by the Fair Wage Network as a global Living Wage employer for 2024. This is an important commitment we make to our employees and the communities in which we operate to help ensure we pay responsibly and provide financial security.

More than 95% of colleagues have private medical insurance, a retirement plan and life insurance.

Recognising colleagues' success

The Group Remuneration Committee determined an overall variable pay pool for Group employees of $3,774m (2022: $3,359m). This followed a review of our performance against financial and non-financial metrics set out in the Group risk framework.

Individual variable pay outcomes varied significantly depending on role, business area and performance. Our highest performers and those who role-model our values-aligned behaviours received the largest increases in variable pay compared with the previous year.

Variable pay pool

($m)

From 2024, we will introduce a new variable pay structure for over 150,000 junior and middle management colleagues, providing more clarity around the variable pay levels for on-target performance, while retaining flexibility to differentiate outcomes for performance.

Supporting colleagues to grow

Guided by data and colleague feedback, the pillars of our well-being programme are mental, physical, financial and social well-being.

In our 2023 employee Snapshot survey, 83% of employees said their mental health was positive, while all measures of physical well-being (exercise, sleep, nutrition) have improved. For the second year running, HSBC has been ranked top tier for mental health in the global CCLA Corporate Mental Health Benchmark.

For details of how the Group Remuneration Committee sets the pool, see page 279.

Remuneration for our executive Directors

Variable pay for our executive Directors is driven by achievement against performance scorecards set by the Group Remuneration Committee at the start of the year to align pay outcomes with the delivery of our strategy and plan.

The Committee considered carefully the impact of strategic transactions and one-offs on the Group's financial performance in 2023. Consistent with the approach in prior years, the Committee judged that it was appropriate to assess financial performance for the purpose of the annual scorecard excluding these items, to ensure that out-turns were not impacted by one-offs.

Reflecting on the overall risk management in the year and in respect of the PRA Notice relating to compliance with the UK Financial Services Compensation Scheme and related Depositor Protection rules, the Committee applied a downward adjustment of 7.5% to Noel Quinn's annual incentive outcome.

The Committee also carefully considered 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 2023.

Details of the current executive Directors' remuneration policy can be found on pages 257 to 265 of our Annual Report and Accounts 2021.

Executive Directors' scorecard outcomes

(% of maximum opportunity)

2023 annual incentive

Group Chief Executive	70.24%
Group Chief Financial Officer	76.75%

2021-2023 long-term incentive¹

Group Chief Executive

75.00%

¹The current Group Chief Financial Officer did not participate in the 2021-2023 long-term incentive.

For details of Directors' pay and performance for 2023, see the Directors' remuneration report on page 284.

Financial overview

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.

Executive summary

Our financial performance demonstrates the execution of our strategy and the strengthened platform for growth, and in 2023 it was favourably impacted by a higher global interest rate environment.

This section sets out our key Group financial targets and the progress we made towards these in 2023, and - where relevant - our expectations for 2024 and beyond. We also include a more detailed table covering further key financial metrics that we consider insightful for understanding the Group's performance.

The Group financial results that follow provide more detailed insight into the performance that has driven the outcomes of our financial targets. It covers income statement performance on both a reported and constant currency basis, and the main factors impacting the strength of our balance sheet, capital and liquidity position.

Group financial targets

Return on average tangible equity

14.6%

(2022: 10.0%)

In 2023, RoTE was 14.6%, an increase of 4.6 percentage points from 2022. Excluding the impact of strategic transactions and the impairment of our investment in BoCom, RoTE was 15.6%.

From 2024, we intend to revise the adjustments made to RoTE to exclude all notable items, improving alignment with the treatment of notable items in our other income statement disclosures. On this basis, we continue to target a RoTE in the mid-teens for 2024. If this basis had been adopted for 2023, our RoTE excluding notable items would have been 16.2%.

Our guidance reflects our current outlook for the global macroeconomic environment, including customer and financial markets activity.

Target basis operating expenses

$31.6bn

(2022: $29.8bn)

In 2023, the Group targeted cost growth of approximately 3% on a target basis. Our target basis excluded the impact of foreign currency translation differences, notable items and the impact of retranslating the 2022 results of hyperinflationary economies at constant currency, as well as cost growth from our acquisition of SVB UK and related investments internationally.

In 2023, target basis cost growth was 6% compared with 2022. In addition to our targeted growth of 3%, there was an incremental rise of approximately 1%, primarily due to technology expenditure, which we did not mitigate. We also increased performance-related pay, which resulted in a further rise of around 1%. Costs grew by an additional 1%, primarily due to a charge relating to the FDIC special assessment.

In 2024, we will target growth of approximately 5% compared with 2023, on a target basis (2023: $31.1bn). This target reflects our current business plan for 2024, and includes an increase in staff compensation, higher technology spend and investment for growth and efficiency, in part mitigated by cost savings from actions taken during 2023.

Our cost target basis for 2024 excludes the direct cost impact of the disposal in France and the planned disposal in Canada from the 2023 baseline. It is measured on a constant currency basis and excludes notable items and the impact of retranslating the prior year results of hyperinflationary economies at constant currency.

Capital and dividend policy

CET1 ratio

14.8%

Dividend payout ratio

50%

At 31 December 2023, our CET1 capital ratio was 14.8%, which was higher than our medium-term target range of 14% to 14.5%. We intend to continue to manage the CET1 ratio to within this range.

The total dividend per share in 2023 of $0.61 resulted in a dividend payout ratio of 50% of earnings per share. For the purposes of computing our dividend payout ratio, we exclude from earnings per share material notable items and related impacts. See page 131 for our calculation of earnings per share.

We aim to retain our dividend payout ratio of 50% for 2024, excluding material notable items and related impacts. From 2024 this will be disclosed as our 'dividend payout ratio target basis'.

Interest rate management strategy

Our ambition is to maintain strong, resilient returns through the interest rate cycle. As part of our balance sheet structural hedging and risk management strategy we continue to seek opportunities to stabilise future earnings and mitigate downside risk from interest rate movements. During 2023, we took actions to increase the size and duration of our structural hedge. This has the effect of stabilising our future earnings and contributed to a reduction in the sensitivity of banking net interest income ('NII'), a new alternative performance measure introduced in 2023, from changes in interest rates.

Banking NII adjusts our NII, primarily for the impact of funding trading and fair value activities reported in interest expense. It represents the Group's banking revenue that is directly impacted by changes in interest rates. To supplement banking NII, we also provide banking NII sensitivity to demonstrate our revenue sensitivity to interest rate movements. Management uses these measures to determine the deployment of our surplus funding, and to help optimise our structural hedging and risk management actions.

Key financial metrics

	For the year ended
Reported results	2023	2022¹	2021
Profit before tax ($m)	30,348	17,058	18,906
Profit after tax ($m)	24,559	16,249	14,693
Cost efficiency ratio (%)	48.5	64.6	69.9
Net interest margin (%)	1.66	1.42	1.20
Basic earnings per share ($)	1.15	0.72	0.62
Diluted earnings per share ($)	1.14	0.72	0.62
Dividend per ordinary share (in respect of the period) ($)	0.61	0.32	0.25
Dividend payout ratio (%)²	50	44	40

Alternative performance measures
Constant currency profit before tax ($m)	30,348	16,541	17,400
Constant currency cost efficiency ratio (%)	48.5	64.8	70.0
Expected credit losses and other credit impairment charges ('ECL') as % of average gross loans and advances to customers (%)	0.36	0.36	(0.07)
Expected credit losses and other credit impairment charges ('ECL') as % of average gross loans and advances to customers, including held for sale (%)	0.33	0.35	(0.07)
Basic earnings per share excluding material notable items and related impacts ($)	1.22	N/A	N/A
Return on average ordinary shareholders' equity (%)	13.6	9.0	7.1
Return on average tangible equity (%)	14.6	10.0	8.3
Return on average tangible equity excluding strategic transactions and impairment of BoCom (%)	15.6	11.3	N/A
Target basis operating expenses ($m)	31,614	29,811	N/A
	At 31 December
Balance sheet	2023	2022¹	2021
Total assets ($m)	3,038,677	2,949,286	2,957,939
Net loans and advances to customers ($m)	938,535	923,561	1,045,814
Customer accounts ($m)	1,611,647	1,570,303	1,710,574
Average interest-earning assets ($m)	2,161,746	2,143,758	2,209,513
Loans and advances to customers as % of customer accounts (%)	58.2	58.8	61.1
Total shareholders' equity ($m)	185,329	177,833	198,250
Tangible ordinary shareholders' equity ($m)	155,710	146,927	158,193
Net asset value per ordinary share at period end ($)	8.82	8.01	8.76
Tangible net asset value per ordinary share at period end ($)	8.19	7.44	7.88

Capital, leverage and liquidity
Common equity tier 1 capital ratio (%)³	14.8	14.2	15.8
Risk-weighted assets ($m)^3,4	854,114	839,720	838,263
Total capital ratio (%)^3,4	20.0	19.3	21.2
Leverage ratio (%)^3,4	5.6	5.8	5.2
High-quality liquid assets (liquidity value) ($m)^4,5	647,505	647,046	688,209
Liquidity coverage ratio (%)^4,5	136	132	139
Net stable funding ratio (%)^4,5	133	136	N/A

Share count
Period end basic number of $0.50 ordinary shares outstanding (millions)	19,006	19,739	20,073
Period end basic number of $0.50 ordinary shares outstanding and dilutive potential ordinary shares (millions)	19,135	19,876	20,189
Average basic number of $0.50 ordinary shares outstanding (millions)	19,478	19,849	20,197

For reconciliation and analysis of our reported results on a constant currency basis, including lists of notable items, see page 111. Definitions and calculations of other alternative performance measures are included in 'Reconciliation of alternative performance measures' on page 130.

1 From 1 January 2023, we adopted IFRS 17 'Insurance Contracts', which replaced IFRS 4 'Insurance Contracts'. Comparative data for the financial year ended 31 December 2022 have been restated accordingly. Comparative data for the year ended 31 December 2021 are prepared on an IFRS 4 basis.

2 In 2023, our dividend payout ratio was adjusted for material notable items and related impacts, including all associated income statement impacts relating to those items. In 2022, our dividend payout ratio was adjusted for the loss on classification to held for sale of our retail banking business in France, items relating to the planned sale of our banking business in Canada, and the recognition of certain deferred tax assets. No items were adjusted for in 2021.

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. 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 submitted in regulatory filings. Where differences are significant, we may 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.

Basis of presentation

IFRS 17 'Insurance Contracts'

On 1 January 2023, HSBC adopted IFRS 17 'Insurance Contracts'. As required by the standard, the Group applied the requirements retrospectively with comparative data previously published under IFRS 4 'Insurance Contracts' restated from the 1 January 2022 transition date.

For further details, see 'Changes to presentation from 1 January 2023' on page 100.

Changes to our reporting framework

On 1 January 2023, we updated our financial reporting framework. We no longer report 'adjusted' results, which excluded the impact of both foreign currency translation differences and significant items. Instead, we compute constant currency performance by adjusting comparative reported results only for the effects of foreign currency translation differences between the relevant periods.

Constant currency performance

Constant currency performance is computed by adjusting reported results of comparative periods for the effects of foreign currency translation differences, which distort period-on-period comparisons.

We consider constant currency performance to provide useful information for investors by aligning internal and external reporting, and reflecting how management assesses period-on-period performance.

The results of our global businesses are presented on a constant currency basis, which is consistent with how we manage and assess global business performance.

Notable items

We separately disclose 'notable items', which are components of our income statement that management would consider as outside the normal course of business and generally non-recurring in nature.

The tables on pages 112 to 113 and pages 123 to 128 detail the effects of notable items on each of our global business segments and legal entities during 2023, 2022 and 2021.

Material notable items are a subset of notable items, which are excluded from our earnings per share measure for the purposes of calculating our dividend payout ratio, and from 2024 will be referred to as on a 'dividend payout ratio target basis'. Categorisation as a material notable is dependent on the nature of each item in conjunction with the financial impact on the Group's income statement.

Management view of revenue on a constant currency basis

Our global business segment commentary includes tables that provide breakdowns of revenue on a constant currency basis by major product. These reflect the basis on which revenue performance of the businesses is assessed and managed.

Comparative periods

Unless otherwise stated, all performance commentary that follows compares our results in 2023 with those of 2022.

Reported results (vs 2022)

Reported profit

Reported profit before tax of $30.3bn was $13.3bn higher. This was driven by a $15.4bn increase in revenue, primarily due to growth in net interest income, reflecting the impact of interest rate rises. The increase also included a provisional gain of $1.6bn recognised on the acquisition of SVB UK in 2023, as well as a year-on-year favourable impact of $2.5bn associated with the sale of our retail banking operations in France. This reflected an initial impairment loss of $2.3bn following the initial classification of these operations as held for sale in 2022, a reversal of $2.1bn in the first quarter of 2023 as the sale became less certain, and a subsequent impairment loss of $2.0bn as we reclassified these operations as held for sale in the fourth quarter of 2023.

These increases were in part offset by an impairment charge in 2023 of $3.0bn relating to our investment in BoCom. This impairment reflected a reduction to the accounting value-in-use in line with recent market-wide developments in mainland China. For further details, see page 101. This impairment will have no material impact on HSBC's capital, capital ratios or distribution capacity and therefore no impact on dividends or share buy-backs. Reported operating expenses decreased, primarily reflecting a reduction in restructuring and other related costs following the completion of our cost-saving programme at the end of 2022, which mitigated growth notably from higher technology spend, an increase in the performance-related pay accrual and the impact of inflation. Reported ECL of $3.4bn decreased by $0.1bn and included charges of $1.0bn relating to exposures in the commercial real estate sector in mainland China.

Reported profit after tax of $24.6bn was $8.3bn higher than in 2022. This included a higher tax expense, in part from the non-recurrence of a $2.2bn gain in 2022 resulting from the recognition of a deferred tax asset from historical tax losses in HSBC Holdings.

Reported revenue

Reported revenue of $66.1bn was $15.4bn or 30% higher, which included a $2.5bn year-on-year favourable impact relating to the sale of our retail banking operations in France, and the recognition of a $1.6bn provisional gain on the acquisition of SVB UK in 2023, as mentioned above.

The remaining growth primarily reflected the impact of interest rate rises, mainly in Global Payments Solutions ('GPS') in CMB and GBM, Personal Banking and Global Private Banking in WPB, as well as Securities Services in GBM. There were also good performances in Capital Markets and Advisory and Securities Financing in GBM, as well as in life insurance and asset management in WPB. An increase in revenue in Corporate Centre was driven by Central Treasury, mainly due to the non-recurrence of adverse fair value movements on financial instruments, and valuation gains on structural hedging.

These increases were partly offset by lower Credit and Lending revenue in CMB and GBM, mainly driven by a fall in balances and margin compression, and a decline in revenue in Equities in GBM, reflecting weaker client demand and softer market conditions.

Revenue reduced in Markets Treasury due to the impact of rising interest rates on our funding costs and flattening yield curves, partly offset by increases from dynamic risk management and redeployment of asset disposals. We incurred losses on asset disposals of $1.0bn relating to repositioning and risk management activities in our hold-to-collect-and-sell portfolio in certain key legal entities. These actions are accretive to net interest income and reduce the consumption of the Group's financial resources. This revenue is allocated to our global businesses.

Revenue in 2023 was also adversely affected by a $1.4bn impact of hyperinflationary accounting in Argentina, including the devaluation of the Argentinian peso, compared with a $0.4bn adverse impact in 2022.

Reported results continued

	2023	2022	2021	2023 vs 2022		Impact of FX
Reported results	$m	$m	$m	$m	%	%
Net operating income before change in expected credit losses and other credit impairment charges ('revenue')	66,058	50,620	49,552	15,438	30	(2)
ECL	(3,447)	(3,584)	928	137	4	1
Net operating income	62,611	47,036	50,480	15,575	33	(2)
Total operating expenses	(32,070)	(32,701)	(34,620)	631	2	(1)
Operating profit	30,541	14,335	15,860	16,206	>100	(6)
Share of profit in associates and joint ventures less impairment	(193)	2,723	3,046	(2,916)	>(100)	-
Profit before tax	30,348	17,058	18,906	13,290	78	(6)
Tax expense	(5,789)	(809)	(4,213)	(4,980)	>(100)
Profit after tax	24,559	16,249	14,693	8,310	51

	2023	2022	2021
Notable items	$m	$m	$m
Revenue
Disposals, acquisitions and related costs	1,298	(2,737)	-
Fair value movements on financial instruments¹	14	(618)	(221)
Restructuring and other related costs	-	(247)	(307)
Disposal losses on Markets Treasury repositioning	(977)	-	-
Currency translation on revenue notable items	-	(105)	-
Operating expenses
Disposals, acquisitions and related costs	(321)	(18)	-
Impairment of non-financial items	-	-	(587)
Restructuring and other related costs	136	(2,882)	(1,836)
Currency translation on operating expenses notable items	-	(31)	113
Share of profit in associates and joint ventures less impairment
Impairment of interest in associate	(3,000)	-	-

1 Fair value movements on non-qualifying hedges in HSBC Holdings.

Reported ECL

Reported ECL of $3.4bn were $0.1bn or 4% lower. The charge in 2023 primarily comprised stage 3 net charges, notably related to mainland China commercial real estate sector exposures. ECL charges in this sector were $1.0bn in 2023. The charge in 2023 also reflected the impact of continued economic uncertainty, rising interest rates and inflationary pressures. The charge in 2022 included $1.3bn of charges related to mainland China commercial real estate exposures.

For further details of the calculation of ECL, see pages 156 to 168.

Reported operating expenses

Reported operating expenses of $32.1bn were $0.6bn or 2% lower, primarily driven by lower restructuring and other related costs of $3.0bn following the completion of our cost to achieve programme, which concluded at the end of 2022. The reduction also included favourable foreign currency translation differences between the periods of $0.4bn, a $0.2bn reduction due to a reversal of historical asset impairments, and the effects of our continued cost discipline. There was also a favourable impact of $0.2bn due to the impact of hyperinflationary accounting in Argentina in 2023.

These reductions were partly offset by increases in technology costs, the impacts of inflation, a higher performance-related pay accrual and severance payments. There was also an increase in the UK bank levy of $0.3bn, including adjustments relating to prior years, and we incurred a $0.2bn charge in the US relating to the FDIC special assessment.

The number of employees expressed in full-time equivalent staff ('FTE') at 31 December 2023 was 220,861, an increase of 1,662 compared with 31 December 2022. The number of contractors at 31 December 2023 was 4,676, a decrease of 1,371 due to the completion of our cost-saving programme.

Reported share of profit from associates and joint ventures less impairment

Reported share of profit from associates and joint ventures included an impairment charge of $3.0bn relating to our investment in BoCom due to a reduction to the accounting value-in-use of the investment, resulting in a loss of $0.2bn in 2023. This compared with a profit of $2.7bn in 2022. The impact of the impairment in 2023 was partly offset by an increase in the share of profit from Saudi Awwal Bank ('SAB').

Tax expense

The effective tax rate for 2023 of 19.1% was higher than the 4.7% in 2022. The effective tax rate for 2023 was increased by 2.3 percentage points by the non-deductible impairment of investments in associates, and reduced by 1.6 percentage points by the release of provisions for uncertain tax positions and reduced by 1.5 percentage points by the non-taxable bargain purchase gain on the acquisition of SVB UK. The effective tax rate for 2022 was reduced by 12.8 percentage points by the recognition of a deferred tax asset on historical tax losses of HSBC Holdings as a result of improved profit forecasts for the UK tax group. Excluding these items, the effective tax rates were 19.9% for 2023 and 17.5% for 2022.

Constant currency results

	2023	2022	2021	2023 vs 2022
Results - on a constant currency basis	$m	$m	$m	$m	%
Revenue	66,058	49,871	46,079	16,187	32
ECL	(3,447)	(3,630)	758	183	5
Total operating expenses	(32,070)	(32,302)	(32,244)	232	1
Operating profit	30,541	13,939	14,593	16,602	>100
Share of profit in associates and joint ventures less impairment	(193)	2,602	2,807	(2,795)	>(100)
Profit before tax	30,348	16,541	17,400	13,807	83

Profit before tax of $30.3bn was $13.8bn higher than in 2022 on a constant currency basis, primarily driven by higher revenue.

Revenue increased by $16.2bn or 32% on a constant currency basis, which included a $2.6bn year-on-year favourable impact relating to the sale of our retail banking operations in France, and a provisional gain of $1.6bn recognised on the acquisition of SVB UK in 2023. The remaining increase in revenue was primarily due to growth in net interest income from the impact of global interest rate rises. There was also a good performance from Capital Markets and Advisory in GBM and higher revenue in Corporate Centre.

Revenue reduced in Markets Treasury due to the impact of rising interest rates on our funding costs and flattening yield curves, partly offset by increases from dynamic risk management and the deployment of asset disposals. Markets Treasury also incurred losses on asset disposals of $1.0bn relating to repositioning and risk management activities in our hold-to-collect-and-sell portfolio in certain key legal entities. These actions are accretive to net interest income and reduce the consumption of the Group's financial resources. This revenue is allocated to our global businesses.

ECL were $0.2bn or 5% lower on a constant currency basis. The charge in 2023 primarily comprised stage 3 net charges, notably related to mainland China commercial real estate sector exposures. ECL charges in this sector were $1.0bn in 2023. The charge in 2023 also reflected the impact of continued economic uncertainty, rising interest rates and inflationary pressures.

Operating expenses were $0.2bn or 1% lower on a constant currency basis, as reduced restructuring and other related costs following the completion of our cost-saving programme were broadly offset by increases in technology costs, the impacts of inflation, and a higher performance-related pay accrual. There was also an increase in the UK bank levy, including adjustments relating to prior years, and a charge in the US relating to a special assessment of the FDIC.

Share of profit in associates and joint ventures less impairment included a $3.0bn impairment of our investment in BoCom due to a revision to the accounting value-in-use of the investment, resulting in a loss of $0.2bn in 2023. This compared with a share of profit of $2.6bn in 2022 on a constant currency basis. The impact of the impairment was partly offset by an increase in the share of profit from SAB.

Balance sheet and capital

Balance sheet strength

Total assets of $3.0tn were $89bn higher than at 31 December 2022 on a reported basis, and included the favourable effects of foreign currency translation differences of $58bn. Within total assets, there were $114bn of assets held for sale, mainly related to our retail banking operations in France and our banking operations in Canada, which was broadly unchanged compared with 2022.

On a constant currency basis, total assets rose by $31bn, mainly from an increase in financial investments and higher trading balances, while cash and balances at central banks and derivative asset balances fell.

Reported loans and advances to customers increased by $15bn. On a constant currency basis, loans and advances fell by $3bn, which included an increase in secured home loans, previously classified as held for sale in France. There was mortgage balance growth in our main legal entity in Hong Kong and in HSBC UK, although lending fell in CMB and GBM in our main entity in Hong Kong, including a reduction in commercial real estate lending.

Reported customer accounts of $1.6tn increased by $41bn. On a constant currency basis, they grew by $13bn, notably from growth in WPB in our main legal entity in Asia and CMB in Europe.

Loans and advances to customers as a percentage of customer accounts was 58.2%, compared with 58.8% at 31 December 2022.

Distributable reserves

The distributable reserves of HSBC Holdings at 31 December 2023 were $30.9bn, a $4.3bn decrease since 2022, primarily driven by $18.6bn in ordinary dividend, additional tier 1 coupon and share buy-back payments, offset by profits generated and other reserve movements of $14.3bn. Distributable reserves are sensitive to impairments of investments in subsidiaries to the extent they are not offset by the realisation of related reserves. The impairment of BoCom in 2023 did not impact distributable reserves, as its intermediate parent and direct subsidiary of HSBC Holdings, HSBC Asia Holdings Limited, was not impaired.

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 efficiency. 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 2023 was 14.8%, up 0.6 percentage points from 2022, mainly driven by capital generation net of dividends, share buy-backs and regulatory adjustments, which was partly offset by an increase in risk-weighted assets ('RWAs') during the year.

Liquidity position

We actively manage the Group's liquidity and funding to support the 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 2023, the average high-quality liquid assets we held was $647.5bn. This excludes high-quality liquid assets in legal entities which are not transferable due to local restrictions.

For further details, see page 206.

Total assets ($bn)

$3,039bn

(2022: $2,949bn)

Common equity tier 1 ratio (%)

14.8%

(2022:14.2%)

Wealth and Personal Banking

We serve 41 million customers globally, including
6.7 million who are international, from retail customers
to ultra high net worth individuals and their families.

Contribution to Group profit before tax

Calculation is based on profit before tax of our global businesses excluding Corporate Centre.

Launching our international proposition

We launched our redesigned international proposition in February 2023 to strengthen our position as a leading banking provider for international customers, which is WPB's fastest-growing segment representing 40% of revenue in 2023. The refresh involved six services launched across 10 international markets, with the aim of helping customers move and invest overseas easier.

This included supporting our international customers, who generate around three times the average revenue of a domestic customer, so they can open an international account digitally pre-departure, gain access to a credit card in their new market with an appropriate limit, and make use of quick, competitively priced cross-border payment solutions with 24/7 global support to manage their international needs.

To meet our customers' needs, we offer 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, developing our transactional banking and lending capabilities, and addressing our customers' international needs.

Divisional highlights

$84bn

WPB net new invested assets in 2023, up 6% compared with 2022.

Constant currency profit before tax

($bn)

$11.5bn

Performance in 2023 benefited from rising interest rates and balance sheet growth, including Wealth deposits. There was also positive growth in Wealth, including strong sales in insurance and net new invested assets growth. The results included a broadly stable ECL charge, despite ongoing macroeconomic uncertainty.

6.7 million

International customers at 31 December 2023, an increase of 12% compared with 2022.

Constant currency net operating income

($bn)

$27.3bn

Results - on a constant currency basis	2023	2022	2021	2023 vs 2022
Results - on a constant currency basis	$m	$m	$m	$m	%
Net operating income	27,275	20,884	20,972	6,391	31
ECL	(1,058)	(1,186)	195	128	11
Operating expenses	(14,738)	(14,248)	(15,338)	(490)	(3)
Share of profit in associates and JVs	65	30	36	35	>100
Profit before tax	11,544	5,480	5,865	6,064	>100
RoTE (annualised)¹ (%)	28.5	13.8
¹ RoTE (annualised) in 2022 included a 4.7 percentage point adverse impact from the impairment losses relating to the sale of our retail banking operations in France.

International customers are those who bank with us in our 11 key markets, excluding Canada, and who bank in more than one market, those whose address is different from the market we bank them in and customers whose nationality, or country of birth for non-resident Indians and overseas Chinese, is different to the market we bank them in. Customers may be counted more than once when banked in multiple countries.

Management view of revenue	2023	2022	2021	2023 vs 2022
Management view of revenue	$m	$m	$m	$m	%
Wealth	7,524	6,970	8,812	554	8
- investment distribution	2,528	2,469	3,367	59	2
- Global Private Banking	2,252	2,016	1,777	236	12
net interest income	1,155	965	630	190	20
non-interest income	1,097	1,051	1,147	46	4
- life insurance (IFRS 17)¹	1,462	1,354	-	108	8
- life insurance manufacturing (IFRS 4)¹			2,512
- asset management	1,282	1,131	1,156	151	13
Personal Banking	20,463	15,939	11,648	4,524	28
- net interest	19,124	14,631	10,298	4,493	31
- non-interest income	1,339	1,308	1,350	31	2
Other²	(712)	(2,025)	512	1,313	65
- of which: impairment (loss)/reversal relating to the sale of our retail banking operations in France³	4	(2,354)	-	2,358	>100
Net operating income⁴	27,275	20,884	20,972	6,391	31

1 From 1 January 2023 we adopted IFRS 17 and have restated 2022 financial data. Data for 2021 is not restated, and 'Life insurance manufacturing' is disclosed on the basis of preparation prevailing in 2021, which includes our manufacturing business only. Insurance distribution of $518m is presented in 'investment distribution'.

2 'Other' includes Markets Treasury, HSBC Holdings interest expense and hyperinflation. It also includes the distribution and manufacturing (where applicable) of

retail and credit protection insurance, disposal gains and other non-product-specific income.

3 The amounts associated with the sale of our retail banking operations in France include all related impacts disclosed in notable items, which are presented across various lines in our consolidated income statement.

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

	2023	2022	2021
Notable items	$m	$m	$m
Revenue
Disposals, acquisitions and related costs	4	(2,212)	-
Restructuring and other related costs	-	98	14
Disposal losses on Markets Treasury repositioning	(391)	-	-
Currency translation on revenue notable items	-	(142)	(5)
Operating expenses
Disposals, acquisitions and related costs	(53)	(7)	-
Impairment of non-financial items	-	-	(587)
Restructuring and other related costs	20	(357)	(296)
Currency translation on operating expenses notable items	-	-	4

Financial performance

Profit before tax of $11.5bn was $6.1bn higher than in 2022 on a constant currency basis. The growth in revenue reflected growth in both Personal Banking and Wealth. The increase also reflected a $2.4bn year-on-year impact relating to the sale of our retail banking operations in France. ECL remained broadly stable and operating expenses grew by $0.5bn.

Revenue of $27.3bn was $6.4bn or 31% higher on a constant currency basis.

In Wealth, revenue of $7.5bn was up $0.6bn or 8%.

- Global Private Banking revenue was $0.2bn or 12% higher due to rising interest rates and deposit growth of $11bn or 15%.

- Asset management revenue was $0.2bn or 13% higher, driven by an increase in assets under management of 15%, and from positive market movements.

- Life insurance revenue rose by $0.1bn or 8%, mainly driven by an increase of $0.2bn in contractual service margin ('CSM') earnings and favourable net investment returns of $0.1bn, partly offset by a $0.3bn loss from corrections to historical valuation estimates. There was strong growth in the new business CSM, up $0.6bn or 47%, mainly in Hong Kong.

In Personal Banking, revenue of $20.5bn was up $4.5bn or 28%.

- Net interest income was $4.5bn or 31% higher due to rising interest rates and balance sheet growth. Mortgage lending balances rose in Hong Kong by $6bn and in HSBC UK by $5bn. Unsecured lending balances increased by $3bn, notably in HSBC UK, Mexico and Hong Kong. In addition, there was an increase of $7.8bn from a reclassification of secured loans in France from held for sale. Deposit balances remained broadly stable as growth in Asia was partly offset by outflows, mainly in HSBC UK due to higher cost of living and competitive pressures, and in our main entity in the US.

Other revenue increased by $1.3bn, mainly due to a $2.4bn year-on-year impact relating to the sale of our retail banking operations in France. This was partly offset by a $0.7bn reduction in Markets Treasury allocated revenue, including disposal losses on repositioning and an adverse impact of $0.5bn due to hyperinflationary accounting.

ECL were $1.1bn in 2023, down $0.1bn on a constant currency basis, as credit performance remained resilient, despite a rise in inflationary pressures.

Operating expenses of $14.7bn were $0.5bn or 3% higher on a constant currency basis, mainly due to continued investments, notably in wealth in Asia, higher technology spend, higher performance-related pay and the impact of higher inflation. These increases were partly offset by a reduction in restructuring and other related costs following the completion of our cost-saving programme at the end of 2022 and ongoing cost discipline.

Commercial Banking

We operate in more than 50 markets, serving around 1.3 million customers, ranging from small enterprises to large companies operating globally including those in the new innovation economy.

Contribution to Group profit before tax

Calculation is based on profit before tax of our global businesses excluding Corporate Centre.

Backing a manufacturer in its international expansion

When Polygroup, a leading manufacturing business specialising in seasonal goods, decided to expand into new international markets, it was able to take advantage of our global network and local market insights.

The group, which employs more than 15,000 people across four continents, partnered with us to expand to new locations in mainland China, Indonesia and Mexico. With our broad range of banking capabilities across our international network, we were able to provide capital expenditure financing to help build new manufacturing facilities.

We also supported Polygroup in improving its cash flow during off-peak seasons by extending tailor-made trade solutions delivered through an international digital platform, and we continue to support it on its ESG journey.

We partner with businesses around the world, supporting every stage of their growth, their international ambitions and their sustainability transitions. We deliver value to our clients through our international network, financing strength, digital capabilities and our universal banking capabilities, including our industry leading global trade and payments solutions.

Divisional highlights

78%

Increase in GPS revenue.

Constant currency profit before tax

($bn)

$13.3bn

We aim to be a leader in the innovation economy, with the launch of HSBC Innovation Banking in 2023 enhancing our proposition to clients in the technology and healthcare sectors. During 2023, we delivered a strong revenue performance, notably in Global Payments Solutions ('GPS') and in collaboration revenue from GBM products.

10%

Increase in collaboration income from the sale of GBM products to CMB clients.

Constant currency net operating income

($bn)

$22.9bn

Results - on a constant currency basis	2023	2022	2021	2023 vs 2022
Results - on a constant currency basis	$m	$m	$m	$m	%
Net operating income	22,867	16,283	12,699	6,584	40
ECL	(2,062)	(1,862)	339	(200)	(11)
Operating expenses	(7,524)	(6,894)	(6,691)	(630)	(9)
Share of profit/(loss) in associates and JVs	(1)	-	1	(1)	-
Profit before tax	13,280	7,527	6,348	5,753	76
RoTE (annualised)¹ (%)	23.4	13.7
¹ RoTE (annualised) in 2023 included a 3.1 percentage point favourable impact of the provisional gain recognised on the acquisition of SVB UK.

Management view of revenue	2023	2022	2021	2023 vs 2022
Management view of revenue	$m	$m	$m	$m	%
Global Trade and Receivables Finance	2,025	2,075	1,832	(50)	(2)
Credit and Lending	5,343	5,745	5,752	(402)	(7)
Global Payments Solutions	12,381	6,966	3,411	5,415	78
Markets products, Insurance and Investments and Other¹	3,118	1,497	1,704	1,621	>100
- of which: share of revenue for Markets and Securities Services and Banking products	1,299	1,182	1,008	117	10
- of which: provisional gain on the acquisition of Silicon Valley Bank UK Limited	1,591	-	-	1,591	>100
Net operating income²	22,867	16,283	12,699	6,584	40

- of which: transaction banking³	15,393	9,940	5,971	5,453	55

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 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').

3 Transaction banking comprises Global Trade and Receivables Finance, Global Payments Solutions and CMB's share of Global Foreign Exchange (shown within 'share of revenue for Markets and Securities Services and Banking products').

	2023	2022	2021
Notable items	$m	$m	$m
Revenue
Disposals, acquisitions and related costs	1,591	-	-
Restructuring and other related costs	-	(16)	(3)
Disposal losses on Markets Treasury repositioning	(316)	-	-
Currency translation on revenue notable items	-	1	(6)
Operating expenses
Disposals, acquisitions and related costs	(55)	-	-
Restructuring and other related costs	32	(266)	(83)
Currency translation on operating expenses notable items	-	(5)	7

Financial performance

Profit before tax of $13.3bn was $5.8bn or 76% higher than in 2022 on a constant currency basis. This was driven by an increase in revenue in all our main legal entities, primarily from a $5.3bn increase in GPS net interest income. It also included a provisional gain of $1.6bn from HSBC UK's acquisition of SVB UK. These increases were partly offset by a rise in operating expenses as a result of the SVB UK acquisition and increases in technology costs.

Revenue of $22.9bn was $6.6bn or 40% higher on a constant currency basis.

- In GPS, revenue increased by $5.4bn, with growth in all main legal entities. The increase was driven by higher margins, reflecting interest rate rises and repricing actions, which were partly offset by lower average balances notably due to a market-wide reduction in the UK. There was a 6% increase in fee income, as business initiatives drove growth in transaction banking, with higher volumes in cards and international payments.

- In Global Trade and Receivables Finance ('GTRF'), revenue decreased by $0.1bn or 2%, driven by lower average balances in our main legal entities in Asia and Europe, primarily reflecting the softer trade cycle, partly offset by wider margins in our legal entities in Latin America and the UK. In addition, there was a $28m or 3% increase in fee income.

- In Credit and Lending, revenue decreased by $0.4bn or 7%, notably in our main legal entities in Asia and Europe, primarily due to margin compression. It also reflected lower balances due to softer demand from customers across these markets, and reduced exposures in the commercial real estate sector, notably in mainland China and the US.

- In GBM products, Insurance and Investments and Other, revenue increased by $1.6bn, driven by incremental revenue from HSBC Innovation Banking of $2.1bn, which included the provisional gain of $1.6bn on the acquisition of SVB UK. There was also an increase in collaboration revenue from GBM products of $0.1bn, notably in Foreign Exchange. These increases were partly offset by a reduction in Markets Treasury allocated income of $0.6bn, including disposal losses on portfolio repositioning and the adverse impacts of hyperinflationary accounting of $0.6bn. The remaining increase in revenue reflected higher interest on capital held in the business, partly offset by higher HSBC Holdings interest expense.

ECL were a charge of $2.1bn, compared with a charge of $1.9bn in 2022 on a constant currency basis. The increase of $0.2bn was mainly driven by higher stage 3 charges in the UK, and included provisions from HSBC Innovation Banking, and charges in the Middle East. ECL in both periods reflected charges relating to the commercial real estate sector in mainland China, although they were lower in 2023.

Operating expenses of $7.5bn were higher by $0.6bn on a constant currency basis. The increase reflected incremental costs in HSBC Innovation Banking of $0.3bn including the acquisition and integration of SVB UK, higher performance-related pay, ongoing investment in technology and inflationary impacts. These increases were in part mitigated by the impact of continued cost discipline and a reduction in restructuring and other related costs following the completion of our cost-saving programme at the end of 2022.

Global Banking and Markets

We support multinational corporates, financial institutions and institutional
clients, as well as public sector and government bodies.

Contribution to Group profit before tax

Calculation is based on profit before tax of our global businesses excluding Corporate Centre.

Leading on a $2.4bn rights issue for Link REIT

Our international connectivity and balance sheet strength help support clients when they need to carry out large strategic transactions in the capital markets.

In March 2023, we supported Asia's largest real estate investment trust to complete the largest ever rights issue from a non-bank issuer in Hong Kong. We acted as sole global coordinator and lead underwriter on a $2.4bn one-for-five rights issue for Link REIT, which was conducted to strengthen its capital base and position itself for the next phase of growth.

The transaction was the largest ever rights issue in the Asian real estate sector and the largest equity offering in Hong Kong since September 2021.

We are a leader in facilitating global trade and payments, particularly into and within Asia and the Middle East, helping to enable 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.

Divisional highlights

11.4%

RoTE in 2023, up 1.6 percentage points compared with 2022.

Constant currency profit before tax

($bn)

$5.9bn

Profit before tax increased in 2023, reflecting a strong revenue performance due to rising interest rates and from Capital Markets and Advisory. This was partly offset by weaker client activity in our Equities business. We continued to invest in technology to modernise our infrastructure, innovate product capabilities and support our clients.

56%

Increase in GPS revenue.

Constant currency net operating income

($bn)

$16.1bn

Results - on a constant currency basis	2023	2022	2021	2023 vs 2022
Results - on a constant currency basis	$m	$m	$m	$m	%
Net operating income	16,115	14,602	13,086	1,513	10
ECL	(326)	(573)	221	247	43
Operating expenses	(9,865)	(9,338)	(9,255)	(527)	(6)
Share of profit/(loss) in associates and JVs	-	(2)	-	2	100
Profit before tax	5,924	4,689	4,052	1,235	26
RoTE (annualised) (%)	11.4	9.8

Management view of revenue	2023	2022	2021	2023 vs 2022
Management view of revenue	$m	$m	$m	$m	%
Markets and Securities Services	9,008	8,874	7,684	134	2
- Securities Services	2,411	2,022	1,776	389	19
- Global Debt Markets	823	697	819	126	18
- Global Foreign Exchange	4,133	4,137	3,097	(4)	-
- Equities	552	1,003	1,156	(451)	(45)
- Securities Financing	1,116	918	827	198	22
- Credit and funding valuation adjustments	(27)	97	9	(124)	>(100)
Banking	8,540	6,721	5,858	1,819	27
- Global Trade and Receivables Finance	669	678	626	(9)	(1)
- Global Payments Solutions	4,483	2,879	1,581	1,604	56
- Credit and Lending	1,970	2,231	2,332	(261)	(12)
- Capital Markets and Advisory	1,033	731	1,180	302	41
- Other¹	385	202	139	183	91
GBM Other	(1,433)	(993)	(456)	(440)	(44)
- Principal Investments	(4)	55	372	(59)	>(100)
- Other²	(1,429)	(1,048)	(828)	(381)	(36)
Net operating income³	16,115	14,602	13,086	1,513	10

- of which: transaction banking⁴	11,696	9,716	7,080	1,980	20

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

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

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

4 Transaction banking comprises Securities Services, Global Foreign Exchange (net of revenue shared with CMB), Global Trade and Receivables Finance and Global Payments Solutions.

	2023	2022	2021
Notable items	$m	$m	$m
Revenue
Restructuring and other related costs	-	(184)	(395)
Disposal losses on Markets Treasury repositioning	(270)	-	-
Currency translation on revenue notable items	-	3	25
Operating expenses
Disposals, acquisitions and related costs	3	-	-
Restructuring and other related costs	21	(252)	(195)
Currency translation on operating expenses notable items	-	(4)	20

Financial performance

Profit before tax of $5.9bn was $1.2bn or 26% higher than in 2022 on a constant currency basis. This was driven by an increase in revenue of $1.5bn or 10%, notably from higher net interest income in GPS and Securities Services. ECL fell by $0.2bn, while operating expenses increased by $0.5bn or 6%.

Revenue of $16.1bn was $1.5bn or 10% higher on a constant currency basis.

In Markets and Securities Services ('MSS'), revenue was marginally higher by $0.1bn or 2%.

- Securities Services revenue grew by $0.4bn or 19%, from higher net interest income as global interest rates rose.

- Global Debt Markets revenue increased by $0.1bn or 18%, from favourable primary market conditions and higher client trading volumes as the market environment normalised. The 2022 performance was impacted by lower primary activity and client flow due to uncertainty and challenging market conditions.

- Global Foreign Exchange revenue was largely in line with 2022 and reflected continued elevated client activity and trading facilitation, as we captured the benefit of market-wide volatility relating to interest rate and inflation differentials.

- Equities revenue fell by $0.5bn or 45%, due to lower client activity as a result of reduced market volatility.

- Securities Financing revenue rose by $0.2bn or 22%, driven by higher client flows, growth in prime finance and the onboarding of new clients.

In Banking, revenue increased by $1.8bn or 27%.

- GPS revenue increased by $1.6bn or 56%, driven by margin growth as a result of the rising global interest rate environment and business pricing actions.

- Capital Markets and Advisory revenue rose by $0.3bn or 41%, primarily from increased financing activities and higher interest rates, against a backdrop of a smaller global market fee pool.

- Credit and Lending revenue decreased by $0.3bn or 12%, due to weaker client demand.

- Banking Other revenue increased by $0.2bn or 91%, from higher interest on capital held in the business.

In GBM Other, there was a $0.4bn reduction in revenue, mainly due to lower Markets Treasury allocated revenue, including disposal losses on repositioning, higher HSBC Holdings interest expense and the adverse impacts of hyperinflationary accounting.

ECL of $0.3bn were $0.2bn lower on a constant currency basis, reflecting a favourable credit performance, including lower charges in the commercial real estate sector in mainland China.

Operating expenses of $9.9bn increased by $0.5bn or 6% on a constant currency basis due to the impact of higher inflation and strategic investments, which was in part mitigated by business actions and a reduction in restructuring and other related costs following the completion of our cost-saving programme at the end of 2022.

Corporate Centre

The results of Corporate Centre primarily comprise the share of profit from our interests in our associates and joint ventures and related impairments. It also includes Central Treasury, stewardship costs and consolidation adjustments.

Corporate Centre performance in 2023 reflected the recognition of an impairment in our investment in our associate BoCom. Additionally, the non-recurrence of restructuring and other related costs following the completion of our cost-saving programme at the end of 2022 resulted in lower operating expenses, while higher revenue included the non-recurrence of adverse fair value movements on financial instruments and the impacts of restructuring our business in Europe.

Financial performance

Loss before tax of $0.4bn was $0.8bn or 65% lower than the loss in 2022, on a constant currency basis. This reflected lower restructuring and other related costs and higher revenue, partly offset by the impact of an impairment of our investment in BoCom. This impairment reflects a reduction to the accounting value-in-use in line with recent market-wide developments in mainland China. For further details, see page 101. Revenue was $1.7bn or 90% higher than in 2022 on a constant currency basis. The increase was primarily from the non-recurrence of adverse fair value movements on financial instruments in Central Treasury and structural hedges, together with the non-recurrence of losses and charges associated with the disposals of our branch operations in Greece and our French retail banking business, the planned disposal of our business in Russia, and legacy portfolios. These favourable year-on-year impacts were partly offset by adverse fair value movements in 2023 on foreign exchange hedges related to the planned sale of our banking business in Canada.

Operating expenses decreased by $1.9bn on a constant currency basis, primarily driven by the non-recurrence of restructuring and other related costs following the completion of our cost-saving programme at the end of 2022. These were partly offset by the recognition of a charge related to the FDIC special assessment, costs associated with the disposal of our retail banking operations in France and the planned disposal of our banking business in Canada, and a higher allocation of the UK bank levy, including adjustments related to prior years. Since 2021, the UK bank levy and any related adjustments have been allocated across our global businesses and Corporate Centre, primarily to GBM.

Results - on a constant currency basis	2023	2022	2021	2023 vs 2022
Results - on a constant currency basis	$m	$m	$m	$m	%
Net operating income	(199)	(1,898)	(678)	1,699	90
ECL	(1)	(9)	3	8	89
Operating expenses	57	(1,822)	(960)	1,879	>100
Share of profit in associates and joint ventures less impairment	(257)	2,574	2,770	(2,831)	>(100)
- of which: impairment loss relating to our investment in BoCom	(3,000)	-	-	(3,000)
Profit/(loss) before tax	(400)	(1,155)	1,135	755	65
RoTE (annualised) (%)	(1.0)	2.8

Management view of revenue	2023	2022	2021	2023 vs 2022
Management view of revenue	$m	$m	$m	$m	%
Central Treasury¹	99	(742)	(324)	841	>100%
Legacy portfolios	3	(174)	(54)	177	>100%
Other^2,3	(301)	(982)	(300)	681	69
Net operating income⁴	(199)	(1,898)	(678)	1,699	90
1 Central Treasury comprises valuation differences on issued long-term debt and associated swaps and fair value movements on financial instruments. 2 Other comprises consolidation adjustments, funding charges on property and technology assets, revaluation gains and losses on investment properties and property disposals, gains and losses on certain planned disposals, including charges relating to our business in Russia, and other revenue items not allocated to global businesses. 3 Revenue from Markets Treasury, HSBC Holdings net interest expense and hyperinflation are allocated out to the global businesses, to align them better with their revenue and expense. The total Markets Treasury revenue component of this allocation for 2023 was $(139)m (2022: $1,431m; 2021: $2,142m). 4 'Net operating income' means net operating income before change in expected credit losses and other credit impairment charges (also referred to as 'revenue').

Share of profit in associates and joint ventures in 2023 included an impairment charge of $3.0bn in 2023 relating to our investment in BoCom due to a reduction of the accounting value-in-use of our investment, resulting in a loss of $0.3bn. This compared with a share of profit of $2.6bn in 2022. The impact of the impairment was partly offset by growth of $0.2bn, mainly driven by an increase in the share of profits from SAB.

	2023	2022	2021
Notable items	$m	$m	$m
Revenue
Disposals, acquisitions and related costs	(297)	(525)	-
Fair value movements on financial instruments	14	(618)	(221)
Restructuring and other related costs	-	(145)	77
Disposal losses on Markets Treasury repositioning	-	-	-
Currency translation on revenue notable items	-	33	(16)
Operating expenses
Disposals, acquisitions and related costs	(216)	(11)	-
Restructuring and other related costs	63	(2,007)	(1,262)
Currency translation on operating expenses notable items	-	(22)	81
Impairment of interest in associate	(3,000)	-	-

Risk overview

Active risk management helps us to achieve our strategy, serve our customers and communities and grow our business safely.

Managing risk

The global economy proved more resilient in 2023 than had been expected, supported by strong growth in the US, and a stabilisation in China's economy, although there continues to be uncertainty and weakness in Europe. In most key markets, a fall in energy prices and other commodity prices facilitated a decrease in inflation. Central banks in most developed markets are expected to have concluded monetary policy tightening in the second half of 2023 and to start reducing interest rates in 2024. Certain emerging market central banks began reducing interest rates during 2023. However, interest rates in the medium term are likely to remain materially higher than in recent years.

Geopolitical tensions are a source of significant risk, including the ongoing Russia-Ukraine and Israel-Hamas wars. Both could have significant global economic and political consequences. The Israel-Hamas war has led to renewed volatility in energy prices, and recent attacks on commercial shipping in the Red Sea and the counter-measures taken to improve security have begun to disrupt supply chains. These developments have the potential to halt or reverse the recent decline in inflation especially in Europe and North America.

Sanctions and trade restrictions are complex, novel and evolving. In particular, the US, the UK and the EU, as well as other countries, have imposed significant sanctions and trade restrictions against Russia. In December 2023, the US established a new secondary sanctions regime, providing itself broad discretion to impose severe sanctions on non-US banks that are knowingly or even unknowingly engaged in certain transactions or services involving Russia's military-industrial base. This creates challenges associated with the detection or prevention of third-party activities beyond HSBC's control. The imposition of such sanctions against any non-US HSBC entity could result in significant adverse commercial, operational and reputational consequences for HSBC.

The relationships between China and several other countries, including the US and the UK, remain complex. Supply chains remain vulnerable to a deterioration in these relationships and this has resulted in efforts to de-risk certain sectors by reshoring manufacturing activities. The US, the UK, the EU and other countries have imposed various sanctions and trade restrictions on Chinese persons and companies. The approach of countries to strategic competition and engagement with China continues to develop. In response, China has imposed sanctions, trade restrictions and law enforcement measures. Further sanctions or counter-sanctions may adversely affect the Group, its customers and various markets.

Fiscal deficits are expected to remain large in both developed and emerging markets, as public spending on social welfare, defence and climate transition initiatives is expected to remain high. In many countries, the fiscal response to the Covid-19 pandemic has also left a very high public debt burden. Against a backdrop of slower economic growth and high interest rates, elevated borrowing costs could increase the strains on highly indebted sovereigns.

Political changes may also have implications for policy. Many countries are expected to hold elections in 2024. This may result in uncertainty in some markets in response to domestic political priorities.

Sectoral risks are also a focus, and the real estate sector in particular faces challenges in many of our major markets. In mainland China, commercial real estate conditions remain distressed and signs of a material or sustained recovery are yet to emerge. Market data continues to reflect reduced investment and weak sentiment in the short term, although authorities are expanding fiscal and monetary support to the economy including specific measures to support developers and stimulate housing demand. We continue to closely monitor this sector, and take action to manage our commercial real estate portfolio risk.

The impact of the rising cost of living on retail customers is a key risk for our society. Our primary concern is to ensure that we offer the right support to customers in line with regulatory, government and wider stakeholder expectations. This follows our adoption of the UK government's Mortgage Charter released in June 2023.

We engage closely with regulators to help ensure that we continue to meet their expectations regarding financial institutions' activities to support economies during times of market volatility.

Our approach to macroeconomic scenarios in relation to IFRS 9 'Financial Instruments' remained unchanged in the fourth quarter of 2023 compared with the corresponding period in 2022. Adjustments to the design and narrative of the most severe downside scenario were made to reflect increased geopolitical risks.

In addition, management adjustments to ECL were applied to reflect persisting uncertainty in certain sectors, driven by inflation, interest rate sensitivity and other macroeconomic risks, which were not fully captured by our models.

We continue to monitor, and seek to manage, the potential implications of all the above developments on our customers and our business. While the financial performance of our operations varies by geography, our balance sheet and liquidity remained strong.

For further details of our Central and other scenarios, see 'Measurement uncertainty and sensitivity analysis of ECL estimates' on page 156.

Key risk appetite metrics
Component	Measure	Risk appetite	2023
Capital	CET1 ratio - end point basis	≥13.0%	14.8 %
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%	0.21 %
	Change in expected credit losses and other credit impairment charges as a % of advances: wholesale (GBM, CMB)	≤0.45%	0.40 %

Managing risk continued

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.

At 31 December 2023, our CET1 ratio and ECL charges were within their defined risk appetite thresholds. Our CET1 capital ratio at 31 December 2023 was 14.8%, up 0.6 percentage points from 2022, mainly driven by capital generation net of dividends, share buy-backs and regulatory adjustments, partly offset by an increase in RWAs during the year. For further details of the key drivers of the overall CET1 ratio, see 'Own funds disclosure' on page 207. Wholesale ECL charges during the year reflected the default of several mainland China commercial real estate developer clients. Wholesale ECL charges fell outside of appetite in the first half of 2023, although returned within appetite during the second half of 2023, due to relatively lower defaults in the UK and most other markets. During 2023, we enhanced the coverage of interest rate risk metrics in the banking book within the Group's appetite statement.

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 to review and calibrate as required 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.

In January 2023, HSBC Holdings and HSBC UK, its UK ring-fenced bank, submitted the internally modelled results of the Bank of England's ('BoE') 2022-2023 annual cyclical scenario to the regulator. The BoE uses the annual cyclical scenario stress test to determine the banking sector's ability to withstand an adverse scenario and continue to serve UK households and businesses.

The results were published on 12 July 2023 by the BoE in its Financial Stability Report and indicated that both HSBC Holdings and HSBC UK are sufficiently capitalised with a CET1 capital ratio remaining well above the regulatory reference rate on both an IFRS 9 transitional basis and on a non-transitional basis.

During the second half of 2023, the Group-wide internal stress test was completed alongside testing of the Group's strategy. The concluding results of the Group-wide internal stress test provided updates to the Group Risk Committee in support of its assessment of adequacy of HSBC Holdings capital levels. The underlying conclusions drawn from this exercise will also be included in the Group internal capital adequacy assessment process ('ICAAP') in the first quarter of 2024.

Climate risk

Climate risk relates to the financial and non-financial impacts that may arise as a consequence of climate change and the move to a net zero economy. Climate risk can impact us either directly or through our relationships with our clients. These include the potential risks 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.

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 traditional risk types.

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 42.

Climate stress tests

To support the requirements for assessing the impacts of climate change, we continue to develop a set of capabilities to execute climate stress testing and scenario analysis. These are used to help improve our understanding of risk exposures for managing risk and business decision making.

In the second half of 2023, we ran further internal climate scenario analyses. The outcomes were used to identify challenges and opportunities to our net zero strategy, inform capital planning and risk appetite, as well as to respond to climate stress tests for regulators, including the Hong Kong Monetary Authority and the Central Bank of the United Arab Emirates.

For further details of our approach to climate risk stress testing, see 'Insights from scenario analysis' on page 225.

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, which 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. In our approach to defending against these threats, we invest in business and technical controls to help us detect, manage and recover from issues in a timely manner.

We are working to ensure that we balance the opportunity AI presents to accelerate delivery of our strategy with the need to ensure appropriate controls are in place to mitigate the associated risks. HSBC is committed to using AI ethically and responsibly. We continue to refine and embed robust and effective governance and controls into our risk management processes to help meet the Group's needs and increasing regulatory expectations for when AI is both developed internally and enabled through third parties.

We continue to focus on improving the quality and timeliness of the data used to inform management decisions, and are progressing with the implementation of our strategic and regulatory change initiatives to help deliver the right outcomes for our customers, people, investors and communities.

For further details of our risk management framework and risks associated with our banking and insurance manufacturing operations, see pages 137 and 145, respectively.

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 effect. 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. During 2023, we removed Ibor transition as a top risk given the cessation of the publication of US dollar Libor in June 2023. We continue to monitor closely the identified risks and ensure management actions are in place, as required.

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 staff and/or physical damage to our assets. Conflict in certain regions and geopolitical tensions are creating a more complicated business environment. Despite expected reductions, global interest rates are nevertheless likely to remain high in 2024, which could slow the growth of the global economy and affect our credit portfolio.
Technology and cybersecurity risk	}	There is a risk of service disruption or loss of data resulting from technology failures or malicious activities by internal or external threats. We continue to monitor changes to the threat landscape, including those arising from ongoing geopolitical and macroeconomic events, and the impact this may have on third-party risk management. We operate a continuous improvement programme to help protect our technology operations and counter a fast-evolving cyber threat environment.
Environmental, social and governance ('ESG') risks	~	We are subject to ESG risks including in relation to climate change, nature and human rights. These risks have increased owing to the pace and volume of regulatory developments globally, increasing frequency of severe weather events, 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 risks, including reputational, legal and regulatory compliance risks.
Financial crime risk	~	We are exposed to financial crime risk from our customers, staff and third parties engaging in criminal activity. The financial crime risk environment is heightened due to increasingly complex geopolitical challenges, the macroeconomic outlook, the complex and dynamic nature of sanctions compliance, evolving financial crime regulations, rapid technological developments, an increasing number of national data privacy requirements and the increasing sophistication of fraud. As a result, we will continue to face the possibility of regulatory enforcement and reputational risk.
Digitalisation and technological advances	~	Developments in technology and changes in regulations continue to enable new entrants to the banking industry and new products and services offered by competitors. This challenges us to continue to innovate with new digital capabilities and adapt our products, to attract, retain and best serve our customers. Along with opportunities, new technology, including generative AI, can introduce risks and we seek to ensure these are understood and managed with appropriate controls.
Evolving regulatory environment risk	}	The regulatory and compliance risk environment remains complex, in part due to the UK's Financial Conduct Authority's ('FCA') implementation of its Consumer Duty in July 2023. There continues to be an intense regulatory focus on ESG matters, including on 'green' products. Regulatory scrutiny of financial institutions following recent banking failures may result in new or additional regulatory requirements impacting the Group in the short to medium term.
Internally driven
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 seek 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.
Risks arising from the receipt of services from third parties	~	We procure goods and services from a range of third parties. Due to the current macroeconomic and geopolitical climate, the risk of service disruption in our supply chain has heightened. We continue to strengthen our controls, oversight and risk management policies and processes to select and manage third parties, including our third parties' own supply chains, particularly for key activities that could affect our operational resilience.
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. Evolving regulatory requirements are driving material changes to the way model risk is managed across the banking industry, with a particular focus on capital models. New technologies, including AI and generative AI, are driving a need for enhanced model risk controls.
Change execution risk	}	Failure to effectively prioritise, manage and/or deliver transformation across the organisation impacts our ability to achieve our strategic objectives. We continue to monitor, manage and oversee change execution risk to try to ensure that our change portfolios and initiatives deliver the right outcomes for our customers, people, investors and communities.
Risks associated with workforce capability, capacity and environmental factors with potential impact on growth	Ä	Our businesses, functions and geographies are exposed to risks associated with employee retention and talent availability, and compliance with employment laws and regulations. While high employee attrition has continued to ease generally, a small number of markets still experience heightened inflation, turnover and labour market difficulties. Failure to manage these risks may impact the delivery of our strategic objectives or lead to regulatory sanctions or legal claims.

~ Risk heightened during 2023 } Risk remained at the same level as 2022 Ä Risk decreased during 2023

Long-term viability and going concern statement

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 2026. They are satisfied that a forward-looking assessment of the Group for this period is sufficient 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 140):

- 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 2024 -2028.

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, liquidity, 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 38. These include geopolitical and macroeconomic risks (including geopolitical tensions and their impact on sanctions, trade restrictions and continued distressed Chinese economic activity), digitalisation and technological advances, financial crime risk and ESG risks, all of which have remained at heightened levels during 2023.

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 11);

- details of the Group's approach to managing risk and allocating capital;

- the continued validity of our existing risk management practices, liquidity monitoring process and metric assumptions, in light of the high-profile US and Swiss banking failures in the first quarter of 2023;

- 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 136) and top and emerging risks (see page 140);

- the impact on the Group due to the Russia-Ukraine and Israel-Hamas wars; instability in China's commercial real estate sector and strained economic and diplomatic relations between China and the US, the UK, the EU and other countries;

- reports and updates regarding regulatory and internal stress testing. The 2022-2023 Bank of England annual cyclical scenario stress test results were published on 12 July 2023. The stress scenario explored the potential impacts of a global economic contraction, persistently higher inflation and interest rates in advanced economies with materially increased unemployment, and a sharp fall in asset prices. Additionally during the second half of 2023, the Group-wide internal stress test was completed, which explores a prolonged global stress, depicting macroeconomic conditions that are generally more severe than that of the 2022-2023 annual cyclical scenario. The results of both these exercises indicated the Group is sufficiently capitalised to withstand a severe but plausible adverse stress;

- the results of our 2023 internal climate scenario analysis exercise. The results of this exercise further demonstrate the Group is sufficiently capitalised to withstand a severe stress. Further details of the insights from the 2023 climate scenario analysis are explained from page 225;

- 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 36 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 Officer

21 February 2024

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