Company: HBCYF
Filing Date: 2025-02-20
Form Type: 20-F
Source: 0001089113-25-000040
Chunk: 351

Company: HSBC HOLDINGS PLC
Filing Date: 2025-02-20
Form: 20-F
Chunk 351
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 greater physical risk impacts. Under the defined climate scenarios, transition risk impacts are predominantly driven by credit risk losses and are expected to create a drag on the Group’s profitability across all scenarios. In the Below 2 Degrees scenario, we expect to see an increase in projected credit losses that materialise in the medium term if early action to transition to net zero is taken. Credit losses are projected to increase in the medium to long term if the transition to net zero is delayed, which was underlined within the Delayed Transition scenario, where climate action begins later and is therefore expected to be more rapid and disruptive for our customers who will have less time to restructure their business models and reduce their carbon emissions. The risks and opportunities will need to be carefully balanced, and b y building a more climate-resilient balance sheet, we can reduce impairment risks and improve longer-term stability. Increased lending opportunities exist during an accelerated transition period such as those expected in the Below 2 Degrees, Delayed

| HSBC Holdings plcAnnual Report on Form 20-F | 255 |

Transition Risk and Severe Climate Stress scenarios, noting that these scenarios also experience the risk of heightened impairments in the latter stages of their time horizons. Modelling limitations We continue to look for ways of enhancing our methodology to improve the effectiveness of our climate scenario analysis by incorporating lessons learnt from previous exercises and feedback from key stakeholders, including regulators. There are industry-wide limitations, particularly on data availability, although our models are designed to produce outputs that can support our assessment of the level of our climate resilience. Climate scenario analysis requires considerable amounts of data and we are continuing to enhance coverage of our exposures. Where data is only available for a subset of our counterparties, we extrapolate the results observed where available to the wider population or dataset. We do not capture the second order impacts of climate risk exposures within our modelling approach, such as impacts on our counterparties from their supply chains. For a broad overview of the models that we use for our climate scenario analysis, as well as graphs that show how global carbon prices and carbon emissions will differ under our climate scenarios, see our ESG Data Pack at www.hsbc.com/esg . How climate change is impacting our wholesale lending portfolio The 2024 climate scenario analysis exercise was designed to examine the climate risks and vulnerabilities of corporate counterparties across high transition risk sectors under climate scenarios of varying severity. Specifically, we measured the modelled effect on our projected ECL change over the short-, medium- and long-term horizons under each scenario.