Company: HBCYF
Filing Date: 2025-02-20
Form Type: 20-F
Source: 0001089113-25-000040
Chunk: 352

Company: HSBC HOLDINGS PLC
Filing Date: 2025-02-20
Form: 20-F
Chunk 352
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 This was compared to a counterfactual scenario that excludes climate change impacts to isolate the climate only changes in ECL. Counterparty specific analysis was conducted for those corporates where transition risk is elevated either from an overall sectoral perspective or in response to specific jurisdictional policies, which require HSBC to respond to regulatory requirements. This analysis was conducted to generate more granular counterparty-specific insights relative to previous exercises. The impact on our wholesale portfolios is demonstrated by the table below, which shows the size of exposures by sector in 2024 and the cumulative change in ECL compared with a counterfactual scenario (expressed as a multiple). The size of our exposure in each sector is represented by our exposure at default (‘EAD’) relative to one another. Under the Current Commitments scenario, our modelled outputs predict that ECL will not be more than 25% higher than the counterfactual scenario for any of the assessed sectors. The highest impacts are seen in the chemicals, construction and building materials, power and utilities and agriculture and soft commodities sectors. Greater climate risks would crystallise in the Below 2 Degrees scenario with its gradually increasing transition to net zero, driven by pockets of customers in higher-emitting sectors that are continuously exposed to larger climate-related losses. The analysis shows credit risk losses continue to be driven by counterparties in certain high transition risk sectors where the Group’s largest exposures are concentrated, such as construction and building materials, chemicals, and power and utilities sectors. In these sectors we have counterparties, such as steel or cement manufacturers who have high emissions in their processes and in their downstream or upstream value chains, who may also experience cost pressures due to carbon-tax pass-through rates. Furthermore, harder to abate sectors contain a high proportion of customers without climate transition plans. We have continued to incorporate information from our customers’ transition plans to consider how our clients and their sectors will be impacted. For the oil and gas sector, we see counterparties having relatively lower projected climate-related losses on a consistent basis, which is highly dependent on the assumption of continued government support and commitment to the execution of their complex transition plans. In the case of the Severe Climate Stress scenario, we observed that impacts would be more severe and focused than other climate scenarios in the short- to medium-term. These impacts were driven by the underlying severity of the scenario, particularly due to the sharp increase in stricter climate policies and therefore carbon prices that adversely affect the debt servicing capabilities of companies, and acute extreme weather events. We have the opportunity to ease