HSBC’s governance failures challenge its Sustainability IQ and brand reputation

December 21, 2012

Last week HSBC announced it would pay a record $1.92 billion to settle charges of money laundering. The bank had been accused of enabling Mexican drug cartels to move money illegally through its American subsidiaries, as well as transferring billions of dollars for nations like Iran. These apparent transgressions of policy are particularly ironic and potentially damaging to brand reputation because HSBC is a founder member and champion of the Wolfsberg Group of Banks (www.wolfsberg-principles.com), which aims to develop anti-money laundering and anti-terrorism standards for financial services companies.

Given the enormity of the settlement and the reporting of significant evidence, I immediately looked to see where HSBC rated in the Brandlogic Sustainability Leadership Report, which measures real vs. perceived performance on environmental, social and governance (ESG) factors for 100 leading global brands. (See the Brandlogic Sustainability Leadership Report for background on how the report was created.)

HSBC came in as a "Challenger" in 2012 on the Sustainability IQ Matrix, which means it performed above average on real performance, but below average on the perception side. The low perceived performance score is not too surprising given widespread perceptions of financial services corporations’ culpability in the global financial crisis. In fact, every single financial industry company in our survey in 2011 received below par ratings from our research sample and this year just two, AXA and Allianz, were able to outperform the study average to become sustainability "Leaders."

On the real side, HSBC scored in the middle of the pack of financial sector brands. It is possible recent events will knock them down into “Laggard” status next year, meaning that both their real and perceived performance would measure below par. However, as part of HSBC’s settlement deal, it will be required to strengthen its internal controls and stay out of trouble for the next five years, so if it makes significant progress before the next GRI reporting cycle ends next summer, it may stay above water.

As far as perceptions are concerned, it would be difficult for HSBC to bolster its score given the magnitude of allegations against the company. That is unless it takes bold action to rectify its transgressions or these events are quickly overshadowed by a new revelation of another industry player’s wrongdoings. Only time will tell.

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