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Sustainable investments

A global, disciplined and structured investment approach

Our vision is to empower our clients to make a positive change in the world through wealth value creation.

Invested capital can be used to tackle some of the greatest challenges threatening our world today. That includes Environmental, Social and Corporate Governance (ESG) factors – such as climate change – which can have a significant impact on people, businesses and communities around the world.

We’re committed to helping accelerate the transition to a low-carbon global economy. As a leading wealth manager, we have the capital, resources and solutions to make a difference globally.

Through our sustainable investing solutions and expertise, we help clients understand the long-term environmental and societal implications of their investments, so they can achieve their financial goals without compromising on their values.

What are sustainable investments?

Sustainable investments aim to generate long-term financial returns while contributing positively to environment and society. We categorise sustainable investing into three broad approaches.

Categories ESG Enhanced Thematic Impact
Description A spectrum of approaches, investing in companies based on relative ESG performance or momentum Focus on themes and sectors dedicated to solving sustainability challenges and related growth trends Focus on a direct, positive and measurable impact on society and/or the environment, alongside financial returns

Investment approaches

  • ESG improvers: strategies that focus on companies with improving ESG performance
  • ESG tilt: strategies that tilt portfolio exposure to companies with strong ESG performance
  • ESG positive screen: strategies that aim to invest in companies that are relatively more advanced in managing ESG risks/opportunities, across sectors
  • environmental examples: climate change, circular economy and natural capital
  • social examples: gender diversity, health and education

Examples include:

  • green, social and sustainable bonds
  • companies delivering measurable positive outcomes through products/services
  • projects or loans ring-fenced around social and/or environmental activities

What are sustainable investments?

Sustainable investments aim to generate long-term financial returns while contributing positively to environment and society. We categorise sustainable investing into three broad approaches.

Categories Description
ESG Enhanced A spectrum of approaches, investing in companies based on relative ESG performance or momentum
Thematic Focus on themes and sectors dedicated to solving sustainability challenges and related growth trends
Impact Focus on a direct, positive and measurable impact on society and/or the environment, alongside financial returns
Categories

Investment approaches

ESG Enhanced
  • ESG improvers: strategies that focus on companies with improving ESG performance
  • ESG tilt: strategies that tilt portfolio exposure to companies with strong ESG performance
  • ESG positive screen: strategies that aim to invest in companies that are relatively more advanced in managing ESG risks/opportunities, across sectors
Thematic
  • environmental examples: climate change, circular economy and natural capital
  • social examples: gender diversity, health and education
Impact

Examples include:

  • green, social and sustainable bonds
  • companies delivering measurable positive outcomes through products/services
  • projects or loans ring-fenced around social and/or environmental activities

These strategies may also be represented in sustainable investment products:

ESG Integration

Systematic inclusion of ESG factors in financial analysis, and mitigating ESG risks.

Negative screening

Exclusion of sectors, companies or practices based on specific criteria.

Corporate engagement

Exercise shareholders' rights to influence corporate behaviour.

Why we consider ESG Factors

1. To mitigate risk

ESG issues can be financially material and may have a negative impact on share prices. For example, climate change presents the risk of damaged assets, changing regulations and more frequent catastrophic events.

Share price performance after an ESG risk event

ESG Risk Event Year 1 Year performance impact on affected company's share price (%)
Energy accounting scandal 2001 (99.6)
Telecommunications accounting scandal 2002 (98.6)
Upper Big Branch Mine explosion 2010 (52.7)
Deepwater Horizon oil spill 2010 (28.2)
Automobile airbag recall 2014 (53.5)
Pharmaceutical accounting scandal 2015 (91.5)
Automobile emissions scandal 2015 (26.4)
Average loss to shareholders after one year   (64.4)

Share price performance after an ESG risk event

ESG Risk Event Energy accounting scandal
Year 2001
1 Year performance impact on affected company's share price (%) (99.6)
ESG Risk Event Telecommunications accounting scandal
Year 2002
1 Year performance impact on affected company's share price (%) (98.6)
ESG Risk Event Upper Big Branch Mine explosion
Year 2010
1 Year performance impact on affected company's share price (%) (52.7)
ESG Risk Event Deepwater Horizon oil spill
Year 2010
1 Year performance impact on affected company's share price (%) (28.2)
ESG Risk Event Automobile airbag recall
Year 2014
1 Year performance impact on affected company's share price (%) (53.5)
ESG Risk Event Pharmaceutical accounting scandal
Year 2015
1 Year performance impact on affected company's share price (%) (91.5)
ESG Risk Event Automobile emissions scandal
Year 2015
1 Year performance impact on affected company's share price (%) (26.4)
ESG Risk Event Average loss to shareholders after one year
Year  
1 Year performance impact on affected company's share price (%) (64.4)

Source: Bloomberg, Morgan Stanley. Past performance is not an indicator of future performance. For illustrative purpose only.

2. To deliver long-term capital growth

Companies that manage their ESG risks and create value for stakeholders – such as employees, customers, suppliers and wider society – are more likely to survive through cycles and thrive in the long term.

Graph showing the performance of ESG stocks vs equal weight benchmark in Asia, Europe and the USA.

3. Unlock opportunities

Transition to a low-carbon economy could lead to investment opportunities. Countries representing more than 65% of global carbon dioxide emissions and more than 70% of the global economy, have made commitments to carbon neutrality. Investors can look to various sectors and companies that are set to benefit from net-zero policies around the world.

Source: UN News, 2 December 2020.

Sustainable investments cover a wide range of topics

Environmental

How companies manage their impact on the environment:

  • greenhouse gas emissions
  • resource depletion
  • water usage
  • waste and pollution

Social

How companies manage relationships with employees, clients and communities:

  • regard for human rights
  • development and treatment of staff
  • oversight of the supply chain
  • health and safety

Governance

How companies are governed or managed:

  • executive pay
  • business ethics and culture
  • diversity and structure of board
  • regard for shareholder rights

ESG going mainstream

According to the Global Sustainable Investment Trends Review, over USD40trn of total assets was deployed into ESG investments in 2020, a 15% compound annual growth rate from 2018.

Graph showing the growth of ESG investing from 2016 to 2020.

Source: Global Sustainable Investment Trends Review (2016 & 2018), Opimas (2020 data)

Debunking sustainable investing myths

It hurts financial returns

ESG factors don’t hurt investment performance and an ESG-led investment approach may in fact help portfolios benefit from the transition to a more sustainable economy.

In 2020, investment performance suggests that ESG is a source of outperformance.

Graph showing the investment performance of Global ESG stocks vs Global equities and Global energy stocks through 2020.

Source: Refinitiv DataStream, as of 31 Dec 2020.

It’s only relevant to equity portfolios

ESG works best as part of a multi-asset approach. This is still the soundest way to manage volatility while investing in line with your values, and without sacrificing optimal investment practice.

Selection in each asset class can then be skewed towards companies and governments with superior ESG practices, and explicit allocations made to relevant themes like green bonds or renewables. Consideration may also be given to regions and economies where strong ESG practices prevail.

Source: “Investing for a sustainable future: Is there a cost attached?”, HSBC Jade Perspectives, March 2021.

It’s expensive and only for institutional investors

Although institutional investors used to account for the majority of sustainable investment assets, retail investment has been growing more quickly. There is a growing number of sustainable investment funds, and many carry small minimum investment requirements.

According to Morningstar’s Global Sustainable Fund Flow Q4 2020 Report, assets in sustainable funds hit a record high of US$1,652 billion as of the end of December 2020. Product development in the fourth quarter hit an all-time high, with 196 new offerings, bringing the total number of sustainable funds globally to 4,153 at the end of December 2020.

Graph showing Global Sustainable Fund launches per quarter, from Q1 2018 to Q4 2020.

Sustainability at HSBC

HSBC’s ambition is to be the leading bank for the transition to net zero through a 3-part plan:

  • become a net zero bank
  • support customers to thrive through the transition
  • unlock the next generation of climate solutions
     

Central to this ambition is our goal of reducing financed emissions to net zero by 2050 or sooner, in line with the Paris Agreement. In doing so, HSBC Group aims to facilitate between USD750 billion and USD1 trillion of finance and investment by 2030 to support our clients.

For more information, please review our global climate strategy.

Our awards and recognition

  • World’s Best Bank for Sustainable Finance (Euromoney, 2019, 2020)
  • Asia’s Best Bank for Sustainable Finance (Euromoney, 2019, 2020)
  • Middle East’s Best Bank for Sustainable Finance (Euromoney, 2019, 2020)
  • Western Europe’s Best Bank for Sustainable Finance (Euromoney, 2020)
  • Five ‘Lead Manager of the Year’ awards across social, sustainability and green bond categories (Environmental Finance, 2020)
  • Best CSR/ESG/D&I Thought Leadership Campaign (Treasury Management International, 2019)
  • Number one for Climate Change research team for six consecutive years (Extel, 2019)
  • Most Impressive Investment Bank for Asia Pacific Green/SRI Capital Markets (GlobalCapital, 2019)

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Important Information

There is no guarantee that an investment approach which considers environmental, social and governance (ESG) factors will produce returns similar to those which don't consider these factors. Investments which consider ESG factors may diverge from traditional market benchmarks.

In addition, there is no standard definition of, or measurement criteria for environmental, social and governance impact ('ESG Impact'). ESG Impact measurement criteria is (a) highly subjective and (b) may vary significantly across and within sectors.

HSBC undertakes due diligence when selecting third party managers. However, HSBC relies on the ESG Impact measurement criteria reported by third party fund managers and does not conduct its own specific due diligence in relation to ESG Impact measurement criteria. There is no guarantee that: (a) the nature of the ESG Impact of an investment will be aligned with any particular investor's ESG Impact goals; and (b) the stated level or target level of ESG Impact will be achieved.