Three of the new ETFs, the HSBC Europe Sustainable Equity UCITS ETF, the HSBC Japan Sustainable Equity UCITS ETF and the HSBC USA Sustainable Equity UCITS ETF, were listed on the London Stock Exchange on 5 June 2020, and three additional launches, focused on the developed world, Emerging Markets and Asia Pacific ex Japan, are expected in the coming weeks. Further listings are also planned across key markets in Europe.
The ETFs will track the newly created FTSE Russell ESG Low Carbon Select Indices which were developed and customised in collaboration with FTSE Russell, a leading provider of index solutions. As well as aiming to achieve a 20% ESG score uplift, the indices go one step beyond the current market offering by targeting two areas of carbon exposure – a 50%carbon emissions reduction and a 50% fossil fuel reserves reduction, relative to the parent index.
The three-tilt approach also takes into consideration country neutrality and sector neutrality, within set bands, relative to the parent market cap indices, and incorporates a custom exclusion list based on UN Global Compact Principles and other sustainability factors.
The ETFs aim to replicate the performance of the underlying indices while minimising the tracking difference between the fund and the index.
Xavier Desmadryl, Global Head of ESG Research at HSBC Global Asset Management, said:
"Investors’ desire to initiate change through sustainable investing continues to grow and long-term equity returns are increasingly driven by companies that effectively implement strong environmental, social and governance practices.
“We seek to encourage all companies held in our portfolios to establish and maintain high levels of transparency, particularly in their management of ESG issues and risks. Engagement with these companies is an important element in both our ESG integration and our stewardship oversight. These foundations are the driving force behind our new sustainable equity ETFs, which will provide investors with a core sustainable building block for their portfolios.”
Olga De Tapia, Head of ETF Sales at HSBC Global Asset Management, added:
“Our new ETF range takes a step beyond traditional sustainable ETF products by tracking indices, developed by FTSE Russell, that follow an innovative three-tilt approach. This approach allows us to capture the benefits of positive inclusion and access companies that are transitioning towards a lower carbon economy.
“Due to the evolution of the energy industry, the indices aim to capture stocks with lower fossil fuel reserves intensity, including alternative energy companies. The indices’ target of a 50% reduction on fossil fuels reserves allows them to include those companies that are at the forefront of this transition.”
Stephane DeGroote, Managing Director, Head of ETFs & Derivatives business EMEA, FTSE Russell comments:
“FTSE Russell worked closely with HSBC Global Asset Management to develop bespoke indexes that integrate ESG ratings, carbon emissions and reserves considerations, paving the way for a new generation of ETFs. HSBC selected FTSE Russell because of our unique index construction approach that incorporates climate and ESG metrics while minimising off-target, consequential exposures – a smart, transparent solution to weighting companies. The index construction is complemented by a robust and traceable ESG scoring methodology.These ETFs enable investors to participate in the transition towards a low carbon economy, while also balancing governance, social and environmental concerns.”
The launch of sustainable equity ETFs forms part of HSBC Global Asset Management’s wider plans to grow its ETF business. The plans also include developing a fixed income ETF platform and a passive platform for precious metals. The firm currently manages USD 60 billion in passive strategies and USD 8 billion in ETF strategies.
HSBC Global Asset Management aims to incorporate ESG factors in its investment decisions to generate sustainable, long-term returns and support the transition to a more sustainable economy and society. The firm does this through the way it invests, the products it offers, and the role it plays in shaping a more sustainable financial system.