HSBC Global Asset Management has added an Asia Pacific ex Japan product to its range of sustainable ETFs.
Carmen Gonzalez-Calatayud, Head of ETF Capability at HSBC Global Asset Management.
Listed on the London Stock Exchange, the HSBC Asia Pacific ex Japan Sustainable Equity UCITS ETF provides access to large and mid-cap stocks listed in emerging and developed countries in the Asia Pacific region excluding Japan.
The fund seeks to deliver this core exposure with a reduced allocation to companies with higher carbon emissions and fossil fuel reserves, and increased allocation to companies with superior environmental, social and governance characteristics.
It does this by tracking the FTSE Asia Pacific ex Japan ESG Low Carbon Select Index – a customised, low carbon sustainability index developed in partnership with FTSE Russell and derived from their FTSE Asia Pacific ex Japan universe.
The index incorporates exclusion screens and a triple-tilting, modified weighting methodology to meet its objectives.
In the initial stage of index construction, companies identified as being involved in various contentious industries are removed from the universe. This includes companies involved in the manufacture of weapons and tobacco products; companies involved in the extraction or use of thermal coal; and companies involved in electricity generation from nuclear power.
Companies considered to have breached one or more of the United Nations Global Compact principles (a list sustainability principles covering human rights, labour, environment and anticorruption) are also removed.
The reduction in exposure to carbon emissions and fossil fuel reserves is dealt with in the weighting stage. Additional ESG uplift (beyond simply removing certain displeasing stocks) is also achieved at this point.
Essentially, an optimization algorithm processes information relating to each eligible company’s ESG rating (as measured by FTSE) and operational carbon emissions and fossil fuel reserves (based on TruCost and Carbon Disclosure Project data) to weight constituents so as to achieve a 50% reduction in carbon emissions and fossil fuel reserve intensity, and a 20% uplift in ESG rating, all versus the parent universe, subject to country, industry, maximum stock capacity, maximum company weight, and minimum diversification constraints.
The net result is an index that contains fewer constituents than the parent index but exhibits a distinctly enhanced ESG profile and lower carbon footprint. This comes at the expense of a degree of tracking divergence (versus the regular FTSE Asia Pacific ex Japan index).
The new fund sits alongside other HSBC ETFs deploying the same methodology. These include Europe, Japan, USA, and developed world exposures. An emerging markets fund appears to be scheduled for launch later this month.
Commenting on the launch, Carmen Gonzalez-Calatayud, Head of ETF Capability at HSBC Global Asset Management, said, “Our new Asia-focused sustainable ETF complements our existing range which aims to provide investors with core, sustainable building blocks for their portfolios. The launch underpins our commitment to connecting investors with global opportunities and supporting the ongoing transition to a more sustainable economy and society.”
The ETF has a total expense ratio of 0.25% and is available in USD (HSXD LN) and GBP (HSXJ LN) share classes. It is physically replicated.
The listing comes as assets invested in ESG ETFs and ETPs listed globally surpass the $100 billion mark, reaching a new record of $101bn according to data from ETFGI.