HSBC Asset Management has launched a new socially responsible global equity ETF which is the first in the industry to directly incorporate biodiversity considerations.
Olga de Tapia, Global Head of ETF and Indexing Sales at HSBC Asset Management.
The HSBC World ESG Biodiversity Screened Equity UCITS ETF has been listed on the London Stock Exchange in US dollars (HBDV LN) and pound sterling (HBDS LN) as well as on Euronext Paris (HBDS FP), Xetra (H41A GY), and Borsa Italiana (HBDV IM) in euros.
Biodiversity refers to the variety of living species including plants, bacteria, and animals within an ecosystem. According to the WWF, global biodiversity is in crisis, having declined by 60% over the past 40 years as natural ecosystems have suffered from deforestation, land degradation, water pollution, air pollution, hunting and harvesting, and climate change.
Amid a growing social and political movement to better protect the environment, companies that are negatively affecting biodiversity are expected to face a heightened risk of litigation as well as significant physical and transition costs.
HSBC’s newest ETF incorporates a thorough set of ESG and specific biodiversity criteria, helping investors direct their capital in meaningful ways to mitigate these risks and make a positive impact on combatting the biodiversity crisis.
Commenting on the launch, Olga de Tapia, Global Head of ETF and Indexing Sales at HSBC Asset Management, said: “This ETF is the newest in our suite of sustainable building blocks we have been innovating for investors, helping them create portfolios that address material environmental issues such as biodiversity and climate change. We have a huge part to play in the protection and preservation of biodiversity which can be achieved through ‘biodiversity aware’ investment processes.”
Methodology
The fund is linked to the Euronext ESG Biodiversity Screened Index which was jointly developed by HSBC, Euronext, and Iceberg Data Lab (IDL). The index selects its constituents from the Euronext World universe of developed market companies globally.
HSBC notes that comprehensive biodiversity data does not yet exist in full and, as such, the index methodology includes multiple screens in its best bid to capture biodiversity risks. The methodology may be adapted in the future as data availability and quality improves.
Firstly, companies with market capitalizations below €2 billion, violators of UN Global Compact principles, and firms with significant operations linked to controversial weapons, tobacco, thermal coal, and oil & gas are removed.
The methodology also incorporates additional industry exclusionary criteria, removing firms with exposure to biodiversity-harming activities such as whaling, palm oil production, pesticides, the manufacture of hunting weapons, and animal testing.
Secondly, the methodology eliminates 25% of the initial universe’s constituents, removing those with the lowest overall ESG scores as determined by Sustainalytics.
Finally, the index harnesses IDL’s ‘Corporate Biodiversity Footprint’ to assess the biodiversity impact of companies based on four key pressure points – climate change, land use, air pollution, and water pollution. The assessment is shown on a six-point scale, and any firm possessing the worst two ratings of 5 or 6 are removed.
Following the filters, the ETF selects the 500 companies with the strongest Corporate Biodiversity Footprints and weights them by float-adjusted market capitalization. Reconstitution and rebalancing occur on a quarterly basis.
As of the end of July, stocks from the US accounted for two-thirds (68.5%) of the index weight with the next-largest country exposures being Japan (5.3%), the UK (4.0%), Germany (3.9%), and France (3.8%).
Technology and industrial stocks dominated with weights of 20.9% and 17.1%, respectively, followed by companies classified within the consumer discretionary (14.3%), health care (13.8%), and financials (13.7%) sectors.
The index was well diversified at the stock level with the largest positions being Alphabet at 3.8% and United Health Group at 2.1%.
The ETF comes with an expense ratio of 0.35% and is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).