HSBC Global Asset Management has introduced a suite of sustainable equity ETFs in Europe.
The new ETFs are part of HSBC GAM’s efforts to re-invigorate its ETF business.
The funds are linked to newly created indices from FTSE Russell that provide exposure to companies with low carbon and strong environmental, social, and governance (ESG) profiles.
The suite initially comprises three ETFs that focus on US, European, and Japanese equity markets.
They have listed on the London Stock Exchange and are physically backed.
The HSBC USA Sustainable Equity UCITS ETF (USD – HSUD LN; GBP – HSUS LN) tracks the FTSE USA ESG Low Carbon Select Net Tax Index and comes with an expense ratio of 0.12%.
The HSBC Europe Sustainable Equity UCITS ETF (EUR – HSEU LN; GBP – HSEP LN) tracks the FTSE Developed Europe ESG Low Carbon Select Net Tax Index and comes with an expense ratio of 0.15%.
And the HSBC Japan Sustainable Equity UCITS ETF (USD – HSJD LN; GBP – HSJP LN) tracks the FTSE Japan ESG Low Carbon Select Net Tax Index and comes with an expense ratio of 0.18%.
The funds are expected to cross-list on other major European exchanges at a later date.
Three additional fund launches focused on developed global, Asia Pacific ex-Japan, and emerging market equities are expected in the coming weeks.
Methodology
The methodology is applied to FTSE Russell’s broad market benchmarks (FTSE USA, FTSE Developed Europe, and FTSE Japan) that cover large and mid-cap stocks within their respective universes.
Firms that are UN Global Compact violators, as well as companies with any involvement in controversial weapons and tobacco, are eliminated. Additionally, the indices use revenue thresholds to exclude firms with operations in conventional weapons (more than 10% of total revenue), coal (10%), and nuclear power (25%).
The remaining constituents are weighted using an optimization process that seeks to boost the indices’ ESG score (based on company ESG ratings provided by Sustainalytics) by 20%, reduce total carbon intensity by 50%, and reduce fossil fuel reserves by 50%.
The three-tilt approach also takes into consideration country and sector neutrality, within set bands, relative to the parent universes.
The indices are reconstituted annually in September and rebalanced quarterly.
Xavier Desmadryl, Global Head of ESG Research at HSBC Global Asset Management, commented, “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, said, “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 minimizing 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 new ETF launches come after HSBC GAM earlier this year announced its intention to re-invigorate its ETF business in 2020.
HSBC GAM currently manages around $60bn in passive strategies and $8bn in ETFs predominantly offering passive plain-vanilla market-cap-weighted equity strategies. Amid the new push, the firm plans to significantly increase its team of in-house ETF professionals and to introduce ESG, fixed income, and precious metals products.