2020 Responsible Investment ReviewSustainable investing for our changing world
ContentsForeword1About us2–3Commitment to sustainability since 20014–5Our approach to responsible investment6–7Integrating ESG considerations8 – 11Active ownership12 – 27Public policy and advocacy28 – 35Tackling climate change36 – 39Key documents and contacts40Important information 422
ForewordAs we enter a new decade, finance and investment continueto play a critical role in tackling climate change and meetingthe UN Sustainable Development Goals. We are committed tosupporting and enabling the low-carbon transition across ourglobal business.Nicolas MoreauGlobal Chief Executive, HSBCGlobal Asset ManagementWe believe that a deeper consideration of environmental,social and governance (ESG) factors is integral to soundinvestment decisions in order to preserve and deliver longterm value for our clients, and supporting the transition to amore sustainable economy and society. We do this throughthe way we invest, the products we offer, and the role we playin shaping a more sustainable financial system.This report provides an overview of how we integrateESG factors, and climate-related risks in particular, intoour investment decisions, the importance we place onstewardship and how we engage on systemic market issues.Looking ahead we recognise the important responsibilitywe have to support the transition to a low-carbon economy,improve market standards and transparency on ESGissues and mobilise capital to deliver on the SustainableDevelopment Goals and Paris Climate Agreement.I hope you find this report of interest.Nicolas MoreauGlobal Chief Executive, HSBC Global Asset Management1
About usAt HSBC Global Asset Management, we invest with purpose and discipline to unlock sustainableinvestment opportunities for our investors and deliver sustainable growth and reduce risksthrough the consideration of ESG factors. We, as a global investor, have a unique perspective andexpert insights on ESG factors and their associated risks and opportunities.We combine these strengths with a long-term commitment to our clients and a structured anddisciplined investment approach. We deliver solutions that support our clients’ financial ambitionsas well as contributing towards financing the transition to a low-carbon economy.We see this as consistent with our fiduciary duties to our clients.Presence in 25 countries and territoriesAs of end of December 2019, we managedUSD517.1 billion globally for a range of clients,from some of the largest institutional investorsin the world to commercial and corporateclients, financial intermediaries, retail andprivate banking clients.2We believe that considering ESG factors whileinvesting with purpose and discipline acrossall portfolios is critical to delivering sustainablegrowth and reducing risks for each clientwe serve.
HSBC Global AssetManagement officesCountries where ourinvestment teams sitare in rsey¡¡Luxembourg¡¡Malta¡¡Saudi ¡¡UAE¡¡UKBy asset class(USDbn)Fixed Income (158.1)Equity (82.8)Multi-Asset (121.1)Liquidity (98.1)Alternatives (30.6)1Other (26.4)2¡¡Asia PacificAustralia¡¡China¡¡Hong Kong¡¡India¡¡Japan¡¡Singapore¡¡TaiwanBy region(USDbn)Americas (119.8)EMEA (275.6)Asia Pacific (121.8)By client type(USDbn)Wholesale (264.7)Institutional (252.5)¡¡1. Alternatives assets include USD6.4 billion fromcommitted capital (“dry powder”).2. Other is the assets of Hang Seng Bank, in whichHSBC has a majority holding, and of HSBC JintrustFund Management, a joint venture betweenHSBC Global Asset Management and Shanxi TrustCorporation Limited.Source: HSBC Global Asset Management as at 31December 2019. Any differences are due to rounding.Asia-Pacific includes employees and assets of Hang Seng Bank, in whichHSBC has a majority holding.HSBC Jintrust Fund Management Company is a joint venture between HSBCGlobal Asset Management and Shanxi Trust Corporation Limited.3
Commitment to sustainability since 2001Launched first SociallyResponsible Investing(SRI) equity fundLaunched firstSRI bond fundJoined InstitutionalInvestor Group onClimate ChangeSignatory to theMontreal Carbon Pledge2001200620072015Joined the UK Sustainableand Finance AssociationSignatory to the Principlesfor Responsible Investment2019highlights andlooking aheadto 2020In 2019, we further developed our responsibleinvestment principles across all asset classes,expanded our work on scenario analysisand updated key policies related to ourresponsible investment process. For example,we published our Green Impact InvestmentGuidelines. These guidelines include activitiesthat contribute to the United Nations’Sustainable Development Goals (SDGs) andthe global transition to a low-carbon economy.This framework also outlines the eligibleinvestments for our Real Economy GreenInvestment Opportunity (REGIO) Bond fund.42019We engaged with companies both individuallyand collaboratively on ESG risks, disclosureand management. As chair of the globalsteering committee of the Climate Action100 initiative, we led engagements withExxonMobil and BP, co-filing shareholderresolutions. These engagements led toimprovements in climate governance, riskmanagement and disclosure.We also continued our membership in keyinitiatives. As part of the Strategic AdvisoryGroup to the British Standards Institute, weare helping develop standards on sustainablefinance. We support Sovereign Wealth Fundsin managing climate risks as a foundingmember of the One Planet Asset ManagerInitiative. Additionally, we produced thoughtleadership with the Investor Leaders Groupof the Cambridge Institute for SustainabilityLeadership (Impact Framework and VirtualInvestment Experiment).
Joined the CambridgeInstitute of SustainabilityLeaders – InvestmentLeaders Group (ILG)Launched ClimateAction 100 initiative incollaborationwith other investorsFounding member of One PlanetAsset Manager Initiative supportingthe One Planet SovereignWealth Fund Working Group2016201720192020Looking forward to 2020, we willcontinue to develop sustainableinvestment products that supportour clients’ investment and financialgoals and timelines, contribute tothe United Nations SustainableDevelopment Goals (SDGs) and theglobal transition to a low-carboneconomy and integrate ESG factorsinto our investment decisions.The UN has called 2020 to 2030the ‘decade of delivery’ and we willcontinue to deliver specific innovativesolutions that provide real worldimpacts. Our focus will be on increasingaccess to climate finance andsupporting the transition to the lowcarbon economy. We plan to developinvestment products across assetclasses and geographies, includingboth active and passive solutions.5
Our approachto responsibleinvestment6
Building a sustainable futureAs part of our fiduciary duty to clients we arefocused on increasing the climate resilience of ourclients’ investments. Alongside climate issues, weformally integrate ESG factors into our investmentdecisions. We believe that ESG factors can have amaterial effect on the financial performance of thesecurities and assets in which we invest.Since we signed the Principles for ResponsibleInvestment (PRI) in 2006 we have integratedmaterial ESG factors into our investment analysisand decision-making, to reduce risk and enhancereturns.We recognise the contribution we can make to theUnited Nations’ Sustainable Development Goals(SDGs) and the global transition to a low-carboneconomy. The SDGs and Paris Climate Agreementset a long-term transformational frameworkwith the objective of ending poverty, fightinginequalities and tackling climate change.We will continue to collaborate with institutionalinvestors, development finance institutions andpolicy-makers to deliver tangible investment flowsinto the real economy.We have a long-term commitment to our clientsand a structured and disciplined investmentapproach to deliver solutions that support theirfinancial ambitions while transitioning to a moresustainable future through:Creation of solutions based on client needsdesigned to mitigate risk and captureopportunities around ESG issues¡¡Engagement with companies, improvingmarket transparency and sustainabilitydisclosure to better understand investmentrisks and opportunities¡¡Work with policy makers and industry leadersto the benefit of our clients and the long-termhealth of the financial system and to support thetransition to a low-carbon economy¡¡7
Our approach to addressing ESG issues and climate changeAt HSBC Global Asset Management, we believe thatEnvironmental, Social, and Governance (ESG) issues canhave a material effect on company performance. Issuesincluding climate change, water scarcity and availability,deforestation, health and safety, and executive pay,are generating risks and opportunities for companieswhich financial markets may not price appropriately.Therefore, material ESG considerations are an integralpart of security analysis alongside fundamental financialconsiderations. Our analysts and portfolio managers useESG data, including carbon emissions metrics to enableus to identify and manage ESG risks and opportunitiesand make well-informed investment decisions.We see it as consistent with our fiduciary duties to ourclients to review the climate resilience of investmentsand contribute towards financing the transition to a lowcarbon economy. We achieve this through: Identifying low-carbon investment opportunities Assessing the risks and opportunities presented byclimate change Engaging with investee companies Reporting on the actions we have taken and theprogress we have made in addressing climate risk Working with policymakersFurthermore, we have a responsibility to exercise activestewardship on behalf of our clients. We meet withcompanies regularly to improve our understanding of theirbusiness and strategy, signal support or concerns we havewith management actions, and promote best practice.We believe that good corporate governance ensuresthat companies are managed in line with the long-terminterests of their investors. We also engage with carbonintensive companies to encourage climate–resilientbusiness strategies.This approach allows us to integrate material ESG factorsinto our investment analysis and decision-making duringevery step of the investment cycle in order to reduce riskand enhance returns.9
Managing ESG integrationDataWe use our own analysis and engagement toevaluate company performance along withinformation from third parties to develop ourown in-house ESG ratings for issuers. We use arange of third-party data providers to ensure thatwe have comprehensive coverage of issuers andESG data.We continually evaluate this data, ESG dataproviders and our research process. Over thepast year we have reviewed the material ESGfactors used across all sectors to ensure ourdatabase is capturing emerging ESG trends andissues. Additionally, our internal ESG intranethas been upgraded to facilitate greater access toand improve the usability of ESG data across ourinvestment teams. We provided numerous trainingsessions on using the upgraded intranet to ensurethat analysts and portfolio managers are able toefficiently access and utilise our ESG data.The Global Chief Investment Officer (CIO) hasaccountability for the integration of ESG issues.For each asset class, our specialised investmentteams are responsible for integrating ESG issuesinto their respective investment processes.To support our investment teams, we haveESG specialists, ESG research analysts andengagement personnel globally.We review our policies on an annual basis. In 2019,we updated our Climate Change, ResponsibleInvestment, Banned Weapons, Voting Guidelinesand Engagement Policies.TrainingOver the past year, we have held a number oftraining sessions on ESG ratings and broader ESGintegration for our investment teams.We conducted sector-specific training to providesector analysts with an update regarding theevolving ESG regulatory frameworks, disclosureguidelines, best practices and new technologieswithin their respective sectors.10Group Management Board members for each ofthe boards of the regional entities (e.g. HSBC HongKong) have attended masterclasses on ESG andresponsible investment.In 2020, we will roll out a global training update forrelationship managers and other non-investmentpersonnel. This training will cover recentresponsible investment trends and drivers andfurther enhance the understanding of responsibleinvesting across the business.
What active ownership means to usFurtherescalationVotingCompanyengagementAnalysis andresearchActive ownership is a key pillar of ourapproach to responsible investment. Ithelps to understand and evaluate the ESGrisks and opportunities at a companylevel, drive positive behaviour andpromote high standards.We use our influence as investors toencourage corporate behaviour thatprotects and enhances value. We fulfilthis responsibility through proxy votingand company engagement.Fundamentalanalysisincluding ESGresearchSeekcommitmentsfrom companyto addressconcernsFollow upmeetings withboard membersVote ommunicationIdentification ofpossible areasof concernMonitor issuesand companyprogressPublicly declareour votingintentions inadvanceEngage withother investorsWhere we undertake significantinvestment activities, we have becomesignatories to investor stewardship codes,including: the UK Stewardship Code, theHong Kong Principles of ResponsibleOwnership and the Taiwan StewardshipPrinciples for Institutional Investors.Meet companiesto understandissuesStakeholderduediligenceEngage withcompany toraise concernsand encourageactionSupportshareholderresolutionsAttend selected AGMsKey Documents Voting guidelines Engagement policy Stewardship statements Voting