Summary
This subfund promotes environmental or social characteristics but does not have sustainable investment as its objective.
HSBC Asset Management’s ‘do no significant harm’ (DNSH) assessment of issuers as part of its sustainable investment
process includes consideration of principal adverse impacts (PAI). The principle of ‘do no significant harm’ to
environmental or social objectives applies only to the underlying sustainable investments of the subfund.
Issuers considered to be in violation of one or more of the 10 principles of the United Nations Global Compact (or at
least two alleged violations) and the OECD Guidelines for Multinational Enterprises are excluded. Companies are also
assessed according to international standards such as the OECD Guidelines for Multinational Enterprises.
The subfund promotes the following environmental or social characteristics:
- Selection of issuers with good ESG practices according to a best-in-class approach and selection of countries with
a minimum ESG rating according to an ESG selection approach,
- Exclusion of issuers in violation of the principles of the United Nations Global Compact and the OECD
Guidelines for Multinational Enterprises
- Exclusion of shares of companies involved in the production of controversial weapons or their components, in the
defence sector, in tobacco production, or in thermal coal activities
- Careful consideration of environmental issues through voting and engagement activities
Investment strategy
The investment strategy of this subfund uses the following approaches:
- ESG integration (inclusion of ESG criteria in financial analysis),
- Best-in-class approach for listed public or private company issues and ESG selection approach for government
issues,
- Exclusion of shares issued by companies involved in ‘excluded’ activities
- Engagement and voting activities
Proportion of investments:
- #1 Aligned with (E/S) characteristics: 70 per cent minimum
- #2 Others (not aligned with E/S characteristics or not considered sustainable investments): 30 per cent maximum
- #1 A Sustainable investments: 10 per cent minimum
- #1 B Other E/S characteristics (aligned with E/S characteristics but not considered sustainable investments):
60 per cent minimum
Monitoring of environmental or social characteristics
Funds are monitored to ensure that the portfolios meet the non-financial criteria and, where applicable, internally
established thresholds (such as the portfolio’s average ESG score or exclusions). First-level controls are also performed
by independent management teams (investment restrictions team and risk team).
Methods and Data sources and processing
HSBC relies on a proprietary ESG analysis model with data supplied by non-financial rating agencies and the
management company’s internal research.
HSBC Asset Management uses data from a number of external providers to ensure that it meets the environmental or social
characteristics that it promotes. HSBC Asset Management verifies the data used. For the portfolio’s ESG rating, the data
are weighted by coefficients reflecting our analysis of the various business sectors and their respective ESG impacts.
Limitations to methods and data
The management company relies on non-financial data providers. As a result, the company is subject to certain operational
and data quality risks associated with reliance on third-party service providers and data sources. Furthermore, data
coverage may be limited depending on the type of issuer (small caps, certain high-yield issuers) and by the geographical
area of the issuer (particularly for emerging countries). When non-financial data are not available in our suppliers’
databases, we initiate a qualitative analysis and possibly exchanges with the company to supplement our assessment of E/S
characteristics. HSBC Asset Management is unaware of any methodological limitations likely to prevent the attainment of
the E/S characteristics pursued by the subfund. The subfund uses derivatives. Sustainability risks are therefore more
difficult to take into account because the subfund does not invest directly in the underlying asset.
Due diligence
Our monitoring of companies and all other issuers held in actively managed portfolios, by analysts, management teams,
investment restrictions, and the risk department, is quantitative and qualitative and includes strategy, financial and nonfinancial
performance constraints, risks, capital structure, social and environmental impact, and corporate governance. For
this monitoring, we use our own in-house research and the research of brokers and other independent research providers.
Lastly, our teams in charge of voting and shareholder engagement activities can support the investment teams in the ESG
assessment of issuers.
Engagement policies
Our approach to shareholder engagement incorporates several levers of action, including 1) direct dialogue with companies,
2) exercising voting rights, and 3) a gradual escalation procedure with companies when the ESG risks or controversies to
which they are exposed are not managed.
We prioritise dialogue and interaction with companies in which we have significant positions but also depending on the
importance of the environmental or social issues identified. Furthermore, every year, we define engagement themes that we
consider to be key.
Important information
This regulatory document is published pursuant to Article 10 of the SFDR.
All information contained in this document may change without notice. The user shall be held liable and may face legal
action for any reproduction or use of this document without permission.
This document is not contractual and by no means constitutes a solicitation to buy or sell or a recommendation to buy or
sell securities in any jurisdiction in which such an offer is not permitted by law.
Any subscription in the UCI presented in this document must be based on the current prospectus and KID. In addition to
the current Key Information Document (KID), potential investors should refer to the prospectus for detailed information on
the risks associated with the UCI presented. If you have any doubts as to the suitability of the presented product in relation
to your investment objectives and risk profile, please contact your advisor.
No sustainable investment objective
1. This financial product promotes environmental or social characteristics but does not have sustainable investment as its objective.
2. The principle of ‘do no significant harm’ to environmental or social objectives applies only to the underlying sustainable investments of the subfund. This principle is incorporated into the investment decision-making process, which includes consideration of principal adverse impacts.
(a) HSBC Asset Management’s ‘do no significant harm’ (DNSH) assessment of issuers as part of its sustainable investment process includes consideration of principal adverse impacts (PAI). It involves a holistic analysis of the company’s multiple sustainability impacts rather than focusing on a single factor. When an issuer is identified as potentially controversial, it cannot be considered a sustainable investment. All relevant PAIs are thus examined and integrated into the investment process according to an approach that combines exclusions (sectoral, the most severe ESG controversies, norms-based exclusions, etc.) with voting and shareholder engagement activities to instil and maintain a positive change dynamic within companies. Furthermore, a company will be considered not sustainable when it does not comply with the United Nations Global Compact Principles and its associated international standards, conventions, and treaties or if it is involved in weapons banned by international conventions. With the exception of these last two PAIs, we use proxies. In our view, the setting of exclusion thresholds (e.g. GHG emissions) for each PAI is not always relevant and could compromise the fact that many sectors and companies are in a transition strategy. In addition, engagement is essential to ensure that companies with limited disclosure, particularly in emerging economies, are initially excluded from the definition of sustainable investment and allow us to be a catalyst for positive environmental or social change. For example, we use a 10 per cent threshold on revenues from thermal coal mining (and generation of electricity from thermal coal) as an exclusion filter to indirectly address all PAIs related to greenhouse gas emissions.
HSBC’s sustainable investment methodology is available on the management company’s website: www.assetmanagement.hsbc.fr/fr/retail-investors/about-us/responsible-investing/policies.
(b) HSBC is committed to applying and promoting international standards. The ten principles of the UN Global Compact are among the priorities of HSBC’s Responsible Investment Policy. These principles include non-financial risks such as human rights, labour standards, the environment, and anti-corruption. HSBC is also a signatory to the United Nations Principles for Responsible Investment. They provide a framework for the identification and management of sustainability risks. In this subfund, companies with a proven violation of one of the 10 principles of the United Nations Global Compact or at least two alleged violations are systematically excluded. Companies are also assessed according to international standards such as the OECD Guidelines for Multinational Enterprises.
Environmental or social characteristics of the financial product
The subfund promotes E, S, and G characteristics by investing in international equity and fixed-income markets with a euro bias by selecting securities issued by companies or countries in a universe of issues that meet Environmental, Social, and Governance (ESG) criteria. The subfund is invested, at its manager’s discretion, either in securities of companies or countries or in UCIs managed by the HSBC Group.
For public or private listed corporate issues: the fund manager uses a best-in-class approach to select within each sector the companies that have the best ESG practices compared with their peers within each sector of the economy.
For each ESG pillar, several criteria are used, including CO2 emissions for the E pillar, management of personnel for the S pillar, and level of independence of directors for the G pillar.
For government issues (bonds): euro-denominated issuing countries are ranked according to their overall ‘ESG’ rating, which is based 50 per cent on the Environmental pillar (E) and 50 per cent on the Social/Governance pillar (S/G). The Social and Governance pillar includes the analysis of the political and governance system, human rights and fundamental freedoms, and social conditions. The Environmental pillar includes the analysis of natural resources, climate change and energy, production, and sustainable consumption.
The manager uses an ESG Selection approach to select the countries with a minimum ESG rating according to the non-financial rating agency ISS-Oekom from among euro-denominated issuing countries.
In addition, the subfund will:
- Exclude issuers in violation of one or more of the 10 principles of the United Nations Global Compact (or at least two alleged violations) and the OECD Guidelines for Multinational Enterprises
- Exclude securities of companies involved in the production of controversial weapons or their components. Controversial weapons include, but are not limited to, anti-personnel mines, depleted uranium weapons, and white phosphorus when used for military purposes. This exclusion is in addition to the exclusion policy on weapons prohibited by international treaties
- Exclude securities of companies in the Defence sector
- Exclude securities of companies engaged in thermal coal activities. With regard to electricity generation, companies deriving more than 10 per cent of their turnover from electricity generated using thermal coal are partially excluded. With regard to mining: companies are completely excluded
- Exclude securities of companies involved in tobacco production
- Carefully consider environmental issues through voting and engagement activities.
The subfund is actively managed and does not track a benchmark. There is no benchmark representative of our management philosophy and therefore of our investment universe or an index designated to determine whether the subfund is aligned with the environmental or social characteristics it promotes.
Investment strategy
(a) The subfund’s universe results from:
- a best-in-class approach used to select listed public or private company issues.
The methodology consists of evaluating each company and then classifying them. First, each company is given three scores (E score, S score, and G score) provided by MSCI ESG Research, which focuses on assessing the relevant aspects for the sector to which the rated company belongs. Lastly, these three scores are aggregated to form an ESG score that classifies companies into one of 30 ESG sectors and then classify them in one of the four quartiles within each sector. The selection of securities according to these ESG criteria is based on a proprietary ESG analysis model, supplied by data from non-financial rating agencies and internal research within our company. The SRI universe assessment is updated on a monthly basis.
- an ESG Selection approach implemented to select government issues: euro-denominated issuing countries are ranked according to their overall ‘ESG’ score, which is based 50 per cent on the Environmental pillar (E) and 50 per cent on the Social/Governance pillar (S/G).
The fund manager selects countries with a minimum ESG rating according to the non-financial rating agency ISS-Oekom. The scores, resulting from the analysis by the non-financial rating agency ISS-Oekom, range from A+ to D-. The SRI strategy consists of selecting countries with a minimum ESG rating from among issuing countries. Thus:
- for countries classified between A+ and B-, there are no investment limits
- for countries classified as C+, the weight of these States in the portfolio cannot exceed the weight of these countries in the Bloomberg Capital Euro Aggregate 500MM index
- for countries classified between C and D-, investments are not permitted
The rating of issuing countries is reviewed on an annual basis.
- sectoral and norms-based exclusions.
The investment strategy of this subfund thus uses the following approaches:
- ESG integration (systematic inclusion of ESG criteria in financial analysis),
- Best-in-class approach (selecting the best companies in each sector according to environmental, social, and governance criteria) and ESG Selection approach (selecting countries with a minimum ESG rating from among euro-denominated issuing countries),
- Exclusion of securities issued by companies involved in ‘excluded’ activities. The excluded activities are set out below among the binding elements of the investment strategy used to select the investments to attain each of the environmental or social characteristics promoted by the financial product
- Engagement and voting activities (presence with the companies, through visits in the form of one-on-one meetings and by exercising HSBC’s voting policy). Our engagement objective is to provide companies with the opportunity to explain their ESG approach and to monitor ESG issues
(b) Quality of governance is assessed on the basis of criteria specified in the investment process that include, but are not limited to, business ethics, corporate culture and values, governance framework, and corruption. We determine the materiality of governance both on an absolute basis, focusing in particular on the governance framework, controversies, and compliance with the principles of the United Nations Global Compact and the OECD Guidelines for Multinational Enterprises, and on a relative basis by comparing the quality of the company’s governance practices with that of its industry peers.
Where significant and/or impactful governance risks are identified, companies are subject to enhanced due diligence, which at minimum requires management teams to perform additional analysis. Dialogue or engagement with the company is then monitored over time and archived. Lastly, we use our voting rights to express our support for positive development initiatives of companies or our disagreement if the directors do not meet our expectations. In addition, issuers in violation of one or more of the 10 principles of the United Nations Global Compact (or at least two alleged violations) and the OECD Guidelines for Multinational Enterprises are excluded.
Proportion of investments
The subfund’s strategic allocation is composed on average of 30 per cent equities and 70 per cent fixed-income investments. The portfolio will be invested in international equity and fixed-income markets with a euro bias by selecting securities issued by companies or countries in a universe of issues that meet Environmental, Social, and Governance (ESG) criteria.
The manager may invest in UCIs managed or distributed by an HSBC Group entity. These UCIs must meet the defined financial and non-financial objectives.
The SRI strategies of the UCIs or investment funds that may be selected by the fund manager (excluding UCIs/investment funds managed by the Management Company) may use ESG indicators and/or different SRI approaches independent of the subfund.
The minimum proportion of investments used to attain the environmental or social characteristics promoted by the subfund is 70 per cent. The remaining 30 per cent is detailed in the section ‘Investments included in category “# 2 Others”’ below.
Although the subfund does not have sustainable investments as an objective, it commits to a minimum proportion of 10 per cent of its assets in sustainable investments.
Investments included in category ‘# 2 Others’:
The subfund may hold cash, derivatives, as well as investments for which no non-financial analysis could be performed due to the unavailability of ESG data.The use of derivatives will not contribute to the attainment of the fund’s environmental or social characteristics. Derivatives are used for portfolio risk adjustment (exposure, hedging).
Monitoring of environmental or social characteristics
All subfunds must have strong and/or improving E/S characteristics at the issuer and overall portfolio level.
The management teams conduct ongoing monitoring. Funds are monitored to ensure that the portfolios meet the non-financial criteria and, where applicable, internally established thresholds (such as the portfolio’s average ESG score or exclusions) We also apply an enhanced due diligence process for companies that may be high risk due to violations of international conventions such as the principles of the UN Global Compact and/or not aligned with anti-financial crime standards or due to poor ESG ratings.
First-level controls are also performed by independent management teams:
- Contractual non-financial investment restrictions are currently set according to the same methodology as the financial ratios,
- Environmental, Social, and Governance performance indicators identified according to the fund’s strategy are monitored on a monthly basis by the risk department
In addition, the subfund may undergo occasional and periodic fund compliance checks, which will ensure, in particular, that sectoral exclusions are respected.
Lastly, in connection with labels, controls are conducted by auditors outside the management company.
Methodologies
HSBC relies on a proprietary ESG analysis model with data supplied by non-financial rating agencies and the management company’s internal research. HSBC Asset Management verifies the data used.
Data sources and processing
(a) HSBC Asset Management uses data from a number of external providers such as Sustainalytics, ISS ESG, MSCI ESG Research, and S&P Trucost to ensure that it meets the environmental or social characteristics that it promotes.
(b) HSBC Asset Management verifies the data used.
(c) For the portfolio’s ESG rating, the data are weighted by coefficients reflecting our analysis of the various business sectors and their respective ESG impacts.
(d) Such data, if not communicated by companies, are estimated by our external data providers.
Limitations to methodologies and data
(a) The management company relies on non-financial data providers. As a result, the company is subject to certain operational and data quality risks associated with reliance on third-party service providers and data sources. Furthermore, data coverage may be limited depending on the type of issuer (small caps, certain high-yield issuers) and by the geographical area of the issuer (particularly for emerging countries). When non-financial data are not available in our suppliers’ databases, we initiate a qualitative analysis and possibly exchanges with the company to supplement our assessment of E/S characteristics.
(b) HSBC Asset Management is not aware of any methodological limitations likely to prevent the attainment of the E/S characteristics pursued by the subfund. The subfund may invest in derivatives. Sustainability risks are therefore more difficult to take into account because the subfund does not invest directly in the underlying asset. As of the date of the prospectus, no ESG integration methodology can be applied for derivatives.
Due diligence
As part of our investment process, we carefully monitor and analyse all companies and other issuers held in actively managed portfolios before and during the investment period. Our monitoring by the analysts, the management teams, investment restrictions, and the risk department is quantitative and qualitative and includes strategy, financial and non-financial performance and constraints, risks, capital structure, social and environmental impact, and corporate governance. For the purposes of this monitoring, we use our own in-house research and the research of brokers and other independent research providers.
We also apply an enhanced due diligence process for companies that may be high risk due to violations of international conventions such as the principles of the UN Global Compact and/or not aligned with anti-financial crime standards or due to poor ESG ratings.
Lastly, our teams in charge of voting and shareholder engagement activities can support the investment teams in the ESG assessment of issuers.
For more details on internal and external controls, please refer to the information provided in the ‘Monitoring of environmental or social characteristics’ section.
Engagement policies
Our approach to shareholder engagement incorporates several levers for action including 1) direct dialogue with companies about their consideration of environmental and social issues to ensure that they are able to face the future and maintain long-term financial viability, 2) the exercising of voting rights by which we express our support for positive development initiatives or, conversely, our disagreement when directors do not meet our expectations, and 3) a gradual escalation procedure with companies when the ESG risks or controversies to which they are exposed are not managed.
Our management and analyst teams meet regularly with the companies in which we invest (or may invest) to better understand their business and strategy, demonstrate our support and/or express our concerns, and promote best practices.
We prioritise dialogue and interaction with companies in which we have significant positions, but also depending on the importance of the environmental or social issues identified. If a company is identified as being at risk on these issues at the end of our ESG analysis, we still favour dialogue over selling the security, but the lack of satisfactory progress or responses by the company in a timely manner that we consider reasonable to implement the desired changes may result in the exclusion of the security from our portfolios.
Lastly, every year, we define engagement themes that we consider to be key.
These include climate change, biodiversity conservation, respect for human rights, diversity issues, equity and inclusion, the importance of just transition, and access to healthcare. As signatories to the Net Zero Asset Managers initiative and in keeping with our commitment to contribute to the goal of carbon neutrality for all our assets under management by 2050, we primarily engage in dialogue with companies involved in thermal coal. In concrete terms, we are in contact with companies whose revenues were more than 20 per cent from coal mining as of the end of 2021. As we support a just transition imperative, we engage with companies to assess how their carbon neutrality transition plans take into account impacts on employees, supply chains, communities, and consumers. In terms of diversity, we have set ambitious targets for the number of women of boards of directors. For example, in Continental Europe, we have set a threshold of 40 per cent women in the composition of the boards of directors of large caps, 35 per cent for mid-caps, and 30 per cent for the small caps.
Our priority engagement themes are detailed on our website www.assetmanagement.hsbc.fr/fr/retail-investors/about-us/responsible-investing/stewardship
For our full Engagement Policy and Voting Policy, please visit www.assetmanagement.hsbc.com/about-us/responsible-investing/policies
Designated reference benchmark
Not applicable
