Policies and Disclosures

The EU defines principal adverse impact (PAI) as “negative, material, or likely to be material effects on sustainability factors that are caused, compounded by, or directly linked to investment decisions and advice performance by the legal entity”. We recognise that sustainability risks can lead to outcomes that have both positive and negative impacts on society or people as well as the performance of financial products. Considering PAI indicators in our investment process and monitoring the PAI indicators on entity and product levels helps to manage these adverse impacts and sustainability risks of our investment.

At HSBC Asset Management, we consider the mandatory PAIs set out in Table 1, SFDR RTS Annex I in the below context:

• Our firm wide topical policies set our general approach for screening, investment process and engagement on these specific topics. These policies include Banned Weapons, Climate Change, Human Rights and Biodiversity, which are available in our website
• As a large asset manager, offering a range of active and passively managed products, PAI indicators may be included in our investment process through integration, engagement and / or exclusion
• Our ESG integration as set out in our RI policy addresses the material impacts of the PAI indicators in our fundamental research and contributes to investment decisions in our investment process
• For our investment products, PAI indicators may be reflected in portfolio construction through screening, tilting and other techniques
• For our sustainable investment definition under SFDR, the mandatory PAIs are the key consideration as Do No Significant Harm criteria
• On stewardship, our voting policies and engagement plans (below) also address directly or indirectly different PAI indicators with the objective of driving positive changes
• On risk management, our risk management processes monitor and manage relevant PAIs to ensure client portfolios reflect their investment objectives

The SFDR requires annual report of principal adverse impact indicators before 30 June starting from 2023. HSBC Asset Management continues its efforts to integrate the PAI framework in its investment processes described above and makes enhancement accordingly. Potential enhancement underway includes enhancing PAI data sources, PAI reporting and monitoring infrastructure and internal training. The PAI indicators will also be used to inform and formulate our engagement priorities.

Description of policies to identify and prioritise principal adverse impacts on sustainability factors’

We recognise that sustainability risks can lead to outcomes that have negative impacts on the value of the financial products and on society. We therefore aim to incorporate material sustainability issues win our investment process as well as seeking to mitigate negative impacts. We support the UN Global Compact principles and have developed stand-alone policies and statements on Banned Weapons, Biodiversity, Climate Change and Human Rights alongside our RI Policy, that further outline our approach including how we integrate associated risks and opportunities, our engagement focus and collaborative activities. Details are in our RI policy and our website.

At fund level, the prioritisation of the principal adverse impacts depends on the sustainable objectives or E and S characteristics of the fund.

These policies apply equally when HSBC Asset Management acts as either a financial market participant (investment manager) or financial adviser.

Data sources

At HSBC Asset Management, we leverage on our multiple data vendors to obtain the most relevant data to monitor and identify the principal adverse impact and sustainability risks. We recognize that data reliability and availability may vary between PAI indicators and across regions. This may take long time to address as the requirement of disclosure across markets still differs and the standardization of disclosure is undergoing convergence. Hence, we also leverage on our global investment analyst platform and our engagement activities to formulate our evaluation on the risks of adverse impact in our investment. The more proprietary research, analysis and conclusions follow internal RI Policy Implementation Procedures (below) and governance.

Summary of Engagement policies

We strongly believe in the impact and effectiveness of engagement as a way of improving corporate practices and we therefore actively engage with the companies in which we invest. If companies in which we invest present sustainability risks, then we may apply selective exclusions, which we review on a regular basis. We also engage directly with company management teams to raise areas of concern. Our Engagement Policy which contains more information on this topic can be found on our website. We publish our annual stewardship plan, which also details our approach to prioritization of engagement topics.

Reference to international standards

At HSBC Asset Management, we are committed to the application and promotion of global standards and believe in collaborative action to address the sustainability challenges globally. Our RI Policy (below) includes a full list of the sustainability related memberships and standards that HSBC Asset Management participates, whereas the below are directly relevant to PAIs:

• Finance for Biodiversity pledge
• International Labour Organization’s labour standards
• Net Zero Asset Managers initiative
• OECD Guidelines for Multinational Enterprises
• UN Global Compact
• UN Guiding Principles on Business and Human Rights
• UN Principles for Responsible Investment
• Universal Declaration of Human Rights

We are a supporter of the Paris Climate Agreement, an international treaty signed in 2015, committing countries to transition to a lower carbon economy. Under the Net Zero Asset Managers initiative, we have set an ambition to reach net zero emissions by 2050 or sooner across all assets under management, in line with global efforts to limit warming to 1.5°C. We have set an interim target under which we have committed to managing 38 per cent of our total AUM (based on 2019 figures) in line with net zero, targeting a 58 per cent reduction by 2030 in carbon emission intensity (tCO2e/USDMn invested) across scope 1 and 2 emissions for these assets (compared with 2019). 

Our Purpose is to help our stakeholders prosper – our clients, shareholders, the societies in which we operate, and our planet. We aim to deliver value by focussing on clients’ investment needs, delivering on our philosophy of investment excellence and supporting the transition to a sustainable future.

HSBC Asset Management is committed to be a leader in responsible investment. This means our investment decisions as a Fund Manager take account of material environmental, social and corporate governance (ESG) risks. If ESG risks are not managed well by the companies and Governments we invest in this could impact their profitability and therefore the investment returns for our clients. As we only provide guidance as a Financial Adviser to investors in our own funds, the guidance we provide already factors in the ESG risks our fund managers have considered.

Our Responsible Investment Policy outlines our approach to responsible investing, focussing on the ten principles of the UN Global Compact (UNGC). The UNGC sets out key areas of non-financial risk: human rights, labour, environment and anti-corruption. We use third party screening providers to identify companies with a poor track record in these areas and, where potential non-financial risks are identified, we also carry out our own due diligence.

We also consider it our responsibility to be active, long-term stewards of the businesses we invest in on behalf of our clients. We meet with companies we invest in regularly as part of our on-going monitoring. This helps us to:

• improve our understanding of their business and strategy;
• signal support or concerns we have with management actions; and
• communicate with them to clearly explain our expectations and objectives.

We recognise collaborative engagement as an effective tool to promote change, in particular where individual investor action may be less effective. We therefore participate in investor-led joint engagement initiatives that align with our thematic priorities and holdings especially where we believe we can have a positive influence in improving the companies in which we invest.

We strongly believe in the impact and effectiveness of engagement in improving corporate practices. However, we recognise that in some cases engagement is unlikely to be successful or the risk in holding the company is too great. If we see that our engagement with the companies we invest in is not delivering sufficient progress in reducing sustainability risks, we apply selective exclusions and review them on an ongoing basis.

Finally, we believe transparency and disclosure are an integral part of good governance. We expect it from the companies we invest in because it allows us to make better-informed investment decisions but we believe it is equally as important for us to be transparent with our clients and relevant stakeholders and to communicate with them clearly.