Policies and Disclosures
Article 4 - How we consider principal adverse impacts of investment decisions on sustainability factors
HSBC Asset Management is committed to be a leader in responsible investment. This is underpinned by our Responsible Investment Policy which outlines our approach to responsible investing. In addition our Responsible Investment Policy sets out the approach we take to identify and respond to principal adverse sustainability impacts and how we consider environmental, social and corporate governance (ESG) sustainability risks as these can adversely impact the securities our funds invest in. We use third party screening providers to identify companies and governments with a poor track record in managing ESG risks and, where potential material risks are identified, we also carry out our own due diligence. Sustainability impacts identified by screening are a key consideration in our investment decision making process and, in turn, this also supports the advice we give our clients.
The approach we take, as set out above, means that among other things we scrutinize:
- companies’ commitment to lower carbon transition, adoption of sound human rights principles and employees’ fair treatment, implementation of rigorous supply chain management practices aiming, among other things, at alleviating child and forced labour. We also pay a great attention to the robustness of corporate governance and political structures which include the level of board independence, respect of shareholders’ rights, existence and implementation of rigorous anti-corruption and bribery policies as well as audit trails; and
- governments’ commitment to availability and management of resources (including population trends, human capital, education and health), emerging technologies, government regulations and policies (including climate change, anti-corruption and bribery), political stability and governance.
We consider the appraisal and assessment of such aspects as key components of our pre-investment analysis and ongoing risk-monitoring. Where our analysis highlights inadequate practices, we consider the risk and potential impact of those inadequacies. We do this because 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. Our pre-investment analysis may sometimes identify risks which prevent us from investing in some companies or government securities. And if our ongoing risk-monitoring identifies risks then we may take a “do not make further investments” stance, reduce our existing position or, in extreme cases, we may choose to sell the investments we hold.
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 we see that any of the companies we invest in present sustainability risks, then we apply selective exclusions and review these on a regular basis. We also engage directly with that company’s management team to address areas of concern. Our Engagement Policy which contains more information on this topic can be found on our website.
We are committed to the application and promotion of global standards. Key areas of focus for our Responsible Investment Policy are the ten principles of the UN Global Compact (UNGC). These principles include non-financial risks such as human rights, labour, environment and anti-corruption. We are also a signatory of the UN Principles of Responsible Investment. This provides the framework we use in our approach to investment by identifying and managing sustainability risks. Finally, we are a supporter of the Paris Climate Agreement, an international treaty signed in 2015, committing countries to transition to a lower carbon economy.
Article 3 - Transparency of sustainability risk policies
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.