What is ESG | Sustainable ESG Investments

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Spotlight on ESG: Sustainable investing

What is ESG?

Environmental, Social and Governance (ESG) is a set of criteria that can be applied to how a company operates. When we talk about ESG investing, we're referring to the use of these criteria as factors in our investment decisions and in evaluating potential companies to add to your financial portfolio.

Sustainability is the cornerstone of ESG investing. The global economy is putting a spotlight on responsible investments – an approach to developing sustainable investment solutions focused on longer-term wins, shaped by ESG principles. HSBC has served the needs of an ever-evolving word for over 150 years. We're committed to sustainability because we're dedicated to the communities and societies in which we operate. And to that cause, we champion building a better tomorrow for future generations to come.

HSBC sustainable investments include investment approaches or instruments which consider ESG and/or other sustainable factors to varying degrees. There's no guarantee that sustainable investments will produce returns similar to those that don't consider these factors. At HSBC, we see three main ways to embed sustainability into an investment portfolio, which can be applied across your portfolio allocations:

Investment products that follow specific ESG criteria.

For example: a carbon related managed strategy, a minimum 30% improvement in carbon related metric compared to non-ESG benchmark or initial investment universe; or a financial instrument that has a top ESG score ranking within the sector.

Today we finance a number of industries that significantly contribute to greenhouse gas emissions. We have a strategy to help our customers to reduce their emissions and to reduce our own. For more information visit www.hsbc.com/sustainability

Investment products that follow specific ESG criteria.

Investment products that focus on ESG related growth areas by identifying companies that align to specific sustainable themes.

For example, a financial instrument or an investment product that focuses on sustainability themes such as renewable energy, energy transition, gender equity and diversity, with relevant criteria that outline how the investment would align to the theme. This can be assessed based on their revenue exposure or operational-related metrics.

Investment products that aim to have a direct, positive impact on society, environment or both. There are clearly pre-defined measurable impact targets and are subject to periodic impact reporting.

For example, impact investing requires identification of the positive impact intent ( the use of proceeds is defined for green bonds) and the metric(s) must be clearly linked to a sustainability-focused outcome.

Ways to invest

Unit trusts

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Why is ESG important?

The financial world is getting increasingly plugged in to ESG development and as a result, we're seeing more and more companies incorporating ESG principles into their operations, instead of purely focusing on profitability. On an individual level, integrating ESG into your investment decisions creates a more resilient portfolio that will stand the tides of time. When individual investors, corporates and societies place ESG principles at the forefront, it's a win on all fronts that aims at building a better world and making sure the resources we have today will still be around tomorrow, all while unearthing great opportunities in the process.

With the UN Sustainable Development Goals (SDGs) in place, the world's estimated financial needs for achieving the SDGs are between USD5 trillion and USD7 trillion a year¹. Major changes have taken place, spurred by the UN's 17 Sustainable Development Goals encompassing issues such as energy consumption, social justice, biodiversity, and economic growth².

On an individual level, integrating ESG into your investment decisions may open up possibilities to support and contribute to SDGs while creating a more resilient diversified portfolio.

Common ESG sustainability issues

Environmental

Climate change
Air and water pollution
Waste management
Energy efficiency
Water scarcity

Social

Human rights
Consumer privacy
Gender equality
Data security
Health and safety

Women working together in a coworking office.

Governance

Board structures
Company ownership
Financial reporting
Business ethics and culture
Executive remuneration

Key features

Mitigate risk

E, S and G factors are important in understanding the inherent risks of companies and their operating performance in the long term and increasingly in the nearer term. Integrating ESG issues in investment decisions can help manage these risks.

Unlock opportunities

Sustainability is opening a world of opportunity – deployment of sustainable solutions can help capture these opportunities.

Deliver potential capital growth

Evidence shows that companies with better Environmental, Social and Governance (ESG) credentials may be more likely to show better financial performance¹.

Source: NYU Stern: Centre for Sustainable Business: ESG And Financial Performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 – 2020.

Understanding your sustainable investing preferences

At HSBC, we're committed to helping you understand your preferences when it comes to sustainable investing.

You can speak to your Relationship Manager to find out more about the 'ESG analysis' feature on your Wealth Dashboard and other resources such as ESG Insights. These are designed to support your sustainable investment journey.

Your Relationship Managers may invite you to complete a short questionnaire. This will help us identify your sustainable investing interests and preferences. The questionnaire is not mandatory to your investing with us, and your responses won't affect the suite of products we offer you.

Ways to invest

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Invest in ESG Funds

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Structured products

Structured products³ are investment products where returns are linked to an underlying asset with pre-defined features such as tenor, currency and payout calculation.

The underlying assets of structured products can include equities, interest rates, commodities, mutual funds and foreign currencies, among others. These underlying assets can be linked to ESG-related strategies.

For more information on the availability of these structures, please contact your Relationship Manager.

Green bonds

A green bond is a bond⁴ that uses its proceeds solely for the financing or re-financing of green projects. The issuer must also declare the bond to be green and commit to a level of transparency on how the bond's proceeds are used.

A green bond should be put together in line with the Green Bond Principles (GBPs), a set of voluntary guidelines created by the International Capital Markets Association (ICMA). According to these GBPs, a company does not have to be green to issue a green bond, but all of the bond proceeds have to go towards green or environmental projects.

For more information on our range of green bonds, please contact your Relationship Manager.

FAQs

Sustainable investing focuses on long-term value creation and preservation, so it aligns with investors' long-term investment goals. By considering ESG factors in your investment decisions, you may attain a more diversified portfolio.

No, that's not true. HSBC Asset Management conducted a sustainable investing client survey⁵ in 2021 across four core markets, including Singapore, and found that over 80% of respondents rate sustainable, environmental and ethical issues as 'quite or very important'. Almost half (46%) of affluent and high net worth (HNW) investors believe their portfolios will be entirely made up of sustainable investments in the next three to five years.

⁵HSBC Asset Management, sustainable investing survey, April 2021

Evidence shows that companies with better ESG credentials may be more likely to show better financial performance over the long term⁶. Instead of hurting your financial returns, factoring ESG principles into your investments can help mitigate your risk exposure and enhance the resilience of your portfolio.

As ESG is gaining traction, it's likely to become an important factor to corporate performances, driven by market demand. Investment portfolios may become more resilient and contribute to society as a whole through the inclusion of ESG. However, investors should note that ESG solutions do not guarantee returns on their investment portfolios.

⁶Source: NYU Stern: Centre for Sustainable Business: ESG And Financial Performance: Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 – 2020, February 2021

It can be difficult to time and predict market movements as a result of ESG factors or events. So it's important to evaluate your own risk tolerance and any additional risks you might be taking for quick gains, and remember that all investments carry varying degrees of risk.

Plus, you should not ignore other fundamental analysis and valuation techniques when integrating sustainable considerations into your investment decisions. Ultimately, if the investment doesn't meet your financial objectives, then it isn't suitable for you.

HSBC assesses different investment product types to determine if they could be considered a 'sustainable investment' under our 'ESG enhanced', 'thematic' and 'impact' definition framework. These product types include funds, bonds and structured products.

No, different organisations may use other ways to classify sustainable investments. Please note that our sustainable investment definition framework may not apply at other institutions.

Different organisations may use other ways to classify sustainable investments. HSBC classifies products based on our own established framework ('ESG enhanced', 'thematic' and 'impact') to define what we consider 'sustainable investments'.

Please also note that ESG / sustainable investing is still an evolving area. New regulations may come into effect, which may affect how an investment is categorised or labelled. An investment that's considered to fulfil sustainable criteria today may not meet those criteria in the future. We'll review and update the eligible investment product list from time to time.

We endeavour to update investment products eligible under our definition and classification of 'sustainable investments' in a timely manner. We review the list of products categorised under 'ESG enhanced', 'thematic' and 'impact' and update them periodically.

You can find the unit trusts, stocks and bonds that meet the criteria for each of these categories by following these steps:

Log on to HSBC Online Banking.
Go to 'ESG analysis'.
View details in 'My portfolio'.

MSCI ESG weighted average Key Issue score has a scale from 0 to 10 based on the weighted average of underlying Environmental, Social and Governance Key Issues (0-10). MSCI modeled the industry adjusted score to compare companies across industries by using the Final Industry Adjusted Score, which has a scale from 0 to 10.

The final industry adjusted scores are mapped to ESG ratings according to MSCI’s score-to-letter-rating matrix. The rating also identifies industry leaders and laggards according to their exposure to long-term ESG risks and how well they manage these risks compared with each other. The ratings range from leader (for AAA and AA), average (for A, BBB and BB) to laggard (for B and CCC). There is also the concept of 'buffer zone' in Government ratings that prevents excessive volatility.
Letter Rating	Leader/Laggard	Final Industry-Adjusted Company Score
AAA	Leader	8.571* - 10.0
AA	Leader	7.143 – 8.571
A	Average	5.714 – 7.143
BBB	Average	4.286 – 5.714
BB	Average	2.857 – 4.286
B	Laggard	1.429 – 2.857
CCC	Laggard	0.0 – 1.429

The final industry adjusted scores are mapped to ESG ratings according to MSCI’s score-to-letter-rating matrix. The rating also identifies industry leaders and laggards according to their exposure to long-term ESG risks and how well they manage these risks compared with each other. The ratings range from leader (for AAA and AA), average (for A, BBB and BB) to laggard (for B and CCC). There is also the concept of 'buffer zone' in Government ratings that prevents excessive volatility.
Letter Rating	AAA
Leader/Laggard	Leader
Final Industry-Adjusted Company Score	8.571* - 10.0

Letter Rating	AA
Leader/Laggard	Leader
Final Industry-Adjusted Company Score	7.143 – 8.571

Letter Rating	A
Leader/Laggard	Average
Final Industry-Adjusted Company Score	5.714 – 7.143

Letter Rating	BBB
Leader/Laggard	Average
Final Industry-Adjusted Company Score	4.286 – 5.714

Letter Rating	BB
Leader/Laggard	Average
Final Industry-Adjusted Company Score	2.857 – 4.286

Letter Rating	B
Leader/Laggard	Laggard
Final Industry-Adjusted Company Score	1.429 – 2.857

Letter Rating	CCC
Leader/Laggard	Laggard
Final Industry-Adjusted Company Score	0.0 – 1.429

Table as of June 2023

*Appearance of overlap in the score ranges is due to rounding error. The 0-to-10 scale is divided into seven equal parts, each corresponding to a letter rating.

Sustainability at HSBC

For more information on HSBC Group's Sustainability commitments, please refer to Our Climate Strategy for the most up to date information.

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¹ Original Source: UNA-UK, sustainablegoals.org.uk.
Proposed Source: SDG Impact, sdgimpact.undp.org/assets/SDG-Impact-Brochure.pdf

² Source: United Nations Department of Economic and Social Affairs, https://sdgs.un.org/goals

³ Structured products are available only to Accredited Investors. Other eligibility criteria apply, please visit https://www.hsbc.com.sg/wealth/investments/products/structured-products/ for more details.

⁴ Bonds are available only to Accredited Investors. Other eligibility criteria apply, please visit https://www.hsbc.com.sg/wealth/investments/products/bonds/ for more details.

⁵ Source: HSBC Global Research, "ESG Playbook", October 2018

Please note that there is no guarantee that:

(a) the nature of the ESG impact of an investment will be aligned with any particular investor's ESG impact goals;

(b) the stated level or target level of ESG impact of an investment will be achieved; or

(c) an investment approach which considers ESG factors will produce returns similar to those which don't consider these factors. Investments which consider ESG factors may diverge from traditional market benchmarks.

This document is for information only and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. The mention of any investment product or class of investment products ("product") should not be construed as representing a recommendation to buy or sell that product, nor does it represent a forecast on future performance of the product. The information contained on this web site is intended for Singapore residents only and should not be construed as a distribution, an offer to sell or a solicitation to buy any product in any jurisdiction where such activities would be unlawful under the laws of such jurisdiction, in particular the United States of America and Canada. The specific investment objectives, personal situation and particular needs of any person have not been taken in consideration. You should therefore not rely on it as investment advice. Any transaction that you decide to make will be one of your own choice and at your own risk.

ESG and Sustainable Investing Disclosure

In broad terms "ESG and sustainable investing" products include investment approaches or instruments which consider environmental, social, governance and/or other sustainability factors to varying degrees. Certain instruments we classify as sustainable may be in the process of changing to deliver sustainability outcomes. There is no guarantee that ESG and Sustainable investing products will produce returns similar to those which don't consider these factors. ESG and Sustainable investing products may diverge from traditional market benchmarks. In addition, there is no standard definition of, or measurement criteria for, ESG and Sustainable investing or the impact of ESG and Sustainable investing products. ESG and Sustainable investing and related impact measurement criteria are (a) highly subjective and (b) may vary significantly across and within sectors.

HSBC may rely on measurement criteria devised and reported by third party providers or issuers. HSBC does not always conduct its own specific due diligence in relation to measurement criteria. There is no guarantee: (a) that the nature of the ESG / sustainability impact or measurement criteria of an investment will be aligned with any particular investor's sustainability goals; or (b) that the stated level or target level of ESG / sustainability impact will be achieved. ESG and Sustainable investing is an evolving area and new regulations are being developed which will affect how investments can be categorised or labelled. An investment which is considered to fulfil sustainable criteria today may not meet those criteria at some point in the future.

When we classify an investment product or service against our ESG and Sustainable Investing (SI) categories described in this document: ESG Enhanced, Thematic or Impact, this does not mean that all individual underlying holdings in the investment product or portfolio will meet the relevant SI criteria. As such, an SI classification does not mean that all underlying holdings in a fund or discretionary portfolio meet the relevant sustainable investment criteria. Similarly, where an equity or fixed income investment is classified under an Enhanced, Thematic or Impact category this does not mean that the underlying issuer's activities are fully sustainable. Not all investments, portfolios or services are classifiable under our SI categories. This may be because there is insufficient information available or because a particular investment product does not meet HSBC's SI classifications criteria.

What is ESG: Sustainable ESG investment

What is ESG?

ESG Enhanced

Thematic

Impact

Ways to invest

Why is ESG important?

Common ESG sustainability issues

Environmental

Social

Governance

Key features

Mitigate risk

Unlock opportunities

Deliver potential capital growth

Understanding your sustainable investing preferences

Ways to invest

Invest in ESG Funds

Structured products

Green bonds

FAQs

How can an investor meet their financial goals through sustainable and responsible investing?

Is it true that investors don't care about sustainability?

Will investing sustainably hurt my financial returns?

Is there a trade-off between short-term gains and company stocks that adopt sustainable practices?

What kinds of investment products might HSBC classify as a 'sustainable investment'?

Does HSBC's classification of sustainable investments apply at other banks?

I hold a similar product at another institution but its sustainable investment classification is different to HSBC's. Why?

How frequently does HSBC review investment products to check if they can still be considered 'sustainable investments'?

Where can I find 'ESG enhanced', 'thematic' and 'impact' products under 'My holdings' in HSBC Online Banking?

What is the scale of ESG rating?

Sustainability at HSBC

More resources

Sustainability, the HSBC way

Your quick guide to sustainable investing

Pick up our latest ESG insights

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