sustainably invested hsbc global sustainable multi-asset ......1. source: hsbc global asset...

HSBC Global Sustainable Multi-Asset PortfoliosInvesting today for a better tomorrow

February 2021

Sustainably Invested

Global Sustainable Multi-Asset Portfolios 2

Making a difference, making an impact.

Make your money work for you, in a sustainable way. With the global population expected to reach 9.8 billion in 20501, the need for sustainable solutions to basic needs such as food, water and energy are becoming increasingly vital.

Many of us are making more sustainable choices in how we live and the products we buy.

You may have questions as to what sustainable investing really is:

�� How do HSBC invest sustainably?�� How do HSBC build a sustainable portfolio?�� What’s the difference between a “traditional” and a sustainable portfolio?

These are all valid concerns, and we will look to explain what our Sustainable Portfolios are all about.

It is important to note that investment products are not guaranteed and are subject to investment risk, including the possible loss of the amount originally invested.

1. The World Population Prospects: The 2017 Revision, UN Department of Economic and Social Affairs.


1. The Wall Street Journal, Beleaguered Money Managers Fund Bright Spot in ESQ, 11 July 2019.

2. www.gsi-alliance.org/wp-content/uploads/2019/03/GSIR_Review2018.3.28.pdf, 1 April 2019.

3. Morningstar, 7 myths and facts about Sustainable Investing, 30 December 2016.

Why invest sustainably?

How do we invest sustainably?

Our approach to sustainable investing is to focus on companies and markets with better practices related to the following factors:

Changing priorities for how and where we spend our money will have an impact across industries. Increasing government action, such as regulation of carbon emissions, will multiply that impact.

Those companies best-positioned to deliver sustainable solutions stand to benefit, making it logical for investors to pursue an investment strategy that explicitly considers sustainability.

Environment Social Governance

How companies manage their waste, water use, pollution etc.

How companies engage with and impact their communities, labour practices etc.

How companies implement oversight and controls, determine executive pay, director diversity etc.

We utilise independent data and our own research to quantify the level of sustainability of companies and markets. This allows us to deliver improved sustainability in a clear and transparent way.

Over 85% of individuals in the UK

aged 18 to 36 consider sustainable investing to be important to them1

Sustainable investing accounts for

1 in 4 of the USD46.6 trillion

Asset under management in the US2

Europe

shows the highest rates of sustainable investing, with USD13 trillion

invested in global sustainable assets3


By maintaining a diversified approach you can benefit from expanded investment opportunities while smoothing returns over the long-term.

Focus on ESG (Environment, Social, Governance) scoringCompanies that most effectively manage ESG practices can reduce the risk of negative consequences stemming from environmental, social or governance issues.

Let’s consider an example of how ESG qualities reflect in the portfolios:

�� While Amazon, for instance, has a successful business model, its data centres use substantial energy, and its one-day deliveries are very carbon-intensive. This high environmental impact, coupled with other factors such as limited transparency, has had a negative impact on Amazon’s ESG score�� Microsoft, on the other hand, is a market leader in transparency, allowing users to view and manage the data Microsoft collects about them. This, along with other positive ESG policies, has resulted in a relatively high ESG score�� Our approach results in tilting – rather than excluding - our asset weightings away from lower ESG companies such as Amazon, and more towards higher ESG companies such as Microsoft. This enables us to prioritise sustainability without closing ourselves off to global leaders

Focus on carbon footprintWe aim to reduce climate-related financial risk and invest in the growing opportunities of the low carbon economy.We use carbon intensity as a measure of a company or country’s contributions to greenhouse gas (carbon) emissions relative to its size.

By prioritising this in determining what we invest in, we are able to deliver a lower overall carbon intensity compared to the market average.

Compared to investing in a single type of asset such as bonds, a diversified approach can generate better returns for the same level of risk.

How do we build sustainable portfolios?

Stocks Bonds

Property

Cash

“ Climate change is the top long-term investment risk1”

1. World Economic Forum Global Risks Perception Survey 2019, 14th edition.


What does this look like in practice?

We invest more heavily in sustainable companies and reduce our investments in less sustainable ones, whilst maintaining a broad stake across companies and markets. This ensures a diversified portfolio and avoids you being highly exposed to individual company risks.

Let’s consider this in practice: Within the 10 largest publicly traded oil and gas companies, Royal Dutch Shell was the first to set carbon reduction targets1 and is starting to explore other options, for example by focusing on electric vehicle charging infrastructure.

Both BP and Exxon Mobil, as well as the others, have lower ESG scores as a result of their emissions risk-management capabilities, but we do not exclude them as we would be at risk of being largely exposed to one company in the industry.

Say Shell’s share price dropped dramatically for any reason, we would have no other exposure to other oil and gas firms that might offset this loss.

1 Source: LSE Grantham Research Institute, "Carbon Performance of European Integrated Oil and Gas Companies: Briefing paper", 12 May 2020.


Where does your investment go?

Whilst maintaining a broad stake across companies and markets, we invest more heavily in sustainable companies and reduce exposure to less sustainable ones.

This ensures a diversified portfolio and avoids you being highly exposed to individual company or country risks.

Balanced PortfolioInvestments are split across roughly 50 different countries (% of portfolio)

Switzerland 2%

France 6%

UK 5%

USA 49%

Other1 21%

Japan 8%

Germany 4%

Euro Cluster

19% Government bonds

13% Corporate bonds

Source: HSBC Global Asset Management as at 30th November 2020. For illustrative purposes only.

1. This includes all remaining countries which are not mentioned on the map.

Netherlands 1%

Mainland China 4%

Exposure to over 30 different currencies

Equities 61%

Cash 1%

Fixed income

32%

Property 6%


What are the results?

The investment decisions we make are supported by a team of over 80 investment professionals around the globe, and driven by our multi-asset investment approach developed over more than 25 years.

We regularly evaluate each portfolio based on our long-term expectations, as well as short-term opportunities, and make adjustments to the asset mix.

We aim to deliver globally diversified investment portfolios, with a higher than average ESG score and a lower carbon intensity than the market.

Below we show performance for the Global Sustainable Multi-Asset Balanced and Conservative Portfolios; and further below, a chart illustrates the growth of £10,000 invested in the Portfolios, net of fees.

As at September 2020, the HSBC Global Sustainable Multi-Asset Balanced portfolio achieved an improved ESG score of 6.75, compared to 6.01 of the market average4. The ESG scores go from 1 to 10. The portfolio also measured a carbon intensity of 67.2; in other words 134% lower than the market

average of 157.6. Carbon intensity is defined as a company’s CO2 emissions - measured in metric tonnes - per USD1m of revenue. This shows that our Balanced portfolio invests in companies that have a lower carbon intensity measure than the market average4.

Balanced and Conservative PortfolioAnnual Performance Figures1 to December 2020

31.12.19 to 31.12.20 31.12.18 to 31.12.19

Balanced 8.4% 16.5%

Conservative 6.7% 13.1%

£10,000 invested in our portfolios since launch2

Lower carbon footprint (carbon intensity3)Improved ESG score3

Past performance is not a guarantee of future performance.1. Source: HSBC Global Asset Management, annualised returns for the C share class as of 31/12/20, net of fees.2. Source: HSBC Global Asset Management, Morningstar. Growth of £10,000 from 24/10/2018 – 01/11/2020.3. Source: HSBC Global Asset Management, as at September 2020. “Cautious, Dynamic and Adventurous portfolios were launched on 20

April 2020 therefore performance cannot be promoted without a one-year track record”.4. The market average represents the following blend of indices: 52.5% MSCI World, 7.8% MSCI Emerging Markets, 19.8% Bloomberg

Barclays Global Agg Corporates, 12.9% FTSE WGBI and 4.9% FTSE EPRA NAREIT. As at September 2020.

6.75

6.01

5.5

6

6.5

7

Balanced Portfolio Market Average

67.2

157.6

0

50

100

150

200


6.75

6.01

5.5

6

6.5

7


67.2

157.6

0

50

100

150

200


£9,500

£10,500

£11,500

£12,500

Oct 2018 Mar 2019 Aug 2019 Jan 2020 Jun 2020 Nov 2020

Balanced Portfolio£11,480

ConservativePortfolio£11,350


How do we compare to a traditional market-cap?

HSBC Global Sustainable Multi-Asset Balanced Portfolio

Position Company

1 MICROSOFT CORP

2 APPLE INC

3 AMAZON.COM INC

4 TAIWAN SEMICONDUCTOR CO LTD

5 TENCENT HOLDINGS LTD-UNS ADR

6 ALPHABET INC-CL A

7 HOME DEPOT INC

8 ACCENTURE PLC-CL A

9 INTEL CORP

10 CISCO SYSTEMS INC

MSCI AC World Market Index

Position Company

1 APPLE

2 MICROSOFT

3 AMAZON.COM

4 FACEBOOK

5 ALPHABET C

6 ALPHABET A

7 JOHNSON & JOHNSON

8 NESTLE

9 PROCTER & GAMBLE

10 VISA

Our Global Sustainable Multi-Asset Portfolios have a higher ESG score and lower carbon intensity when compared to the market average.

Here we highlight how that difference is materialised in the portfolio’s holdings, by comparing the top equity holdings of our Global Sustainable Multi-Asset Balanced Portfolio to the MSCI global equity index.

Social

Johnson & Johnson

Insufficient product governance has contributed to a lower than average ESG score for J&J.

They have been involved in a number of controversies around multiple product lines with many legal claims on products like talcum powder.

Governance

Accenture

Accenture Ranks eighth in our portfolio because of their high ESG scores, particularly in governance.

It is ranked number three on Thompson Reuters Diversity & Inclusion index, with a workforce of over 42% women, and is known for its positive culture and inclusion in Fortune’s World Most Admired Companies for 16 years.

Environmental

Home Depot

Although not found in the top 10 of the market index Home Depot (an American hardware company) is a larger holding of the HSBC Global sustainable Multi Asset Balanced portfolio.

It is a leader in product stewardship, with sustainable wood sourcing practices and a proactive plan to phase-out chemical usage in their products.

Source: HSBC Global Asset Management and MSCI, as at end September 2020. For illustrative purposes only.


A global portfolio to match your risk appetiteOur strategy aims to maximise returns relative to the level of risk in each portfolio.A well diversified portfolio can provide you with access to asset classes, currencies and geographies that together aim to deliver the best possible return for your risk level.

Diversification is at the core of the HSBC Global Sustainable Multi-Asset Portfolios. This means that your exposure to market fluctuations can be smoothed over time because falls in the value of one asset can be offset by increases in the value of another in the portfolio.

We use volatility – how the investment fluctuates – as a measure of risk.

The more that returns fluctuate (up and down) over time, the more volatile (risky) the investment. Each of the HSBC Global Sustainable Multi-Asset Portfolios targets a specific level of volatility, so you can choose the level of risk appropriate for you.

A higher return generally involves higher risk. It’s important that you understand your risk tolerance level in order to choose a portfolio that best suits your financial goals and risk appetite.

Source: HSBC Global Asset Management. Tactical asset allocation as at end December 2020.

Cautious Conservative Balanced Dynamic Adventurous

Global Equity

Global Government Bond

Global Corporate Bond

Property Cash

Long-term risk profile (volatility) used in portfolio optimisation process

<5% 5% to 8% 8% to 11% 11% to 14% >14%

Assets under management (GBPm)

9.7 120.5 200.8 26.2 8.2

OCF (C share class)

0.75% 0.61% 0.68% 0.75% 0.75%

HSBC Global Sustainable Multi-Asset Portfolios - Broad diversification across five risk profiles


How do we challenge companies to improve sustainability?

An example of our work in action:�� Over the past two years we have investigated and engaged with companies to encourage them to demonstrate their commitment to eliminating deforestation within their supply chain�� Focusing on several commodities including palm oil and cattle, we have encouraged good practice in awareness and governance, risk management and traceability, and metrics and monitoring

�� More specifically, we met with Nike and Adidas to enhance their monitoring around deforestation linked to the cattle in their supply chain�� For example, Nike now uses GPS to monitor any potential violation of boundaries in areas where it sources leather from

Source: HSBC Global Asset Management Responsible Investment Review 2019 and Yale School of Forestry and Environmental Studies, February 2020.

The current drivers of deforestation in all Amazon countries

Cattle 80%

Other 20%

Our work doesn’t stop when we invest in a company. Our global scale puts us in a strong position to engage directly with the companies we invest in on behalf of our clients, to encourage best practices related to sustainability. We do this through many methods, always following comprehensive ESG guidelines we’ve established. Where eligible, HSBC votes on every share held in investment funds which we manage. A full report of our voting activity can be found on our website.


Why HSBC Global Sustainable Multi-Asset Portfolios?

�� We have over 25 years of experience designing multi-asset solutions to meet our clients’ long-term financial objectives �� Working closely with clients we have developed our ability to manage bespoke solutions, taking into account all types of investment constraints and risk limits within portfolios�� We leverage our resources across the world, ensuring cohesiveness and consistency, while empowering experienced local investment teams wherever they are• Shared investment research and portfolio

management tools• Consistent investment process

�� Multi-asset investment teams benefit from the input of our global investment support teams (Macroeconomic, Portfolio Analytics and Design) and also from our Fixed Income and Equity investment teams�� HSBC Global Sustainable Multi-Asset funds aim to deliver an effective solution by prioritising:• Effective portfolio diversification• Use of measurable sustainability criteria across all

asset classes• Cost-efficient implementation of the asset allocations

Clear and transparent approach to sustainability

Globally diversified

Pursue opportunities

through flexible asset mix

Combine our multi-asset and

responsible investing expertise

5 Portfolios to suit your individual

risk tolerance

Benefit from experience,

commitment and global resources


The HSBC Group commitment to sustainability in numbers

1. Climate Action 100+ is an initiative to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change. Source: HSBC Global Asset Management, 2020.

Did you knowOCF stands for Ongoing Charges Figure, which is based on expenses over a year. The figure includes the annual management fee, but not transaction costs, which may vary from time to time. At launch, we estimate the OCF of the portfolios to be 0.75%, based on our annual management charge, operation and administrative fees along with the costs of the funds in the portfolios. Once a fund has a full accounting year of performance, we provide information on the actual costs of the portfolio. The Conservative and Balanced funds now have this history as we produce actual expense for these portfolios. Therefore, OCF’s for Cautious, Dynamic and Adventurous portfolios, which were launched on 20 April 2020, are 0.75% whilst Conservative has an OCF of 0.61% and Balanced 0.68% as at end December 2020.

Carbon intensity is a measure of a company or market’s contribution to global carbon emissions relative to its size. We calculate this measure in tonnes of carbon dioxide equivalents (tCO2e) per USD million revenue.

The Market Averages for ESG and carbon intensity scores are calculated from the holdings of relevant market indices for each asset class (equity, bonds, etc.) held in the portfolios. For instance, the market average reference for the Balanced Portfolio is calculated using the following index weights: 52.5% MSCI World, 7.8% MSCI Emerging Markets, 19.8% Bloomberg Barclays Global Agg Corporates, 12.9% FTSE WGBI and 4.9% FTSE EPRA NAREIT. As at September 2020.

Last year, the HSBC Group set out an ambitious plan to prioritise financing and investment that supports the transition to a net zero global economy.

The HSBC Group commitment to sustainability in numbers:

USD 52.4bn

USD 750bn

USD 100bn

Net Zero

The amount of sustainable financing and investment we have provided since 2017

Our ambition to provide customers with up to USD1Trn of finance and investment by 2030

The amount we have pledged to finance clean energy and lower carbon technologies by 2025

We aim to achieve net zero in our own operations and supply chain by 2030

We have a long history in sustainable investment, having launched our first Socially Responsible Investment fund in 2001. Throughout the last 19 years we have built upon our knowledge in this area, and supported broader industry progress by becoming signatories and founding members for important investor initiatives such as Climate Action 100+1.

Since its foundation in 1865, HSBC has adapted to and helped serve the needs of a changing world. We recognise our wider commitments to the communities in which we operate and understand that economic growth must also be sustainable.

Key risksThe value of an investment in the portfolios and any income from them can go down as well as up and as with any investment you may not receive back the amount originally invested.

The key types of risk associated with the Global Sustainable Multi-Asset Portfolios are as follows (please refer to the Key Investor Information Document for the full list):

Counterparty Risk: The possibility that the counterparty to a transaction may be unwilling or unable to meet its obligations.

Credit Risk: A bond or money market security could lose value if the issuer’s financial health deteriorates.

Default Risk: The issuers of certain bonds could become unwilling or unable to make payments on their bonds.

Derivatives Risk: Derivatives can behave unexpectedly. The pricing and volatility of many derivatives may diverge from strictly reflecting the pricing or volatility of their underlying reference(s), instrument or asset.

Emerging Markets Risk: Emerging markets are less established, and often more volatile, than developed markets and involve higher risks, particularly market, liquidity and currency risks.

Exchange Rate Risk: Changes in currency exchange rates could reduce or increase investment gains or investment losses, in some cases significantly.

Interest Rate Risk: When interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and the higher its credit quality.

Investment fund risk: Investing in other funds involves certain risks an investor would not face if investing in markets directly. Governance of underlying assets can be the responsibility of third-party managers.

Liquidity Risk: Liquidity Risk is the risk that a Fund may encounter difficulties meeting its obligations in respect of financial liabilities that are settled by delivering cash or other financial assets, thereby compromising existing or remaining investors.

Operational Risk: Operational risks may subject the Fund to errors affecting transactions, valuation, accounting, and financial reporting, among other things.

Important informationThis fund is Sustainably Invested in line with one or more of the Global Sustainable Investment Alliance (GSIA) sustainable investment styles (positive/best-in-class screening, norms-based screening, sustainability themed investing, impact/community investing).It does not invest in companies involved in the manufacture of cluster munitions or anti- personnel mines. The fund is not guaranteed to outperform those which do not meet sustainability criteria.

Carbon Intensity Formula: Σ((current value of investment/current portfolio value)(issuer’s Scope 1 and Scope 2 GHG emissions/issuer’s $M revenue)) Carbon Intensity Methodology: Scope 1 and 2 GHG emissions are allocated based on portfolio weights (the current value of the investment relative to the current portfolio value), rather than the equity ownership approach. Gross values should be used.

The material contained herein is for information only and does not constitute investment advice or a recommendation to any reader of this material to buy or sell investments. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe to any investment.

Any views expressed were held at the time of preparation and are subject to change without notice. While any forecast, projection or target where provided is indicative only and not guaranteed in any way. HSBC Global Asset Management (UK) Limited accepts no liability for any failure to meet such forecast, projection or target.

These portfolios are sub-funds of HSBC OpenFunds an Open Ended Investment Company that is authorised in the UK by the Financial Conduct Authority. The Authorised Corporate Director and Investment Manager is HSBC Global Asset Management (UK) Limited.

All applications are made on the basis of the prospectus, Key Investor Information Document (KIID), Supplementary Information Document (SID) and most recent annual and semi annual report, which can be obtained upon request free of charge from HSBC Global Asset Management (UK) Limited, 8, Canada Square, Canary Wharf, London, E14 5HQ, UK, or the local distributors. Investors and potential investors should read and note the risk warnings in the prospectus and relevant KIID and additionally, in the case of retail clients, the information contained in the supporting SID.

Where overseas investments are held the rate of currency exchange may also cause the value of such investments to fluctuate. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Stock market investments should be viewed as a medium to long term investment and should be held for at least five years.

HSBC Global Asset Management (UK) Limited provides information to Institutions, Professional Advisers and their clients on the investment products and services of the HSBC Group.

Approved for issue in the UK by HSBC Global Asset Management (UK) Limited, who are authorised and regulated by the Financial Conduct Authority. www.assetmanagement.hsbc.com/uk

Copyright © HSBC Global Asset Management (UK) Limited 2021. All rights reserved.

ED 2303 (XB 1442) EXP. 28.02.2022

sustainably invested hsbc global sustainable multi-asset ......1. source: hsbc global asset...

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