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Integrating ESG into our investment process

ESG integration means incorporating environmental, social and governance factors into investment analysis and decision-making. Understanding related risks and opportunities not only enhances decision-making and risk-adjusted returns, it helps address the most urgent challenges facing our planet today.

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 focusing on clients’ investment needs, delivering on our philosophy of investment excellence and supporting the transition to a sustainable future.

We believe that environmental, social and governance (ESG) issues impact the long-term valuation of companies and the investment attractiveness of countries. As a result, we integrate material ESG¹ factors into our investment process alongside other factors.

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.

The approach we take, as set out above, means that among other things we scrutinize:

  1. Companies’ commitment to lower carbon transition, adoption of sound human rights principles including fair treatment of employees, implementation of rigorous supply chain management practices aiming, among other things, at alleviating child and forced labour. We also focus on the robustness of corporate governance and political structures which include the level of board independence and diversity, respect of shareholders’ rights, existence and implementation of rigorous anti-corruption and bribery policies.
  2. Governments’ commitment to management of resources (including population trends, human capital, education and health), emerging technologies, regulations and policies (including climate change, anti-corruption and bribery), political stability and governance.

¹ Historically, integration of environmental, social and governance (ESG) factors has been biased towards long only equities and fixed income. In contrast, ESG integration methodologies for alternative asset classes such as hedge funds and private equity, are still emerging. At HSBC Asset Management our proprietary ESG frameworks for alternative assets are evolving and will be finalised in 2021