Bank of China (Hong Kong) has launched an ETF providing climate-tailored exposure to Chinese companies from the Guangdong–Hong Kong–Macao Greater Bay Area.
The ETF provides climate-tailored exposure to Chinese stocks listed on the Shenzhen or Hong Kong stock exchanges.
The BOCHK Greater Bay Area Climate Transition ETF has been listed on the Stock Exchange of Hong Kong in Hong Kong dollars (Ticker: 3129 HK) and Chinese renminbi (83129 HK).
The Greater Bay Area is a megalopolis, consisting of nine cities and two special administrative regions in South China. It is envisioned as an integrated economic area aimed at taking a leading role globally by 2035.
The fund is linked to the S&P BOCHK China Hong Kong Greater Bay Area Net Zero 2050 Climate Transition Index which is constructed from the S&P China-Hong Kong Greater Bay Area Index universe, a reference for companies that are listed on the Shenzhen or Hong Kong stock exchanges and that are legally available to foreign investors.
The index aims to maintain a broad representation of the constituents in its universe while also satisfying the requirements of the EU’s Climate Transition Benchmark (CTB) regulation, aligning with a trajectory to limit global warming to 1.5°C above pre-industrial levels by 2050.
The methodology first removes violators of UN Global Compact principles, companies embroiled in severe ESG-related controversies, and firms with business activities linked to controversial weapons or tobacco.
The index then utilizes an optimization process to weight the remaining constituents in order to satisfy the EU’s CTB requirement. This translates to an immediate 30% reduction in weighted average carbon intensity compared to the initial universe as well as a 7% annual decarbonization going forward.
In addition to the above primary objectives, the optimization aims to achieve secondary objectives such as increasing the weight of companies with clear science-based carbon reduction targets, reducing overall exposure to physical risks arising from climate change, reducing aggregate exposure to fossil fuel reserves, and increasing exposure to companies that derive a larger proportion of their revenue from ‘green’ activities.
As of the end of March, the index contained 174 stocks with the largest ten constituents accounting for just over a third (34.2%) of the total weight. The largest single position was Alibaba at 7.9%.
Stocks from the consumer discretionary and financials sector each accounted for roughly a quarter of the total index weight with the next-largest sector exposures being communication services (9.0%), industrials (8.5%), and consumer staples (7.7%).