Hang Seng Indexes has launched a new Hong Kong equities index which is aligned with the carbon reduction goals of the Paris Agreement.
The index provides broad exposure to Hong Kong-listed equities while adhering to the carbon reduction goals of the Paris Agreement.
The Hang Seng Climate Change 1.5°C Target Index, which was developed in partnership with global investment manager Wilshire, is designed to serve as a climate-conscious version of the flagship Hang Seng Index, the main stock market barometer in Hong Kong.
The new index may be used as the underlying for investment products, including ETFs, which cater to investors who are interested in integrating climate considerations into their portfolios.
Commenting on the index launch, Anita Mo, CEO of Hang Seng Indexes, said: “Hang Seng Indexes has been striving to address investors’ growing interest in sustainability and low-carbon tools and strategies by enriching its ESG product suite. This collaboration with Wilshire demonstrates our commitment to accommodating market needs through diversified initiatives.”
Methodology
The index begins its construction process from the Hang Seng Large-Mid Cap Investable Index universe which, at 310 constituents, covers approximately 85% of Hong Kong’s total equity market capitalization.
The methodology employs business exclusionary screens as well as an optimization weighting approach in order to satisfy the minimum requirements set out in the European Union’s Paris Aligned Benchmark (PAB) standard.
Firstly, companies embroiled in severe ESG-related controversies as well as firms with business operations linked to weapons, tobacco, thermal coal, oil & gas, or oil sands are eliminated.
The remaining constituents are then weighted using an optimization technique that delivers at least an immediate 50% reduction in weighted average carbon intensity as well as a further 7% annual decarbonization going forward, aligning with a trajectory to limit global warming to 1.5°C above pre-industrial levels by 2050.
As of the index’s most recent rebalance in March 2022, its weighted average carbon intensity was 84.7% lower compared with the parent universe.
Mo added: “Making reference to the relevant requirements of the EU’s Paris Aligned Benchmark guidelines in index construction, the Hang Seng Climate Change 1.5oC Target Index aims to align with the carbon neutrality objective enshrined in the Paris Agreement. The launch of this new index will help investors to integrate climate action factors into their investment strategy in order to reduce their exposure to risks related to climate change and to support the acceleration of the transition to a low-carbon future.”
Mark Makepeace, CEO of Wilshire, said: “Following the 2021 update of Hong Kong’s Climate Action plan, there is a recognition that investors must be able to identify and invest in Hong Kong-listed companies that are truly committed to mitigating climate risks across their business activities. Today, a significant step forward has been taken by Wilshire and our partner Hang Seng Indexes to enable global investors to make informed choices about their investment portfolios. Now, with the Hang Seng Climate Change 1.5oC Target Index, investors can transition from climate-takers to climate-makers to build a low-carbon and climate-resilient economy and make a significant contribution to achieving the goals of the Paris Agreement.”