HSBC Asset Management has expanded its suite of sustainable fixed income ETFs with the launch of a short-duration global aggregate bond fund.
Olga de Tapia, Global Head of ETF & Indexing Sales at HSBC Asset Management.
The HSBC Bloomberg Sustainable Global Aggregate 1-3y Bond UCITS ETF has been listed on London Stock Exchange in US dollars (Ticker: HAGG LN) and pound sterling (HAGS LN) as well as on Euronext Paris in euros (HAGG FP).
The fund is linked to the Bloomberg MSCI Global Aggregate 1-3 Year SRI Carbon ESG-Weighted Index which is based on a parent universe consisting of Treasury, government-related, corporate, and securitized debt issued in both developed and emerging markets.
Securities may be denominated in any of 28 eligible currencies but must be rated investment-grade, satisfy minimum amount-outstanding thresholds, dependant on underlying currency, and have a remaining time to maturity between one and three years.
The index incorporates Bloomberg’s ESG methodology alongside an additional carbon intensity screen to deliver a robust sustainability profile.
The methodology first screens out violators of UN Global Compact principles, issuers embroiled in severe ESG-related controversies, companies with carbon footprints beyond a critical threshold (scope 1 and 2 carbon emissions in excess of 750 tons per $1m of sales), and firms deriving significant revenue from adult entertainment, alcohol, gambling, tobacco, weapons, civilian firearms, nuclear power, genetically modified organisms, thermal coal, or fossil fuels.
The remaining issuers are each then assigned an ESG rating from MSCI based on a seven-point scale from ‘AAA’ to ‘CCC’, according to how the issuer manages key ESG risks relative to industry peers. Firms with ratings below BB (lower-average) are removed from the index.
The remaining securities are provisionally weighted by market value and then adjusted to increase the weights of issuers with superior MSCI ESG ratings. Specifically, issuers with ESG ratings in the top three brackets (AAA, AA, and A) have their weights increased by 50%, issuers with ESG ratings of BBB remain unchanged, and issuers with ESG ratings of BB have their weights decreased by 20%.
According to HSBC, the methodology is aimed at reducing the index’s carbon emission intensity by at least 50% and bolstering its overall ESG score by more than 5%.
The ETF comes with an expense ratio of 0.18% and is classified as an Article 8 product under the European Union’s Sustainable Finance Disclosure Regulation (SFDR).
Olga de Tapia, Global Head of ETF & Indexing Sales at HSBC Asset Management, said: “Providing our clients with a viable means of improving the social and environmental impact of their portfolios is a priority for us. As ETFs continue to play an ever-greater role in client portfolios, it’s crucial that they support the net-zero transition. With a significant improvement in ESG score and a notable reduction in carbon intensity, our latest fixed income ETF will help investors to achieve this.”
The fund is the third sustainable fixed income ETF from HSBC. The other two funds, both of which launched in November 2021, utilize a similar methodology as described above while targeting euro and US dollar corporate bonds from across the maturity spectrum. They are the $40 million HSBC Bloomberg EUR Corporate Sustainable Bond UCITS ETF and $60m HSBC Bloomberg USD Corporate Sustainable Bond UCITS ETF. Each also comes with an expense ratio of 0.18%.