HSBC Global Asset Management has expanded its range of low carbon ESG ETFs with the launch of a fund providing broad emerging markets equity exposure.
HSBC GAM has added an EM exposure to its suite of low carbon sustainable ETFs.
Listed on the London Stock Exchange, the HSBC Emerging Market Sustainable Equity UCITS ETF provides access to large and mid-cap stocks listed in EM countries while also offering reduced exposure to companies with high carbon emissions and fossil fuel reserves and increased exposure to companies with better ESG characteristics.
The fund endeavours to achieve this by tracking the FTSE Emerging ESG Low Carbon Select Index – a smart beta index co-developed in partnership with FTSE Russell and derived from the FTSE Emerging Index universe.
The index incorporates exclusion screens and a modified weighting methodology to meet its objectives.
In the stock selection part of the index construction process, companies identified as being associated with various contentious industries are removed from the universe. This includes companies involved in the manufacture of weapons and tobacco products; companies involved in the extraction or use of thermal coal; and companies involved in electricity generation from nuclear power.
Companies considered to have breached one or more of the United Nations Global Compact principles are also jettisoned.
The companies that successfully pass through this screening stage form the index.
The reduction in exposure to carbon emissions and fossil fuel reserves is tackled in the weighting stage; additional ESG uplift beyond simply removing certain unfavourable stocks is also achieved at this point in the index construction process.
Constituent weighting is determined by an algorithm that processes information (based on in-house and third-party data) relating to each eligible company’s ESG rating, carbon emissions, and fossil fuel reserves such that the index achieves a 20% uplift in ESG rating and a 50% reduction in carbon emissions and fossil fuel reserve intensity versus the parent universe.
The optimization process incorporates country, industry, maximum stock capacity, maximum company weight, and minimum diversification constraints to ensure liquidity and diversification.
The net result is an index that contains fewer constituents than the parent index and with differing weights, but it also exhibits an enhanced ESG profile and lower carbon footprint. Of course, this comes at the cost of an increase in tracking risk versus the regular FTSE Emerging Index.
The new fund sits alongside other HSBC ETFs linked to the same methodology. These include Europe, Japan, USA, Asia Pacific ex Japan, and developed world funds.
Olga De Tapia, Global Head of ETF Sales at HSBC Global Asset Management, commented, “With emerging markets being a key part of our DNA, we’re pleased to offer clients a cost-effective solution to access companies that are transitioning towards a lower carbon economy in this space.”
The ETF has a total expense ratio of 0.18% and is available in USD (HSEM LN) and GBP (HSEF LN) share classes. It is physically replicated.
For investors seeking conventional, unfettered emerging markets equity exposure, HSBC also offers the HSBC MSCI Emerging Markets UCITS ETF (HMEM LN). This fund is listed on LSE, Xetra, Borsa Italiana, and SIX Swiss Exchange and houses almost $336m in assets. It is also cheaper, charging a fee of 0.15%.