What is ESG and Sustainable Investing?
ESG and Sustainable investing is the creation of an investment portfolio in accordance with Environmental, Social and Governance principles and/or other sustainability factors at various levels. ESG and sustainable investing aim to generate long-term financial returns whilst contributing positively to society.
ESG (Environmental, Social and Governance) and sustainable investing products let you shape the future while growing your investment. ESG and sustainability criteria are applied to investment decisions to better manage risk and generate sustainable, long-term return.
Some components within the ESG and Sustainability scope:
Environmental
Environmental refers to the natural world, and includes matters related to Climate (net zero, transition risk, physical risk) and Nature (natural capital, ecosystem services and biodiversity).
Social
Social refers to the consideration of people and relationships and includes Human Rights and Labour Standards.
Governance
Governance refers to a set of rules and principles defining the management and oversight of a company. It can be used interchangeably with corporate governance.
Sustainability
Sustainability is a broad term that refers to the ability of an activity, practice, or entity to meet the needs. Environment, Social and Governance (“ESG”) are the three main dimensions of sustainability.
ESG and Sustainable investing is going mainstream, driven by three factors
Asset Growth
More Investment Managers are embedding ESG and sustainability into their investment products.
Risk Mitigation
ESG and sustainability factors such as climate risk can be financially material and impact investment returns.
Alpha generation
Companies that address and solve ESG and sustainability issues can be a source of alpha*
*Alpha is returns in excess of the market return
In broad terms "ESG and Sustainable investing" products include investment approaches or instruments which consider environmental, social, governance and/or other sustainability factors to varying degrees. Certain instruments we classify as sustainable may be in the process of changing to deliver sustainability outcomes.
There is no guarantee that ESG and Sustainable investing products will produce returns similar to those which don't consider these factors. ESG and Sustainable investing products may diverge from traditional market benchmarks.
In addition, there is no standard definition of, or measurement criteria for ESG and Sustainable investing, or the impact of ESG and Sustainable investing. ESG and Sustainable investing and related impact measurement criteria are (a) highly subjective and (b) may vary significantly across and within sectors. Bank may rely on measurement criteria devised and reported by third party providers or issuers. Bank does not always conduct its own specific due diligence in relation to measurement criteria. There is no guarantee: (a) that the nature of the ESG / sustainability impact or measurement criteria of an investment will be aligned with any particular investor's sustainability goals; or (b) that the stated level or target level of ESG / sustainability impact will be achieved.
ESG and Sustainable investing is an evolving area and new regulations are being developed which will affect how an investment is categorised or labelled. An investment which is considered to fulfil sustainable criteria today may not meet those criteria at some point in the future.
For more information or to start ESG and Sustainable investing, you can contact your Relationship Manager or visit the nearest HSBC branch.
