Top of main content

The fight against climate change

03/03/2021
Sustainable investing
Thematic investing
ESG

Key Takeaways

  • Renewed focus on climate change in the US – the world’s third largest carbon emitter – is a significant step in its pledge to be 'net zero' by 2050
  • Climate change is a global focus within the set of ESG factors; to incorporate ESG factors into investment strategies is a methodology of sustainable investing
  • Sustainability has become essential to the investment world, with demand already topping USD30trn in developed countries alone

What has happened recently

Climate change is back on centre stage in the US since last year, with renewed plans citing significant investment toward clean energy infrastructure. Now with a new administration in place, executive orders were immediately issued with the mandate to control carbon emissions across the country. We believe that the US can now play a pivotal role in the global fight against this pressing issue.

Climate change, global warming, net-zero carbon – these terminologies again have elevated priorities on the world agenda. Our long-term average weather patterns are changing over time, caused by the planet's temperature rise, which in turn is fueled by atmospheric heat-absorbing gases such as carbon emitted from human activities (e.g. fossil fuel burning for energy).

 

Achieving net zero carbon, or the balance of carbon emissions vs absorption in our atmosphere,  equires global awareness and action. The US has unveiled plans to reach net zero carbon including key pledges1 such as:

The US' commitments are significant to the world as it's the third largest emitter of carbon dioxide (CO2), accounting for 15% of global emissions – see Chart 1.

CO2 is a major component of greenhouse gas emissions – gases that trap heat in the atmosphere, causing global warming and contributing to climate change. Like the US, other top CO2 emitters, including the European Union with 9.8% and Mainland China with 27%, have also committed to carbon neutrality by 2050 and 2060, respectively. Combined, these three economies account for more than half of the world’s CO2 emissions and are working towards a common goal to be fully decarbonised by mid-century.

 

1. The Plan for a Clean Energy Revolution and Environmental Justice; joebiden.com

2. UN Framework Convention on Climate Change; an international treaty ratified by 189 territories globally to keep temperature rise to below 2 degrees C

What does climate change mean for investors?

As a global citizen, climate change can influence daily life such as becoming more energy efficient. As an investor, climate change presents material company risks that can impact share prices, but also opportunities for those companies who take measures in reducing carbon footprint. Understanding ESG risks leads to sustainable investing, a practice with the objective to generate long-term financial returns and contributing positively to environment and society.

Capital deployed for wealth creation can be used to tackle great challenges threatening our world today. As central banks are starting to include green bonds in quantitative easing policies, retail banks and other financial institutions have a role to play in the transition to a low-carbon economy. Sustainable investing focuses on long term capital growth. Integrating ESG issues in investment decisions can help manage risks and unlock new investment opportunities.

Every investor has a unique set of priorities to consider when making investment decisions. There are many investment strategies available and often used in combination. Investors can exclude specific companies or industries, include companies with higher ESG performance, or use sustainability themes to form as a basis for portfolio allocation. Some common strategies defined by Global Sustainable Investment Alliance are:

Sustainable investing has become more essential and the demand for solutions with positive impact is rapidly growing: assets in sustainable funds have hit a record high of USD1,652 billion as of end 20203.

3. Source: Morningstar, “Global Sustainable Fund Flows: Q4 2020 in Review”, 28 Jan 2021

What opportunities can investors explore?

At HSBC, our sustainable investing offerings have integrated methodologies and span across mutual funds, structured products, green bonds, etc. They are broadly categorised as:

  • ESG-enhanced: products that invest in companies based on ESG performance (relative to a benchmark)
  • Thematic: products that focus on themes and sectors dedicated to solving sustainability challenges and growth trends
  • Impact: products that focus on a direct, positive and measurable impact on society and/or the environment, alongside financial returns

New opportunities could also emerge as the finance industry embraces ESG issues. In the US,  where the green bond market is pre-dominantly Euro-denominated bonds, could change under the new administration. The Paris Agreement has also been a catalyst for increased assets flowing into climate specific funds; climate ETFs alone have quadrupled in number during the past year. 

We can help you understand how ESG issues can create and protect long-term value. Speak to our relationship managers to explore sustainable investing opportunities that could help meet your goals.

Glossary

ESG: a set of Environmental, Social and Governance criteria that investors can apply to analyse and identify material risks and growth opportunities in investments

Green bond: a fixed income instrument issued by private companies, financial institutions and governments to fund projects with environmental and/or climate benefits

Net zero: the balance between the amount of greenhouse gases produced by society and the amount removed from the earth’s atmosphere (e.g. re-forestation to absorb carbon dioxide)

Sustainable investing: investing with the objective of generating long-term financial returns while contributing positively to environment and society

The Paris Agreement: an international treaty on climate change with a goal to keep global temperature rises in this century to below 2 degrees Celsius above pre-industrial levels; it is ratified by 189 countries and territories worldwide

Thematic investing: an investment approach that focuses on predicted long-term trends

This document is prepared by The Hongkong and Shanghai Banking Corporation Limited (‘HBAP’), 1 Queen’s Road Central, Hong Kong. HBAP is incorporated in Hong Kong and is part of the HSBC Group. This document is distributed and/or made available by HSBC Bank Canada (including one or more of its subsidiaries HSBC Investment Funds (Canada) Inc. (‘HIFC’), HSBC Private Wealth Services (Canada) Inc. (‘HPWS’), HSBC InvestDirect division of HSBC Securities (Canada) Inc. (‘HIDC’)), HSBC Bank (China) Company Limited, HSBC Continental Europe, HBAP, HSBC Bank (Singapore) Limited, HSBC Bank Middle East Limited (UAE), HSBC UK Bank Plc, HSBC Bank Malaysia Berhad (127776-V)/HSBC Amanah Malaysia Berhad (807705-X), HSBC Bank (Taiwan) Limited, HSBC Bank plc, Jersey Branch, HSBC Bank plc, Guernsey Branch, HSBC Bank plc in the Isle of Man, HSBC Continental Europe, Greece, and The Hongkong and Shanghai Banking Corporation Limited, India (HSBC India) (collectively, the “Distributors”) to their respective clients. This document is for general circulation and information purposes only.

The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. This document must not be distributed in any jurisdiction where its distribution is unlawful. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. The material contained in this document is for general information purposes only and does not constitute investment research or advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. HBAP and the Distributors do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed herein have been sourced from HSBC Global Asset Management at the time of preparation, and are subject to change at any time. These views may not necessarily indicate HSBC Global Asset Management‘s current portfolios’ composition. Individual portfolios managed by HSBC Global Asset Management primarily reflect individual clients’ objectives, risk preferences, time horizon, and market liquidity.

The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. Past performance contained in this document is not a reliable indicator of future performance whilst any forecasts, projections and simulations contained herein should not be relied upon as an indication of future results. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their nature higher risk and potentially more volatile than those inherent in some established markets. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries in which they trade. Investments are subject to market risks, read all investment related documents carefully.

This document provides a high level overview of the recent economic environment and has been prepared for information purposes only. The views presented are those of HBAP and are based on HBAP’s global views and may not necessarily align with the distributors’ local views. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. It is not intended to provide and should not be relied on for accounting, legal or tax advice. Before you make any investment decision, you may wish to consult a financial adviser. In the event that you choose not to seek advice from a financial adviser, you should carefully consider whether the investment product is suitable for you. You are advised to obtain appropriate professional advice where necessary.

We accept no responsibility for the accuracy and/or completeness of any third party information obtained from sources we believe to be reliable but which have not been independently verified.

Important Information about HSBC Global Asset Management (Canada) Limited (“AMCA”)

HSBC Global Asset Management is a group of companies that are engaged in investment advisory and fund management activities, which are ultimately owned by HSBC Holdings plc. AMCA is a wholly owned subsidiary of, but separate entity from, HSBC Bank Canada.

Important Information about HSBC Investment Funds (Canada) Inc. (“HIFC”)

HIFC is the principal distributor of the HSBC Mutual Funds and offers the HSBC Pooled Funds through the HSBC World Selection Portfolio service.

HIFC is a subsidiary of AMCA, and indirect subsidiary of HSBC Bank Canada, and provides its products and services in all provinces of Canada except Prince Edward Island. Mutual fund investments are subject to risks. Please read the Fund Facts before investing.

Important Information about HSBC Private Wealth Services (Canada) Inc. (“HPWS”)

HPWS is a direct subsidiary of HSBC Bank Canada and provides services in all provinces of Canada except Prince Edward Island. The Private Investment Management service is a discretionary portfolio management service offered by HPWS. Under this discretionary service, assets of participating clients will be invested by HPWS or its delegated portfolio manager in securities, including but not limited to, stocks, bonds, pooled funds, mutual funds and derivatives.

Important Information about HSBC InvestDirect (HIDC)

HIDC is a division of HSBC Securities (Canada) Inc., a direct subsidiary of, but separate entity from, HSBC Bank Canada. HIDC is an order execution only service. HIDC will not conduct suitability assessments of client account holdings or of the orders submitted by clients or from anyone authorized to trade on the client’s behalf. Clients have the sole responsibility for their investment decisions and securities transactions.

We accept no responsibility for the accuracy and/or completeness of any third party information obtained from sources we believe to be reliable but which have not been independently verified.

THE CONTENTS OF THIS DOCUMENT HAVE NOT BEEN REVIEWED BY ANY REGULATORY AUTHORITY IN HONG KONG OR ANY OTHER JURISDICTION.

YOU ARE ADVISED TO EXERCISE CAUTION IN RELATION TO THE INVESTMENT AND THIS DOCUMENT OR VIDEO. IF YOU ARE IN DOUBT ABOUT ANY OF THE CONTENTS OF THIS DOCUMENT OR VIDEO, YOU SHOULD OBTAIN INDEPENDENT PROFESSIONAL ADVICE.

© Copyright 2021. The Hongkong and Shanghai Banking Corporation Limited, ALL RIGHTS RESERVED.

No part of this document may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior written permission of The Hongkong and Shanghai Banking Corporation Limited.