HSBC GIF Global Lower Carbon Equity

overall rating:

0.6

planets

Alex Powell
2/10/2022
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The HSBC GIF Global Lower Carbon Equity fund is designed to marry the aims of ‘potential long-term gains’ with a ‘reduced carbon footprint’. Fundamentally, it seeks to marginally improve on the carbon intensity of the MSCI World, a market cap weighted index of more than 1,500 companies, although one that has no reference to sustainability. While it has some positive environmental aspects, it is strongly held back by its lack of transparency in management, stock holdings, and selection process. As a whole, HSBC has an ESG risk rating of 19.8, putting them at the upper extremity of the ‘low environmental risk’ category. This is sufficient for HSBC to be ranked 193rd out of 1071 banks ranked globally, and so I can only wonder why there is such a lack of transparency with the individual fund itself. If the rest of their environmental record is as good as it appears, they should have no qualms about divulging to consumers more information about the nature of their investments. Unfortunately, this lack of available information makes it hard to reward this specific fund with a strong score, and thus I can only give this fund 0.6 planets. 

What it's made of:

0.5

With £220.66 million under management, the fund invests at least 90% of its assets in shares (or securities) in developed markets, and refuses to invest in tobacco products. Up to 10% of investment may go to other funds, including those made by HSBC - this could leave them open to ‘hidden’ carbon exposure in funds they choose to invest in. 

 

Top 10 holdings - Name, Percentage of Fund, Top 10 holdings - Name, Percentage of Fund, ESG: 1) Microsoft, 4.22%, 13.3, 2) Apple, 4.18%, 16.3, 3) Alphabet, 2.27%, 22.9, 4) Amazon, 1.98%, 30.0, 5) Home Depot, 1.56%, 11.4, 6) Tesla, 1.40%, 28.5, 7) Cisco Systems, 1.38%, 11.8, 8) Accenture, 1.37%, 9.4, 9) NVIDIA, 1.36%, 12.8, 10) Verizon Communications, 1.24%, 16.8

The weighted ESG average of the top ten holdings for this fund is 17.17, which would put the fund in the low risk category. However, this is only a small picture of the overall fund, as just 20.96% of all investment is in these ten firms - nevertheless, it is far from a pretty picture. Acquiring Amazon as the fourth largest stock holding seems incredibly far from the promise of a ‘lower carbon’ fund, as not only is it environmentally unsustainable, but the social practices it carries out hardly add to the sustainability of our planet. It is true that the fund is only marketed as focusing on environmental emissions, but to ignore other facets of the sustainability issue seems both an oversight we and HSBC can ill afford. Furthermore, with the aforementioned only 20.96% of holdings disclosed, we have little knowledge as to whether this tranche of the fund is representative, as the other 79.04% of the holdings could very easily paint a worse image for both social and environmental sustainability. One piece of information we can extract is that the fund is dominated by the USA, with 67.6% of total investment. This reveals many issues - highlighting the fact that the benchmark excludes developing countries. This ensures that the fund in question will direct nearly all of its considerable resources towards countries that already enjoy good quality of life, reducing the potential for social equality, and equally, will direct funds to those nations who are extensive users of products with high emissions and reprehensible social practices. 

 

The top four sector allocations are Information tech 26.6%, Financials 14.3%, Consumer Discretionary 13.1%, Industrials 13.0%.

Industrials are way up on the benchmark (13.0% vs 10.2%), although energy companies are mildly down on the benchmark (2.9% vs 3.1%). Unfortunately there is no transparency about whether these are energy firms that are proactively targeting sustainability, or if they are primarily fossil fuel dependent, likewise the nature of the industrial firms supported is fundamentally hidden from the consumer. 

How it's made:

0.3

HSBC outlines a three step process in the selection of stocks for the fund, although little information is available. Perhaps worryingly for a ‘low carbon’ fund, the assessment of carbon footprints and ESG risks appears only second in the details of the selection process, although this could well be a stylistic decision on their website rather than demonstrating a lack of commitment. As well as providing long term capital growth, the fund aims to have a ‘lower carbon intensity’ (weighted carbon intensity of the companies held) than the benchmark of the MSCI World. The MSCI World is a weighted stock market index of 1,546 companies in 23 countries - however it has no reference to carbon output. By excluding companies in developing countries, the MSCI World is also overexposed to large Transnational Corporations who have extremely high carbon outputs.  Therefore the fund is aiming only to do the bare minimum - beat the market average of a global economy that is already failing to stay below the necessary carbon emissions - I find it impossible to believe that the fund manager (whoever they may be) struggles to meet these unambitious goals. Furthermore, by targeting low carbon intensity rather than an absolute reduction in carbon output, the fund has more room to invest in companies that are heavily detrimental to the environment. There is also no explicit mention of targeting firms that actively work in sustainability - given this is marketed as a ‘lower carbon’ fund, I would feel misled as a potential consumer. They use the Greenhouse Gas Protocol to measure the impact their companies have on the environment. This is an industry standard measure, and HSBC also includes Scope 3 in their emissions reporting, which includes looking at indirect emissions - indicative of a stronger commitment to diligent research. However, on balance, the contents of this fund are remarkably disappointing, and so, 0.3 planets is a score well deserved. 

Who makes it:

1

HSBC does not publicly disclose the manager of this fund. This makes it very difficult for us as prospective investors to decide if we should trust the individual running the fund. The lack of transparency is extremely concerning, as the fund’s mandate is particularly broad - therefore the role of the individual manager is far greater than, for example, the manager of Aberdeen Standard’s ‘Multi-Asset Climate Solutions Fund’, whose mission is far less interpretative (and thus I would imagine far more effective). HSBC claims to be committed to carbon neutrality for their own emissions by 2030, although they acknowledge that it will take until 2050 for emissions from consumer investments to reach net zero. HSBC also commits to phasing out coal power and mining by 2030 in the EU and OECD, but only by 2040 in other markets. They are also founding members of the Net Zero Banking Alliance, with their sustainability lead, Celine Herweijer having a particularly strong level of expertise in the environmental field. It will be interesting to see if HSBC comes close to living up to these promises, as they are currently still exposed to many high volume fossil fuel users/producers. We can find some positives from HSBC’s board of directors - out of the fourteen positions on the board, six are held by women, almost an even split, however, there are only three minority ethnic board members, of which only one is male. Therefore half the board constitutes white men, not necessarily the most egregious example of a lack of racial diversity, but still technically far from the goals they have set themselves. I would argue that this board is in a sufficient place right now from which they can build on with future improvements - that said, these improvements must occur.