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What is ESG investing? Why should investors care about ESG?

ESG and responsible investment

Environmental, social and governance (ESG) factors have become a growing focus among various sectors in recent years and a number of research reports have revealed the impact of ESG factors on companies’ long-term performance.

Companies that conduct their business in a responsible and sustainable way are more likely to deliver value for investors and positive impacts on the world in the long term.

Uncovering sustainable investment opportunities

What is ESG investing?

Financial fundamentals have always been given priority in traditional investment process. However, due to the rising concern for corporate social responsibility (CSR), some investment strategies are integrating environmental, social and governance (ESG) factors into analysis with an aim to arrive at the most favorable investment decisions. This approach can help investors achieve financial return without taking excessive risk, and it also contributes to a more sustainable future. These investment strategies are called responsible investments.

Key trends that drive ESG investing

    Climate change and global warming are considered the top risks affecting the sustainability of economic and corporate development

    According to a survey conducted by the World Economic Forum, in terms of the likelihood to occur, respondents identified climate change to be the riskiest event globally. Moreover, the risk of biodiversity loss, which is closely linked to climate change, is also on the list

Top 5 risks affecting the economy

The top 5 risks affecting the economy are extreme weather (e.g. flood, rainstorm), climate action failure, human environmental damage, infectious diseases and biodiversity loss.

Source: The Global Risks Report 2021, World Economic Forum, as of 21 January 2021.

    Although environmental issues (E) have taken the centre stage in ESG investing, social issues (S) are stepping into limelight

    Social factors focus on how companies manage their relations with employees, customers, and the communities

    Companies without proper management of social issues are exposed to severe reputational and financial risks

Social factors in ESG

Social factors in ESG include labour regulations, occupational health and safety, product management, affordable healthcare, data security and privacy, unethical business, supply chain management, and gender diversity, etc.

    Investment markets play a pivotal role in driving better corporate ESG performance. However, ESG performance is hard to quantify in comparison to traditional financial performance

    To help investors make better investment decisions, a set of standardised and easily comparable assessment is necessary to reduce the risk of misvaluation and facilitate comparison of ESG performance among different companies

    Regulators around the world, such as that of the EU, the UK, mainland China, Hong Kong, New Zealand and Australia have all introduced rules to strengthen corporate ESG disclosure

Enhanced ESG disclosure requirements across the globe

Markets across the globe have seen enhanced ESG disclosure requirements.

    For some time, ESG investments have been largely concentrated in equity as the asset class accounts for over 80% of total ESG assets. However, rapid development in the sustainable bond market in recent years has created a more diversified pool of ESG assets for investors to explore a greater variety of opportunities

    With the growing demand for ESG investments, ESG thematic funds have emerged as an option for investors in recent years

    These funds allow investors to invest in specific ESG investment themes such as renewables, waste and water resource management, and sustainable healthcare, covering solar panel and wind turbine manufacturers, consumer goods producers that actively reduce waste along production and consumption chains, as well as remote healthcare services providers etc

Global green bond issuance (2015-2020)

Issuance of green bonds has increased over 2015 to 2020, with an annual growth raaveragete of 60% and cumulative issuance exceeding US$1 trillion.

Source: The Securities and Futures Commission of Hong Kong, as of 16 October 2021.


ESG transition starts with your investment

In environmental, social and governance (ESG) investing, negative screening is one of the earliest strategies employed with an aim to exclude companies that do not meet social responsibility criteria. As ESG investing evolves over time, more new strategies are developed and more proactive approaches are adopted in the investment process.

HSBC Asset Management has been actively adopting socially responsible investment approach in multiple aspects with an aim to promote the development of a sustainable financial system and create investment value for investors.

Learn more 

Invest sustainably with our funds

The essentials of ESG investing

A perspective on responsible investment trends

Download PDF 


A world of sustainable investment opportunity

Download PDF 

Responsible investment for a sustainable future

Download PDF 

Busting 5 ESG investing myths

Download PDF 

An active approach to ESG investing

Download PDF 

ESG investing in Asia: The latecomer is catching up

Download PDF 

 

HSBC Asset Management sustainable investing survey

Almost half of wealthy investors expect their portfolio to be fully sustainable in next three to five years.

 

Learn more about our responsible investing approach

We aim to incorporate ESG factors in our investment decisions to generate sustainable, long-term returns.

 

Disclaimer

This page is prepared for general information purposes only and does not have any regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive it. Any views and opinions expressed are subject to change without notice. This page does not constitute an offering document and should not be constructed as a recommendation, an offer to sell or the solicitation of an offer to purchase or subscribe to any investment.

This page has not been reviewed by the Securities and Futures Commission.

HSBC Asset Management is the brand name for the asset management business of HSBC Group. The above communication is distributed in Hong Kong by HSBC Global Asset Management (Hong Kong) Limited. No part of this publication 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 HSBC Global Asset Management (Hong Kong) Limited.