HSBC Private Banking is committed to incorporating environmental, social and corporate governance (ESG) issues within our investment practices and contributing to a more sustainable financial system. In providing discretionary portfolio management services, we work with portfolio management partners who are signatories to the Principles for Responsible Investment (PRI), a United Nations supported network of investors whose objectives are to further the understanding of sustainability issues and promote their incorporation into investment decision-making, policy, and practice.
We recognise that ESG risks can lead to outcomes that may have a negative impact on the value of investment returns. Therefore, working with our portfolio management partners, our investment decisions as a portfolio manager take account of ESG risks and adverse impacts on sustainability factors (i.e. environmental, social and employee matters, respect for human rights, anti-bribery and anti-corruption matters).
Together with our portfolio management partners, we use third party screening providers to identify companies with a poor track record in the key areas of ESG risk. Where potential ESG risks are identified we also carry out our own due diligence. Sustainability impacts identified through screening are also a key consideration in our investment analysis and decision-making process. As part of this process, the following factors, among others, are analysed:
- Companies’ commitment to lower carbon transition, adoption of sound human rights principles and employees’ fair treatment, implementation of rigorous supply chain management practices aiming, among other things, at alleviating child and forced labour. We also focus on the robustness of corporate governance and political structures which include the level of board independence, respect of shareholders’ rights, existence and implementation of rigorous anti-corruption and bribery policies as well as audit trails; and
- Governments’ commitment to availability and management of resources (including population trends, human capital, education and health), emerging technologies, government regulations and policies (including climate change, anti-corruption and bribery), political stability and governance.
Where analysis of the above factors highlights inadequate practices, the risk and potential impact of those practices are considered, so that appropriate investment decisions can be taken.
We also believe in the effectiveness of collaborative engagement as a means of improving corporate practices and promoting positive change. Therefore, we work with portfolio management partners, who actively engage with the companies in which they invest as part of their ongoing monitoring and corporate stewardship and who participate in investor-led joint initiatives, where they believe this can have a positive impact. Where any companies in which they invest present ESG risks, then selective exclusions may be applied, which are reviewed on a regular basis.
We support the 10 principles of the UN Global Compact (UNGC), which sets out the key areas of non-financial risk: human rights, labour, environment, and anti-corruption. We also adhere to the UN Principles of Responsible Investment, which provides the framework for our approach to identifying and responding to ESG risks. Finally, we are a supporter of the Paris Climate Agreement, an international treaty signed in 2015, committing countries to transition to a lower carbon economy.
Information on our remuneration policies and how these support the integration of ESG risks in our investment processes can be found on page 252 of the HSBC Holdings Plc 2020 Annual Report and Accounts.
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