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HSBC Asia ESG
Bond Strategy

Sharp focus on performance and purpose

Governments across Asia are planning their paths to net zero, with many Asian corporates following suit… This opens up a unique opportunity for global investors to take part in Asia’s transformation through an ESG enhanced Asian bond strategy, which also offers potentially higher yields versus other comparable markets.

Alfred Mui, Head of Asian Fixed Income Investment Management

Why invest in Asia ESG bonds?

Net zero targets have been announced across Asia

  • Governments across Asia have announced net zero and emission reduction targets, which in turn should support ESG improvement trajectory of individual Asian bond issuers
  • Emission reduction commitments have already been set by a number of Asian corporates, with targets falling in line with a 2C or the even lower 1.5C climate scenario

China’s five-year plan – climate related targets for 2025

Reduce Carbon Intensity

 
Reduce carbon intensity by 18% from 2020 levels

Increase forset coverage

 
Increase forest coverage to 24.1%

Reduce energy intensity

 
Reduce energy intensity by 13.5% from 2020 levels

Increase share of non-fossil sources

 
Increase share of non-fossil sources in the energy mix to around 20%

Source: Government announcements, November 2021.
Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. HSBC Asset Management accepts no liability for any failure to meet such forecasts, projections or targets. For illustrative purposes only.

Growth in Asia’s sustainable bond issuance

  • Asia issued a record amount of green, social and sustainability-linked US dollar bonds in 2021
  • Various climate related commitments made by Asian sovereigns and corporates require funding and should thus drive increased and more diversified issuance of sustainable bonds

Record year in Asia USD sustainable bond supply

Record year in Asia USD sustainable bond supply

Labelled bond issuance includes green, social, sustainability, sustainability-linked and pandemic bonds.
Source: HSBC Global Research, Bloomberg, April 2022. Past performance is not indicative of future performance. For illustrative purpose only.

Optimising return potential while achieving ESG objectives

  • Historical evidence suggests that investing in Asia ESG bonds does not come at the expense of performance
  • At the same time, the sustainability characteristics of an Asia ESG bond index are stronger than a conventional Asia bond index

Performance of Asia bond ESG and non-ESG index historically

Performance of Asia bond ESG and non-ESG index historically

Carbon intensity is measured by tonnes of CO2e/US$M sales. Source: JACI ESG refers to JPMorgan ESG Asia Credit Index, and JACI refers to JPMorgan Asia Credit Index. Source: JPMorgan, data as of 5 November 2021.

 

Why HSBC Asset Management’s Asia ESG bond strategy?

Managed by our award-winning Asia fixed income team, backed by HSBC’s highly rated global ESG networkWe conduct forward looking proprietary research, with an emphasis on ESG improvement through issuer engagementThe strategy exhibits strong sustainability characteristicsThe strategy aims to achieve a competitive yield and total return above benchmark

HSBC Asset Management’s awards include Best of the Best Awards for Asian Bond House category by Asia Asset Management 2015, 2016, 2017, 2018, 2020, 2021, according to Asia Asset Management as of February 2021. HSBC Asset Management was awarded “ESG Advanced” by Morningstar, among the industry’s strongest ESG proponents; out of 140 strategies and 34 asset managers assessed by Morningstar only five asset managers earned a Morningstar ESG Commitment Level of Advanced; source is Morningstar as of June 2021.
Source: HSBC Asset Management, December 2021. The characteristics may differ by product, client mandate or market conditions. Information may be changed from time to time without notice. For illustrative purpose only. There is no guarantee that these investment strategies and process will work under all market conditions or are appropriate for all investors and each investor should evaluate their ability to invest long-term, especially during periods of downturn in the market. Socially responsible investing is qualitative and subjective by nature, and there is no guarantee that the criteria utilized, or judgment exercised, by HSBC will reflect the beliefs or values of any one particular investor. Socially responsible norms differ by region. There is no assurance that the socially responsible investing strategy and techniques employed will be successful. Past performance is not a guarantee or reliable indicator of future results.


 

Resources

Investing in Asian fixed income with an ESG focus

Article

Key risks

The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Further information on the potential risks can be found in the Key Investor Information Document (KID) and/or the Prospectus or Offering Memorandum.

  • Callable Bond Risk: Any unexpected behaviour in interest rates could negatively impact the performance of callable debt securities (securities whose issuers have the right to pay off the security’s principal before the maturity date).
  • CoCo Bond Risk: Contingent convertible securities (CoCo bonds) are comparatively untested, their income payments may be cancelled or suspended, and they are more vulnerable to losses than equities and can be highly volatile.
  • Counterparty Risk: The possibility that the counterparty to a transaction may be unwilling or unable to meet its obligations.
  • Credit Risk: A bond or money market security could lose value if the issuer’s financial health deteriorates.
  • Default Risk: The issuers of certain bonds could become unwilling or unable to make payments on their bonds.
  • Derivatives Risk: Derivatives can behave unexpectedly. The pricing and volatility of many derivatives may diverge from strictly reflecting the pricing or volatility of their underlying reference(s), instrument or asset.
  • Emerging Markets Risk: Emerging markets are less established, and often more volatile, than developed markets and involve higher risks, particularly market, liquidity and currency risks.
  • Exchange Rate Risk: Changes in currency exchange rates could reduce or increase investment gains or investment losses, in some cases significantly.
  • Interest Rate Risk: When interest rates rise, bond values generally fall. This risk is generally greater the longer the maturity of a bond investment and the higher its credit quality.
  • Investment Leverage Risk: Investment Leverage occurs when the economic exposure is greater than the amount invested, such as when derivatives are used. A Fund that employs leverage may experience greater gains and/or losses due to the amplification effect from a movement in the price of the reference source.
  • Liquidity Risk: is the risk that a Fund may encounter difficulties meeting its obligations in respect of financial liabilities that are settled by delivering cash or other financial assets, thereby compromising existing or remaining investors.
  • Operational Risk: Operational risks may subject the Fund to errors affecting transactions, valuation, accounting, and financial reporting, among other things.
Disclaimer

The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance is not a reliable indicator of future performance. Any views and opinions expressed are subject to change without notice. Any forecast, projection or target where provided is indicative only and is not guaranteed in any way. We accept no liability for any failure to meet such forecast, projection or target. 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 document does not constitute an offering document and should not be construed as a recommendation, an offer to sell or the solicitation of an offer to purchase or subscribe to any investment.