The ESG Phenomenon: HSBC ESG Risk Improvers Index, Edmond De Rothschild AM

Editorial Staff 1 June 2023

The ESG Phenomenon: HSBC ESG Risk Improvers Index, Edmond De Rothschild AM

The latest developments in the ESG space.

HSBC has launched the HSBC ESG Risk Improvers Index in partnership with Arabesque AI and powered by data from ESG Book. 

HSBC said it is the first time that it has offered a global index that uses artificial intelligence to help measure the improvement of a company’s ESG credentials.

The index has been designed to track the performance of 1000-plus liquid stocks of global companies that are expected to benefit financially from improvements in their ESG risk, as measured by their ESG score calculated by ESG Book.       

ESG Book, a provider of ESG data and analytics for public markets, calculates the ESG score of each constituent of the index by deploying AI in the form of natural language processing to mine relevant public sources daily, such as ESG-related news and NGO data. The ESG score helps investors determine which companies may be better positioned to outperform the market over the long term, the firm continued.

The ESG momentum score is then computed by Arabesque AI every six months to determine whether each constituent has improved their ESG credentials. Investors will be able to invest in a range of products tracking the index, allocating capital towards ESG improvers.           

Patrick Kondarjian, global head of sustainability for markets and securities services, HSBC, said: “The HSBC ESG Risk Improvers Index enables investors to gain exposure to stocks exhibiting ESG momentum – a useful financial indicator of future performance. This is in contrast to traditional ESG best-in-class, or ESG integration, investment approaches that purely target high ESG ratings – agnostic to whether the stock’s ESG credentials have recently improved or deteriorated.” 

Yasin Rosowsky, co-founder and VP of engineering, Arabesque AI, added: “Based on our back-tested data, tilting investments towards stocks exhibiting ESG momentum showed excess returns per annum versus S&P global benchmarks during the same period. In other words, there is a positive correlation between companies transitioning to more sustainable business practices and their returns.”

Companies are excluded from the index if they are non-compliant with international norms and principles, specifically the 10 UN Global Compact Principles, and have revenue exposure to controversial activities, as defined by ESG ratings and analytics firm, Morningstar Sustainalytics. The index administrator is Solactive AG.

Edmond de Rothschild Asset Management
Edmond de Rothschild Asset Management recently joined the Net Zero Asset Managers initiative, as part of its global ESG strategy and in line with its commitments towards the energy and environmental transition. 

With this commitment, Edmond de Rothschild AM said it will strengthen its work in partnership with asset owner clients on decarbonisation goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets under management in scope. It has joined 300 signatories, representing about $60 trillion in assets under management.

The initiative is designed to mobilise action by the asset management industry to drive the transition to net zero and deliver the action and investment strategies necessary to achieve the goal of net zero emissions. It also provides a forum for sharing best practice and overcoming barriers to aligning investments to that net zero goal, the firm said in a statement. 

The initiative is managed globally by six founding partner investor networks, namely: Asia Investor Group on Climate Change (AIGCC), CDP, Ceres, Investor Group on Climate Change (IGCC), Institutional Investors Group on Climate Change (IIGCC) and Principles for Responsible Investment (PRI). It is also endorsed by The Investor Agenda, of which the investor networks are all founding partners. 

Edmond de Rothschild AM said it’s long-term commitment to sustainable investment is also present in its three private market activities: real estate, private equity, and infrastructure debt. Its adherence to this initiative is also in line with its 2017 climate roadmap, aligned with the Paris Agreement, designed to limit global warming to less than 2 degrees. It’s “Sustainable Equity” and “Green New Deal” equities strategies, for instance, are aligned with the objective of decarbonising the portfolios. 

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