ESG and Sustainable Investing range

The Global Transition Infrastructure Debt Fund (the “Fund”) seeks to provide potentially attractive risk adjusted returns with a predictable income stream by investing in a diversified portfolio of loans (and other debt instruments) with infrastructure characteristics and which either are or will contribute to greenhouse gas ("GHG") emissions reduction and the global transition to net zero emissions by 2050.

The Fund will promote ESG characteristics within the meaning of Article 8 of SFDR by seeking to invest in infrastructure opportunities that meet the requirements of the relevant ESG framework of the Investment Manager. In particular, the Fund will promote ESG characteristics by not making any investments with high ESG risks as evidenced by the Investment Manager's approach to assessing ESG ratings for prospective borrowers.

Read the full Global Transition Infrastructure Debt Fund Disclosure (PDF,448KB)

The Floating Rate Infrastructure Strategy (the “Fund”) will seek to provide long-term yield based returns by investing in a portfolio of private senior floating rate loans to a range of infrastructure projects domiciled in Investment Grade Countries.

In seeking to achieve its investment objective, the Fund intends to invest in projects that provide stable, long-term or contractually guaranteed revenues for the term of each investment, to construct a portfolio of Investment Grade assets, diversified across a range of economic and social infrastructure sectors.

The Fund’s investment strategy is broad and in particular not only limited to economic activities that contribute to environmental objectives. Indeed, the Fund may make investments that contribute to either social or governance objectives. The Fund is under no obligation to (but may) contribute to any environmental objective as defined under Art. 9 of the EU Taxonomy.

The Fund will promote ESG characteristics within the meaning of Article 8 of SFDR by seeking to invest in businesses that meet the requirements of the relevant ESG framework of the Investment Manager. In particular, the Company will promote ESG characteristics by not making any investments with high ESG risks as evidenced by the Investment Manager's approach to assessing ESG ratings for prospective investees.

The Investment Manager intends to engage with investees to positively influence their sustainability strategy.

Read the full Floating Rate Infrastructure Strategy Disclosure (PDF,477KB) 

Global Infrastructure Debt Strategy (“the Fund”) will seek to provide yield-based returns by investing in a diversified portfolio of high yielding debt of infrastructure projects principally associated with member countries of the Organisation for Economic Co-operation and Development (“OECD”) across a broad range of sectors that engage in the provision of essential products and services.

The Fund will target defensive and non-cyclical sectors that are engaged in the provision of essential products and services such as renewables, energy, transport, power, telecommunications, social infrastructure and other adjacent relevant sectors. Typically, these assets exhibit some or all of the following infrastructure characteristics: high barriers to entry, contracted revenue streams and inelastic demand profile.

The Fund’s investment strategy is broad and in particular not only limited to economic activities that contribute to environmental objectives. Indeed, the Fund may make investments that contribute to either social or governance objectives. The Fund is under no obligation to (but may) contribute to any environmental objective as defined under Art. 9 of the EU Taxonomy.

The Fund will promote ESG characteristics within the meaning of Article 8 of SFDR by seeking to invest in businesses that meet the requirements of the relevant ESG framework of the Investment Manager. In particular, the Company will promote ESG characteristics by not making any investments with high ESG risks as evidenced by the Investment Manager's approach to assessing ESG ratings for prospective investees.

The Investment Manager intends to engage with investees to positively influence their sustainability strategy.

Read the full Global Infrastructure Debt Strategy Disclosure (PDF,105KB)

Senior Global Infrastructure Debt Strategy (“the Fund”) will seek to provide attractive long-term yield based returns by investing in a diversified portfolio of senior secured debt of infrastructure projects associated with member countries of the Organisation for Economic Co-operation and Development (“OECD”) across a broad range of sectors that engage in the provision of essential products and services. The Fund will principally invest in USD denominated assets but may also invest in assets denominated in other currencies.

The Fund will promote ESG characteristics within the meaning of Article 8 of SFDR by seeking to invest in businesses that meet the requirements of the relevant ESG framework of the Investment Manager. In particular, the Company will promote ESG characteristics by not making any investments with high ESG risks as evidenced by the Investment Manager's approach to assessing ESG ratings for prospective investees.

The Investment Manager intends to engage with investees to positively influence their sustainability strategy.

Read the full Senior Global Infrastructure Debt Strategy Disclosure (PDF,104KB)

Financial Technology Venture Strategy 2022 (the “Fund”) is a venture capital fund that promotes environmental and social characteristics within the meaning of article 8 of the Disclosure Regulation.

The Fund does not target sustainable investments within the meaning of article 2 (17) of the Disclosure Regulation. The Fund’s portfolio may (but for the avoidance of doubt, there is no obligation to) include investments that qualify as sustainable investments within the meaning of article 2 (17) of the Disclosure Regulation.

The Fund will seek to enforce good governance practices across investee companies, in particular with regard to sound management structures, employee relations, employee remuneration and tax compliance.

The Fund aims to make minority equity investments into 15 to 20 early stage financial technology companies. It is intended that all investee companies will promote environmental and social characteristics within the meaning of article 8 of the Disclosure Regulation and be classified accordingly.

The promoted environmental and/or social characteristics are measured by the positive alignment with the UN Sustainability Development Goals, as validated by a third party provider.

The selection of target companies is based on a rigorous due diligence process. The Fund evaluates, as part of the due diligence, the companies with respect to their management structures, employee relations, and remuneration and tax compliance.

Further, an important aspect of the investment due diligence is the ESG Due Diligence. The Portfolio Manager utilises independent third party providers to provide a detailed ESG Due Diligence, which it integrates into its decision making process.

The AIFM will actively monitor sustainability indicators and ESG incidents and will review ESG progress on an annual basis.

Read the full Financial Technology Venture Strategy Disclosure (PDF,449KB)

Climate Technology Venture Strategy 2022 (the “Fund”) is a venture capital fund that will invest in early stage unquoted companies with a focus on energy, transportation, agricultural, and industrial decarbonisation and companies focused on the mitigation of climate change risks. The Fund promotes environmental and social characteristics by investing in companies whose activities are aligned to one or more United Nations Sustainable Development Goals (“UN SDGs”). The Fund therefore uses the UN SDGs as sustainability indicators to measure the attainment of each of the environmental or social characteristics promoted by the Fund.

In addition, the Fund seeks to make investments that contribute substantially to the environmental objectives relating to climate change mitigation, climate change adaptation and the transition to a circular economy, as defined by the Taxonomy Regulation.

The Fund will seek to monitor and enforce good governance practices across Portfolio Companies, in particular with regard to sound management structures, employee relations, employee remuneration and tax compliance.

The selection and ongoing monitoring of Portfolio Companies is based on a rigorous due diligence process which the Fund integrates into its decision making process.

Read the full Climate Technology Venture Strategy Disclosure (PDF,119 KB)

Impact Strategy 2022 is a feeder fund that invests substantially all of its assets into a KKR managed Global Impact strategy (the “Fund” or “KKR”). The Fund will invest in businesses focused on mitigating and adapting to climate change, helping people across the globe achieve learning and employment outcomes, allow for more sustainable living across cities, circular economies, and consumption, and enhance inclusion across a number of areas – with the goal of broadening and deepening their positive impact. The Fund will invest in businesses that contribute solutions to specific UN Sustainable Development Goals (UN SDGs) and generate impacts that are measurable and reportable, either directly through its core business model, or indirectly through the way the company differentiates its core business model. Additionally, KKR will seek to improve a company’s ESG performance during its period of ownership, through monitoring and reporting on ESG related performance. KKR intends to work with each portfolio company to appropriately integrate and monitor progress on material ESG issues and impact performance aligned with the UN SDGs.

All of the Fund’s investments will be subject to the Fund’s sustainable investment objective. KKR will ensure that each investment does no significant harm to other environmental or social objectives by applying the most relevant indicators (quantitative and qualitative) for adverse impacts on sustainability factors. The Fund will also check for each investment that companies have processes and compliance mechanisms to monitor compliance with the UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises, and for related violations.

KKR will seek to improve a company’s ESG performance during the ownership period and will measure and report on this as guided by third party frameworks, primarily using data from portfolio companies. KKR will assess the good governance practices of each investment as part of its due diligence. At the outset and on an on-going basis, KKR will seek to ensure that each investment has sound management structures in place, including in relation to executive compensation, and has a risk framework to prevent illicit business practices or misconduct.

Read the full Impact Strategy 2022 Disclosure (PDF,400KB)

The HSBC Senior UK Direct Lending Strategy 2022 (the "Fund") will promote ESG characteristics within the meaning of Article 8 of the Disclosure Regulation by seeking to invest in businesses that meet the requirements of the relevant ESG framework of the AIFM (in coordination with the Portfolio Manager). In particular, the Fund will promote ESG characteristics by not making any investments with a High ESG score as evidenced by the Portfolio Manager's approach to assessing ESG Ratings (as defined below) for prospective borrowers. The Fund will not make investments with a Medium ESG score unless a plan

Read the full Senior Direct Lending Strategy Disclosure (PDF, 445KB)

The Red Hexagon Energy Transition Asia Fund (the “Fund”) will seek to deliver medium-term capital appreciation by investing in businesses that develop, own and/or operate energy transition infrastructure (“ETI”) assets within the target markets.

The Fund promotes environmental or social characteristics but does not have as its investment objective sustainable investment. The assets of the Fund may (but for the avoidance of doubt, there is no obligation to) include investments that qualify as sustainable investments within the meaning of article 2 (17) of the Disclosure Regulation.

The Fund will promote environmental or social characteristics pursuant to SFDR Article 8 by investing in companies that align to one or more UN SDGs. Specifically, it seeks to invest in ETI that contributes to the following environmental characteristics:

(i) climate change mitigation; (ii) climate change adaptation; and (iii) industry, innovation and infrastructure.

The selection and ongoing monitoring of sustainable investments is based on rigorous due diligence process which the Funds integrate into its decision making process.

The Fund will promote environmental and social characteristics within the meaning of Article 8 of the Disclosure Regulation by seeking to invest in businesses that meet the requirements of the relevant ESG framework of the Portfolio Manager. In particular, the Fund will promote environmental and social characteristics by not making any new investments (other than Follow-on Investments) into companies with a High ESG Score (1). In addition, the Fund will not make investments (other than Follow-on Investments) with a Medium ESG Score (2) unless the Investment Team believes that an improvement in the ESG Rating to a Low ESG Score (3) or a Neutral ESG Score (4) is achievable.

Read the full European Senior Direct Lending Fund disclosures (PDF, 513KB)

Summary

No significant harm to the sustainable investment objective

Do no significant harm (DNSH) analysis is completed as part of HSBC's standard investment process for sustainable assets. The DNSH analysis covers the ESG best in class, a minimum governance score, normative and controversial activities monitoring, the consideration of Principal Adverse Impacts and Principal Adverse Impact integration.

The Portfolio Manager reviews all SFDR mandatory Principal Adverse Impacts (PAIs) to assess the relevance to the Fund. HSBC's Responsible Investment Policy sets out the approach taken to identify and respond to principal adverse sustainability impacts and how HSBC considers ESG sustainability risks as these can adversely impact the securities the Funds invest in. HSBC uses third party screening providers to identify companies and governments with a poor track record in managing ESG risks and, where potential material risks are identified. Sustainability impacts, including the relevant PAIs, identified by screening are a key consideration in the investment decision making process and, in turn, this also supports the advice given to clients.

For the REGIO Fund, quantitative data is gathered and reported on a monthly basis for the following principle adverse indictors (along with that for a selected benchmark for comparative purposes):

• PAI 1. GHG emissions expressed in CO2e using Scope 1 & 2 Carbon Emissions
• PAI 3. GHG intensity of investee companies expressed in CO2e/US$M revenue using Scope 1 & 2 Carbon Emissions
• PAI 4. Exposure to companies active in the fossil fuel sector
• PAI 10. Violations of UN Global Compact principles and Organisation for Economic Cooperation and Development (OECD) Guidelines for Multinational Enterprises
• PAI 14. Exposure to controversial weapons (antipersonnel mines, cluster munitions, chemical weapons and biological weapons)

In addition to this monthly monitoring, broader PAIs are considered through qualitative analysis during the investment due diligence through the sustainability assessment procedure and then reviewed on a periodic basis. Environmental and social issues that are considered in addition to those linked to PAIs 1, 3, 4, 10 and 14 include water (maps to PAI 8), land use and biodiversity (maps to PAIs 7, 8 and 9) and a variety of social issues such as human rights, labour management and affected communities. Where we identify significant principal adverse impacts to sustainability factors and inadequate management of these risks by investees, we may choose not to invest in the companies, reduce or exist our holdings in the companies and/or engage with the companies on these issues.

The Fund is aligned with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights, including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

Environmental or social characteristics of the financial product

The Fund is designed to enable investors to align their financial objectives with real economy impact and further the aims and objectives of the Paris Agreement and the UN Sustainable Development Goals, which seek to address climate change and other sustainability outcomes. The sustainable investment objective of the Fund is to provide attractive risk adjusted returns by investing in a diversified portfolio primarily comprised of Eligible Green Bonds and Other Bonds, principally issued by corporate issuers, on a buy-and-maintain basis.

The Fund will target positive environmental impacts by investing in Eligible Green Bonds. When making investment decisions on behalf of the Fund, the Portfolio Manager will use a robust investment process, including the Green Impact Investment Guidelines, a clear framework for identifying eligible activities for the use of proceeds. The Green Impact Investment Guidelines require (amongst other things) a use of proceeds aligned with at least one of the following UN Sustainable Development Goals: 6 (Clean Water and Sanitation), 7 (Affordable and Clean Energy), 11 (Sustainable Cities and Communities), 12 (Responsible Consumption and Production), 13 (Climate Action), 14 (Life Below Water) and 15 (Life on Land).

Investment strategy

The Fund aims to provide attractive risk adjusted returns by investing in a diversified portfolio primarily comprised of Eligible Green Bonds and Other Bonds, principally issued by corporate issuers, on a buy-and-maintain basis.

During the Investment Period, the Fund will invest in Eligible Green Bonds and Other Bonds. Although the Portfolio Manager will seek to invest in Eligible Green Bonds from the launch of the Fund, it is expected that, initially, the Fund will predominantly invest in Other Bonds. Over time, the Portfolio Manager will seek to sell Other Bonds from the Portfolio in order to fund the acquisition of Eligible Green Bonds, with a view to transition to a Portfolio fully invested in Eligible Green Bonds by the end of the Investment Period. Eligible Green Bonds will also be acquired by the Fund using interest income received and the proceeds received on the maturity of Other Bonds.

Following the Investment Period, the Fund will enter the Run-Off Period, during which the Fund will seek to distribute interest income received and repayment of principal in respect of Eligible Green Bonds and Other Bonds (if any) held in the Portfolio, and net proceeds arising on the maturity of Investments from the Portfolio, net in each case of deductions or provisions required.

Proportion of investments

The Portfolio Manager will seek to manage the Fund in order to achieve the investment targets, and will make investment decisions for the Fund in accordance with the restrictions and limitations set out within the Private Placement Memorandum. The applicable time of measurement for each target and restriction is also set out within the Private Placement Memorandum.

As at 30 September 2022, the Fund's AUM was USD435.1 million with 48.13 per cent of this invested in 25 eligible green bonds which represented a market value of USD209.4 million. The REGIO Fund has the target of 100 per cent of NAV (excluding cash and derivatives) to be invested in eligible green bonds by the end of the Investment Period (seven years from the Initial Funding Date 27 May 2020) and the target of 50 per cent of NAV to be invested in eligible green bonds by the fourth anniversary of the initial funding date. Taking into account non-eligible green bonds in the Fund which we have classified at the firm level as sustainable investments under the SFDR, the sustainable investment percentage of the Fund was 69.22 per cent. The Fund is therefore ahead of schedule with regards to its eligible green bond investment target.

This Fund does not have the objective to align environmental objectives with the EU Taxonomy. As such we do not calculate the alignment of the use of proceeds of eligible green bonds with the EU Taxonomy.

Monitoring of environmental or social characteristics

All Funds shall demonstrate strong and/or improving ESG characteristics at the issuer and overall portfolio level. Such criteria can be quantitative or qualitative and are monitored on an on-going basis. HSBC Asset Management conducts on-going monitoring of Funds - both at the issuer and overall portfolio level. Companies with ESG risk scores that require targeted review are assessed within an internal governance forum. Funds are monitored via an ESG dashboard to ensure portfolios align to the internally established thresholds (for example - portfolio average ESG score, exclusions, enhanced due diligence etc.).

Good corporate governance has long been incorporated in our proprietary fundamental company research. HSBC Asset Management's Stewardship team meet with companies regularly to improve our understanding of their business and strategy, signal support or concerns we have with management actions and promote best practice. HSBC believe that good corporate governance ensures that companies are managed in line with the long-term interests of their investors.

For our full Stewardship Policy, please go to www.assetmanagement.hsbc.com/about-us/responsible-investing/policies.

The Regio Fund, assesses the use of proceeds and alignment to Sustainable Development Goals of eligible green bonds in the Fund to assess progress towards the objective of targeting positive environmental impact within Emerging Markets’ real economy. The Fund gathers sustainability data against various indicators depending on the use of proceeds of the eligible green bonds as part of its annual impact reporting process.The sustainability indicators for which we have the most data across all eligible green bonds are:

• Average GHG Avoided per mn USD invested (tCO2eq/mn USD)
• Total GHG Avoided (tCO2eq/y)
• Total Energy Savings (MWh/y)
• Total RE Generation (MWh/y)
• Total RE Installed Capacity (MW/y)
• Total Biodiversity or Forest Land Protected(ha/y)
• Total Passenger-km and/passenger (passenger/y or tonne/y or m3/y)
• Total Water Saving (m3/y)

Methodologies

Although the Portfolio Manager will seek to invest in Eligible Green Bonds from the launch of the Fund, it is expected that, initially, the Fund will predominantly invest in Other Bonds. Over time, the Portfolio Manager will seek to sell Other Bonds from the Portfolio in order to fund the acquisition of Eligible Green Bonds, with a view to transition to a Portfolio fully invested in Eligible Green Bonds by the end of the Investment Period. Eligible Green Bonds will also be acquired by the Fund using interest income received and the proceeds received on the maturity of Other Bonds.

HSBC uses its own proprietary systematic investment process to measure how the environmental characteristics promoted by the sub-fund are met. HSBC will use data provided by a number or third parties. All data used will be verified by HSBC Asset Management's extensive research department.

Data sources and processing

1. HSBC Asset Management uses data from a number of external third parties such as Sustainalytics, ISS, MSCI and Trucost to ensure it attains the environmental characteristics promoted. Additionally, it sources sustainability and impact data directly from the annual green/sustainable finance reports published by bond issuers.
2. The data is verified by HSBC Asset Management's extensive research department. In the case of the REGIO Fund, HSBC Asset Management also collaborates with the IFC to gather data for sustainability and impact reporting.
3. The data is processed via HSBC Asset Management's propriety research methodology.
4. HSBC Asset Management is reliant on third party data and while we verify the data, we cannot comment on limitation to the methodologies of such third-party companies. No data is estimated by HSBC Asset Management.

Limitations to methodologies and data

1. While HSBC Asset Management use third party data from multiple sources, HSBC Asset Management review and research such data, however there is still limited coverage of the data available.
2. HSBC Asset Management is not aware of any limitation in meeting the environmental or social charteristics of the Fund.

Due diligence

As part of the investment decision-making process, the Portfolio Manager will conduct thorough due diligence on prospective investments. The Portfolio Manager's credit analysts will perform proprietary research and produce an internal risk rating and formal recommendation for each issuer which is assigned to them. The credit analysts will base their research on fundamental, valuation and technical analysis and incorporate qualitative and quantitative ESG factors throughout the process.

All the research will be maintained on a web-based internal credit platform, which will include credit history and portfolio analytics and provide real-time access to information globally. Research coverage is governed by a consistent set of global standards and is monitored by the Portfolio Manager's Heads of Credit Research, as well as its Global Chief Investment Officer – Fixed Income.

Engagement policies

HSBC Asset Management uses a number of ESG rating agencies for norms-based screening against the UN Global Compact principles. Good corporate governance has long been incorporated in our proprietary fundamental company research. HSBC meets with investee companies (and potential investee companies) regularly to improve our understanding of their business and strategy, to signal support and/or to highlight concerns we have with management actions and promote best practice. HSBC believes that good corporate governance ensures that companies are managed in line with the long-term interests of their investors.

We meet the management of investee companies (or potential investee companies) and other issuers regularly as part of our active investment process. This engagement is a key element in our stewardship oversight of client assets. It may form part of our monitoring of investee companies (or potential investee companies) and issuers or it may represent a means of escalation of any concerns we identify. We challenge companies and issuers on their delivery of corporate strategy, financial and non-financial performance and risk, allocation of capital and management of environmental, social and governance issues. We engage to understand the approach management is taking and to test how far they are being good stewards. We also encourage investee companies and other issuers held in client portfolios to establish and maintain high levels of transparency, particularly in their management of ESG issues and risks. We raise ESG or other concerns with investee companies and other issuers where we believe that to be in the interest of investors, identifying company specific or systemic risks. We prioritise our engagement on the basis of scale of client holdings, salience of the issues concerned, and our overall exposure to these issues.

For our full Engagement Policy, please go to www.assetmanagement.hsbc.com/about-us/responsible-investing/policies

Attainment of the sustainable investment objective

The JP Morgan ESG CEMBI has not been designated for the purpose of attaining the environmental or social characteristics of the Fund. No sustainable reference benchmark has been designated.

Impact Strategy 2023 is a feeder fund that invests substantially all of its assets into a The Rise Fund III LP, a Delaware Limited Partnership (“the Underlying Fund”).

The Rise Fund III is anchored in a belief that private capital can be a significant contributor in addressing serious societal challenges. Investors are key to enabling these impactful businesses; the investment community provides not only financing to growing enterprises but also guidance on mastering the business cycle, model, and industry, which is foundational to then delivering any intended impact. In partnering to build businesses that deliver goods or services with a positive effect, TPG believe the Underlying Fund can continue to scale societal and financial returns in tandem (the “Investment Objective”).

The investment strategy of the Underlying Fund will be to seek significant investments in growth-stage businesses which have the ability to achieve measurable social and/or environmental impact alongside competitive financial returns. Generating impact will be an objective in each investment and an integral factor to account for through exit.

The Underlying Fund will seek to make investments primarily in businesses that the Underlying Fund General Partner believes have positive societal (i.e., social and/or environmental) impact. In light of the nature of such investments, the Underlying Fund General Partner expects that such investments will consist primarily of small buyout, venture capital and growth investments.

The Underlying Fund is expected to source and invest across six primary sectors: Education, Financial Inclusion, Healthcare, Impact Services, Food & Agriculture, and Climate & Conservation. It will be pursuing investments in high-impact businesses through various investment types, deal structures, and geographies. The Underlying Fund will seek to invest globally in companies across developed and developing markets, including Africa, India, and broader Asia, as macroeconomic conditions and specific opportunities evolve.

The Underlying Fund is designed to maintain the flexibility to pursue prime deals, while seeking to ensure that each investment in the portfolio is capable of achieving a positive societal impact.

Real Estate Strategy 2024 is a master / feeder fund structure that invests substantially all of its assets into a Brookfield managed Real Estate strategy (the “Underlying Fund”).

The Underlying Fund's primary objective is to seek attractive opportunistic risk-adjusted returns by acquiring positions of control or significant influence in real estate and real estate companies globally capitalizing on market instabilities and volatility and accessing growth opportunities.

The Underlying Fund seeks to promote the four environmental and social characteristics below.

Read the full Real Estate Strategy 2024 Disclosure (PDF, 209KB)