This fund has above-average exposure to ESG risk relative to its peers in the Global Equity Large Cap category, earning it the second-lowest Morningstar Sustainability Rating of 2 globes. Funds with 4 or 5 globes tend to hold securities that are less exposed to ESG risk. ESG risk measures the degree to which material environmental, social, and governance issues, such as climate change, biodiversity, human capital, as well as bribery and corruption, could affect valuations. ESG risk differs from impact, which is about driving positive environmental and social outcomes for society’s benefit.
A potential issue for a sustainability-focused investor is that HSBC Multi Factor Worldwide Equity ETF is not classified by its manager as Article 8 or Article 9 of the Sustainable Finance Disclosure Regulation. Funds classified by their managers as Article 8 or Article 9 either promote environmental or sustainable characteristics or have a sustainable investment strategy, respectively, and hence are more likely to drive positive ESG outcomes. Currently, the fund has 11.2% involvement in fossil fuels, surpassing 6.8% for the average peer in its category. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons. However, the fund struggles to fulfill this goal, as it exhibits 3.74% exposure to such companies. This compares with 1.19% for its average peer in the Global Equity Large Cap category.
HSBC Multi Factor Worldwide Equity ETF has an asset-weighted Carbon Risk Score of 9.1, indicating that its companies have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets. The fund aims to avoid, or limit exposure to, companies in violation with international norms, such as the UN Global Compact or the Universal Declaration of Human Rights.
The fund has a modest level of exposure (6.27%) to companies with high or severe controversies. Companies with controversies are involved in incidents such as corruption, employee abuses, and that pose some degree of business risks to the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they controversies can damage the reputation of both companies themselves and their shareholders.
United States