Focusing on Sustainable Investing and long-term megatrends
Hang Seng Indexes Company is winner of Best ESG Index Provider and Most Innovative Index, Hong Kong in Asia Asset Management’s (AAM) Best of the Best Awards 2022.
The company has been recognised for its achievement in formulating various environmental, social and governance indexes to cater to investors’ growing appetite for sustainable investments.
According to Chief Business Development Officer at Hang Seng Indexes Company, Taie Wang, sustainable investment has been growing in popularity in Asia as investors, particularly those in Mainland China and Hong Kong, increase their allocations to climate change and carbon neutral exchange-traded funds.
Figures from Morningstar Inc. show that Asia ex-Japan sustainable funds’ assets gained 70% year-on-year in 2021 to reach US$63 billion.
Hang Seng Indexes Company made its foray into the ESG market in 2010 with the launch of its first sustainable indexes, the Hang Seng Corporate Sustainability Index Series. In recent years, the company has been taking steps to diversify its ESG index family to take advantage of ESG market growth.
According to Wang, the ESG market is primarily driven by China’s plan to have its carbon dioxide emission peak by 2030 and to achieve carbon neutrality by 2060, as well as regulatory pushes from the financial sectors.
“As ESG investments constantly evolve, we continue to appoint more international ESG rating data vendors. We are also expanding our ESG capabilities by offering diverse sustainability strategies, including a positive screening methodology, thematic ESG strategies, as well as ESG integration strategies,” Wang says in an interview with AAM.
Hang Seng Indexes Company currently has 16 ESG indexes tracking Hong Kong stock and A-share and Mainland-Hong Kong stock connect markets, including eight licensed as benchmarks for investment mandates and ETFs, as well as structured products.
Wang says the company is looking to expand the product line-up to offer more ESG investment strategies and various themes.
She notes there is no “one-size-fits-all” solution in the ESG index universe as clients have different demands in terms of investment objectives, risk tolerance, benchmark deviation, and data. As such, Hang Seng Indexes Company needs to be able to compile index suites that are robust and sensible in terms of methodologies, data, and investment objectives.
One example is the HSI ESG Enhanced Index, introduced in 2021. The benchmark is suited for investors who are keen to apply key ESG principles to the renowned Hong Kong stock market barometer, Hang Seng Index.
The HSI ESG Enhanced Index differs from the Hang Seng Index in its screening out of the flagship index’s constituent companies with high ESG risk ratings, and tilting constituents weight by its ESG risk ratings. The HSI ESG Enhanced Index has been used as the benchmark for one ESG ETF since March.
Wang points out the HSI ESG Enhanced Index helps strike a balance for investors in closely tracking the Hang Seng Index and meeting their ESG goals.
Looking forward, the company will compile more ESG indexes based on other flagship indexes such as the Hang Seng TECH Index and the Hang Seng China Enterprises Index (HSCEI), as well as indexes that meet the EU Paris-Aligned Benchmark Requirements.
In addition, the company will continue to explore new opportunities in the ESG space and place greater emphasis on issues such as climate risk and net zero.
Product innovation
Hang Seng Indexes Company introduced its third flagship benchmark, the Hang Seng TECH Index, in 2020.
Hang Seng Indexes Company Head of Product, Elaine Lam, tells AAM the launch marks a significant achievement in product innovation as the Hang Seng TECH Index allows investors to take advantage of new businesses in the technology sector and the trend for “homecoming listings” – a secondary listing in Hong Kong for US-listed Chinese technology firms.
Describing the index methodology, Lam says the company uses comprehensive screening processes to select new technology-themed companies in five sectors, including information technology, consumer discretionary, financials, industrial, and healthcare based on various criteria such as whether the companies operate via a technology enabled platform, the research and development expense to revenue ratio, and revenue growth.
She adds that Hang Seng Indexes Company will continue to focus more on “megatrends” – the long-term structural and economic forces that impact societies, such as transformative technology, driving innovation and redefining business models.
“The megatrend investment growth is underscored by the rise of thematic ETFs,” she says. “For example, thematic ETF assets in Hong Kong almost tripled in 2021 to around HK$50 billion ($6.41 billion).”
Hang Seng Indexes Company has rolled out related benchmarks tracking NextGen communication, and e-commerce over the past years. Lam says the company is looking to develop its metaverse benchmark going forward.
Metaverse is a combination of multiple elements of technology, including virtual reality and augmented reality, where users can live, experience and even work within a digital three-dimensional universe.