Embracing ESG and cross-border opportunities
Hang Seng Indexes Company (HSIL) was recognised in Asia Asset Management’s (AAM) 2023 Best of the Best awards for Best ESG Index Provider – Hong Kong, Best ESG China Index Provider, Best China Index Provider and Most Innovative Index in Hong Kong.
The company’s Chief Executive Officer Anita Mo and Chief Index Officer Daniel Wong share their thoughts with AAM on how the index provider is diversifying its environmental, social and governance index line-up and developing innovative benchmarks, including China-centric products to cater to demand from growing cross-border investment activities.
Sustainable investment
“We’re the pioneer in sustainable investment indexes in the market and have launched the Hang Seng Corporate Sustainability Index Series for more than ten years. The indexes not only serve as a benchmark for investments, but have also become the performance criteria of certain sustainability-linked loans for listed companies,” explains Mo.
Over the years, she adds that HSIL has expanded its ESG capabilities by offering diverse sustainable investing strategies to meet clients’ increasing and evolving sustainable investing needs. These strategies include ESG integration, decarbonisation and thematic green economy.
“We also offer highly flexible and customised ESG indexes to meet clients’ specific needs,” she adds.
Today, HSIL has 20 ESG indexes, and assets under management (AUM) in products tracking the company’s ESG related indexes have doubled in the past two years. Its ESG indexes have been well received by the market, not least the HSI ESG Enhanced Index series, a high quality sustainable investing benchmark series which integrates ESG elements into the Hong Kong market’s barometer Hang Seng Index. In addition, one new ETF tracking its recently launched Hang Seng Stock Connect China A Low Carbon Select Index was listed in HKEX in March, the first low-carbon themed A-share ETF in Hong Kong.
In 2022, HSIL became a signatory of United Nations-supported Principles for Responsible Investment to reinforce its commitment to facilitating the development of sustainable investment and supporting the acceleration of the transition to a low-carbon future.
“We join hands with asset owners, asset managers and other service providers to promote the implementation of responsible investment principles in the investment industry. And as a leading index compiler in Hong Kong, we take pride in our responsibility to promote sustainable development, not only within the financial markets, but also within broader society,” says Mo.
She adds that since 2014, HSIL has appointed the Hong Kong Quality Assurance Agency to evaluate the sustainability performance of Hong Kong-listed and A-share companies which provides motivation to these companies to enhance their sustainability performance. The ratings, which cover a total of nearly 2,000 companies, are displayed on an HKEX online portal.
Comprehensive China-related indexes
On top of ESG indexes, HSIL also offers comprehensive China index suites to help investors embrace expanding investment opportunities in China.
Regarding the development of China-related indexes, Wong says the company’s flagship Hang Seng China Enterprises Index (HSCEI) is highly regarded by the market as a representative China index, with AUM in products tracking HSCEI having reached around US$5.7 billion as at end of March 2023. The product ecosystem of the index is comprehensive, covering exchange-traded funds, leveraged and inverse products, futures and options, derivatives, structured products, and the Mandatory Provident Fund.
Riding on the success of the HSCEI, the Hang Seng Stock Connect China Enterprises Index (HSCEA) was launched in August 2022 to provide investors with a one-stop solution for tracking Chinese companies.
“Now the 10% allocation limit to China A-shares in the MPF scheme has been lifted, we believe our HSCEA index is a suitable investment solution for MPF scheme holders, offering a well-diversified portfolio, better performance and low volatility compared to the HSCEI. We’re currently engaged in active communication with various MPF scheme providers regarding potential collaboration,” remarks Wong.
And with HSIL at the forefront of the market in terms of embracing new technology and formulating innovative benchmarks to accommodate market demand, it is worth noting that HSIL’s AH Premium Index has been well recognised as a key barometer for measuring A-share and H-share companies’ share price difference. Indeed, in the last two years, HSIL has launched a suite of its thematic indexes series aimed at measuring the performance of innovative and disruptive themes. In 2022, HSIL also adopted Natural Language Processing (NLP) for its thematic index creation.
“From a product perspective, the AUM of China’s onshore fund managers reached US$12.5 billion in 2022. Four out of the five largest cross market ETFs in China were tracking our indexes, clearly illustrating HSIL’s credibility and trustworthiness by onshore investors,” Wong explains. Currently, discussions are taking place with fund managers regarding issuing ETFs tracking HSIL’s A-share index.
Finally, the launch of the ETF Connect programme marks an important milestone in Hong Kong and HSIL continues to collaborate with asset managers to introduce and promote ETFs.
“Once an ETF becomes eligible as a Southbound ETF, onshore investors can trade the ETF more efficiently under the Stock Connect programme just like other eligible stocks,” he concludes.