An increased risk of flooding could disrupt companies and affect the value of their assets
HSBC Global Asset Management handles assets worth hundreds of billions of dollars on behalf of its customers. Stephanie Maier is Director, Responsible Investment. She discusses why climate change is high on her list of priorities.
What does responsible investment mean to you?
One of the ways HSBC Global Asset Management seeks to generate returns for customers is by investing in companies, including by buying shares and bonds. We believe that companies who conduct their business in a responsible way are more likely to deliver value over time.
Put simply, if a company has responsible policies and practices, we are more likely to invest in them than in a similar company with poor policies. We look at:
Environmental issues, including use of natural resources
Social issues, including employee welfare and human rights
Governance, such as company culture and executive pay
We also engage and vote at the Annual General Meetings of the companies where we are shareholders. In that capacity, we have an important role to play in prompting companies to act responsibly and encouraging them to adopt sustainable, long-term strategies.
What part does climate change play in your considerations?
Climate change is a material and systemic risk that no long-term investor can afford to ignore.
Stephanie Maier, Director, Responsible Investment, HSBC Global Asset Management
While international leaders agreed a shared ambition to take action to limit global temperature increases to within 2 degrees Celsius at the Paris conference in December 2015, we are already seeing the impact of more extreme weather events such as storms and droughts. This could affect the value of companies and of the assets they own. A company that owns factories in low-lying areas prone to flooding would be exposed to increased physical risk, for example.
At the same time, governments around the world have introduced policies to tackle climate change and further policies are signalled. This could include targets for renewable use, incentives for electric vehicles or new charges on high-polluting fuels. New rules will create challenges and opportunities for different companies. Asset managers want to see companies taking these challenges and opportunities into account in their long-term planning.
Which companies and sectors are most affected by climate change?
Almost every single part of the economy, from agriculture to insurance, will be affected by climate change. That said, industries which emit high amounts of greenhouse gases are likely to see the biggest impact. These include power and utilities companies, automotive companies, oil and gas, the chemicals industry and construction. Asset managers are paying particular attention to what these companies are doing to integrate climate change into their strategy. The best-prepared companies will have a long-term vision of how they can thrive in a low-carbon economy.
To what extent do you work in partnership with other asset management companies?
It is vital for asset managers and institutional investors to work together on issues such as sustainable development and climate change. By joining forces, we can tackle systemic challenges more effectively.
It is vital for institutional investors to work together on climate change
That’s why HSBC Global Asset Management plays an active role in a number of industry-wide initiatives. To give just one example, we are among a number of asset managers and owners working on a project with the Cambridge Institute for Sustainability Leadership Investor Leaders Group, developing measures to help investors compare the progress that different companies are making to support the United Nations Sustainable Development Goals.
We are also supporting the launch of Climate Action 100+. This is a new five-year initiative, led by investors, to engage with the world’s largest corporate emitters of greenhouse gases. Collectively, we aim to encourage those companies to curb emissions, strengthen climate-related financial disclosures and improve governance on climate change. (Read more on the Climate Action 100+ website.)
What do you see as the biggest challenges in your role?
In 2015, international leaders signed up to the United Nations Sustainable Development Goals and the Paris Agreement. These set an agenda for what needs to happen over the next 15 years and beyond. Delivering that agenda will be a significant challenge, calling for a wholesale change in many aspects of the global economy. What’s exciting, for me, is that asset managers have a key part to play in mobilising the capital needed to support that change.
More broadly, I think it is important to get more people involved and engaged with responsible investment. It isn’t always easy to navigate the specialist language and technical definitions. As an industry, we have to get better at explaining what we do, giving people the information they need to make responsible investment choices.
Read more about HSBC Global Asset Management and its approach to responsible investment on the HSBC Global Asset Management website.
Better disclosure of climate-related information is a vital step in companies’ efforts to combat climate change, according to HSBC Group Chairman Mark Tucker. Mr Tucker was speaking at a panel during a conference on climate change in Paris, 12 December 2017.
He said: “High-quality disclosure is essential for focusing finance and markets on delivering the transition to a low-carbon economy. The Task Force on Climate-Related Financial Disclosure (TCFD) offers the prospect of a comprehensive framework for disclosure. The challenge and opportunity now is to put theory into practice and implement the TCFD recommendations consistently and sustainably across countries and sectors.”
HSBC pledged to adopt the recommendations of the TCFD as one of five new commitments to sustainability in November 2017. In its next two Group annual reports, HSBC will give more details on its approach to climate-related risks and opportunities.