Hong Kong gets new climate-linked stock market tracker amid big fund inflows, policy controversy

  • Hang Seng Indexes introduces a new index to track 209 companies and their efforts to slow global warming
  • Move comes before a new rule in Hong Kong requiring money managers to disclose greenhouse gas emissions data from November this year

Hong Kong’s stock index compiler has unveiled a new benchmark for investors to back companies with measurable efforts to slow global warming, a sector that has attracted huge fund inflows and occasional controversy.

The Hang Seng Climate Change 1.5ºC Target Index will track the 209 of the 311 component members in the city’s index of mid- and large-capitalisation investable stocks, according to compiler Hang Seng Indexes Company. The index stood at 6,418.22 points on Friday, or 7 per cent above its 6,000-point base in September 2015. It outpaced the investable gauge by 0.9 percentage point over the period.

The index constituents are filtered according to the minimum requirements established by the European Union’s Paris Aligned Benchmark standards. “Bad actors” such as weapons makers, tobacco producers, coal, oil or fossil-fuel power generators are excluded.

“We want to provide a tool for investors who want to invest in a portfolio in Hong Kong, while at the same time ensure their investments are allocated to companies that seek to reduce carbon emissions,” chief executive Anito Mo said in a media briefing.

The top five constituent stocks of the new index are Tencent Holdings, HSBC, AIA Group, Meituan and Alibaba Group Holding, the owner of this newspaper. Their individual weight in the index will be based on progress in reaching their carbon reduction targets.

Hang Seng Indexes is confident the new tool can help promote the city as a fundraising hub for green products, Mo added. The Chinese climate funds market grew by 149 per cent in 2021 to US$46.7 billion last year, according to data compiled by Morningstar. The US market ranked third with US$31 billion.

Globally, sustainable funds attracted close to US$97 billion of net new money in the first three months of 2022, a 36 per cent drop from the preceding quarter, according to Morningstar, partly due to market upheavals related to Ukraine war. Total fund assets slipped 4 per cent to US$2.77 trillion from December 31, it added.

The climate change reporting requirements have generated some headlines earlier this month. HSBC suspended Stuart Kirk, its London-based global head of responsible investing at the lender’s asset management arm, for his comments on climate matters.

Under the 2016 Paris Agreement, participating countries pledged to take steps to limit the rise in global temperature to no more than 1.5 degrees Celsius versus the pre-industrial levels. That calls for carbon emissions to peak before 2025 and to fall 43 per cent from 2021 to 2030, a United Nations report showed.

Some 10 per cent of 2,000-odd fund management firms in Hong Kong will be required to disclose greenhouse gas emissions data in their investment portfolios and investees from November 2022, according to a new rule issued by the Securities and Futures Commission.

China has pledged to hit peak emissions befoe 2030 and carbon neutrality by 2060. The government has also committed to start phasing down coal consumption after 2025. Hong Kong’s net-zero target is by 2050.

“All fund managers will need to make sure their investment can meet the green standards,” said Louis Tse Ming-kwong, -managing director of Wealthy Securities.

The 1.5°C Target Index is the 17th ESG-related (environment, social and governance) index unveiled by Hang Seng Indexes Co since 2010. So far, about HK$6.6 billion (US$841 million) of assets in two exchange-traded funds (ETFs) and several Mandatory Provident Fund providers are following the index.

Overall, Hang Seng Indexes has created a total of 210 indexes and licensed fund managers to use them as benchmarks in 112 ETFs with US$37.72 billion of assets.

“More passive fund managers will introduce ETFs based on the ESG indexes because many big fund managers have vowed to add investments in companies that have good sustainability practices,” Mo said.

Author: Enoch Yiu, SCMP

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