Integrating ESG in Liquidity Fund portfolios

Treasury management does not escape the increasing focus on corporate sustainability, driven by shifting stakeholder expectations and improving transparency on corporate behaviours and supply chains. As treasury policies evolve to reflect this, adopting sustainable investment solutions can contribute to a firms broader ambitions on sustainability.

Driving forces of responsible investing in Treasury Management

Increased focus on corporate sustainability raises the question of how treasury can contribute to sustainability objectives. We believe there are three overarching industry themes:

In light of these themes is that treasury activity can support sustainability goals through integration of ESG solutions for funding and cash management.

ESG in Money Market Funds?

At HSBC Asset Management, we believe that liquidity management should focus on risk management, as our primary responsibility to investors is to aim to preserve capital and provide liquidity rather than delivering a higher risk to return outcome. Our emphasis on prudent risk management was expanded in 2007 to incorporate consideration of Environmental, Social and Governance (ESG) factors in our credit assessment through a process of ESG Integration. By incorporating ESG integration in this way, material ESG considerations are an integral part of our security analysis alongside fundamental financial considerations to drive better investment decision making.

Going beyond fundamental credit analysis and considering risks arising from ESG factors, provides a more complete view of a company’s future performance, allowing us to better manage risks and their implications for the credit profile of the issuers in which we invest. This directly impacts our credit quality assessment and internal credit rating awarded to issuers, which in turn dictates the maximum tenor and value the Portfolio Managers can invest into.

We report annually on our responsible investment activities and how the UN Principles for Responsible Investment and different ESG aspects are covered as part of our investment processes. We achieved a Principles for Responsible Investment (PRI) score of A+ in the 2018, 2019 and 2020 PRI Assessment Report for Strategy and Governance and Fixed Income modules.¹

Responsible investing at HSBC Asset Management

Responsible investment is integral to our investment philosophy and approach

• With a strong heritage of successfully connecting our clients to global investment opportunities, and proven expertise in connecting the developed and developing world, we have a unique perspective on ESG factors

Our key credentials are²:

ESG integration into the investment process

We believe that Environmental, Social, and Governance (ESG) issues can have a material effect on company performance and see it as consistent with our fiduciary duties to our clients to incorporate ESG analysis as part of our investment decision-making.

• Material ESG considerations are an integral part of our security analysis alongside fundamental financial considerations
• We develop our own in-house ESG ratings for issuers and create sector-specific weightings that reflect the materiality of ESG factors, which we then build into our ESG research platform and our fixed income portfolio analytic tools
• This approach allows us to integrate material ESG factors into our investment analysis and decision-making during every step of the investment cycle in order to reduce risk

How we integrate ESG considerations

¹ HSBC Asset Management achieved A+ in the 2018, 2019 and 2020 PRI Assessment Report for Strategy and Governance and Fixed Income modules.
² Source: HSBC Asset Management PRI Assessment Report, available on Responsible Investing page.