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Decode the Circular Economy and REthink the future

Transitioning to the Circular Economy is critical to ease demand on our planet’s natural resources and deliver sustainable economic growth. Regenerative by design, the Circular Economy minimises waste while providing a new world of opportunity for investors where preservation drives prosperity.

HSBC Asset Management is decoding the Circular Economy to enable investors to rethink their investments and become part of the solution. As part of this move forward, we have launched our HSBC GIF Global Equity Circular Economy fund.

What is a Circular Economy?

The demand on our planet’s natural resources is unsustainable.
Feeding into a global desire for positive change, the Circular Economy helps conserve and optimize finite resources while opening up investment opportunities and delivering sustainable economic growth.

Circular economy

Why should we act now?

*Data as at April 2020. Source: Message for Earth Day 2020

Current linear model: take, make, use, waste

Exhaustion of natural resources and water pollution

Exhaustion of natural resources and water pollution

• Rarefication of industrial materials and fossil fuels
• 80 per cent of water waste is untreated before re-entering the ecosystem¹

Soaring CO2 emissions and waste

Soaring CO2 emissions and waste

• Global emissions of CO2 have risen by c. 50 per cent since 1990²
• 5 tons of waste is produced by the average European each year³

Deterioration of Biodiversity & living conditions

Deterioration of Biodiversity and living conditions

• Loss of 83 per cent of wild mammal biomass and over 40 per cent of plants⁴
• Commodity shortages lead to mass starvation

Society is increasingly embracing the circular economy transition

Regulations and Governments worldwide are moving fast forward on Circular Economy

November 2019: African Durban Declaration
March 2020: European Green Deals Circular Economy Action Plan
July 2021: China’s 5-year Circular Economy Plan
February 2021: Circular Economy strategies across Latin America
2023: Amendment of the Waste Framework Directive by the European Commission

Society calls for action…

Environmental activists and IPCC* report urge for changes in consumptions and waste
Consumers are more and more mindful of sustainable consumption practices
Geopolitical tensions stress the urgent need for resources sovereignty

More investors and companies are looking into circular economy integration

EU taxonomy to include specifics on circular economy (criteria and thresholds) by end 2022
Increased numbers of companies are disclosing Circular economy’ KPIs** and strategies

1: January 2022, Visualized: The Circular Economy 101
2: June 2019, Plastic pollution facts and information
3: June 2022, Climate Change - United Nations Sustainable Development
4: May 2022, Waste and recycling

*IPCC = Intergovernmental Panel on Climate Change, **KPIs = Key Performance Indicators Source: HSBC Asset Management. June 2022. The commentary and analysis presented in this document reflect the opinion of HSBC Asset Management on the markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Asset Management.

Circular Economy helps resolve the world’s most pressing challenges

Circular Economy delivers on several UN Sustainable Goals, especially:

Investors are catalyzing change through portfolios focused on Sustainable Development Goals

Examples:
Goal 12: Responsible Consumption and Production
Every second, the equivalent of a rubbish truck load of clothes is burnt or buried in landfill.

In a circular economy for fashion, products are used more, made from safe and recycled or renewable inputs, “made to be remade”, recycled or composted. Hazardous substances to health or the environment are designed out³.

Goal 6: Clean Water & Sanitation
72 per cent of all water withdrawals are used by agriculture⁴. The most impacted regions (West Asia, Pacific) export scarce water through food and cotton products to net importers like Europe and North America.

Efficient textile and food production means massive decrease in water stress in Asia.

1: January 2022, Visualized: The Circular Economy 101
2: The Global Circularity Report 2021
3: Source: Fashion and a circular economy | Ellen MacArthur Foundation
4: February 2021, Scarcity | UN-Water

Source: HSBC Asset Management, June 2022. The commentary and analysis presented in this document reflect the opinion of HSBC Asset Management on the markets, according to the information available to date. They do not constitute any kind of commitment from HSBC Asset Management.

Hear from our expert

Bénédicte Mougeot, Portfolio Manager and Head of Climate Equity

Getting to know the Circular Economy

Ever wondered how the Circular Economy is central to developing efficient practices that conserve resources and eliminate waste? Watch the video to know more about HSBC’s Circular Economy strategy, the portfolio philosophy and the benefit it brings to investors.

An opportunity for investors

Investing in solutions to the long-term sustainability challenges we face offers an added benefit for those who want their capital to contribute to improved outcomes beyond investment returns.

How does the Circular Economy open up opportunities?

Companies

• Well prepared for commodity shocks, lower input costs, less dependent on other parties
• Securing demand, benefiting from improved customer loyalty
• Proven Circular Economy business models enhance ROCE^*

* ROCE = Return on capital employed

Customers

• Quality over quantity: longer product life cycles; improved transparency and traceability
• Deeper customer relationships through customization, reconditioning or repurposing

Society

• Healthier environment, less toxicity & pollution, preservation of eco-systems
• New avenues for employment through reshoring
• Balanced access to resources reduce geopolitical and social tensions

Key Risks and Risk Indicators

The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested.

Capital loss risk: There is no guarantee of capital preservation
Equity risk: Stock market investments may be affected by general market conditions
Small and mid-cap risk: These securities may be more volatile and less liquid than larger-cap equities
Foreign exchange risk: Currency fluctuations may affect investment value
Emerging markets risk: these markets may involve higher risk, reduced liquidity and less regulation
ESG (Sustainability) risk: Environmental, social or governance factors could adversely impact the value of investments

Summary Risk Indicator (SRI)

The fund’s SRI is 4 out of 7, indicating a medium to high level of risk. This measure reflects market and credit risk. Historical data is not a reliable indicator of future performance. The rating is not guaranteed and may change over time. A lower SRI does not mean a risk-free investment.

Important information

Further information on risks is available in the Key Information Document (KID) and the Prospectus or Offering Memorandum. Investors should review these documents carefully before making investment decisions.

Summary Risk Indicator (SRI) = 4 out of 7

Risk and Reward profile

The SRI (Summary Risk Indicator) is an overall indicator of the product risk level resulting from the combination of market risk and credit risk. The scale varies from 1 (least risky) to 7 (most risky). Historical data may not be a reliable indication for the future. The rating is not guaranteed to remain unchanged and the categorisation may shift over time. The lowest rating does not mean a risk-free investment. Do not run any unnecessary risk. Read the Key Investor Information Document.
The fund has a high risk indicator. The value of investments can go up as well as down.

Today, we and many of our customers contribute to greenhouse gas emissions. This is why HSBC Asset Management, together with other asset managers, have an important role to play in supporting the transition to a net zero economy. Step by step, we are developing strategies to reduce our own emissions and to help our customers reduce theirs. For more information visit https://www.assetmanagement.hsbc.com/about-us/net-zero

Disclaimer

The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested. Past performance is not a reliable indicator of future results. Any forecasts, projections or targets are provided for illustrative purposes only and are not guaranteed. We accept no liability for any failure to meet such a forecast, projection or target.

This document has been prepared for general information purposes only and does not constitute investment advice or take into account the specific investment objectives, financial situation or particular needs of any person.

This is not an offering document and should not be construed as a recommendation or solicitation to buy or sell any investment.

The content is intended for professional investors only and should not be distributed to or relied upon by retail clients.

Further information can be found in the relevant Key Information Document (KID), Prospectus, or Offering Memorandum.