Own the transition

01/04/2021

As chief executive of HSBC Asset Management, I am often questioned about our sustainability strategy. It is hard to answer because people mean different things when they ask. Maybe they want to know what we are doing ourselves as a business, in which case I say we co-founded the One Planet Asset Manager Initiative, were early signatories of the Principles of Responsible Investment, and are leading members of dozens of sustainability initiatives worldwide. Or I list the numerous ways we are tackling mental health or gender bias – crucial issues for any boss keen to build a resilient, enduring company.

Others are more interested in our business strategy – perhaps as shareholders in HSBC or smaller asset managers keen to learn what the leading players are up to. Once again, answers can be tricky because sustainability is relatively new. Certainly, there are no tried and tested models, and business schools do not teach ‘Sustainable Strategies for Asset Managers’ as a course. Nevertheless, I have a clear vision of who we are and where we are going.

Our business strategy when it comes to sustainability is based on three pillars. The first is having the conviction of our beliefs and not being afraid to be pioneers. For example, the Real Economy Green Investment Opportunities fund (REGIO) we have launched is the most ambitious emerging market green bond fund anywhere. Likewise, our Pollination joint venture makes us the world-leading asset manager when it comes to natural capital. Similarly, our climate change fund has one of the longest track records out there: where we lead, I am sure others will soon follow.

The second pillar of our business strategy is about not just getting the basics of sustainable investing right but achieving best practice everywhere. That means taking third-party data and scrubbing and polishing it until the information is more valuable. It requires ESG analysis at a granular level in almost every asset class, constantly testing for materiality and consistency. Best practice also extends to performance measurement, client reporting, risk and compliance. Without solid foundations, there is no sustainability.

Finally, it is crucial our business strategy leverages HSBC Asset Management’s strengths. We take full advantage of our global network and scale, while the depth and breadth of HSBC’s client relationships are second to none. Being part of a bigger group means we can offer sustainability solutions from multiple angles – from financing and deal flow to structurings and co-investments. We also believe in feet on the ground and rigorous analysis and engagement. That plays to our broad active investment platform. And naturally HSBC’s heritage in Asia is impossible to replicate.

So that’s how we approach sustainability inhouse as well as our business model. By far the most questions I receive on sustainability, however, concern our investment strategy – the bread and butter of what an asset manager does each day. Given such a big topic, with so many asset classes, capabilities, geographies and approaches, again I tend to answer in terms of beliefs, supported by robust finance theory.

Our core investment view is that humanity is transitioning towards a low-carbon future. This will affect the macroeconomic world (growth, employment, interest rates, inflation, productivity) as well as the micro (households, companies, regulation, data). But rather than seeing the transition as a risk to be feared, we reckon it’s a once in a generation investment opportunity. Trillion-dollar industries will spring from nowhere. Capital redeployed from low to high returning corners of the economy. Along the way, our clients will prosper, as will everyone. This is truly a transition to own.

The word ‘own’ above isn’t random. I believe that in order to influence behaviour, it helps to have skin in the game. Just as you don’t rip up your voting card just because a political party you dislike wins, neither should investors abandon sustainability laggards. We prefer to engage with companies rather than exclude them, and we admire managers that are improving their ESG rankings as much as those with perpetually high scores (perhaps through luck). Besides, in secondary markets at least, say in equities or credits, the capital is already issued. Your exclusion is someone else’s inclusion.

That is why we are trailblazing into the primary markets, either with REGIO, mentioned above, or the build out of our private loans and infrastructure debt businesses. Companies are at their most attentive when they are raising money and investing early makes sense too. This also plays to our strength in emerging markets, including China, where $600 billion of corporate bonds were sold in 2019 versus three trillion of bonds outstanding – a fifth of the total. Compare that to equities, where roughly only one per cent of share capital is raised each year.

Our sustainability strategy could not be closer to my heart. But investing is a complex endeavour, driven by the laws of finance that do not bend for me or for anyone, as well as other important themes, such as demographics, technology and politics. My fiducial duty and commitment to performance is paramount. Clients deserve nothing less.

NICOLAS MOREAU
Chief Executive Officer
HSBC Global Asset Management

Nicolas Moreau joined HSBC Global Asset Management on 2 September 2019 as Chief Executive Officer. Nicolas has 30 years of experience in the asset management and insurance industries. Before this appointment, Nicolas spent 2 years at Deutsche Bank as the Management Board member responsible for Deutsche Asset Management. As the Global CEO, Nicolas led the business to be listed on the Frankfurt Stock Exchange in March 2018 and rebranded the business to DWS. Previously, Nicolas spent 25 years with the AXA Group. He was Chairman and CEO of AXA France and a member of the AXA Group Management Committee, as well as Vice Chairman of the Group Investment Committee.  Nicolas has also been CEO of AXA Investment Managers and CEO of AXA UK & Ireland. He began his career with Arthur Andersen. Nicolas is a graduate of the Ecole Polytechnique and has an actuarial degree from the Centre d’Etudes Actuarielles. He was awarded la Legion d’honneur in 2015, for his services to the French financial industry.

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