HSBC steps into climate change index arena

London, 27 September: HSBC has launched a family of indexes, designed to give investors exposure to companies likely to benefit from climate change.

The London-based bank is the latest of a number of financial institutions to launch such an index, joining other banks such as ABN Amro, which kick-started its Climate Change & Environment Index in March, and specialists such as KLD Research & Analytics, which offer indexes in areas of climate change and clean energy.

But Joaquim de Lima, global head of quantative research for equities at HSBC, who designed the new index family, said: “What makes this different and exciting is the index structure which captures a highly diverse number of investment themes with very attractive risk-return characteristics.”

The bank has created an over-arching ‘benchmark’ Climate Change Index, composed of companies with a market capitalisation over $500 million, which attribute more than 10% of their revenues to “climate-related activities”. De Lima said this figure – lower than some other indexes – allows the index to capture the “huge growth potential” of large, integrated companies at a relatively early stage in their pursuit of profits from these sectors.

These activities can relate to one of 19 themes, grouped into four broader sectors: low-carbon energy production; energy efficiency and energy management; waste, water and pollution control; and financials.

At launch, 55% of the index is based in Europe, with a further 27% in North America, 16% in Asia Pacific and 2% in Latin America.

HSBC is not releasing the names of the companies on the index, but calculates that it would have produced a 125% return since 2004, beating the MSCI World and Dow Jones World Sustainability indexes. The bank claims the index would also have beaten its nearest competitor, the KLD Global Climate 100, by 42%.

De Lima said: “From an institutional [investor’s] perspective, they now have a benchmark against which to measure their funds.”

However, the bank has launched four other indexes that investors can track, with much tighter criteria. Although the bank does not currently plan to launch any funds based on the indexes, these tools could be of use to institutional investors looking to construct their own funds, HSBC said.

To be included in these investable indexes, companies must have a market capitalisation of $1 billion and a minimum daily turnover of 0.5% of the minimum market capitalisation – or at least $5 million.  

At launch, the top three stocks in the 50-company HSBC Investable Climate Change Index, by weighting, were French water firm Veolia Environnement, at 11.2%, South Africa’s platinum mining company Impala Platinum, at 7.3% and Waste Management based in North America.

The HSBC Investable Low Carbon Energy Production Index is made up of 27 companies from the benchmark index. According to the bank, the index would have produced a 205% return since 2004, outperforming the WilderHill New Energy Global Innovation index by 84% and the Bloomberg World Alternative Energy index by 96%.