HSBC AM expands its climate-aligned range with a new GBP share class on the MSCI World Paris Aligned ETF

The product, already available in other currencies, allows UK and European investors to access a global equity portfolio constructed in accordance with the criteria of the Paris Aligned Benchmark.

The listing was officially approved by the Financial Conduct Authority on 27 March. The new share class is denominated in pounds sterling with currency hedging (GBP Hedged) and tracks the MSCI World Climate Paris Aligned Index. The ISIN code is IE000910ZA91, whilst the SEDOL is BN4L7C0. The total expense ratio (TER) is 0.19%.

Index and investment methodology

The fund employs passive management with the aim of tracking the performance of the MSCI World Climate Paris Aligned Index, a subset of the MSCI World Index comprising companies from 23 developed markets. The index is constructed to meet the requirements of the Paris Aligned Benchmark (PAB) as set out in European legislation, exceeding the minimum standards required.

The methodology involves a multi-stage selection process. First, companies operating in controversial sectors such as nuclear weapons, civilian firearms, tobacco, thermal coal, oil and gas with certain revenue thresholds are excluded, as are those involved in serious ESG controversies.

Subsequently, the remaining basket is optimised to reduce exposure to physical and climate-related transition risks, whilst aiming to increase the weighting of companies with greater opportunities in the transition to a low-carbon economy. The index pursues specific quantitative objectives:

• a 50% reduction in weighted average carbon intensity compared to the MSCI World;
• a minimum annual decrease of 10% in carbon intensity;
• an increase in the weighting of companies with emission reduction targets approved by the Science Based Targets initiative (SBTi);
• a 50% reduction in physical Climate Value-at-Risk.

The process utilises data provided by MSCI ESG Research, including Scope 1, 2 and 3 emissions, green revenues and the Low Carbon Transition Score.

SFDR classification and ESG characteristics

The fund is classified under Article 8 of the SFDR (Sustainable Finance Disclosure Regulation). It promotes environmental and social characteristics, although it does not have sustainable investment as a specific objective. The classification stems from the fact that the underlying index applies exclusion filters and investment constraints aimed at reducing climate risks, characteristics that are reflected in the portfolio composition.

Operational details

The new GBP Hedged share class tracks the index with currency hedging, neutralising the effect of exchange rate fluctuations between the pound and the underlying currencies. It is the third option available for this ETF, following the existing unhedged US dollar and sterling versions.

Market positioning

The expansion of the offering with the sterling-hedged version meets the needs of UK institutional and retail investors seeking passive instruments aligned with the objectives of the Paris Agreement. HSBC Asset Management launched its Paris Aligned ETF range in 2021 with the launch of US, European and the original World versions. The new share class completes a range that also includes similar products covering specific geographical markets.