HSBC Launches ESG Risk Improvers Index

HSBC announced today the launch of the HSBC ESG Risk Improvers Index, in partnership with Arabesque AI and powered by data from ESG Book. This is the first time HSBC has offered a global index that uses artificial intelligence* to help measure the improvement of a company’s ESG credentials.

The Index has been designed to track the performance of 1000-plus liquid stocks of global companies that are expected to benefit financially from improvements in their ESG risk (as measured by their ESG score calculated by ESG Book).

ESG Book, a leading provider of ESG data and analytics for public markets, calculates the ESG score of each constituent of the Index by deploying AI, in the form of natural language processing, to mine relevant public sources daily, such as ESG-related news and NGO data. The ESG score helps investors determine which companies may be better positioned to outperform the market over the long term.

The ‘ESG momentum score’ is then computed by Arabesque AI every six months to determine whether each constituent has improved their ESG credentials. Investors will be able to invest in a range of products tracking the Index, allocating capital toward ‘ESG improvers’.

Patrick Kondarjian, Global Head of Sustainability for Markets & Securities Services, HSBC, said: “The HSBC ESG Risk Improvers Index enables investors to gain exposure to stocks exhibiting ESG momentum — a useful financial indicator of future performance. This is in contrast to traditional ESG best-in-class, or ESG integration, investment approaches that purely target high ESG ratings – agnostic to whether the stock’s ESG credentials have recently improved or deteriorated.”

Yasin Rosowsky, Co-Founder and VP of Engineering, Arabesque AI, said: “Based on our back-tested data, tilting investments towards stocks exhibiting ESG momentum showed excess returns per annum versus S&P global benchmarks during the same period. In other words, there is a positive correlation between companies transitioning to more sustainable business practices and their returns.”

Companies are excluded from the Index if they are non-compliant with international norms and principles, specifically the 10 UN Global Compact Principles, and have revenue exposure to controversial activities, as defined by ESG ratings and analytics firm, Morningstar Sustainalytics.

The Index administrator is Solactive AG.