HSBC Executes FX Hedge on MSCI ESG Index
Posted by Colin Lambert. Last updated: June 11, 2021
HSBC has joined the growing number of institutions providing ESG-linked FX services by announcing it has executed a total return swap based upon the performance of the MSCI World ESG Leaders Index. The Index is a capitalisation weighted index that provides exposure to companies globally with high Environmental, Social and Governance (ESG) performance relative to their sector peers.
Constituent selection is based on data from MSCI ESG Research and the index is designed for investors seeking a broad, diversified sustainability benchmark with relatively low tracking error to the underlying equity market.
HSBC says it created a custom-made index for “leading global liability driven investment manager”, called MSCI World ESG Leaders 100% hedged to GBP Index. The 13 current currencies of its constituent stocks are hedged by HSBC to GBP, using one-month rolling forward exchange rates.
The Index, which is rebalanced monthly by MSCI, tracks the performance of these forward hedges as well as the underlying equities of the MSCI World ESG Leaders Index. The total return swap linked to the Index will see the client pay HSBC the Sonia rate, compounded daily, at maturity of the swap in July 2022 in exchange for the price return of the Index.
“We’re really pleased to have helped our client meet its investment and ESG objectives for UK pension funds,” says Richard Bibbey, global head of FX, EM Rates & commodities, at HSBC. “Using our global equities, FX and ESG capabilities, we were able to build a custom-made index that tracks the MSCI World ESG Leaders Index and hedge our client’s exposure to it in GBP – the first time this has been done.”
Patrick Kondarjian, global co-head of ESG sales, markets & securities services, at HBSC, adds, “A key aim for HSBC is to help our clients embed ESG into their investments. By partnering with MSCI in this way, we can offer a transparent and cost-effective way to deliver an investible custom-built solution around a client’s required equity, FX and ESG exposures.”