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21/2/2014
1
Hang Seng Corporate Sustainability Index Series Sustainable & Responsible Investment
Eugenie ChiuAssistant Vice President
Hang Seng Indexes Company Limited
21 February 2014
Seminar on HKQAA Sustainability Rating
for Hang Seng Corporate Sustainability Index Series
1
Momentum for a Sustainable Future
Environmental
Corporate
Governance
Social
Corporations
Earth
Society
“Sustainable development refers to…forms of progress that meet the needs of the present without compromising the ability of future generations to meet their needs.”World Business Council for Sustainable Development
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2
Corporations are Powerful
In Hong Kong
� 360,000 corporations in 2013*
� 2,868,000 employees in 2013*
� 76% of electricity consumption in 2013#
� 47% of disposal of solid waste at landfills in 2012^
Sources: *Quarterly Report of Employment and Vacancies Statistics – December 2013, Census and Statistics Department#Hong Kong Monthly Digest of Statistics – February 2013, Census and Statistics Department^Monitoring of Solid Waste in Hong Kong - Waste Statistics for 2012, Environmental Protection Department
Corporations are key players in efforts to ensure a sustainable future for societies, nations and the planet
3
5Cs of Sustainability
Corporations
Profitability / Survival Social Costs / Benefits
Corporate SustainabilityCorporate
Social Responsibility
Competition Community
Sustainable development goes nowhere without support from corporations
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4
Three Routes to Achieving Corporate Sustainability
Corporate Sustainability
Through Regulation and Legislation
•CSR best practice•Environmental law•Employment law•Carbon trading
Through Corporate Initiatives
•Company values and beliefs•Global Reporting Initiative •ISO26000
Through Incentives
•Recognition through awards•Responsible investment
5
The Power of Investors in Shaping Corporate Behaviour
Investor Power
- Through voting rights (less effective)- Through decisions to buy or sell company’s stocks
Responsible Investment is a driving force in providing incentive to a corporation to aim for sustainable development
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6
Recent Sustainable and Responsible Investment (“SRI”)
Trends
Sources: - Eurosif European SRI Study 2012
- ASrIA Sustainable Funds Portal
.
Significant increase in number of
SRI funds in Asia
Rapid growth of sustainability-themed investment in Europe
Europe Asia
“Sustainable and responsible investing (SRI) is an investment discipline that considers environmental, social and corporate governance criteria (ESG) to generate long-term competitive financial returns and positive societal impact.”
Bridging the Gap between Companies and Investors
7
Company Investor
Sustainability Index acts as a bridge between companies and investors. It is a tool for translating sustainability ratings into a useful metric for making investment decisions.
Corporate Sustainability Index
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5
November 2013
By HSIL Research
Corporate Actions in the Taiwan Market
Hang Seng Corporate Sustainability Index
Series
Background of Hang Seng Corporate Sustainability Index Series
9
� The aim of the index series is to track sustainable leaders in both Hong Kong and the Mainland that
perform well with respect to corporate sustainability.
� Hang Seng Investment Management Limited launched a Hang Seng Corporate Sustainability Index
Fund on 8 Aug 2011 to track the performance of the HSSUS.
Hang Seng
Corporate Sustainability Index
Hang Seng (China A)
Corporate Sustainability Index
Hang Seng (Mainland and HK)
Corporate Sustainability Index
Hang Seng
Corporate Sustainability
Benchmark Index
Hang Seng (China A)
Corporate Sustainability
Benchmark Index
HSSUS: Hang Seng Corporate Sustainability Index
21/2/2014
6
44 Companies signed trademark license agreement
10
Positive Market Response to Index Series
Index Concept and Constituent Selection
Eligible Companies
Index Universe
Select constituents according to sustainability ratings of the companies
Sustainability Ratings
Screening: Market Value; Liquidity; Listing History
In addition to traditional screenings, constituents are selected according to their sustainability ratings in the final stage of selection
11
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7
Construction of the Hang Seng Corporate Sustainability Index Series
12
Hang Seng (China A) Corporate Sustainability Benchmark Index
Sustainability Screening Sustainability Screening Sustainability Screening Sustainability Screening (Benchmark)(Benchmark)(Benchmark)(Benchmark)Tradability Screening
Sustainability Screening (Tradable)
Hang Seng Composite Index A300 List
One year One year
Fixed CoverageTop 20% companies in terms of
sustainability score
Listing HistoryListing HistoryListing HistoryListing HistoryHang Seng Corporate Sustainability
Benchmark Index
Top 150 MV: Velocity >0.1% Top 150 MV
Fixed NumberTop 30
Fixed NumberTop 15
Hang Seng Corporate Sustainability Index
Hang Seng (China A) Corporate Sustainability Hang Seng (Mainland and HK) Hang Seng (Mainland and HK) Hang Seng (Mainland and HK) Hang Seng (Mainland and HK)
Fixed CoverageTop 10% companies in terms of
sustainability score
UniverseUniverseUniverseUniverse Hong KongHong KongHong KongHong Kong China AChina AChina AChina ALaunched on 5 Sept 2011
Launched on 26 July 2010
Roles of HKQAA and Hang Seng Indexes
13
HKQAA’s role:
• Responsible for undertaking the Corporate Sustainability Assessment of listed companies
• Assessment is made under its own rating criteria and framework with reference to several international standards such as ISO26000 and GRI
• Ratings are then delivered to HSIL as an input for constituent selection
Hang Seng Indexes’ role:
• Responsible for undertaking screenings such as MV, liquidity and listing history
• Eligible companies are then selected according to the above requirements
• Responsible for selecting the constituents of the index by their sustainability ratings provided by HKQAA
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Usage of Sustainability Index Series
Benchmark Index Series
� Benchmark the performance of a pool of companies with strong sustainability performance
� Stocks selection pool for sustainability investment
Tradable Index Series
� Benchmark the performance of a pool of sizable and liquid companies with the best sustainability performance
� Investment product development, such as index tracking funds
14
November 2013
By HSIL Research
Corporate Actions in the Taiwan Market
Hang Seng Corporate Sustainability Index
21/2/2014
9
Performance of Hang Seng Corporate Sustainability Index
600
700
800
900
1,000
1,100
1,200
1,300
Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13
Rebased HSI Rebased HSSUS
2010* 2011 2012 2013Since
Launch*
HSI 10.5 -20.0 22.9 2.9 11.8
HSSUS 11.1 -20.5 20.2 3.8 10.2
HSI 15.2 25.4 16.4 15.3 19.1
HSSUS 14.8 23.7 15.6 14.5 18.0
Return (%)
Ann. Volatility (%)
*Since launch date on 26 July 2010
From 26 July 2010 to 31 December 2013
16
Comparison of ESG Ratings
17
Description ESG RatingsNo. of Constituents
HSI only HSI & HSSUS HSSUS only
Stable
AA+ - 3 -
AA - 8 2
AA- - 1 -
Satisfactory
A+ - 2 1
A 6 10 3
A- 4 - -
Moderate
BBB+ 3 - -
BBB 2 - -
BBB- 3 - -
BB+ - - -
BB 8 - -
Unstable B - - -
Vulnerable C - - -
Total 26 24 6
Data as at latest ESG Review (2013)
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10
Comparison in Net Dividend Yield
18
2.5
3.4
3.0 3.0
2.7
3.8
3.2 3.3
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2010* 2011 2012 2013**
HSI HSSUS
%
*Launched in Jul 2010
Comparison in Volatility
19
*Launched in Jul 2010
Indexes
Sharp Ratio
(Since
Launch)
HSI 0.36
HSSUS 0.36
15.2
25.4
16.4
15.3
19.1
14.8
23.7
15.6
14.5
18.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
2010* 2011 2012 2013** Since Launch*
HSI HSSUS%
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Weighting Composition of HSI and HSSUS(By Industry)
20
IndustryConstituents Wgt (%)
HSI only Both* HSSUS only HSI HSSUS
Financials 6 6 1 46.5 38.2
Properties & Construction 3 6 2 9.8 15.6
IT - 2 - 7.1 12.4
Telecommunications 1 1 - 7.6 9.3
Utilities 1 3 - 4.7 8.3
Conglomerates 1 2 1 3.8 7.5
Energy 5 1 - 10.5 5.0
Consumer Goods 4 1 1 4.3 1.9
Consumer Services 3 2 - 4.9 1.6
Industry Goods 2 - 1 0.8 0.2
Materials - - - - -
Total 26 24 6 100.0 100.0* Constituents of both HSI & HSSUS
Data as at the end of Dec 2013
November 2013
By HSIL Research
Corporate Actions in the Taiwan Market
The Sustainability Assessment
21/2/2014
12
Performance of Constituents versus Non-Constituents
22
56.3%
60.1%
65.3%
69.3%
44.4%46.1%
48.0%
51.0%
0%
10%
20%
30%
40%
50%
60%
70%
80%
2010 2011 2012 2013
Constituents Non-Constituents
* Constituents/Non- Constituents of HSSUS
Upward Trend in Rating Distribution
23
Over the years, more companies have been rated as ‘Satisfactory’ and ‘Stable’.*In 2010, the number of companies in Hong Kong assessed was lower, making the percentage appear to be higher.
( ) No. of companies that were assessed
Percentage of companies rated as ‘Satisfactory’ or ‘Stable’ compared with total number of companies assessed
18.6%
13.5%14.2%
15.9%
1.1%
1.5%
3.5%
4.6%
0%
5%
10%
15%
20%
25%
2010* 2011 2012 2013
Stable Satisfactory
(274) (341) (345)(346)
Hong Kong
5.7%6.3%
7.2%
9.7%
0%
2%
4%
6%
8%
10%
12%
2010* 2011 2012 2013
Satisfactory
(300) (285) (299)(291)
China
DescriptionESG
Ratings
Reliable AAA
AA+
AA
AA-
A+
A
A-
BBB+
BBB
BBB-
BB+
BB
BB-
Unstable B
Vulnerable C
Stable
Satisfactory
Moderate
19.7%
15.0%
17.7%
20.5%
5.7%
6.3%
7.2%
9.7%
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24
The information contained herein is for reference only. Hang Seng Indexes Company Limited (“Hang SengIndexes”) ensures the accuracy and reliability of the information contained herein to the best of its endeavours.However, Hang Seng Indexes makes no warranty or representation as to the accuracy, completeness orreliability of any of the information contained herein and accepts no liability (whether in tort or contract orotherwise) whatsoever to any person for any damage or loss of any nature arising from or as a result of relianceon any of the contents of this document, or any errors or omissions in its contents and such contents may changefrom time to time without notice.
The information contained herein does not constitute any express or implied advice or recommendation by HangSeng Indexes for any investments. Investment involves risks. Prospective investors should seek independentinvestment advice to ensure that any of their decisions is made with regard to their own investment objectives,financial circumstances and other particular needs.
© Hang Seng Indexes Company Limited 2014. All rights reserved.
Disclaimer: The information contained in this document is intended only for use during the presentation and should not be disseminated or distributed to parties outside the presentation. Hang Seng Indexes Company Limited accepts no liability whatsoever with respect to the use of this document or its content.