Responsible Investment

As the investment manager of the Exchange Fund, we believe that the concept of responsible investment (RI) is highly relevant to our investment work.

Our Beliefs

The HKMA sees RI as an investment approach that takes into account the impact of various environmental, social and governance (ESG) factors on the long-term investment returns and their sustainability.

We believe that, by putting an appropriate emphasis on RI and sustainable long-term economic performance, we can better achieve the investment objectives of the Exchange Fund, and reduce risks associated with ESG-related matters of our underlying investments. Our guiding principle is that priority will generally be given to ESG investments if long-term risk-adjusted return is comparable to other investments.

Our Principles

Where appropriate, we adopt the following RI principles in our investment process that underpins our beliefs as a responsible long-term investor:

Integration

We incorporate ESG factors into our investment analysis processes to identify risks and opportunities, as we believe that these factors can materially affect the long-term value of our investments. We select and appoint external managers that share our RI beliefs. We also communicate our RI beliefs to all our external managers and expect them to align in such a way that the overall sustainable long-term economic performance is attainable.

Active ownership

We exercise our shareholder rights for our public equity holding in a manner that helps safeguard the long-term value of our investments. We believe that responsible corporate behaviour in relation to ESG factors will help create shareholder value in the long term. We expect our asset managers to help us discharge our ownership responsibilities in the underlying investments by adopting active ownership through exercising voting rights and engaging with the corporates concerned.

Collaboration

We seek to join hands with like-minded investors and regulators to promote good practices for managing investments for the long term.

Our Implementation

We have been weaving ESG factors into our investment process for both public and private market investments:

Public market investments:

We have required our external managers of Hong Kong equities and China active equities portfolios to comply with the Principles of Responsible Ownership issued by the Securities and Futures Commission in 2016 on a “comply-or-explain” basis. Our external managers of developed market equities portfolios need to adhere to generally accepted international ESG standards.
We have included ESG factors in the selection, appointment and monitoring of our external managers.
We have incorporated ESG factors in our credit risk analysis of our bond portfolio.
We have invested in green bonds since 2015, amongst the early investors in this market. We will continue to grow the green bond portfolio by (i) direct investment or (ii) investing in green bond funds.
We have invested in the Managed Co-Lending Portfolio Programme, which is run by the International Finance Corporation with a focus on sustainable projects in emerging markets.
Going forward, we will construct ESG-themed mandates in equities investment by (i) adopting ESG equities index as benchmark for passive portfolio and (ii) engaging active equities managers who apply ESG factors.

Private market investments:

We have examined ESG policies and practices of our general partners as part of our due diligence of private market investments. ESG evaluation is conducted as a mandatory part of due diligence of all Long-Term Growth Portfolio investments.
We continue to source projects with sustainable features, as we have done in the past. For instance, we have started investing in renewables since 2013 for direct/co-investments in energy sector.
For our real estate portfolio, we have invested in (i) green buildings and (ii) warehouses with green and sustainable features. Green accreditation is included as a predominant factor for investment in buildings.

We also seek to collaborate with like-minded investors to promote ESG standards in investment process. In particular:

We are a member of Focusing Capital on the Long Term (FCLTGlobal), which is a not-for-profit organisation that works to encourage a longer-term focus in business and investment decision-making through workshops and research studies. Being a member, we contribute to the workshops and discussion to promote long-termism.
We are a supporter of the Task Force on Climate-related Financial Disclosures (TCFD), which has developed four recommendations on climate-related financial disclosures relating to governance, strategy, risk management and metrics and targets.
We are a member of the Central Banks and Supervisors Network for Greening the Financial System (NGFS), whose members contribute to the development of environment and climate risk management in the financial sector, as well as to mobilise mainstream finance to support the transition towards a sustainable economy.

Last revision date : 26 August 2019