Companies around the world have been responding to make products that don’t damage the environment. If you wish to invest in such companies, but are at a loss at identifying them or ascertaining whether they’re worth your money, then help is at hand. HSBC India Mutual Fund has rolled out a new scheme that will invest your money in such companies. The HSBC Global Equity Climate Change Fund of Fund (HGFOF) is open for subscription and will close on March 17.
What is it?
HGFOF will invest entirely in the HSBC Global Investment Funds-Global Equity Climate Change (HSBC GECC), which is an international fund managed by the global parent.
The overseas fund invests in companies that work in areas such as renewable energy, green buildings, pollution & waste prevention and control, energy efficiency, sustainable water and waste-water management, clean transport, climate change adaptation and natural capital & ecosystems.
Angus Parker, Head of Developed Markets Equity Team, HSBC Asset Management, who manages HSBC GECC fund, says, “If we can identify companies that are forward-looking and can position appropriately, there are some genuine long-term multi-generational opportunities.”
HSBC GECC was rolled out in 2007. It is actively-managed.
Nearly 196 countries are signatories to the Paris climate agreement signed in 2015, pledging to work towards reducing global warming. In other words, these are among the countries that the fund can invest your money in.
Identifying companies from different geographies and analysing their contribution to climate change require a specialised set of skills.
“Such funds are more focused on environmental issues than typical ESG funds. Their spotlight is on investing in companies that are reducing carbon emissions and waste, which lead to global warming and affect Earth’s weather patterns,” says Chandru Badrinarayanan, managing partner, ECube Investment Advisors.
The fund also looks at companies that treat their own employees and other stakeholders well. It also checks companies’ corporate governance scores – an important ESG indicator. The fund relies on its internal mechanism to rank companies on green revenue and carbon intensity scores. A slightly lower score doesn’t mean the company gets ignored. Parker says it’s important to consider companies that are making a transition.
As of now, 37 percent of fund’s investments are in North America, 46 percent in Europe, 16 percent in Asia and one percent is in South America.
This is not your typical international fund. It’s a highly thematic fund as the investment universe is narrow. Hence, it comes with higher risk than, say, a country or region-specific global scheme or even, say, a technology fund where identifying companies is easier.
While climate change has been identified as a major trend by several investment experts, it can take years or even decades to realise the full potential of such investments. So, your holding period must be very long – 5-10-15 years.
“Companies can face several challenges due to change in product standards set by regulatory bodies, constant need for innovation and research to stay ahead of any competition. Retail investors may not be able to understand the various challenges involved in climate conservation,” says Amol Joshi, founder of Plan Rupee Investment Services.
Global politics can also slow down the spending on climate change as developing and developed nations show resistance in cutting carbon emissions, a factor impacting economic growth. The government of the country where such companies operate must also be committed to environment protection. For example, the newly-elected US president Joe Biden made US re-join the Paris accord, after his predecessor Donald Trump withdrew from it.
Like every thematic fund, HSBC GECC can go through periods of heightened volatility. However, the returns can also be higher over the longer-term if countries get more serious about climate change and support companies working on reducing the fallout of global warming.
The fund is not suitable for first-time retail investors in mutual funds, or even those in the early stage of building their portfolios. Besides, the fund is more focused (or concentrated) than a typical ESG fund.
Stick to diversified equity funds, for now.