PRIVATE BANKING: HSBC Investment's approach to ESG.

As published on citywireselector.com, Thursday November 21, 2019.


ESG is not a fad and the investability of the theme is huge, fuelled by growing interest from Asian and US clients, says Stuart Parkinson.

HSBC Private Banking CIO, who sits in the company’s Canary Wharf offices, says you have to embrace ESG dynamics because this is where the future of private banking is heading.

‘When I think about my own wealth I want to hopefully invest in companies that are going to be there for the long term. I want to target businesses that are successful on a sustainable basis and able to generate returns for me as an investor over time, instead of huge returns one year and very poor results after that.’

In his view, companies that are embracing all three elements of ESG are less likely to have negative outcomes.

‘They are not going to be seen as big polluters, they won’t be viewed as problematic for society and they are going to be well run. In theory, those should be firms that perform well over the long term. It’s less about perception and more about actually changing business operations.’

Parkinson says many of the asset managers his team is working with have ESG products that range from funds investing in companies embracing gender diversity to green bonds solutions and everything that falls in between.

Promoting sustainable investment is also another way for HSBC to engage with the next generation of clients.

The private bank organises an annual trip with its next-generation clients and, as in 2018, this year’s took place in Borneo where they explored the jungle to understand environmental dynamics and why this is relevant to them.

‘Our next-gen clients have found this trip enormously valuable in the past in terms of understanding the future of the environment and why it matters to them both as individuals and as investors who will step into their parents’ company,’ Parkinson says.

His positivity about ESG investing comes with some qualifications, particularly as it’s an evolving space. ‘Regulators are now showing an interest and may be looking to ensure some level of homogeneity in the future around ESG so investors can rely on a more standardised taxonomy.’

One of the big overarching themes that he and his team are pursuing is the ‘fourth industrial revolution’ with a particular focus on technology and its influence on society.

Parkinson highlights that 5G came up as a big topic at HSBC’s client event in Asia, where the guest speaker focused on the impact the technology is likely to have on interactions between people and machines, as well as from one machine to another.

‘5G has the potential to transform our lives. For example, it could enable doctors from New York and London to perform surgeries remotely in rural parts of the world.’

When asked which investment tools are best to tap this opportunity, Parkinson says HSBC doesn’t recommend any particular instruments, it all depends on clients’ preferences. He also doesn’t favour passive above active funds or vice versa, and once again prefers to leave this choice to clients.

‘I don’t think it should be done one way or another, both genres of investment are relevant in the context of investors’ choice and it is up to them to decide where they want to invest. Our role is to help them to do that in a way that best meets their needs.’

Parkinson couldn’t disclose specific recommended stocks, but instead pointed towards sectors that are likely to benefit from the 5G developments such as healthcare and transport.

‘We look for things like autonomous vehicles and their ability to use 5G networks to be able to navigate past traffic jams or help people to get where they need to be in more effective ways.

‘All of that speaks in favour of how technology is impacting peoples’ lives and I think it is a really important dynamic when we think about the sector’s investability.’

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