With regard to its discretionary management activities, HSBC Germany draws on the global expertise of HSBC Global Asset Management (HSBC GAM), which supports the bank with its investment decisions. As part of the investment decision process, financial instruments are analysed and rated in terms of both their financial characteristics and their sustainability risk. Data provided by a variety of ESG rating agencies is used for the purposes of this analysis. Sustainability risk is then taken into account in the investment decision process in two stages. First, it is determined whether the issuer of a financial instrument fulfils certain criteria. The parameters used by the bank in this context include, for example, the ten criteria of the UN Global Compact (UNGC). The aim of the UNGC is to reduce or avoid non-financial risks by upholding human rights and workers’ rights, protecting the environment and combating bribery and corruption. Next, a scoring system is used to assign point scores that indicate whether, and to what extent, issuers are meeting criteria in the environmental, social and corporate governance sphere. This ESG score is used in the sustainability risk assessment.

With regard to investment advice, HSBC Germany takes account of sustainability risk by including ESG criteria in the asset selection and recommendation process.

For example, the bank considers sustainability risk in the Private Banking business by factoring in identified ESG characteristics – or the lack thereof – when selecting and recommending financial instruments. Sustainability risk varies depending on whether, and to what extent, environmental, social and ethical criteria are being taken into account. As part of the process of including sustainability risk in the selection of suitable investment products, the Bank collaborates closely with the issuers of financial products (especially in the case of actively and passively managed funds).

Key aspects that our discretionary management processes take into consideration:

• Companies’ efforts to reduce carbon emissions, uphold human rights, treat employees and suppliers fairly and reject child labour and forced labour. HSBC Germany also pays attention to responsible corporate governance practices, including the independence of supervisory bodies, respect for shareholders’ rights, the existence and application of strict anti-corruption and anti-bribery policies and the verifiability of such measures and efforts.
• Efforts by governments regarding the provision and management of resources (including population growth, human capital, education and healthcare), the promotion of new technologies, the adoption of pertinent official requirements and regulations (including on climate change and the fight against corruption and bribery) and action that promotes political stability and sustainable government.

HSBC Germany uses this approach in order to identify adverse implications for sustainability at an early stage and to disinvest from insufficiently sustainable financial products or avoid investing in such products in the first place.

In terms of the investment advice, HSBC Germany offers financial products that promote environmental or social characteristics, financial products aiming to undertake sustainable investments and other financial products. Products in the first two categories are classified as such by their respective fund management companies. HSBC Germany’s assessment of adverse implications for sustainability in connection with such products is based on the information published about them.

The impact of sustainability risk on the return of financial products is generally rated highest if a financial product does not have any underlying sustainability strategy. If a financial product promotes environmental or social characteristics, the bank assumes that sustainability risk will have a lower impact on the return of that financial product. The bank anticipates the lowest impact of sustainability risk on returns where financial products aim to undertake sustainable investments. For the purposes of this assessment, the bank also pays particular attention to any pertinent information provided by the issuers of the financial products.