Industry Updates

HSBC AM joins rivals in downgrading Article 9 Paris-aligned climate ETFs

The asset manager followed BlackRock, UBS AM and Invesco in downgrading their Article 9 ETFs

Theo Andrew

HSBC Asset Management

HSBC Asset Management has become the latest ETF issuer to downgrade its Article 9 Paris-Aligned Benchmark (PAB) climate ETF range ahead of the introduction of ‘level 2’ of the Sustainable Finance Disclosure Regulation (SFDR) in January.

The six-strong ETF range, with roughly $255m assets under management (AUM), will now be classified as Article 8 under the European Union’s sustainable fund regulation.

It follows BlackRock, UBS Asset Management and Invesco which both announced downgrades to their PAB and Climate Transition Benchmark (CTB) ETFs earlier this month.

In a shareholder notice, HSBC AM said it was in the “best interest of investors” to recategorise the ETFs.

“The funds are currently categorised as Article 9 funds under SFDR on the basis that the funds have sustainable investment objective in that they seek to replicate the performance of the indices that qualify as EU PAB under the benchmark regulations,” the UK asset manager said.

“However, pending further regulatory clarification on the categorisation of funds that track benchmarks that qualify as EU PAB, the directors have determined that it is in the best interests of investors to recategorise the funds as Article 8 funds under SFDR.”

HSBC AM added it will keep the decision “under review” pending further regulatory clarification.

The affected ETFs are:

The firm launched its first PAB climate ETF – HPAW – in July 2021, which was quickly followed by HPAU and HPAE a month later. In November of last year, HSBC AM launched a PAB Japan strategy.

Its latest two PAB ETFs were launched in April this year, targeting emerging markets and Asia-Pacific ex-Japan.

Uncertainty over SFDR still reigns over Europe’s ESG framework. Without regulatory clarification, PAB and CTB strategies are unlikely to meet the 100% sustainable investment requirements outlined under ‘level 2’ of SFDR.

Earlier this month, ETF Stream revealed UBS Asset Management was also downgrading its PAB ETFs, while Amundi was consulting “key stakeholders” on the move.

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