UK investment bank HSBC has executed the first FX hedges linked to the MSCI World environmental, social and governance (ESG) Leaders Index.
HSBC said the execution of the total return swap based on a custom-made index established by the bank, known as MSCI World ESG Leaders 100% hedged to GBP Index, marks the first time the index has been hedged with an FX overlay.
The bank created the MSCI World ESG Leaders 100% hedged to GBP Index based on the performance of MSCI’s index. It is rebalanced monthly by MSCI and includes 13 current currencies of its constituent stocks that are hedged by HSBC to GBP, using one-month rolling forward exchange rates.
It tracks the performance of these forward hedges as well as the underlying equities of the MSCI World ESG Leaders Index. The MSCI World ESG Leaders index aggregates its regional ESG Leaders indices in EMEA, Canada, the US and Asia Pacific.
“We’re really pleased to have helped our client – a leading global liability driven investment manager – meet its investment and ESG objectives for UK pension funds,” said Richard Bibbey, global head of FX, EM rates and commodities.
“Using our global equities, FX and ESG capabilities, we were able to build a custom-made index that tracks the MSCI World ESG Leaders Index and hedge our client’s exposure to it in GBP – the first time this has been done.”
The client of the total return swap will pay HSBC the compounded daily SONIA rate at maturity of the swap in July next year in exchange for the price return of the Index.
“A key aim for HSBC is to help our clients embed ESG into their investments. By partnering with MSCI in this way, we can offer a transparent and cost-effective way to deliver an investible custom-built solution around a client’s required equity, FX and ESG exposures,” added Patrick Kondarjian, global co-head of ESG sales for markets and securities services at HSBC.