1

Insurance and Sustainable FinanceJuly 8, 2019

PUBLIC

Divya Bendre, Vice President, Sustainable Finance, HSBCdivya.bendre@us.hsbc.com

2 PUBLIC

Important Notice – Informational Purposes Only

This presentation, including the accompanying slides and subsequent discussion, is for general informational purposes

only. The information used in preparing these materials was obtained from public sources and are intended solely for

your information. HSBC assumes no responsibility for independent verification of such information and has relied on

such information being complete and accurate. Any prices, levels or figures included in this presentation may relate to

past performance and will vary in accordance with changes in market conditions. Past performance is not a reliable

indicator of future performance. HSBC makes no representation or warranty (express or implied) of any nature nor is any

responsibility of any kind accepted with respect to the completeness or accuracy of any information, projection, forecast,

representation or warranty (expressed or implied) in, or omission from, this presentation. HSBC expressly disclaims any

and all liability that may be based on any information contained herein, including any errors or omissions herein, and any

obligation to update, or otherwise revise, any of such information. In particular, no liability is accepted whatsoever by

HSBC for any direct, indirect or consequential loss arising from the use of or reliance on this presentation or any

information contained herein by the recipient or any third party.

The information, analysis and opinions contained herein constitute our present judgment which is subject to change at

any time without notice. This presentation does not constitute an offer or solicitation for, or advice that you should enter

into, the purchase or sale of any foreign exchange, derivative, security or other investment product or investment

agreement, or commitment to provide any financing, or any other contract, agreement or structure whatsoever and is

intended for institutional, professional or sophisticated customers and is not intended for the use of private individual or

retail customers. Nothing contained herein should be construed as tax, investment, accounting or legal advice. No

consideration has been given to the particular service needs, investment objectives, financial situation or particular needs

of any recipient. Recipients should not rely on this document in making any investment decision and should make their

own independent appraisal of and investigations into the information and any investment, product or transaction

described in this presentation.

3

7%11%

58%

24% Wind

Solar

Energy Efficiency

Sustainably-managed forestry

44%

56%

Wind

Solar

PUBLIC

Green Bonds: Insurers as investors and issuers

Case study: Manulife

Green Bonds Issued

MFC 3.0% SGD 500 million subordinated debt due 21 November 2029

MFC 3.317% CAD 600 million subordinated debt due 9 May 2028

General account investments in renewable

energy and energy efficiency projects

52,700 tons/year

Est. CO2e avoided

258,400 tons/year

Est. CO2e avoided Responsible Investment at Manulife - highlights

• Manulife Investment Management is a UNPRI signatory

• By 2018 nearly 49.5 million square feet (80% of real

estate portfolio) had been certified under a sustainable

building certification program such as LEED, ENERGY

STAR or BOMA BEST

• John Hancock Investments manages almost $241 million

in assets through four ESG funds

• Hancock Agricultural Investment Group started working

with consultants on an agricultural sustainability framework

for measuring and managing the sustainability

performance of its U.S. farmland

Example projects:

• Rivière-du-Moulins Wind Project, Quebec, Canada

• Grand Renewable Solar Project, Ontario, Canada

Example projects:

• Campo Palomas Wind Project B-bond, Salto, Uruguay

• Acquisition of Axium Infinity Solar portfolio, Ontario, Canada

• Financing of Hannon Armstrong energy efficiency projects, Washington, DC

• Vinegar Bend Timber, Alabama & Mississippi

4 PUBLIC

Unpacking the terms: Sustainable Finance – Impact Investing – ESG Investing

Financial materiality and/or impact considerations

• Investments that are not differentiable on risk or return can be differentiated along the real economy impact axis

• Some investors are trying to balance real-world impact alongside risk and returns considerations

• ESG data contributes to both traditional risk-return analysis (e.g. PD-LGD) and impact analysis

Source: PRI An evolving industry: future-proofing the investment strategy

Three investments with the

same risk-return profile

Same three investments,

but with real-world impact

plotted

5 PUBLIC

Sustainable Financing Landscape

‘Labeled’ Bonds and Loans

Source: Environmental Finance articles

Green, Social & Sustainability Bonds ~ $750bn

Use of Proceeds - focused Margin/coupon - focused

NEW – ‘Transition’ Bonds

CLP Holdings

Energy Transition

Bond

SNAM Climate

Action Bond

Green Loans ~ $25bn

Sustainability Linked Loans ~ $87bn

Other structured transactions:

- Equity-index linked bonds

- ‘Green Coupon’ bond

6 PUBLIC

Green Bond Market

Organic growth driven by investor demand

0

50

100

150

200

2013 2014 2015 2016 2017 2018 2019

Europe North America Supranationals

Asia-Pacific Africa Latin America

USDbn

Global Green Bonds (USD596bn eq. to date)

By use of proceeds category

By issuer type

35%

25%

17%

11%

4%3% 2%1%

Energy

Buildings

Transport

Water

Waste

Land Use

Adaptation

Industry

14%

13%

19%

20%

7%

20%

7%

Government-Backed Entity ABSDevelopment Bank Financial CorporateLocal Government Non-Financial CorporateSovereign

Source: Climate Bonds Initiative

7 PUBLIC

ESG Ratings

ESG performance: managing risks and opportunities

Which ESG ratings do you consider to be of

highest quality i.e. excellence, robustness and

accuracy of evaluation?

Source: SustainAbility 2018 Rate the Raters survey of corporate sustainability

practitioners; n=319 (Investor survey to come in 2019)

NEW - ESG analysis from rating agencies

On-request ESG

evaluation service

Proposed on-request

corporate governance

assessment and carbon

transition risk assessment

8 PUBLIC

Formalizing ESG Risk Analysis

Rating Agencies

2018 Environmental Risks

Global Heatmap

ESG Risk Atlas: Sector And Regional

Rationales And Scores

Source: Moody’s, S&P

9 PUBLIC

Formalizing ESG Risk Analysis

Investors

Understanding ESG in Bonds

Source: PIMCO June 2019

Looking ahead, our view is that ESG-based analysis should be a

natural part of bond investing, along with the assessment of credit,

duration, and other risk factors. We are committed to putting this into

practice across our portfolios both from a top-down perspective, where we

see ESG analysis as consistent with our annual Secular Forum process,

and from a bottom-up perspective, where ESG is integrated into our

fundamental research across fixed income sectors.

- PIMCO Secular Outlook, May 2019

10 PUBLIC

Emerging Green Taxonomies

Defining ‘Green’ and what’s better than Business-As-Usual

Other taxonomiesProposed EU Sustainable Finance Taxonomy

To be included, economic activities must

• make a substantial contribution to one environmental objective meet any

specified technical screening criteria:

1. climate change mitigation

2. climate change adaptation

3. sustainable use and protection of water and marine resources

4. transition to a circular economy, waste prevention and recycling

5. pollution prevention and control

6. protection of healthy ecosystems

• do no significant harm to the other environmental objectives, and

• meet minimum social safeguards (compliance with International Labour

Organisation (ILO) core labour conventions)

67 economic activities have been classified as:

• Green activities: Activities that are already low-carbon and compatible with a 2050

net zero carbon economy

• ‘Greening of’ activities: Activities that contribute to a transition to a net-zero

emissions economy in 2050 but are not currently close to a net-zero carbon emissions

level

• ‘Greening by’ activities: Activities that enable low carbon performance or enable

substantial emissions reductions

Source: EU Technical Expert Group

11 PUBLIC

Policy: Central Banks and Supervisors

Drivers for continued momentum in sustainable finance

Financial System Review—2019

Vulnerabilities in the Canadian financial system:

1. Elevated level of household indebtedness

2. Imbalances in the housing market

3. Cyber threats and financial interconnections

4. Fragile corporate debt funding from certain markets

5. Climate change: (NGFS-related commitments)1. Integrating climate-related risks into financial stability monitoring

and micro-supervision. The Bank will develop the tools needed to

monitor and analyze climate-related risks, leading to a meaningful

assessment of these risks. One approach is to use scenario analysis.

2. Integrating sustainability factors into own-portfolio management.

The Bank is considering how to integrate environmental, social and

governance factors into its investment framework for the Bank of Canada

pension fund.

3. Bridging the data gaps. By participating in the NGFS working groups

and other groups, the Bank will help identify data gaps. This will help

relevant domestic and international stakeholders focus their efforts to

improve the availability of data.

4. Building awareness and intellectual capacity and encouraging

technical assistance and knowledge sharing. The Bank is building its

analytical capacity as part of a multi-year research plan. To accelerate

the plan’s development, the Bank is collaborating with the NGFS and

other groups. The Bank plans to publish its work on the Financial System

Hub and as part of the Financial System Review.

6. Rapid change in crypto-asset markets

Source: Bank of Canada, Environmental Finance Articles

“The FPC and the PRC are announcing that they will

stress test the UK financial system for resilience

against different climate pathways. The design of this

stress test will start in the autumn, and the tests will be

completed in 2021. …From next year, the Bank will

become the first central bank to adopt the TCFD

recommendations across our entire operations. And to

improve our strategic resilience, the Bank will reduce the

Bank’s carbon footprint by almost two thirds by 2030,

consistent with a transition to a 1.5 degree

World.”

- Mark Carney, Governor, Bank of England

"To be clear, we are thinking about this across all of our

operations. But the single most useful thing I can do to

green my balance sheet is to get the banks we make

loans to, and take deposits from, to green their

balance sheets."

- Sarah Breeden, Executive Director, International Bank

Supervision, PRA

12 PUBLIC