# Thermal Coal policy

December 2024

Today, we and many of our customers contribute to greenhouse gas emissions. We have a strategy to reduce our own emissions and to help our customers reduce theirs. For more information visit [https://www.assetmanagement.hsbc.com/about-us/net-zero](https://www.assetmanagement.hsbc.com/about-us/net-zero)

HSBC Asset Management

---

# Our Net Zero Objective

We recognise climate change as a significant challenge facing our clients in their investments.

For that reason, we have made a strategic corporate commitment to the Net Zero Asset Managers initiative (NZAM).

As signatories to this initiative, we have committed to work in partnership with our clients on decarbonisation goals, consistent with an ambition to reach net zero emissions by 2050 or sooner across all assets under management.

In line with the Net Zero Asset Managers commitment, we have set a 2030 interim target to reduce the Scope 1 and 2 emissions intensity of 38 per cent of our assets by 58 per cent compared with 2019$^1$.

We have chosen the Net Zero Investment Framework as a methodology for our interim target. We are following the International Energy Agency Net Zero Emissions by 2050 Scenario.

We recognise the need for the net zero transition to be stable, fair, and supportive of those communities most impacted. We have signed the [Statement of Investor Commitment to Support a Just Transition on Climate Change](https://www.unpri.org/download?ac=14771).

We need to ensure that decarbonisation and energy security go hand-in-hand, and also ensure that communities are not left behind.

This policy forms part of our Net Zero Asset Managers commitment. It is developed in support of HSBC Group's net zero ambition and the transition from thermal coal-fired power and thermal coal mining (collectively 'thermal coal') within the 2030/40 timelines set out in the HSBC Global Coal Phase-Out Policy. It complements our own Energy Policy$^2$ as updated from time to time and is intended to help meet the dual objectives of phasing out thermal coal within science-based timeframes and of energy transition in more coal-reliant economies.

$^1$ Implementation of our net zero ambition and interim target is subject to fund approval and / or client agreement. The assets under management in scope for the NZAM target consist of listed equity and corporate fixed income managed within our major investment hubs in the UK, Hong Kong SAR, France, Germany and US, which amounted to $193.9 billion at the end of 2019. This target is based on assumptions for financial markets and other data, including the IEA Net Zero emissions by 2050 scenario and its underlying activity growth assumptions. Carbon emissions intensity is measured as tonnes of carbon dioxide per million US dollars invested, where emissions are scaled by enterprise values including cash. Scope 1 emissions are from sources that are owned or controlled by investee companies; Scope 2 emissions are from the use of energy purchased by investee companies. Our interim target does not cover Scope 3 emissions, which are all indirect emissions from across investee companies' value chains.

$^2$ Please visit the page 'Policies and Disclosures' on our public website for more details on policies related to responsible investing.

PUBLIC

---

# Thermal coal phase-out - ten-point plan

This policy is subject to our legal and regulatory obligations to clients.

## Investments

1. By the end of 2030, we will not hold listed securities of issuers with more than *de minimis* revenue exposure to thermal coal in EU / OECD markets in our actively managed portfolios.
2. By the end of 2040, we will not hold listed securities of issuers with more than *de minimis* revenue exposure to thermal coal in all markets in our actively managed portfolios.
3. We do not make direct investments in new or existing thermal coal projects. This includes but is not limited to: creation of new thermal coal assets; thermal coal expansion; extensions to the unabated operating lifetime of existing thermal coal assets; new captive thermal coal-fired power plants or new captive thermal coal mines; new thermal coal infrastructure; new metallurgical coal mines; new coal to gas / liquids plants and thermal or metallurgical coal mines using Mountaintop Removal. Actively managed portfolios do not participate in IPOs or primary fixed income financing by issuers engaged in thermal coal expansion.

For other issuers with more than 10 per cent revenue exposure to thermal coal, participation by actively managed portfolios in IPOs or primary fixed income financing is subject to enhanced due diligence to help ensure that the issuer has a credible transition plan.

We will divest over time from issuers whose transition plans are considered incompatible with our net zero objective.

4. Our actively managed sustainable fund ranges already exclude issuers with more than 10 per cent revenue exposure to thermal coal, unless the issuer has a credible transition plan.

PUBLIC

---

## Research and Engagement

5. We will undertake due diligence on issuers of listed securities held in our active fundamental portfolios with more than 10 per cent of their revenue from thermal coal or metallurgical coal, prioritising those with the highest exposure.

Client risk and issuer transition plans are assessed as part of due diligence, based on factors including: level of ambition to reduce greenhouse gas emissions; clarity of transition strategy, including metrics, governance and targets; adequacy of disclosure; credibility of any proposed abatement assumptions; abated power generation; and consideration of principles of just transition.

6. We continue to engage with issuers, prioritising those where we have the highest exposure. We have initiated engagement with all listed issuers held in our active fundamental portfolios with more than 10 per cent revenue exposure to thermal coal, and those with more than 10 per cent revenue exposure to metallurgical coal. We shall prioritise engagement with issuers in our passive and active systematic portfolios according to size of holding and those issuers with poor emissions disclosure and / or no public net zero target, engaging with all listed issuers held in these portfolios with more than 10 per cent revenue exposure to thermal or metallurgical coal by the end of 2025, subject to portfolio turnover constraints.
7. As we extend our engagement, we will normally vote against the re-election of chairs of listed issuers covered by our active fundamental equity engagement with more than 10 per cent revenue exposure to thermal coal which do not provide TCFD or equivalent reporting. We will also normally vote against chairs where transition plans remain weak following engagement. We intend to extend this voting to issuers covered by our passive and active systematic engagement by the end of 2025, subject to portfolio turnover. For voting holdings in carbon intensive sectors, we already use Transition Pathway Initiative (TPI)$^3$ scores in addition to other internal and external research to assess issuers' progress with transition. This may include votes against the re-election of the chair or relevant board director of thermal coal issuers.

$^3$ The Transition Pathway Initiative (TPI) assesses companies on two dimensions based on publicly available information: corporate climate governance and carbon emissions, and provides an overall scoring from Level 0 (unaware) to 4 (strategic assessment). The TPI Centre online tool is publicly available at the following link: [http://www.transitionpathwayinitiative.org/sectors](http://www.transitionpathwayinitiative.org/sectors)

PUBLIC

---

## Passive products

8. We will not launch new passive Exchange Traded Funds (ETFs) and index funds including issuers with more than *de minimis* exposure to thermal coal going forward, unless the strategy for the relevant passive ETF / fund has specific Paris-aligned 1.5° C objectives and / or clear divestment pathways. We will continue to develop our suite of Lower Carbon, Paris-aligned passive ETF and Index products.

## Clients

9. We continue our active engagement with clients to inform and support their own net zero commitments.

## Further actions

- We will work with index providers to extend the range of indices and passive products that do not have exposure to thermal coal. As the net zero transition progresses, we expect thermal coal exposure to decrease across all indices.
- We shall review other asset classes in due course under our Net Zero Asset Managers initiative commitments.

PUBLIC

---

# Application

- This policy will be reviewed at least annually, to consider changes in relevant external factors (e.g. changes in the scientific assessment of climate impact, transition pathways and future risk or changes in governmental or regulatory treatment). Reporting on overall progress towards our NZAM commitments will reflect the impact of this policy alongside other factors.
- Where we do not have full portfolio discretion, or board/equity control such as joint ventures, independent director-controlled fund boards and client segregated mandates, commitments included in this policy are subject to client, fund director and regulatory approval.
- These commitments apply to actively managed portfolios as set out, except certain alternatives and other portfolios where we do not have sole discretion.
- The thermal coal phase-out commitment does not apply to index funds and passive ETFs, although we expect thermal coal exposure to decrease across all indices and will not launch new index funds or passive ETFs with more than *de minimis* thermal coal exposure.
- Multi-asset or fund of funds strategies utilising third party, systematic or passive funds may be unable to implement certain aspects of this policy, with potential limited exposure to issuers that would otherwise be excluded. Sustainable multi-asset or fund of funds strategies seek funds with aligned / similar restrictions where these are available.
- We recognise that state-owned enterprises in non-EU / OECD markets may be subject to different national development planning cycles and take those timeframes into account where necessary. Due diligence and enhanced due diligence of such issuers monitors how far sufficient progress is being made on transition planning. This will not impact our 2040 active holdings phase-out.
- We apply this policy at issuer level. Where issuers form part of a wider group, we consider the activities of the group including the level of credibility of its transition plan and apply the policy to the extent appropriate.
- References to more than 10 per cent revenue are intended to identify issuers with significant exposure to thermal or metallurgical coal. Where companies exceed this level due to changes in commodity price or other factors beyond an increase in production, we may set aside the relevant threshold.
- We use third party data providers to monitor issuers' exposure to certain activities and / or breaches of standards. Whilst we assess providers as part of ongoing monitoring, it is not possible to guarantee their accuracy, completeness, quality of judgement or timeliness. We may set aside their data or scoring where our own due diligence suggests that it may be inaccurate, incomplete or disproportionate.
- Our voting activity covers all equity holdings managed in our UK, France, Hong Kong SAR, Singapore, Malta and India offices - whether in active fundamental, active systematic or passive portfolios - over which we have voting discretion, with some commitments in this policy subject to third party data coverage and our discretion to consider other factors. Our voting records are publicly available [online](https://www.assetmanagement.hsbc.com/about-us/responsible-investing/stewardship).

PUBLIC

---

# Application (cont'd)

- Further information on our engagement related to climate change is available in our Stewardship Plan$^4$.
- New investment in 'Buy and Maintain' and 'Buy and Hold' assets will be assessed according to this policy; existing holdings will be managed in client interest, which may include holding to maturity where there is a fiduciary or regulatory obligation to do so.
- Existing and new client on-boarding requirements set out in the HSBC Thermal Coal Phase Out Policy are applied by HSBC Group where relevant as part of its on-boarding process for Asset Management clients.
- Oversight of the application of this policy is conducted as part of our governance and risk framework, which includes formal governance committees at global and local business levels. Implementation may be led at asset class level, supported by other investment and business functions.
- For portfolios not classified as sustainable, the purpose of due diligence is to understand the issuers' transition plans and to inform investment views and engagement objectives. Due diligence and enhanced due diligence are reviewed by Asset Class ESG Investment Committees or other delegated investment functions, overseen by our ESG Investment Committee. They may also consider country and regional context, as well as other risks to transition plans.
- Beyond 2030, emerging market portfolios may exceptionally continue to hold issuers with exposure to thermal coal in the small number of OECD markets included in emerging market portfolio benchmarks

$^4$ Please visit the page 'Stewardship' on our public website for more details on our Stewardship Plan.

PUBLIC

---

# Glossary

**Actively managed portfolios** - include:
- Active fundamental portfolios / funds - portfolios / funds managed through an active fundamental investment process;
- Active systematic portfolios / funds - portfolios / funds managed through a quantitative investment process

**Passive portfolios / products** - portfolios / products managed to track an index.

***De minimis* ** - [our intention is to exclude companies engaged in thermal coal mining or thermal coal-fired power generation. In line with methodology typical of ethical exclusions we may apply a *de minimis* threshold in good faith to help ensure that the policy is operable.] This threshold would be set at no more than 2.5 per cent of issuers' revenues for actively managed portfolios and also for new index funds and passive ETFs.

**Thermal coal expansion** - for thermal coal mining, increases in total tonnage of thermal coal extracted; for thermal coal-fired power, increases in net operational thermal coal power capacity. In each case where such expansion: refers to absolute global increases rather than increases for issuers as a result of corporate mergers and acquisitions; and was not already contractually committed (via power purchase agreement for thermal coal-fired power generation) or under construction, in each case before 01 January 2021.

PUBLIC

---

# Important information

The information presented may refer to HSBC Asset Management's global AUMs/figures and global policies. Even though local entities of HSBC Asset Management may be involved in the implementation and application of global policies, the numbers presented and the commitments listed are not necessarily a direct reflection of those of the local HSBC Asset Management entity.

Today, we and many of our customers contribute to greenhouse gas emissions. We have a strategy to reduce our own emissions and to help our customers reduce theirs. For more information visit [https://www.assetmanagement.hsbc.com/about-us/net-zero](https://www.assetmanagement.hsbc.com/about-us/net-zero)

The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested. The performance figures contained in this document relate to past performance, which should not be seen as an indication of future returns. Future returns will depend, inter alia, on market conditions, investment manager's skill, risk level and fees. Where overseas investments are held the rate of currency exchange may cause the value of such investments to go down as well as up. Investments in emerging markets are by their higher risk and potentially more volatile than those inherent in some established markets. Economies in Emerging Markets generally are heavily dependent upon international trade and, accordingly, have been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries and territories with which they trade. These economies also have been and may continue to be affected adversely by economic conditions in the countries and territories in which they trade.

The contents of this document may not be reproduced or further distributed to any person or entity, whether in whole or in part, for any purpose. All non-authorised reproduction or use of this document will be the responsibility of the user and may lead to legal proceedings. The material contained in this document is for general information purposes only and does not constitute advice or a recommendation to buy or sell investments. Some of the statements contained in this document may be considered forward looking statements which provide current expectations or forecasts of future events. Such forward looking statements are not guarantees of future performance or events and involve risks and uncertainties. Actual results may differ materially from those described in such forward-looking statements as a result of various factors. We do not undertake any obligation to update the forward-looking statements contained herein, or to update the reasons why actual results could differ from those projected in the forward-looking statements. This document has no contractual value and is not by any means intended as a solicitation, nor a recommendation for the purchase or sale of any financial instrument in any jurisdiction in which such an offer is not lawful. The views and opinions expressed herein are those of HSBC Asset Management at the time of preparation, and are subject to change at any time. These views may not necessarily indicate current portfolios' composition. Individual portfolios managed by HSBC Asset Management primarily reflect individual clients' objectives, risk preferences, time horizon, and market liquidity. Foreign and emerging markets. Investments in foreign markets involve risks such as currency rate fluctuations, potential differences in accounting and taxation policies, as well as possible political, economic, and market risks. These risks are heightened for investments in emerging markets which are also subject to greater illiquidity and volatility than developed foreign markets. This commentary is for information purposes only. It is a marketing communication and does not constitute investment advice or a recommendation to any reader of this content to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. This document is not contractually binding nor are we required to provide this to you by any legislative provision.

All data from HSBC Asset Management unless otherwise specified. Any third party information has been obtained from sources we believe to be reliable, but which we have not independently verified.

HSBC Asset Management is the brand name for the asset management business of HSBC Group, which includes the investment activities that may be provided through our local regulated entities. HSBC Asset Management is a group of companies in many countries and territories throughout the world that are engaged in investment advisory and fund management activities, which are ultimately owned by HSBC Holdings Plc. (HSBC Group). The above communication is distributed by the following entities:

- In Argentina by HSBC Global Asset Management Argentina S.A., Sociedad Gerente de Fondos Comunes de Inversión, Agente de administración de productos de inversión colectiva de FCI Nº 1;
- In Australia, this document is issued by HSBC Bank Australia Limited ABN 48 006 434 162, AFSL 232595, for HSBC Global Asset Management (Hong Kong) Limited ARBN 132 834 149 and HSBC Global Asset Management (UK) Limited ARBN 633 929 718. This document is for institutional investors only, and is not available for distribution to retail clients (as defined under the Corporations Act). HSBC Global Asset Management (Hong Kong) Limited and HSBC Global Asset Management (UK) Limited are exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the financial services they provide. HSBC Global Asset Management (Hong Kong) Limited is regulated by the Securities and Futures Commission of Hong Kong under the Hong Kong laws, which differ from Australian laws. HSBC Global Asset Management (UK) Limited is regulated by the Financial Conduct Authority of the United Kingdom and, for the avoidance of doubt, includes the Financial Services Authority of the United Kingdom as it was previously known before 1 April 2013, under the laws of the United Kingdom, which differ from Australian laws;
- In Bermuda by HSBC Global Asset Management (Bermuda) Limited, of 37 Front Street, Hamilton, Bermuda which is licensed to conduct investment business by the Bermuda Monetary Authority;
- In Chile: Operations by HSBC's headquarters or other offices of this bank located abroad are not subject to Chilean inspections or regulations and are not covered by warranty of the Chilean state. Further information may be obtained about the state guarantee to deposits at your bank or on www.sbif.cl;
- In Colombia: HSBC Bank USA NA has an authorized representative by the Superintendencia Financiera de Colombia (SFC) whereby its activities conform to the General Legal Financial System. SFC has not reviewed the information provided to the investor. This document is for the exclusive use of institutional investors in Colombia and is not for public distribution;

PUBLIC

---

- in Finland, Norway, Denmark and Sweden by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026) and through the Stockholm branch of HSBC Global Asset Management (France), regulated by the Swedish Financial Supervisory Authority (Finansinspektionen);
- in France, Belgium, Netherlands, Luxembourg, Portugal, Greece by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026);
- in Germany by HSBC Global Asset Management (Deutschland) GmbH which is regulated by BaFin (German clients) respective by the Austrian Financial Market Supervision FMA (Austrian clients);
- in Hong Kong by HSBC Global Asset Management (Hong Kong) Limited, which is regulated by the Securities and Futures Commission. This video/content has not be reviewed by the Securities and Futures Commission;
- in India by HSBC Asset Management (India) Pvt Ltd. which is regulated by the Securities and Exchange Board of India;
- in Italy and Spain by HSBC Global Asset Management (France), a Portfolio Management Company authorised by the French regulatory authority AMF (no. GP99026) and through the Italian and Spanish branches of HSBC Global Asset Management (France), regulated respectively by Banca d'Italia and Commissione Nazionale per le Società e la Borsa (Consob) in Italy, and the Comisión Nacional del Mercado de Valores (CNMV) in Spain;
- in Malta by HSBC Global Asset Management (Malta) Limited which is regulated and licensed to conduct Investment Services by the Malta Financial Services Authority under the Investment Services Act;
- in Mexico by HSBC Global Asset Management (Mexico), SA de CV, Sociedad Operadora de Fondos de Inversión, Grupo Financiero HSBC which is regulated by Comisión Nacional Bancaria y de Valores;
- in the United Arab Emirates, Qatar, Bahrain & Kuwait by HSBC Global Asset Management MENA, a unit within HSBC Bank Middle East Limited, U.A.E Branch, PO Box 66 Dubai, UAE, regulated by the Central Bank of the U.A.E. and the Securities and Commodities Authority in the UAE under SCA license number 602004 for the purpose of this promotion and lead regulated by the Dubai Financial Services Authority. HSBC Bank Middle East Limited is a member of the HSBC Group and HSBC Global Asset Management MENA are marketing the relevant product only in a sub-distributing capacity on a principal-to-principal basis. HSBC Global Asset Management MENA may not be licensed under the laws of the recipient's country of residence and therefore may not be subject to supervision of the local regulator in the recipient's country of residence. One of more of the products and services of the manufacturer may not have been approved by or registered with the local regulator and the assets may be booked outside of the recipient's country of residence.
- in Peru: HSBC Bank USA NA has an authorized representative by the Superintendencia de Banca y Seguros en Perú whereby its activities conform to the General Legal Financial System - Law No. 26702. Funds have not been registered before the Superintendencia del Mercado de Valores (SMV) and are being placed by means of a private offer. SMV has not reviewed the information provided to the investor. This document is for the exclusive use of institutional investors in Perú and is not for public distribution;
- in Singapore by HSBC Global Asset Management (Singapore) Limited, which is regulated by the Monetary Authority of Singapore. The content in the document/video has not been reviewed by the Monetary Authority of Singapore;
- in Switzerland by HSBC Global Asset Management (Switzerland) AG. This document is intended for professional investor use only. For opting in and opting out according to FinSA, please refer to our website; if you wish to change your client categorization, please inform us. HSBC Global Asset Management (Switzerland) AG having its registered office at Gartenstrasse 26, PO Box, CH-8002 Zurich has a licence as an asset manager of collective investment schemes and as a representative of foreign collective investment schemes. Disputes regarding claims between the Client and HSBC Global Asset Management (Switzerland) AG can be settled by an ombudsman in mediation proceedings. HSBC Global Asset Management (Switzerland) AG is affiliated to the ombudsman FINOS having its registered address at Talstrasse 20, 8001 Zurich. There are general risks associated with financial instruments, please refer to the Swiss Banking Association ("SBA") Brochure "Risks Involved in Trading in Financial Instruments";
- in Taiwan by HSBC Global Asset Management (Taiwan) Limited which is regulated by the Financial Supervisory Commission R.O.C. (Taiwan);
- in the UK by HSBC Global Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority;
- and in the US by HSBC Global Asset Management (USA) Inc. which is an investment adviser registered with the US Securities and Exchange Commission.
- in Uruguay, operations by HSBC's headquarters or other offices of this bank located abroad are not subject to Uruguayan inspections or regulations and are not covered by warranty of the Uruguayan state. Further information may be obtained about the state guarantee to deposits at your bank or on www.bcu.gub.uy.

NOT FDIC INSURED ♦ NO BANK GUARANTEE ♦ MAY LOSE VALUE

Copyright © HSBC Global Asset Management Limited 2024. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, on any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of HSBC Global Asset Management Limited.

AMFR_2024_ESG_ESG_0048. Expires: 31/12/2025

PUBLIC