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Transition towards sustainable practices

Mobilising finance in EMD

Sustainable Emerging Market Debt

Mobilising finance for sustainable transition
Emerging markets corporates offer an interesting diversification proposition for investors looking for high carry, stable yield, and low portfolio turnover
Bryan Carter, Head of Emerging Markets Fixed Income

In Focus

Our Philosophy

Unlike traditional emerging markets ESG funds that tend to focus on use-of-proceeds and labelled bonds (e.g., Green, Social, or Sustainability-linked bonds), we have created an Emerging Markets corporate bond strategy that takes a broader and more flexible approach, targeting companies with transformative sustainability goals and demonstrated business plans and ambitions. This strategy identifies companies with clear improvement potential; it selects investments that meet the high standards of SFDR Article 9, ensuring transparency, accountability, and alignment with the UN’s Sustainable Development Goals.

Why Sustainable Emerging Market Debt?

The strategy channels capital into emerging markets issuers that that meet sustainability criteria requirements but lack labelled bonds. With robust credit research, active engagement, and strategic capital allocation, we aim to drive impact in emerging markets—both environmental and social—and to deliver potential attractive long-term risk-adjusted returns.

  • A diversified investment opportunity in emerging markets corporates, leveraging a labour-intensive, engagement-based investment process
  • A way to capture a significant portion of the improvement evolution (and the potential price appreciation) of these companies
  • A low annual turnover rate (30-50 per cent annually), helping to preserve investors from the transaction costs that are often associated with Emerging Markets investing

Key Risks

The value of investments and any income from them can go down as well as up and investors may not get back the amount originally invested.

  • Sustainability Risk: "sustainability risk" means an environmental, social or governance event or condition that, if it occurs, could cause an actual or a potential material negative impact on the value of the investment
  • Exchange Rate Risk: Where overseas investments are held, the rate of exchange of the currency may cause the value to go down as well as up. Variations in exchange rates between currencies can have a significant impact on the performance of the products presented
  • Counterparty Risk: The fund is exposed to Over the Counter (OTC) markets for all or part of its total assets. The fund will therefore be subject to the risk that its direct counterparty will not perform its obligations under the OTC transactions and that the fund will sustain losses
  • Liquidity Risk: Liquidity is a measure of how easily an investment can be converted to cash without a loss of capital and/or income in the process. The value of assets may be significantly impacted by liquidity risk during adverse market conditions
  • Operational Risk: The main risks are related to systems and process failures. Investment processes are overseen by independent risk functions which are subject to independent audit and supervised by regulators
  • Derivatives Risk: The value of derivative contracts is dependent upon the performance of an underlying asset. A small movement in the value of the underlying can cause a large movement in the value of the derivative. Unlike exchange traded derivatives, over-the-counter (OTC) derivatives have credit risk associated with the counterparty or institution facilitating the trade
  • Emerging Markets Risk: Investments in emerging markets have by nature higher risk and are potentially more volatile than those made in developed countries. Markets are not always well regulated or efficient and investments can be affected by reduced liquidity
  • Interest Rate Risk: As interest rates rise debt securities will fall in value. The value of debt securities is inversely proportional to interest rate movements
  • Default Risk: The issuers of certain bonds could become unwilling or unable to make payments on their bonds
  • Credit Risk: Issuers of debt securities may fail to meet their regular interest and/or capital repayment obligations. All credit instruments therefore have potential for default. Higher yielding securities are more likely to default
  • CoCo Bond Risk: Hybrid capital securities that absorb losses when the capital of the issuer falls below a certain level. Under certain circumstances CoCos can be converted into shares of the issuing company, potentially at a discounted price, or the principal amount invested may be lost

Before subscription, investors should refer to the complete prospectus as well as the Key Information Document (KID) of the fund as well as its available on request from HSBC Asset Management, the centralizing agent, the financial department or the usual representative. For more detailed information on the risks associated with this fund, investors should refer to the prospectus of the fund.