25th August 2023
New standards also target outperformance over the long term
Key points are as follows:
- In November 2021, the MPFA issued principles (“Principles”) to assist MPF trustees integrate ESG factors into the investment and risk management of MPF funds.
- The key pillars of the Principles are Governance, Strategy, Risk Management and Disclosure.
- Compliance responsibility with the Principles is high and falls squarely on investment managers and MPF trustees.
- MPF Ratings affirms the specific nature of Sun Life’s MPF Global Low Carbon Index Fund investment guidelines are not only consistent with the Principles but also establishes new standards for ESG measurement within MPF.
- While ESG promotion within the MPF system is relatively new, interest is growing with 120% assets growth over the past 5 years to 30 June 2023.
MPF Ratings, Hong Kong’s independent provider of MPF pension research, views and education announced today that following an extensive review of Sun Life ’s recently launched MPF Global Low Carbon Index Fund (the “Fund”), the Fund uniquely fulfils key provisions of the Mandatory Provident Fund Schemes Authority’s (“MPFA”) Principles for Adopting Sustainable Investing in the Investment and Risk Management Processes of MPF Funds (“Principles”) and establishes new standards for ESG measurement within the MPF system.
Launched on 5th June 2023, the Fund’s scheme brochure states the Fund seeks to, “closely tracks the performance of the FTSE Custom MPF Developed Selected Countries ESG Low Carbon Select Hedged Index (“Underlying Index”). The Sun Life MPF Global Low Carbon Index Fund achieves this performance through investing solely in the Sun Life AM Global Low Carbon Index Fund (“Underlying Fund”), a sub-fund of Sun Life Asset Management Funds.”
But, according to Francis Chung (叢川普), Chairman of MPF Ratings Ltd, it’s not what’s disclosed in the scheme brochure, but rather what is not disclosed, that distinguishes the Fund from the system’s other fund offerings.
“The MPFA’s ‘Principles for Adopting Sustainable Investing in the Investment and Risk Management Processes of MPF Funds’ was a watershed sustainable investing initiative for Hong Kong’s $1.1 trillion MPF system. It not only obliges MPF trustees to describe how their investment managers identify, assess and manage relevant and material ESG factors, but investment managers must also establish and disclose explicit sustainable investing metrics and targets,” said Francis Chung (叢川普). “Disclosing explicit metrics and targets will challenge and amplify the system’s accountability so it is positive to see the explicit guidelines of Sun Life’s fund’s benchmark. The guidelines establish new standards for ESG measurement and disclosure in an attempt to outperform over the long term.”
According to Mr Chung, while managers have historically been vocal about their investment performance they’ve been less forthcoming about specific activism and engagement metrics. However, as people become more aware of every day social, environmental and governance issues the investment community will need to proactively adopt change.
“By investing against an index explicitly targeting companies with 50% reductions in carbon emissions and fossil fuel reserve intensities and 20% uplift in ESG ratings, while excluding companies in sensitive business areas, the Fund is clearly defining and establishing ESG measurables. New MPF fund launches will need to follow this lead set by Sun Life.”