For Managing the

HSI ESG Index; and

HSCEI ESG Index

Sep 2019 | Version 1.1

1

Date Description

1.0 April 2019 First Issue

1.1 Sep 2019 Updated for enhanced rebalancing method

Amendment History

2

Page

1. Overview 3

2. Management Responsibility 4

3. Constituents 5

4. Index Calculation 6

5. Index Rebalancing 8

6. Dissemination 9

7. Contact Information 10

8. Disclaimer 11

Table of Contents

3

1.1 The HSI ESG Index and the HSCEI ESG Index aim to combine the Hang Seng Index (“HSI”) and the Hang Seng China Enterprises Index (“HSCEI”) with ESG initiatives, forming two ESG Indexes respectively:

• HSI ESG Index (“HSIESG”) • HSCEI ESG Index (“HSCEESG”)

1.2 HSI ESG Index / HSCEI ESG Index has the same list of constituents as its corresponding Base Index (HSI / HSCEI).

1.3 The weightings of the constituents in the Base Index are adjusted (tilted) according to the ESG Scores – Constituents with high ESG Scores will have their weights tilted upwards, while those with low ESG Scores will be tilted downwards. The tilted weight of each constituent is subject to a 10% cap.

1.4 The ESG Scores are the overall sustainability performance scores compiled by the Hong Kong Quality Assurance Agency (“HKQAA”), an independent and professional assessment body, with its own research methodology and process. These sustainability performance scores are the results of assessment in both general and industry-specific criteria covering seven core areas: Corporate Governance, Human Rights, Labour Practices, Environment, Fair Operating Practices, Consumer Issues, as well as Community Involvement and Development.

1.5 The ESG Indexes are calculated and disseminated real-time at 2-second intervals during the trading hours of the Stock Exchange of Hong Kong (“HKEX”).

1 Overview

4

Hang Seng Indexes Company Ltd (“HSIL”)

2.1 HSIL is responsible for conducting regular reviews in accordance with the Index Methodology.

2.2 HSIL is responsible for monitoring company announcements and making ad hoc proposals – which must be approved by the Chairman of the HSI Advisory Committee – if constituent changes between the regular reviews are needed.

2.3 HSIL is responsible for seeking the HSI Advisory Committee’s endorsement of any special action in cases where, due to exceptional circumstances, an index review is not conducted according to the Index Methodology.

2.4 HSIL is responsible for seeking the HSI Advisory Committee’s endorsement of changes to the Index Methodology.

HSI Advisory Committee

2.5 The Committee is responsible for ensuring index reviews are undertaken in accordance with the Index Methodology.

2.6 The Committee is responsible for reviewing any actions proposed by HSIL in the event that, due to exceptional circumstances, an index review is not conducted according to the Index Methodology.

2.7 The Committee is responsible for reviewing and endorsing all changes to the Index Methodology as proposed by HSIL.

2.8 The Committee is responsible for giving advice on any issues related to the Index Methodology.

2 Management Responsibility

5

3.1 HSI ESG Index / HSCEI ESG Index has the same list of constituents as its Base Index. Any constituent changes to a Base Index will be simultaneously applied to the corresponding ESG Index.

3 Constituents

6

Index Formula

4.1 The weightings of the HSI ESG Index / HSCEI ESG Index are calculated by tilting the constituent weights of the Base Index according to the constituents’ ESG Scores while observing the 10% weight cap on individual stocks.

4.2 The index formula is set out below:

������������ =∑(�� × �� × ��� × �� × ��)

∑(���� × �� × ��� × ��× ��)× �����������������������

where

�� = Current Price at Day t

���� = Closing Price at Day (t-1)

�� = Issued Shares

��� = Freefloat-adjusted Factor, which is between 0 and 1

�� = Capping Factor of the Base Index, which is between 0 and 1

�� = Tilt Factor

4.3 The ESG Indexes are price indexes without adjustment for cash dividends or warrant bonuses.

Tilt Factor

4.4 The Tilt Factors are calculated based on the ESG Scores in the following steps. The ESG Scores are the overall sustainability performance scores compiled by the Hong Kong Quality Assurance Agency (“HKQAA”).

4.5 The ESG Score of each constituent is standardized to form the Z-Score according to:

� = (��� − �)/�

where

� = Z-Score

��� = ESG Score

� = Average of the ESG Score of the constituents

� = Standard Deviation of the ESG Scores of the constituents

For constituents with missing ESG Score, they will be excluded from the calculation of � and �. The Z-Scores for these constituents will be set to zero.

4 Index Calculation

7

4.6 Extreme Z-Scores are adjusted by flooring and capping them at -3 and 3 respectively, that is:

�� = max(min(�, 3) , −3)

where

�� = Adjusted Z-Score

4.7 The Tilt Factor for each constituent is calculated according to the following formula:

�� = �1 + ��, �� ≥ 0

1/(1 + |��| ), �� < 0where

|��| = The absolute value of the Adjusted Z-Score

Note that the resulting Tilt Factors will be less than 1 for negative Z-Scores (corresponding to below-average ESG Scores). On the other hand, the Tilt Factor will be larger than or equal to 1 for non-negative Z-Scores (corresponding to average or above-average ESG Scores).

If the total weight of the constituents after tilting deviates from 100%, a normalisation step will be performed to adjust the Tilt Factors. (Note: The normalisation step will also be carried out if any tilted constituent weight is above the weight cap).

Normalisation

4.8 The aim of the normalisation step is to adjust the tilting such that the tilted constituent weights add up to 100%, while observing the 10% individual weight cap.

4.9 To achieve this, a single Scaling Factor (“s”) is applied for all the constituents in the Tilt Factor calculation:

�� = �min(1 +

��

�,��%

��), �� ≥ 0

1/(1 + |��| ∗ � ), �� < 0where �� = The weight of the constituent in the Base Index

4.10 The Scaling Factor is solved with the constraint that the resulting tilted weights sum to unity.

4 Index Calculation

8

5.1 The following provides the general principles on index rebalancing. Please refer to the Index Operation Guide for details about corporate actions adjustments and index rebalancing.

Frequency and Schedule

5.2 Regular rebalancing of HSI ESG Index / HSCEI ESG Index is conducted quarterly to coincide with the rebalancing schedule of the corresponding Base Index.

5.3 The adjustment of the freefloat-adjusted factors (“FAFs”), the update of the Issued Shares (“IS”), the Cap Factors (“CF”) and the Tilt Factors (“TF”) will be undertaken at each rebalancing.

5.4 The schedule for regular index rebalancing is available at HSIL’s website: http://www.hsi.com.hk/HSI-Net/static/revamp/contents/en/products/is_update.pdf

Ad Hoc Changes

5.5 IS will be updated simultaneously with the index adjustment for corporate actions such as bonus issue, rights issue, stock split and stock consolidation.

5.6 Ad hoc rebalancing will be conducted if a constituent’s IS and/or FAF is substantially different from the production data.

5.7 For ad hoc changes in constituents, the Tilt Factors of all existing components will remain unchanged, while that of any newly added component will be assigned the value 1.

5.8 A minimum notice period of two trading days will be given to subscribers of data products issued by HSIL for any ad hoc rebalancing.

5 Index Rebalancing

9

6.1 The HSI ESG Index and the HSCEI ESG Index are calculated and disseminated in real-time every 2 seconds during the trading hours of the Stock Exchange of Hong Kong (“HKEX”).

6.2 Please refer to the index dissemination time provided on HSIL’s website for further details: https://www.hsi.com.hk/static/uploads/contents/en/products/timetable.xlsx

6.3 The ESG Indexes are calculated and published in Hong Kong Dollars.

6.4 Vendor codes for the HSI ESG Index and the HSCEI ESG Index

HSI ESG Index

Vendor Code for Price Index Code for Total Return Index

Bloomberg HSIESG HSIESGT

Thomson Reuters .HSIESG .HSIESGT

HSCEI ESG Index

Vendor Code for Price Index Code for Total Return Index

Bloomberg HSCEESG HSCEESGT

Thomson Reuters .HSCEESG .HSCEESGT

6 Dissemination

10

Hang Seng Indexes Company Limited

Address : 83 Des Voeux Road Central, Hong Kong

Website: www.hsi.com.hk

E-mail: info@hsi.com.hk

7 Contact Information

11

All information contained herein is provided for reference only. Hang Seng Indexes Company Limited (“HSIL”) ensures the accuracy and reliability of the above information to the best of its endeavours. However, HSIL makes no warranty or representation as to the accuracy, completeness or reliability of any of the information contained herein and accepts no liability (whether in tort or contract or otherwise) whatsoever to any person for any damage or loss of any nature arising from or as a result of reliance on any of the contents of this document, or any errors or omissions in its contents and such contents may change from time to time without notice.

The information contained in this document is not intended to provide professional advice and should not be relied upon in that regard. Persons intending to use any information obtained from this document are advised to obtain appropriate professional advice.

© Hang Seng Indexes Company Limited 2019. All rights reserved.

- End -

8 Disclaimer