What it takes to be a leader in investment and sustainability
Introduction
At Federated Hermes, we believe in the power of responsible capital. Since 1983 we have driven the evolution of best-practice stewardship and are one of the world’s largest providers of engagement and stewardship services today. Our aim is to change investment for the better, forever, for all. From best-practice ESG integration to SDG investing and impact, we offer many pathways to Sustainable Wealth Creation. All however require company-wide commitment as ESG cannot be simply ‘bolted on’ to an investment process or be the domain of one analyst in a team. It must be an area of expertise for all. In this ezine we share some of the ways in which we achieve this, taking a granular look at the short-term activity that compounds towards positive outcomes for investors, society and the environment.
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Contents
Routes to market Future world trends Your guide to identifying best practice Integration & measurement Hear from our CEO Growing wealth sustainably A combined history... Disclaimer
Three pathways to sustainable wealth creation Helping investors to create a more sustainable future Six ways to deliver a positive climate impact The next challenge for responsible investing Your guide to identifying best practice Drilling down: What you need to be a leading responsible investor In conversation with Saker Nusseibeh, CBE, CEO, Federated Hermes Limited Getting the conversation started Federated Hermes: A combined history of putting investors’ interests first
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Routes to market Future world trends Your guide to identifying best practice Integration & measurement Hear from our CEO Growing wealth sustainably A combined history...
Three pathways to sustainable wealth creation Helping investors to create a more sustainable future Six ways to make a positive climate impact The next challenge for responsible investing Your guide to identifying best practice Drilling down: What you need to be a leading responsible investor In conversation with Saker Nusseibeh, CBE, CEO, Federated Hermes Limited Getting the conversation started Federated Hermes: A combined history of putting investors’ interests first
Three pathways to sustainable wealth creation
What the data tells you – and doesn’t
Tackling greenwashing, however, requires more than a thorough ESG integration – a healthy dose of skepticism toward external data providers, for example. By its very nature, responsible investing is a heavily data-driven exercise, maybe even more so than other investment strategies. But what if the data that builds the foundations of an ESG-based investment approach isn’t as reliable as it should be? ‘It’s about time fund managers see third-party data for what it really is: a mere starting point,’ Viehs says. He believes many of the data points from external providers are outdated, inaccurate and insufficient to paint a holistic picture of a company’s sustainability credentials. ‘I think that’s what ESG integration is all about: having fund managers question those third-party ratings that we see,’ he says, adding that investors do well to take notice of the extent to which asset managers conduct their own fundamental, bottom-up ESG research. ‘The danger of having a separate ESG analyst team is that the information is not fed into the investment decision making process,’ Viehs says. ‘That’s why we make sure data analysis is part of our investment team’s day-to-day responsibilities instead of outsourcing it to a separate party.’
Lastly, it’s also important to keep up to date on the latest developments in the ESG space. Instead of just riding the momentum around responsible investing, true pioneers are constantly looking for ways to advance the sector. Viehs believes the industry has made a quantum leap in the past 18 months. ‘There has been a shift toward social topics, with more focus on the human capital dimension. Employee wellbeing, mental health, flexible working arrangements – those are the things that are in the spotlight now. People have started to realise that there’s more to ESG than climate change.’ Another aspect he increasingly sees coming to the fore is biodiversity, an area he believes is ‘definitely going to be the next big environmental topic’. Finding ways to approach it from an ESG perspective, however, is easier said than done. ‘Biodiversity is such a new theme that it’s hard to gather the right data. Companies don’t necessarily know what impacts their actions have on biodiversity,’ Viehs says. That’s why he believes having a team of subject matter experts is so important.‘These days, you can’t be an expert in all areas of ESG. When we engage with companies, we assess them against 36 different ESG topics, from natural resource stewardship to sustainable land use and antimicrobial resistance. If you want to take a look behind the curtain and find out what a company’s ESG standards are really like, you need that level of granularity.’
The next big thing
‘I know that I have changed a tiny, tiny, tiny, tiny, bit of medieval history. I have altered the way that medieval historians perceive the world. So, I know that givens are not true, it’s just that they’re true at a point in time.’ Nusseibeh argues that undertaking a PhD gave him the confidence to trust in his convictions and to always keep an open mind. ‘I came with this idea that you researched to find out the truth and that maybe, the key is to find major trends. Human history after all is fundamentally about major trends and shifts. ‘Here’s the link to fund management. It’s to find out what nobody else knows. This is the whole point. People come and say to you, this is how the economy works. I’ve been talking for years about how economic theory is out of kilter and now we are finally seeing this recognition in wider society.’ While Nusseibeh no longer runs money he says he is still fascinated by how the system works. Increased bicycle usage, increased alternative meat consumption, increased second-hand clothes wearing – these are all major human trends he sees in today’s economy. Coming from the head of an asset manager that takes great pride in its sustainability credentials, it’s no coincidence that these are all net positive trends for the environment. They may be trends, but for Nusseibeh the aim is not to be trendy.
Changing the course of history
He argues that when you invest in a share or a stock there is the immediate effect of the gain that you get from the share price, but there’s also, secondary and tertiary, gain and loss. ‘For example, I invest in a company that makes a chemical substance. My share price goes up 80%, yippee, I’ve made a lot of money. That company dumps bad chemicals in my backyard. I get very sick, my children get cancer and we all die so, I haven’t really made money, right.’ To emphasise this, he enlists the help of some of history’s loftiest economic thinkers, French economist Frédéric Bastiat and Scottish economist and philosopher Adam Smith. First up, Bastiat. In his 1850 essay, ‘Ce qu'on voit et ce qu'on ne voit pas’ (‘That which we see and that which we do not see’), the Frenchman introduces the Parable of the Broken Window, where he argued that if you have a room and the pane of glass is broken, the cost to you is not the cost of the pane of broken glass, but the cost of the lost heat from the room. ‘It’s this wider economic picture that he was trying to get at in 1850, and that’s what people are missing today.’ Heading back further into the history books comes wisdom from Adam Smith. So taken with this nugget is Nusseibeh that he has the quote saved on his phone. Pulling it out of his pocket he recites a few lines from Smith’s work on ‘the rational man’. ‘He is sensible too that his own interest is connected with the prosperity of society, and that the happiness, perhaps the preservation of his existence, depends on its preservation.’ ‘It’s almost a definition of sustainability, right! ‘You’re not going to achieve social cohesion unless the system works. For the system to work well, as Adam Smith says, you have to ensure that you preserve the prosperity of society. ‘So, it’s a selfish act, in fact, to preserve the prosperity of society. That’s what people have got to realise - that they’ve got to do it for their own self-interest. That was Adam Smith’s main point.’ Nusseibeh says his job now is to convince people that everything we talk about has a financial impact.
A bigger cost
‘The E, we have to talk about environment with the floods and the heat and so on, but Lloyds of London survived the Napoleonic War, survived the Crimean War, survived the Boer War, survived the First and Second World Wars and it was destroyed by asbestos.’ ‘The G. If companies do not have a license to operate, the consumer will leave them. We’ve seen that. If companies behave badly, the regulator will come down on them like a tonne of bricks. We saw that with the banks. That’s about impact. ‘And finally, the S. If you treat your workforce well, they have higher productivity. I mean, doh! If we don’t stress people about having to clock in at 9AM because they’ve got a child, apparently, they put more into work than before. If we make the workplace a nicer environment, apparently, that produces better results.’ When asked if he’s optimistic about the future, he answers without hesitation: ‘ridiculously’. While acknowledging we’re entering undoubtedly difficult times with the rise of China and more political tension than ever before, he says he has faith in humanity’s survival. ‘Look at the young, they understand, that’s why sustainability is a big trend. Now, will there come a time when every asset management house would have a pledge like ours? Yes, absolutely.
Defining impact
A boom in sustainable funds has helped to satisfy soaring demand for investments that deliver profits with principles but makes navigating the landscape harder for investors. In their pursuit of Sustainable Wealth Creation, which pathway should they take? As fund managers scramble to signpost their funds as sustainable – many of them relative newcomers to this investment terrain – European policymakers are striving to codify the sector to equip investors with the information needed to plot a sensible route through the jungle of offerings. The European Union’s Sustainable Finance Disclosure Regulation (SFDR) aims to address the lack of consistency in information provided by financial-market participants and stands to provide a competitive edge to those firms offering genuinely sustainable products. Fund managers can classify their products as either article nine – which means a fund has sustainable investment as its objective – or article eight – which means that a fund promotes environmental or social characteristics. Under Article 6, all funds disclose how sustainability risks are integrated and assessed and integrate ESG safeguards. Federated Hermes Limited has classified more than 95% of its market funds as article eight or nine. The EU Taxonomy Regulation is an important classification system to help investors understand whether an economic activity is environmentally sustainable. It sets out a framework against which investors and businesses can assess the sustainability of certain economic activities. The initial focus has been on establishing a classification system for environmental sustainability but the European Commission’s intention is to extend that to social objectives (1). The routes are different, but the destination is the same: Sustainable Wealth Creation. To align with EU regulation, and in a bid to clearly map its investment offering for investors, Federated Hermes has reclassified its product range under three distinct and clearly labelled fund categories. Investors can choose an Active ESG, Sustainable or Impact path. ‘While these approaches differ and may appeal to different client types, each is underpinned by our best-practice integration of ESG analysis and engagement insights and the delivery of sustainable outcomes through effective stewardship,’ says Head of Business Development Harriet Steel. Here, the key word is Stewardship. EOS at Federated Hermes, our world-leading stewardship service provider, harnesses investor capital to change companies for good from within. Founded in 2004 on a legacy dating back to 1983, EOS advises on more than $1.6tn* in assets to deliver corporate engagement and proxy voting services.
To help investors on their sustainable investment journey, Federated Hermes has classified its funds into three well-defined categories.
At Federated Hermes, we are active investors with a long history of sustainable investing. Our Active ESG funds take financial performance as their objective. Our conviction is that responsible investing is the best way to create long-term wealth. The sustainable wealth we have created for our clients over many decades is testament to that. Our Active ESG funds – and, indeed, every fund across our range – are built on the same solid foundations: ESG analysis, engagement and effective stewardship. They have in common best-practice integration of deep-dive ESG analysis and insights from the broad range of engagement activity with policymakers and companies undertaken by EOS at Federated Hermes, our specialist stewardship services team. We see ourselves as partners, working alongside companies to drive positive change. We have an acute sense of obligation to our investors to be responsible stewards of capital. That means that we also exercise the rights given to equity holders in companies to vote on business matters and director elections during annual and extraordinary general meetings. Through our proprietary ESG scoring system we assess companies on an individual basis. Our Active ESG funds tend to avoid blanket exclusions but at times the fund manager may enforce exclusions to reflect investment views. For example, Kunjal Gala, Federated Hermes’ Lead Portfolio Manager for Emerging Markets, excludes companies that generate revenue from the production of controversial weapons from the Federated Hermes Global Emerging Markets Equity fund for the purposes of risk management.
Active ESG
Funds within our Sustainable category have twin financial and sustainability objectives. They offer thematic exposure to companies that we consider to be leaders in environmental or social products and services, or those that are trailblazing the transition to a zero-carbon world through the concrete steps they have taken and continue to take to lessen their impact on the environment. These funds have a clear set of exclusions to ensure that potentially harmful activities cannot be invested in, as well as an additional objective to deliver a lower environmental footprint than the fund’s benchmark. Federated Hermes Sustainable Global Equity launched in July 2021 and invests in companies whose activities help to create a more sustainable future and targets a lower environmental footprint than the MSCI All Country World Investable Market index. To ensure that companies in industries that restrict sustainable outcomes are omitted from the portfolio, its management trio – Lead Manager Martin Todd, Co-Manager Ingrid Kukuljan and Deputy Manager Henry Biddle – excludes those companies involved in weapons, fossil fuels, alcohol, gambling and tobacco. Thereafter, they take a positive approach to identify the most sustainable and exciting businesses globally, viewing their filtered universe through four thematic lenses that are aligned to the United Nations’ Sustainable Development Goals (SDGs): environmental preservation; social inclusion; health and wellbeing; and efficient production and resource usage.
Sustainable
Our Impact funds also have two objectives – there is a financial objective, of course, and, as this category conveys, there is an impact objective. These mission-led investment strategies seek to deliver real world positive change. They invest in companies that can deliver a quantifiable positive impact – one that we are able to measure, monitor and report on. In doing so, however, they may invest in companies that are not necessarily the leaders of today but are undergoing positive transformation – investing today in tomorrow’s winners. We see effective engagement as a powerful catalyst in the progress of companies towards making a material difference to the world in which we live. The Federated Hermes SDG Engagement Equity and SDG Engagement High Yield Credit funds invest in stocks and bonds respectively of companies that – through engagement aligned with the UN SDGs – can generate outcomes that benefit people, the planet and investors. Meanwhile, the Federated Hermes Impact Opportunities Fund seeks to capture the opportunities that megatrends create. Key impact themes include energy transition, food security and health and wellbeing. The Federated Hermes Biodiversity Equity Fund backs firms that show significant contribution to preserving biodiversity through either one or more of six key themes: land pollution, marine pollution and exploitation, unsustainable living, climate change, unsustainable farming, and deforestation. Again, there is a focus on the SDGs with each theme typically aligning with at least one goal. For example, companies involved in the transition to green energy solutions and therefore having a meaningful impact on carbon emissions support goal seven, to ensure access to affordable, reliable, sustainable and modern energy, and goal 13, to take urgent action to combat climate change and its impacts.
(1) See section under ‘Further development’ : https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainable-activities_en
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* Source: Federated Hermes, as at 31 March 2022.
Helping investors to create a more sustainable future
What resources are behind the running of these funds?
Our Sustainable Global Equity Fund is managed by a team with expertise in global thematic investing. Lead Manager Martin Todd works alongside Ingrid Kukuljan, our Head of Impact and Sustainable Investing, and is supported by Deputy Manager Henry Biddle, one of our US equities portfolio managers. Ingrid and Martin also manage the Federated Hermes Impact Opportunities Equity Fund.
Our Sustainable Global Equity Fund seeks to identify companies helping to create a more sustainable future'. This involves investing in companies that have excellent ESG profiles and their activities directly contribute to a more sustainable future. Our high-conviction, bottom-up approach, combined with best-in-class ESG and stewardship integration allows us to identify these investment opportunities and create long-term transformative change and financial outperformance. The investment process encompasses exclusions, proprietary sustainability scores and a clear thematic framework focused on four main areas: environmental preservation, social inclusion, health and wellbeing and efficient production and resource usage.
Talk me through the investment process and philosophy?
Having ‘sustainable’ in a fund’s name is a helpful way for investors to identify that a fund is seeking to deliver sustainable outcomes. For our funds, this helps to create a clear difference to our active ESG and impact funds. However, it is important to consider that the use of terms like ‘sustainable’ are not used consistently in the market and so investors should look beyond the name of the fund and understand what approach the manager is taking to delivering sustainable outcomes. We believe that our reclassification process provides investors with the information that they need to understand what we mean by ‘sustainable’.
How important is it to have ‘sustainable’ in the name?
In preparation for SFDR and the EU taxonomy, we classified our funds as article eight or nine and ensured that any legal documentation reflects how each investment process integrates the consideration of environmental, social and governance (ESG) factors. In addition, we developed new datasets and tools to ensure that our investment teams have access to key sustainability related data to help them measure the impacts of their investments. The range we offer integrates best-in-class ESG analysis and stewardship and so we are proud that more than 95% of Federated Hermes Limited's public market funds can be classified as article eight or nine under SFDR under current assumptions. We are committed to continually refining our documentation, processes and reporting to ensure that we always offer our clients a fully compliant range of solutions to meet their needs.
What work have you done to ensure your funds meet the EU’s Sustainable Finance Disclosure (SFDR) and Taxonomy regulations?
Our sustainable range now includes the Federated Hermes Sustainable Global Equity Fund, which aims to deliver long-term transformative change and financial outperformance by identifying profitable, sustainable companies whose activities help create a more sustainable future. We have also recently launched the Federated Hermes Climate Change High Yield Credit Fund, which invests in the global high yield market and focuses on companies that are able and willing to make this world a better place. The fund’s objective is strong financial performance coupled with a positive climate impact to make the climate transition easier for all of us. We have seen a welcome and marked acceleration towards responsible and sustainable investing with clients of all types reassessing their long-term objectives. The proliferation of related products has made it harder for investors to decipher and assess what is available to them. Aligning with EU regulation, the reclassification and expansion of our product range offers transparency to clients and reflects the sustainable heritage and integrity of our firm. The Federated Hermes Biodiversity Equity Fund fits right into our endeavours to stop the looming biodiversity crisis. Managed by our Head of Impact & Sustainable Investing Ingrid Kukuljan, the fund benefits from the expertise of our Impact and Sustainable Investing team. We use proprietary impact calculation at a stock and portfolio level to measure the effect of the strategy’s holdings on the environment.
Which funds have you recently launched and why?
We believe that our reclassification process provides investors with the information that they need to understand what we mean by 'sustainable'.
Head of Business Development, Federated Hermes Limited
Harriet Steel
Citywire talks to Federated Hermes’ Head of Business Development Harriet Steel about the first fund in its sustainable range.
Our sustainable funds go further than simply excluding carbon-intensive activities such as coal mining. Our approach integrates ESG analysis and engagement insights and our sustainable funds contain an explicit objective to deliver a reduced environmental footprint relative to the fund’s benchmark.
What sets these funds apart from others that may have a similar label?
Delivering sustainable wealth creation has been our sole purpose since our 1983 origin to the present day and so all our investment capabilities are informed by decades of specialist experience, innovation and a drive to lead the evolution of investing through a sustainability lens and stewardship. Our investors can be confident that when we talk about sustainability, we mean it.
How confident can investors be that these are genuinely sustainable investments?
Yes, we intend to continue building out our active ESG, Sustainable and Impact fund offerings to ensure that we have a full suite of investment solutions to meet all our clients’ needs.
Are you planning future fund launches?
Delivering sustainable wealth creation has been our sole purpose since our 1983 origin to the present day and so all our investment capabilities are informed by decades of specialist experience.
Sustainable Global Equity fund
Climate Change High Yield Credit fund
Federated Hermes Biodiversity Equity fund
Six ways to make a positive climate impact
Separating fact from greenwashing
Covid-19 lockdowns reduced pollution levels and laid bare the part we all must play in tackling climate change. Satellite photos of highly populated areas before and during the height of the pandemic brought into sharp focus our direct impact on the natural world. For the first time in almost 30 years the Himalayas came into view for people living in northern India, and for the first time ever residents of Venice could see the bottom of the city’s iconic canals. While the world paused to tackle Covid-19, the urgency of the climate crisis continued. Now, as we bounce back from the pandemic, there is a groundswell of support for sustainability to underpin economic recovery. Governments have committed to not just ‘build back better’ but to ‘build back greener’ – more than 110 countries have pledged to achieve net-zero carbon emissions by 2050. But how do we turn pledges into reality? It takes decisive and collaborative action to address the climate crisis. Investment managers, as stewards of capital, have a crucial role to play.
Federated Hermes examines the role of asset managers in making a climate difference.
Investment circles are ringing with mentions of ESG. It seems that every asset manager is talking about environmental, social and governance factors and how they integrate them into their investment proposition. It is an approach that we have long advocated and applied across our entire range of investment strategies. Since our origins in 1983, we have been trailblazers on the path to Sustainable Wealth Creation, generating wealth through investments that enrich investors, society and the environment over the long term.
Measure
Integrate
Since the onset of the pandemic we have seen a welcome and marked acceleration in demand for responsible and sustainable investment strategies. Many more investors have become alive to the urgency of the climate crisis and want to be active participants in addressing it. To meet growing demand and enable greater participation, we have expanded our product range to allow investors to explicitly target positive environmental impacts.
Advocate
Participate
In addition to investing in a way that has a positive impact on the environment, we want to be able to measure that impact. It is imperative that all our investee companies have a positive impact that can be measured quantitatively as well as qualitatively. In 2021 we launched the Federated Hermes Impact Database. After looking at the tools available in the market to analyse impact data, we did not believe that any one provider had the depth of understanding and granularity we require at a company level. We have put a significant amount of time and resources into producing the database, and it has yielded extremely valuable results.
(2) Source: Federated Hermes Impact Calculations, Net Purpose, as at 31 May 2022. Our calculation methodology is described in detail in our Q1 2021 report. This is not an offer to buy or sell any mentioned stock.Source: Federated Hermes Impact Calculations, Net Purpose, as at 31 May 2022. Our calculation methodology is described in detail in our Q1 2021 report. This is not an offer to buy or sell any mentioned stock.
Advocating for industry best practices and public policy change is key to being a responsible investor and an important part of advancing action on climate change. By engaging with public policymakers, regulators, governments and industry bodies we can help to shape the policy architecture governing markets in a way that supports the delivery of Sustainable Wealth Creation. We are one of 54 organisations focused on, or supporting, the integration of sustainability and
Collaborate
(3) https://sustainability.hermes-investment.com/uk/en/intermediary/how-we-invest/sustainability-in-action/ (4) https://www.iigcc.org/resource/net-zero-investment-framework-implementation-guide/
No one can solve the climate crisis alone; it necessitates effective collaboration between many stakeholders. Equity Ownership Services (EOS) at Federated Hermes, our specialist stewardship services team, has a 15-year track record of bringing about positive change through engagement with policymakers and companies. The EOS team holds thousands of discussions each year, engaging with companies, regulators and governments on specific objective and issues, especially climate change. Here we have expanded our focus beyond traditional energy intensive sectors, such as energy supply and transportation, to the providers of capital.
Target
Targets act as a strong catalyst in driving change. Our four-stage milestone system allows us to track the progress of our engagement relative to the objectives set for each company. We have set six climate change expectations for our own business and the companies in which we invest. As a minimum standard we expect companies to: 1. Use the Task Force on Climate-related Financial Disclosures as the best framework for understanding and setting out how they are responding to climate change.
(6) https://www.hermes-investment.com/ukw/wp-content/uploads/2021/05/fhi-responsibility-office-climate-change-expectations-1120.pdf
In 2017 we spearheaded Climate Action 100+, an investor-led initiative to ensure the world’s largest corporate greenhouse gas-emitters take action to respond to the climate emergency. ESG integration and engagement goes beyond our investment floor; it is deeply rooted in our corporate culture. Our Federated Hermes pledge, introduced in 2015, details ten specific behaviours, including acting with consideration for society and the environment both now and in the future and encouraging others to do the same, that employees are encouraged to sign up to.
The Federated Hermes Climate Change High Yield Credit and Federated Hermes Sustainable Global Equity funds share two explicit aims: strong financial performance for investors and positive climate impacts for the planet. Both are high-conviction portfolios investing in our best ideas. The Climate Change High Yield Credit Fund backs the leaders of tomorrow’s low-carbon economy – those actively tackling global warming by reducing their own greenhouse gas emissions or developing innovative ways to ease the climate transition. The Sustainable Global Equity Fund aims to have an environmental footprint that is lower than the benchmark, and takes environmental preservation as one of its four core themes. Subthemes include energy transition, biodiversity and future mobility. Meanwhile, the Biodiversity Strategy strives to achieve long-term growth by investing in companies that offer solutions to the ongoing biodiversity loss by means of measurable contribution. By investing in the companies doing the most to protect the planet, investors can make a real difference.
investment. Our people sit on the boards or committees of 33 of them (3). An example of our advocacy work on climate change is our involvement in several initiatives of the Institutional Investors Group on Climate Change. Its policy programme is helping to shape sustainable finance and increase flows of funding for low-carbon projects, while its drive to help investors align portfolios with the Paris Agreement – which aims to limit global warming to well below 2°C, and ideally to 1.5°C, compared to pre-industrial levels – has led to the creation of a net-zero investment framework. It provides a set of recommended actions, metrics and methodologies, published in March 2021, through which investors can maximise their contribution to achieving global net-zero global emissions by 2050, if not sooner (4).
Banks play a powerful part in shaping the corporate landscape. We want to encourage the redirection of capital away from environmentally damaging practices and towards areas such as sustainable food systems that avoid deforestation and protect biodiversity. We also want to collaborate with companies to promote sustainable approaches to carbon offsetting via natural carbon sinks – chiefly, plants, the ocean and soil – and advance shareholder scrutiny of companies’ climate transition plans through robust benchmarking of their quality and performance to date.
2. Have the appropriate governance and internal capacity to improve their exposure to climate change risk. 3. Model how the transition to a low-carbon economy might impact them financially. 4. Look beyond their own operations to consider supply chain risk. 5. Use their influence positively with peers to build consensus on the need for collective climate policy success. 6. Commit to carbon neutrality by 2050 at the latest, backed up with metrics and targets to demonstrate progress (6). By committing to these climate-focused expectations, and by recognising the part we all must play in having a positive impact on the planet, we stand the best chance of tackling the climate crisis.
Not only can we use it as a framework to assess the impact of companies – both ones in which we invest and those on our watchlist – but we can also use it to measure and report on the impact of our Impact Opportunities Fund and Biodiversity Fund. For example, we can state that Brambles, a name owned in Federated Hermes Impact Opportunities fund, achieved a wealth of positive environmental outcomes in the Reported Year 2021. At an enterprise level these including the avoidance of 2.4 million metric tonnes of carbon emissions, 316.4kM³ of water saved, the recycling of 82.5k tonnes of waste with a further 141.8k tonnes achieved through product solutions, and 5.1k hectares of forest either restored or conserved (2).
At Federated Hermes, we are active investors with a long history of sustainable investing. Our Active ESG funds take financial performance as their objective. Our conviction is that responsible investing is the
best way to create long-term wealth. The sustainable wealth we have created for our clients over many decades is testament to that. Our Active ESG funds – and, indeed, every fund across our range – are built on the same solid foundations: ESG analysis, engagement and effective stewardship. They have in common best-practice integration of deep-dive ESG analysis and insights from the broad range of engagement activity with policymakers and companies undertaken by EOS at Federated Hermes, our specialist stewardship services team. We see ourselves as partners, working alongside companies to drive positive change. We have an acute sense of obligation to our investors to be responsible stewards of capital. That means that we also exercise the rights given to equity holders in companies to vote on business matters and director elections during annual and extraordinary general meetings. Through our proprietary ESG scoring system we assess companies on an individual basis. Our Active ESG funds tend to avoid blanket exclusions but at times the fund manager may enforce exclusions to reflect investment views. For example, Kunjal Gala, Federated Hermes’ Lead Portfolio Manager for Emerging Markets, excludes companies that generate revenue from the production of controversial weapons from the Federated Hermes Global Emerging Markets Equity fund for the purposes of risk management.
Investment circles are ringing with mentions of ESG. It seems that every asset manager is talking about
environmental, social and governance factors and how they integrate them into their investment proposition. vIt is an approach that we have long advocated and applied across our entire range of investment strategies. Since our origins in 1983, we have been trailblazers on the path to Sustainable Wealth Creation, generating wealth through investments that enrich investors, society and the environment over the long term. In 2017 we spearheaded Climate Action 100+, an investor-led initiative to ensure the world’s largest corporate greenhouse gas-emitters take action to respond to the climate emergency. ESG integration and engagement goes beyond our investment floor; it is deeply rooted in our corporate culture. Our Federated Hermes pledge, introduced in 2015, details ten specific behaviours, including acting with consideration for society and the environment both now and in the future and encouraging others to do the same, that employees are encouraged to sign up to.
In addition to investing in a way that has a positive impact on the environment, we want to be able
to measure that impact. It is imperative that all our investee companies have a positive impact that can be measured quantitatively as well as qualitatively. In 2021 we launched the Federated Hermes Impact Database. After looking at the tools available in the market to analyse impact data, we did not believe that any one provider had the depth of understanding and granularity we require at a company level. We have put a significant amount of time and resources into producing the database, and it has yielded extremely valuable results. Not only can we use it as a framework to assess the impact of companies – both ones in which we invest and those on our watchlist – but we can also use it to measure and report on the impact of our funds. For example, we can state that Brambles, a name owned in Federated Hermes Impact Opportunities fund, achieved a wealth of positive environmental outcomes in the Reported Year 2021. At an enterprise level these including the avoidance of 2.4 million metric tonnes of carbon emissions, 316.4kM³ of water saved, the recycling of 82.5k tonnes of waste with a further 141.8k tonnes achieved through product solutions, and 5.1k hectares of forest either restored or conserved (2).
Since the onset of the pandemic we have seen a welcome and marked acceleration in demand for
responsible and sustainable investment strategies. Many more investors have become alive to the urgency of the climate crisis and want to be active participants in addressing it. To meet growing demand and enable greater participation, we have expanded our product range to allow investors to explicitly target positive environmental impacts. The Federated Hermes Climate Change High Yield Credit and Federated Hermes Sustainable Global Equity funds share two explicit aims: strong financial performance for investors and positive climate impacts for the planet. Both are high-conviction portfolios investing in our best ideas. The Climate Change High Yield Credit Fund backs the leaders of tomorrow’s low-carbon economy – those actively tackling global warming by reducing their own greenhouse gas emissions or developing innovative ways to ease the climate transition. The Sustainable Global Equity Fund aims to have an environmental footprint that is lower than the benchmark, and takes environmental preservation as one of its four core themes. Subthemes include energy transition, biodiversity and future mobility. Meanwhile, the Biodiversity Strategy strives to achieve long-term growth by investing in companies that offer solutions to the ongoing biodiversity loss by means of measurable contribution. By investing in the companies doing the most to protect the planet, investors can make a real difference.
Advocating for industry best practices and public policy change is key to being a responsible investor
and an important part of advancing action on climate change. By engaging with public policymakers, regulators, governments and industry bodies we can help to shape the policy architecture governing markets in a way that supports the delivery of Sustainable Wealth Creation. We are one of 54 organisations focused on, or supporting, the integration of sustainability andand an important part of advancing action on climate change. By engaging with public policymakers, regulators, governments and industry bodies we can help to shape the policy architecture governing markets in a way that supports the delivery of Sustainable Wealth Creation. We are one of 54 organisations focused on, or supporting, the integration of sustainability and investment. Our people sit on the boards or committees of 33 of them (3). An example of our advocacy work on climate change is our involvement in several initiatives of the Institutional Investors Group on Climate Change. Its policy programme is helping to shape sustainable finance and increase flows of funding for low-carbon projects, while its drive to help investors align portfolios with the Paris Agreement – which aims to limit global warming to well below 2°C, and ideally to 1.5°C, compared to pre-industrial levels – has led to the creation of a net-zero investment framework. It provides a set of recommended actions, metrics and methodologies, published in March 2021, through which investors can maximise their contribution to achieving global net-zero global emissions by 2050, if not sooner (4).
No one can solve the climate crisis alone; it necessitates effective collaboration between many stakeholders.
Equity Ownership Services (EOS) at Federated Hermes, our specialist stewardship services team, has a 15-year track record of bringing about positive change through engagement with policymakers and companies. The EOS team holds thousands of discussions each year, engaging with companies, regulators and governments on specific objective and issues, especially climate change. Here we have expanded our focus beyond traditional energy intensive sectors, such as energy supply and transportation, to the providers of capital. Banks play a powerful part in shaping the corporate landscape. We want to encourage the redirection of capital away from environmentally damaging practices and towards areas such as sustainable food systems that avoid deforestation and protect biodiversity. We also want to collaborate with companies to promote sustainable approaches to carbon offsetting via natural carbon sinks – chiefly, plants, the ocean and soil – and advance shareholder scrutiny of companies’ climate transition plans through robust benchmarking of their quality and performance to date.
The next challenge for responsible investing
Separating fact from green fiction.
Tackling greenwashing, however, requires more than a thorough ESG integration – a healthy dose of skepticism toward external data providers, for example. By its very nature, responsible investing is a heavily data-driven exercise, maybe even more so than other investment strategies. But what if the data that builds the foundations of an ESG-based investment approach isn’t as reliable as it should be? ‘It’s about time bottom-up fundamental fund managers see third-party ratings data for what it really is: a mere starting point,’ Kamhi says. He believes many of the ratings from external providers simply try to condense too many data points into one number. As such they are insufficient to paint a holistic and understandable picture of a company’s sustainability credentials. ‘I think that’s what ESG integration is all about: having fund managers question and get underneath those third-party ratings that we see,’ he says, adding that investors do well to take notice of the extent to which asset managers conduct their own fundamental, bottom-up ESG research. ‘The danger of having a separate ESG analyst team is that the information is not fed into the investment decision making process,’ Kamhi says. ‘That’s why we make sure data analysis is part of our investment team’s day-to-day responsibilities instead of outsourcing it to a separate party.’
Lastly, it’s also important to keep up to date on the latest developments in the ESG space. Instead of just riding the momentum around responsible investing, true pioneers are constantly looking for ways to advance the sector. Kamhi believes the industry has made a quantum leap since 2020. ‘There has been a shift toward social topics, with more focus on the human capital dimension. Employee wellbeing, mental health, flexible working arrangements – those are the things that are in the spotlight now. People have started to realise that there’s more to ESG than climate change.’ Another aspect he increasingly sees coming to the fore is biodiversity, an area he believes is ‘definitely going to be the next big environmental topic’. Federated Hermes aims to address the proverbial tipping point of biodiversity loss through its Biodiversity Strategy – a fund that invests in companies that show significant contribution to biodiversity preservation, either directly or through transformation of their business practices. With the help of the Natural History Museum in London, the company has identified key areas where biodiversity is affected, and it measures companies’ performance in relation to those key themes. This is why Kamhi believes having a team of subject experts is so important. ‘These days, you can’t be an expert in all areas of ESG. When we engage with companies, we assess them against 36 different ESG topics, from natural resource stewardship to sustainable land use and antimicrobial resistance. If you want to take a look behind the curtain and find out what a company’s ESG standards are really like, you need that level of granularity.’
Companies don't necessarily know what impacts their actions have on biodiversity.
As an increasing number of asset managers want a piece of the ESG action, practices such as renaming and repurposing existing funds to appeal to a wider audience of investors is increasingly coming to the fore. ‘Greenwashing is becoming a bigger issue,’ says Leon Kamhi, Head of Responsibility at Federated Hermes. ‘There is definitely the danger that some market participants see ESG as a marketing gimmick and just use ESG terminology in glossy reports about sustainability considerations, without making sure that ESG is authentically integrated into every single investment approach.’ ESG integration, Kamhi says, isn’t a ‘flicking the switch’ moment. ‘It takes years, if not decades, to come up with an authentic approach,’ he stresses. ‘How long has the asset manager been active in the ESG space? Have they been involved in early initiatives like the Principles for Responsible Investment? Those are all questions investors need to ask themselves when assessing an asset manager’s ESG credentials.’ The ongoing regulatory push plays a major role in separating ESG wannabes from those who actually mean it. Kamhi believes the verification process will make it easier to identify asset managers who ‘are walking the talk instead of just talking the talk’. But what does a successful ESG integration look like? Kamhi boils it down to four key ingredients: strong leadership, flexibility, due diligence and stewardship.
Head of Responsibility, Federated Hermes
Leon Kamhi
‘It’s about making sure that you have a certain sustainability or responsibility strategy on a corporate level. The tone from the top is crucial in that regard,’ Kamhi says. At the end of the day, he says, it’s the job of the management board to get everyone aligned and willing to work toward the same objectives.
Strong leadership
Flexibility
Due diligence
Stewardship
One element that makes responsible investing even more powerful is stewardship on all performance drivers in a business including ESG. Kamhi argues that not only is stewardship the investment industry’s social licence to operate in the sustainable outcomes it promotes at investee companies, it provides a rich stream of insights for the investment manager to use. Federated Hermes’ dedicated stewardship team stands in an active dialogue with the companies and assets the firm invest in: ‘The team makes sure that businesses are managed with a longer-term vision in mind and are able to deliver sustainable wealth in the long run.’
Being eager to invest in a better world is great, but it’s not enough. You also need the right tools and mindset to identify companies that can drive positive and sustainable change, Kamhi says. ‘Investment teams have to understand what the key material ESG considerations are that they should be assessing when looking at a particular business. How do they analyse and integrate ESG information in their investment decisions? What data points are they using? Those considerations are vital to separate the wheat from the chaff.’
A one-size-fits-all approach doesn’t work in the responsible investing space, Kamhi says: ‘If you want to integrate ESG authentically into your investment approach, you need to make the effort and adapt it to every single investment strategy. ESG needs to go hand in hand with a fund manager’s investment philosophy.’
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Your guide to identifying best practice
What defines a genuinely leading ESG investor? Here are six crucial factors to consider.
As the number of funds and fund managers that are claiming a badge of sustainability proliferates, fears over greenwashing are multiplying too. The term may be relatively new in investment circles but it has been levelled at companies for decades. Coined in the mid-1980s to describe spurious corporate environmental claims, it was notoriously directed at oil company Chevron for trumpeting its environmental protection endeavours at a time when it faced legal action for pollution. Today, greenwashing is an issue for both fund managers trying to ascertain if the picture a company paints of its environmental, social and governance (ESG) credentials reflects reality and investors who want to ensure their portfolios are not harbouring ‘sustainable’ funds that are all puff and no substance.
Since 2010 our ESG dashboard has combined third-party ratings with our own fundamental, bottom-up research. Our investment teams draw on a range of proprietary analysis tools, as well as information gleaned from our engagement activities, which is what makes our analysis forward-looking. The strength of our in-house research paves the way for us to expand our product offering into areas less covered by publicly available ESG information – direct lending, real estate, infrastructure and private equity.
Research
It is imperative to have the right philosophy and tone from the top. Our executive committee stands behind our vision and
Corporate philosophy
EOS at Federated Hermes, our specialist stewardship services team, proactively engages with thousands of companies on
Engagement & advocacy
Traditional aggregated ESG scores do not distinguish between companies that score highly on issues that are financially
Materiality
Our purpose since our 1983 origin has been to deliver Sustainable Wealth Creation. In the near-40 years since, there
Pedigree & history
We customise our approach to ESG and stewardship integration to each investment strategy, resulting in diverse
Integration
Third-party ESG ratings have grown exponentially in their breadth and depth but for us they are just the starting point.
material to their business and those that score highly on issues that are not financially material. We focus our research efforts on those ESG considerations that are financially the most material for the particular asset or company that we are analysing. Environmental criteria may be more material in our analysis of an oil company, whereas social factors like minimum pay and working conditions may be more material when assessing a retailer that manufactures its products in developing countries.
their material ESG issues and makes full use of active share ownership and our right to vote. By pushing for positive change, we make the companies we invest in more sustainable and therefore more financially successful in the longer term. We also have a comprehensive advocacy programme with legislators, regulators and industry bodies to seek progressive change in capital markets and shape the policy architecture governing markets in a way that supports the delivery of Sustainable Wealth Creation.
mission. Our Chief Executive, Saker Nusseibeh CBE, founded the 300 Club, a group of investment professionals who seek to challenge investment orthodoxy, and was awarded a CBE in the Queen’s 2020 New Year’s Honours list for services to responsible business and finance. We want everyone in our company to embrace sustainability. This is reflected in our Federated Hermes pledge, which asks every employee to commit to things like acting with integrity and treating everybody equally and fairly.
has been an abundance of evidence of how deeply rooted ESG is in our culture – from us coining the term ‘engagement’ to help explain stewardship to international investors in 2002, to the establishment of our Responsibility Office in an industry first in 2014. We have a track record of integrating ESG and stewardship ahead of regulatory requirements and of contributing to trailblazing industry initiatives and policy formation that champions sustainable investment.
approaches to regions, sectors and portfolio construction. Understanding companies’ ESG credentials in a very granular sense – on water, waste, air pollution and social topics like diversity and human capital management – will become increasingly important. So, we continue to develop our in-house capabilities to stay at the forefront of sustainable investing. By furnishing our fund managers with an authentic approach to ESG investing we can continue to make a genuine difference to investors, society and the environment over the long term.
Drilling down: What you need to be a leading responsible investor
The ESG snapshot tool quantifies a portfolio’s ESG risk by breaking down the ESG scores, risks and controversies for each company, highlighting the best and worst performers as well as the level and effectiveness of investor stewardship on the key ESG issues and opportunities. ‘The snapshot tool shines a light on ESG risks that are inherent in our investment portfolios and crucially whether engagement is being effective in mitigating those risks’ says Sinthuja Yogarajah, a lead member of the ESG integration team at Federated Hermes. ‘At the end of the day, though, not enough to measure the ESG performance or ESG riskiness of a portfolio – it’s about effecting positive change: what are we, as an investor, doing to mitigate ESG and broader business risks and enhance our investee companies’ performance in the long run?
ESG snapshot
Companies don't necessarily know what impacts their actions have on biodiversity
Federated Hermes’ comprehensive range of stewardship and sustainable investing tools enable fund managers to make informed decisions on all matters relating to ESG and sustainability. Find out what the toolkit contains…
Federated Hermes is no stranger to innovation. Sinthuja Yogarajah, a lead member of the ESG integration team at the group, reveals how its pioneering sustainability toolkit has helped fund managers make better investment decisions informed by engagement and ESG insights.
Click on a tool to read
The carbon tool enables fund managers to evaluate their portfolio’s carbon performance and carbon risk. According to Yogarajah, the carbon tool ‘looks at a fund’s carbon footprint, its carbon intensity and the overall total emissions level as well as the effectiveness of engagement on carbon risk mitigation’. The carbon intensity figure puts a company’s carbon footprint in relation to its size, allowing for more meaningful assessments and a quick view of how concentrated carbon is in the portfolio. ‘Larger companies obviously have higher carbon emissions, so it would be unfair to hold them to the same standards as their smaller peers,’ says Yogarajah. ‘At the same time the tool encourages the investment teams to focus its engagement on the highest emitters’ The environment tool further deepens the evaluation by assessing portfolio’s on their water and waste performance alongside helping understand its exposure to identified environmentally intensive sectors such as thermal coal and mining. Similar to the carbon tool, it also incorporates the effectiveness of engagement on various environmental topics.
Carbon and Environment tool
This tool assesses a company using several significant governance characteristics, and flags areas where the company falls short of Federated Hermes’ governance expectations. Companies are assessed against 25 criteria, ranging from the number of female board members to dual class share structures. ‘The tool highlights to fund managers if a particular investee name does not meet certain expectations, and compares the company to its industry and country peers,’ Yogarajah says. ‘That gives fund managers a feeling for the prevalence of the issue in question. Is it systemic in the sector or the country the company is operating in, or is it limited to that company only?’
Corporate governance tool
The quantitative ESG (QESG) score is based on a range of sustainability data from more than ten sources. They include proprietary insights from Federated Hermes’ stewardship and engagement team as well as information from third-party data providers, not-for-profit organisations and the World Resources Institute. ‘For every company we aggregate all of those ESG data sources and come up with our own Federated Hermes quantitative ESG score, which we call QESG’ Yogarajah says. ‘It features both quantitative and qualitative elements by combining ratings with the insights we gain from our stewardship efforts. It provides an initial view of ESG performance for the investment manager though does not replace the need for more deep-dive research and analysis. When we first introduced the QESG score, it was one of the first proprietary scores in the financial marketplace.’
QESG score
For specific funds, Federated Hermes uses 20 metrics to quantify the impact its portfolio companies have on society and the environment. Each metric falls into one of 11 themes, including climate change and gender equality. ‘The impact database looks into the real value add of companies, products and services. What effect do they really have on people and the planet? The database helps us be more targeted when it comes to solving problems society and nature are facing,’ Yogarajah says.
Impact database
Manager - ESG Integration, Federated Hermes Limited
Sinthuja Yogarajah
Embracing the golden age of inclusivity
CEO, Federated Hermes LIMITED
Federated Hermes Limited CEO and sustainability pioneer Saker Nusseibeh talks to Citywire’s Amy Maxwell about diversity, spotting major trends and why he is optimistic about the future despite political volatility.
Saker Nusseibeh, CBE
Making economic sense
‘In a purely economic way of thinking, the reason you want to have full gender equality has nothing to do with different ways of thinking. If somebody went to the same university I went to, or comes from the same background as I come from, that person will think like me – whether it’s a she, a he or whether they identify as non-binary. It doesn’t really make a difference. ‘The reason you want gender diversity is because society is 50/50 and it is just financially stupid to cut your supply chain by half.’ While Nusseibeh no longer runs money he says he is still fascinated by how the system works. Increased bicycle use, alternative meat consumption, second-hand clothes wearing – these are all major human trends he sees in today’s economy. In his opinion, investing in a share or stock has manifold repercussions. There is the immediate effect of the gain you get from the share price, but there are also secondary and tertiary gains and losses. 'For example, I invest in a company that makes a chemical substance. My share price goes up 80%. Yippee, I’ve made a lot of money. That company dumps bad chemicals in my backyard. Me and my family get very sick, so where’s the value in that?' To emphasise his point, he enlists the help of Scottish economist Adam Smith, quoting a passage from the essay : '"He is sensible too that his own interest is connected with the prosperity of society, and that the happiness, perhaps the preservation of his existence, depends on its preservation.” ‘It’s almost a definition of sustainability, right? You’re not going to achieve social cohesion unless the system works. For the system to work well – as Adam Smith says – you have to ensure that you preserve the prosperity of society.’ Nusseibeh says his job now is to convince people that everything we talk about has a financial impact.
He argues that when you invest in a share or a stock there is the immediate effect of the gain that you get from the share price, but there’s also, secondary and tertiary, gain and loss. ‘For example, I invest in a company that makes a chemical substance. My share price goes up 80%, yippee, I’ve made a lot of money. That company dumps bad chemicals in my backyard. I get very sick, my children get cancer and we all die so, I haven’t really made money, right.’ To emphasise this, he enlists the help of some of history’s loftiest economic thinkers, French economist Frédéric Bastiat and Scottish economist and philosopher Adam Smith. First up, Bastiat. In his 1850 essay, ‘Ce qu'on voit et ce qu'on ne voit pas’ (‘That which we see and that which we do not see’), the Frenchman introduces the Parable of the Broken Window, where he argued that if you have a room and the pane of glass is broken, the cost to you is not the cost of the pane of broken glass, but the cost of the lost heat from the room. ‘It’s this wider economic picture that he was trying to get at in 1850, and that’s what people are missing today.’ Heading back further into the history books comes wisdom from Adam Smith. So taken with this nugget is Nusseibeh that he has the quote saved on his phone. Pulling it out of his pocket he recites a few lines from Smith’s work on ‘the rational man’. ‘He is sensible too that his own interest is connected with the prosperity of society, and that the happiness, perhaps the preservation of his existence, depends on its preservation.’ ‘It’s almost a definition of sustainability, right! 'You’re not going to achieve social cohesion unless the system works. For the system to work well, as Adam Smith says, you have to ensure that you preserve the prosperity of society. ‘So, it’s a selfish act, in fact, to preserve the prosperity of society. That’s what people have got to realise - that they’ve got to do it for their own self-interest. That was Adam Smith’s main point.’ Nusseibeh says his job now is to convince people that everything we talk about has a financial impact.
I've been talking for years about how economic theory is out of kilter and now we are finally seeing this recognition in wider society
You're not going to achieve social cohesion unless the system works. For the system to work well you have to ensure that you preserve the prosperity of society
So, it's a selfish act, in fact, to preserve the prosperity of society. That's what people have got to realise - that they've got to do it for their own self-interest. That was Adam Smith's main point.
A conversation with Saker Nusseibeh on the future of investing doesn’t start with balance sheets, earnings projections, or maximising profit. It starts with a desire to understand what it means to be truly tolerant. In this quest, the CEO of Federated Hermes Limited delves deep into the history books – specifically those relating to 11th Century Spain, a topic he studied for his PhD. ‘Eleventh-Century Muslim Spain was highly advanced, culturally diverse, and tolerant,’ he says. ‘I wanted to understand how culture developed in tandem with kingship in Europe during the Middle Ages.’ With a love of research and a determination to uncover the reasons for big trends, Nusseibeh set about examining what lay behind this inclusivity. The results of his intense study contributed greatly to making him the unabashed optimist he is today. For Nusseibeh, the golden age for ESG is already here. Inclusivity, he argues, makes fundamental economic sense. And it’s why Federated Hermes’ commitment to responsible investing has made the asset manager a leader in this field since 1983. Their 2015 pledge – binding their employees to the best work and investment practices – sets them on course for the new age. ‘Here’s the link to fund management. Human history is fundamentally about major trends and shifts. People come and say to you, “this is how the economy works”. I’ve been talking for years about how economic theory is out of kilter and now we are finally seeing this recognition in wider society.’ Getting increasingly animated, Nusseibeh says he is frustrated by much of today’s dialogue around diversity, as it misses the point.
‘We have to talk about the E for the environment, what with the floods and the heat and so on. Lloyds of London survived the Napoleonic War, survived the Crimean War, survived the Boer War, survived the First and Second World Wars, but it was destroyed by asbestos. ‘The G: if companies do not have a licence to operate, the consumer will leave them. We’ve seen that. If companies behave badly, the regulator will come down on them like a tonne of bricks. We saw that with the banks. That’s about impact. ‘And finally, the S. If you treat your workforce well, they have higher productivity. I mean, doh! If we don’t stress people about having to clock in at 9am because they’ve got a child, they put more into work than before. If we make the workplace a nicer environment, that produces better results.’ Despite the ongoing uncertainty around the Russia-Ukraine war, which threatens to plunge the west into a crisis, Nusseibeh says he is optimistic long-term – and inclusivity is the main reason. ‘Why do you think the United States became so powerful? The United States became powerful because it welcomed immigrants. The vast majority of PhDs that are registered in the US are submitted by people not born in the United States. That’s how they built it. That’s the clever part, you absorb the cleverness.’ Coming out of a period where many countries closed their borders, inclusivity is starting to resurface once again, he says. ‘The point is to build for the long-term. That’s becoming better understood again now.’ And while acknowledging we’re entering difficult times, Nusseibeh says he has faith in humanity’s survival. ‘Look at the young. They understand. That’s why sustainability is a big trend. Now, will there come a time when every asset management house would have a pledge like ours? Yes, absolutely.’
A Theory of Modern Sentiments
Growing wealth sustainably
Mapping the best route for your investment journey
Financial
Thematic and values-based approaches for sustainable outcomes
Our decision tree can help ascertain which of the three distinct Federated Hermes fund categories may best suit your clients.
What is the primary investment objective?
Financial & Sustainability
Financial & Impact
Mission-led investment strategies to create positive impact
Sustainable Global Equity Fund
Biodiversity Equity Fund
SDG Engagement Equity Fund
Responsible, active investing for long-term performance
Global Equity ESG Fund
Global Emerging Markets Fund
Unconstrained Credit Fund
All three routes eventually lead to the same destination: Sustainable Wealth Creation
SDG Engagement High Yield Credit Fund
Climate Change High Yield Credit Fund
Sustainable European Equity Fund
Sustainable Europe ex-UK Equity Fund
Click here to browse our full investment range
Impact Opportunities Equity Fund
Asia ex-Japan Fund
China Equity Fund
Emerging Market Debt Fund
Global High Yield Credit Fund
US SMID Equity Fund
Federated Hermes:
A combined history of putting investors’ interests first
Ahead of his time, our first CEO, Ralph Quartano, who sadly passed away in January 2021, had a vision for how the asset management industry could use its influence and powers of ownership to change business for the better.
Ever since our 1983 origin, our purpose has been to deliver Sustainable Wealth Creation: generating wealth through investments that enrich investors, society and the environment over the long term. From day one to the present, and indeed far into the future, this purpose has, and will, continue to drive everything we do. Take a walk in our footsteps to see how our journey has played out.
Past
Hermes’ predecessor is established and begins engaging UK companies
It grows to focus on companies in the UK, Europe and Japan.
Our first team dedicated to engaging companies on corporate governance is established
The aim of this specialist engagement team was to act for fund managers, advising them on how to vote and use their clout to get companies to the table when they have governance issues. EOS will go on to undertake many landmark engagements.
Hermes EOS (Equity Ownership Services), our stewardship services team, is established
Hermes leads the drafting of the UN Principles for Responsible Investment (UNPRI) and becomes one of its founding signatories
Anson served formerly as the Chief Investment Officer of Calpers, the California public employees’ retirement scheme and the largest pension fund in the US.
Mark Anson joins as CEO
2006
Our Responsibility Office - a breakthrough for the investment industry - is established. It remains exceptional today.
2014
Hermes creates what is now the Federated Hermes Pledge
2015
The model is revealed in a whitepaper titled ‘Pricing ESG risks in credit markets’ written by Mitch Reznick, then co-head of credit, and Dr Michael Viehs, manager, Hermes EOS.
Hermes develops a credit ESG-risk pricing model
2017
The strategy has the dual purpose of aiming to deliver both attractive returns and, via engagement with companies relevant to the UN’s sustainable development goals (SDG’s), real-world impact.
Hermes launches impact and SDG Engagement Equity strategies
Pittsburgh-based asset manager Federated Investors takes majority stake in Hermes
Responsible Investing Office in Pittsburgh is established
2019
Present
Our EOS stewardship team and responsibility office are expanded.
2020
Saker Nusseibeh, CEO – Limited, awarded CBE for services to responsible business. We have invented proprietary ESG analysis/measurement tools. At fund level we have launched the world’s first equity and bond strategies driven by engagement on the UN’s Sustainable Development Goals.
Launch of Responsible Investing Institute to provide continuing education for investment community.
2021
Future
We are developing more innovative tools such as seeking real-time ESG analysis by collaboration with fintech firms.
As a result of this engagement we found that BP’s health and safety function was becoming excessively decentralised. Following the disaster, we intensified our efforts to improve BP’s risk management processes and emergency response plans, and engaged across the oil and gas industry to test the robustness of risk oversight structures.
A landmark engagement with BP prior to the Deepwater Horizon drill rig
Saker Nusseibeh, formerly head of investments at Hermes, is appointed as the group’s sixth CEO
2011
Click here to view our full history
Combined assets pass US$500bn.
1983
1996
2004
2009
2018
IMPORTANT INFORMATION: The fund has environmental and/or social characteristics and so may perform differently to other funds, as its exposures reflect its sustainability criteria. The value of investments and income from them may go down as well as up, and you may not get back the original amount invested. Any investments overseas may be affected by currency exchange rates. Past performance is not a reliable indicator of future results and targets are not guaranteed. Where the strategy invests in debt instruments (such as bonds) there is a risk that the entity who issues the contract will not be able to repay the debt or to pay the interest on the debt. If this happens then the value of the strategy may vary sharply and may result in loss. The strategy makes extensive use of Financial Derivative Instruments (FDIs), the value of which depends on the performance of an underlying asset. Small changes in the price of that asset may cause larger changes in the value of the FDIs, increasing either potential gain or loss. For professional investors only. This is a marketing communication. This document does not constitute a solicitation or offer to any person to buy or sell any related securities, financial instruments or products; nor does it constitute an offer to purchase securities to any person in the United States or to any US Person as such term is defined under the US Securities Exchange Act of 1933. It pays no regard to an individual’s investment objectives or financial needs of any recipient. No action should be taken or omitted to be taken based on this document. Tax treatment depends on personal circumstances and may change. This document is not advice on legal, taxation or investment matters so investors must rely on their own examination of such matters or seek advice. Before making any investment (new or continuous), please consult a professional and/or investment adviser as to its suitability. All figures, unless otherwise indicated, are sourced from Federated Hermes. All performance includes reinvestment of dividends and other earnings. Federated Hermes Investment Funds plc (“FHIF”) is an open-ended investment company with variable capital and with segregated liability between its sub-funds (each, a “Fund”). FHIF is incorporated in Ireland and authorised by the Central Bank of Ireland (“CBI”). FHIF appoints Hermes Fund Managers Ireland Limited (“HFMIL”) as its management company. HFMIL is authorised and regulated by the CBI. Further information on investment products and any associated risks can be found in the prospectus, the fund supplements or the key investor information documents, the articles of association as well as the annual and semi-annual reports. In the case of any inconsistency between the descriptions or terms in this document and the prospectus, the prospectus shall prevail. Details of the Manager’s Remuneration Policy and Sustainable Policies are available on the Policies and Disclosures page at https://www.hermes-investment.com/ie/hermes-irelandpolicies-and-disclosures, including: (a) a description of how remuneration and benefits are calculated; and b) Sustainability related policy and disclosures. These documents are available free of charge (i) at the office of the Administrator, Northern Trust International Fund Administration Services (Ireland) Limited, Georges Court, 54- 62 Townsend Street, Dublin 2, Ireland. Tel (+ 353) 1 434 5002 / Fax (+ 353) 1 531 8595; (ii) at https://www.hermes-investment.com/ie/; (iii) at the office of its representative in Switzerland (ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich www.acolin.ch). The paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1/am Bellevue, P.O. Box, CH-8024 Zurich. The information provided herein does not constitute an offer of the Fund in Switzerland pursuant to the Swiss Financial Services Act ("FinSA") and its implementing ordinance. This is solely an advertisement for the Fund pursuant to FinSA and its implementing ordinance. The costs for hedged share classes will be higher than the costs for non-hedged share classes. Refer to the prospectus or offering documents before making any final investment decisions and consider all fund characteristics and not just ESG characteristics. Issued and approved by Hermes Fund Managers Ireland Limited (“HFMIL”) which is authorised and regulated by the Central Bank of Ireland. Registered address: 7/8 Upper Mount Street, Dublin 2, Ireland, DO2 FT59. HFMIL appoints Hermes Investment Management Limited (“HIML”) to undertake distribution activities in respect of the Fund in certain jurisdictions. HIML is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET. Telephone calls may be recorded for training and monitoring purposes. Potential investors in the United Kingdom are advised that compensation may not be available under the United Kingdom Financial Services Compensation Scheme. In Singapore: This document and the information contained herein shall not constitute an offer to sell or the solicitation of any offer to buy which may only be made at the time a qualified offeree receives a Federated Hermes Investment Funds Public Limited Company prospectus, as supplemented with the global supplement, the relevant fund supplement, and the relevant Singapore supplement (the “prospectus”), describing the offering and the related subscription agreement. In the case of any inconsistency between the descriptions or terms in this document and the prospectus, the prospectus shall control. Securities shall not be offered or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful until the requirements of the laws of such jurisdiction have been satisfied. For the avoidance of doubt, this document has not been prepared for delivery to and review by persons to whom any offer of units in a scheme is to be made so as to assist them in making an investment decision. This document and the information contained herein shall not constitute part of any information memorandum. Without prejudice to anything contained herein, neither this document nor any copy of it may be taken or transmitted into any country where the distribution or dissemination is prohibited. This document is being furnished on a confidential basis and solely for information and may not be reproduced, disclosed, or distributed to any other person. This document has not been reviewed by the Monetary Authority of Singapore. In Spain: This communication has been prepared solely for information purposes and does not constitute a prospectus. While attention has been paid to the contents of this communication, no guarantee, warranty or representation, express or implied, is given to the accuracy, correctness or completeness thereof. This communication and information contained herein must not be copied, reproduced, distributed or passed to any person other than the recipient without Hermes Fund Managers Ireland Limited´s prior written consent. Neither Hermes Fund Managers Ireland Limited, its branches, subsidiaries or affiliates, nor any other company or unit belonging to the Federated Hermes group, nor any of its directors or employees can be held directly or indirectly liable or responsible with respect to this communication. Federated Hermes Investment Funds PLC (the Company), is duly registered with the Spanish Securities Market Commission (CNMV) under number 1394 (www.cnmv.es), where an updated list of the authorised distributors of the Company in Spain (the Spanish Distributors) can be found. This document only contains brief information on the Sub-Fund and does not disclose all of the risks and other significant aspects relevant to a potential investment in the Sub-Fund. In addition, a copy of the report on the planned types of marketing in Spain must be provided using the form published on the CNMV website. All mandatory official documentation shall be available through the Spanish Distributors, in hard copy or by electronic means, and also available upon request by dialling +44(0)20 7702 0888, writing to marketing@hermes-investment.com or consulting https://www.hermes-investment.com/es/, where you may also obtain updated information on the net asset value of the relevant shares available in Spain.
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