Search this website. You can use fund codes to locate specific funds

Pricing ESG risk in credit markets: through volatility, our conviction affirmed

To analyse credit risks with greater precision, we developed a pricing model in 2017 to capture the influence of environmental, social and governance (ESG) factors on credit spreads. It showed a convincing relationship between ESG risk and credit spreads, manifesting as an ESG-risk curve.

In 2018, we reinforced these findings. Today, we revisit our study, updating our results with a longer sample period to understand how the market volatility throughout 2020 affected the relationship between ESG factors and CDS spreads.

Key findings

  • The significant relationship between ESG factors and CDS spreads persists: companies with better ESG practices tend to have lower CDS spreads, even after controlling for credit risks.
  • The explanatory power of the model increased from both the 2017 and 2018 studies.
  • High levels of market volatility throughout 2020 did not significantly affect this relationship (a closer investigation of the relationship within 2020 is, however, warranted).

More Insights

Spectrum Q2 2022: Investing into the aluminium paradox
In this latest edition of our quarterly Spectrum report, experts from Federated Hermes consider the question of aluminium. The lightweight metal will play a crucial role in the energy transition but will need to address its own carbon footprint first.
Climate Change High Yield Credit strategy, interim report 2022
In this inaugural report, we delve into what makes the Federated Hermes Climate Change High Yield Credit strategy unique. As well as introducing our process and team, the report provides an overview of our proprietary Climate Change Impact (CCI) score, complete with portfolio examples to illustrate the scoring system in practice.
Federated Hermes Stewardship Report 2021
At Federated Hermes we believe the investment industry can be a powerful force for good, building a fairer, more equitable world for all – and that active ownership and engagement is the best way to achieve this. In this, our second annual Stewardship Report, we provide an update on our efforts towards effective and outcomes-driven stewardship.
The chimps are coming
The public art exhibition Chimps are Family, unveiling on Endangered Species Day (Friday the 20th of May) at Tower Bridge, sets to create awareness around the plight of the endangered apes.
Market snapshot: Slowdown fears send equities spinning
Stagflation concerns continue to mount, with investors piling into cash positions as the global growth outlook plunges.
Plus and minus: can QT annihilate QE (and other anti-inflation questions for financial markets)
Fiorino queries whether investors should expect an equal-and-opposite reaction as central banks release the anti-QE solution into the real world...