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The Circular Edition 1, 2020: keeping you in the sustainability loop

It’s a new year and a new opportunity to shine a light on sustainability. We’ve summed up our recent insights on environmental, social and governance (ESG) investing to bring you the latest edition of The Circular.

2020 vision: Do you see what we see?

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We look to the horizon to see what’s in store for financial markets this year.

What’s it all about?

2020 will be another uncertain year. Climate activism, the war on plastic and addressing the UN Sustainable Development Goals (SDGs) are high on the sustainability agenda.  

What’s new?

In both our 2020 Outlook and our podcast episode, ‘Amplified: three themes to watch in 2020’, the team from the international business of Federated Hermes presents their perspectives for the year ahead. International CEO Saker Nusseibeh believes the year will be marked by COP 26, the critical UN climate-change summit, while EOS at Federated Hermes (EOS) thinks that the focus on the SDGs will gain traction.

What’s the impact on investors?

A raft of climate disasters last year – including the destruction of biodiversity in the Amazon and bushfires in Australia, which scorched homes and livelihoods – has led to a profound shift in awareness of climate change. In turn, this has resulted in a corresponding rise in engagements on the issue.

The rules of engagement: playing the long game

Leading the way in driving impactful corporate engagement.

What’s it all about?

We think that long-term investors have a duty to engage with stakeholders on sustainability issues.

What’s new?

In the Global Emerging Market team’s latest ESG Materiality report, we showcase some of our recent engagements with portfolio companies that are creating positive impact aligned to the SDGs. The report also considers how the team is positioned to benefit from the shift towards renewable energy.

What’s the impact on investors?

Engagement has proved that it can be a performance-enhancing factor in investing. But investors should seek teams skilled in face-to-face engagement. In a two-part episode of Delta, Aaron Hay, an engager in the fixed-income team, explains what is required for an engagement with a company to be successful.

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Inequality: the politics behind tackling disparity

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What actions can governments and companies take to generate growth that benefits everyone?

What’s it all about?

Income inequality is rising across the world, with emerging markets responsible for the most extreme levels. In the latest edition of Gemologist, we assess how inequality challenges the political stability and growth potential of major emerging markets.

What’s new?

Global growth is flagging and the sense that standards of living are unlikely to change for the vast majority of people has led to widespread discontent. Populist emerging-market leaders have ridden this wave of unhappiness, mirroring the political gains made by western counterparts in the US and the UK.

What’s the outcome?

Given that the opportunities available to people depend heavily on the socioeconomic segment they are born into, ensuring greater equality may require intervention. Deficit spending could increase access to health, housing and education, as well as boost growth and equality in the workforce – something that could reduce income inequality over both the short and the long term.

Harnessing the power of artificial intelligence (AI) for better stewardship

Collaboration is key 

What’s it all about?

AI offers many benefits for financial-services firms: it can enhance efficiency and productivity, reduce errors and improve reporting. Collaborative efforts have substantial potential to harness the power of AI for the benefit of all stakeholders.

What’s new?

In ‘AI applications in financial services’, we worked with a number of partners to examine the pros and cons of applying AI to stewardship in asset management. Covering areas like alpha generation in investment, stewardship in asset management, algorithmic trading and employee-hiring processes, the paper argues that AI should not be thought of as just a business tool, but rather as a transformative business philosophy that needs to be considered in a very broad, multi-dimensional context.

What’s the impact on investors?

AI offers value to long-term investors through its ability to enhance their understanding of companies and their portfolios, which in turn supports stewardship activities. We believe that collaborative efforts within the industry have the opportunity to harness the power of AI, which could ultimately help deliver sustainable wealth.

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FULL CIRCLE

That’s a wrap for this year’s first issue of The Circular.

More Insights

Eurovision: why the region’s banks seek dance partners
Economic, regulatory and technological forces are setting a drumbeat for mergers between European financial institutions.
Sustainability-linked bonds get the green light
The European Central Bank announced its support for sustainability-linked bonds this week.
SDG Engagement High Yield Credit Commentary: Enel
We think that Enel is particularly well placed to align its operations with the delivery of the SDGs.
Economic Outlook: Will the debt matter?
Neil Williams examines the impact that various pandemic-related stimulus packages have had on both global government debt and the efficacy of monetary and fiscal tools available to policy-makers.
Credit: Industry Insights
With second-quarter earnings wrapped up for US retailers, all eyes are now on the holiday season. How will retailers fare in the second half of the year?
Launching new carbon-disclosure standards for UK finance
We played a key role in launching the UK coalition of the Partnership for Carbon Accounting Financials this week.