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The Circular
Edition 2, 2020

Keeping you in the sustainability loop

As the economy looks to recover, people are coming around to the idea that sustainable investing could be part of the solution. We've summed up our recent insights on environmental, social and governance (ESG) investing to bring you the latest edition of The Circular.

How ESG can help the world recover

What's it all about?

The coronavirus crisis has exposed weaknesses across the global economy and societies but, as Federated Hermes Head of Investments, Eoin Murray, recounts from his living room, ESG strategies have continued to outperform - and for good reason.

What's new?

Pandemics have been a persistent feature of human history, so is the current one any different? Sonya Likhtman, engagement analyst at EOS at Federated Hermes, examines the link between environmental degradation, climate change and the new breed of infectious diseases exemplified by Covid-19.

What’s the impact on investors?

Despite a strong recovery from the late March low, all investment markets remain in a fragile state as virus volatility rolls on. In this broad-ranging conversation, Federated Hermes investment and ESG experts Aoifinn Devitt, Andrew ‘Jacko’ Jackson, Will Pomroy and Bruce Duguid discuss how to find companies likely to survive the downturn and what may happen when the world hits the “reset button”.

Cynics warned that sustainability-themed strategies would get tested during a downturn and found wanting. Instead, rather than being exposed as a naked emperor, ESG has been shown to be fully-clothed - perhaps even to be wearing a suit of armour.

Eoin Murray, Federated Hermes Head of Investment

Why investors must acclimatise to global warming

What's it all about?

In this chilling tale of climate change reality, Head of Emerging Markets, Gary Greenberg, tells it like it is. The brutal facts of global warming present humans with stark choices: but, as Greenberg relates, we can adapt to circumstances.

What's new?

Louise Dudley, a portfolio manager in our global equities team, puts the case for the climate affirmative in a recent issue of Equitorial. Dudley says investors need to take a truly global approach to climate risk but they can tailor equally effective carbon-reduction strategies according to their needs.

What’s the impact on investors?

Both Dudley and Greenberg offer pathways for investors to understand and act on climate change whether that’s engaging meaningfully with companies in the case of the latter, or building bespoke low-carbon portfolios with the former.

For more on climate change, visit our new climate change hub – a one stop shop to keep you up to date with the latest climate conversations, webinars and articles from the thought leaders at Federated Hermes. Here you’ll find the first of two special climate-focused episodes of the Fundamentals podcast where we ask: is climate action taking a back seat to Covid-19? And what role can impact strategies play in tackling the most defining challenge of our time?

In efforts to deal with a hotter world, we think adaptation deserves equal prominence alongside mitigation in the lexicon of environmental sustainability.

Gary Greenberg, Head of Emerging Markets

SDGs are goals, not dreams

What's it all about?

The International Business of Federated Hermes has led the industry for decades in building practical ESG strategies based on solid research. As this historical review reveals, we remain at the vanguard of ESG, highlighted by our launch of the world’s “first equity and bond strategies driven by engagement on the Sustainable Development Goals”.

What's new?

Elena Tedesco, Co-Portfolio Manager in the Emerging Markets team, explains why the global pandemic is no excuse for poor corporate behaviour. Her ESG Materiality analysis shows how some SDG factors have helped a couple of emerging markets firms stay on track in troubled times.

What’s the impact on investors?

Earlier this year we released our SDG Engagement Equity Fund 2019 annual report, which includes a swag of data detailing the extent of our goals-based corporate engagement. And more recently, we published our inaugural Responsibility Report – an annual publication that provides clear information about our responsible business practices, our approach to responsible investing and our firm-wide advocacy activities.

Responsibility starts at home – with our behaviours, people and culture – and so, as a business, we must strive to meet the expectations that we have of others. The Federated Hermes Pledge places responsibility, integrity and client focus at the heart of everything our people do.

Saker Nusseibeh, CEO, International

Sustainable returns in fixed income

What's it all about?

At the height of the coronavirus crash this March, bond and credit markets fell into “full-on panic territory” according to our Head of Fixed Income Andrew Jackson. In this podcast, he and his colleagues explore whether better ESG credentials could be a leading indicator of post-Covid-19 success for fixed income securities.

What's new?

The planetary plastic plague is high up the list of ESG clash points and as Aaron Hay, Lead Engager on the Fixed Income team, and Lisa Lange, Engagement Professional at EOS at Federated Hermes point out in this analysis on plastic pollution, fixed income investors need to care about it.

What’s the impact on investors?

Hay along with Mitch Reznick, Head of Research and Sustainable Fixed Income, strongly put the case for how ESG adds value to the asset class. In this Q&A session, the duo reveal how they created their own tools to test the significance of sustainability in credit markets.

... there is a relationship between ESG risks and credit spreads. The higher the risk, the wider the spreads, and the reverse is also true... that [is] not entirely explained by credit ratings.

Mitch Reznick, Head of Research and Sustainable Fixed Income

How ESG can help the world recover

What's it all about?

The coronavirus crisis has exposed weaknesses across the global economy and societies but, as Federated Hermes Head of Investments, Eoin Murray, recounts from his living room, ESG strategies have continued to outperform - and for good reason.

What's new?

Pandemics have been a persistent feature of human history, so is the current one any different? Sonya Likhtman, engagement analyst at EOS at Federated Hermes, examines the link between environmental degradation, climate change and the new breed of infectious diseases exemplified by Covid-19.

What’s the impact on investors?

Despite a strong recovery from the late March low, all investment markets remain in a fragile state as virus volatility rolls on. In this broad-ranging conversation, Federated Hermes investment and ESG experts Aoifinn Devitt, Andrew ‘Jacko’ Jackson, Will Pomroy and Bruce Duguid discuss how to find companies likely to survive the downturn and what may happen when the world hits the “reset button”.

Cynics warned that sustainability-themed strategies would get tested during a downturn and found wanting. Instead, rather than being exposed as a naked emperor, ESG has been shown to be fully-clothed - perhaps even to be wearing a suit of armour.

Eoin Murray, Federated Hermes Head of Investment

Why investors must acclimatise to global warming

What's it all about?

In this chilling tale of climate change reality, Head of Emerging Markets, Gary Greenberg, tells it like it is. The brutal facts of global warming present humans with stark choices: but, as Greenberg relates, we can adapt to circumstances.

What's new?

Louise Dudley, a portfolio manager in our global equities team, puts the case for the climate affirmative in a recent issue of Equitorial. Dudley says investors need to take a truly global approach to climate risk but they can tailor equally effective carbon-reduction strategies according to their needs.

What’s the impact on investors?

Both Dudley and Greenberg offer pathways for investors to understand and act on climate change whether that’s engaging meaningfully with companies in the case of the latter, or building bespoke low-carbon portfolios with the former.

For more on climate change, visit our new climate change hub – a one stop shop to keep you up to date with the latest climate conversations, webinars and articles from the thought leaders at Federated Hermes. Here you’ll find the first of two special climate-focused episodes of the Fundamentals podcast where we ask: is climate action taking a back seat to Covid-19? And what role can impact strategies play in tackling the most defining challenge of our time?

In efforts to deal with a hotter world, we think adaptation deserves equal prominence alongside mitigation in the lexicon of environmental sustainability.

Gary Greenberg, Head of Emerging Markets

SDGs are goals, not dreams

What's it all about?

The International Business of Federated Hermes has led the industry for decades in building practical ESG strategies based on solid research. As this historical review reveals, we remain at the vanguard of ESG, highlighted by our launch of the world’s “first equity and bond strategies driven by engagement on the Sustainable Development Goals”.

What's new?

Elena Tedesco, Co-Portfolio Manager in the Emerging Markets team, explains why the global pandemic is no excuse for poor corporate behaviour. Her ESG Materiality analysis shows how some SDG factors have helped a couple of emerging markets firms stay on track in troubled times.

What’s the impact on investors?

Earlier this year we released our SDG Engagement Equity Fund 2019 annual report, which includes a swag of data detailing the extent of our goals-based corporate engagement. And more recently, we published our inaugural Responsibility Report – an annual publication that provides clear information about our responsible business practices, our approach to responsible investing and our firm-wide advocacy activities.

Responsibility starts at home – with our behaviours, people and culture – and so, as a business, we must strive to meet the expectations that we have of others. The Federated Hermes Pledge places responsibility, integrity and client focus at the heart of everything our people do.

Saker Nusseibeh, CEO, International

Sustainable returns in fixed income

What's it all about?

At the height of the coronavirus crash this March, bond and credit markets fell into “full-on panic territory” according to our Head of Fixed Income Andrew Jackson. In this podcast, he and his colleagues explore whether better ESG credentials could be a leading indicator of post-Covid-19 success for fixed income securities.

What's new?

The planetary plastic plague is high up the list of ESG clash points and as Aaron Hay, Lead Engager on the Fixed Income team, and Lisa Lange, Engagement Professional at EOS at Federated Hermes point out in this analysis on plastic pollution, fixed income investors need to care about it.

What’s the impact on investors?

Hay along with Mitch Reznick, Head of Research and Sustainable Fixed Income, strongly put the case for how ESG adds value to the asset class. In this Q&A session, the duo reveal how they created their own tools to test the significance of sustainability in credit markets.

... there is a relationship between ESG risks and credit spreads. The higher the risk, the wider the spreads, and the reverse is also true... that [is] not entirely explained by credit ratings.

Mitch Reznick, Head of Research and Sustainable Fixed Income

Round the corner: what's coming up?

As a fast-evolving sector, sustainable investing requires a constant flow of new information and analysis. Here’s what’s coming up in the next few months:

The Responsibility Podcast takes on purpose (and how to embed it in corporate culture) in an episode that also examines the difference between ‘long-term’ and ‘patient’ investors

The next episode of the Delta Podcast series looks at decarbonisation

Don’t miss the next edition of ESG Materiality, our quarterly engagement commentary from the Global Emerging Markets team

Further updates from two of our funds targeting the UN Sustainable Development Goals (SDGs), along with the Global Equity ESG half year report from our Global Equities team.

Federated Hermes has one of the largest teams of Engagers in the industry.

In this edition, we quiz Will Pomroy, Lead Engager SDG Engagement and Small & Mid Cap Equities.

I have been banging the drum for the “S” in ESG for years, sadly it has taken a global pandemic and a resultant massive hike in unemployment to bring the well-being of workers (and thus society) to the forefront of attention. (Hear more from Will on the well-being of workers, SDG 8, in our Hitting the reset button’ podcast.)

Probably climate change. In large part because the attainment of most of the SDGs has been severely set back by the Covid-19 pandemic which will exacerbate pre-existing inequalities. The great working-at-home experiment will however, result in environmentally positive changes to travel and working practices and governments will possibly be emboldened to be more interventionist than before.

Maintain lockdown enforced habits and waste less. UK households each year waste 4.5 million tonnes of food that could have been eaten – although waste is apparently down by 1/3 with more of us savouring leftover delights.

The engagers: Federated Hermes in the news

"We need to be a constructive voice with companies at this time [and] focus on how they’re navigating the crisis,”

Kimberly Lewis, Director of Engagement - Financial Times

"The requirement for business to be a positive force in society is core to acting as a responsible investment manager and steward,”

Head of Responsibility, Leon Kamhi – Investment Week

"The pandemic has radically reconfigured concepts of sustainability, reinforcing our long-held belief that investment and value creation must deliver more than just strong financial returns,”

Harriet Steel, Head of Business Development – FT Adviser

"Engagement on this topic should not be confined to one sector, and businesses should educate themselves on what encompasses AI and how they could be exposed,”

Dr Christine Chow, Director of Hermes EOS – FT Adviser

Full Circle

That's a wrap for this issue of The Circular