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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

Inflation and supply chain disruption: Impact on corporate sectors
Inflation and supply chain disruptions, along with the moderating pace of the post-pandemic earnings recovery, have made us more cautious on corporate fundamentals as we enter Q3 reporting season
Japanese employment: engaging for greater equality – an update
A year has passed since we published a note exploring the long-standing issues around the under-representation of women within the Japanese labour force.
SDG Engagement High Yield Credit commentary: Intesa Sanpaolo
As Italy’s leading financial institution, the Intesa San Paolo Group (Intesa San Paolo) serves 13.5 million Italian customers through its 4,300 branches.
Lessons from the EU: Development of the UK’s green taxonomy
The UK is in a strong position to leverage the significant effort that has gone into creating the EU Taxonomy, whilst adapting the framework to suit the UK market where necessary
Global Equity ESG Fund: H1 Report, 2021
We continue to focus on the transition to a more sustainable economy, which we view as an exceptional market opportunity as awareness grows of sustainability issues and opportunities.
Direct lending: how senior is your debt?
Private credit is broadly described as non-bank lending where the debt is not issued or traded on public markets.