Climate change and COP27 updates

Plants in jars

Foreword

At the landmark COP26 summit, which took place in Glasgow in 2021, we witnessed a renewed flurry of activity on the climate agenda. Governments, financial institutions and companies made pledges on decarbonisation, eliminating deforestation, increasing the number of electric vehicles, moving away from coal-fired power and financing natural capital solutions.

In the run-up to COP26, more than 300 companies committed to achieving netzero emissions. However, data from the Climate Action 100+ Benchmark shows that while 52% of the world’s largest emitters had net zero goals, only 20% had short and medium-term emissions reduction targets and only 7% had targets aligned with the Paris Agreement goals.1 As we look forward to the rest of 2022 and into 2023, a critical focus for us is to use our position as one of the world’s leading stewardship organisations to help turn these ambitious targets into action, on behalf of our clients.

We hope that the upcoming climate talks at COP27 in Egypt will demonstrate that the global climate process has not stalled nor lost ambition due to various global shocks this year. Climate integrity and a holistic view that incorporates issues around a just transition and nature will be imperative for the success of both COP27 and the discussions set to get underway at COP15 on biodiversity in Montreal later this year.

With this accelerating global momentum, Federated Hermes Limited intends to lend the full support of its stewardship and advocacy capabilities to help mobilise that transition. This document outlines our financial exposure to climate risk and how we are responding to rising expectations of our clients and updated regulatory requirements.

Our climate action plans

Federated Hermes Limited has published its Climate-related Financial Disclosures Report for 2021. This report highlights our progress in implementing the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) across the four pillars of the framework. We detail our governance structure, our strategy for managing climate risks and identifying opportunities, and our risk management, including public policy advocacy and corporate engagement.

For the first time we are publishing our interim targets across our operational and financed emissions, which are further detailed in our Climate Action Plan. We have also advanced our climate-related metric disclosure, notably in coverage and disclosure of our methodologies, and will continue to enhance this section in our next report.

Recognising there is much more work needed to limit temperature warming to less than 1.5°C above preindustrial levels, Federated Hermes Limited will continue to leverage our engagement and proxy voting capabilities, in addition to our advocacy activities.

Climate-related Disclosures Report

Climate Action Plan

News and views from COP

Federated Hermes Limited joins the One Planet Asset Managers initiative​

The OPAM initiative was set up in 2019 to accelerate the understanding of climate-related risks and opportunities within long-term investment portfolios.

OPAM initiative logo

Federated Hermes Limited is a member of the Natural Capital Investment Alliance, as part of The Sustainable Markets Initiative.

The NCIA aims to accelerate the development of Natural Capital as a mainstream investment theme and to engage the global USD 120 trillion investment management industry to mobilise this private capital efficiently and effectively for Natural Capital opportunities.

“We are proud to be one of the first to sign the commitment to end deforestation, using active ownership and stewardship to catalyse actions that will eliminate commodity-driven deforestation from our portfolios by 2025.” at COP26 World Leaders Summit

Engaging for net zero

EOS, our stewardship service, engages with companies around the globe, encouraging them to put in place strategies that are consistent with the Paris Agreement goals, alongside goals and targets aligned with a 1.5°C pathway.

Climate diary

The last decade has seen many climate change targets missed or watered down. New COP policy is likely to trigger a resurgence in momentum to meet the most important goals. Here, we list some of the milestones that are worth watching out for:

2020 Net zero
2025Transportation
2030Oceans
2035Renewables
2050Steel
2060China
The geometry of net zero
  • Global investors have begun the march towards net zero but in this article, Robert Hall discusses the challenges along the way.
  • Even if the entire global energy supply were to transition to renewables tomorrow, this would not be net zero.
  • If climate impacts cannot be treated as smooth functions then the arithmetic of net zero cannot be treated as one-dimensional.
  • Sustainable investment is about operating within dynamic, volatile and uncertain systems, not seeking comfort in fragile simplicity.
Read the article in full
Electric vehicles: reaching a tipping point
  • Transport remains one of the biggest contributors to global CO2 emissions. Decarbonising the sector is key to mitigating climate change.
  • Motor vehicles are the leading cause of air pollution in the US and, globally, transportation accounts for between 15 and 20% of emissions.
  • To this end, the world will be closely watching Norway in 2025 when the country pledges to be the first to ensure all new cars are electric. In this article, we discuss why automakers are positioning themselves for an all-electric future.
Read the article in full
Our oceans under threat
  • The global community is starting to see the importance of managing its impact on the oceans. Thirty countries form part of the Global Ocean Alliance, calling for 30% of seas to be protected by 2030.
  • In this report, Sonya Likhtman, Emma Berntman and Lisa Lange outline why this target is so important.
  • The oceans and the earth’s atmosphere exist in a balance, with oceans absorbing the excess heat and greenhouse gases from the atmosphere.
Read the article in full
    According to the World Economic Forum, many new renewable energy projects are cheaper than even the cheapest coal-fired power plants. In the US, President Joe Biden has pledged a carbon pollution-free power sector by 2035. In this podcast, a panel of our experts discuss the future of energy in the run-up to this key US milestone:
  • There will be a huge rise in competition from renewable energy firms, and there will be less demand for fossil fuels.
  • European companies have done a lot more thinking about climate change and how they will tackle the energy transition, while US companies are only starting to do this.
Listen to the podcast in full
Abate and switch: steel seeks low carbon solutions
  • According to the International Energy Agency (IEA), the steel industry is currently the largest industrial consumer of coal, which satisfies about 75% of its energy demand.
  • Sonya Likhtman discusses how we engage with companies in this sector and what are the industry’s options?
  • The IEA’s recent Net Zero by 2050 report shows that emissions from heavy industry, including steel, must decline by 93% by 2050.
Read the article in full
China, the largest emitter of CO2 in the world, has committed to reach carbon neutrality by 2060. However, there are increasing international calls for it to move that target date forward to 2050. According to US Special climate envoy John Kerry, without more cooperation from China, the world cannot achieve its target of keeping global temperatures within 1.5C.