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GLOBAL EQUITY LOW CARBON

Seeking long-term capital appreciation by investing in global equities. The portfolio avoids companies with high carbon intensity or those involved in ethical or unsustainable activities and has a bias towards firms with positive or improving environmental, social and governance (ESG) characteristics, supported by the stewardship capabilities of EOS at Federated Hermes (EOS).

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Capital markets clearly have a key role to play in turning ambition into action on climate change, and we believe that those companies who are ahead of the trend should flourish

Louise Dudley

Portfolio Manager

A low-carbon approach to global equities

Climate change is a universal challenge and is one of the most pertinent areas of ESG risk and opportunity. Our long-running research shows that companies managing their ESG risks well have historically outperformed, and as result we believe that businesses who help drive the low-carbon transition have robust long-term performance prospects.

We therefore seek companies that are working now to anticipate the challenges of tomorrow – such as ensuring environmental sustainability and thriving in a carbon-constrained economy.

Why now

In 2019, there was a profound shift in awareness of – and engagement with – the climate emergency: it was the hottest year on record for the world’s oceans, the second-hottest year for global average temperatures, and wildfires raged in the Amazon, California and Australia.

A strategic focus on mitigating and adapting to climate change, driven by an astute understanding of climate-related financial risk, has become an imperative for forward-thinking investors and businesses. Capital markets have a key role in financing companies that are taking action on climate change, and long-term investors can also play an important part by engaging with companies to encourage and enable the transition to a low-carbon economy.

Hermes Global Equity Low Carbon

As a global leader in active, responsible investing, we believe that all long-term investors have an interest in the sustainable growth of companies – something that requires strong corporate governance and leadership, and a positive and enduring influence on society and the environment.

At the international business of Federated Hermes, climate change continues to be core to our integration of ESG factors into investment decisions. Our Global Equity Low Carbon capability is evidence of this, and it is defined by the following characteristics.

Fundamental focus, systematic execution

Disciplined, systematic stock-picking focused on time-tested fundamentals – including ESG considerations – supported by subjective analysis.

ESG integration supports long-term returns

Companies managing their ESG risk have historically outperformed, while those that are improving can generate greater shareholder value in the future.

Engagement strength

We have been committed to responsible investment since 1983. In EOS, we have a large team skilled in face-to-face engagement with the corporate executives and directors of companies that we invest in.

Sustainable growth

We focus on companies with a competitive advantage and sustainable business models, which are more likely to offer earnings growth.

Risk management

Our proprietary risk-management tools enable us to monitor and neutralise macroeconomic risks before they impact returns. Stress tests provide forward-looking views of the impacts of these risks.

Style agnostic

Analysing companies from a broad range of perspectives helps us to generate positive returns in various market environments and defend against large swings in style.

Investment philosophy and process

The portfolio does not have any one single investment style. Instead, we select companies that have the best combination of fundamental attributes and ESG behaviours. We avoid companies that have material exposure to fossil fuels and a high carbon intensity, and favour firms with attractive financial characteristics and which support the transition to a low-carbon economy and focus on minimising further climate change.

Stewardship is an essential part of our investment approach. In managing the portfolio, we seek constructive and positive dialogues with each company’s board and management team, encouraging them to mitigate any negative impacts resulting from existing activities and to adopt practices, initiatives and strategies that deliver tangible and positive outcomes. We believe this should benefit society and the planet, the companies themselves, their employees and the local communities in which they operate, and investors.

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