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Climate Change
High Yield Credit

Seeking to deliver a positive climate impact alongside long-term outperformance

Reasons to invest

Benefitting the planet: the strategy’s dual objective looks to deliver strong financial performance and a positive environmental impact through decarbonisations

High conviction, flexible approach: we target companies with strong fundamentals – investing across geographies, instrument types and credit curves

Climate change measurement: our proprietary internal scoring framework conveys a company’s progress towards the low-carbon transition

Pushing for climate impact: engagement encourages companies to pursue decarbonisation commitments, with the potential for material, positive impact

Investment expertise: the principal members of the investment team have worked together since 2004 to deliver attractive high-yield credit returns

Quick links

Through high-conviction investment in companies with both strong fundamentals and the potential to transition to a low-carbon world, we target financial outperformance and a positive impact.

Fraser Lundie, CFA, Head of Credit and Lead Credit Portfolio Manager

Why Climate Change High Yield?

The strategy aims to outperform the global high-yield market through high-conviction investment in companies with strong fundamentals that also demonstrate the potential to decarbonise and transition to a low-carbon world.

We seek companies that have the willingness and ability to make a positive impact on the planet. Investors can gain exposure to the high-yield market and support the transition to a low-carbon economy.

We exclude companies involved in activities that we believe to be unsustainable or unethical. Although not exhaustive, our exclusions list includes companies involved in fossil fuels, tobacco, controversial weapons and those in contravention of the principles of the UN Global Compact.

How we invest

We overlay our dynamic investment process with a proprietary process that determines the climate change credentials of companies for portfolio construction and position-sizing purposes. Our high-conviction and flexible approach targets companies with strong fundamentals to generate returns across geographies, instrument types and credit curves. Through our disciplined, bottom-up research, we aim to identify issuers with attractive investment profiles that are contributing to the decarbonisation of the wider economy.

To determine a company’s progress towards decarbonisation and the materiality of its impact, we begin by analysing an aggregate of historical climate change data and scores. We then supplement the forward-looking perspectives of our credit analysts and engagers, including engagement insights. This enables us to really assess each company’s climate-related risks and its progress towards decarbonisation and potential impact. Designed by the Sustainable Fixed Income team, our bespoke framework – the Climate Change Impact (CCI) Score – conveys a company’s willingness to decarbonise, the potential to reduce its carbon footprint and the materiality of that decarbonisation path. These scores are key to issuer selection and sizing within the strategy.

We engage with companies to bring about a positive impact that supports the transition to a low-carbon future. Our dedicated engagers in the Fixed Income team, supported by EOS at Federated Hermes, a leading global stewardship team, seek positive action on climate change. We will not hold a company’s credit where engagement on climate change transition has failed.

Investment philosophy

Our twin objectives are to deliver:

Strong financial performance
Positive climate impact through decarbonisation

We believe these aims are interwoven and self-reinforcing.

Investment process

We begin with positive and negative screens. The negative screen excludes fossil fuels, tobacco, controversial weapons and companies in contravention of the principles of the UN Global Compact, as well as companies with a Climate Change Impact (CCI) score of 5. CCI scores measure a company’s decarbonisation in terms of progress and impact (the latter referring to the contribution the company makes to decarbonising the economy through its operations and products).

The positive screen selects innovators; companies with science-based targets; genuine transition stories encouraged by engagement and green bonds.

We assess the company fundamentals, scoring their operating, financial and ESG strengths based on analyst and engagement insight. Concurrently, our Sustainable Fixed Income team analyses the materiality of the company’s climate change agenda and assigns our CCI score.

Once we have established the company’s fundamentals and climate change agenda, we will identify which instrument within the capital structure it is best for us to use. Our analysts will produce a score for value. 

Team

Fraser Lundie, CFA

Lead Manager, Head of Credit

17 years' industry experience

Nachu Chockalingam, CFA

Co-Portfolio Manager, Senior Credit Portfolio Manager

20 years' industry experience

Mitch Reznick, CFA,

Executive Director, Head of Research and Sustainable Fixed Income

24 years' industry experience

Aaron Hay,

Director, Engagement & Strategy - Sustainable Fixed Income

14 years' industry experience

Supported by

15

Fixed Income professionals

13

Responsibility Office professionals

38

EOS at Federated Hermes professionals

Our Purpose

To deliver Sustainable Wealth Creation

Like all our investment capabilities, Federated Hermes Climate Change High Yield aims to deliver Sustainable Wealth Creation: the generation of wealth through investments that enrich investors, society and the environment over the long term.

Our business provides three equally powerful pathways to achieving this aim. Climate Change High Yield features in the Impact route.