Fast reading
- The team supporting the Strategy initiated over 379 engagement actions in 2025 with 148 companies.
- The team completed 28 objectives in 2025, made progress on 98 and continues to pursue 341 objectives for change.
Since inception the Strategy has returned 5.19% in US dollar terms, gross of fees, which was 0.41% ahead of its benchmark. During FY 2025, the Strategy returned 9.19% in US dollar terms, gross of fees, which was 0.73% ahead of its benchmark.1
Markets demonstrated remarkable resilience and strength in 2025, despite navigating several challenges. The year saw the fallout from the ‘Liberation Day’2 tariff rollout in April, as well as numerous geopolitical flare ups; in addition to concerns about potential vulnerabilities in the private credit market (one
leading US bank CEO likened the risks to “cockroaches”).
The robust performance across risk assets was fuelled by a number of factors, including accommodative financial conditions, sustained economic growth and significant tailwinds generated by advancements in artificial intelligence (AI).
Global fixed income markets are currently absorbed by the news flow related to the conflict in the Middle East. Within days, if not hours, from the start of the conflict, the perception of a stable, deflationary global economy evaporated and was replaced by concerns about the effects of an oil supply shock. Global rates rose with inflation expectations, which has put pressure on total returns in credit. Meanwhile, fixed income markets are now waiting to see if the global economy moves from reflation to stagflation. With each passing day that the war carries on, it becomes harder to argue that the disruption to shipping and energy infrastructure will only be ephemeral. The longer the oil spike persists, the greater the risk to global growth and, ultimately, corporate earnings and fundamentals. The good news is that this war-driven supply shock has arrived in the context of fairly robust economy in which corporate fundamentals are broadly constructive, and with much reduced financial leverage in the system compared to the global financial crisis. Given that we enter this crisis at near-record tights in credit spreads, it makes sense that risk premia have started to rise across all credit markets. However, regionally we have seen this in more energy import-reliant regions such as Europe and emerging markets (EMs).
Both our credit and sustainability analysts had a fruitful year, with many engagement successes.
Both our credit and sustainability analysts had a fruitful year, with many engagement successes. As well as providing crucial portfolio positioning insight, the team supporting the Strategy drove 379 engagement actions in FY 2025.
We strongly believe that a wide range of companies in our Strategy have the potential to benefit society and the natural environment. The key challenge they face is the progressive development of clean, future resilient and more equitable next generation industries and value chains. In short, it is the job of many of these companies to provide the building blocks for economies and essentials for everyday life and employment. Their value chains must be transformed if we are to meet the aims of a cross section of environmentally and socially focused SDGs.
We have had numerous engagement successes since inception, with many of the Strategy’s holdings making meaningful operational and management changes to address key SDG issues such as climate change and social inclusion. However, this cannot always be guaranteed. In those instances where we failed to see the engagement progress we would have liked, we have downgraded their scores and either diluted our holdings or exited completely. In FY 2025, however, there were no downgrades that warranted such a move and so no holdings were sold because of regressing or failed engagements.
Federated Hermes SDG Engagement High Yield Credit annual report 2025
For more information on SDG Engagement High Yield Credit.
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1 Past performance is not a reliable indicator of future returns. Management fees are not included and will have the effect of reducing performance.
2 US President Donald Trump announced a broad package of import duties on 2 April 2025 – a date he called ‘Liberation Day’.
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