Climate Change
High Yield Credit
Seeking to deliver a positive climate impact alongside long-term outperformance.
Reasons to invest
Overview
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.
Why Climate Change High Yield Credit?
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 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.
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
Nachu Chockalingam, CFA
Senior Credit Portfolio Manager, Federated Hermes Limited
Mitch Reznick, CFA
Group Head of Fixed Income – London & Global Head of Sustainable Fixed Income, Federated Hermes Limited
Product information
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