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Federated Hermes, Inc. (formerly Federated Investors, Inc.)

PRI reporting framework 2020

You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (A) Implementation: Screening

(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
Corporate (financial)
Corporate (non-financial)
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

Negative screening is used primarily in Institutional separate accounts.  Institutional clients provide to Federated Hermes a list of prohibited sectors, products, securities or moral concerns which are then excluded from the potential universe of investments.  For separately managed accounts (SMA), clients may provide a list of prohibited securities or class restrictions.  Federated uses the Barclays Global Classification Scheme industry classifications to determine the list of prohibited securities in SMA restriction lists.

As outlined in the fund's prospectus, our SDG Engagement High Yield Credit Fund screens out from the universe of potential investments corporations who manufacture tobacco products and controversial weapons. 

04.3. Additional information. [Optional]

FI 05. Examples of ESG factors in screening process

05.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors


Description of how ESG factors are used as the screening criteria

Our SDG Engagement High Yield Credit strategy screens out from the universe of potential investments corporations who manufacture tobacco products and controversial weapons. To screen out controversial weapons, each quarter the Controversial Companies Report (CCR) by EOS at Federated Hermes is sent to the Credit Team -- which relies on Sustainalytics data - to identify whether companies are actively involved in the manufacturing of controversial weapons (anti-personnel mines, biological and chemical weapons, cluster weapons, etc).  The final list is sent to compliance for monitoring.


05.2. Additional information.

FI 06. Screening - ensuring criteria are met

06.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Negative/exclusionary screening

06.2. Additional information. [Optional]

Screening is used almost exclusively for restrictions imposed by client investment policies either in institutional separate accounts or in our managed accounts. 

For clients whose investment policies follow values-based investment themes, including environmental, social governance concerns, Federated will exclude any security or securities expressly prohibited by the client within an institutional separate account.  To ensure compliance with client investment policies and prevent prohibited securities from inclusion in the portfolio, Federated uses pre-trade compliance and trade execution systems.  Through our trade order management system, we track sector and securities weightings and monitor a portfolio's structure and individual holdings. Federated's Compliance Department monitors post-trade reports from various investment and trading systems to identify exceptions and facilitate any necessary corrective action in order to adhere to the stated SRI/ESG investment limitations articulated in the institutional separate account guidelines. In addition, Federated's Audit Department conducts periodic audits to ensure investment management controls, including those related to guidance adherence are operating properly.

For managed account clients, on a quarterly basis, Federated portfolio management teams provide a current list of restrcited securities to Managed Account Operations. Managed Account Operations updates the Portfolio Accounting System as necessary. If a security is added to a class restriction list at the end of any given quarter and it is held in any client account that has a particular class restriction, the financial advisor on the account will be contacted to determine whether the security should be immediately sold from the client account or held and no further securities purchased. SMA operations runs reports periodically to monitor for restriction violations.