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

PRI reporting framework 2020

You are in Strategy and Governance » ESG issues in asset allocation

ESG issues in asset allocation

SG 13. ESG issues in strategic asset allocation

13.1. Indicate whether the organisation carries out scenario analysis and/or modelling, and if it does, provide a description of the scenario analysis (by asset class, sector, strategic asset allocation, etc.).

13.3. Additional information. [OPTIONAL]


SG 13 CC.


SG 14. Long term investment risks and opportunity

14.1. Some investment risks and opportunities arise as a result of long term trends. Indicate which of the following are considered.

other description (1)

          EOS at Federated Hermes engagement themes include pollution, biodiversity and sustainable agriculture.
        

14.2. Indicate which of the following activities you have undertaken to respond to climate change risk and opportunity

other description

          Our Proxy Voting Committee has regularly voted for increased disclosure of climate change risk among investee companies.
        

14.3. Indicate which of the following tools the organisation uses to manage climate-related risks and opportunities.

14.4. If you selected disclosure on emissions risks, list any specific climate related disclosure tools or frameworks that you used.

Our Carbon Tool allows fund managers to assess their fund's carbon performance, carbon risk, and corresponding engagements with investee companies in a comprehensive manner.  The tool also facilitates enhanced reporting to clients to demonstrate how ESG and engagement is being credibly integrated into the firm's fund and stewardship offerings.

14.5. Additional information [Optional]

We decided to develop the tool in-house because we realized that most commercially available portfolio tools were focused on reporting, as opposed to investment decision-making and delivering progress in climate-related engagements.  We also wanted to combine carbon data from Trucost with our own internal carbon model, QESG score, financial and engagement data.  Our proprietary public markets carbon analytics tool goes beyond portfolio-level aggregate statistics and focuses on identifying patterns and outliers.  In particular, we look at data with various lenses to identify companies better or worse placed to deal with client change.  In particularly, the carbon tool assesses and integrates the following four key elements, making it a cutting-edge approach in evaluating the impact that investment funds have on the environment:

  1. Measuring carbon risk of an investment fund relative to its benchmark and of listed companies relative to its peers, including Scope 1, 2, and 3 emissions.
  2. Calculating the value at risk for an investment fund for different carbon pricing and policy scenarios.
  3. Identifying companies with which carbon-focused engagement should be initiated or intensified.
  4. Gauging the level of carbon risk being engaged on within portfolios and the progress achieved.

The tool helps our fund managers to more effectively take into account information about specific carbone risk and thereby enhance their investment decisions.  This helps them identify investment opportunities and threats to value, and to begin or intensify engagements that can reduce the risk of holding exposed companies.

We track carbon footprint and weighted average carbon intensity (carbon emissions divided by AUM) of our equity and credit portfolios.  In addition, we compare our WACI with the MSCI world index.  The analysis includes scope 1 and 2 emission.  Despite being backward looking data, this provides a good proxy for assessing the exposure of our assets to carbon risk.  We use the market capitalization ownership and enterprise value method for calculating the carbon footprint of our equity and credit assets under management.

Our carbon tool reveals, most importantly, that the concentration of emissions in a small number of companies makes engagement potentially very powerful.  This gives a lot of leverage to push companies for better carbon performance, and more generally a coherent climate change strategy.


SG 14 CC.


SG 15. Allocation of assets to environmental and social themed areas

15.1. Indicate if your organisation allocates assets to, or manages, funds based on specific environmental and social themed areas.

15.2. Indicate the percentage of your total AUM invested in environmental and social themed areas.

.01 %

15.3. Specify which thematic area(s) you invest in, indicate the percentage of your AUM in the particular asset class and provide a brief description.

Area

          UN Sustainable Development Goals
        

Asset class invested

1 Percentage of AUM (+/-5%) per asset class invested in the area
.05 Percentage of AUM (+/-5%) per asset class invested in the area
.05 Percentage of AUM (+/-5%) per asset class invested in the area

Brief description and measures of investment

Federated has sponsored and launched two SDG funds: Federated Hermes SDG Engagement Equity Fund. The Equity Fund seeks to invest in companies that provide the potential for long term capital appreciation while also contributing to positive societal impact aligned to the United Nations Sustainable Development Goals. In addition to fundamental financial indicator criteria, the Fund considers engagement criteria such as assessment of company management competence, integrity, and vision, as well as exposure to one or multiple UN Sustainable Development Goals. 

The SDG Engagement High Yield Credit Fund is a high conviction strategy that invests in high yield companies that demonstrate willingness and ability to create positive change in society and/or environment while improving their credit profiles.  The strategy aims to generate long-term, risk-adjusted outperformance by investing in attractive high yield credit instruments and engaging with the underlying companies to generate positive impacts that support the SDGs.  Portfolio companies must meet specific investment and engagement criteria.  Each should have supportive fundamentals and their business lines, supply chains, product or service offerings must provide a foundation to create SDG-aligned impact and their executive teams must be willing to enter the long-term transformative process of engagement.

 

 

 

15.4. Please attach any supporting information you wish to include. [OPTIONAL]



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