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The international business of Federated Hermes (formerly Hermes Investment Management)

PRI reporting framework 2020

Export Public Responses

You are in Direct - Fixed Income » Outputs and outcomes


FI 17. Financial/ESG performance

17.1. 債券におけるESG分析の組み入れが投資結果やESG実績に与えている影響を組織が測定するのかどうかを明示してください。


17.2. 債券におけるESG分析の組み入れが投資結果やESG実績に与えている影響を、組織がどのように測定するのか説明してください。 [任意]

In 2017, Federated Hermes published research by the Credit and stewardship teams demonstrating the impact of ESG factors on credit spreads, and developed a pricing model to capture the influence of these factors on credit instruments. The research examines the relationship between a company’s Quantitative ESG (QESG) Score and credit default swaps (CDS). It showed a convincing relationship between ESG risk and credit spreads, manifesting as an ESG-risk curve. 

In 2018, we expanded this research and found the relationship between ESG risk and credit spreads to be reinforced. The explanatory power of the model was strengthened with a broader time horizon.

In 2019, we conducted a study to see if there was a relationship between ESG and sovereign credit spreads. We found that countries with the lowest ESG scores have, on average, the widest CDS spreads, and countries with the highest ESG scores have the tightest spreads.

In 2020, we expanded on the 2019 study to see if the findings would hold up if we look at developed and emerging markets separately. We found that whilst the relationship between the ESG scores and credit spreads were statistically significant for both developed and emerging markets, it was stronger for developed markets.  

17.3. 補足情報 [任意]

FI 18. Examples - ESG incorporation or engagement

18.1. ESG分析の組み入れや発行体のエンゲージメントが、報告年度中に組織の債券投資結果に与えている影響例を示してください。


Governance (Management behavioural issues)


We had an opportunity to lend to a privately owned UK Hosting and Cloud service provider, benefitting from strong financial fundamentals, including stable cashflows and recurring revenues in excess of 95%. The company also benefitted from a conservative balance sheet and proposed capital structure. Team did not go through with the loan due to ESG issues but other lenders funded a loan based on the strong credit fundamentals of the business. In Oct 2019, the FT reported on a number of allegations of inappropriate behaviour by the company’s CEO, leading to his resignation and issues with the management. This led to erosion of the value of the company on which lenders were secured and loss of critical contracts as a result of bad publicity, had a significant negative impact on the company’s cashflow used to service the loan. 


Governance:  Concerns related to the Board and Accounting and financial reporting issues


A multinational company whose assets vastly outweighed its debt with good credit strength however, we chose not to invest due to issues related to lack of diversity on the Board and financial reporting issues. Controversy in 2019 related to the failure to declare taxable income in 2018. 


Governance and Social


Sold out of a sovereign issue due to concerns around governance structures. 




Recently increased the holding size of an American clothing company due to good E and S practices. The company worked on developing technology that reduces the amount of chemicals they use and is also better positioned than its peers in managing supply chain risks. They have committed to sourcing its materials from the Better Cotton Initiative and organic cotton growers. 

18.2. 補足情報 [任意]