The Hermes SDG Engagement High Yield Credit Strategy aims to provide total return through a combination of income and capital growth, whilst delivering positive societal impact through engagements with companies focused on the United Nations’ Sustainable Development Goals (SDGs). This 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 whilst improving their credit profiles.
The strategy uses the SDGs, an ambitious, universal set of objectives seeking global prosperity and environmental integrity by 2030, as a framework for engagement. Our engagements seek positive change that strengthens the long term performance of companies, sustaining both impact and corporate profitability. We believe that bondholder engagement supports the long-term viability and investment performance of businesses while also benefiting society and the environment. The global high-yield market offers great opportunities to identify companies with the willingness and ability to change their operations, products or services in order to generate additional benefits for society and the environment. Most high-yield issuers are yet to focus on creating positive change, enabling us to play an important role in their efforts to become impactful while also delivering attractive returns to investors. By investing and engaging to create change, we seek tomorrow’s impact leaders rather than focus on those of today.
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. To achieve this, we combine the global, dynamic investment approach developed by our Credit team with the engagement skills of the Fund’s Lead Engager and EOS, our firm’s stewardship team. Portfolio companies must meet specific investment and engagement criteria. Each should have supportive fundamentals, cash-generative operations and be trading at attractive valuations. Their business lines, supply chains or product or service offerings must provide a foundation to create SDG-aligned impact, and their executive teams and boards must be willing to enter the long-term, transformative process of engagement. Each business must have a stable shareholder base and a long-term vision that shows a willingness to effect positive change. Our high conviction, bottom-up security-selection process results in a portfolio of
long-term holdings aligned with the duration of our engagements with the underlying businesses. By investing flexibly, we target opportunities to generate strong returns and income across geographies, instrument types and credit curves.
To gauge the opportunity for generating SDG-aligned impact, we use a one-to-five scoring system that assesses the credit fundamentals of a company and the scale of the opportunity to create change. Our scores are reviewed and changed in response to changes to the relevant investment and engagement theses, and portfolio holdings and position sizes are adjusted accordingly.
Believing that long-term bond and equity investors have a mutual interest in the sustainable growth of companies – which requires strong corporate governance and positive influence on society and the environment – we seek opportunities to collaborate with other financial stakeholders on objectives related to the SDGs.