Federated Hermes SDG Engagement Equity: 2021 H1 Report

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This is a sponsored article from Federated Hermes.

When we were writing the commentary for our H1 report in 2020, few would have predicted that 12 months on many of us would still be working from home and Covid-19 infections would be rising again. Thankfully, there is now light at the end of the tunnel. Vaccines are being rolled out – quickly in some areas and much too slowly in others – but rolling out, nonetheless.

There are silver linings. The impact of the pandemic has led to a heightened interest in issues of sustainability, among investors and corporates alike. We have been pleased to see ever more of our investee companies coming forward with sustainability reports. More pleasingly, we have welcomed them reaching out to us for our input before publication and seeking our assistance in shaping both their approach and their disclosures.

We’re looking for much more than greater disclosure, of course. Nevertheless, this enhanced reporting is testament to the work that is taking place behind closed doors. It is genuinely heartening to note the real commitment of many management teams to making a real social and/or environmental contribution and their recognition that this fits well with their financial goals.

In our 2021 H1 Report, we reflect on our engagement efforts so far this year, present our investment review and take a deep dive into SDG 1 (no poverty). What progress did we achieve during the first six months of 2021?

Federated Hermes SDG Engagement Equity Fund

The Fund, launched at the beginning of 2018, is based on the fundamental guiding principle that the best way to create long-term wealth is through responsible investing.

Our aim is to generate attractive returns for investors in a way that has a measurable positive impact on people and the planet.

As a result, the Fund employs an investment strategy of buying into companies that have the clear potential to deliver long-term social and environmental benefit. We believe that we can help harness this capacity through a process of engagement, underpinned by the UN’s 17 Sustainable Development Goals (SDGs).

This is an ambitious set of objectives, agreed to by all UN member states in 2015. Its goals are to eliminate poverty, protect the planet, and improve the lives of the world’s population, by 2030.

The targets against which we benchmark our investee companies include generating affordable and clean energy, building resilient infrastructure, and ensuring that patterns of consumption and production are sustainable.

The engagement commitment

We are committed to being a responsible owner of the companies that we invest in, and we believe that engaging with businesses can lead to tangible improvements in the way that they operate, in support of the SDGs.

Our investment approach has led us to find compelling opportunities among the small and mid-sized players (SMID). Many of these are not the typical targets of engagement minded shareholders. The Fund’s managers, however, believe that these companies’ operational models and supply chains offer rich opportunities. They also believe that the direct access the companies tend to offer increases the prospect of successful engagement considerably.

Using the SDGs as a mechanism for assessing companies and benchmarking their performances provides investors with valuable insight into how sustainably a business operates and what risks and opportunities lie ahead.

The long-term success of companies is bound into their environments. The position of businesses within their communities and the direct relationships they have with their workforces and supply chains put them in a unique position to promote change.

Companies that actively work in the interests of greater environmental sustainability – and pursue the SDGs – are more likely to enjoy the financial rewards that come from customer loyalty, staff satisfaction, and products that more ably meet the needs of consumers.

Measuring success

Although we believe that a company’s success in meeting the SDGs can be monitored and assessed over the long term, we are aware that change can take time and is not always immediately quantifiable. Nor is it always appropriate to directly compare businesses inside the portfolio, which may have entirely different business models, supply chains impact opportunities, as well as differing exposures to various economies. As such the engagement impact thesis for each company is particular to that company’s circumstances. In one case it may be directed towards the provision of employment to disadvantaged populations, in another it may be the need to innovate towards more resource efficient production.

We consider it important to keep our own investors informed about the progress of our engagements and developments at our investee companies, which ultimately deserve the credit for their achievements.

The Fund therefore uses reports such as this to provide regular updates to shareholders. We explain the changes that we believe needed to happen at a number of companies. We then detail the progress they have made, including in specific areas such as committing to specific goals or developing new partnerships.

Where relevant, we reference wider global initiatives, such as when a company embraces science-based targets or specific climate-related disclosures. Ultimately, we measure and report on the change in outcomes that have occurred as a result of the improved practices, allowing investors to understand the full story from an initial engagement thesis to impact generation.

View the full H1 report

Authors:
Hamish Galpin, Lead Manager
Will Pomroy, Lead Engager

 

DISCLAIMER
The value of investments and income from them may go down as well as up, and you may not get back the original amount invested.
For professional investors only. This is a marketing communication. This document does not constitute a solicitation or offer to any person to buy or sell any related securities, financial instruments or products; nor does it constitute an offer to purchase securities to any person in the United States or to any US Person as such term is defined under the US Securities Exchange Act of 1933. It pays no regard to an individual’s investment objectives or financial needs of any recipient. No action should be taken or omitted to be taken based on this document. Tax treatment depends on personal circumstances and may change. This document is not advice on legal, taxation or investment matters so investors must rely on their own examination of such matters or seek advice. Before making any investment (new or continuous), please consult a professional and/or investment adviser as to its suitability. All figures, unless otherwise indicated, are sourced from Federated Hermes. All performance includes reinvestment of dividends and other earnings.

Federated Hermes Investment Funds plc (“FHIF”) is an open-ended investment company with variable capital and with segregated liability between its sub-funds (each, a “Fund”). FHIF is incorporated in Ireland and authorised by the Central Bank of Ireland (“CBI”). FHIF appoints Hermes Fund Managers Ireland Limited (“HFMIL”) as its management company. HFMIL is authorised and regulated by the CBI. Further information on investment products and any associated risks can be found in the prospectus, the key information documents or the key investor information documents, the articles of association as well as the annual and semi-annual reports. In the case of any inconsistency between the descriptions or terms in this document and the prospectus, the prospectus shall prevail. These documents are available free of charge (i) at the office of the Administrator, Northern Trust International Fund Administration Services (Ireland) Limited, Georges Court, 54- 62 Townsend Street, Dublin 2, Ireland. Tel (+ 353) 1 434 5002 / Fax (+ 353) 1 531 8595; (ii) at https://www.hermes-investment.com/ie/; (iii) at the office of its representative in Switzerland (ACOLIN Fund Services AG, Leutschenbachstrasse 50, CH-8050 Zurich www.acolin.ch). The paying agent in Switzerland is NPB Neue Privat Bank AG, Limmatquai 1/am Bellevue, P.O. Box, CH-8024 Zurich.

Issued and approved by Hermes Fund Managers Ireland Limited (“HFMIL”) which is authorised and regulated by the Central Bank of Ireland. Registered address: The Wilde, 53 Merrion Square, Dublin 2, Ireland. HFMIL appoints Hermes Investment Management Limited (“HIML”) to undertake distribution activities in respect of the Fund in certain jurisdictions. HIML is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET. Telephone calls may be recorded for training and monitoring purposes. Potential investors in the United Kingdom are advised that compensation may not be available under the United Kingdom Financial Services Compensation Scheme.

In Singapore: This document and the information contained herein shall not constitute an offer to sell or the solicitation of any offer to buy which may only be made at the time a qualified offeree receives a Federated Hermes Investment Funds Public Limited Company prospectus, as supplemented with the global supplement, the relevant fund supplement, and the relevant Singapore supplement (the “prospectus”), describing the offering and the related subscription agreement. In the case of any inconsistency between the descriptions or terms in this document and the prospectus, the prospectus shall control. Securities shall not be offered or sold in any jurisdiction in which such offer, solicitation or sale would be unlawful until the requirements of the laws of such jurisdiction have been satisfied. For the avoidance of doubt, this document has not been prepared for delivery to and review by persons to whom any offer of units in a scheme is to be made so as to assist them in making an investment decision. This document and the information contained herein shall not constitute part of any information memorandum. Without prejudice to anything contained herein, neither this document nor any copy of it may be taken or transmitted into any country where the distribution or dissemination is prohibited. This document is being furnished on a confidential basis and solely for information and may not be reproduced, disclosed, or distributed to any other person. This document has not been reviewed by the Monetary Authority of Singapore.

This is a sponsored article from Federated Hermes.

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