Industry Voice: Sustainable Global Equity - the top 10 questions that clients and prospective clients ask our investment team.

clock • 6 min read
Industry Voice: Sustainable Global Equity - the top 10 questions that clients and prospective clients ask our investment team.

In this excerpt from our recently published Your Questions Answered, we highlight a few of the Sustainable Global Equity team's responses to questions about their newly launched Fund. 

What is the fund and why launch it now?

The corporate sector is at a tipping point. Globally, governments have come to recognise that without mobilising corporate investment and innovation, a shared sustainable future cannot be achieved. Encroaching regulation, the crises triggered by Covid 19, and the increasingly visible impact of climate change on our everyday lives are changing the paradigm for growth in the corporate sector. This profound shift in global economic focus represents a multi-decade opportunity.

The Federated Hermes Sustainable Global Equity (SGE) fund seeks to invest in those companies that we believe will contribute most to this transition. Alongside financial outperformance, the fund targets key environmental outcomes with a lower carbon, waste and water footprint relative to the benchmark.

The fund was launched as part of Federated Hermes' product line reclassification and expansion which provides clarity to investors aligned with EU regulation. The EU's Sustainable Finance Disclosure Regulation, the first part of which went live in March 2021, aims to address the lack of consistency in sustainable investing.

We believe this will help clients as the clear positioning of the fund helps investors to identify it as a sustainable offering - something that is becoming increasingly important considering the recent proliferation of ESG-related products in the market.

How do you define a sustainable company?

Our belief in what constitutes a sustainable company starts with understanding that companies contribute to sustainability in different ways. And some of these ways go far beyond just ESG.

As investors, we look at sustainability from three perspectives:

  1. )     What a company does: what they sell to their customer as a product or service
  2. )    How a company does it: the operations of the business and how they treat their employees & suppliers
  3. )     The business model: are they helping to foster greater wealth creation over time

Essentially, sustainable investments should be companies with a business model built for the long term, a positive or improving ESG profile, and whose activities have an overall positive impact through what they sell.

That tends to mean businesses with a clear purpose, who have invested to enable greater control over their own destiny, together with a sharp focus on innovation and future growth.

We may target companies who are leaders in ESG by virtue of the way they operate, while we also look at companies that are making an impact through their products.  Finally, and most crucially, we target companies that may not be seen as sustainability leaders today, but the rate of change and/or their direction of travel leads us to believe the company has the potential to be a leader in the future.

All three of these types of companies can be very attractive long-term investments and our process is designed to uncover and capture these opportunities at attractive valuations.

What role does engagement play within the strategy?

Direct engagement with the companies we invest in is vital to achieving long-term impact and a key differentiator of this fund.

We work in collaboration with our world-leading stewardship business, EOS at Federated Hermes, where we are supported by 38 engagement professionals with dedicated engagers per theme within the fund.

As well as working closely with EOS, we benefit from ESG analysis and engagement from Will Pomroy, Head of Impact Engagement - Equities, who acts as lead engager sitting within the investment teams.

By engaging with companies on specific, relevant objectives aligned with UN Sustainable Development Goals, we gain valuable insights into investment risks and longer-term opportunities that the company is exposed to. Such insights cannot be uncovered through ratings; they include how a firm manages scarce resources, how it invests in its people, and how it supports equitable economic growth.

Engaging as a constructive partner is necessary to establish management buy-in, while true impact needs investor intentionality and additionality. This involves sharing insights and contacts in a purposeful manner. Furthermore, change does not happen overnight, so engagement requires patience and perseverance.

We use our proprietary milestone system, developed by EOS, to track our progress towards each engagement objective.

 

 

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. Any investments overseas may be affected by currency exchange rates. Past performance is not a reliable indicator of future results and targets are not guaranteed.

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 fund supplements 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.

 

This post was funded by Federated Hermes

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