The international business of Federated Hermes has launched a high yield credit strategy that invests in securities that support a low carbon future.
The Federated Hermes Climate Change High Yield Credit Strategy is seeded by and designed in partnership with Swedish National Pension Fund AP1, and seeks to generate long-term, risk-adjusted outperformance through climate-aligned, attractive high-yield credit instruments .
The investment process will include using proprietary a framework - the Climate Change Impact (CCI) Score - to reflect the progress and impact towards decarbonisation that holdings are making.
The strategy will screen out companies where engagement on climate change transition has failed and controversial sectors and heavy greenhouse gas-emitting issuers "that have no desire to change," Federated Hermes said.
Head of credit Fraser Lundie will be lead manager on the strategy, with senior credit portfolio manager Nachu Chockalingam as co-manager.
"The global high-yield market offers great opportunities to identify attractive companies with
the willingness and ability to change their operations, products or services in order to generate
positive impact for the planet," Lundie said. "This strategy is a natural extension of our existing credit offering and demonstrates our commitment to making a real difference for our climate and for future generations.
"We have always admired AP1 for setting a high bar when it comes to delivering long-term sustainable returns for its retirees and we are delighted that our pioneering and innovative approach to credit investing has enabled us to join forces one again."
Lundie and Chockalingam will be supported by the 12-member credit team including head of research and sustainable fixed income Mitch Reznick.
The team's dedicated fixed income engagers, supported by EOS at Federated Hermes, the firm's global stewardship team, will seek positive action on climate change through a robust engagement plan with the portfolio holdings.
"We are pleased to help bring the Climate Change Strategy to the market, a fund we have worked intensely on with the Federated Hermes Credit team for the past year," said Tina Rönnholm, portfolio manager responsible for external High Yield investments at AP1. "Having divested from fossil fuels throughout our portfolio last year, our ambition now and going forward is to contribute to getting absolute emissions down significantly in the real economy.
"Providing financing to facilitate a much-needed transition across sectors is an example of the actions we undertake in order to meet our net zero target we are determined to achieve. We recognize the need for collaborative action and financing and by helping launch this fund vehicle, we hope fellow investors will join us in driving change."