The asset manager believes an active ownership approach to responsible investing is how to navigate this market.
“ESG Investing Shines in Market Turmoil, With Help From Big Tech,” shouted a headline in the Wall Street Journal this week. The story reports that investors put a record $12 billion into ESG funds in the first four months of 2020, according to Morningstar Direct, more than double the same period last year. And more than 70% of ESG funds across all asset classes performed better than their counterparts during the first four months of the year.
The outperformance of many ESG funds during the pandemic is helping change the minds of investors who thought they had to sacrifice returns to invest responsibly, said Martin Jarzebowski, director of responsible investing at Federated Hermes, speaking at a roundtable this week. He expects the interest in sustainable investing to grow as more investors see the value in screening for ESG factors.
- “There is a correlation between ESG leaders and lower volatility and more consistent profits,” he said. “ESG is a new quality factor—ESG leaders are additive to performance.”
Federated Hermes is doing its part to spread the word and get more businesses to engage in sustainability-focused risk management during the crisis and beyond. The company, a pioneer in active engagement, has pushed “stewardship” for investment managers for well over a decade and has a dedicated team, called EOS, that actively engages directly with company boards and executives.
- “EOS’s mission is to engage in a collaborative dialogue with corporate issuers to better understand material ESG risks and advocate for positive change,” Mr. Jarzebowski wrote in a recent blog post. “These dedicated engagers are ESG subject-matter experts who complement the fundamental research of Federated Hermes investment teams across all asset classes.”
The firm’s deep understanding of financially relevant ESG factors helps Federated Hermes’ global portfolio managers to assess the underlying quality of the companies in which they invest. And that, Mr. Jarzebowski argues, gives the company an edge against passive investing, which does not take the same approach.
- “By incorporating forward-looking ESG insights into our active investment process, we think we can better assess where the puck is headed relative to passive indexes, which are mostly judging quality through a rearview mirror,” Mr. Jarzebowski wrote.
Federated Hermes will share its insights on sustainable investing and how ESG can fit your company’s strategy in a webinar hosted by NeuGroup on June 9, 2020. Register for it here.