Federated Hermes, a champion of environmentally friendly investment strategies, is coming under increasing pressure to explain its sponsorship of a coalition of senior US officials who oppose action on climate change.
Three Danish pension fund clients of Federated Hermes are demanding to know why it agreed to act as a gold sponsor of the State Financial Officers Foundation – a Republican group that has threatened to strip state pension assets from companies financial institutions that do not support fossil fuel industries.
The foundation, which has the backing of top elected finance officials from 23 U.S. states, has lobbied aggressively against the Biden administration’s policies to slow global warming and opposed U.S. regulators’ proposals to introduce new climate risk disclosure standards for institutional investors.
The clash highlights a tension between approaches to environmental, social and governance standards on both sides of the Atlantic. Support for stricter ESG standards in the corporate sector has been much stronger among investors based in Europe than in the United States, where opposition to action on climate change is widespread among party supporters. republican.
Federated Hermes has a valuable reputation as a promoter of ESG investing. The Pittsburgh-based fund manager has a highly regarded London-based management team that provides advice on ESG and other shareholder issues to institutional investors with combined assets exceeding $1.6 billion.
In response to growing criticism of its sponsorship of the SFOF, Federated Hermes said last week that the relationship “does not serve as an endorsement of one organization’s particular perspective on an issue.”
“Diversity of thought and respect for the opinions of others, however different they may be from our own, are essential to building long-term consensus and improving our world,” the chief executive wrote. Christopher Donahue in a statement last week.
Anders Schelde, chief investment officer of Danish pension fund AkademikerPension, said the response was “unsatisfactory” because it did not explain why Federated Hermes chose to become a gold sponsor of the foundation or clarify whether the sponsorship would be dropped or reduced in light of SFOF’s anti-climate statements.
“It just doesn’t fit, in our view,” Schelde said.
Kirstine Lund Christiansen, head of ESG at Danish pension fund P+, said they had “requested a more concrete statement from Federated Hermes on how they view SFOF’s climate approach.”
A third leading Danish pension fund said it was “critical” of the link between Federated Hermes and SFOF. “We are awaiting a response from Federated Hermes before deciding on any further action,” he said.
Federated Hermes was created in 2018 after Federated Investors bought a majority stake in Hermes in a deal that valued the London-based manager at £410 million.
The acquisition provided Federated with better distribution in Europe and significant expertise in ESG investing that Hermes had developed under the leadership of its managing director Saker Nusseibeh, one of the strongest proponents of environmental investing in the world. the European asset management industry.
In the United States, however, opposition has hardened among Republican politicians to the work of banks, insurers and investment managers to mitigate climate change risks, even as pressure mounts on governments. financial organizations from policymakers, regulators and customers for a stronger response to the threats posed by rising temperatures. globally.
In a Wall Street Journal article in May, Mike Pence, US Vice President under Donald Trump, described ESG as a “pernicious strategy” that allowed “an unelected cabal of bureaucrats, regulators and investors activists to rate companies based on their membership”. to left values.
“We are very concerned about the politicization of ESG that is occurring in the United States, as we fear it will impede much-needed climate action,” Schelde said.
US asset managers Fidelity Investments and Invesco, which offer ESG funds, are both listed as silver sponsors of the SFOF. Both companies declined to comment on Tuesday.
Other companies stick to the SFOF. A spokeswoman for private equity firm KKR said she was still a member. “This is not an endorsement of any policy position, including those regarding ESG disclosure and management,” KKR said.
SFOF chief Derek Kreifels declined to comment on his donors. “We are committed to fiscally sound public policy and to educating Americans about the role of responsible fiscal management in a market economy,” he said.
As the SFOF is a non-profit association, it does not need to disclose its financial support.
A senior London-based Federated Hermes employee said the relationship with SFOF was “an embarrassment”.
“There are internal discussions about possibly finding an exit, but that has been made more difficult by the negative publicity,” the employee said.
Federated Hermes, Fidelity Investments and Invesco are all signatories to the United Nations Principles for Responsible Investment, a framework designed to promote a more sustainable planet.
“The PRI expects all signatories to regularly review their commitments to external bodies and associations and to ensure that any activity to do so is consistent with the signatories’ own commitments to responsible investment,” it said. said Nathan Fabian, Director of Responsible Investment at PRI.
US fund manager slammed for sponsoring climate skeptics