Will investors hold Federated Hermes accountable for sponsoring climate denialism?

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As the worsening effects of the climate crisis are acutely felt on a daily basis, the fossil fuel industry continues to put all its resources behind keeping its power from waning.

In the United States, right-wing political actors have been leading a charge of climate denialist attacks on investors and pushing forward regulation intended to punish and prevent fossil fuel divestment.

At the forefront of these attacks is the State Financial Officers Foundation (SFOF). SFOF is orchestrating a campaign in the US against “woke capitalism” and Environment, Social, Governance (ESG) investment. Currently, SFOF is attacking the US Securities and Exchange Commission’s (SEC) proposal to ensure public companies disclose climate-related risk. SFOF members have also begun to introduce legislation barring financial institutions they see as boycotting fossil fuels from doing business with their respective states.

Responsible Investor recently reported that Federated Hermes is sponsoring SFOF and lending its name to this coordinated attack on climate action.

As an asset manager and as a stewardship service provider, Federated Hermes has built a reputation as a climate champion and sponsored a multi-day event at last year’s Glasgow climate conference, COP26, titled “We Mean It.”

So why is the asset manager now sponsoring a group whose declared goal is to battle ESG investing and to prolong the shelf life of fossil fuels?

With assets of $669 billion currently under management, Federated Hermes has positioned itself as a leader and steward in the race to reach net zero.

The asset manager’s website currently boasts its ‘unique approach’ towards ‘sustainable wealth creation’ by claiming to “mitigate risk and deliver a positive impact by improving companies’ environmental, social and governance profiles.”

It also showcases the role of its EOS team, which now conducts stewardship for other investors’ assets worth US$1 trillion. Saker Nusseibeh, CBE, CEO, International at Federated Hermes commented last November that: “active stewardship; high active share; and the integration of ESG, alongside traditional performance factors, have long been at the heart of our investment philosophy”.

Federated Hermes has also made public climate commitments on climate issues as a member of the Net Zero Asset Managers initiative, and as a lead investor engaging over 20 companies in the Climate Action 100+ group.

Following COP26 in Glasgow, senior Federated Hermes staff posted a series of reflections. Its senior economist Silvia Dall’Angelo commented: “we need more ambition, underpinned by robust and timely implementation – including detailed and actionable plans that can be rigorously monitored.”

At the same time, Federated Hermes is listed as a gold sponsor of SFOF, whose coordinated attacks on financial institutions pursuing any form of climate measure appears designed to reduce ambition as fast as possible.

An investigation published in the New York Times concluded that “state treasurers around the country are working to thwart climate action on state and federal levels, fighting regulations that would make clear the economic risks posed by a warming world, lobbying against climate-minded nominees to key federal posts and using the tax dollars they control to punish companies that want to reduce greenhouse gas emissions”, and that the SFOF “is at the nexus of these efforts”.

It revealed that:

  • Federated Investors, a precursor to the current company, has supported SFOF since at least 2016.
  • Federated Hermes has continued to sponsor SFOF and attend SFOF meetings even as SFOF has staked out more extreme positions on climate and climate finance issues.
  • Federated Hermes was a “platinum” sponsor of SFOF’s July 2021 meeting, where West Virginia Treasurer Riley Moore presented a “Fossil Fuel Letter” to John Kerry. Hermes was a “gold” sponsor of the February 2022 meeting in New Orleans, which was overwhelmingly focused on attacking ESG measures.
  • Federated Hermes officials dined with West Virginia Treasurer Riley Moore in what SFOF describes as an “intimate dinner party.” SFOF emails make clear that Federated Hermes specifically sought Moore as a dining companion.

New York City Comptroller Brad Lander, in charge of US$240 billion pension funds, told Bloomberg that Moore and other politicians are “protecting fossil-fuel executives and their country-club cronies with a sort of war of political distraction. That risks very real, extra costs to their constituents and long-term harm to their portfolios and to the planet.”

Many other pension funds, plus other long-term investors have given mandates to Federated Hermes in recent years. Several of these clients are now understood to be urgently trying to clarify where Federated Hermes stands.

Unless Hermes drops its SFOF sponsorship and recommits to promoting urgent climate action in the USA – and across the world – the sustainability and ESG sides of its business may start to decline after years of growth and a major blow to its reputation. After all, public expectations and official regulations on climate are rising fast in Europe and other regions. And Federated Hermes CEO Nusseibeh wrote just three summers ago that:

“Being good is good business. It’s that simple. The integration of ESG into the investment process, alongside stewardship, is the only way you can discharge your fiduciary duty. It would be foolish to deny future generations the benefits and prosperity that we have today.”

Update: August 12th, 2022

On August 12th, Federated Hermes published a statement on August 18th regarding their sponsorship of SFOF. While this could have been an opportunity for Federated Hermes to clarify their stance on the climate and instil confidence in their clients, the statement instead provided meaningless justifications for their engagement with SFOF. Bizarrely, they claimed that their “participation does not serve as an endorsement of any organisation’s particular perspective on any issue.”

This doesn’t seem to be convincing clients in Europe and Australia. The Financial Times reported that three Federated Hermes clients are still demanding answers. Anders Schelde, chief investment officer at the Danish pension fund AkademikerPension, said Federated Hermes’ response was “unsatisfactory” as it did not explain why they had chosen to become a gold sponsor of the foundation nor clarify whether the sponsorship would be dropped or reduced in light of SFOF’s anti-climate campaign. And today, Australian superannuation fund clients have also gone public with their concerns. Australian Council of Superannuation Investors Chief Executive Louise Davidson said, ““The positioning of the State Financial Officers Foundation is concerning and clearly runs contrary to the approach taken by Australian superannuation funds and asset managers on responsible investment.”

Moreover, a recent Insider article revealed that Federated Hermes has financially benefited after state treasurers in Republican states diverted state funds from BlackRock and into the gold star sponsor of SFOF.

Though these manoeuvres are worth millions of dollars in the United States, the wider global finance community is taking note of Federated Hermes playing the double agent, including their global clients worth a lot more than their new anti-ESG business.

So, Federated Hermes, we’ll ask again: How does sponsoring and benefitting from an anti-climate lobby not count as an endorsement? And how will you respond to your clients who expect you to live up to the climate credentials you market far and wide?

Update: September 15th, 2022

On 15th September, Net Zero Investor published an article confirming that Federated Hermes has chosen not to renew its sponsorship of SFOF.

This comes after pressure from:

 

It is worth noting that this decision was made with the absence of Climate Action 100+, an initiative of investors ready to take climate action of which Federated Hermes is a leading member. Instead, Federated Hermes was held accountable by activists on the ground in the UK and high value clients from Denmark and Australia pushing their asset manager on their hypocritical practices.

While this announcement could feel final, Danish clients are still asking clarifying questions to determine whether Federated Hermes are well and truly done with SFOF or whether, like their statement from August, this is just another attempt to push off scrutiny while they continue playing both sides of the climate action vs. fossil fuel battle.

The attacks on responsible investing from fossil fuel politicians and anti-climate lobbying groups within the US are not going unnoticed. Treasurers and comptrollers from 13 US states as well as New York City, have called out politicians supporting damaging legislation and also highlighting why it’s bad for business.

Read our blog on why the anti-ESG attacks are a futile tactic in a losing battle.

 

Read the full Documented investigation into the origins of the SFOF and the “energy discrimination” bills this piece was based on here. 

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