Federated Hermes SDG Eggm Hi Yld Crdt Fd's holdings are exposed to average levels of ESG risk relative to those of its peers in the Global Fixed Income category, thus earning it an average Morningstar Sustainability Rating of 3 globes. Competing funds in the category with ratings of 4 or 5 globes have less ESG risk in their holdings. Unlike impact, which measures positive environmental and societal outcomes attributable to an investment, ESG risk reflects the degree to which investments could be affected by material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance.
Based on its latest prospectus, sustainability or ESG factors are a focus in the investment process of Federated Hermes SDG Eggm Hi Yld Crdt Fd. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. Its 14.0% involvement in carbon solutions is higher than the 6.2% average involvement of its peers in the High Yield Bond category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons and tobacco. The fund fulfills this goal by having negligible investment exposure to each of these activities.
Federated Hermes SDG Eggm Hi Yld Crdt Fd has a 12-month asset-weighted Carbon Risk Score of 10.6. This is situated at the lower end of the medium carbon risk band, suggesting that its portfolio holdings are not among the worst-positioned to transition to a low-carbon economy, but they are not among the best-positioned either. Investors concerned about the transition risks may prefer to consider funds with negligible or low carbon risk. Funds with a lower carbon risk classification may be more favored by investors concerned about transition risks, as such funds often tilt toward companies that operate in sectors less exposed to the transition (for example, healthcare and IT) or companies in more carbon-intensive sectors (for example, materials and utilities) that consider climate change in their business strategy, and therefore are positively aligned with the transition. Currently, the fund has 14.3% involvement in fossil fuels, which is roughly in line with 14.1% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas. The fund has a modest level of exposure (2.37%) to companies with high or severe controversies. Companies with controversies are involved in incidents such as corruption, employee abuses, and that pose some degree of business risks to the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they controversies can damage the reputation of both companies themselves and their shareholders.
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