Talking to Leon Kamhi, from Federated Hermes, on ESG funds

Over the past few years, ESG funds have emerged as a major force in the investment world. These investment funds, which integrate environmental, social and corporate governance criteria into their strategy, have gained significant momentum, attracting the attention of investors and companies alike.
How has investor interest in ESG funds evolved? Are investors punishing companies they think are greenwashing? Leon Kamhi, Head of Responsibility at Federated Hermes, answers these and other questions about his views on ESG funds.

How has investor interest in ESG funds evolved, do you see a loss of interest?

Investor interest in ESG funds is becoming increasingly sophisticated as expertise in this field grows. We continue to see demand from asset owners, particularly those in Europe, for thematic funds that reflect the values of beneficiaries.

The integration of material E, S and G factors alongside traditional performance factors is more commonplace for mainstream funds and managers are becoming increasingly more nuanced in how they consider what is material. This has led to less reliance on high level ESG ratings to make informed investment decisions. We are also seeing a growing interest and demand for investor stewardship, as a means of driving sustainable wealth creation.

What differences do you see between US and European investors in their approach to ESG issues?

There is a perception that US investors are more legally bound by fiduciary duty and pecuniary interests than European investors. Whilst there is certainly a greater focus and articulation of pecuniary interests in the US, investment returns remain a central goal for European investors and we have seen ambitious sustainability goals feature in both regions.

Is sustainable investing becoming politicised, do you think that the ESG investment theme is being affected by a certain climate change denialist trend in the investment community?

Those investors who have backing from their beneficiaries to reflect their values and ethics in how they invest will continue to demand thematic ESG funds. I also believe that mainstream investors will continue to take into account ESG factors when material to a company’s valuation. Ignoring material factors whether ESG or financial, would be a breach of fiduciary duty.

Is Federated Hermes adjusting its ESG investment policies in response to a loss of investor interest?

No. Federated Hermes integrates material E, S and G factors alongside traditional performance factors and acts as an active owner through investor stewardship across all its funds and across all asset classes.

Do you think the market overlooks allegations of greenwashing? Do investors penalise companies suspected of greenwashing?

It is important that sufficient due diligence is always undertaken when investing, to determine whether the name and objectives align with what the fund actually invests in. However, regulators must ensure that funds are transparent, particularly retail funds, so that investors can accurately assess whether or not a fund meets the investment criteria they are looking for.