Federated Hermes Corporate Bond Fund may not appeal to sustainability-conscious investors.
This fund has the second-lowest Morningstar Sustainability Rating of 2 globes, indicating it holds securities with relatively high ESG risk compared to that of its peers in the US Fixed Income category. Investors concerned about ESG risk may be better off with funds in the category that receive 4 or 5 globes as they tend to hold securities less exposed to ESG risk. ESG risk measures the degree to which material environmental, social, and governance issues, such as climate change and inequalities, could affect valuations. ESG risk differs from impact, which is about driving positive environmental and social outcomes for society’s benefit.
One potential issue for a sustainability-focused investor is that Federated Hermes Corporate Bond Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes.
Currently, the fund has 15.85% involvement in fossil fuels, which compares favorably with 16.51% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.
Federated Hermes Corporate Bond Fund's Carbon Risk Score of 10.46 is at the lower end of the medium carbon risk band. This score represents the asset-weighted carbon risk score of the portfolio's equity or corporate bond holdings, averaged over the trailing 12 months. This suggests the fund’s current holdings are moderately positioned to transition to a low-carbon economy. Such funds invest in companies that tend to operate in sectors less exposed to the transition (such as healthcare and IT) and/or companies in more carbon-intensive sectors (such as industrials and utilities) but that consider climate change in their business strategy and products, and therefore are positively aligned with the transition. The fund has a modest level of exposure (8.08%) to companies with high or severe controversies. Companies with high or severe controversies are involved in incidents such as corruption, employee abuses, environmental incidents, and corporate scandals that pose serious business risks to the company.