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Why investors must hold Federated Hermes accountable for its support for climate denialism

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 seeking to reduce their exposure to volatile fossil fuel assets. As we continue the inevitable transition to renewable energy sources, these actors — concerned for their stakes in the oil & gas industry — are pushing forward regulation intended to punish and prevent fossil fuel divestment.

A group that has been instrumental to leading the attacks on responsible and sustainable investing is the State Financial Officers Foundation (SFOF), as reported recently by Gina Gambetta for Responsible Investor . SFOF is at the forefront of orchestrating a national right-wing campaign in the US against “woke capitalism” and forms of perceived sustainable investment. Currently, SFOF is attacking the US Securities and Exchange Commission’s (SEC) mandate to ensure public companies disclose climate-related risk.

As the climate movement strives to secure a liveable planet, asset managers like Federated Hermes are covertly supporting SFOF. Federated Hermes has a public track record as a climate champion and is a member of net zero initiatives. So why is the asset manager 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.” Federated Hermes has also made public climate commitments as a member of the Net Zero Asset Managers initiative (NZAM), and a lead investor in the Climate Action 100+ group.

At the same time, Federated Hermes is listed as a gold sponsor of SFOF, whose coordinated attacks to prevent fossil fuel divestment has led to regulation punishing financial institutions seen as taking climate action in states across the US.

The attacks Federated Hermes is funding via its sponsorship are politically charged. SFOF claims that the SEC’s climate disclosure rule will cause economic risk, and that the SEC must stop acting as political ‘activists’. At the same time, SFOF members are pushing regulation that punishes financial institutions for factoring climate and stranded assets risk into their investment decisions. We are already seeing this put into practice in states like Texas and West Virginia. Forcing investors to ignore economic risk to benefit a volatile industry does not make any sense from a financial point of view. Moreover, political and fossil fuel interests should not subvert financial institutions’ fiduciary duty to their clients, of which managing climate risk is paramount.

Investors need to see through these attempts to stoke a culture war and realise that those bound to an industry unable to innovate and adapt will expose themselves and their clients’ assets to substantial risk. Investors must take action by calling on Federated Hermes to honour their climate commitments by leading the transition to a low carbon society — and unilaterally dropping their SFOF sponsorship.

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