Federated Hermes – improving ESG Harvard Case Solution & Analysis

Federated Hermes – improving ESG Case Study Analysis


Federate Hermes is a well-known company in the financial services industry that manage the investment of its clients. The company was founded in 1955 and then incorporated in 1957 whereas the company is headquartered in Federated Tower Pittsburgh, Pennsylvania United States. The company has around $669 billion of customer assets that are managed by Federated Hermes. The company provides financial services to its clients and offers investments across equity, fixed-income, alternative or private market and insurance companies, and others. FH, an investment managing company mainly focused on the creation of sustainable wealth while adopting a full-of-zip engagement approach with the companies in its portfolio. However, the company manages and creates sustainable wealth by working along with them to asses and regulate jeopardies, challenges, and opportunities that are vital for their businesses and corporate operations while assembling ESG goals including environmental, social, and corporate governance. Furthermore, FH mainly focuses on the engagement of its customers based on the ESG that are very essential to regulate and balance while the case is about the sustainability and improvement of ESG in Ruby via active engagement (TEO, 2021).

Problem Statement

Ruby is a consumer goods company that is facing issues regarding greenhouse gases so, the director of engagement in FH Sarah Lee engage Ruby to reduce the emission of Greenhouse gases in Ruby’s dairy farm operation. However, for company-wide ESG initiatives, Lee established a council in Ruby the Ruby Corporate Responsibility Council while she was facing resistance from the Ruby senior management, and finally, she somehow encountered the resistance. Furthermore, Lee is worried about the continuous resistance strain from Ruby's senior management due to high operating costs, and these strains might affect the close-knit relations with Federate Hermes(GOH, 2021).

Sustainable Investing

Creating sustainable investing by using a dynamic engagement method with those organizations that enrolled in the portfolio, to identify the challenges, risks, and opportunities to run business procedures appropriately with environmental, social, and corporate authority (ESG) goals(Alam, 2022). In other terms sustainable investing consider a part of the evolution of investing. This investing strategy shows that sustainable funds that improve financial performance and reduce the risk level to provide a responsible investment. Sustainable investing considers various strategies, which include ESG investing, Ethical or negative exclusions, and impact investing.ESG can be combined with existing practices of investment by using three different approaches integration, screening, and thematic.

Common Approach for ESG Investing

ESG investing is also known for the impact and sustainable investing that is used to improve environmental, social, and governance factors or their outcomes. ESG investing includes various approaches for investing, which is climate change, diversity, and inclusion, ESG indexation, framework, active ownership, negative screening, and integration(Grim, 2020). The most common approach for ESG investing is negative screening. Negative screening is a simple concept strategy used inside the organization's practices to identify the organization's values for the investment portfolio. Negative screening is not necessarily used to generate high profits and its main goal is for the asset owners to spread outside the lowest streak to trade in extra basis points.

FH’s Engagement Strategy

Federated Hermes implemented a new active and unique approach to its investment and engagement strategy(Atkins, 2022). Its overall strategy isto move around the active share investing, ESG appropriate practices of its integration, responsible stewardship, and deliver holistic outcomes towards the responsible office for investment that help the organization to generate financial returns that impact the society and environment worldwide.  Federated Hermes had selected 12 different extensive themes in their EOS engagement with other organizations, which include climatealteration, management of human capital, risk management, and board efficiency. FH’s engagement lasts between three to five years and actively engage with other organization till the development comes in signal to achieve the defined ESG goals.

Federated Hermes' engagement approaches are different from the other approaches of ESG investing. The FH’s engagement themes reflect climate change by using natural resources stewardship and circular economy. These approaches move towards the management of harmful substances, major pollution incidents, sustainable land use and food systems, and water strain management. All of these approaches and sustainability factors have come under the stewardship of environmental factors. Secondly, social stewardship looksat human capital management and its rights towards culture and ethics. Lastly, the governance of ESG investingis different in FH’s that look for the engagement of investors, basic minority rights, and its protection, evaluation, and succession planning towards the quantum pay outcomes.

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