| Federated Hermes Infrastructure is a leader in active, responsible infrastructure investment management. They integrate material sustainability factors into their investment processes to create and protect value for their investors, and their approach was rated as 5 stars by the Principles for Responsible Investment in 2023. With a portfolio that includes both emissions-intensive assets starting to decarbonize and businesses building leading energy transition infrastructure, they partnered with ERM to identify the latest insights into climate-related trends. |
The challenge: Understanding climate-related risks and opportunities
Infrastructure businesses build and manage the assets providing essential services to society and the economy. The physical, and often emissions-intensive, nature of these assets make them particularly sensitive to both physical climate change and the low carbon transition. Understanding and managing the risks and opportunities associated with these changes is a fundamental part of infrastructure investors’ fiduciary duty. Federated Hermes Infrastructure was an early adopter of approaches to manage climate-related risks and opportunities (CRROs), recognizing their potential to significantly erode or enhance returns. They sought ERM’s specialist support to evolve their approach to CRRO management to align with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations.
What we did: Climate scenario analysis and advising on TCFD alignment
Starting in 2021, ERM worked hand in hand with Federated Hermes Infrastructure on a detailed analysis of their portfolio and investment opportunities. This entailed a CRRO assessment using climate scenario analysis techniques that gave an insight into priorities for their active asset management and engagement.
The climate scenario analysis identified a range of material transition risks, of which carbon pricing was relevant to a number of investments. In 2023, ERM continued the partnership with Federated Hermes Infrastructure to complete a detailed review of carbon pricing exposure across the portfolio. This showed the complexity of carbon pricing’s impact on investment performance with materiality varying substantially between companies. Through the review, Federated Hermes Infrastructure identified those investments at greater risk of increased regulatory carbon pricing and integrated this into asset management plans to build resilience into business planning.
In 2024, ERM updated the results of the climate risk and opportunity assessment by incorporating the latest data from the International Energy Agency (IEA), Network for Greening the Financial System (NGFS) and the Intergovernmental Panel on Climate Change (IPCC). This was used to support Federated Hermes Infrastructure in producing a comprehensive TCFD report for its platform and for its flagship fund, the Federated Hermes Diversified Infrastructure Fund.
Our partnership with ERM continues to offer valuable insights into climate-related trends as we build further resilience into our portfolio and position it for success through the energy transition. Our collaboration on the latest Federated Hermes Infrastructure TCFD report shows the importance of expert advice to developing and implementing best practice in a fast-evolving field.
The impact: Enhancing portfolio resilience to climate-related risks and opportunities
In partnership with ERM, Federated Hermes Infrastructure has identified material CRROs and, crucially, developed an approach to manage their impacts more effectively. The results from ERM’s scenario analysis have been used to set priority objectives for engagement with their portfolio companies. Through this, Federated Hermes Infrastructure seeks to protect and create value through building resilience against climate-related risks and capitalizing on the emerging opportunities for sustainable infrastructure.
Federated Hermes Infrastructure published their Infrastructure TCFD report in December 2024, which summarizes the work and conclusions of our partnership.
