“No one asks, ‘Do you do ESG?’ anymore. They don’t even say ‘How do you do ESG?’ They want to know what’s the carbon footprint of the portfolio. Where’s it going? All these SDG’s… which one does this tick in the questionnaire? Investors are much more sophisticated. ”
— Mitch Reznick
Mitch Reznick is the Head of Sustainable Fixed Income at Federated Hermes and the Co-Portfolio Manager of the company’s SDG Engagement High Yield Credit Fund. With over 23 years experience in the corporate credit industry, he was previously the Co-Head of Credit Research for the global credit team at Fortis Investments, and prior to that was an associate analyst in the leveraged finance group at Moodys Investors Service in New York.
Mitch has a Master’s in International Affairs from Columbia University, a Bachelor’s in history from Pitzer College and is a CFA charterholder. He is Co-Chair of the Federated Hermes Sustainability Investment Centre and holds several advocacy roles, including founding board member of the European Leveraged Finance Association (ELFA); Co-Chair of the Credit Risk and Ratings Advisory Committee at the Principles for Responsible Investment (PRI) and workstream member CFO Coalition for the SDGs of the United Nations Global Compact (UNGC).
Formerly, Mitch was Co-Chair of the Capital Markets Advisory Committee of the IFRS Foundation; member of the Sovereign Working Group (PRI); workstream member of the UK-China Green Finance Task Force; and served on the Green Finance Advisory of the City of London.
In today’s episode, Mitch recounts that it was early in his career while working in the leveraged finance team at Moody’s that he fell in love with finance in general and specifically with the high yield corporate credit world. He later moved to London as a high yield fund manager for Fortis Investments and then left in 2008 for Federated Hermes as part of a team hired to rebuild the credit business in the wake of the global financial crisis.
Mitch discusses how early on he observed that Federated Hermes was well-placed to bring sustainable fixed income solutions to the market and since then he has been focused on ESG integration and building investment solutions that deliver financial returns while delivering positive change for society and the environment with engagement being the catalyst. Mitch describes in detail the Federated Hermes SDG Engagement High Yield Credit Fund, of which he is Co-Manager. We discuss at length the UN Sustainable Development Goals, and what they mean in the fixed income space.
We talk about greenwashing, ‘greeniums’, ‘step-ups’, transition bonds and much more.
Mitch is active on a number of technical working groups and work streams that are currently developing the connection between sustainability and fixed income investments. As a representative of a large investor in the fixed income space, he is very much in the flow of this evolution and represents the current thinking on the subject.
I really enjoyed my discussion with Mitch and I hope you will too!
Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Castbox, Google Podcasts, Amazon Music, or on your favorite podcast platform. You can watch the interview on YouTube here.
What was your favorite quote or lesson from this episode? Please let me know in the comments.
SCROLL BELOW FOR LINKS AND SHOW NOTES…
SELECTED LINKS FROM THIS EPISODE:
- Connect with Mitch Reznick: LinkedIn
- European Leveraged Finance Association
- Federated Hermes
- Fortis Investments (now BNP Paribas Investment Partners)
- ICMA
- IIGCC
- Moodys
- PRI Credit Risk and Ratings Advisory Committee
- SDG Engagement High Yield Credit Fund
- UNGC
- UN Sustainable Development Goals
SHOW NOTES:
[00:00] Episode introduction.
[02:27] Mitch shares how he came to work in finance at Moody’s, having studied history and international affairs.
[03:43] We hear how Mitch made the move to Europe, first to Paris with his wife and young daughter, then to London with Fortis Investments.
[04:25] Mitch tells us how he came to join Federated Hermes in 2010.
[05:03] Mitch talks about his early focus on ESG integration at Federated Hermes and how the next natural step was to build sustainable products, specifically on the fixed income side.
[07:07] We hear about Mitch’s various professional association roles and how, in all of these capacities, he is helping to build the connection between sustainability and investments.
[08:30] We hear how responsible investment and ESG integration are woven into the ethos of everything Federated Hermes do, and their focus on launching investment solutions that deliver financial returns as well as positive social and environmental outcomes.
[12:57] Mitch explains how Federated Hermes uses their own in-house quantitative assessment of ESG quality– known as ‘QESG scores’ – to understand the relationship between ESG strength and credit risk/credit spreads.
[16:25] We talk about the Federated Hermes SDG Engagement High-Yield Credit Fund, of which Mitch is co-portfolio manager.
[16:56] Mitch shares his opinion that the seventeen Sustainable Development Goals are not only a call to action but are becoming a ‘lingua franca’ to reclassify the myriad of sustainability issues.
[21:19] We discuss the risk of greenwashing and ‘greeniums’
[25:43] Mitch explains what a ‘step-up’ is and what this means when investing in sustainability bonds.
[28:47] We discuss Federated Hermes’ ‘Four-stage Milestone’ stakeholder engagement approach and how this is used to measure successful engagement.
[32:07] Mitch explains ‘transition bonds’ and shares his opinions on these.
[34:46] Mitch tells us about Federated Hermes’ primary investors and how, over the years, the general trend has moved from ESG integration to purposeful capital.
[37:59] We discuss Federated Hermes approach to biodiversity and how, in their engagement funds, they are touching on all of these environmental factors [land use, water quality, water use, water preservation, temperature, climate change].
[40:02] Mitch shares his views on whether the Sustainable Development Goals will be achieved by 2030, and how much progress has been made in the fixed income asset class.
[45:09] The single most important challenge in the sustainable fixed income space.
[46:43] Mitch shares what he knows now about sustainable fixed income investing, that he wishes he had known when he joined Federated Hermes in 2010.
[49:34] Mitch gives his advice on how to get into the sustainable fixed income space.
MORE MITCH REZNICK QUOTES FROM THE INTERVIEW:
“ESG integration is now mainstream. No investor who is serious in the market is not going to have a seriously robust ESG integration approach. ”
— Mitch Reznick
“In our view, ESG – those non-fundamental factors – are a part of the holistic and complete investment process itself. Everything is contiguous and leads off from something else, so building a business with solutions on the investment side, on sustainability, is a natural extension to what we are already doing. ”
— Mitch Reznick
“Our investors have changed over time, from being ESG aware… to ESG focused… to ESG determined. All of our investors are now testing us for our credibility and the credulity around those processes, in addition to fundamentals. ”
— Mitch Reznick
“We have struck a balance between investing to create economic value that will deliver into a growing population, so that everyone can benefit in the future from the things we have now, while mitigating damage and harm as much as possible in the environment around us. ”
— Mitch Reznick
