As pioneers of ESG integration and stewardship, we have been at the forefront of responsible investing since 1983. We aim to deliver sustainable wealth creation that enriches investors, benefits society and preserves the environment – for current generations and those to come.
To achieve this, we integrate ESG (Environmental, Social and Governance) in our investment decisions and stewardship to deliver sustainable outcomes and further investment insights across our investments. We believe that one size does not fit all therefore, our ESG and stewardship integration is customised to each investment strategy, resulting in diverse approaches to regions, sectors and portfolio construction. However, we do believe that there are guiding principles to a good integration approach. Hence, our best practice responsible investing is achieved by undertaking four mutually reinforcing strands of activity: advocating in the beneficiaries’ interest, active ownership via engagement, ESG integration, and behaving as a responsible firm.
EOS in-house stewardship team tracks progress and history via engagement portal
When researching investments, we only use third-party ratings at the initial research stage and, thereafter, carry out proprietary, transparent ESG analysis to conduct fundamental company research; this includes qualitative analysis of material ESG issues and also integration of any engagement insights from our in-house stewardship team. As part of our investment decision-making, we also benefit from stewardship insights to embed a forward-looking view in ESG analysis. Once we have invested in a company, we continue to monitor and engage on material issues including ESG, where relevant.
We do this by leveraging the engagement information that our in-house stewardship team, EOS at Federated Hermes, obtains in its engagement meetings with investee companies. As well as accessing EOS’ engagement portal – which includes the engagement history and progress against live objectives – portfolio managers attend engagement meetings with the engagers. The benefit of these joint meetings is substantial and results in more robust engagement that focuses on the relevant and material risks and opportunities including ESG.
Research is facilitated via tools for carbon, corporate governance, and environment
In addition to making use of third-party research which looks across a range of E, S and G factors, we also have a range of in-house proprietary tools which include:
- ESG Dashboard: Identifies stocks with positive ESG characteristics and/or stocks demonstrating positive ESG performance change.
- Portfolio snapshot tool: Assesses a portfolio’s ESG performance via ESG scores, controversies and effectiveness of engagement.
- Carbon tool: Enables fund managers and engagers to identify carbon risks in portfolios and companies that are or might become more exposed to carbon risks in the future; also incorporates stewardship activity and identifies companies that are priorities for engagement and their progress against objectives.
- Environmental Tool: Provides information on a portfolio’s and company’s temperature alignment and exposures to fossil fuels, mining, coal, carbon, pollutants, waste and water, and offers engagement activity and progress on environmental themes.
- Corporate Governance Tool: Provides information on board independence, diversity, audit tenure and more, and flags any companies that fall below our expectations.
Dedicated Responsibility Office evaluates level and quality of ESG integration by investment strategy using assessment matrix of 86 KPIs
Our dedicated Responsibility Office, led by the Head of Responsibility, reports to our CEO and hosts quarterly meetings with each of the investment teams to review and assesses their ESG integration approach using a matrix of 86 Key Performance Indicators across 28 sub-indicators, including:
- Investment process and philosophy – how well the team understands material ESG factors for its universe and how they stay abreast of developments, where in the process the team integrates ESG and stewardship insights and how this impacts investment decisions to the benefit of clients and their investors.
- Communication – how clearly the team articulates – for clients and their investors – the ESG and stewardship approach of an investment strategy, and how it reports on its ESG performance.
- Advocacy – how actively the team is involved in initiatives in clients and their investors’ interests, both internally and externally, on ESG themes as well as ESG and stewardship integration in asset management.
The value of investments and income from them may go down as well as up, and you may not get back the original amount invested.
Issued and approved by Hermes Investment Management Limited which is authorised and regulated by the Financial Conduct Authority. Registered address: Sixth Floor, 150 Cheapside, London EC2V 6ET.