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ESG and Corporate Engagement: The ties that bind

EOS, a stewardship service provider for Federated Hermes clients, enables long-term institutional investors to be more active owners of their assets, through dialogue with companies on environmental, social and governance (ESG) issues. We believe this is key to building a global financial system that can deliver improved long-term returns for investors, as well as better, more sustainable outcomes for society.

EOS was launched in 2004 by the international business of Federated Hermes. It offers engagement, voting, public policy, screening and advisory services, to help clients fulfill their stewardship obligations.

Corporate engagement seeks to realize the long-term value of investments by improving a company’s performance and sustainability. To implement an effective engagement program, Federated Hermes and its clients have access to EOS – an industry-leading stewardship service provider. EOS engages with hundreds of portfolio companies on behalf of its clients on a multitude of ESG issues.

EOS seeks to address the most material ESG risks and opportunities through a constructive, objectives-driven and continuous dialogue.

The EOS Advantage

Investors’ consideration of ESG factors in their investment processes is relatively new by historical standards, but has moved rapidly in the past decade, especially outside the United States. No matter where an investor is positioned along the line from negative screening through impact investing (relative to their specific goals), Federated Hermes believes that engagement is key to creating long-term value.

Since 2004, the international business of Federated Hermes and its clients have relied on one of the industry’s oldest stewardship service providers – EOS. With assets under advice of  U.S.$877 billion (as of 31 December 2019), EOS builds on the long history of Hermes Investment Management as a sustainable investment manager. For example, in 2006, the international business of Federated Hermes was a founding signatory and chaired the working group that drafted the United Nations Principles for Responsible Investment (PRI). PRI signatories now represent approximately  U.S.$90 trillion.

So, what do we mean by engagement, and why is it meaningful in an investment process? EOS engages with companies to seek positive change for the companies themselves, for those investing in the companies and for the societies in which they operate. Federated Hermes believes that effective engagement will consider material ESG risks and opportunities, a company’s ability to create long-term shareholder value and the prospects for an engagement’s success. Our goal is to help people invest better, retire better and create a better society for all.

The Responsible Ownership Principles developed by the international business of Federated Hermes, outline what corporate engagement means in practice and cover corporate culture, transparency and communication, business strategy, financial disciplines and risk management, governance, and stakeholders, including the management of environmental and social issues.

But corporate engagement is just one service offered by EOS. Its voting service makes recommendations that are, where practical, engagement-led and involve communicating with company management and boards around the vote. This helps to ensure that its rationale is understood by the company and that its recommendations are well-informed and lead to change where necessary.

In the first half of 2019 alone, EOS recommended voting at almost 8,000 meetings globally, covering about 89,400 resolutions. During this period, the team made at least one voting recommendation against management at the majority (64%) of these meetings.

EOS also engages with legislators, regulators, industry bodies and other standardsetters to shape capital markets and the environment in which companies and their investors operate.

Past performance is no guarantee of future results. There is no guarantee that any type of investment approach will be successful.

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