Our ESG toolkit is three-pronged and focuses on data, materiality and engagement as the means by which ESG factors are integrated into our investment research and ownership processes.
Data Analytics - For company-level research, our investment teams use proprietary ESG Dashboards and Governance tools to evaluate corporate issuer ESG exposure and momentum. Our ESG Dashboard provides a concise digest of ESG data, incorporating research from leading ESG providers including MSCI, Sustainalytics, Trucost, Bloomberg, ISS and CDP, and includes EOS at Federated Hermes (EOS) voting and engagement information. A valuable component of the ESG Dashboard is the QESG score, a proprietary ranking developed by Hermes over a decade ago covering over 12,000 global securities. The score captures how well a company manages ESG risk versus its peers and monitors ESG momentum, showing the trajectory of progress in managing those risks. Investment teams can use the proprietary rating, both the overall composite QESG score as well as individual E, S, or G pillar scores, to go deeper into a particular E, E, or G risk which may be increasing or decreasing in its impact to the company. Our Governance Tool is multidimensional, assessing a company across measurable governance metrics and flagging outliers and discrepancies. Investment teams find these governance analytics as highly complementary to their company ESG diligence by allowing them to focus on areas where a firm falls short on our governance expectations and industry best practices.
In addition to the ESG Dashboard which aids in company-specific due diligence, investment teams are equipped with multiple portfolio-level ESG analytics. Our suite of proprietary portfolio tools include a Portfolio Snapshot, Carbon Tool, and Engagement Measurement. The Portfolio Snapshot tool analyses all holdings using our proprietary QESG score which can be viewed in a historical time series on an absolute level and relative to a fund's benchmark. Our highly differentiated ESG Engagement Analytics allow us to measure portfolio-level engagement coverage by EOS, specific E, S, and G themes of engagement focus, and quantify ESG momentum being made by portfolio holdings.
Materiality - Research is focused on financially material ESG risks and opportunities in each industry. An in-house materiality assessment is especially important for strategies with limited and low quality ESG data coverage, i.e.. High Yield, Municipals, and Emerging Market segments. Identifying financially material factors requires both primary fundamental research and external sources such as sell-side research and industry-specific sources. IN 2018 Federated joined the Sustainability Account Standards Board (SASB). SASB has developed a complete set of standards for 77 industries, focusing on ESG and sustainability risks that are financially material to each industry sector. Federated Hermes has multiple representatives on the SASB boards and working groups including our Director of Responsible Investingand Director of ESG Integration. All of our investment teams have access to SASB materiality maps through a centralized ESG hub that houses SASB materiality matrices, proprietary ESG portfolio tools, ESG third-party data and EOS corporate engagement database.
Engagement - Investment teams have access to unique ESG insights about a specific issuer through EOS dedicated engagers. EOS is a pioneer in active engagement and stewardship with over a 15 year track record. Our team of active engagers are ESG subject-matter experts with direct access to corporate boards and executives providing a unique vantage point to evaluate and monitor the ESG progress and momentum of a corporate issuer. They possess deep knowledge of ESG themes and materiality in the industries and companies they cover, providing meaningful insight into an issuer's willingness to managing their ESG risks within the context of an enterprise's long-term strategic plan.
Each corporate engagement has specific objectives based on material ESG issues and every interaction with the company is documented in the EOS database. In order to measure progress, every key environmental, social, governance and strategic engagement theme is traced using our proprietary milestone system. As a company makes a deeper commitment to positive change during their collaborative dialogue with our active engagers, their ESG momentum becomes measurable in the EOS database. Advanced Engagement Analytics measure engagement progress based on quantifiable milestones providing a proof statement of forward-looking and intentional ESG integration.