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Federated Hermes, Inc. (formerly Federated Investors, Inc.)

PRI reporting framework 2020

You are in Direct - Listed Equity Active Ownership » Engagement


LEA 02. Reasoning for interaction on ESG issues


02.4. 補足情報[任意]

LEA 03. Process for identifying and prioritising engagement activities


03.1. 貴社にはエンゲージメントを特定し、優先順位を付けるための正式な手順がありますか。





03.3. 補足情報 [任意]

Our stewardship team, EOS, has clear and well-established protocols for how to identify engagement issues, to escalate an engagement and to measure an engagement's effectiveness. We develop corporate engagement objectives initially at the thematic and sector level based on a 'top-down' understanding of relevant thematic and sector risks. These are then reconsidered at the company level ('bottom up') for materiality and feasibility, together with our company-specific knowledge on how well the risks are being managed. We then plan our approach to engagement, including how best to develop existing and new relationships with corporate representatives, seeking always to develop our relationships with the most senior management and board members where possible.

Engagements with companies will normally relate to longer-term strategic, environmental, social or governance issues. Generally our engagement activity becomes more active where we believe:

  • engagement will lead to an increase in the value of a company over the long term; and/or,
  • engagement will prevent or limit a decrease in the value of a company over the long term
  • engagement will address an externality that the company produces and thereby enhance the company's social license to operate

In prioritizing engagements and determining whether and how the engagement is taken forward, due regard is given to:

  • the level of the company's exposure to the issue at hand (materiality);
  • the likelihood of engagement success and potential to bring about positive change; and,
  • the value of our clients' ownership of the company (value at risk).

Such considerations are based around an assessment of the likely impact of the engagement and the ultimate benefit to the value of the underlying holding. Each engagement is subsequently given an appropriate intensity tiering.

Our rolling three-year engagement program is developed annually in conjunction with our investment teams and EOS clients and reflects evolving changes in the market and regulatory environment in different countries and sectors.

In 2019, EOS engaged with 366 companies as part of its engagement plan and a further 677 companies where engagement opportunities were identified on an ad hoc topic.  

Our engagement team is organized by a combination of thematic, sector and geographic responsibilities, as some environmental, social and strategic business issues share sector characteristics, whereas governance and stewardship principles often display country-specific differences.

EOS regularly engages companies collaboratively with other investors on material ESG issues.  This usually happens through networks such as, for example, the PRI, IIGCC, Climate Action 100+, GIGN, ICGN among others.

LEA 04. Objectives for engagement activities


04.2. 補足情報 [任意]

For the purposes of this response, we are classifying “engagement activities” as those with companies where we have a specific objective for change at the company or particular issues we want the company to improve on. We will also see other companies to discuss issues of a strategic (including ESG) nature where it is not relevant to have specific engagement objectives. In 2019, our stewardship team, EOS, engaged with 1,043 companies on 2,854 environmental, social, governance, strategy, risk and communication issues and objectives.

Our stewardship team conducts engagements using specific milestone-driven objectives for most companies in its engagement program.

We annually review, develop and publish a rolling three-year engagement plan. There are many companies with which we will engage through the year that sit outside of our formal engagement plan; these will relate to issues around voting at general meetings, as well as in reaction to events that cannot be predicted in advance. With respect to the companies globally within the engagement plan, in line with clients' wishes, EOS' intensive engagement will focus on the largest aggregate holdings, the egregious issues and where there is a higher likelihood of results from more intensive engagement. There will be companies on the engagement plan that have no explicit engagement objectives but may instead be engaged on particular issues. 

The reason for interacting with other companies may be to simply ensure that the largest aggregate client holdings are covered by stewardship activity and thus subject to regular monitoring. We will only set a specific engagement objective when it is relevant to do so.  It is a relevant and important stewardship activity as a responsible owner to engage with the company on relevant ESG and other issues.

Those companies with more material environmental, social and governance issues and/ or a greater potential for change are engaged with more intensively, using the following categorization:

Tier 1 - Companies that typically represent more material client holdings in terms of value, have significant environmental, social or governance issues and have the potential for change through engagement. We plan for a minimum 5 interactions per year.
Tier 2 - Typically large companies with less serious risk profiles, which justify setting a number of engagement objectives where success may be achieved with less frequent interaction. We plan for 3 to 5 interactions per year.
Tier 3 - Companies representing significant client holdings but with generally lower risks so that we focus on engagement issues, instead of setting specific engagement objectives. We plan for 1 to 2 interactions per year.

Measuring and monitoring progress on engagements is carried out by setting clear engagement objectives and systematically using the system EOS pioneered of measuring progress against four milestones. These are:

  • the raising of the issue with the company or other relevant third party, (Milestone 1)
  • recognition by the company or relevant third party that the concern is valid, (Milestone 2)
  • a plan to address the particular issue and (Milestone 3)
  • successful delivery of the objective. (Milestone 4)

We consistently review the progress we are making against these objectives, and our proprietary engagement database allows us to maintain a clear record of our activities and progress consistent with our four-step milestone approach.

We escalate the intensity of an engagement activity over time, depending on the nature of the challenges each company faces and the attitude of the board towards our dialogue, and as a result a company's intensity tiering may change. Some engagements may involve just one or two meetings; others are more complex and will entail multiple meetings with management and board members over several years. Such activity often requires persistence.

To maintain the quality of our engagements we have established a quality assurance program through which three directors hold regular sessions with each engager to review and challenge the quality of their engagements.


LEA 05. Process for identifying and prioritising collaborative engagement


05.3. 補足情報[任意]

EOS monitors the progress of our collaborative engagements in the same way we monitor our direct engagements, as described above in LEA 04.2.

EOS reports quarterly and annually on the number of engagements undertaken; these are broken down by themes and further still by sub-themes. EOS does not categorize each of its engagements into either collaborative or individual/staff engagements.

Measuring and monitoring progress of our engagements is achieved by setting clear engagement objectives and systematically assessing progress against four milestones. These are:

•          Milestone 1: Concern raised with company

•          Milestone 2: Acknowledgement of the issue

•          Milestone 3: Development of a credible strategy to address the concern

•          Milestone 4: Implementation of a strategy or measures to address the concern

EOS seeks to ensure that, so far as possible, our objectives are SMART - specific, measurable, achievable, relevant and time bound - with each objective taking on average three years to achieve. Where we engage on an issue that does not meet the 'SMART' criteria, then we set an engagement issue rather than objective and track our interactions against the issue accordingly.

LEA 06. Role in engagement process

06.1. エンゲージメントが不首尾に終わった場合のエスカレーション戦略があるか示してください。

06.2. 不首尾に終わったエンゲージメントの後に貴社が用いるエスカレーション戦略を示してください。

06.3. 補足情報 [任意]

Our stewardship team, EOS, continually reviews the progress of its engagements and considers whether to intensify efforts and escalate the engagement or discontinue the objectives as the situation demands. The team keeps us informed of the progress through extensive reporting as well as direct access to the client portal and the engagement management system.

We escalate the intensity of an engagement activity over time, depending on the nature of the challenges each company faces and the attitude of the board towards our dialogue. Some engagements may involve just one or two meetings; others are more complex and will entail multiple meetings with management and board members over several years. Such activity often requires persistence. Our long-term perspective enables us to persist with these difficult and time consuming engagements.

Our engagements with companies may involve at various junctures:

  • meetings with executive and non-executive directors;
  • meetings with other company representatives;
  • discussions with other shareholders of the company;
  • participation in collaborative investor initiatives;
  • discussions with other relevant stakeholders such as industry representatives, the regulator, customer groups, etc; and,
  • attendance at and/or submission of shareholder resolutions at shareholder meetings.

With all engagements, we seek to build a strong relationship with the company and are willing to be patient, remaining focused on the achievement of goals that are directed towards long-term success.

Please note, we may refrain from taking certain of the actions identified above in 6.2 when it may trigger certain regulatory requirements. 

LEA 07. Share insights from engagements with internal/external managers

07.1. 貴社のエンゲージメントから得た知見を投資意思決定者と共有しているか示してください。




07.2. エンゲージメントにより得た情報および知見を投資意思決定者と確実に共有するために用いている慣行を示してください。

07.3. 貴社のエンゲージメントから得た知見を顧客/受益者と共有しているか示してください。


07.4. 補足情報[任意]

The EOS stewardship team works closely with our global investment teams to ensure that our approach to stewardship is joined up with our active investment approach across asset classes, geographies and strategies. All of our investment teams have access to the EOS client portal and the engagement management system. Thus, all relevant information about ongoing and historic engagements can be accessed by the investment teams instantaneously. The Responsible Investing Office works with both the investment and stewardship teams to facilitate effective co-ordination and information sharing.

EOS retains a 15-year repository, and detailed notes from all relevant engagement meetings are available to our investment teams where they have a holding through the EOS reporting portal.  Furthermore, members of our investment teams join engagement meetings with their stewardship colleagues from EOS, as we believe that the benefits of these joint interactions are substantial in terms of enhanced engagement focusing on the relevant and material ESG risks in investment decisions.

In addition, all Federated Hermes investment teams are equipped with proprietary company-level and portfolio-level ESG and engagement tools:

ESG Dashboard provides streamlined access to a wide breadth of ESG research from a range of external providers (MSCI, Sustainalytics, Trucost, Bloomberg, ISS, etc.) combined with proprietary data from EOS.  The Dashboard facilitates an easy digest of a company's ESG profile, momentum and EOS engagement overview. 

Carbon tool delivers company-level and portfolio-level insights into the engagement activities that specifically focus on environmental topics and climate change.  Our portfolio managers use this tool to evaluate a strategy's ESG performance over time by providing information on the carbon intensity of the portfolio.

Portfolio Snapshot Tool allows us to observe the aggregate ESG risks across our portfolios relative to their benchmarks.  It houses measurable portfolio-specific insights into engagement: the companies we are engaging with; the ESG themes we are engaging on; and the progress we have made on current engagements.

All investment teams have access to the tools described above, as well as regularly interacting with the relevant sector or regional lead within EOS to better understand the ESG issues within their investment universe. The latter can be most useful as often the information gained through proactive engagement is able to help the portfolio manager discern whether a particular ESG issue is material and verify a company's progress.  As a result, portfolio managers are well equipped when directly interacting with investee companies as part of their ongoing due diligence.  We believe the unique combination of fundamental and ESG engagement provides a more comprehensive understanding of a company's structural risks and opportunities.  Therefore, to implement an authentic and intentional ESG integration approach, we believe that it is of utmost importance that engagement information needs to be an integral component of ESG research.

Federated Hermes clients retain multiple points of access to engagement communications.  During quarterly attribution meetings, clients are updated on insights gleaned from fundamental and ESG engagements.  The primary vehicle for sharing engagement insights is through our formal annual reports, quarterly reviews and monthly thematic profiles systematically published by EOS and publicly available on our website.


LEA 08. Tracking number of engagements

08.1. 貴社がエンゲージメントの数を追跡しているかどうかを記載してください。



08.2. 補足情報[任意]

Our stewardship team, EOS, reports quarterly and annually on the number of engagements undertaken; these are broken down by themes and further still by sub-themes. Given that our investment teams have instantaneous access to the stewardship team, the engagement reporting portal, and the engagement management system, they can follow the engagements in real time, see how engagement unfolds, how much progress is being made on the engagements and when an engagement has been successfully completed. 

Federated Hermes has a formal process to track engagements conducted by the Proxy Voting Operations Team.  The outcomes of meetings between portfolio managers and companies are shared with members of their investment teams.  Individual investment teams meet regularly with investee companies over the course of each year as an integral part of their fundamental research process and ownership responsibilities.  In 2019, Federated Hermes equity teams conducted over 2700 engagement meetings with investee or prospective investee companies to discuss financially material issues, including governance, environmental and social concerns.