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

PRI reporting framework 2020

You are in Strategy and Governance » Governance and human resources

Governance and human resources

SG 07. RI roles and responsibilities

07.1. Indicate the internal and/or external roles used by your organisation, and indicate for each whether they have oversight and/or implementation responsibilities for responsible investment.

Roles

Select from the below internal roles

          Head of Responsible Investing Office
        

Other description (1)

          Risk Management and Proxy Committees
        

07.2. For the roles for which you have RI oversight/accountability or implementation responsibilities, indicate how you execute these responsibilities.

Work continues across the firm to more deeply ingrain the role of RI research within the investment decision process across all asset classes.  Education and training on ESG data resources and their application for portfolio managers and analysts continues through our Head of Responsible Investing Office, Director of Responsible Investing and Director of ESG Integration International. Frequent interactive meetings and presentations are provided to all investment staff relating to sector engagement topics and materiality assessments, themes that cross sectors and asset classes, and individual company assessments.  Additionally, investment teams individually present their integration strategies for assessment on a regular basis. The CEO of Federated Advisory Companies meets regularly with Federated Board members to provide updates on formal ESG integration progress reports for all investment teams and overall responsible investing initiatives within the company.      

Federated's Proxy Voting Committee analyzes proxy issues and develops voting guidelines with the mission of voting in the best interest of long-term value creation for shareholders.  The Proxy Voting Committee meets regularly (at a minimum twice a year) to review its proxy voting guidelines and more frequently if needed.  The rapid expansion of environmental and social data and the increased importance of these factors within the governance framework has resulted in the Proxy Voting Committee periodically amending our policies to address additional environmental and social issues.  Federated's Proxy Voting Committee also oversees the engagement activities of the Proxy Voting Operations Team by providing input on which investee companies to engage with as well as which topics should receive attention.  

The Federated Hermes Responsible Investing Office, in collaboration with the Risk Management Committee and Portfolio Attribution division have created various mechanisms for measuring ESG risk and performance.  Using advanced statistical modeling and factor-based software applications we are able to quantify the active ESG risks our various investment portfolios are exposed to relative to their benchmark and category peers ex-ante.  On a quarterly basis, the Risk Management Committee meets to review product performance which includes a dedicated and systematic assessment of material ESG risk exposures.

07.3. Indicate the number of dedicated responsible investment staff your organisation has.

45 Number

07.4. Additional information. [Optional]

Responsible Investing Office - 5

  • There are 5 individuals who are dedicated responsible investment staff and who form our Responsible Investing Office (RIO).  RIO was created to serve as an ESG focal point within the firm, providing the infrastructure to support ESG  initiatives across the firm.  Our Responsible Investing Office is focused on the integration of ESG issues and engagement within our investment and proxy voting processes, extending our support of responsible initiatives to the broader investment community, and to support ongoing ESG education of our employees, clients, and the broader public.

EOS at Federated Hermes - 40 

  • Our engagement and stewardship arm, EOS at Federated Hermes, provides one of the largest engagement resources of any fund manager in the world. The team is composed of individuals with a diverse mix of backgrounds, skills and perspectives and has been at the forefront of the development and evolution of responsible investment practices globally.  EOS works closely with investment teams to provide unique and relevant insights about investee companies' and their ability to progress towards agreed-upon ESG objectives.  Importantly, their expertise on E, S and G issues are shared regularly with investment teams through our ESG information hub, seminars/webinars, collaborative engagements and direct conversation.


SG 07 CC. Climate-issues roles and responsibilities

07.5 CC. Indicate the roles in the organisation that have oversight, accountability and/or management responsibilities for climate-related issues.

Board members or trustees

Chief Executive Officer (CEO), Chief Investment Officer (CIO), Chief Risk Officer (CRO), Investment Committee

Other Chief-level staff or heads of departments

Portfolio managers

Investment analysts

Dedicated responsible investment staff

Investor relations

Other role, specify (1)

          Risk Management and Proxy Committees
        

07.6 CC. For board-level roles that have climate-related issue oversight/accountability or implementation responsibilities, indicate how these responsibilities are executed.

Board-level roles have responsibility for and oversight for any issue which can present material risk to the firm and its strategies.  ESG integration risks are reported regularly to the Board as a component of enterprise risk.

Saker Nusseibeh, CEO of Federated Hermes International, is a Board member. He is founder of the 300 Club, an inaugural member of the CFA Institute's Future of Finance Advisory Council, member of the IIRC Council, the FCA-PRA Climate Financial Risk Forum, the United Nations Environmental Programme Financial Initiative Steering Committee, the Banking Standards Board and the UK National Advisory Board on Impact Investing.

07.7 CC. For management-level roles that assess and manage climate-related issues, provide further information on the structure and processes involved.

CIOs ultimately oversee the judgments made by their investment teams about security selection and portfolio construction within the framework of a strategy's investment objective.  The portfolio managers and analysts that report to the CIOs are responsible for assessing as part of their fundamental research process material ESG factors, which include climate-related issues that have the potential to financially impact a security, whether the timeframe is short, medium or long term.  Across all asset classes, portfolio managers and analysts assess a security based on fundamental quantitative metrics and also non-quantitative metrics, including relevant ESG factors.  Investment teams are incorporating ESG data and research, such as MSCI ratings and proprietary QESG scores of covered companies, into the framework of their credit and stock selection processes.  Investment teams and the CIOs to whom they report, now apply the added lens of ESG factors as additional insight into the risks a company or issuer may be exposed.

As part of our assessment and management of climate-related issues, our investment teams have access to the Carbon Tool, developed by the international business of Federated Hermes.  Carbon Tool: Our Carbon Tool, launched in 2018, enables fund managers and engagers to identify carbon risks in listed investment portfolios and specific companies that are or might become more exposed to carbon risks in the future.  Importantly the tool incorporates our stewardship activity and intelligence and is able to identify companies that are priorities for engagement and their progress against objectives.  This tool evaluates the impact that investment funds have on the climate by:

  • Measuring carbon risk and footprint of an investment fund relative to its benchmark as well as listed companies relative to their peers, including Scope 1, 2 and 3 emissions.
  • Calculating the value at risk for an investment fund according to different carbon pricing and policy scenarios.
  • Identifying companies with which carbon-focused engagement should be initiated or intensified.
  • Gauging the level of carbon risk being engaged on within portfolios -- and progress achieved.

SG 08. RI in performance management, reward and/or personal development

08.1. Indicate if your organisation’s performance management, reward and/or personal development processes have a responsible investment element.

Board members/Board of trustees

08.1b. RI in personal development and/or training plan

08.2. Describe any activities undertaken during the reporting year to develop and maintain Board members’ skills and knowledge in relation to responsible investment.

Multiple presentations have been provided to the Board related to responsible investing including a formal ESG integration progress report for each investment team across all asset classes. Education on the depth and breadth of ESG factors and active engagement have been featured along with the importance of these factors and their contribution to a more positive risk reward profile of our investment portfolios.  A presentation was made by Federated's Head of Responsible Investing Office and the Director of Responsible Investing to one of our independent director's own company board of directors to educate them on sustainable investing, ESG materiality, and what responsibilities boards have in understanding and implementing RI initiatives within their own  companies. 

Chief Executive Officer (CEO), Chief Investment Officer (CIO), Chief Operating Officer (COO), Investment Committee

08.1a. RI in objectives, appraisal and/or reward

08.1b. RI in personal development and/or training plan

Other C-level staff or head of department

          Head of Responsible Investing Office
        

08.1a. RI in objectives, appraisal and/or reward

08.1b. RI in personal development and/or training plan

Portfolio managers

08.1a. RI in objectives, appraisal and/or reward

08.1b. RI in personal development and/or training plan

Investment analysts

08.1a. RI in objectives, appraisal and/or reward

08.1b. RI in personal development and/or training plan

Dedicated responsible investment staff

08.1a. RI in objectives, appraisal and/or reward

08.1b. RI in personal development and/or training plan

Other role (1) [from SG 07]

          Risk Management and Proxy Committees
        

08.1a. RI in objectives, appraisal and/or reward

08.1b. RI in personal development and/or training plan

08.3. Provide any additional information on your organisation’s performance management, reward and/or personal development processes in relation to responsible investment.

Every Federated Hermes employee is committed to conducting business in accordance with the highest legal and ethical standards. At the highest levels of the firm a commitment has been made to make responsible investing an integral part of our corporate culture. Our firm has introduced a corporate pledge which is intended as a clear signal of what we aspire to embody and is the foundation of our commitment to always put clients and beneficiaries first and to act responsibly and transparently (https://www.federatedhermes.com/about/).  Because we are an investment management firm and investment products are our key output, the firm's focus has been to ensure that our investment teams have the best ESG tools and resources available to them for integrating ESG considerations, as appropriate, into their investment decision-making and valuation processes. 

Federated's Director of Responsible Investing, working in tandem with the Director of ESG Integration International, has as his primary responsibility the continuing education of investment teams about ESG issues and building those factors into the framework of their investment processes.  Together with Federated Hermes International, Federated has implemented a program of continuing education with a focus on sectors, industries, themes and investment analyses which enhance the portfolio manager's ability to identify material factors that may influence the risk assessment of a company and provide forward looking views of its sustainability.  Investment teams are also provided with training on ESG integration tools such as the Carbon Tool, corporate governance tool and EOS engagement analytics, our ESG Dashboard as well as materials available from SASB, MSCI and Sustainlytics. The CIOs now have ESG integration progress in their performance appraisal goals and are encouraged to identify specific opportunities within their asset classes that can be improved through the addition of material ESG factors.   This is considered part of the performance management process and is a factor in their variable incentive plan.

Federated Hermes has also undertaken responsible investing initiatives in other areas of the company reflecting a commitment to educating all of our employees and the public more broadly about  ESG issues.  We rolled out a Responsible Investing Center on our website which provides information about  ESG investing, case study examples, and thought leadership on stewardship and ESG integration.  For our employees, Federated offers online training materials, of which an ESG Academy is the centerpiece.  The Academy is accessible to all employees and educates employees about the fundamentals and evolution of ESG investing.  Federated leveraged that information to create and implement an online ESG training module for one of our largest clients.

 


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