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

PRI reporting framework 2020

You are in Strategy and Governance » Objectives and strategies

Objectives and strategies

SG 05. RI goals and objectives

05.1. Indicate if and how frequently your organisation sets and reviews objectives for its responsible investment activities.

05.2. Additional information. [Optional]

Since the establishment of the Responsible Investing Office, objectives for responsible investment activities across the firm are reviewed on a monthly basis and more often if needed.  The Head of the Responsible Investing Office meets weekly with the CEO of the Federated Advisory Companies to review current initiatives underway and those still in planning. 


SG 06. Main goals/objectives this year

06.1. List the main responsible investment objectives that your organisation set for the reporting year.

Responsible investment processes

Key performance indicator

          Delivery of education to investment teams on materiality and relevancy of ESG factors and deliver proprietary tools for incorporating ESG into investment frameworks.
        

Progress achieved

Federated Hermes' Director of Responsible Investing and the Head of ESG Integration at Federated Hermes International work continuously with investment teams to educate them on how to best use the proprietary company-and-portfolio-level tools within their fundamental research process and for integrating ESG information into their investment theses.  Over the past year, we have expanded our centralized ESG data hub to be a robust repository of third-party and proprietary ESG data and research. It houses our suite of proprietary tools which include an ESG Dashboard and proprietary QESG score, a Portfolio Snapshot, Carbon Footprint and Engagement Measurement. The hub also houses engagement insights from EOS, our engagement and stewardship arm.  All teams are developing a methodology for incorporating ESG into their strategy frameworks.  For several strategies such as high yield, municipal and emerging market, where neither external nor proprietary ESG data coverage is widely available, investment teams have developed their own proprietary frameworks, specific to their strategy, for incorporating ESG into their fundamental research and ownership processes.

Key performance indicator

          Delivery of education on ESG engagement themes and their impact on corporate strategic risk.
        

Progress achieved

Our EOS expert engagers are regularly leading seminars for investment staff focusing on various topics such as Climate Change, Human Capital Development, Oil & Gas, and Pharmaceuticals.  Investment teams and EOS have collaborated on joint engagements when addressing portfolio companies' ESG and long-term strategic issues.  Investment teams have access to EOS engagement history and insights via the ESG information hub. The hub houses EOS current and historical client engagement discussions as well as client progress toward agreed upon E,S, and G objectives. Investment teams have access to proprietary ESG Engagement Analytics which identify EOS coverage and progress at the portfolio level. 

 

Key performance indicator

          Establishment of Responsible Investing Office to function as focal point for communicating ESG information throughout the organization.
        

Progress achieved

The Responsible Investing Office (RIO) now serves as a hub for directing and coordinating the firm's ESG activities and communications.  Its first priority has been ESG integration within the investment process for which its Director of Responsible Investing serves as the lead.  As clients and prospective clients have become increasingly aware of Federated Hermes' responsible investing initiatives, RIO has worked closely with the firm's communications, product management, corporate training and development, RFP, and sales and distribution departments to communicate about ESG integration initiatives and progress within the firm. RIO is supporting the development of educational and marketing materials on the topic of ESG integration which are used both internally for training and education as well as externally for financial advisers and investors.

Rio has also worked closely with our sales and distribution teams on the role of engagement in the ESG integration process and specifically the unique approach taken by EOS in engaging clients in meaningful, long-term, objective-focused E, S, and G goals.  At the firm's  recent global sales conference, EOS was a major focus with presentations and breakout sessions focused on engagement and how EOS intersects with investment teams, fundamental research and active ownership.

Key performance indicator

          Deliver tools and resources to investment teams that will improve engagement dialogue around ESG issues.
        

Progress achieved

Investment teams now have access to multiple resources, both third-party and proprietary, that vastly increase the knowledge that portfolio managers have regarding ESG issues and their portfolio companies.  These include ESG data from key industry sources such as SASB materiality matrices, MSCI and Sustainalytics research and ratings data and from proprietary resources, which provide portfolio-level insights into ESG profiles of investee companies with regard to ESG risk and momentum, carbon emissions, governance and engagement coverage by our in house engagement and stewardship division, EOS, as well as the particular E, S, and G themes that are the focus of their engagements.  This knowledge has led to more robust discussions and engagements with portfolio companies about their ESG policies and practices and about those which our portfolio managers believe may impact the long-term strategic direction of the enterprise and accordingly warrant meaningful discussions regarding the management of those issues.

Key performance indicator

          Delivery of a method for measuring progress of ESG integration across investment teams and asset classes.
        

Progress achieved

The Responsible Investing Office (RIO) has implemented an ESG integration progress report customized for every investment product, across all asset classes firm-wide.  Twelve distinct integration performance indicators are formally tracked by the Director of Responsible Investing and Director of ESG Integration International on a monthly basis.  All ESG integration reports are presented to division CIOs, CEO of Federated Advisory Companies, and executive management on a quarterly basis.

RIO has worked diligently with all investment teams to identify and customize in-house, strategy-specific frameworks for incorporating ESG factors into their fundamental research and credit process. This has been accomplished through frequent one-on-one meetings with teams to provide asset class, sector materiality, engagement and portfolio integration best practices from relevant sources: ESG Dashboard containing proprietary ESG data and research; MSCI and Sustainalytics research and data as well as their respective methodologies; SASB materiality matrices and sector "deep dives"; and EOS-led  seminars which focus on key engagement topics.  All investment teams can access the robust Federated Hermes ESG hub which houses proprietary and third-party ESG data, EOS engagement database by covered company, and portfolio-level ESG engagement tools.

 

Financial performance of investments

Key performance indicator

          Broadly held view by investment teams that ESG factors can be used as a risk mitigation tool.
        

Progress achieved

We believe our investment teams gain an information edge through the combined third-party and proprietary ESG resources that are now available to them.  Accordingly, investment teams acknowledge that the additional lens of ESG can, alongside other quantitative and qualitative metrics, enhance the ability to evaluate a company or issuer, which in turn helps mitigate risk.  As an example, Federated Hermes credit teams have woven ESG data into their proprietary credit analysis process, adjusting the overall credit score to reflect their assessment of how significant the ESG risks are for a given issuer and security.  ESG risk scores are now incorporated into the firm-wide Investment Risk Managment Committee meetings.

ESG characteristics of investments

Other activities

Key performance indicator

          Federated is initiating and participating in organizations that support RI initiatives.
        

Progress achieved

  • Federated attended its first PRI In Person and maintains memberships in SASB, CDP, CII and RIA. Federated's Director of Responsible Investing is a member of SASB Standards Advisory Board focusing on the Healthcare Sector. 
  • Federated hosted a client symposium in New York City on how fiduciaries subject to U.S. trust law can use ESG investment approaches within client/beneficiary portfolios. 
  • Federated's Head of Responsible Investing Office participated as a panelist in a Pittsburgh-based symposium to foster sustainable regional real estate and infrastructure development and incorporate ESG considerations into pension-related investments.
  • Federated's Director of Responsible Investing serves as an Adjunct Professor of Sustainable Finance at the University of Rochester Simon Business School in New York.  In his professorship he supervises ESG academic research and lectures in sustainable finance to MBA and Masters level students. He also serves on the advisory board of the New York State Pollution Prevention Institute, a leading corporate environmental stewardship initiative.
  • Federated is a member of the ICI, the leading association representing regulated funds globally.  Federated is a member of its ESG Task Force which is focused on global policymaking activity around issues related to ESG/sustainable investing that impact asset managers and regulated funds.

 

Key performance indicator

          Publish engagement case studies via Federated Hermes website.
        

Progress achieved

EOS engagement case studies are regularly provided on the Federated Hermes website.

other description (1)

          Take a leadership role within the investment community regarding the role of ESG in liquidity products, an asset class not usually associated with ESG integration.
        

Key performance indicator

          Outreach to the broader investment community
        

Progress achieved

  • Our CIO of Liquidity was a featured speaker at three different investment conferences hosted by global financial institutions regarding the integration of ESG factors in liquidity products.
  • A publicly-available white paper was jointly developed by Federated Hermes Head of Responsible Investing, CIO of Liquidity, and Director of ESG Integration International on the applicability of ESG factors within liquidity products.  The paper focused on the relevance of incorporating ESG factors into the credit analysis of corporate issuers even for short-term debt instruments despite ESG considerations more often thought of as long-term factors.

06.2. Additional information.


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