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The international business of Federated Hermes (formerly Hermes Investment Management)

PRI reporting framework 2020

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ESG incorporation in actively managed listed equities

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities; and the breakdown of your actively managed listed equities by strategy or combination of strategies.

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
94 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
3 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
3 %
Total actively managed listed equities 100%

01.2. Describe your organisation’s approach to ESG incorporation and the reasons for choosing the particular strategy/strategies.

The International business of Federated Hermes Inc’s (“Federated Hermes”) mission is to help beneficiaries retire better and help create a better society. To achieve this, we aim to be the world's leading provider of long-term holistic returns for savers, thus creating value for all stakeholders in the financial system. We believe that long-term investment approach needs to encompass the consideration of longer-term risk factors alongside more traditional financial analysis. To us a responsible approach to investing means recognising the importance of the long-term health and stability of the markets in which we invest; analysing (and continuing to monitor) the ESG credentials of companies and assets in order to inform our investment decisions, and utilising our ownership rights in a considered and intelligent fashion to protect and enhance sustainable value. As such, ESG considerations and engagement are incorporated into the approaches of all of our investment teams.

Our ESG strategy is for all of Federated Hermes investment teams to incorporate relevant and material ESG information as well as relevant engagement insights directly in investment decision-making. It is incumbent on each investment team to ensure that appropriate engagement is being carried out either by the investment team or through our stewardship team EOS at Federated Hermes (“EOS”). Leading to a range of ESG performances in the portfolio but with a commitment through engagement to improve performance thereby reducing risk and exploiting value opportunities.

ESG aware

All investment teams incorporate ESG factors into their investment process by accessing in-house expertise, proprietary and third-party research and by undertaking their own fundamental research. Tools available include our proprietary ESG Dashboard, which provides a QESG Score per stock, the Portfolio Snapshot Tool, which provides a view of ESG performance at a portfolio level, the Carbon Tool, which provides the breakdown of the carbon emissions of the portfolio and the Corporate Governance tool, which highlights  key governance characteristics at the company and portfolio level.

Stock level

Our proprietary QESG Score captures how a company manages its ESG risks and whether it’s improving. This analysis is a valuable input to our investment decisions, as well as the ongoing monitoring of, and, if necessary, engagement with companies. We are cognisant, however, that quantitative ESG data has to be treated with care and necessitates thorough cleaning and reprocessing before being able to add value. We believe, therefore, that it must be complemented by a fundamental bottom-up review of ESG issues, leveraging our knowledge of and direct contact and engagement with companies.

Our proprietary Governance Tool provides our equity fund managers with incisive information with regards to the governance performance of current or future investee companies. The tool assesses a company along several significant governance characteristics, and flags those areas where the company falls short of our governance expectations for companies. Rather than providing yet another score, the tool helps our fund managers to focus their own, fundamental governance research on those areas where companies have a discrepancy compared to our governance expectations.

Portfolio level

The Portfolio Snapshot Tool allows us to observe the aggregate ESG risks across our portfolios relative to their respective benchmarks. It also examines ESG ratings and controversies and identifies contingent risks. 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 and our voting choices relative to the benchmark. In addition, it provides 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.

Our Carbon Tool uses greenhouse gas emissions data from TruCost to assess the carbon impact and associated climate risk of a portfolio, considering direct and indirect carbon emissions and its performance compared to industry peers. Combined with information on our stewardship activities with investee companies on mitigating their carbon exposure, this tool is cutting-edge in providing fund managers and engagers a direct assessment of a portfolio’s exposure to carbon risk and progress made in engagement to address the risk.

Both a quantitative and qualitative view

Engagement is an important part of our investment process because we believe that companies deserve a constructive relationship with committed shareholders. Our fundamental research benefits from the ongoing dialogue between our investment teams and our stewardship team. We invest time and resources to encourage companies to strengthen their governance, give our views on strategy, and encourage companies to take the long-term view, particularly on sustainability issues. The insights we glean from these interactions help us to better understand a company's complex strategic challenges. Our research shows that changes in ESG and effective engagement on ESG issues can deliver excess returns.

Independent oversight

All of the above is supported and overseen by our Responsibility Office.

The Investment Office provides a robust and transparent risk framework. On a look back, real time, and forward-looking basis the team actively monitors fund risk and helps to deliver sustainable risk-adjusted alpha, while acting as an early warning system to identify potential problem areas. It has overall responsibility for the consistency of performance and thus ensures that investment teams stay true to their processes, this includes oversight of ESG and engagement integration. Our Responsibility Office is tasked with coordinating and supporting the development of our policies and their subsequent integration across our funds and stewardship services. Regular meetings are held between the team and portfolio managers at which ESG issues relevant to the specific strategies – whether specific or market level – are discussed.

The Investment Office works closely with the Responsibility Office, both of which have an independent reporting line to our Chief Executive.

A consistent approach tailored for individual strategies

Our investment teams, taking advantage of the in-house data and resources available, adopts their own approach to integrate ESG considerations and engagement that is consistent with their investment philosophy and investment markets. In some cases, ESG factors can be a component of a screen, a source of ideas, an input into fundamental analysis, an adjustment to valuation drivers and/or a portfolio construction factor.

 

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

For clients with specific ethical or environmental beliefs, screening may be considered the desirable way to achieve their objectives. As such, we can adapt our investment approach for these clients.

For example, our Global Equity Screened ESG strategy combines screening with ESG integration to incorporate the client's philosophical aims and beliefs. Screening takes place at the portfolio modelling stage; ESG integration is applied from a risk management perspective.

Our Global Equity Low Carbon strategy seeks to limit exposure to companies that have a material exposure to the most carbon-intensive fossil fuels, including companies with revenues from coal, oil and natural gas up to certain revenue thresholds, including extraction, exploration and development.

We launched our first impact and UN SDG linked equity funds in late 2017 and early 2018 respectively. These strategies are a natural extension of Federated Hermes' longstanding commitment to responsible investing and our leading work in stewardship through EOS.


LEI 02. Type of ESG information used in investment decision

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

          NGOs
        

Indicate who provides this information 

02.2. Indicate whether you incentivise brokers to provide ESG research.

02.3. Describe how you incentivise brokers.

We have regular interactions with brokers through which we explain our investment processes and thus the types of research that will help inform our decisions.

02.4. Additional information. [Optional]

Research budgets are determined on an annual basis at a strategy or desk level, reviewed quarterly by the Investment Office with investment teams and based on numerous relevant factors.


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate whether your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

Federated Hermes' investment teams have access to information from both engagement and proxy voting activities on any stock in their investment universe.

Engagement:  Investment teams can access EOS' engagement portal, containing the history of any engagement with a company, any current engagement objectives and the progress being made against these live objectives. Portfolio managers can, and are encouraged to, attend engagement meetings with the engagers. The benefit of these joint meetings is substantial in terms of more robust engagement that focuses on the relevant and material ESG risks.

Voting:  Portfolio managers are informed in advance of upcoming voting recommendations by EOS and can factor this into their voting decisions.

Voting and Engagement is informed through our proprietary ESG tools such as the ESG Dashboard, Portfolio Snapshot, Carbon Tool and the Corporate Governance Tool. These tools provide information both at the portfolio and stock level.

Looking ahead, we will expand the suite of our ESG tools. We will build a tool using third party data to calculate transition risk related to climate change and map physical risks and also a tool to measure the impact of all of our equity investment strategies, irrespective of whether they are thematically driven or not.  


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

Our investment managers may exclude stocks based on specific client mandates and we operate a firm-wide exclusion policy with respect to cluster munitions and anti-personnel land mines.

In addition, the Hermes Global Equity Screened ESG portfolio does not invest in:

Companies identified by EOS as exclusion companies based on the manufacture and/or production of controversial weapons and/or tobacco products

Companies identified in EOS's Controversial Companies Report as having a High Severity rating for environmental and social risks and where engagement is deemed unfeasible

Companies generating 10% or more of their revenue from armaments, gambling or old growth logging

Companies that derive one-third or more of their revenues in high carbon-sensitive activities

High-risk nuclear power utilities

Other funds we manage have variants of this exclusion list. 

Screened by

Description

Some of Federated Hermes' strategies follow a best-in-class approach. The Hermes Global Equity ESG strategy is biased towards companies with favourable ESG attributes. The strategy embeds a proprietary ESG score within its investment process, ensuring a bias towards stocks with good ESG behaviours or positive change.

The strategy analyses companies on a large number of fundamental, economically-justified factors contained in the team's multi-factor Alpha Model and on ESG characteristics as measured by the team's proprietary QESG Score. The QESG Score captures how well a company manages its ESG exposure, as well as its trend in managing ESG risks. The QESG Score overly penalises badly-governed companies, thus helping the team to identify better behaving companies.

Federated Hermes also sub-advises a US-domiciled ESG-focused Global Emerging Markets mutual fund, which invests in companies that meet specified sustainability and corporate responsibility criteria. As well as excluding certain specified stocks, the strategy seeks to invest in companies whose products/services or industrial/business practices contribute towards addressing one or more global sustainability challenges in their local and/or international markets.

Screened by

Description

Hermes Global Equities uses the EOS Controversial Companies Report as a screen for their investible universe; this report pre-integrates the Global Compact and ILO conventions.

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

In the Hermes Global Equity Screened ESG strategy, the negative screening is client prescribed. The list is reviewed and confirmed on a quarterly basis with the client. The screening is an addition to the integration of ESG considerations, as informed by the ESG Dashboard and engagement knowledge, within the investment decision.

Any changes to the pooled funds would require prior communication with the investors, either in the form of a shareholder notification or approval and approval by the relevant regulator. 


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure ESG screening is based on robust analysis.

          Internal tools which are based on our internal expertise and a robust methodology
        

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

Federated Hermes employs its research partner Sustainalytics to ensure the screening of issuers is based on robust analysis. In addition, EOS analysts provide an independent engagement perspective to complement Sustainalytics' rigorous approach to company research, which ensures that the screening services provided to us are not only based on thorough research, but also take into account company circumstances and engagement considerations.

At Sustainalytics, comprehensive research is undertaken or sourced to determine issuers' ESG performance. Issuers are given the opportunity by Sustainalytics to review ESG research on them and correct inaccuracies. External research and data used to identify issuers to be excluded or included is subject to internal audit by its staff. Information on ESG issues and/or ratings is updated regularly to ensure that portfolio holdings comply with fund policies. A periodic review of the quality of the research undertaken and provided is carried out at Sustainalytics. For all of its company ESG research, Sustainalytics contacts companies directly and asks them to provide feedback on their company ESG report. This process aims to give companies an opportunity to provide Sustainalytics with additional inputs to some of their ESG management systems and policies and correct any potential inaccuracies. Furthermore, companies may also provide further clarification about specific company involvement, in particular controversial issues, and how these are managed.

Sustainalytics considers quality management of key importance. Its analysts have clear and detailed research guidelines across indicators and industries to inform their analysis. Its Quality Management System (QMS) ensures continuous monitoring and improvement while its QMS team, whose responsibilities are described below, assists with particularly challenging issues requiring further consideration. In addition, all company profiles are peer reviewed before being uploaded to the database to ensure consistency and thoroughness.

The QMS includes:

Clear and detailed research guidelines for all products and services.
Detailed research procedures including sourcing requirements, archiving systems, process documentation and reporting.
Peer review of all company reports.
Assignment of clear responsibilities for conducting research and monitoring adherence to research guidelines and procedures.
Systematic tracking of incidents as raised by analysts, other company staff and external parties such as clients or the companies that it researches.
Requests for feedback from the companies we cover.
Periodic review of the QMS, including evaluation and identification of priorities for action.
Ongoing training for our analysts on quality standards and procedures.

Sustainalytics implements strict procedures to ensure the proper management of research data as part of all its deliverables. It regards the independence and objectivity of its analysis fundamental to the quality of its work. It ensures that its ratings and any other analytical assessments are only influenced by factors relevant to research and are not affected by actual or potential business relationships between Sustainalytics and the companies it researches.

EOS will review and supplement research provided by Sustainalytics and provide their independent, subjective insights based on their engagements with a company. Where they have a different opinion, they will inform clients of this and overlay their view onto the Sustainalytics research.


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached.

          See 6.3 below.
        

06.2. If breaches of fund screening criteria are identified, describe the process followed to correct those breaches.

The exclusion list for the Hermes Global Equity Screened ESG strategy is updated in the team's stock selection tool and Axioma, their portfolio optimisation and portfolio construction tool. The list is also coded into thinkFolio, our order management and trading system. The Global Equities team also holds quarterly sessions with the Investment Office, Responsibility team and other investment teams at which they review output from the Portfolio ESG Monitor, which highlights companies that have breached or could potentially breach Sustainalytics' Global Compact Compliance Report Watchlist.

Our Compliance team monitors fund guidelines for all funds, including objectives and constraints; the exclusion list for all Federated Hermes equity strategies as applicable; and the firm-wide exclusion policy with respect to cluster munitions and anti-personnel land mines, through thinkFolio.

Pre- and post-trade compliance occurs for all active portfolios. Pre-trade portfolio parameters, counterparty limits and other guidelines are coded, where possible, into thinkFolio prior to investment. Coding is undertaken via a robust rule summary process and is always subject to further review by a senior member of the compliance team. Once client risk limits have been input into Thinkfolio, they cannot be altered by portfolio managers. Thinkfolio is coded to ensure that any trade in a prohibited counterparty or jurisdiction is prevented before execution.

The Compliance team also runs a daily post-trade breach report in Thinkfolio, which shows when investment guideline limits have been exceeded, irrespective of whether the 'breach' has occurred as result of market movements or a corporate action.

Once a breach is identified the Fund manager and Client services are notified of the breach with details of the clients Breach Correction/Notification policy (taken from the Client IMA)

The Operational Risk team are notified, who will then; log the breach, issue a breach reference number, send a breach form to the FM for completion and track the breach to closure.

The Compliance team also runs a daily post-trade breach report in each system, which shows when investment guideline limits have been exceeded, irrespective of whether the 'breach' has occurred as result of market movements or a corporate action.

We also run a stringent internal first line of defence to ensure that risk limits are not breached. This includes our Investment Office, which regularly monitors where portfolios may be approaching certain 'soft limits', providing an early warning system to ensure that a subsequent breach is avoided. Where soft limits are reached, this will immediately be flagged up with the investment team to enable them to adjust portfolio positions accordingly.

06.3. Additional information. [Optional]

Our internal audit department does not routinely audit fund holdings, but if a fund is subject to external audit, these holdings will be covered annually by their year-end external audit. Instead, the internal audit department audits the Fund Accounting function approximately every two years and, as part of this, audits a sample of funds, their holdings and valuations.


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

Our investments in our Impact Opportunities fund are aligned with nine investible themes that are aligned with the 169 targets underlying the 17 SDGs, from resource efficiency, financial inclusion and education to impact-enabling innovations. Our impact themes are the result of careful, continuous research into the global sustainability challenges we face and the unmet needs these create. We believe that these unmet needs provide tremendous growth opportunities for companies able to provide disruptive solutions through innovative and cost-effective products and services. The themes are regularly discussed within the team, but also take output from EOS, as well as experts on sustainability from our Real Estate, Infrastructure and Private Equity teams. These are supplemented by a wide network of relationships with external organizations focused on impact and research providers. We have therefore developed our own impact themes to address these unmet needs; Water, Food Security, Health & Wellbeing, Education, Financial Inclusion, Future Mobility, Impact Enablers, Energy Transition and Circular Economy. 

The Hermes SDG Engagement Equity Strategy aims to generate attractive investment returns and positive societal and environmental impacts through engagements with companies focused on the United Nations’ Sustainable Development Goals (SDGs). The SDGs are an ambitious, universal set of objectives agreed by UN member states. We believe that there are compelling opportunities to create such change and value among smaller companies whose operations and supply chains provide rich potential for improvement and the direct access to management required for successful engagement. To achieve this, Federated Hermes combines the proven stock-selection and engagement skills within its equity and stewardship teams. The investment opportunity that the strategy addresses is that engagement will enable positive change , and will encourage investee stocks to create more resilient businesses, as well as tackling pressing social or environmental needs. These companies should then begin to increase market share in their industries, improve business ecosystems, and strengthen market practices. This positive change should over the medium to long-term be reflected in the price of each company’s stock and will ultimately improve the net overall contribution of the industry to supporting delivery of the SDGs. In summary, we believe engagement has the potential to unlock value for all stakeholders – investors, companies, employees, local communities and the planet – and therefore help deliver the ambitious SDGs.

The Low Carbon Strategy is a Global Equity Strategy that seeks to outperform the representative benchmark while avoiding companies that have material exposure to fossil-fuels or are highly carbon intensive, as well as companies that are engaged in unethical or unsustainable activities. 

 

 

 


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the proportion of actively managed listed equity portfolios where E, S and G factors are systematically researched as part of your investment analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

Each investment team is ultimately responsible for understanding and incorporating relevant and material ESG information into their investment processes. This ESG awareness is achieved through a combination of in-house expertise, proprietary models, third parties and fundamental research, ensuring that relevant information is accessible and incorporated into investment processes.

EOS has a team of engagement specialists, organised by global sectors, themes and regions. This team engages on material ESG and strategic issues that may be limiting long-term sustainable value creation or increasing companies' risk and collaborates with Federated Hermes' investment teams pre- and post-engagement with companies.

We also have a Responsibility Office that is tasked with coordinating and supporting the ESG/engagement activities across all our investment strategies. Each of Federated Hermes' investment teams meet formally with the Responsibility Office on a quarterly basis to discuss their ESG and engagement integration activities and approaches as well as specific investee companies with respect to their ESG performance.

All investment teams have access to our proprietary ESG tools such as the ESG Dashboard, Portfolio Snapshot, Carbon Tool and the Corporate Governance Tool. These tools provide information both at the portfolio and stock level. Info on the tools can be found in 9.6. 


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on robust analysis.

          internal quantitative modelling takes place to ensure that tools are fit for purpose; quarterly meetings between investment teams and Responsibility Office
        

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

          (QESG Dashboard, Portfolio Snapshot, Carbon Tool and Corporate Governance Tool) – see 9.6, below
        

09.6. Additional information. [Optional]

 

ESG tools:

ESG Dashboard:  Includes our proprietary QESG Score and identifies stocks with positive ESG characteristics and/or stocks demonstrating positive ESG change.


Portfolio Snapshot: The Portfolio Snapshot allows us to observe the aggregate ESG risks across our portfolios relative to their benchmarks. It also examines ESG ratings and controversies and identifies contingent risks. 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 and our voting choices relative to the benchmark. It also provides insights into engagement and the progress made.


Carbon tool: Our Carbon Tool enables fund managers and engagers to identify carbon risks in portfolios and 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.


Corporate Governance Tool – Our new governance tool provides a breakdown of corporate governance characteristics, such as information on board independence, diversity, audit tenure etc. This tool compares the company data and flags any companies that fall below the Federated Hermes expectations.


LEI 10. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis.

10.3. Describe how you integrate ESG information into portfolio weighting.

Through our Portfolio Snapshot Tool we are able to observe the aggregate ESG risk across our portfolios in both absolute and benchmark-relative terms. Investment teams are able to break these measures down into the constituent environmental, social or governance risks and view the ESG metrics for each portfolio company with the best and worst performers identified.

This portfolio level view enables portfolio managers to, for example, be aware of the level of carbon in their portfolios, including which investments are the largest contributors. In turn, an understanding of the exposure to carbon risks provides a good starting point to assess the best options to manage this risk in the context of a fund's particular strategy.

Our carbon analysis tool provides detailed real-time data about the level and intensity of carbon across their portfolios. Portfolio managers can see which companies are the greatest emitters and most at risk, and adjust weightings accordingly.

Our new governance tool provides a breakdown of corporate governance characteristics, such as information on board independence, diversity, audit tenure etc. This tool compares the company data and flags any companies to the investment managers that fall below the Federated Hermes governance expectations.

10.4. Describe the methods you have used to adjust the income forecast/valuation tool.

We do not adopt a one-size-fits-all approach to how ESG information is integrated into portfolio construction. Each investment team undertakes their own fundamental analysis and, where practical and material, uses the available ESG data in considering forecasts and valuations.

Our Global Emerging Markets team, to determine whether to invest in a certain stock and to assess any impact on discount rates, consider, elements such as shareholder structure, risk of abuse of minorities' rights, sustainability of the business model, carbon emissions, and exposure to workers' strikes and community protests. Information obtained from engagements with companies also contribute to the adjustments.

For our Global Equities team, our proprietary QESG scores are integral to their investment process. A range of investment factors, from traditional factors such as price/book multiples through to corporate governance behaviour, are included in their "Alpha Score", which is the forecasted return of the stock. Social, governance and environmental considerations are applied as part of the judgmental overlay applied in the investment process, with the exception of one of our sub-funds, which applies all three ESG considerations on a discretionary basis, but does not systemically incorporate social scores for US stocks on an ex ante basis.

10.5. Describe how you apply sensitivity and /or scenario analysis to security valuations.

Risk specialists within the Investment Office provide portfolio managers with a tailored deep-dive risk breakdown identifying areas of potential concern or deviations from risk guidelines, and recommend appropriate quantitative and modelling solutions. Their analysis includes stress testing and in-depth scenario analysis to identify potential sources of future risk in portfolios. The Investment Office uses industry-standard systems including Barra and Style Analytics. Barra is used to measure the tracking error and to control the contribution to active risk at stock, sector, country and factor levels, as well as stress testing. Style Analytics is used to monitor and control exposure to over 30 style factors.

10.6. Additional information. [OPTIONAL]

Our investment teams make use of ESG and engagement information in the fashion that is most appropriate for their investment strategy:

  • For Hermes Global Equities, the ESG Dashboard and the team's proprietary stock sheet outline a company's ESG risk based on ESG data and engagement notes. Monitoring makes extensive use of the ESG Dashboard and Portfolio Monitor.
  • Both the Hermes Asia ex Japan team and Global Emerging Markets strategy consider ESG in their initial screening process, and ESG factors and engagement progress are incorporated into assessments of the valuation, risks and catalysts of a stock or country.
  • Hermes Small & Mid Cap teams utilise the ESG Dashboard and engagement notes as part of their valuation and risk monitoring processes.
  • Hermes European Equities team uses ESG considerations to help identify changes that present investment opportunities. These changes often come as a result of government policy, environmental changes or technology shifts. ESG and engagement insights help to determine the risks that individual companies face.
  • Our thematic Impact Opportunities Fund and SDG Engagement Fund are aligned with the UN SDGs. For more information, see:

https://www.hermes-investment.com/ukw/wp-content/uploads/2020/03/bd004867-sdg-engagement-equity-2019-annual-report-v2.pdfhttps://www.hermes-investment.com/ukw/wp-content/uploads/2020/02/hermes-impact-opportunities-fund-quarterly-report-q419-1.pdf

All of our investment teams have access to engagement information from EOS in addition to ESG data.


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