The power of stewardship, delivered through active engagement with companies, has been an intrinsic belief of ours from the start. After all, we believe engagement is core to the delivery of holistic returns. It can both mitigate risk and deliver positive impacts by improving companies’ environmental, social and governance (ESG) profiles.
Our first Chief Executive Ralph Quartano urged Marks & Spencer to do the right thing in 1983, when the company’s board made special loans available to its directors. St Michael1, he told them, should be on the side of the angels.
To our mind, good stewardship of assets is – and has always been – a critical component of what it means to be a responsible investor. And armed with our long-standing history of engagement, in 2004 we founded EOS at Federated Hermes – a stewardship service that helps clients meet their fiduciary responsibilities more effectively in order to create long-term value for beneficiaries – with a team of six staff.
Today, it boasts one of the largest stewardship resources globally, with $781.4bn in assets under advice2. It is now a diverse and multi-lingual team of 32 staff, who work alongside a number of senior advisers.
EOS at Federated Hermes is based on the premise that companies with informed and involved shareholders are more likely to achieve superior long-term performance than those without.
Our inaugural study, ESG investing: does it just make you feel good, or is it actually good for your portfolio?, unearthed a strong correlation between corporate responsibility and shareholder returns. It found that companies with poor governance practices consistently under-performed their peers by up to 30bps each month.
In our subsequent study, ESG investing: it still makes you feel good, it still makes you money, we found that the 30bps governance premium held true across different geographies and sectors, proving the widespread power of effective corporate governance.
In our latest study, ESG investing: a social uprising, we found that companies with good or improving environmental, social or governance characteristics on average outperformed companies with negative characteristics. This is been driven by the strength of their corporate governance and, for the first time since our investigation began in 2014, social metrics.
Our research found that ESG value is driven by corporate governance and social characteristics3.
We found:
We provide the following stewardship services:
Corporate engagement: we provide engagement services with companies that form part of the public equity and corporate fixed-income holdings of our clients. We analyse our clients’ portfolios to identify companies for engagement. We select companies based on the responsible investment policies of our clients, the size of their holdings, materiality of the risks and likelihood of success and feasibility of achieving change through engagement.
Voting: Our intelligent voting service is engagement-led, involving communication with company management and boards around the vote to ensure voting decisions are well-informed and include engagement insights where possible.
Portfolio screening: We provide a quarterly screening service to identify companies which are in or near breach of international norms and conventions to assist with the identification of higher risk companies in the investment portfolios of our clients. This information is designed to help our clients invest responsibly, encouraging the integration of ESG factors into their investment processes.
Public policy and industry best practice: We have a comprehensive programme of engagement with legislators, regulators, industry bodies and other standard-setters to help shape capital markets.
Advisory services: We work with our clients to develop their responsible ownership policies. Typically, these policies cover their positions on stewardship and environmental, social and governance issues, exclusions and voting.
Reporting: We provide a number of reporting avenues to our clients as part of our services, including access to a client portal website, EOSi, which provides insights to our engagement activity, monthly newsletters, quarterly reports on engagement and voting activity, quarterly calls to discuss client priorities, annual reports, and invitations to our bi-annual Client Advisory Council.
Source: “EOS Annual Voting and Engagement Report 2018,” published by EOS at Federated Hermes in March 2019.
