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THE SHAREHOLDER RIGHTS DIRECTIVE II

The Shareholder Rights Directive II (‘SRD II’) amends the Shareholder Rights Directive to strengthen shareholder engagement and increase transparency across the European Union (EU). The updated Directive, which has been implemented into domestic law in the United Kingdom, became effective as of 10 June 2019.

Institutional investors can exercise their shareholder rights to ensure effective stewardship of their assets. The Directive aims to:

  • Contribute to the sustainability of companies – by requiring investors to report on how the main elements of their investment strategy contribute to the medium to long-term performance of their clients’ assets.
  • Enhance the efficiency of the chain of intermediaries − through identification of shareholders, improving the transmission of information along the investment chain, including on engagement, voting and manager reward, and alignment between investment strategy and client/beneficiary liability.
  • Encourage long-term shareholder engagement – by requiring policies and reporting on engagement with investee companies regarding performance (on strategy, governance, and environmental and social issues), and providing investors with a vote on company remuneration policy and reports.

We believe the Directive creates a step change in the quality and quantity of stewardship by raising the awareness and expectations of investors and beneficiaries, and ultimately contributing to the sustainability of companies. The Directive achieves this through:

  • Encouraging institutional investors to engage and vote their holdings, therefore increasing the use of shareholder rights and powers;
  • Raising institutional investors’ awareness of whether asset manager reward is driving the right behaviours and outcomes;
  • Requiring both passive and active managers to understand, engage and report on long-term issues and environmental, social and governance matters; and,
  • Increasing awareness in the investment chain on how strategies, engagement and voting contribute to the longer-term success of companies, and through this, having a positive impact on society, the environment and economy.

In the main, this impacts asset owners and asset managers operating in Europe. The requirements relate to shareholdings in companies with registered offices in an EU member state, as well as those whose shares are admitted to trading on a regulated market situated or operating within the EU. Third-country intermediaries providing services with respect to the shares of such companies are subject to the rules on shareholder identification, transmission of information, facilitation of shareholder rights, and transparency and non-discrimination in relation to costs.

The Federated Hermes Limited (“Federated Hermes”) Engagement Policy is available here. The Engagement Policy addresses how Federated Hermes:

  • Monitors investee companies;
  • Interacts and cooperates with shareholders; and
  • Manages conflicts of interest with investee companies.
  • Integrates shareholder engagement in the investment strategy
  • Exercises voting rights
  • Communicates with relevant stakeholders of the investee companies

We believe that stewardship is vital in achieving our purpose: generating sustainable wealth creation. EOS at Federated Hermes continues to evolve best-practice stewardship and is committed to providing transparency into our investment stewardship activities. We disclose our Stewardship activity on the Stewardship page of our website.

Federated Hermes makes available the following disclosures to provide transparent information to help institutional investors evaluate how as an asset manager, we act in your best long-term interests:

The Federated Hermes Stewardship Report outlines

  • How Federated Hermes’ strategy and its implementation contributes to the medium to long-term performance of the assets or the fund the Institutional Investor is invested in
  • Whether and how Federated Hermes makes decisions by evaluating the medium to long-term performance of the investee company, including non-financial performance
  • The key material medium to long-term risks associated with the investments
  • The use of proxy advisors for engagement activities
  • The policy on Securities Lending

The Stewardship Report is available on the Policies and Disclosures page of our website.

Voting Disclosures

Voting Disclosures and our Voting Policy and Guidelines are available on the Policies and Disclosures page of our website.

The Voting Disclosure covers all voting decisions of Federated Hermes on a quarterly basis. This includes information on the meeting ID and date, the region and the company name and International Securities Identification Number (ISIN). Company meetings where we have recommended voting in line with management on all resolutions are condensed.

We provide the rationale behind our decision when we have voted against management on one or more resolutions. On occasions when our policy may suggest a vote against management but engagement with the company provided additional insight – for example, a company that has committed to making a change but that will not implement it until the following year – we may vote ‘for, by exception’ to our policy. These instances are highlighted in our voting disclosures and are within the scope of our overall voting policy.

Portfolio composition, turnover and turnover costs

  • For Segregated Account Clients, your periodic reports detail the composition of your portfolio. The turnover of equities within a portfolio will vary in relation to the investment strategy. The turnover of equities and other securities within your portfolio is detailed within your portfolio transaction reports included in the periodic reporting you receive from us. The transaction costs associated with the turnover of financial instruments within your portfolio are provided in accordance with MiFID within the ex-post cost disclosure of your statements.

For Direct Fund Investors:

  • For investors of FHL funds within the scope of SRD II, the portfolio composition can be found within the annual reports in the Literature Section of the fund product page of our website and summarised holdings within the fund fact sheet.
  • The portfolio turnover of equities within a portfolio will vary in relation to the investment strategy. For your relevant fund investments, the Portfolio Turnover Rate of all securities within the fund can be found within this summary table.
  • The transaction costs associated with the turnover of all instruments within the relevant Federated Hermes Fund produced in accordance with MiFID is available within the ex-post cost disclosure of the European MiFID Template (EMT).