EOS at Federated Hermes, one of the world’s largest stewardship service providers representing client assets of US$1.3 trillion, has launched its 2023 Engagement Plan. The plan, assembled in collaboration with its clients, identifies the focus of its engagement with companies in the year ahead based on the most material drivers of long-term sustainable wealth for its clients and their ultimate beneficiaries.
The war in Ukraine, uneven post-pandemic recovery and the increasing severity of extreme weather events are contributing to an energy and cost-of-living crisis. In addition, ecosystems are at greater risk of irreversible biodiversity loss through the impacts of climate change, land-use change and pollution. These factors, along with a multitude of social and governance-related issues place EOS’s engagement priorities in a new context.
EOS will continue its focus on the most material drivers of long-term value, with a focus on four priority themes:
Good governance sets the foundation for managing long term risks and creating value for stakeholders. EOS seeks robust board oversight and management by companies of the most material long-term drivers of sustainable wealth creation.
EOS will ask boards to demonstrate lessons learned post-pandemic, including the possibility for more internationally diverse board appointments, enabled by more effective remote working practices.
EOS will continue to focus on board composition aligned to the strategic needs of the company, reflecting the diversity of stakeholders it aspires to serve.
Climate Change Action and Biodiversity
EOS will continue to advocate for companies to have a strategy and greenhouse gas reduction targets aligned to the Paris Agreement, seeking to limit climate change to 1.5C, together with aligned financial accounts and political lobbying.
It has also strengthened its focus on the need for a ‘just transition’ for workers and local communities and to prepare for the increasing physical risks to climate change.
In 2023 and beyond, EOS will expect companies to identify, assess and measure their impacts and dependencies on biodiversity services and aim for a net-positive impact on biodiversity.
Human Capital and Remuneration
EOS will now expect companies to develop a DEI strategy and action plan to close the ethnic pay gap and achieve proportionate ethnic and gender representation.
In the wake of systemic labour shortages and a cost-of-living crisis, EOS is intensifying engagement on providing fair wages and benefits, as well as asking for the development and implementation of a strategy to promote best practice workplace wellbeing.
Human and Labour Rights
Companies whose business models misalign with best practices for digital human rights and responsibilities will face material financial risks to their long-term value. EOS has therefore increased its expectation on companies to protect personal rights in the virtual world.
It expects companies to acknowledge the likelihood that human rights impacts may be present within operations and supply chains and demonstrate appropriate board and executive-level governance of human rights.
EOS will also focus on escalated breaches of the UN Global Compact principles for human rights including considering voting against directors if not being adequately remediated or if the company lags on human rights benchmarks.