Our definitions

Clarifying complexity on the path to enduring, responsible wealth creation

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How do we define our purpose? What does effective stewardship mean to us? Our definitions around the concept of responsibility in investing demonstrate how we aim to achieve positive outcomes for our stakeholders.

To reveal our definitions, click on the tiles below.

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Active Management

(Also referred to as active investing)

Actively selecting investments based on an investment team’s own judgment, research and experience rather than an asset’s index weighting. An actively managed fund is not a tracker fund.

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Active Ownership

(Also referred to as engagement)

Using the rights of influence as financial stakeholders to actively engage companies or assets and other stakeholders to further the long-term interests of end investors. This consists of objective-driven dialogue seeking positive and sustainable change in the purpose, governance, strategy operations and in the impact on the environment and society.

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Active Share

A measure of the percentage of a fund that is invested differently than its benchmark. It expresses how active the fund manager is. (See ‘Active Management’.)

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Advocacy

(Also referred to as public policy engagement)

Actively seeking to influence change in public policy in the interests of investors and the wider society by engaging with policymakers, regulators and industry bodies on a range of issues. These include: the financial system and investment industry, corporate governance, business purpose, climate change, inequality and inclusion.

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ESG factors
  • Environmental: climate change, mitigation and adaptation, natural resource stewardship (including marine and biodiversity protection), pollution, waste and the circular economy.
  • Social: human rights, indigenous people’s rights, child and slave labour, anti-bribery and corruption, employee matters inclusion and diversity, health and safety, ethics, conduct and culture.
  • Governance: board composition, succession planning, executive remuneration, minority shareholder rights and protections, and investor stewardship.

Please note, the items listed above for each factor are not exhaustive. They are examples of adverse impacts that are included solely for illustrative purposes.

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ESG integration

A responsible investing approach which systematically and consequentially integrates financially material ESG factors and engagement insights alongside traditional performance factors and consideration of adverse impacts in investment analysis and investment decisions.

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ESG leaders

(Also referred to as positive screening)

A responsible investing approach which invests in assets who have best-in class practices on material ESG factors.

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Ethical investing

An investment strategy that excludes sectors or behaviours that reflect a set of values including moral or ethical beliefs.

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Exclusions policy

An investment firm or team’s policy to exclude investments from specific sectors, business activities and/or behaviours from their investment universe.

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Exclusions investing

A responsible investing approach which excludes investments from specific sectors, business activities and/or behaviours from the investment universe.

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Impact investing

Purposefully targeting companies which can generate positive social or environmental outcomes in addition to financial gains. Impact investors mainly target investments that are able to provide solutions which make a positive contribution towards the attainment of the 17 Sustainable Development Goals (SDGs).

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Responsibility Office: Federated Hermes Limited

A hub of expertise that leads and oversees our advocacy positions; works with the Investment Office to ensure that our investment and stewardship teams integrate stewardship and ESG factors in their activities; and holds every department and employee in the firm accountable for applying best practice responsible business policies in governance, client relations, people and supplier management. In doing so, the Responsibility Office keeps our purpose of creating wealth sustainably for our clients and their investors at the centre of everything we do.

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Sustainable Development Goals (SDGs)

Convened by the UN, the Sustainable Development Goals (SDGs) are the blueprint to achieve a better and more sustainable future for all. They address the global challenges we face, including those related to poverty, inequality, climate change, environmental degradation, peace and justice. There are 17 goals, 169 targets, and progress towards these targets are tracked by 232 indicators inherent in the goals.

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SDG engagement

Engaging with investments (or assets) for positive social and environmental outcomes that support the attainment of the SDGs.

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SDG investing

Investing in assets with the expressed intention to create a measurable, positive, real-world outcome to support the attainment of specific SDGs and generate superior sustainable financial returns.

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SDG engagement-driven investing

An investment strategy which identifies SDG-aligned engagement opportunities that enhance long term financial stakeholder value and address a specific societal or environmental need in addition to delivering strong financial returns for investors.

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Socially responsible investing (SRI)

An investment strategy which excludes sectors or behaviours that reflect an investor’s moral or ethical beliefs; and/or an approach that promotes social or environmental objectives in its investments.

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Stewardship

The role in which investment managers use the rights – if not the obligation – of financial stakeholders to engage with companies or assets to pursue the objective of sustainable wealth creation for investors.

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Sustainable investing

Investing and engaging to deliver positive societal and environmental outcomes at investee companies leading to better performing businesses and enhanced financial returns over the long term.

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Sustainable Wealth Creation

This is the purpose of responsible investment – to deliver sustainable and superior long-term returns for investors, recognising that meeting the material needs of the environment, workers and society as fundamental factors that support value creation.

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Thematic Investing

There are two broad types of thematic investing:

  • Thematic investing (social or environmental):
    An investment approach that promotes specific social or environmental themes, and often allows investors to express their values. It can exclude ESG laggards or target the best ESG performers or invest in the most impactful companies.
  • Thematic investing (megatrends):
    An investment approach that focuses on powerful, long-term global themes or megatrends that are both structural and transformative in nature.
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Voting

Exercising the rights given to equity holders in companies to vote on business matters and director elections during annual and extraordinary general meetings.

Useful industry terms

Our list of industry terms might help you while browsing our website and product range.

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Key elements of responsible investing

Which analytical tools and disciplines separate the best from the rest?
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Responsible investing in action

We provide evidence of our efforts towards best-practice investment, stewardship and advocacy.

Want to know more about our focus on enduring, responsible wealth creation?