We recently spoke with Bruce Duguid, Head of Stewardship at EOS, to learn about their philosophy and how advocacy brings value to clients.

A $625bn global investment manager, Federated Hermes is a leader in responsible investing and offers active investment management and engagement services that target financial outperformance across a wide range of asset classes. Guided by a conviction that responsible investing is the best way to create wealth over the long term, EOS – one of the largest dedicated stewardship resources globally - focuses on active stewardship, engaging in meaningful dialogue with institutions to drive quantifiable progress and provide insight and transparency to investors to help facilitate responsible investing. We recently spoke with Bruce Duguid, Head of Stewardship at EOS, to learn about their philosophy and how advocacy brings value to clients. 

1. What does EOS focus on? 
 

As a premier stewardship provider, EOS engages with companies on behalf of asset managers and asset owners around the world. We focus on understanding the firms’ ESG profile, goals and progress towards objectives and then report back to their investors. We also provide guidance to investors in advance of annual shareholder meetings, monitor key actions and provide policy advice. Our purpose is to contribute to sustainable wealth creation by enabling long-term institutional investors to be more active owners of their assets and, through dialogue with companies and others, to help deliver more sustainable long-term financial returns on investment as well as improved and more sustainable outcomes for society. 

To provide some examples: As energy sector firms develop strategies to be consistent with the Paris Climate Accord goals and net zero emissions, we work closely with them to understand their objectives, ensure they create quantifiable goals and track their performance. We monitor and evaluate Board composition and talent development to assess progress towards greater diversity and inclusion. 

 2. What ESG-focused regulation or market standards are affecting investors? 
 

Investors are becoming more socially conscious and understand that their votes and voice can help to shape the companies and the world in which they invest and live. While individual investors can make a difference, aggregating the large-scale holdings held by pensions and other long-term institutional investors has even more power. 

For these investors, the importance of stewardship is now codified into minimum standards across many markets. For example, the UK Stewardship Code took effect in January 2020 and “sets high expectations for how investors, and those that support them, invest and manage money on behalf of UK savers and pensioners, and how this leads to sustainable benefits for the economy, the environment and society.” Separately, the EU Shareholders Rights Directive II (SRD II) is also setting minimum standards for voting, transparency and remuneration/RPTs. These have already been incorporated into local legislations by more than 20 EU member states.

While individual requirements vary, there’s been a clear shift towards tangible outcomes and greater accountability. As one of the founding signatories of the United Nations’ Principles for Responsible Investing and part of the group that helped drafted the first U.K. Stewardship code, EOS is deeply engaged with the ongoing evolution of regulatory requirements focused on responsible investing. As such, we have a unique perspective on what those requirements mean to fund managers, asset owners and end investors. 

For many managers and institutional investors, 2021 marks the first year where they must provide ESG-focused reporting to regulatory authorities. The intensive nature of stewardship work, combined with the sheer numbers of institutions in scope, creates a steep challenge for any fund manager trying to tackle this unilaterally. The required reporting will not only be more comprehensive, but also will be stringently monitored by regulators to ensure it meets agreed standards.

By representing large numbers of investors, EOS has the scale and leverage to make ESG concerns a priority for corporations, and the capacity to track and report to investors on progress. Investors reap the benefits, as they can use EOS reports to meet the enhanced regulatory requirements. 

3. What kind of questions are investors asking your team?
 

While the original focus was on questions of governance and board composition, the last ten years has seen the rapid rise of environment and social concerns, from environmental disasters and climate change to human rights and the supply chain. 

Leadership, diversity, social justice and climate change are top of mind for investors given the ongoing global pandemic and push for racial justice. These are front and center in our conversations with the companies we monitor, along with the complex questions of how to measure progress. Our goal is to ensure companies are responsibly-governed and well managed to deliver sustainable long-term value as well as improving the lives of employees, promoting diversity and supporting communities. 

EOS focuses on 12 high-level engagement themes, with particular emphasis on climate, human rights, human capital and board effectiveness, as directed by our clients. Discernable progress in these four areas will drive improvements across the board.