Sustainable Finance Lobbying Overview: Federated Hermes appears to have had mostly positive engagement on sustainable finance policies. Its stewardship services provider, EOS, appears particularly supportive of regulation on corporate ESG disclosure.

Top-Line Messaging on Sustainable Finance Policy: In its 2022 Stewardship Report, Federated Hermes describes advocating for systemic reforms to deliver a sustainable financial system. In its 2021 Climate-Related Financial Disclosures Report, Federated Hermes appears to support efforts to limit temperature rise to 1.5C, and in July 2021 Federated Hermes Ltd. joined the Net Zero Asset Managers initiative, supporting the goal of net zero emissions by 2050. Federated Hermes has stated that policymakers have a “key role” in determining the investment risks and opportunities of climate change, and in its 2021 Annual Report reported engaging on sustainable finance policies in the EU and UK. In comments on the EU’s renewed sustainable finance strategy in July 2020, Federated Hermes supported “major additional policy actions” for sustainable finance, and in comments to the UK Financial Services and Market Bills Committee in October 2022, Federated Hermes supported introducing alignment with net-zero by 2050 as a statutory secondary objective for UK financial regulators. Federated Hermes has advocated for the the post-2020 global biodiversity framework to mandate the alignment of financial flows with biodiversity goals.

Position on Regulated Corporate ESG Disclosure: Federated Hermes appears somewhat supportive of regulated corporate ESG disclosure. In its response to the European Commission's Public consultation on the revision of the non-financial reporting directive in June 2020, Federated Hermes advocated for a ‘double materiality’ perspective in corporate reporting. In comments to the UK Financial Conduct Authority (FCA) and Department for Work and Pensions (DWP) in 2020, Federated Hermes supported mandating disclosure in line with the TCFD for listed issuers and pension schemes. In response to the US Securities and Exchange Commission’s (SEC) request for input on climate change disclosures in June 2021, EOS called for mandatory disclosure in line with TCFD recommendations, and Scopes 1, 2, and 3 emissions disclosure requirements. However, in June 2022, after the SEC released its climate disclosure proposal, Federated Hermes outlined several objections to the proposal, including its Scope 3 disclosure requirements. EOS also commented on the proposal, taking a strongly supportive position on the rule’s provisions, including Scope 3 disclosures. EOS also supported the International Sustainability Standards Board’s climate disclosure framework in July 2022, advocating for increased ambition in disclosure of transition plans.

Position on Taxonomies and ESG Standards/Labels/Benchmarks: In comments on the renewed strategy in July 2020, Federated Hermes advocated for the EU taxonomy to extend to harmful activities. In an October 2021 insights paper, Federated Hermes advocated that a UK taxonomy should be science-based and help the UK achieve its net zero targets, while also recognizing the need for transition. In November 2021, Reuters reported that a group of investors, including Federated Hermes, had signed a letter urging the European Commission against allowing intensive farming to be considered “sustainable” in the taxonomy. In 2022, Federated Hermes objected to efforts in the US and EU to introduce quantitative thresholds for funds with certain ESG-related names.

Position on Incorporating ESG Factors Into Investor Duties: In comments to the UK FCA in April 2019, Hermes Investment Management expressed support for clarifying that fiduciary duty requires incorporating ESG factors. In response to the European Supervisory Authorities’ consultation on the EU Sustainable Finance Disclosure Regulation (SFDR) in 2020, Federated Hermes argued against the prescriptiveness of proposed principal adverse impact indicators, supporting weaker policy on disclosure on investor ESG impacts. However, in comments on the EU’s Renewed Strategy in 2020, Federated Hermes advocated for the creation of an EU stewardship code to encourage investors to engage with companies to get them to adopt more sustainable business models. In 2020, Federated Hermes opposed a Trump-era Department of Labor regulation that sought to limit shareholder rights. However, when the Biden-era Department of Labor proposed rules to overturn this regulation, Federated Hermes cautioned the Department against elevating ESG factors over other factors. Similarly, in comments to the SEC in August 2022, Federated Hermes outlined objections to the Commission’s proposed ESG disclosure requirements for investors, warning against emphasizing ESG over other factors.

Position on Incorporating ESG Factors Into Risk Management/Prudential Regulation: In Federated Hermes’ July 2020 comments on the EU’s renewed strategy, the company advocated for increased ambition in incorporating ESG risks into prudential regulation, and suggested that capital requirements should be adjusted based on climate risk. In August 2022, Federated Hermes signed onto the Global Investor Statement to Governments on the Climate Crisis, advocating for increased ambition in incorporating ESG factors into prudential risk supervision.

Industry Association Governance: Federated Hermes Limited has disclosed a list of its industry association memberships but without details of the sustainable finance policy positions of these groups. Federated Hermes lacks a comprehensive disclosure of its memberships, and Federated Hermes is a member of industry associations that are actively engaged on sustainable finance policies, including the Investment Company Institute and Invest Europe.