Organising a Responsible Active Investment Manager

How have you structured Hermes to engage companies on ESG effectively?

We’ve done two things that I think I would reference. The first is, we have a separate team of engagers. That is, people that are dedicated to talking to companies, in the right way and we have quite a bit of academic evidence as to what makes for a successful engagement and those practices are followed by our engagement team.

The other key piece is that the engagers have to work alongside portfolio managers. Those portfolio managers are responsible for integrating ESG information, in a way that makes sense to them. To me, this is an absolutely key piece. With a portfolio manager, if they have a particular philosophy and an investment process in mind, the best thing that I can do, as a Chief Investment Officer, is to offer them the opportunity to exercise that philosophy and process, with the least number of constraints. A feeling of ownership comes from their belief and that, ultimately, drives accountability and then the results that you’re after.

The same is true of how they go about incorporating ESG information. It’s essential that you let portfolio managers drive that process, in a way that makes sense for them. If you try to impose it from the outside, with a separate team of ESG analysts, my suspicion is that you’ll get a suboptimal result. You won’t get portfolio managers that are enthused about how they are incorporating that ESG information.