Hermes Investment Management: Responsible Investment

Current Head of Investment at Hermes Investment Management

Why is this interview interesting?

  • The key drivers of the growth in ESG capital inflows
  • The difference in passive and active investment approaches to ESG
  • How Hermes engages with companies on ESG issues
  • The importance of incentive structures in the asset management industry
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Executive Bio

Eoin Murray

Current Head of Investment at Hermes Investment Management

Eoin is Head of Investment and a member of Hermes’ Executive Committee. Eoin also leads the Investment Office, which is responsible to clients for the investment teams’ consistent delivery of responsible, risk-adjusted performance and adherence to the ESG processes at Hermes. Eoin joined Hermes in January 2015 with over 20 years’ investment experience. Eoin joined from GSA Capital Partners, where he was a fund manager. Before this, he was Chief Investment Officer at Old Mutual from 2004 to 2008 and also held senior positions at Callanish Capital Partners LLP and Northern Trust Global Investments. He began his career as a graduate trainee at Manufacturers Hanover Trust (now JPMorgan Chase) and subsequently performed senior portfolio manager roles at Wells Fargo Nikko Investment Advisors (now BlackRock), PanAgora Asset Management and First Quadrant.Read more

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Interview Transcript

In your opinion, what are the core pillars of responsible stewardship of capital?

There are two key pillars for any investment activity and those are the way in which we, first of all, traditionally think about investment, which is the allocation of capital. These days, when we talk about that activity, we automatically assume that we are taking account of environmental, social and governance factors. The second pillar of responsible capital investment is around stewardship of that capital. What that means is, when we buy into a company, either through its equity or through a debt or a loan or, indeed, buy into a real asset like a building, when we eventually come to sell that asset, many years later, we would like to be assured that we will be leaving it in a better place than when we first bought the asset.

That means, we are going to be very active in voting, where we have the ability to vote. We’re going to attempt to improve the asset, in conjunction with the management of the company, through a process of engagement and nudging them, to take account of, what are the real material issues that affect all stakeholders in that company.

What’s Hermes’ core value proposition to clients today?

We want to help our clients retire better. We use that language very carefully, because better doesn’t just mean wealthier, in financial terms. It means that the environment, in which they are living and spending their pension or their savings, is better too. If, for example, we’re invested in a company that provides bus services, and we’re not engaging with the company and they are cutting back their rural service, it could well be that we produce a great financial return, for a pensioner living out in the country, but they’ve no longer got a bus service that allows them to get to shops. It’s a silly example, but it’s a classic of, unless you are taking account of the full holistic picture, you’re missing a trick for the benefit of the end client.

The index companies recently reported that around 25% of total ETF inflows were driven by ESG. What do you think is the real underlying driver of this?

There’s a massive inflow of capital from active management to passive management. A significant amount, roughly around 25%, is going into a particular variant of that, which incorporates environmental, social and governance information. I think there’s a number of things going on here. The move from passive to active itself, I believe, is largely fee driven. This is the notion that, over the years, to be brutally honest, active managers, in aggregate, have disappointed with the outcomes that they have produced for savers and beneficiaries. Particularly, the movement towards incorporating ESG factors is driven by savers’ and clients’ desire to ensure that their capital is trying to achieve a broader, holistic return, beyond a simple financial outcome.

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Hermes Investment Management: Responsible Investment(November 29, 2019)

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