Defining best practice
What analytical tools and insights are needed to be a leading ESG investor?
As innovators and leaders in sustainability and investment, we understand the expertise and attitude required to achieve outperformance and outcomes from ESG investing.
ESG cannot be ‘bolted on’ to an investment process or be the domain of one analyst in a team. It must be an area of expertise for all. Knowing how to gather, analyse and integrate sustainability data as an essential part of research is fundamental in forming a complete view of an asset’s long-term potential.
What defines a leading ESG investor?

Best-practice ESG: how does your manager stack up?
Best-practice ESG and stewardship integration
Uses third-party ratings only in the first stage of research
Proprietary, transparent ESG analysis tools enable asset managers to research and provide toolkits to help fund managers conduct their own fundamental company research
Minimum standards
Outsources research to third-party vendors
Uses mainstream ESG ratings and data, which are often one-dimensional and backward-looking
Best-practice ESG and stewardship integration
Performs in-house research on how the relevance of each sustainability factor influences a company’s performance
Assesses the materiality of each factor in order to focus on what is truly material
Minimum standards
Approaches ESG risks in a generic way
Fails to conduct further research in order to understand the relevance of each factor on an asset’s performance
Best-practice ESG and stewardship integration
Proactively engages with companies in the long-term interests of clients and their beneficiaries
Believes that effective stewardship lies at the heart of any long-term investment programme and integrates the full benefits of active ownership
Implements a comprehensive advocacy programme with legislators, regulators and industry bodies to seek progressive change in the capital markets
Minimum standards
Engages companies reactively in response to sustainability flashpoints or crises
Votes proxies in the wake of a corporate scandal but not to proactively seek positive change
Best-practicee ESG and stewardship integration
Beyond ESG and stewardship integration in investment processes, responsibility is embedded in the company’s philosophy and tone and reinforced by senior management
Significant resources are committed to developing, integrating and advancing expertise in investing sustainably
Minimum standards
Does not have the track record to truly claim a history of best-practice ESG integration
Claims to responsibility in annual reports might not be substantiated by the corporate culture or level of ESG and stewardship integration in investment processes
Best-practice ESG and stewardship integration
Track record of integrating ESG and stewardship ahead of requirements set by regulators
Contributing to trailblazing industry initiatives and policy formation championing sustainability in investment
Minimum standards
Integrates ESG in response to the introduction of regulations and stewardship codes
Best-practice ESG and stewardship integration
Customises ESG and stewardship integration to each investment strategy, resulting in diverse approaches to regions, sectors and portfolio construction
Emphasises stewardship to embed a forward-looking view in ESG analysis
Champions direct collaboration between in-house engagement experts and portfolio managers
Minimum standards
Limits consideration of ESG issues to a one-size-fits-all approach
Our Responsibility Office oversees and advances ESG and stewardship integration in all our investment strategies and reports directly to our CEO on the integrity of their approaches. This helps to ensure we focus on Sustainable Wealth Creation.
Our proprietary tools
Enabling best-practice ESG and stewardship integration
We developed proprietary ESG-analysis tools before off-the-shelf data sets became available and continue to innovate through industry and academic research partnerships, and by deepening the integration of engagement insights from EOS at Federated Hermes.
To learn more, click on the tiles below.
Our ESG score for listed companies, capturing both the current sustainability performance and direction of travel. It is calculated by combining our ESG research and engagement insights with sustainability data from third parties including Sustainalytics, Trucost and Bloomberg.
The Dashboard provides ESG metrics at the portfolio and company levels, integrating our ESG research and engagement insights with information from third-party data providers. Company-level data are interrogated to show environmental (E), social (S) and governance (G) indicators which are used to form E, S and G scores. In turn, these are used to calculate a headline score, the QESG Score, to gauge the sustainability performance of a company and whether it is likely to improve, worsen or plateau.
Our engagement database, used predominantly by the stewardship specialists in EOS at Federated Hermes to record their interactions with companies, engagement objectives and the progress made towards achieving them. The contents and conclusions drawn from strategic and sustainability dialogues with companies helps inform investment decisions and deliver specific outcomes.
Helps assess the governance quality of companies through targeted information about how they are run. It flags any companies that fall below Federated Hermes’ expectations, as defined by EOS at Federated Hermes in the landmark Responsible Ownership Principles, and compares the company to peers in its industry, sector and country of operations to provide a comprehensive overview of how it is governed.
Enables fund managers and engagers to identify carbon risks in portfolios of listed securities and individual companies that are, or might become, more exposed to emissions in the future. Importantly, it also incorporates our stewardship intelligence and can identify companies that are priorities for engagement on emissions and their progress against objectives.
Data points include:
- Measuring the carbon risk and footprint of an investment fund relative to its benchmark as well as listed companies relative to their peers, including Scope 1, Scope 2, and Scope 3 emissions.1
- Calculating the value at risk for an investment capability fund according to different carbon pricing and policy scenarios.
- Identifying companies with which carbon-focused engagement should be initiated or intensified.
- Gauging the level of carbon risk being engaged on within portfolios – and the progress achieved.
Scope 1 emissions: all emissions from activities directly controlled by a company.
Scope 2 emissions: indirect emissions from electricity purchased and used by the organisation.
Scope 3 emissions: all other indirect emissions from activities of the organisation, occurring from sources that they do not own or control.
Depicts the ESG performance and engagement activity of specific holdings and in aggregate across portfolios relative to their respective benchmarks, and relevant engagement intelligence. It can be used to evaluate a strategy’s ESG and engagement performance over time on measures including carbon intensity, voting decisions relative to the benchmark, and engagement themes and progress.
Sustainability in action
Looking for authenticity in investing sustainably? Examine our evidence.
Our definitions
Seeking clarity on sustainability? We provide definitions that we stand by.