
www.hermes-investment.com
PUBLIC 
ENGAGEMENT 
REPORT
A common thread: promoting decent work in the supply chain
Q2 2019

This report contains a summary of the 
stewardship activities undertaken by 
Hermes EOS on behalf of its clients. 
It covers significant themes that have 
informed some of our intensive 
engagements with companies in Q2 2019. 
The report also provides information on 
voting recommendations and the steps 
we have taken to promote global best 
practices, improvements in public policy 
and collaborative work with other 
long‑term shareholders.
2
HERMES EOS

Engagement statistics by region
4
Engagement statistics by theme
5
Another day, another dollar
6
Coming of age: 15 years of stewardship
11
Are friends electric?
17
Springing into action
22
Engagement on strategy
27
Public policy and best practice
29
Voting
31
About Hermes EOS
34
Hermes EOS team
35
This report has been written and edited 
by Claire Milhench, Communications & 
Content Manager, Hermes EOS
3
PUBLIC ENGAGEMENT REPORT Q2 2019

ENGAGEMENT BY REGION
Over the last quarter we engaged with 656 companies on 1,400 environmental, social, 
governance and business strategy issues and objectives. Our holistic approach to engagement 
means that we typically engage with companies on more than one topic simultaneously.
 Environmental 16.1%
 Social and Ethical 15.9%
 Governance 54.5%
 Strategy, Risk and Communication 13.5%
Global
We engaged with 656 companies 
over the last quarter.
 Environmental 18.8%
 Social and Ethical 13.4%
 Governance 53.1%
 Strategy, Risk and Communication 14.7%
We engaged with 109 companies 
over the last quarter.
Emerging
& Developing
Markets
 Environmental 14.7%
 Social and Ethical 15.5%
 Governance 57.8%
 Strategy, Risk and Communication 12.0%
We engaged with 232 companies 
over the last quarter.
North
America
Australia &
New Zealand
 Environmental 50.0%
 Social and Ethical 50.0%
We engaged with 2 companies 
over the last quarter.
 Environmental 19.0%
 Social and Ethical 15.0%
 Governance 49.0%
 Strategy, Risk and Communication 17.0%
We engaged with 87 companies 
over the last quarter.
Developed
Asia
 Environmental 14.8%
 Social and Ethical 16.1%
 Governance 53.5%
 Strategy, Risk and Communication 15.7%
We engaged with 112 companies 
over the last quarter.
Europe
 Environmental 15.5%
 Social and Ethical 20.0%
 Governance 54.1%
 Strategy, Risk and Communication 10.5%
We engaged with 114 companies 
over the last quarter.
United
Kingdom
HERMES EOS
4

ENGAGEMENT BY THEME
A summary of the 1,400 issues and objectives on which we 
engaged with companies over the last quarter is shown below.
 Climate Change 72.6%
 Forestry and Land Use 4.4%
 Pollution and Waste Management 12.4%
 Supply Ch ain Management 5.3%
 Water 5.3%
Environmental
Environmental topics featured in 16.1% 
of our engagements over the last quarter.
 Board Diversity, Skills and Experience 21.8%
 Board Independence 15.6%
 Executive Remuneration 43.4%
 Shareholder Protection and Rights 16.6%
 Succession Planning 2.6%
Governance
Governance topics featured in 54.5%
of our engagements over the last quarter.
 Bribery and Corruption 4.5%
 Conduct and Culture 13.1%
 Diversity 30.2%
 Human Capital Management 19.8%
 Human Rights 22.1%
 Labour Rights 6.8%
 Tax 3.6%
Social and
Ethical
Social and Ethical topics featured in 15.9%
of our engagements over the last quarter.
 Audit and Accounting 12.7%
 Business Strategy 31.2%
 Cyber Security 4.8%
 Integrated Reporting and Other Disclosure 32.8%
 Risk Management 18.5%
Strategy, Risk &
Communication
Strategy, Risk and Communication topics featured  
in 13.5% of our engagements over the last quarter.
PUBLIC ENGAGEMENT REPORT Q2 2019 
5

Setting the scene
A 2019 report by the NGO Human Rights Watch identified 
brands’ poor sourcing and purchasing practices as a “huge part of 
the root cause for rampant labour abuses in apparel factories”1. 
The International Labour Organization (ILO), the Ethical Trading 
Initiative (ETI) and Oxfam have also identified this link across 
many industries2. Until this link is addressed, they argue, human 
rights abuses will persist. The ILO estimates that there are 40 
million modern slaves globally, of which 25 million are in forced 
labour. Some 152 million children aged between five and 17 work, 
predominately in agriculture, services and industry3. 
Companies have tried to enshrine decent, safe and fair working 
conditions in codes of conduct, against which they carry out 
factory audits. However, there is a growing consensus that these 
compliance programmes have failed to identify and address the 
root causes of exploitative working conditions, such as 
sweatshops, bonded labour and poverty wages.
ANOTHER DAY,  
ANOTHER DOLLAR? 
Advancing human rights in the supply chain
Many companies rely on global supply chains to access labour in low-cost regions. But the 
fragmented and opaque nature of these chains heightens the risk of human rights abuses, 
and progress to improve working conditions has been slow. What can investors do to 
address this complex and challenging issue? By Hannah Shoesmith.
Hannah Shoesmith 
hannah.shoesmith@hermes-investment.com
For further information, please contact:
1https://www.hrw.org/report/2019/04/23/paying-bus-ticket-and-expecting-fly/how-apparel-brand-purchasing-practices-drive 
2https://www.ethicaltrade.org/sites/default/files/shared_resources/Business%20models%20%26%20labour%20standards.pdf 
https://www.ilo.org/wcmsp5/groups/public/---ed_protect/---protrav/---travail/documents/publication/wcms_556336.pdf 
https://policy-practice.oxfam.org.uk/publications/ripe-for-change-ending-human-suffering-in-supermarket-supply-chains-620418 
3https://www.ilo.org/global/about-the-ilo/newsroom/news/WCMS_574717/lang--en/index.htm
40M
modern slaves globally 25M
in forced labour
The ILO estimates there are:
6
HERMES EOS

The power of social media to shine a 
spotlight on murky practices in far-flung lands 
means that consumer awareness of worker 
exploitation has grown in recent years, 
putting companies under pressure to improve 
supply chain transparency. Emerging human 
rights litigation is also focusing corporate 
minds with new legislation presenting 
financial and reputational risks for brands that 
fail to get to grips with this apparently 
intractable problem.
The Australian Modern Slavery Act (2018), France’s Duty of Vigilance 
(2017) and the Dutch child labour due diligence law (2019) all 
represent attempts to tackle the root causes of labour exploitation. 
Meanwhile, following a review of the UK’s Modern Slavery Act, in June 
2019 Prime Minister Theresa May announced initial measures to 
strengthen the Act. Companies are also being held to account through 
the United Nations Guiding Principles on Business and Human Rights 
(UNGPs, 2011) and its reporting framework, launched in 2015. 
However, keeping sight of supply chains is just the first challenge for 
companies, many of which have highly fragmented, hyperflexible, 
seasonally varying chains, with blind spots caused by unauthorised  
sub-contracting. 
When companies do carry out due diligence of the supply chain, it 
tends to be focused on policy-driven, top-down auditing activities. At 
best these identify symptoms but fail to address the root causes of 
exploitative working conditions. There have been many media reports 
of factories or farms involved in human rights abuses even where these 
have been audited and ‘approved’ by retailers and their consultants4. 
4 For example, the Tazreen factory fire in Bangladesh 2012, Rana Plaza Bangladesh factory collapse in 2013, Thai shrimps supply chain in 2014.  
5 https://purpose-cms-production01.s3.amazonaws.com/wp-content/uploads/2018/05/14214952/Nike_FY10-11_CR_report.pdf page 30 
6 https://www.ethicaltrade.org/sites/default/files/shared_resources/corporate_leadership_on_modern_slavery_summary_0.pdf 
7 https://themekongclub.org/2019/03/04/diginex-and-the-mekong-club-join-forces-with-verifik8-and-british-government-to-pilot-blockchain-project/ 
8 https://www.dieh.dk/dyn/Normal/3/23/Normal_Content/file/1272/1504712428/guide-to-buying-responsibly-lower.pdf 
https://www.ilo.org/travail/info/fs/WCMS_556336/lang--en/index.htm
‘‘Businesses have spent millions on 
CSR programmes. Despite this 
significant investment, labour 
conditions for workers and farmers 
at the end of the global supply 
chains have not improved 
significantly.”  
Source: ETI
Companies have acknowledged these failings. As far back as 2012 
footwear manufacturer Nike said: “We have learned that monitoring 
does not bring about sustainable change. Often, it only reinforces a 
pattern of hiding problems.”5 In 2016 a report into corporate leadership 
on modern slavery found that of 71 leading retailers in the UK, 77% 
believed there was a likelihood of modern slavery occurring at some 
stage in their supply chains6. This implies new forms of monitoring and 
other approaches are required in order to make a meaningful difference. 
For example, some companies have turned to blockchain solutions to 
help map and monitor supply chains such as a collaboration with 
Thai Union shrimp farms, Diginex and the Mekong Club, a Hong Kong-
based NGO, using the Verifik8 data analytics platform7. 
However, although some retailers and brands accept there are 
prevailing human rights abuses in their supply chains, despite codes of 
conduct and auditing, very few address this in their sustainability 
reports. There is a lack of information about how to identify salient 
human rights risks when carrying out due diligence, and then to provide 
lasting remedy. 
Companies also fail to articulate their own role and responsibility in 
implementing real change in the way they purchase, despite the fact 
it is broadly accepted that certain purchasing practices have a negative 
impact on working conditions. Such practices include changing or 
cancelling orders at the last minute, providing insufficient lead times, 
demanding prices that do not meet production costs, and post-
production discounts8. 
Despite this negative outlook, there are more targeted interventions 
that can help to address the major social challenges in the supply chain, 
and it is these that investors should be focusing on, rather than 
traditional approaches to disclosure.
77%
believed there was a likelihood  
of modern slavery occuring in  
their supply chains
Of 71 leading UK retailers:
PUBLIC ENGAGEMENT REPORT Q2 2019 
7

The challenge for investors
Given these challenges, there is a growing 
discourse around which questions investors 
should be asking and if audits are getting to 
the real issues.
The disclosure of a company’s environmental, social and governance 
(ESG) data and metrics is the most common way that companies 
provide investors with the information they need to make informed 
decisions, and this data is growing fast. According to a 2018 KPMG 
survey, Asian companies reporting on ESG issues jumped from 
49% in 2011 to 78% in 2017.9
Yet the sheer abundance of data and benchmarks makes it difficult for 
investors to focus on the most material risks and opportunities for 
companies. In addition, the benchmarks do not always agree: The Wall 
Street Journal reported in September 201810 that electric car manufacturer 
Tesla had been rated best (MSCI), worst (FTSE) and average 
(Sustainalytics) for ESG issues depending on the approach of each agency.
Hermes EOS balances this data, such as information about materiality 
from the Sustainability Accounting Standards Board, with our own 
internal processes to identify key engagement opportunities with 
companies. Over the past decade we have engaged on hundreds of 
supply chain human rights topics, across mining, consumer goods, 
oil and gas, pharmaceuticals, technology and financial services sectors. 
Our supply chain work connects our activities in developed and 
developing markets and our global reach allows us to leverage 
engagement synergies that arise from these supplier and customer 
relationships, such as with Apple and its largest supplier, Hon Hai.
What can investors do?
Investors have an important role to play 
in encouraging companies to move beyond 
a focus on minimum compliance standards 
to address some of the challenges 
identified above. There are also certain key 
themes on which investors can engage to 
demonstrate more meaningful approaches 
to supply chain human rights. 
9­ https://assets.kpmg/content/dam/kpmg/xx/pdf/2017/10/executive-summary-the-kpmg-survey-of-corporate-responsibility-reporting-2017.pdf 
10 https://www.wsj.com/articles/is-tesla-or-exxon-more-sustainable-it-depends-whom-you-ask-1537199931 
11 https://www.ilo.org/wcmsp5/groups/public/---ed_norm/---declaration/documents/publication/wcms_203832.pdf 
12 https://www.ilo.org/wcmsp5/groups/public/---ed_norm/---ipec/documents/publication/wcms_653987.pdf
78%
of Asian companies reported 
on ESG issues in 2017
1  Forced Labour and Modern Slavery 
Migrant workers are particularly vulnerable to forced labour. Risks 
include hefty upfront recruitment fees paid by prospective employees, 
which can lead to debt bondage, the retention of passports by 
employers, squalid living conditions and excessive, forced overtime. 
However, it is not only migrant workers who may face forced labour 
conditions. Forced and excessive overtime, curtailment of freedom of 
movement and debt bondage can all take place with local workers too, 
with women particularly at risk. 
Investors can engage with companies on activities to identify forced 
labour and modern slavery indicators in their supply chains.11 It is 
extremely unlikely that traditional, announced audits will uncover these. 
Companies should commit to ensuring workers do not pay for jobs. 
Working with collaborative organisations such as Stronger Together in the 
UK, which has developed a responsible recruitment toolkit, and engaging 
with local NGOs to build intelligence about freedom of movement and 
exploitative conditions, is more likely to uncover concerns. 
An example of our current engagement on this topic is with US home 
improvement supplies retailer Home Depot, and its approach to managing 
prison and forced labour risks in the lower tiers of its supply chain. 
CASE STUDY
Hon Hai Precision 
Industry
In 2010, a number of workers at a Hon Hai plant committed 
suicide, and reports emerged of exploitative working 
conditions. Over six years we engaged with the company on 
its response. We gained insights into an independent 
investigation, raised concerns with the chair at the AGM, 
visited facilities to speak with workers including union 
representatives, and requested that the company progress 
with its worker health and wellbeing programme.
HERMES EOS
8

2  Child Labour
“Zero tolerance” of child labour in supply chains is one of the most 
established aspects of retailers’ social compliance programmes. 
Sustainable Development Goal 8.7 aims to end child labour in all its 
forms by 2025. Yet it is a persistent problem. The seasonal and informal 
nature of many supply chains, such as in agriculture, the lack of decent 
work for adults and insufficient provision of education mean that 
parents have no choice but to bring or send children to work.12 
Companies often cite zero-tolerance policies and audits that have not 
identified child labourers. However, children and young people 
continue to be exploited in supply chains and it is unlikely that many 
supply chains are totally child-labour free. Investors can encourage 
companies to disclose where they have identified child labourers and 
what they have done about it. 
This should include key steps such as those outlined in the Children’s 
Rights and Business Principles guidance from Unicef, the UN Global 
Compact and Save the Children.13 Emphasis should be placed on 
providing proper rehabilitation for the child and the family involved, but 
also on identifying the root cause. This can be a complex task that 
requires careful stakeholder engagement, such as with government 
representatives, local NGOs and community leaders, to understand the 
reasons for the child labour and identify long-term, sustainable 
solutions. Companies should also be encouraged to implement an 
ongoing process to map child labour risk and develop partnerships with 
local experts to provide support.
We engage with Swiss food and drink company Nestlé on cocoa supply 
chain and child labour risks. The company has developed local partnerships 
with NGOs and local government, as well as an industry initiative. 
We encourage the company to disclose its progress on its activities 
to address the root causes of child labour in cocoa plantations. 
"While reliable numbers are difficult 
to come by, it is safe to say that the 
issue of child labour in supply chains 
extends to most sectors and most 
regions of the world.” 
Source: ILO
13https://www.unglobalcompact.org/docs/issues_doc/human_rights/CRBP/Childrens_Rights_and_Business_Principles.pdf 
14https://www.ilo.org/wcmsp5/groups/public/---ed_protect/---protrav/---travail/documents/publication/wcms_556336.pdf
CASE STUDY
Kuala Lumpur 
Kepong
In 2012, allegations were made about poor working 
conditions at palm oil plantations supplying Kuala Lumpur 
Kepong, a Malaysian palm oil company. Over the past seven 
years Hermes EOS has engaged with the company on how it 
can strengthen its due diligence, identify any further 
concerns, and remedy these. 
The company has worked with a local NGO to carry out 
assessments and developed follow-up actions. These include 
addressing modern slavery indicators such as access to passports 
for migrant workers and eliminating recruitment agency fees. In 
2018, the company updated its labour standards commitments 
and agreed a non-compliance protocol with one of its most 
critical stakeholders – the NGO that made the original allegations. 
The company is currently setting up an internal taskforce focused 
on labour standards chaired by its head of plantations. 
The WEST Principles – Worker Engagement Supported by Technology 
– are a collaboration between technology providers, employers, NGOs, 
industry and subject matter experts. The aim is to develop principles 
to maximise the impact of technology to identify and address the risk 
of abuse and exploitation of workers in global supply chains. 
3  Living Wages and  
Purchasing Practices 
Most retailers and brands have a commitment to paying a living wage. 
However, there is little consensus about how a living wage should be 
calculated, although the Global Living Wage Coalition is making 
progress. The reality is that minimum wages are frequently not paid, 
capturing workers in a cycle of poverty, which leads to other human 
rights abuses such as debt bondage or child labour. In a survey of over 
1,450 suppliers in 87 countries by the ILO and the joint ETIs, 39% of 
suppliers reported accepting orders below the production cost, 
struggling to pay workers as a result.14 
An awareness of companies’ roles in driving down labour standards has 
developed into a debate about business models and purchasing 
practices. Increasingly, businesses are acknowledging the role they have 
to play in improving their own procurement in order to enhance 
working conditions, but many have made only incremental progress.
PUBLIC ENGAGEMENT REPORT Q2 2019 
9

Investors can engage with companies on how to adapt their practices 
to take account of this. For example, they can provide better forecasting 
to help suppliers plan production, by factoring in realistic lead times for 
product launches and by ringfencing wages in negotiations. Buying and 
sourcing teams should be evaluated against these activities as well as 
more traditional measures, such as intake margin. Investors can also ask 
companies if they have considered collective action with other brands 
and retailers on living wages, such as through ACT on Living Wages, or 
if they have considered taking part in Better Buying,15 an industry-wide 
approach to improving buying practices. 
We have been in discussion with fashion retailer H&M about ensuring 
supply chain living wages and how it will use its collaboration with 
ACT on Living Wages to help empower workers to collectively bargain 
on wages and working conditions.
4  Worker Voice
In order to improve labour standards and drastically reduce human 
rights abuses, workers must be a key source of information and take 
part in developing solutions. For too long, corporate auditing 
programmes have failed to include genuine worker feedback. There 
have been some attempts to improve worker interviews, but workers 
do not feel secure enough to share details about exploitation and many 
are even coached on the answers to give to auditors. 
In 2016, an NGO uncovered sexual exploitation of female factory workers 
in the Bangalore supply chains of British retailers through interviews with 
employees. These were carried out away from the workplace by female 
members of the NGO team, and not through worker interviews as part of 
the many factory audits carried out by customers.16 
Next steps
Human capital management and human rights remain high 
priority topics in our engagement plan and this list of key 
themes is by no means exhaustive. More traditional topics such 
as worker health and safety are sadly still relevant today. 
However, investors can harness their influence to encourage 
companies to consider and disclose how they address these 
persistent challenges with more innovative, holistic solutions, 
whilst continuing to educate themselves through collaboration 
with key stakeholders and site visits. 
15 https://betterbuying.org/ 
16 https://www.sistersforchange.org.uk/2018/06/20/eliminating-violence-against-women-at-work/ 
17 https://www.ilo.org/wcmsp5/groups/public/@ed_dialogue/@sector/documents/publication/wcms_300463.pdf 
18 https://policy-practice.oxfam.org.uk/publications/ripe-for-change-ending-human-suffering-in-supermarket-supply-chains-620418 
Union-based collective bargaining should be available to factory 
workers but too often this is restricted. Investors can seek to 
understand how companies support suppliers that allow workers a 
meaningful mechanism of worker and management dialogue. In 
addition, investors can ask companies how they are putting workers at 
the centre of their own due diligence work and finding trusted ways to 
receive genuine and regular feedback, such as using apps on workers’ 
smart phones. 
Our engagement with sportswear manufacturer Adidas includes 
worker grievances and the development of hotlines and worker voice 
technology, which will be extended to all strategic suppliers by 2020. 
5  Gender-Specific Issues
Women and girls working in supply chains are more vulnerable to 
exploitation and may not be able to access their workplace rights or 
voice their grievances due to their social status. An average of 68% of the 
global apparel sector workforce is female.17 Women are also concentrated 
in the lowest paid, least secure roles across the agri-food sector.18
Investors should expect companies to articulate how they are 
incorporating gender-specific issues into their supply chain human 
rights due diligence. In particular, they should say how it features in 
their consideration of saliency, how they develop worker engagement 
approaches that are designed to address gendered human rights risks, 
and how they design remediation programmes to improve working 
conditions for women specifically. 
39%
68%
of suppliers surveyed 
reported accepting orders 
below the production cost
of the global 
apparel sector 
workforce is female
In order to improve labour standards 
and drastically reduce human rights 
abuses, workers must be a key 
source of information and take part 
in developing solutions.
HERMES EOS
10

In the 15 years since Hermes EOS was launched, stewardship has travelled from the 
fringes to the mainstream, with the benefits of engaging with companies on 
environmental, social and governance (ESG) risks and opportunities now more widely 
recognised by investors and regulators. 
COMING OF AGE: 
15 years of stewardship with Hermes EOS 
Setting the scene
Stewardship is in our DNA. More than just voting shareholdings at 
annual meetings, stewardship includes screening, monitoring and 
engaging with companies on matters that impact long-term value 
creation, such as strategy, capital structure, performance, risk, 
corporate governance and culture, and material environmental 
and social issues. But the road to mainstream acceptance has 
been far from smooth.
Sustainable investing and stewardship are 
now considered must-haves for any asset 
manager keen to attract long-term investors, 
but 15 years ago, serious practitioners were 
few and far between. 
Back then, engagement was underused and underdeveloped – 
screening and divestment were easier if asset managers wanted to 
burnish their responsible investment credentials. But for long-term 
institutional investors with large equity allocations, such as Hermes 
Investment Management’s then owner, the BT Pension Scheme (BTPS), 
this was less than ideal.
Hermes had taken some early steps in stewardship through a dedicated 
corporate governance team and concentrated Focus Funds, which 
identified companies with governance issues and sought to improve them.  
Seeing the success of this approach mainly in the UK, BTPS strongly 
Hans-Christoph Hirt
Hans-Christoph.Hirt@hermes-investment.com
For further information, please contact:
encouraged Hermes to scale this up and engage systematically with key 
holdings around the world.
Serendipitously, another large pension fund sought our help on 
stewardship around the same time. Hermes recognised that providing 
such a service for clients who shared the same values and aims would 
support the development of a team of the right size and calibre to make 
a meaningful impact with companies globally. 
A dedicated engagement team was set up, and as Hermes Investment 
Management was named after the messenger of the gods, the name 
EOS was chosen after the rosy-fingered goddess of the dawn, while also 
standing for Equity Ownership Services. 
Like any start-up, the early days were challenging at times, with late 
nights during AGM season for staff trying to make considered voting 
recommendations at a growing number of companies. EOS was also 
quite UK-centric, a far cry from the global reach it would later achieve.
11
PUBLIC ENGAGEMENT REPORT Q2 2019

Initially the focus was on key corporate governance issues – board 
composition, independence, skill-sets and dynamics, and remuneration. 
Beyond the UK, companies were less receptive to dialogue with 
investors. So in these early years, Hermes EOS built credibility overseas 
by publishing country-specific local corporate governance principles. 
There were some significant hurdles to overcome. The concept of 
stewardship was in its infancy, and many mainstream investors were 
yet to be convinced of the value of engagement. Meanwhile, 
companies were often unused to board-level dialogue with investors on 
long-term issues and could be resistant or unhelpful.
But changes were afoot. A major report published in 2004 under the 
auspices of the UN Global Compact, Who Cares Wins: Connecting 
Financial Markets to a Changing World, coined the term ESG and 
promulgated the notion that environmental, social and governance 
factors should be incorporated into investment. 
The UN then invited a group of the world’s largest institutional 
investors to develop the Principles for Responsible Investment (PRI), 
launched in 2006. Hermes was on board as a founding signatory and 
chaired the working group that drafted the principles. The PRI would 
help to promote the idea that shareholders should play an active role in 
their investments. But a catalyst to drive real change was needed – and 
investors would not have long to wait.
First regional 
corporate 
governance 
principles 
2005
First 
Dutch & 
Australian 
clients
2008
First Client 
Advisory Council 
First Danish & 
Canadian clients
2007
Hermes leads drafting 
of UNPRI and 
becomes founding 
signatory
2006
First AGM intervention 
outside the UK at 
Volkswagen
Hermes EOS 
established 
First UK client
2004
CASE STUDY
Volkswagen 
German AGMs can be huge affairs, held in vast, draughty 
conference centres and sometimes judged more by the quality 
of their sausages than the quality of their speeches. Hermes 
EOS would disrupt this staid world with interventions at  
car-maker Volkswagen’s 2006 and 2007 AGMs when we 
challenged supervisory board chair Ferdinand Piech and chief 
executive Martin Winterkorn.
The aim was to highlight problems with the company’s corporate 
governance, stemming from an unusual ownership structure and 
a culture driven by a dominant chair supported by family 
shareholdings. We kept up the pressure over the years, raising 
concerns about the effectiveness of VW’s supervisory board due 
to its limited independence, but there was not enough support 
from other institutional investors to trigger meaningful change. 
Things came to a head with the Dieselgate scandal in 2015, when 
Volkswagen was revealed to have systematically cheated in diesel 
emissions tests. The company suffered huge reputational and 
financial damage, the CEO resigned, and Volkswagen had to pay 
some $30 billion in fines, civil damages and restitution.1
In our view, the company’s culture and the failings of the supervisory 
board to monitor senior management and hold them to account, 
enabled the emissions deception to unfold and remain undetected 
for years. Four years on from Dieselgate, we still need to see tangible 
and credible evidence of improving governance and culture. On the 
positive side, Volkswagen has made a strategic decision to become a 
leader in electric vehicles and is aiming to be carbon neutral in its 
operations and products by 2050. 
There were some significant 
hurdles to overcome. The concept 
of stewardship was in its infancy, 
and many mainstream investors 
were yet to be convinced of the 
value of engagement.
HERMES EOS
12

Hermes Responsible 
Ownership Principles 
relaunched
Hermes 
signs the UK 
Stewardship 
Code
Led ﬁrst 
proxy ﬁght in 
Germany
2010
First AGM 
intervention in Asia 
at Hon Hai 
Precision Industry
2014
Input into Japanese 
and Malaysian 
Stewardship Codes 
First Annual 
Report 
published 
2011
First Remuneration 
Principles published
Year end AUA
$163bn
2013
1 https://uk.reuters.com/article/uk-volkswagen-emissions/vws-dieselgate-bill-hits-30-billion-after-another-charge-idUKKCN1C40RN 
2 https://www.theguardian.com/environment/2012/nov/28/epa-suspends-bp-oil-spill 
3 https://eu.usatoday.com/story/money/2016/07/14/bp-deepwater-horizon-costs/87087056/
Lessons learnt
The financial meltdown triggered by the  
sub-prime crisis in 2007-8 forced market 
participants to rethink their approach.
Investors and companies had little time to debate the finer points of 
stewardship in the thick of the crisis as everyone scrambled to put out 
the fire, but once the smoke had cleared, asset-owners asked what they 
needed to do to avoid such painful losses again. In the UK, the Stewardship 
Code, launched in 2010, was one response to the crisis. The main aim was 
to encourage institutional investors to engage on corporate governance 
on behalf of their underlying beneficiaries. This included ensuring effective 
risk management and reining in excessive pay and misaligned incentives 
in management remuneration.
During this difficult period, the Hermes executive team provided vital 
support to EOS. We relaunched our Responsible Ownership Principles 
in 2010, setting out how we discharged our responsibilities, so that 
companies would understand what to expect in an engagement. 
We also developed a milestone system to track our progress in 
engagements, signed the UK Stewardship Code, and after an intensive 
engagement, led a proxy fight in Germany at semiconductor 
manufacturer Infineon. That engagement established an important 
principle in Germany that supervisory boards should involve investors 
in the nomination process in a meaningful way.
The main aim was to encourage 
institutional investors to engage 
on corporate governance on behalf 
of their underlying beneficiaries. 
We also engaged with BP following the Deepwater Horizon explosion and 
oil spill at the Macondo Prospect in 2010, which killed 11 workers and 
resulted in the biggest environmental disaster in US history.2 The total 
cost of fines and compensation paid by BP would run to over $60 billion.3 
Prior to the explosion, we had identified that the health and safety 
function within BP was becoming excessively decentralised and were 
concerned that lessons learnt in one operation were not being applied 
across the whole group. After the accident we stepped up our 
engagement, not only at BP, but across the industry, focusing on how 
companies should respond to catastrophic oil spills, and what 
improvements should be made to risk management processes to 
minimise the likelihood of such incidents reoccurring.
$60BN
fines and compensation 
paid by BP for Deepwater 
Horizon explosion
2010
UK Stewardship Code 
launched
PUBLIC ENGAGEMENT REPORT Q2 2019 
13

Shareholder rebellions
By 2012, some investors had grown tired of 
company executives receiving massive pay 
packets regardless of performance. 
With many investors still nursing losses in the wake of the global 
financial crisis it was seen as disproportionate, and in some cases, a 
reward for failure. Investors began voting against some of these 
enormous pay-outs in what was characterised as the shareholder spring 
– for example, there was a 59% vote against the board remuneration 
policies at advertising agency WPP in protest against the 60% rise in 
total pay for CEO Sir Martin Sorrell4,5 in a year when the share price fell. 
Reflecting this concern, we developed our remuneration principles with 
the help of other investors and major companies. We also became 
more active outside Europe, speaking in front of some 14,000 people at 
Walmart’s 2013 shareholder meeting to call for an independent chair.6 
On the back of our engagement, Walmart arranged for us to visit 
clothing factories in Bangladesh, where retailers and brands were under 
pressure over labour standards and safety in their supply chains in the 
wake of the Rana Plaza tragedy. 
4 https://www.theguardian.com/media/2012/jun/13/wpp-shareholders-vote-against-sorrell-pay 
5 https://www.ft.com/content/045ca646-b547-11e1-ab92-00144feabdc0 
6 https://www.ft.com/content/ef4ac8c8-cf94-11e2-a050-00144feab7de
Joined the 
Aiming for A 
coalition on 
climate 
change 
AGM intervention 
and successful 
engagement leads to 
management changes 
at Deutsche Bank
First US 
Client
2015
First Japanese & 
Swedish clients 
Member of drafting 
committee for 
Brazilian 
Stewardship Code 
HEOS attends 
Paris Agreement 
ratiﬁcation – ﬁrst 
legally binding 
global climate deal 
Published 
Remuneration 
Principles – 
Clarifying 
Expectations 
paper
2016
Successful 
shareholder 
resolutions at 
mining companies 
as part of Aiming 
for A
With the stewardship tide lapping at the shores of Asia, we gave input 
into new Malaysian and Japanese Stewardship Codes. And in 2014, with 
social issues rising up the investor agenda, we made our first Asian AGM 
intervention at Hon Hai Precision Industry, better known as Foxconn. 
This Taiwanese electronics manufacturer, which makes products for 
Western consumer goods companies, had seen a spate of suicides at its 
factories, and reports emerged alleging poor labour practices. Following 
intensive engagement with Hon Hai on human capital management 
over several years, including a site visit and meetings at the company’s 
headquarters, we went to Taipei on behalf of a group of investors owning 
around 2.3% of the company, to deliver a statement at the AGM. After 
further engagement, the company would make some progress on labour 
issues, and in early 2017, a third-party research firm took Foxconn off its 
controversial companies list.
However, adoption of stewardship remained low across the asset 
management industry, and generally under-resourced. This was despite 
the fact that several academic studies had emerged showing that 
engagement on ESG issues reduced risk and enhanced returns. 
Supportive data would help to erode some of the scepticism towards 
engagement and convinced more pension funds that stewardship made 
sense from a financial perspective, not just an ethical standpoint. 
With the stewardship tide lapping 
at the shores of Asia, we gave input 
into new Malaysian and Japanese 
Stewardship Codes.
59%
60%
vote against the 
board remuneration 
policies 
rise in total pay for 
CEO... in a year when 
the share price fell
Advertising agency WPP
HERMES EOS
14

Building momentum
The upsurge in interest from asset owners 
meant that companies had to pay attention. 
Institutional investors were now working 
collaboratively to move the needle at 
companies and the momentum was building 
to a point where ESG engagement was poised 
to enter the mainstream.
Nowhere was this clearer than in environmental risk, where the increasingly 
dire warnings from scientists about climate change had become impossible 
to ignore. The Paris Agreement of 2015 served notice that companies could 
not continue with “business as usual” – this was unsustainable. 
Early successes included the Aiming for A coalition, which Hermes EOS 
joined in 2015. Through engagement, we helped to co-ordinate 
shareholder resolutions calling for more transparency over climate 
change risks and opportunities at the 2016 AGMs of miners Anglo 
American, Glencore and Rio Tinto. These resolutions, which were 
developed through collaborative engagement, were supported by the 
companies’ boards and passed by a majority of investors, creating new 
momentum for action on climate change in the mining industry.
For example, investors responsible for more than $8 trillion backed the 
Anglo American resolution, including four out of 10 of the world’s largest 
pension funds, with over 95% of the votes in favour.7 The company went 
on to set science-based targets to reduce its own emissions, with a goal 
to establish carbon neutral mining over the long term. 
‘High Sustainability’ firms generate higher returns over the long term
$0
$5
$10
$15
$20
$25
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
Evolution of $1 invested
Low sustainability
High sustainability
Source: A 2014 study by Eccles, Ioannou, and Serafeim investigated the effect of 
corporate sustainability on organisational processes and performance using a matched 
sample of 180 US companies  
High sustainability companies = those that voluntarily adopted sustainability policies by 
1993. Low sustainability companies = those that adopted almost none of these policies 
Engagement linked to enhanced financial performance
-2
-1
0
1
2
3
4
5
6
7
8
-1
0
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18
Monthly adjusted return relative to engagement
Event Window (in months)
All engagements
All successful
All unsuccessful
Source: A 2012 study by Elroy Dimsona, Oğuzhan Karakaşb, and Xi Lic analysed an 
extensive database of corporate social responsibility engagements with US public 
companies over 1999–2009 addressing environmental, social, and governance concerns. 
Engagements are followed by a one-year abnormal return that averages +1.8%, 
comprising +4.4% for successful and zero for unsuccessful engagements. 
7 https://blueandgreentomorrow.com/environment/overwhelming-support-mining-climate-resolutions/ 
8 https://insideclimatenews.org/news/31052017/exxon-shareholder-climate-change-disclosure-resolution-approved
Past performance is not a reliable indicator of future results.
Partnership 
with ACSI, 
stewardship 
provider for 
Australian asset 
owners
EU Shareholder 
Rights Directive 
II comes into 
effect 
2019
15 year 
anniversary
Formal client 
feedback 
governance 
loop 
established 
2017
First Belgian 
client 
Team reaches 
30 people
Federated 
Investors acquires 
60% stake in 
Hermes 
Investment 
Management
Lead / co-lead of 
the most 
companies in the 
Climate Action 
100+ initiative
Academic research 
on HEOS data 
highlights successful 
engagement leads to 
reductions in 
downside risk
Year end AUA
$496bn
2018
$8TN
of assets backed the 
Anglo American resolution 95%+
of the votes 
in favour
PUBLIC ENGAGEMENT REPORT Q2 2019 
15

There was another important milestone in 2017 when ExxonMobil 
shareholders voted 62% in favour of a resolution that we co-filed, 
requesting that the oil giant report on the impacts of climate change 
to its business, despite stiff opposition from management.8 
This followed a similar shareholder proposal at Chevron in 2016, 
where we were the lead co-filer, which received 41% support. 
Climate Action 100+, an even bigger investor-led initiative focusing on 
the systemically most important greenhouse gas emitters, is another 
example of how stewardship has evolved. With over US$33 trillion in 
assets backing the initiative, companies are now engaging with investors 
about the long-term risks to their businesses posed by climate change, 
and the need to act, as well as improve their governance and disclosure. 
Hermes EOS is leading or co-leading on 27 of the 160 companies in 
the initiative, garnering 99% support for a shareholder resolution at 
BP’s 2019 AGM, which asked the oil giant to set out how its strategy 
is consistent with the goals of the Paris Agreement. 
On the governance agenda, change was also taking place in the US, 
frequently led by the use of shareholder resolutions. This has resulted 
in improvements to ‘proxy access’, which in the US means shareholders 
can now put their own nominees forward for a director’s position on 
the board’s slate, avoiding costly and divisive proxy contests. 
To truly come of age, stewardship 
must move to the heart of 
investment activities rather 
than being secondary to the 
buying and selling of securities.
2015
The Paris Agreement 
reached
$33TN+
in assets backing the Climate 
Action 100+ initiative
Building momentum
Greater transparency
Greater focus and awareness at the asset 
owner and beneficiary level prompted a push 
for more transparency around engagements. 
At EOS, that led to the development of a detailed engagement plan, with 
companies and themes chosen in a systematic way. To formulate the 
plan, we consult stewardship clients about their priorities and the most 
material issues on which we need to engage companies. The plan helps 
us stay on track and ensures our efforts are focused where they can have 
the most impact.
We disclose the results of our activities through our company case 
studies and other reporting, and advocate for the adoption of best 
practice and improved standards through our public policy work. 
Although engagement mainly takes place behind closed doors in order 
to preserve trust and ensure a frank dialogue with companies, we have 
helped shift expectations on disclosure. 
In lockstep, we have seen an increase in the size and importance of 
ESG and responsible investing teams at our clients and across the 
industry. Stewardship now has many champions ready to fight its 
corner, with PRI signatories mustering almost $90 trillion in assets 
under management.
In the US, we have seen a greater willingness from companies to 
engage, partly driven by demand from investors and partly by a 
recognition that good corporate governance is the bedrock of more 
sustainable growth. And in Europe, the resources devoted to active 
ownership are only expected to increase with the implementation 
of the EU’s updated Shareholder Rights Directive. The UN’s 
Sustainable Development Goals (SDGs) and the recommendations 
of the Task Force for Climate-Related Financial Disclosures (TCFD), 
which apply to both investors and companies, provide an 
additional impetus to investors to engage on a wider range of 
societal and environmental challenges.
The road ahead
The dangers of ignoring poor corporate 
governance will always serve as a stark 
warning, but investors are increasingly 
focused on the climate crisis, with the 
toughest battles still ahead. 
Short-termism remains a bugbear of markets, with some asset 
managers paying lip service to stewardship but reluctant to 
challenge companies effectively. 
To truly come of age, stewardship must move to the heart of 
investment activities rather than being secondary to the buying and 
selling of securities. This will mean significant resourcing, and a shift 
in focus from policies and processes towards outcomes. Investors will 
want to see where stewardship is having the greatest impact, and 
who is really able to deliver results. 
HERMES EOS
16

Setting the scene
Artificial intelligence (AI) has the potential to be hugely 
disruptive for businesses and the economy, with both benefits 
and costs to society. AI already underpins many everyday 
transactions and interactions, from online shopping and following 
of current affairs, to navigating by using our smartphones. Such 
services may appear free to use, but concerns around loss of 
privacy, consumer manipulation and even the undermining of the 
democratic process, have grown. A failure by social media 
companies to manage these risks adequately has triggered big 
fines for some and is prompting regulators to look at the sector 
closely, with a view to imposing tighter controls. 
ARE FRIENDS  
ELECTRIC? 
Adventures in ethical AI
Repeated failures by social media companies to regulate themselves have forced 
lawmakers to take a closer look at the algorithms underpinning our daily lives.  
So what does responsible artificial intelligence and data governance look like?  
And what should investors be asking for? By Claire Milhench.
Christine Chow
christine.chow@hermes-investment.com
For further information, please contact:
From the homicidal HAL 9000 in 2001: 
A Space Odyssey to the world-ending Skynet in 
The Terminator movie franchise, we are all 
familiar with the nightmarish tropes of 
machine consciousness in science fiction. 
But the everyday reality of artificial intelligence 
is more insidious – AI is already here, operating 
under the radar, silently harvesting our data, 
often without our knowledge. 
While AI has the potential to be a force for good, it can also be used in 
ways detrimental to society. AI can erode privacy by breaching consent 
laws and entrench inequality by reinforcing selection biases. There are 
also instances of over-reliance on AI to solve problems that require 
greater human intervention and oversight, such as monitoring the 
spread of harmful materials online. 
17
PUBLIC ENGAGEMENT REPORT Q2 2019

1  https://www.bbc.co.uk/news/technology-48276802 
2 https://research.gs.com/content/research/en/reports/2019/06/13/4d1dd803-400c-4abe-a2b6-bd9473026ca4.html 
3 https://www.theguardian.com/news/2018/mar/17/cambridge-analytica-facebook-influence-us-election 
4 https://www.theguardian.com/technology/2018/jul/26/facebook-market-cap-falls-109bn-dollars-after-growth-shock 
5 https://www.bbc.co.uk/news/technology-48276802
6 https://www.wired.com/story/inside-chinas-massive-surveillance-operation/ 
7 https://www.bbc.co.uk/news/resources/idt-sh/China_hidden_camps 
8 https://www.theguardian.com/world/2019/jan/11/if-you-enter-a-camp-you-never-come-out-inside-chinas-war-on-islam 
9 https://www.bbc.co.uk/news/technology-48276660 
For example, in March 2019, social media companies failed to prevent 
the livestreaming and reposting of the New Zealand mosque shootings 
in which 51 people died, because algorithms were not sophisticated 
enough to distinguish between real and fake violence.1
The ethical questions posed by embedding AI into all walks of life mean 
that regulators, consumers and investors need to become more 
sophisticated to identify the unintended consequences of its use. 
This is an issue that matters both from an investment perspective – 
because regulators may fine or break up companies that fail to police 
themselves – and from a societal perspective, because of the grave, 
long-lasting harms that can be done. 
Chief concerns
Reflecting growing investor concerns, internet 
platforms attracted the most environmental 
and social shareholder proposals in two of the 
past three years in the US, according to a 
Goldman Sachs report.2 These concerns cover 
a number of areas: 
1  Data consent and loss of privacy
Data may be harvested online from individuals who have not given their 
express consent and then sold on to third parties. The most high-profile 
example of this is political consultancy Cambridge Analytica, which in 
2018 was revealed to have harvested personal data from millions of 
people’s Facebook profiles.3 This data was then used to target voters. The 
backlash had significant financial and reputational consequences for the 
company. Italian authorities fined Facebook €10 million for misleading 
users over its data practices. Facebook’s share price also suffered its 
biggest ever one-day drop in July 2018, wiping some $119 billion off its 
market value, after it revealed three million users in Europe had 
abandoned it in the wake of the scandal and the regulatory response.4 
Cambridge Analytica filed for insolvency and has ceased operations. 
The EU’s General Data Protection Regulation (GDPR), which came into 
effect in May 2018, has significantly enhanced public awareness of data 
privacy as a human right. However, companies may not understand the 
extent to which it is applied. For example, many devices and 
applications still fail to provide users with simple, clear opt-outs, 
burying them in hidden sub-menus or warning that the application will 
not work without the user clicking “I Agree”. This results in devices that 
may routinely eavesdrop on conversations without the user’s express 
consent, ostensibly to “improve” the user experience, while location 
trackers monitor the user’s every move. 
Investors are also concerned about the use of AI-powered facial 
recognition software by governments to target segments of a 
population. For example, the US Congress highlighted the use of 
Hikvision’s facial recognition software by the Chinese government 
(see case study), which has reportedly interned hundreds of thousands 
of the Uyghur ethnic minority population in massive “re-education” 
camps.6,7,8 In May 2019, San Francisco became the first US city to ban 
the use of facial recognition software.9
CASE STUDY
Facebook
We are engaging with Facebook on a number of material 
governance and business model issues in light of the furore 
around how its platform works. 
Concerns include a lack of control over the posting of content 
that is intended to mislead or is illegal, and the loss of privacy. 
We also have concerns that its business model continues to 
threaten its social licence to operate. In May 2019, Facebook 
signed up to the Christchurch Call to Action to tackle the spread 
of terrorist content online and introduced a “one-strike” policy 
for those who violate new livestreaming rules5. 
We have pushed for the company to be clearer on its strategy to 
extricate itself from the reputational, legal and regulatory issues 
it faces. There has been more investment in content governance 
but there is no clear coherent plan with objectives and milestones 
so that stakeholders can judge progress. 
As a result of our concerns about the board and its response to the 
crisis at the company we recommended a vote against the lead 
director and the chair of the audit and risk committee. We also 
opposed this year's say-on-pay vote as a result of insufficient share 
ownership requirements and lack of a clawback policy. Finally we 
backed shareholder proposals concerning: abolishing the dual class 
structure; an independent chair; the election of directors by 
majority voting; gender pay gap reporting; and for a report 
concerning the content governance crisis, which would help to 
resolve in part our concerns about the company's response.
Tim Goodman
Investors are also concerned about 
the use of AI-powered facial 
recognition software by governments 
to target segments of a population.  
HERMES EOS
18

2  Loss of autonomy and consumer 
manipulation 
Human autonomy or free will is in danger of being eroded 
as sophisticated AI algorithms are used to sell more consumer goods or 
drive repeat activity on social media so that tech firms – and the third 
parties who pay them – can gather more data. Users, who may include 
children or other vulnerable individuals, can find themselves spending 
more and more time on their devices, as the software has been 
designed to engender addictive behaviour, under the guise 
of “customisation”. 
A bipartisan bill – the DETOUR Act – has been introduced in the US 
Congress to try to tackle the loss of privacy and autonomy. If passed, 
the legislation would ban large online platforms from using the 
deceptive interfaces known as dark patterns, which trick consumers 
into handing over their personal data. These manipulative interfaces 
undermine consumer choice by obscuring alternative choices or pushing 
users to “agree” as the default option. The bill is also designed to prevent 
tech firms from driving compulsive usage among children under 13.10
3  Discrimination
This may occur when companies are making new hires if AI is used to 
make first round selections and weed out candidates. If there is a bias 
on the part of the programmer of the algorithm or in the data that is 
used, then the algorithm itself will be biased, and the initial bias is 
effectively amplified as any candidate that does not fit a particular 
template is discarded. For example, Amazon had to scrap an AI 
recruiting tool that discriminated against women when hiring for 
software developer jobs and other technical positions.11
The Algorithmic Accountability Act, a US Senate bill that would require 
larger companies to test their algorithms and fix anything inaccurate, 
unfair, biased or discriminatory, is an attempt to address this.12 The fear is 
that this discrimination is more insidious than traditional institutionalised 
sexism and racism, as it is harder to detect. It can also heighten social 
exclusion and inequality via misuse in the financial services industry, for 
example, through customer profiling and credit scoring. 
Meanwhile, in the UK, an algorithm that seeks to predict who will 
reoffend is being trialled by police forces, despite warnings about 
potential bias.13
4  Job losses and loss of social harmony
Increasingly sophisticated AI software could lead to job losses across 
many fields, with a 2018 OECD report identifying 14% of jobs across 32 
countries as “highly vulnerable to automation”.14 However, a July 2018 
report from PWC suggested AI could create as many jobs as it displaces 
by boosting economic growth. The key issue is that it will be disruptive, 
requiring people to acquire new skills or relocate, so the winners will 
likely be those who are well-educated and mobile.15
10 https://www.fischer.senate.gov/public/index.cfm/2019/4/senators-introduce-bipartisan-legislation-to-ban-manipulative-dark-pattern
11 https://www.reuters.com/article/us-amazon-com-jobs-automation-insight/amazon-scraps-secret-ai-recruiting-tool-that-showed-bias-against-women-idUSKCN1MK08G 
12 https://www.wyden.senate.gov/news/press-releases/wyden-booker-clarke-introduce-bill-requiring-companies-to-target-bias-in-corporate-algorithms- 
13 https://www.theguardian.com/uk-news/2019/apr/20/predictive-policing-tool-could-entrench-bias-ethics-committee-warns 
14 https://www.weforum.org/agenda/2018/08/here-s-how-vulnerable-to-automation-your-job-is/ 
15 https://www.pwc.co.uk/press-room/press-releases/AI-will-create-as-many-jobs-as-it-displaces-by-boosting-economic-growth.html 
CASE STUDY
Key AI issues 
in two sectors
Financial services  
AI applications are widely used in financial services from 
the front to the back office, including in robo investment 
advisory services, customer targeting, algorithmic trading, 
risk management and operations. 
However, there are challenges associated with big data 
credit-scoring tools, customer profiling and risk assessment 
in banking and insurance. There is a potential for biased 
and discriminatory scoring due to input bias, while opaque 
algorithms can result in a potential breach of the existing 
regulations relating to fair lending as some groups may be 
excluded from eligibility for loans.
Healthcare 
AI could revolutionise drug discovery and development as it 
is able to analyse massive datasets in far less time than that 
taken by human researchers. 
However, AI might work less well where data is scarce, which 
could affect people with rare conditions, or under-represented 
groups in clinical trials and research data. Biases in datasets may 
adversely affect diagnostic outcomes and the effectiveness of 
treatments for certain patient groups. 
We are also beginning to engage with medical device companies 
using AI. Whilst the US Food and Drug Administration has 
published an initial framework for AI medical device approval, 
challenges remain around how a device can be approved as safe 
for patient use when it is constantly evolving. This is because AI 
may alter the algorithm and function of the device to treat new 
and changing symptoms. We believe that as a first step to 
overcome this potential regulatory hurdle, medical device 
companies using AI should be able to demonstrate an ethical 
culture and robust approach and consideration for patient safety 
through the establishment of company AI principles.
Janet Wong
Katie Frame
PUBLIC ENGAGEMENT REPORT Q2 2019 
19

Ways investors can address this
In April, Hermes EOS, together with law firm 
BCLP, published a white paper on 'Responsible 
Artificial Intelligence and Data Governance',17 to 
provide a framework for corporate engagement. 
This sets out six principles, which can be used to 
open a dialogue with companies.
Investors can begin by asking basic questions such as: does a company 
know where AI is used within its organisation? Does it have a set of 
internal guidelines for the responsible use of AI? Is the company likely 
to be exposed to legal liabilities and financial penalties due to AI 
applications? Will the negative impact of AI applications cause 
reputational damage and harm the social licence to operate? 
Highlighting the growing importance of this topic, in May 2019 the 
OECD adopted its Principles on Artificial Intelligence, the first 
international standards agreed by governments for the responsible 
stewardship of trustworthy AI18. Also, the UK’s Institute of Business 
Ethics published a board briefing in June, Corporate Ethics in a Digital 
Age, encouraging boards to put the issue on their agendas19. At Hermes 
EOS, we have identified AI, automation and data risk management as 
an emerging stewardship theme, subject to a higher level of 
engagement intensity this year. This means focusing on AI applications 
in other sectors besides technology, especially financial services, where 
we have already set some objectives, and healthcare. 
Our responsible AI and  
data governance principles 
	
  Trust	
  Transparency	          
  Action    
  Integrity	
  Accountability         
  Safety
Building on our experience of engaging on these issues, we have created a further  
framework, based on identifying material legal and financial risks, and social impacts.
A risk factor assessment
Material 
legal and ﬁnancial outcomes
Regulatory
Counterparty
Cybersecurity
Exploitation
Operational
Salient social impacts
A process-driven approach
Input bias
Process bias
Outcomes bias
Explainability
Oversight
16 https://www.ft.com/content/36b4cb42-50f3-11e9-b401-8d9ef1626294
17 https://www.hermes-investment.com/ukw/eos-insight/eos/investors-expectations-on-responsible-artificial-intelligence-and-data-governance/ 
18 https://www.oecd.org/going-digital/ai/principles/ 
19 https://www.ibe.org.uk/userassets/pubsummaries/ibe_board_briefing_corporate_ethics_in_a_digital_age_summary.pdf
CASE STUDY
Hikvision
Hikvision’s surveillance cameras and facial recognition software 
have been at the centre of a debate about human rights abuses 
after a US Congressional hearing on Chinese mass detentions 
named the company. Hikvision’s position is that it is a politically 
neutral product provider. However, some US asset managers 
have excluded Hikvision from their portfolios.16 
We are engaging with the company to encourage the application 
of global standards such as the UN Guiding Principles for Business 
and Human Rights, and the development of a global human 
rights policy for the use of its AI technology. In December 2018, 
the company created a new compliance department to address 
compliance-related issues including human rights violation 
allegations, data protection, fair competition, and bribery and 
corruption. We are in discussion on the company’s responsible 
use of data for AI training and testing purposes. 
HERMES EOS
20

20 AI at Google: our principles, Sundar Pichai CEO, 7 June 2018 
21 https://ai.google/static/documents/perspectives-on-issues-in-ai-governance.pdf 
22 Defined as a system in which the change of output is not proportional to change of input 
23 https://www.theguardian.com/technology/2019/jun/19/google-alphabet-shareholder-meeting-protest-sexual-harassment 
24 https://www.theguardian.com/technology/2019/jun/19/google-alphabet-shareholder-meeting-protest-sexual-harassment
CASE STUDY 
Alphabet
Through its powerful search engine Google, Alphabet can 
revolutionise the responsible development and use of AI and 
set industry standards. It has already taken a number of steps 
to this end, including publishing a set of principles20 and a 
white paper.21 However, when expert opinions and human 
judgement are introduced into AI’s non-linear systems,22 
unconscious bias is not necessarily resolved and may even 
increase, without careful monitoring and oversight. 
At the company’s June 2019 shareholder meeting we spoke in 
support of a shareholder proposal regarding the establishment 
of an independent societal risk oversight board committee. This 
committee would assess the potential societal consequences 
of the company’s products and services and offer guidance on 
strategic decisions. We argued there was a gap in board skills 
to provide the required societal risk oversight. 
We also asked Alphabet to improve its internal governance 
structure overseeing AI technologies to harness employee and 
stakeholder ethical insights, and to regularly monitor and report 
on the human rights impact for content reviewers and provide 
sufficient support. 
Disappointingly, Alphabet’s CEO Larry Page and its president Sergey 
Brin did not attend the meeting, even though as co-founders of 
Google they hold 51.3% of the votes. With Alphabet opposing the 
proposal, it did not pass. Other shareholder proposals focused on 
sexual harassment, diversity and antitrust issues also failed.23,24 
Yet more employees spoke up at the meeting, and one contractor 
employee shared his own personal experience of discrimination.
Despite the apparent setback, the experience will further unite 
institutional investors on collaborative engagement. It also 
deepens our conviction of supporting a single, one share, one vote 
system that aligns economic interest with voting power. 
Since the meeting, the company has made immediate but 
piecemeal improvement, publishing a new blog describing how 
responsible AI is put into action. It has also introduced an extension 
module for its AI platform, which focuses on providing a library 
of tools and testing components to emphasise safety and other 
ethical aspects of AI. And for content reviewers, the CFO has 
committed to providing some benefits, but it is unclear how far 
this goes. The company employs many temporary workers and 
contractors who may not be covered under this commitment.
Governance of the company and its human capital management 
remain our key concerns. An employee who led a walkout 
in November 2018 has since resigned. We plan to work with 
other institutional investors and shareholders to push for 
direct dialogue with the board and stronger societal risk and 
AI ethics oversight.
51.3%
of the votes are held by the 
co-founders of Google
PUBLIC ENGAGEMENT REPORT Q2 2019 
21

Setting the scene
In the first half of 2019 we recommended voting at almost 8,000 
meetings, covering some 89,400 resolutions. We made at least 
one voting recommendation against management at 64% of 
meetings, up from 55% in the first half of 2018, with particular 
increases in the United States, Taiwan and Japan. In addition to 
our dialogue with board directors and executives over the season, 
we attended nine shareholder meetings to raise concerns and put 
questions to the board, including at Google owner Alphabet and 
German car manufacturer Daimler. 
There were some significant shareholder resolutions, including 
on climate change at BP and opioids at pharmaceutical companies 
Mylan and Mallinckrodt, plus a raft of shareholder proposals at 
Alphabet. These covered everything from sexual harassment and 
diversity to the establishment of an independent board 
committee to provide oversight of societal risk, which we spoke 
in favour of. In cases such as BP, where collaborative engagement 
had laid the groundwork for the management’s support, 
shareholders secured a win, but at Alphabet, where the  
co-founders retain majority voting power, it proved impossible 
to get resolutions over the line (see Alphabet case study, pg21).
SPRINGING INTO ACTION
The 2019 voting season was dominated by concerns about gender diversity, board 
composition and climate change, with executive remuneration continuing to drive 
dissent in the US, UK and France. By Amy Wilson.
8,000
Amy Wilson
amy.wilson@hermes-investment.com
For further information, please contact:
meetings
89,400
resolutions
2019 voting:
Reflections on the 2019 voting season 
22
HERMES EOS

Climate change continues to increase in 
relevance at shareholder meetings. As part of 
our role in the Climate Action 100+ (CA100+) 
initiative, we spoke at the AGMs of Anglo 
American, Centrica, BP, Volkswagen and 
Daimler to challenge companies on their 
management of climate-related issues, their 
disclosure in line with the Task Force on 
Climate-related Financial Disclosures and 
their alignment with the Paris Agreement. 
We led a group of eight institutional investors to speak at BP’s AGM, 
proposing support for a resolution that called on the company to set 
out a strategy consistent with the goals of the Paris Agreement. We 
challenged the chair to commit to demonstrating in compelling terms 
that BP’s strategy really is consistent with the Paris Agreement goals, 
even during a period of growth in oil and gas. The company promised to 
respond to this challenge in a report. 
We are supporters of the Transition Pathway Initiative (TPI), a global, 
asset-owner led initiative that assesses companies' preparedness for the 
transition to a low carbon economy. This year, we introduced the 
guideline that we would consider recommending a vote against the 
chair of the board of a company with a management ranking of 0 or 1 
by the TPI, unless the company has provided a credible plan to address 
the climate risks and opportunities of the low carbon transition. 
We wrote to 63 companies to advise them of this guideline and to 
request further engagement ahead of the AGM. We also met with over 
10 companies including Ferrari, CEZ, Suzuki and Concho Resources. 
Japanese motor vehicle manufacturer Suzuki agreed to make 
improvements to its reporting in response to our engagement. 
Amend Articles
Audit + Accounts
Board Structure
Capital Structure + Dividends
Remuneration
35%
30%
25%
20%
15%
10%
0%
5%
5%
5%
4%
4%
9%
5%
5%
11%
14%
20%
20%
21%
33%
33%
22%
22%
21%
4%
5%
8%
22%
19%
6%
7%
7%
2015
2016
2017
Year
2018
2019
Proportion of resolution type with recommended votes against management, H1 2015–19 
Source: Hermes EOS. Note: Top 5 voting categories only
Bruce Duguid, head of stewardship, Hermes 
EOS, outside the BP AGM.
We voted against the chair of the nominations and governance 
committee at Vistra Energy and Steel Dynamics, which is our precedent 
in the US. In both these cases, we had broader concerns than just 
climate governance, but we cited this as a principle reason in our 
engagement outreach. We also voted against the chair of Shougang 
Resources.
In the US, a number of shareholder resolutions were filed focusing on 
the extent to which companies demonstrate resilience to climate 
change or provide evidence of strategic alignment to the goals of the 
Paris Agreement. This means limiting the rise in the global temperature 
to a maximum of well-below two-degrees Celsius, with an ambition of 
limiting warming to 1.5-degrees. 
Over 20 of these resolutions were withdrawn after companies made 
voluntary commitments to satisfy the proposals. We recommended 
support for high profile resolutions at Chevron, Duke Energy and Amazon. 
However, we did not recommend support for the climate change 
proposals by campaign group Follow This at Equinor and BP, based on 
the progress of engagement under the CA100+ initiative and concerns 
over the extent to which it would limit strategic choices. The shareholder 
resolution at BP was the only institutional investor-led climate resolution 
in Europe, as others were withdrawn following commitments by 
companies, including at Royal Dutch Shell, Equinor and Glencore.
PUBLIC ENGAGEMENT REPORT Q2 2019 
23

Executive remuneration
Executive remuneration remained one of the 
most contentious issues across markets in H1 
2019, with a 39% recommended vote against 
rate, up slightly from 38% in H1 2018. 
In the US we recommended voting against 82% of ‘say-on-pay’ 
proposals, focusing on insufficient share ownership requirements; 
awards of stock options with short vesting periods; CEO pay that was 
disproportionately high compared with that of senior management and 
pay packages targeted above the median levels of peers; and 
disproportionate levels of perquisites. 
Targeting CEO pay in the top quartile of peers is one of the ways we 
seek to address quantum, a critical issue in the US following many years 
of pay ratcheting up. For example, we opposed pay proposals at Best 
Buy, Target and Walmart where CEO pay was in the top quartile of 
peers. Walmart also had an insufficiently strong anti-pledging policy, 
although we secured assurances from the company that this would be 
reviewed and improved before the next annual meeting.
In the UK, approximately 75% of FTSE 350 companies will be putting their 
next three-year remuneration policy to a vote in 2020. As such, most votes 
in 2019 were on the remuneration report against the current in-flight policy 
approved in prior years. We opposed 30% of remuneration reports based 
on concerns such as the use of metrics not aligned to long-term value, pay 
outcomes not aligned to performance, and excessive quantum. 
For example, we opposed the report at oil producer Royal Dutch Shell, 
where the policy – which we did not support due to the excessive 
variable pay opportunity – paid out at near maximum. This resulted in 
an approximately £20m pay out to the CEO. Likewise at housebuilder 
Persimmon, although we welcomed a number of positive steps taken 
by the board to address pay and related issues on company culture and 
customer service, we remained unsupportive of the remuneration 
report. This included an award of £38m for the CEO from the final 
tranche of a defective underlying scheme. 
We also opposed the remuneration report at Lloyds Banking Group due 
to concerns that intended pension reductions were offset in other 
areas. Meanwhile, after our engagement with HSBC, the bank reduced 
the executive pension contribution rate from 30% to 10%, setting an 
important precedent for the industry. 
39%
recommended vote 
against rate 
of FTSE 350 companies will be putting 
their next 3-year remuneration policy 
to the vote in 2020
75%
Remuneration:
In France investors have had a binding vote on remuneration policies 
since 2016, and a binding vote on the remuneration report containing 
the variable pay award for the previous year since 2018. In 2019, 
shareholders of CGG, a geoscience company serving the oil and gas 
industry, opposed the remuneration report for the former CEO and the 
remuneration policy for the new CEO for the first time since the vote 
was introduced in 2016. 
In Asian markets, executive pay tends to be lower but less transparent 
than in Europe and the US. However, we continued our engagement 
with companies to encourage them to link incentive plans to 
performance criteria including sustainability metrics such as c 
limate-related targets. Some companies say they are considering these.
In Hong Kong, shareholders only occasionally get to vote on long-term 
pay plans at annual meetings. At this year’s Samsonite AGM, we 
opposed the proposed share award scheme, due to concerns about 
the dilution rate and the structure of the scheme.
In Japan, although companies are not required to seek shareholder 
approval on executive pay annually, it is required when changing the 
ceiling of the aggregate amount or introducing an incentive scheme. 
Some companies voluntarily seek a vote on the payment of a cash 
bonus. At the annual meeting for Takeda Pharmaceuticals, we 
recommended voting against the payment of the cash bonus as we 
were not convinced that the substantial increase this year could be 
justified. We also supported the shareholder proposal to add a clawback 
clause. This is not yet common in Japan but we believe it is important 
for Takeda, which pays its executive team comparable amounts to 
those of Western market peers. 
In Asian markets, executive 
pay tends to be lower but less 
transparent than in Europe and 
the US.
HERMES EOS
24

Board composition and diversity
Board composition is critical to the good 
management of companies, and one of the 
most important shareholder powers is the 
ability to elect board directors.
Ensuring a diverse board is vital to good decision-making, so we stepped 
up our expectations on gender diversity this year. In the UK, we tightened 
our policy for board-level gender diversity with a guideline of 30% 
women for FTSE 100 boards and 25% for FTSE 250 boards. We also 
introduced a policy on below-board diversity, with the guideline that we 
would consider recommending a vote against the chair of FTSE 100 
companies with no women on their executive committee.
In support of this, we wrote to 13 FTSE 100 companies to express 
concerns about gender diversity on the executive committee, and 
the board where relevant, or to clarify current levels where it was 
unclear from the company’s disclosures. We had follow-up 
engagements with a number of companies, reassured by some 
of the actions underway. 
30%
women for  
FTSE 100 boards
of FTSE  
250 boards
25%
Composition recommendations:
In Germany, we released our new 
German Corporate Governance 
Principles, which set out our 
expectations for 2020 and beyond, 
including that companies achieve 
30% female representation on 
executive boards.
We opposed the election of the chair where we judged current progress 
and the companies’ plans to rectify the situation to be insufficient, 
such as Fresnillo, Spirax-SarcoEngineering, Glencore, Prudential and 
Just Group. 
In the US, we continued to push our expectations on board diversity 
across a number of dimensions, recommending opposition to 869 
proposals up to H1 2019, compared with 615 proposals during the 
entire year in 2018. 
Board gender diversity continues to be a challenge in Asian markets 
including South Korea and Japan. Very few Korean companies have 
female directors, although the number of Japanese companies with 
female directors has increased in the last year or two. The percentage 
of women is still low, however, with most of these companies having 
only one female director. We welcomed the appointment of two new 
female directors at Sony this year, bringing the total to four, or 30% 
of the board. 
2015
%
Percentage of proposals voted against management per key market
Brazil
Canada
France
Japan
Taiwan
USA
United Kingdom
South Korea
Germany
Hong Kong
2016
2017
2018
2019
0
5
10
15
20
25
30
11
16
18
13
14
7
5
6
4
3
24
25
27
26
24
21
17
17
19
22
18
18
9
6
6
6
4
3
11
10
13 12.5
13
11
12
15
9.8
10
7
13
12
12.5
9
7
7
4
2
5
5
5
Source: Hermes EOS
PUBLIC ENGAGEMENT REPORT Q2 2019 
25

8%
of companies have more than one 
woman on the executive board
of companies still have no 
female board members
2/3
In Germany:
In Germany, we released our new German Corporate Governance 
Principles, which set out our expectations for 2020 and beyond, 
including that companies achieve 30% female representation on 
executive boards. Currently, only 8% of German companies have 
more than one woman on the executive board. Two-thirds still have 
no female board members. 
We raised the issue of diversity at German car manufacturer 
Daimler’s AGM, along with concerns about audit tenure that led 
us to oppose the ratification of the auditors. In our speech we 
expressed our support of the new corporate structure and the 
recent changes to the management board. However, we see the 
role of CEO as very different to that of chair and believe the 
outgoing CEO’s potential move upwards to the supervisory board 
should not be an automatic one. 
At Dutch financial services group ING we opposed the discharge 
of directors – in effect a vote against management performance over 
the previous year – along with 63% of shareholders. This followed 
collective engagement with the board, and concerns that the 
executive and supervisory board had failed in their duties to safeguard 
the bank’s reputation and ensure full compliance with legal and 
regulatory frameworks.
We saw emerging voluntary good 
practices from Royal Dutch Shell, 
which produced a report on its 
membership of trade associations 
and an assessment of where their 
views on climate change 
contradicted Shell’s stated support 
of the Paris Agreement. 
Shareholder resolutions
We recommended votes on almost 2,000 
shareholder resolutions in H1 2019. Some 
415 of these were in the US, where we 
supported 279, or 67%. 
Resolutions calling for lobbying and political transparency were a 
key theme. In general we recommended support for these, 
including at Ford, General Motors, Duke Energy, UPS, Altria, 
Illumina, Honeywell and AT&T. We saw emerging voluntary good 
practices from Royal Dutch Shell, which produced a report on its 
membership of trade associations and an assessment of where 
their views on climate change contradicted Shell’s stated support 
of the Paris Agreement. 
As part of our participation in the Investors for Opioid 
Accountability initiative, we spoke at the AGM of Mallinckrodt, an 
Ireland-based company that manufactures generic opioids and 
generates 90% of its sales in the US. We presented two resolutions 
requesting a board-level report on governance measures related to 
opioids and a report disclosing lobbying activities. Both of these 
passed. We also co-presented a shareholder proposal at pharma 
company Mylan’s AGM on clawback policies, which received 
majority support. 
In the UK, at Barclays, we reviewed and ultimately did not 
support a proposal from an activist investor. While we agreed 
that shareholder returns and the performance of the investment 
bank had been disappointing, we questioned the diagnosis and 
strategy proposed by the activist and the suitability of the board 
nominee. We will continue our individual and collective 
engagement with the bank to ensure the execution of a focused 
and forward-looking corporate strategy, which will be 
constructively challenged by a refreshed board. 
Finally, in Japan we supported the shareholder proposals at housing 
materials manufacturer Lixil Group filed by former CEO Kinya Seto, 
who was seeking to elect himself back to the board along with seven 
other candidates. All the shareholder proposals passed at the 
meeting and Seto was reappointed as CEO, a sign of growing 
shareholder activism in Japan.
Engager Roland Bosch, speaking at the Daimler AGM.
Only
RDS
HERMES EOS
26

Overview
Our approach to engagement is holistic and wide-ranging. 
Discussions range across many key areas, including business 
strategy and risk management, which covers environmental, 
social and ethical risks. Structural governance issues are a 
priority too. We challenge and support management on the 
running of the company and management’s approach to 
ensuring the company’s long-term future. In many cases, 
there is minimal external pressure on the business to 
change. Much of our work, therefore, is focused on 
encouraging management to make necessary improvements. 
The majority of our successes stem from our ability to 
see things from the perspective of the business with which 
we are engaging. Presenting environmental, social and 
governance issues as risks to the company’s strategic 
positioning puts things solidly into context for management. 
The issues may also present opportunities. For instance, 
businesses may benefit from fresh thinking at board level. 
Similarly, a change of chief executive can be the catalyst for 
enhanced business performance and the creation of long-
term value for shareholders.
Examples of recent engagements
Board strength and remuneration  
Lead engager: Andy Jones  
We provided detailed input to a board-commissioned review of 
investor sentiment on board strength, remuneration, and 
environmental and social management and reporting at this 
European utility. We praised the diversity of the board and its 
evolution towards clean energy expertise. We suggested that more 
political and regulatory experience, in particular in the US, would be 
beneficial. We also welcomed the company's recent changes to its 
remuneration policy, including pension alignment to the wider 
workforce and greater shareholding requirements. We encouraged the 
company to put its role in tackling the fundamental societal questions 
relevant to its business – low carbon electricity, heat and transport 
transition, affordable and reliable energy - at the heart of its purpose, 
vision and communications. 
Board skills and AMR  
Lead engager: Emma Berntman  
This global pharmaceutical company is reviewing its board skills 
evaluation process and is on track to provide disclosure in its next annual 
report. We have pressed for this over several years. We commended the 
addition to the board of an international female director with strong 
financial skills. The company has achieved its 2016 diversity target of 
three female shareholder-elected directors ahead of the 2020 deadline. 
It acknowledged that there is a need to improve diversity beyond board 
level and is exploring how it can accelerate this, particularly at senior 
management levels, although disappointingly it does not plan to set 
targets. The company provided insights on its diversity programme and 
unconscious bias training for senior management and we suggested that 
it considers appropriate metrics to measure the outputs of these 
initiatives, which the company welcomed. Finally, we encouraged the 
company to perform an antimicrobial resistance risk scenario analysis 
to determine business resilience as antibiotics lose their efficacy. 
The company promised to revert to us in writing. 
Remuneration and diversity  
Lead engager: Katie Frame 
We recommended a vote against the say-on-pay proposals at this US 
media services provider. We have serious concerns about the current pay 
structure due to the very high quantum, which is often not linked to 
performance or share ownership. Additionally, whilst we noted that the 
company seems to be doing the right thing in relation to allegations of 
sexual harassment and other inappropriate behaviour, we expect greater 
disclosure, with targets to demonstrate that the company is committed to 
a diverse and inclusive workplace and culture. 
Sustainability reporting 
Lead engager: Christine Chow  
We provided feedback on this Asian insurer’s ESG report. This clarified its 
commitment to TCFD and the associated three-year strategy, especially 
its infrastructure debt strategy, and its approach to financial inclusion. The 
company commended us on our leadership on climate change and said 
that our corporate and public policy engagements had helped its dialogue 
with companies. We brainstormed on its current plan to address the 
impact of pollution on health. We recommended looking into 
opportunities to address indoor pollution. At its request, we further 
explained our corporate governance principles and how we have engaged 
with companies on board gender diversity.
ENGAGEMENT 
ON STRATEGY 
Business strategy and structural governance issues are at 
the heart of many of our most successful engagements.
27
PUBLIC ENGAGEMENT REPORT Q2 2019

Blog Spotlight
Overcoming engagement obstacles in Asia  
The influence of family and state and the fact that stewardship is still in 
its early stages are just two of the challenges that engager Janet Wong 
highlights for investors attempting to engage with companies in Asia. 
Her two-part blog reflects on our experience in this region and explains 
our approach to ensure that engagements progress. 
For example, working with regulators and policymakers can help 
improve protections for minority shareholders, while local associations 
may help promote a transition to a low carbon economy and encourage 
take up of the TCFD. Developing 
relationships with key 
stakeholders and sharing 
international best practice 
also help to build support 
and understanding 
of stewardship.
Companies 
engaged on 
strategic and/
or governance 
objectives and 
issues this quarter:
CASE STUDY
Over a decade of engagement with Siemens and WPP
As we celebrate our 15-year anniversary, we also reflect on over a decade of engagement with UK advertising and public relations company 
WPP and German industrial conglomerate Siemens. Demonstrating that positive change can take a number of years, our latest case studies 
are now available in full on the website. Below, we spotlight a recent two-part blog on the challenges of engaging in Asia.
WPP 
Lead engagers: Emma Berntman and 
Pauline Lecoursonnois
We have been engaging with WPP since 2009 on topics such as board 
effectiveness, remuneration, business structure and succession planning. 
Since 2010, we have sought changes to the remuneration policy, 
pushing for more reasonable levels of pay, and a greater alignment with 
business performance and the delivery of strategic objectives. Given the 
management challenge stemming from the complex structure of the 
business, we asked the board to demonstrate contingency and 
succession plans for the CEO role. In 2012, we began requesting that 
much of this work be done under a new chair, as the incumbent chair 
appeared unable to appropriately balance the influence of the CEO. 
We also pressed for a refreshment of the board to ensure it had the 
skills and experience necessary to challenge management effectively.
The election of a new chair at the 2015 AGM was a vital step 
towards rebuilding shareholder confidence. Under his leadership, 
WPP implemented a revised remuneration policy and succession 
planning became a higher priority. The importance of this was 
underscored when the founder CEO departed unexpectedly in April 
2018. We continue to engage with the company to reduce the 
complexity of its group structure and enable more effective board 
oversight, and to future-proof it against industry challenges.
Siemens 
Lead engagers: Lisa Lange and Michael Viehs
Following a compliance crisis in 2006, which triggered the departure of 
the CEO and chair, we had an intensive dialogue with the company’s 
incoming chair. We subsequently articulated our concerns about the 
composition of the supervisory board and the effectiveness of its work, 
as well as its remuneration. Encouraged by the company, we spoke at 
seven AGMs between 2007 and 2018. After an internal review and the 
recommendations of an independent investigation, the company 
introduced a series of changes to its compliance system. In addition, in 
2008 the supervisory board was revamped and the company switched 
from variable pay to fixed pay only for non-executives. 
Following our 2014 AGM intervention, the company carried out an 
externally facilitated board evaluation, overhauled a key committee 
and replaced two supervisory board members at the next AGM. 
Today, the board is much improved with three female directors, and 
expertise more relevant to the development of the business such as 
engineering, digitisation and software. We continue to engage with 
Siemens on climate change, aiming to ensure the company aligns 
its business model to the goals of the Paris Agreement, and 
successfully implements its Vision 2020+ strategy
Read the case studies and blogs in full at  
www.hermes-investment.com/ukw/stewardship/eos-insights
28
60
18
17
23
Developed 
Asia 
North 
America 
United 
Kingdom 
Emerging 
Markets 
Europe
146
Global
HERMES EOS
28

Overview
We participate in debates on public policy matters to protect 
and enhance value for our clients by improving shareholder 
rights and boosting protection for minority shareholders. 
This work extends across company law, which in many 
markets sets a basic foundation for shareholder rights; 
securities laws, which frame the operation of the markets 
and ensure that value creation is reflected for shareholders; 
and codes of best practice for governance and the 
management of key risks, as well as disclosure. 
In addition to this work on a country specific basis, we 
address regulations with a global remit. Investment 
institutions are typically absent from public policy debates, 
even though they can have a profound impact on 
shareholder value. Hermes EOS seeks to fill this gap.
By playing a full role in shaping these standards, we can 
ensure that they work in the interests of shareholders 
instead of being moulded to the narrow interests of other 
market participants, which may differ markedly – particularly 
those of companies, lawyers and accounting firms, which 
tend to be more active than investors in these debates.
PUBLIC POLICY AND 
BEST PRACTICE 
Hermes EOS contributes to the development of policy and best practice on 
corporate governance, sustainability and shareholder rights to protect and 
enhance the value of the shareholdings of its clients over the long term.
Highlights
Sustainable Stock Exchanges Advisory 
Group meeting 
Lead engager: Christine Chow 
At the Sustainable Stock Exchanges (SSE) Advisory Group meeting at 
the United Nations in Geneva, we contributed to the drafting of 
a working document on how to embed sustainability in stock exchange 
operations. The paper will go through two rounds of public consultation 
followed by a launch in September 2019 to celebrate the 10th 
anniversary of the SSE Initiative. We encouraged the exchanges to 
address conflicts of interests in governance, cyber and data security, and 
safeguarding shareholder interests to support good stewardship practices. 
In addition to the Task Force on Climate-related Financial Disclosures 
(TCFD) recommendations, which are already included, we recommended 
referencing the United Nations Guiding Principles for Business and 
Human Rights, and the Sustainability Accounting Standards Board’s 
reporting guidance for securities and commodities exchanges in the 
guidance document. This would form a good basis to report on strategy 
and ESG issues. To demonstrate board oversight and progress on 
sustainability, we encouraged the exchanges to disclose board-level 
sustainability priorities, metrics and progress in annual reporting, 
with disclosure to include peer learning activities that strengthen the 
interactions of SSE Initiative members. We acknowledged that non-listed 
or government-led exchanges may have a different set of priorities. 
29
PUBLIC ENGAGEMENT REPORT Q2 2019

International Energy Agency meeting on 
scenario analysis
Lead engager: Nick Spooner 
We met senior executives at the International Energy Agency (IEA) to 
discuss the energy scenarios produced by the organisation, and how 
these could be improved to serve a greater societal role. We had a robust 
discussion on the importance of a 1.5-degree scenario. The IEA is going 
through a period of transition to develop a closer working relationship 
with emerging economies. We recognised that there may be differences 
in terms of prioritisation. However, we highlighted how critical it was 
for a 1.5-degree scenario to be produced from an investment perspective, 
so that investors understand how to align their investments, and the 
scale of the changes that are required. 
With the special report by the Intergovernmental Panel on Climate 
Change (IPCC) published in October 2018, the IEA is well aware of the 
urgency. We encouraged a more conservative attitude towards carbon 
capture, utilisation and storage, which has failed to meet expectations 
over the past few decades. We set markers to continue to develop this 
relationship and are well placed in the production cycle for the IEA’s 
annual World Energy Outlook to influence the 2019 publication. 
We were assured that the 1.5-degree report was under consideration, 
although they could not commit to this.
Palm oil investor expectations statement
Lead engager: Hannah Shoesmith 
As part of the PRI investor working group on palm oil we contributed to and 
signed an investor expectations statement on sustainable palm oil. This was 
released on 3 April by the PRI and is signed by 55 investment organisations 
with approximately US$7.9tn in assets under management. It expects 
companies across the palm oil value chain to: implement and publicly 
disclose a policy of ‘no deforestation, no peat, no exploitation’ as a 
minimum; commit to full traceability to plantation level; and map and 
disclose palm oil concession areas, for companies involved in the production 
of palm oil. It also strongly encourages companies to: make efficient 
investments to improve palm oil yield and productivity without expanding 
production to new concession areas; become members of the Roundtable 
on Sustainable Palm Oil; and apply its new principles and criteria. We will 
continue to engage with Kuala Lumpur Kepong, a palm oil producer, as well 
as two Indonesian banks, BRI and BMI on palm oil financing, and raise it as 
an issue with consumer, food and beverage companies.
Brazilian Institute of Corporate 
Governance call
Lead engager: Jaime Gornsztejn 
In a call with the Brazilian Institute of Corporate Governance (IBGC), 
we gave our feedback on the comply-or-explain disclosures made by 
Brazilian companies and discussed possible actions to improve these. 
In 2018, Brazilian companies listed on the main stock exchange index had 
to submit a report on their compliance with Brazil’s corporate governance 
code. The IBGC is preparing a report on the quality of the disclosure and 
asked for our feedback. We expressed our disappointment with the 
defensive approach generally used, which shows a lack of understanding 
about the comply-or-explain framework. We acknowledged, however, 
that in other markets there was a learning curve after the initial adoption 
of a soft law structure. We agreed to follow up after the publication of 
the IBGC report to discuss actions to improve disclosure quality.
Access to Medicine Foundation meeting
Lead engagers: Katie Frame and Kimberley Lewis 
We met the Access to Medicine (ATM) Foundation to reiterate our 
concerns about the current ranking structure and methodology of the 
ATM Index, which favours some companies due to their existing product 
portfolio. The foundation acknowledged our concern and noted that 
other investors had expressed similar sentiments, but seemed reluctant 
to act, as multiple influential stakeholders are involved in the index. 
We agreed to continue to discuss these concerns by participating in 
the upcoming ATM methodology consultation process. 
We noted our appreciation for the publication of the Antimicrobial 
Resistance Benchmark, which does not rank companies but provides 
useful information on company approaches to antimicrobial resistance. 
However, we explained that the benchmark should also consider the 
risk that antimicrobial resistance poses to different companies. 
The foundation acknowledged this point and said it could offer 
more investor briefings to share insights about the risk of antimicrobial 
resistance for pharmaceutical companies. 
Responsible vehicle parts supply chains
Lead engager: Sachi Suzuki 
We participated in an OECD meeting about responsible vehicle parts 
supply chains, with a focus on the OECD’s work in Japan and Thailand. 
Most of the participants were from automotive manufacturers or 
related companies, and we were one of the few institutions representing 
investors. We commended the OECD on the great work it has been 
doing in this area and on other issues, including conflict minerals, but 
noted that some companies appear to only follow the OECD guidance 
and are unwilling to disclose further details. We asked the OECD to 
encourage companies to go beyond compliance with the basic due 
diligence programme, which was fully acknowledged. 
Global Campaign to Stop Killer Robots
Lead engager: Bram Houtenbos 
We introduced ourselves to the co-ordinator of the Global Campaign 
to Stop Killer Robots, a coalition of NGOs seeking a ban on fully 
autonomous weapons. We have identified fully autonomous weapons 
as an area of emerging concern, but it appears that ESG research 
providers do not yet screen companies on this basis. We requested a 
call with campaign representatives to establish what the campaign 
is doing to involve investors, and to determine what scope there is 
to integrate this topic into our engagement and screening services.
Traidcraft meeting on supply 
chain statements
Lead engager: Claire Gavini 
We met policy officers from the NGO Traidcraft, which is seeking our 
support to develop a UK government-endorsed central repository for the 
Transparency in Supply Chain statements produced under the Modern 
Slavery Act. Every organisation carrying out business in the UK with a total 
annual turnover of £36m or more is required to produce these. The NGO 
would also like the government to produce a public list of which companies 
are operating in the UK market and pass the turnover threshold for issuing a 
statement, so that no companies can evade this requirement. We offered to 
seek feedback from the Institute of Chartered Secretaries and Administrators 
on the feasibility of these requests. We agreed to attend a meeting with the 
UK Home Office to present our investors’ perspectives. 
HERMES EOS
30

Hermes EOS makes voting recommendations at 
general meetings wherever practicable. We base 
our recommendations on annual report disclosures, 
discussions with the company and independent 
analyses. At larger companies and those where 
clients have a significant interest, we seek a 
dialogue before recommending a vote against 
or an abstention on any resolution.
In most cases where we recommend a vote against 
at a company in which our clients have a significant 
holding or interest, we follow up with a letter 
explaining the concerns of our clients. We maintain 
records of voting and contact with companies, and 
we include the company in our main engagement 
programme if we believe further intervention 
is merited.
VOTING
31
PUBLIC ENGAGEMENT REPORT Q2 2019

VOTING OVERVIEW
Over the last quarter we made voting recommendations at 6,367 meetings (76,363 resolutions). 
At 4,338 meetings we recommended opposing one or more resolutions. We recommended voting 
with management by exception at 87 meetings and abstaining at 19 meetings. We supported 
management on all resolutions at the remaining 1,923 meetings.
We made voting recommendations at 
6,367 meetings (76,363 resolutions) 
over the last quarter.
Global
 Total meetings in favour 30.2%
 Meetings against (or against AND abstain) 68.1%
 Meetings abstained 0.3%
 Meetings with management by exception 1.4%
We made voting recommendations at 892 
meetings (21,751 resolutions) over the last quarter.
Europe
 Total meetings in favour 30.7%
 Meetings against (or against AND abstain) 67.7%
 Meetings abstained 0.4%
 Meetings with management by exception 1.1%
We made voting recommendations at 1,854 
meetings (21,751 resolutions) over the last quarter.
Emerging
& Frontier
Markets
 Total meetings in favour 33.9%
 Meetings against (or against AND abstain) 65.5%
 Meetings abstained 0.3%
 Meetings with management by exception 0.3%
We made voting recommendations at 358 
meetings (5,851 resolutions) over the last quarter.
United
Kingdom
 Total meetings in favour 50.0%
 Meetings against (or against AND abstain) 41.1%
 Meetings abstained 1.4%
 Meetings with management by exception 7.5%
We made voting recommendations at 1,391 
meetings (15,223 resolutions) over the last quarter.
Developed
Asia
 Total meetings in favour 37.0%
 Meetings against (or against AND abstain) 62.6%
 Meetings with management by exception 0.4%
We made voting recommendations at 1,825 
meetings (19,782 resolutions) over the last quarter.
North
America
 Total meetings in favour 16.8%
 Meetings against (or against AND abstain) 80.9%
 Meetings abstained 0.3%
 Meetings with management by exception 2.1%
We made voting recommendations at 47 
meetings (286 resolutions) over the last quarter.
 Total meetings in favour 44.7%
 Meetings against (or against AND abstain) 55.3%
Australia &
New Zealand
HERMES EOS
32

The issues on which we recommended voting against management or abstaining on 
resolutions are shown below.
We recommended voting against or abstaining 
on 12,935 resolutions over the last quarter.
 Board structure 50.7%
 Remuneration 21.1%
 Shareholder resolution 6.0%
 Capital structure and dividends 11.2%
 Amend Articles 2.6%
 Audit and Accounts 4.8%
 Investment/MandA 0.3%
 Poison Pill/Anti-Takeover Device 0.3%
 Other 3.0%
Global
We recommended voting against or abstaining 
on 2,171 resolutions over the last quarter.
Developed
Asia
 Board structure 68.1%
 Remuneration 5.0%
 Shareholder resolution 2.2%
 Capital structure and dividends 9.5%
 Amend Articles 1.4%
 Audit and Accounts 12.6%
 Poison Pill/Anti-Takeover Device 1.2%
We recommended voting against or abstaining 
on 3,914 resolutions over the last quarter.
North
America
 Board structure 52.3%
 Remuneration 34.0%
 Shareholder resolution 12.3%
 Capital structure and dividends 0.1%
 Amend Articles 0.3%
 Audit and Accounts 0.4%
 Other 0.6%
 Board structure 12.1%
 Remuneration 74.1%
 Shareholder resolution 6.9%
 Capital structure and dividends 6.9%
We recommended voting against or abstaining 
on 58 resolutions over the last quarter.
Australia &
New Zealand
We recommended voting against or abstaining 
on 4,159 resolutions over the last quarter.
Emerging
& Frontier
Markets
 Board structure 51.1%
 Remuneration 8.3%
 Shareholder resolution 2.6%
 Capital structure and dividends 19.5%
 Amend Articles 6.1%
 Audit and Accounts 4.9%
 Investment/MandA 0.9%
 Other 6.6%
We recommended voting against or abstaining 
on 2,301 resolutions over the last quarter.
Europe
 Board structure 33.6%
 Remuneration 32.2%
 Shareholder resolution 5.3%
 Capital structure and dividends 17.4%
 Amend Articles 1.7%
 Audit and Accounts 5.4%
 Poison Pill/Anti-Takeover Device 0.2%
 Other 4.2%
We recommended voting against or abstaining 
on 332 resolution over the last quarter.
United
Kingdom
 Board structure 40.4%
 Remuneration 47.9%
 Shareholder resolution 0.9%
 Capital structure and dividends 5.1%
 Amend Articles 1.8%
 Audit and Accounts 2.4%
 Poison Pill/Anti-Takeover Device 1.5%
PUBLIC ENGAGEMENT REPORT Q2 2019 
33

What is Hermes EOS?
Hermes EOS helps long-term institutional 
investors around the world to meet their 
fiduciary responsibilities and become active 
owners of public companies. 
Our team of engagement and voting specialists monitors the 
investments of our clients in companies and intervenes where 
necessary with the aim of improving their performance and 
sustainability. Our activities are based on the premise that companies 
with informed and involved shareholders are more likely to achieve 
superior long-term performance than those without.
Pooling the resources of like-minded investors creates a strong and 
representative shareholder voice and makes our company engagements 
more effective. We currently have £501.1/€560/$637.7 billion* in assets 
under advice.
Hermes has one of the largest stewardship resources of any fund 
manager in the world. Our 32-person team includes industry 
executives, senior strategists, corporate governance and climate change 
experts, accountants, ex-fund managers, former bankers and lawyers.
The depth and breadth of this resource reflects our philosophy that 
stewardship activities require an integrated and skilled approach. 
Intervention at senior management and board director level should be 
carried out by individuals with the right skills, experience and credibility. 
Making realistic and realisable demands of companies, informed by 
significant hands-on experience of business management and strategy-
setting is critical to the success of our engagements.
We have extensive experience of implementing the Principles for 
Responsible Investment (PRI) and various stewardship codes. Our 
former CEO led the committee that drew up the original principles, 
and we are engaged in a variety of workstreams through the PRI 
Collaboration Platform. This insight enables us to help signatories 
in meeting the challenges of effective PRI implementation.
How does Hermes EOS work?
Our company, public policy and best practice 
engagement programmes aim to enhance 
and protect the value of the investments of 
our clients and safeguard their reputation. 
We measure and monitor progress on all engagements, setting clear 
objectives and specific milestones for our most intensive engagements. 
In selecting companies for engagement, we take account of their 
environmental, social and governance risks, their ability to create long-
term shareholder value and the prospects for engagement success.
The Hermes Responsible Ownership Principles1 set out our 
fundamental expectations of companies in which our clients invest. 
These cover business strategy, communications, financial structure, 
governance and management of environmental and social risks. The 
engagement programme we have agreed with our clients, as well as 
the Principles and their regional iterations, guide our intervention with 
companies throughout the world. Our approach is pragmatic, as well 
as company- and market-specific, taking into account the 
circumstances of each company.
We escalate the intensity of our engagement with companies over 
time, depending on the nature of the challenges they face and the 
attitude of the board towards our dialogue. Some engagements 
involve one or two meetings over a period of months, others are more 
complex and entail multiple meetings with different board members 
over several years.
At any one time around 400 companies are included in our core 
engagement programme. All of our engagements are undertaken 
subject to a rigorous initial assessment and ongoing review process 
to ensure that we focus our efforts where they can add most value 
for our clients.
While we can be robust in our dealings with companies, the aim is 
to deliver value for clients, not to seek headlines through campaigns 
which could undermine the trust that would otherwise exist between 
a company and its owners. We are honest and open with companies 
about the nature of our discussions and aim to keep these private. 
Not only has this proven to be the most effective way to bring about 
change, it also acts as a protection to our clients so that their positions 
will not be misrepresented in the media.
For these reasons, this public report contains few specific details of 
our interactions with companies. Instead, it explains some of the 
most important issues relevant to responsible owners and outlines 
our activities in these areas.
We would be delighted to discuss Hermes EOS with you in 
greater detail.
For further information, please contact: 
Dr Hans-Christoph Hirt, Head of Hermes EOS 
Hans-Chistoph.Hirt@hermes-investment.com
*As of 30 June 2019  
1 https://www.hermes-investment.com/ukw/wp-content/uploads/sites/80/2018/03/final-responsible-ownership-principles-2018.pdf
HERMES EOS
34

HERMES EOS TEAM
Engagement
Client Service and Business Development
Marwa Maan
Client Service
Alice Musto
Client Service
Dr Christine Chow
Team lead:  
Asia & Emerging Markets
Sector lead: Technology
Bruce Duguid
Director, Head of
Stewardship, Hermes EOS
George Clark
Voting and Engagement
Support
Bram Houtenbos
Voting and Engagement
Support
Aaron Hay
Sector lead: Chemicals
Jaime Gornsztejn
Sector lead: Industrials
& Capital Goods
Tim Youmans
Team lead: North America 
Sectors: Financial Services, Industrials 
& Capital Goods, Technology
Dr Hans-Christoph Hirt
Executive Director, Head of
Hermes EOS
Dr Emma Berntman
Sectors: Consumer &
Retail, Pharmaceuticals
& Healthcare
Roland Bosch
Sector lead: Financial
Services
Amy D’Eugenio
Director, Head of Client
Service and Business
Development, Hermes EOS
Charlotte Judge
Communications 
& Marketing
Rochelle Giugni
Client Service and Business
Development
Tim Goodman
Sector lead: 
Oil & Gas
Katie Frame
Sectors: Consumer &
Retail, Pharmaceuticals
& Healthcare, Technology
Claire Gavini
Sectors: Consumer  
& Retail
Michael Dieschbourg
Head of Stewardship and 
Responsibility North America
Pauline Lecoursonnois
Sectors: Consumer & 
Retail, Industrials &  
Capital Goods
Andy Jones
Team lead: Europe
Sector lead: Mining
Lisa Lange
Sectors: Automotive,
Financial Services,
Technology
Claire Milhench
Communications  
& Content
Kimberley Lewis
Sector lead: Pharmaceuticals
& Healthcare
Sonya Likhtman
Sectors: Consumer &
Retail, Mining, Pharmaceuticals
& Healthcare
Nick Spooner
Sector lead:  
Utilities
James O’Halloran
Director of Business
Management, Hermes EOS
Hannah Shoesmith
Sectors: Consumer &
Retail, Financial Services,
Technology
Janet Wong
Sectors: Technology and
Financial Services
Sachi Suzuki
Sector lead: Automotive
Marcus Wilert
Sectors: Consumer & Retail, 
Financial Services, Technology
Amy Wilson
Sector lead:  
Consumer & Retail
PUBLIC ENGAGEMENT REPORT Q2 2019 
35

For more information, visit www.hermes-investment.com or connect with us on social media:
Our investment solutions include:
Private markets
Infrastructure, private debt, private equity, commercial and 
residential real estate
High active share equities
Asia, global emerging markets, Europe, US, global, small 
and mid-cap and impact
Credit
Absolute return, global high yield, multi strategy,  
global investment grade, unconstrained, real estate debt 
and direct lending
Stewardship
Active engagement, advocacy, intelligent voting and 
sustainable development 
Offices 
London  |  Denmark  |  Dublin  |  Frankfurt  |  New York  |  Singapore
HERMES INVESTMENT MANAGEMENT
We are an asset manager with a difference. We believe that, while our primary purpose is to help 
savers and beneficiaries by providing world class active investment management and stewardship 
services, our role goes further. We believe we have a duty to deliver holistic returns – outcomes for 
our clients that go far beyond the financial – and consider the impact our decisions have on society, 
the environment and the wider world.
Our goal is to help people invest better, retire better and create a better society for all.
For professional investors only. The activities referred to in this document are not regulated activities. This document is for information purposes only. It pays no 
regard to any specific investment objectives, financial situation or particular needs of any specific recipient. Hermes Equity Ownership Services Limited (“HEOS”) 
and Hermes Stewardship North America Inc. (“HSNA”) do not provide investment advice and no action should be taken or omitted to be taken in reliance upon 
information in this document. Any opinions expressed may change.  This document may include a list of clients. Please note that inclusion on this list should not 
be construed as an endorsement of HEOS’ or HSNA’s services. HEOS has its registered office at Sixth Floor, 150 Cheapside, London EC2V 6ET. HSNA’s principal 
office is at 1001 Liberty Avenue, Pittsburgh, PA 15222-3779. Telephone calls will be recorded for training and monitoring purposes.
EOS00443  0006738  07/19
Why Hermes EOS?
Hermes EOS enables institutional shareholders around the world to meet 
their fiduciary responsibilities and become active owners of public 
companies. Hermes EOS is based on the premise that companies with 
informed and involved shareholders are more likely to achieve superior 
long-term performance than those without.
Contact information
Hermes EOS
Dr Hans-Christoph Hirt
Hans-Christoph.Hirt@hermes-investment.com