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Excellence. Responsibility. Innovation.
Q2 2016
Hermes EOS
Public Engagement Report
Money talks – Reforming executive remuneration
 www.hermes-investment.com


Hermes EOS
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 2016.
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 Preface
10 Governance
What is Hermes EOS?
Money talks – Reforming 
How does Hermes EOS work?
executive remuneration
3  Hermes EOS team
12 Strategy
Our team
Aiming for change – Stewardship 
in the mining sector
4  Engagement by region
Engagement statistics by region
14 Business strategy
Engagement on strategy and 
5  Engagement by issue
governance issues
Engagement statistics by issue
16 Public policy
6 Environment
Public policy and best practice
Fighting fires – Pushing for 
sustainable palm oil production
19 Overview
Regional voting statistics
8 Social
Safety first – Update on supply 
chain management in Bangladesh
www.hermes-investment.com  | 1

Public Engagement Report: Q2 2016
What is Hermes EOS?
How does Hermes EOS work?
Hermes EOS helps long-term institutional investors around the world 
Our corporate, public policy and best practice engagement 
to meet their fiduciary responsibilities and become active owners of 
programmes aim to enhance and protect the value of our clients’ 
public companies. Our team of engagement and voting specialists 
investments and safeguard their reputations. We measure and monitor 
monitors our clients’ investments in companies and intervenes 
progress on all engagements, setting clear objectives and specific 
where necessary with the aim of improving their performance and 
milestones for our most intensive engagements. In selecting companies 
sustainability. Our activities are based on the premise that companies 
for engagement, we take account of their environmental, social and 
with informed and involved shareholders are more likely to achieve 
governance risks, their ability to create long-term shareholder value 
superior long-term performance than those without.
and the prospects for engagement success.
Pooling the resources of other like-minded funds creates a strong and 
The Hermes Responsible Ownership Principles1 set out our fundamental 
representative shareholder voice and makes our company engagements 
expectations of companies in which our clients invest. These cover 
more effective. We currently act on behalf of 42 clients and £188.9 
business strategy, communications, financial structure, governance 
billion* in assets under advice.
and management of social, ethical and environmental risks. The 
engagement programme we have agreed with our clients, as well as 
Hermes has one of the largest stewardship resources of any fund 
the Principles and their regional iterations, guide our intervention 
manager in the world. Our 26-person team includes industry 
with companies throughout the world. Our approach is pragmatic, 
executives, senior strategists, corporate governance and climate change 
company- and market-specific, taking into account the circumstances 
experts, ex-fund managers and lawyers.
of each company. 
The depth and breadth of this resource reflects our philosophy that 
We escalate the intensity of our engagement with companies over 
stewardship activities require an integrated and skilled approach. 
time, depending on the nature of the challenges they face and the 
Intervention at senior management and board director level should be 
attitude of the board towards our dialogue. Some engagements involve 
carried out by individuals with the right skills, experience and credibility. 
one or two meetings over a period of months, others are more complex 
Making realistic and realisable demands of companies, informed by 
and entail multiple meetings with different board members over 
significant hands-on experience of business management and strategy 
several years.
setting is critical to the success of our engagements.
At any one time around 360 companies are included within our core 
We have extensive experience of implementing the Principles for 
engagement programmes. All of our engagements are undertaken 
Responsible Investment (PRI) and various stewardship codes. Our chair 
subject to a rigorous initial assessment and ongoing review process 
Colin Melvin led the committee that drew up the original principles and 
to ensure that we focus our efforts where they can add most value for 
we are actively engaged in a variety of workstreams through the PRI 
our clients.
Clearinghouse. This insight enables us to help signatories in meeting 
the challenges of effective PRI implementation.
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. Rather 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:
Co-Head Dr Hans-Christoph Hirt on +44(0)207 680 2826
Co-Head Emma Hunt on +44(0)207 680 4686
* as of 30 June 2016
1  https://www.hermes-investment.com/wp-content/uploads/2015/09/the-hermes-ownership-principles.pdf 
2
























Hermes EOS
Hermes EOS team 
Leadership
Dr Hans-Christoph Hirt 
Emma Hunt 
Bruce Duguid  
Co-Head
Co-Head
Director  
Sector lead: Mining, Utilities 
Sectors: Oil and Gas, 
Pharmaceuticals
Tim Goodman 
James O’Halloran 
Carl Short  
Director  
Director  
Director of Engagement 
Sector lead: Oil and Gas 
Head of Voting and 
Sectors: Financial Services, 
Engagement Support
Mining
Engagement professionals
Dr Emma Berntman 
Roland Bosch 
Darren Brady 
Sectors: Financial Services, 
Sector lead: Financial 
Sector lead: Technology 
Mining, Oil and Gas, 
Services  
Sectors: Oil and Gas, 
Pharmaceuticals, Utilities
Sectors: Consumer Goods 
Pharmaceuticals
and Retail
Dominic Burke 
Christine Chow  
Natacha Dimitrijevic 
Sector lead: Consumer 
Sectors: Financial Services, 
Sector lead: Pharmaceuticals 
Goods and Retail  
Mining, Oil and Gas, 
Sectors: Consumer Goods 
Sectors: Financial Services, 
Technology
and Retail, Financial Services, 
Utilities
Industrials, Oil and Gas
Jaime Gornsztejn  
Sachi Suzuki 
Dr Michael Viehs 
Sectors: Mining, Oil and Gas, 
Sector lead: Industrials 
Sectors: Industrials, 
Technology, Utilities
Sectors: Technology
Mining, Oil and Gas, 
Pharmaceuticals, Utilities
Maxine Wille 
Sectors: Financial Services, 
Industrials, Pharmaceuticals, 
Technology
Business Development and Client Service
George Clark 
Alan Fitzpatrick 
Rochelle Giugni 
Voting and Engagement 
Client Relations
Client Relations
Support
Bram Houtenbos 
Amy Lunn 
Nina Röhrbein 
Voting and Engagement 
Head of Business and  
Reporting and 
Support
Client Development
Communications
Lucy Saville 
Client Relations
www.hermes-investment.com  | 3

Public Engagement Report: Q2 2016
Engagement by region 
Over the last quarter we engaged with 298 companies on 579 
environmental, social, governance and business strategy issues. 
Our holistic approach to engagement means that we typically 
engage with companies on more than one issue simultaneously. 
The engagements included in these figures are in addition to our 
discussions with companies around voting matters.
Global
We engaged with 298 companies over the 
last quarter.
Environmental 15.2%
Social and ethical 20.6%
Governance 49.9%
Strategy and risk 10.7%
Stewardship 3.6%
Developed Asia
Emerging and Frontier Markets
Europe
We engaged with 39 companies over the last quarter.
We engaged with 40 companies over the last quarter.
We engaged with 62 companies over the last quarter.
Environmental 5.6%
Environmental 19.4%
Environmental 14.8%
Social and ethical 27.1%
Social and ethical 26.9%
Social and ethical 16.7%
Governance 49.5%
Governance 28.0%
Governance 56.5%
Strategy and risk 10.3%
Strategy and risk 20.4%
Strategy and risk 10.2%
Stewardship 7.5%
Stewardship 5.4%
Stewardship 1.9%
North America
United Kingdom
We engaged with 97 companies over the last quarter.
We engaged with 60 companies over the last quarter.
Environmental 16.7%
Environmental 19.1%
Social and ethical 14.7%
Social and ethical 20.9%
Governance 62.8%
Governance 44.3%
Strategy and risk 3.8%
Strategy and risk 13.0%
Stewardship 1.9%
Stewardship 2.6%
4

Hermes EOS
Engagement by issue 
A summary of the 579 issues on which we engaged with companies 
over the last quarter is shown below.
Environmental
Social and ethical
Governance
Environmental issues featured in 15.2% of our 
Social issues featured in 20.6% of our 
Governance issues featured in 49.9% of our 
engagements over the last quarter.
engagements over the last quarter.
engagements over the last quarter.
Biodiversity 4.5%
Access to medicine 2.5%
Board structure 33.2%
Climate change/carbon intensity 67.0%
Bribery and corruption 9.2%
Committee structure 0.3%
Environmental management 19.3%
Community relations 12.6%
Conflicts of interest 1.4%
Forestry 2.3%
Corporate culture 8.4%
Other governance 23.2%
Oil sands 2.3%
Customer relations 10.1%
Poison pill 1.0%
Waste 2.3%
Water stress 2.3%
Diversity 2.5%
Related-party transactions 0.3%
Health and safety 16.8%
Remuneration 33.2%
Labour rights/employee relations 9.2%
Separation of chair/CEO 3.5%
Licence to operate 10.9%
Succession planning 3.8%
Munitions manufacture 0.8%
Operations in troubled regions 2.5%
Political risk management 0.8%
Supply chain management 13.4%
Strategy and risk
Stewardship
Strategy and risk issues featured in 10.7% of our 
Stewardship issues featured in 3.6% of our 
engagements over the last quarter.
engagements over the last quarter.
Business strategy 37.1%
Accounting or auditing issues 19.0%
Capital structure 3.2%
Shareholder communications 66.7%
Reporting/disclosure 9.7%
Shareholder rights 14.3%
Reputational risk 4.8%
Returns to shareholders 1.6%
Risk management 43.5%
www.hermes-investment.com  | 5


Public Engagement Report: Q2 2016
Fighting fires – Pushing for 
Setting the scene
sustainable palm oil production
Palm oil is a versatile commodity that can be found in everyday 
products from chocolate to shampoo. It is the world’s most widely 
used vegetable oil, accounting for 65% of all vegetable oil traded 
In our longstanding engagement 
internationally, according to WWF. The efficient crop produces the 
onment
most edible oil per hectare of land2 and so has proven profitable 
vir
En
with producers of palm oil, we 
for its cultivators, which is why the palm oil plantation business 
has been expanding rapidly. 
have pressed them to adopt 
However, the development of palm oil, the vast majority of which 
sustainable business practices. 
is produced in Malaysia and Indonesia, has been accompanied by 
controversies. While in Malaysia the business expanded largely 
We have also engaged with some  by converting former rubber plantations to ones growing palm 
oil, in Indonesia the development of palm oil plantations has 
of their customers on the issue. 
involved the destruction of primary forest of native tree species. 
Palm-oil producing companies and small-scale farmers have 
been accused by NGOs and other organisations of starting fires 
deliberately to clear existing vegetation to make room for new 
palm oil plantations. The fires have become so widespread they are 
known as the Southeast Asian haze. In addition, producers have 
allegedly been involved in land-grabbing and disputes with local 
communities when developing new plantations. Others have faced 
accusations of poor working practices in and a lack of oversight of 
their supply chains. However, the industry also provides significant 
employment to local people, as well as infrastructure.
As companies were not certified when we began our dialogue on 
sustainable palm oil, we set objectives on RSPO certification. We are 
pleased that since our engagements started, the Malaysian palm oil 
plantations of companies we have had dialogue with and some of 
whose operations we were able to visit, have obtained 100% RSPO 
As local regulators have been slow to date to introduce strict legislation 
certification. However, due to land registry disputes or technical issues, 
on palm oil, in our engagement, we have urged companies to produce 
full certification has been more difficult to achieve in Indonesia.
and sell only sustainable palm oil and to follow best practice guidelines. 
To mitigate reputational risk, we have also encouraged their customers 
Sustainable Palm Oil Manifesto
to buy from companies producing sustainable palm oil. 
Furthermore, pressure from asset owners and investor representatives 
like ourselves contributed to the Sustainable Palm Oil Manifesto, 
Certification
which launched in 2014 and aims to build on the existing sustainability 
In 2004, the Roundtable for Sustainable Palm Oil (RSPO), a multi-
commitments of RSPO signatories.
stakeholder forum, which includes palm oil producers, NGOs and 
banks, was set up with the aim of promoting the growth and use 
The manifesto seeks to achieve common objectives held by key 
of sustainable palm oil products. It offers a certification scheme for 
stakeholders in the palm oil industry, such as growers, traders, 
growers to prove that their palm oil is produced in a sustainable 
processors and end-users, to ensure sustainability in the entire chain 
manner. Producers are required to meet a number of criteria on 
from cultivation to consumption. It commits palm oil producers and 
environmental impact, including on biodiversity and carbon emissions, 
traders to refrain from deforestation of high carbon stock (HCS) forest, 
as well as on social matters, for example the rights of workers and local 
as defined by a study, to create traceable and transparent supply 
communities. However, to date approximately only 21% of global palm 
chains and to protect highly fertile peat areas. The manifesto also 
oil is RSPO-certified and questions have been raised about the RSPO’s 
requires companies to ensure continuous positive economic and social 
work and robustness of its certification criteria, for example that it does 
benefits for the local communities living near palm oil plantations. 
not take into account greenhouse gas emissions and that certification 
Signatories have to prepare their own time-bound plan to implement 
does not guarantee that the palm oil in a product is deforestation- or 
these principles within 12 months of signing but are free to adopt a 
exploitation-free. Nevertheless, we believe that the organisation has 
reasonable timeframe to achieve their objectives. They also have to 
helped raise awareness about the challenges of palm oil production and 
publish their time-bound plans and file regular progress reports.
made meaningful changes to the way the industry operates.
Progress in selected engagements 
If any RSPO members are negligent in their plantations, they face 
As a result of the pressure from investors and customers, as well as the 
expulsion from the certification group. While a recently expelled 
above-mentioned initiatives, in our engagement with companies on 
member continues to sell crude palm oil without RSPO certification, 
sustainable palm oil, we have witnessed significant progress.
several major global companies have stopped buying from it and it was  
placed on review for downgrade by credit ratings agency Moody’s.
6


Hermes EOS
Golden Agri-Resources
we noted the company’s lack of public disclosure of this and other 
In 2009, a report by Greenpeace alleged that Southeast Asian palm 
sustainability issues and urged it to publish a policy commitment, 
oil giant Golden Agri-Resources (GAR) was contributing to large-scale 
highlighting the significance of reputational risks facing palm oil 
deforestation in Indonesia, where it owns nearly 500,000 hectares. This 
producers. We continued our discussion on its progress in obtaining 
resulted in a number of its customers, including Unilever, Nestlé, Kraft and 
RSPO certification for all of its plantations, to ensure that the company 
Burger King cancelling their contracts. Although they made up less than 3% 
was on track to meet its targets. 
of GAR’s revenue, the incident tarnished the company’s reputation.
In 2014, the company became a signatory to the Sustainable Palm Oil 
We commenced engagement with GAR in 2009. We focused on the 
Manifesto. This was followed by an announcement that the signatory 
objective of ensuring RSPO certification for all of its palm oil and on 
companies would halt development of potential HCS areas while the 
putting together a credible strategy to address wider sustainability 
HCS study was underway. In addition, KLK obtained RSPO certification 
allegations, including the setting of stretching targets. We also pressed 
for all of its plantations and mills in Malaysia and is working on 
GAR to dedicate more resources to the issue of sustainable palm oil.
meeting this target for Indonesia. We welcomed the publication of the 
company’s first sustainability policy and its intention to engage with 
In 2010, the company committed to certifying all of its plantations to 
its contractors and suppliers to ensure their adherence to the policy. 
RSPO standard by 2015. A year later, it developed a forest conservation 
Furthermore, KLK has vastly improved its reporting, including the 
policy to ensure sustainable growth and gained RSPO membership. It 
disclosure of fires within its plantations. 
also worked with Greenpeace and The Forest Trust on a different version 
of HCS, which classifies land and sets out which vegetation types have 
Public policy engagement
more or less carbon content than a plantation. This helps identify where 
While we have seen improvements at the company level, it is 
palm oil development would contribute to carbon storage. In addition to 
important not to forget the role governments can play. By creating 
these commitments, GAR pledged to oversee a wider cultural change in 
legislation and supporting a change in farming of smallholders, they 
its attitude to environmental sustainability. This included ensuring that its 
can pave the way to sustainable palm oil production. As part of our 
lead independent director would oversee environmental and social risks 
engagement, we jointly signed a letter to the Indonesian government 
and that the company’s environmental commitment would be driven by 
calling on it to make sustainable palm oil practices compulsory. As 
a culture of awareness of the importance of sustainability at the board 
part of the collaborative engagement on palm oil led by the Principles 
level. The company also nominated an executive director responsible for 
for Responsible Investment, we have met indigenous community 
sustainability issues to enhance the board’s reporting. Unilever and Nestlé 
representatives from tropical forests in Indonesia, Colombia, Peru and 
resumed buying from GAR in 2011.
Liberia, to listen to their concerns – related to land-grabbing, human 
In 2012, we conducted a site visit to GAR plantations in the Riau 
rights violations, deforestation and contamination of land and water – 
region of Indonesia to inspect its methods of consultation with 
and investigate their claims further.
the local community and management of impacts on carbon 
Ongoing challenges
emissions, as well as to assess whether its commitment to full RSPO 
certification by 2015 was sufficiently stretching. Following the visit, 
However, challenges remain. One of the biggest is the oversight and 
we engaged the company’s senior independent director to urge 
control of small-scale farmers who often work on concessionary 
the board to publish a time-bound action plan for implementation 
lands of global companies. These smallholders typically supply 
of its sustainability strategy. GAR understood the importance of 
local customers who may not be interested in sourcing palm oil 
demonstrating its commitment to sustainability and agreed to 
in a sustainable manner and lack investors who could pressure 
strengthen its standard operating procedures on sustainability matters.
them on sustainability. This makes it difficult for them to see the 
potential economic benefits of producing sustainable palm oil. Large 
We continue to monitor the company as it has begun palm oil 
companies may have zero burning policies in place but smallholders on 
operations in Africa, which raises new challenges and requires different 
concessionary lands can still choose to ignore these.
approaches to be developed beyond those in Asia.
We continue to engage with large palm oil producers to seek their 
Kuala Lumpur Kepong
help in extending best practice to smallholders, while putting pressure 
Our engagement with Malaysian multi-national Kuala Lumpur Kepong 
on the regulators to raise industry standards. We urge the laggards in 
(KLK) was sparked in 2012 by allegations of illegal logging of an 
the industry to catch up with its leaders and push to ensure that the 
Indonesian peat forest in violation of a two-year moratorium by one of 
companies in our engagement programme achieve full RSPO certification 
its subsidiaries. In addition, a contractor of KLK was accused of operating 
in Indonesia. Furthermore, we engage with the companies to ensure that 
slave labour-like conditions at its palm plantations, allegations which KLK 
they apply best practice standards in new sourcing markets where they 
has denied. The company has also been accused of failing to respect the 
expand their palm oil activities, such as Africa and Latin America.
rights of community groups in Papua New Guinea and Liberia. 
For further information, please contact: 
Throughout our engagement, we have pressed the company to 
implement better labour standards in its supply chain. While denying 
the allegations of labour abuses by one of its contractors, KLK 
confirmed that it had terminated its contract with the contractor 
concerned and provided us with a document intended for its customers 
explaining its labour practices. We welcomed its efforts to reduce the 
use of contract workers, improve communications with customers 
Sachi Suzuki
and engage with NGOs. We were also encouraged by the significant 
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amount of time the board spent discussing these issues and the visits 
to the estates by directors to gain first-hand experience. However, 
2 Sustainable path: Who is leading palm-oil reform?, CLSA Blue Books 2016
www.hermes-investment.com  | 7


Public Engagement Report: Q2 2016
Safety first – Update on supply chain 
Setting the scene 
management in Bangladesh
It has been over three years since the eight-storey Rana Plaza 
building in Bangladesh’s capital Dhaka collapsed, taking with it 
the lives of over 1,100 garment workers that were on its premises 
We have been engaging 
producing clothes for global retailers. In its wake, two initiatives 
Social
were set up, the Alliance for Bangladesh Worker Safety (Alliance), 
with garment retailers for 
which was founded by North American retailers and brands, and 
the Bangladesh Accord on Fire and Building Safety (Accord), which 
stronger labour standards and 
has mainly Asian, Australian and European company signatories. 
Both initiatives set out binding, five-year undertakings that aim 
supply chain management in 
to improve safety in ready-made garment factories in the country 
through inspections and audits. 
Bangladesh and beyond.
On the third anniversary of the collapse of the Rana Plaza building, 
we signed a joint investor statement addressed to companies that 
are members of the Alliance and Accord. While acknowledging 
the positive steps taken towards improving the safety of workers, 
the statement highlighted remaining concerns about the pace of 
progress in addressing systemic issues and called for further action 
from international brands. This includes the provision of financial 
support to suppliers where appropriate, the establishment 
of independent safety committees in factories to sustain 
improvements that have been made and the public disclosure of 
factories in their supply chains. 
We visited a number of international brands, their suppliers and 
other stakeholders in Bangladesh in late 2014 to understand the 
issues on the ground. Three years on from the accident, we reflect 
on what has been happening in the sector and how the focus of 
our engagement with companies has shifted.
We are therefore pleased that advances have been made in the 
transparency of supply chains. Several companies in our engagement 
programme have completed the mapping of their supply chains 
through to tier 2 and 3 suppliers, covering ancillary processes such as 
washing and dyeing, as well as fabric mills. 
Progress
Encouragingly, some retailers have gone beyond the requirements 
After the 2013 Rana Plaza disaster in Bangladesh, the primary aim of 
of the Accord and Alliance and undertaken their own auditing and 
retail companies and their stakeholders was to improve health and 
structural surveys of all their suppliers, including those for which they 
safety standards in the garment manufacturing sector.
are not the lead buyer. 
Immediate structural safety issues, such as the provision of escape 
Positive steps have also been taken by some retailers in response to 
routes and exit doors in factories, negligence of which has led to 
the refugee crisis in Europe and the Middle East. Refugees entering the 
companies being fined in the past, have now been addressed by the 
supply chain illegally are vulnerable to exploitation, which is why some 
companies we have been engaging with. However, the rate of progress 
retail companies have been working with local NGOs and auditors to 
when looking at all outstanding remediation required ahead of the 
identify and redress instances and provide disclosure on this matter.
expiry of the Alliance for Bangladesh Worker Safety (Alliance) and the 
Bangladesh Accord on Fire and Building Safety (Accord) in 2018 has 
Workers’ rights
been slower than expected. 
In view of the improvements in structural safety and oversight, our 
engagement focus has shifted to the rights of workers in supply chains 
Commonly cited obstacles include the limited availability of certified 
and how the dynamics between suppliers and brands can be improved 
specialists, such as engineers, and delays in obtaining materials and 
to sustain and encourage best practices.
equipment such as fire doors, although we understand from the Accord 
that these are being overcome. 
As unions have traditionally been largely absent from Bangladesh, 
we have pushed for the rights of workers to organise and represent 
Oversight
themselves collectively. Our 2014 visit to the country had given us 
In our engagement, we have pushed for oversight of sustainability 
concern about how effectively worker participation committees were 
risks in supply chains by retail companies and their boards through 
functioning in factories, which we fed back to the retail companies we 
ambitious targets and tracking of progress at the group level.
spent time with and called for further action on.
8


Hermes EOS
A couple of companies have since signed agreements with global 
reporting and the US Business Supply Chain Transparency on Trafficking 
unions to provide more effective support to workers and their 
and Slavery Act. We believe that the benchmark can encourage 
representatives, such as negotiation training. However, we also want 
the provision of better quality and comparable information from 
to see improvements in factory human resource processes, including 
companies to inform our engagement with and assessment of them, as 
the training of supervisors and the introduction of meaningful metrics 
well as incentivising businesses to adopt best practices from peers.
which provide insights into the management of workers.
New market challenge
Productivity
A key test of companies’ progress is the extent to which they embed 
Another significant issue in the supply chain has been the poor 
best practices in new sourcing markets and apply the lessons learned 
productivity of workers, in other words the output per employee. 
from their experience in Bangladesh and elsewhere. In Myanmar, for 
During our 2014 visit, two of the retail brands we met told us that 
example, several companies entering the country have petitioned the 
productivity is lower in Bangladesh than in their other sourcing 
government to introduce a living wage for the textile industry, in a 
markets, in part due to faults in the production of garments.
demonstration of their commitment to staying there. 
Efforts by some retailers to increase wages indicate that this can 
We will explore this issue with companies considering or already 
enhance productivity, with trials finding that output and efficiency 
sourcing from this market and seek to visit factories on the ground at 
increase, while costs associated with employee turnover decrease due 
some point in the future.
to investment in the training of workers, as well as supervisors, on 
management practices.
We will also focus our engagement increasingly on the environmental 
challenges facing factories in the supply chain, such as water and 
Order volatility also remains one of the biggest pressures on suppliers 
waste management, as well as parts of the supply chain previously not 
and in our engagements, we urge brands to address volatile buying 
scrutinised, such as tanneries.
practices and insecure short-term relationships.
For further information, please contact: 
Longer-term planning can provide suppliers with the certainty to invest 
in employee and processes, driving standards, while also offering more 
competitive pricing to buyers. Recognising this Swedish, multi-national 
retailer H&M is committing to five-year agreements with suppliers 
that perform highly on sustainability and to three-year plans for the 
next tier. We will continue to monitor H&M’s progress in this area and 
encourage other brands to improve their buying practices.
Dominic Burke
Trying to address labour standards in its Bangladesh supply chain 
xxxxxxx.xxxxx@xxxxxxxxxxxxxxxxx.xxx
may have also led US retailer Wal-Mart to improve human capital 
management across its business, increasing the pay of many 
of its store staff and investing substantially in staff training and 
career development.
Reporting
In our engagements, we encourage companies to adopt the UN 
Guiding Principles on Business and Human Rights Reporting Framework 
in order to effectively communicate how they manage human rights 
impacts, ranging from child labour to women’s rights and workplace 
harassment. We supported the development of the principles through 
our participation in the Shift Project. Speaking on a panel with 
several companies we engage with at an EU conference on human 
rights, we were pleased to hear about the benefits of the framework 
as an internal management tool, which supports their engagement 
with investors and other stakeholders. We called for consistency in 
the implementation and guidance of non-financial reporting across 
different markets, including on human rights, while cautioning against 
a too prescriptive focus on common metrics or data points. In our 
experience human rights impacts vary greatly between companies, 
sectors and geographies and so we suggested that companies should 
have the flexibility to report meaningfully and qualitatively on the risks 
and impacts most salient to their operations.
We have also supported the development of the Corporate Human 
Rights Benchmark which ranks the top 500 companies globally on 
the basis of their human rights risk management and disclosure. 
This complements a number of other initiatives seeking to drive 
transparency and better performance on social issues, such as the 
Modern Slavery Act in the UK, the above-mentioned UN Guiding 
Principles reporting framework, the EU directive on non-financial 
www.hermes-investment.com  | 9

Public Engagement Report: Q2 2016
Money talks – Reforming executive 
Setting the scene
remuneration 
In 2012, UK companies found themselves caught up in the so-
called shareholder spring. Unhappy with what they perceived to 
be excessive amounts of executive pay or packages that were 
In our engagements with 
too complex or out of sync with the economic climate and value 
vernance
creation, shareholders started voicing their frustration by voting 
Go
companies across sectors and 
more frequently against remuneration reports at company AGMs. 
regions, we continue to push for 
The shareholder spring was perceived to be a game-changer. In 
the UK, it led to new legislation in 2013, resulting in a binding 
reforms to executive pay.
vote on a company’s pay policy by shareholders at least every 
three years. Together with the Pensions and Lifetime Savings 
Association, the BT Pension Scheme, Railpen Investments and the 
Universities Superannuation Scheme, Hermes EOS developed a set 
of remuneration principles for executives in the aftermath of the 
shareholder spring.3
However, the impact of the 2012 shareholder spring turned out 
to be short-lived and executive pay has continued to increase, 
particularly in comparison with the rest of the workforce [see 
table]. Often this has led to higher levels of remuneration for 
average performance and reward for failure. To the ultimate 
beneficiary of institutional investors this trend has been difficult 
FTSE 100 CEO received to average employee 2002 – 2014
to justify and frustration about the widening pay gap and related 
divisions in society may have contributed to the decision made by 
Year
CEO total remuneration 
Shareholder voting % 
UK voters to leave the EU.
received as multiple of 
dissent (abstain + oppose) 
average employee earnings
on remuneration
2002
69.51
16.19
engagement on high pay with votes against management proposals 
2003
77.08
12.83
on remuneration.
2004
94.16
7.38
Although remuneration frameworks vary by country – most notably 
2005
97.62
5.19
with regard to disclosure, pay caps and, crucially, the existence and 
2006
98.75
6.08
legal effect of shareholder votes on pay policies and reports – and 
2007
139.16
7.14
concerns differ accordingly, several trends have stood out this 
2008
124.32
10.06
voting season. 
2009
151.68
9.38
First, we observed the misalignment of executive pay to the experience 
2010
132.22
9.07
of shareholders and creation of long-term value. Due to the downturn 
2011
117.50
11.34
in the commodities sector, this applied especially to extractives 
2012
114.35
7.55
companies, such as Anglo American and BP, and those providing goods 
2013
125.38
9.08
or services to the industry, such as Weir Group. Secondly, we witnessed 
2014
149.58
8.38
the overuse of discretion upwards by remuneration committees 
when it should not be used or lack of discretion when it needed to be 
Source: Manifest, High Pay Centre ‘Pay ratios – Just do it’ 
applied, for instance where quantum is already large. We, for example, 
http://highpaycentre.org/pubs/pay-ratios-just-do-it
opposed the pay package at Tullow Oil for failure to use discretion 
downwards in a year, which, in our view, displayed poor performance. 
The annual bonus and long-term incentive plans of executives 
In addition, we recommended voting against remuneration policies 
typically pay many multiples of their base salary, even in years where 
where the assessment and stress-testing of pay packages and policies 
companies underperform. Often the root cause of overly generous pay 
by remuneration committees was in our view flawed and quantum was 
and reward for failure lies in the remuneration policies of companies 
inappropriate and unacceptable to us. 
which are supposed to align the remuneration of the CEO with the 
performance of the company he or she is leading. Executive pay plans 
One of the most controversial votes cast against in the 2016 voting 
have become increasingly – and unnecessarily – complex and difficult 
season was at the AGM of UK multinational advertising agency WPP, 
to understand even for members of remuneration committees. At the 
with which we have a longstanding engagement on independent 
same time, remuneration committees have mostly failed to fulfil their 
board leadership, succession planning and the responsibilities of its 
responsibilities by using their discretion to reign in ever-increasing 
remuneration committee. The proposed £70 million pay package for 
pay awards.
2015 has to date been the second-highest pay package ever received 
by a FTSE CEO. The large quantum could primarily be attributed 
Voting season 2016
to a legacy equity incentive plan introduced in 2009 which is to be 
In the 2016 voting season, similar to 2012, a large number of 
phased out in 2017. However, while we appreciate that the quantum 
shareholders opposed the pay policies and reports of companies 
was primarily a result of the company’s strong performance in 
and called for reforms, reflecting the public anger to high levels of 
recent years, we had historic concerns about board composition and 
pay. We at Hermes EOS played a part in this, by complementing our 
the remuneration committee’s apparent lack of vigour and stress-
10


Hermes EOS
testing when the legacy plan was devised. We urged the chair of the 
applied to explain CEO pay and how it compares to the rest of the 
remuneration committee to draw the right lessons from this controversy 
workforce and why it is justified.
when developing a new remuneration policy in 2017 and, like last year, 
opposed the proposed pay package for assessment and quantum reasons.
In short, the objective of remuneration policy is no longer to attract, 
retain and motivate an individual but to pay what is necessary while 
Another highlight of the voting season was the AGM of Deutsche 
rewarding delivery of great performance.
Bank, where we commended the supervisory board for not paying 
any bonuses to the members of the management board in 2015. 
Stewardship 
However, we were concerned about the significant increases in base 
We believe that there is a significant appetite for change and urge 
salaries in recent years, the apparent lack of consultation on the 
companies to consider how they might align pay more closely with the 
proposed changes to the management board remuneration system, 
interests of their long-term owners in order to position themselves best 
the inadequate transparency in relation to performance criteria and 
for future success.
targets of the proposed division performance award, as well as the 
high level of discretion of the supervisory board with regard to variable 
The ownership chain should endeavour to understand and reflect 
remuneration. We were therefore part of the 51.9% of shareholders 
the views and interests of the ultimate beneficiaries, including with 
who opposed the new remuneration system.
respect to the question of what executive remuneration levels are 
acceptable. In the absence of direct involvement of beneficiaries, 
Reform proposals 
boards or trustees of asset owners could develop a clearer view on 
At the beginning of this year’s AGM season, we issued additional 
executive remuneration, including on quantum, and instruct their 
guidance to clarify our expectations of remuneration committees. 
fund managers to communicate this to companies and exercise voting 
We highlighted that developing, thoroughly assessing and stress-
rights accordingly. 
testing, implementing and – if necessary – adjusting the outcomes of 
The conflicts asset managers can face, specifically when they are listed 
remuneration policies is the responsibility of remuneration committees 
or are part of a financial group, ought to be addressed, for example 
– not of investors.4 
through better disclosure on how published policies on executive 
To effectively discharge their stewardship role, remuneration 
remuneration can be implemented through voting at AGMs.
committees must take a more robust view on pay. 
Fresh thinking 
They must improve their assessment and stress-testing of 
To address inequalities and the rise in quantum, pay ratios, which will 
remuneration policies and the disclosure and communications of 
come into effect for US companies in 2018, should also be considered. 
outcomes of different, even unlikely, scenarios. If their members are 
Under the rule adopted by the US Securities and Exchange Commission 
unable to do so, this suggests that remuneration policies have become 
as required by the Dodd-Frank Act, large companies will have to 
far too complex and unnecessarily complicated. A simplification 
disclose how salaries at the top compare to their median compensation 
of remuneration policies and plans – which allows outcomes to be 
level for employees worldwide.
understood by investors, boards and executives – has thus become 
necessary. If remuneration committees do not understand the potential 
Furthermore, pay-for-performance ought to be disentangled, in other 
outcomes of a pay policy, or would struggle to rationalise proposed 
words it has to be clearly defined as to whether it is about individual or 
quantum, they should veto it. And if the actual outcomes of a policy 
company performance.
cannot be explained convincingly to the average member of the public 
or implementation leads to results that contradict the underlying 
Engagement and voting
purpose of a remuneration policy, they should use their discretion to 
However, engagement reinforced by voting is likely to be the most 
adjust them. At all times, they should use discretion to safeguard their 
effective means of bringing about positive change when it comes to 
company’s reputation and social licence to operate in a given market.
remuneration. With another round of binding shareholder votes on pay 
policies taking place in the UK in 2017, we will continue our intensive 
Remuneration committees must also balance the desire to set some 
engagement on remuneration for the remainder of 2016.
targets that can be controlled by executives with the need to ensure 
alignment of remuneration and long-term value creation. We have long 
We seek to support companies and their directors embracing change 
argued that paying a significant part of remuneration to executives in 
as we believe pay arrangements that reward long-term value creation 
shares and requiring them to hold these well beyond their tenure with 
instead of average performance – and are acceptable within the wider 
companies is a natural starting point to ensure the desired alignment. 
society – are in the interests of companies and their investors.
In addition, remuneration committees must form a view on what they 
For further information, please contact:
regard as appropriate and acceptable quantum for executives in different 
scenarios and clearly disclose and communicate this to shareholders. 
Shareholders can then take a view on this important matter. 
Pay escalation is often linked to succession plans, as companies believe 
they can hold onto their CEO by paying excessive amounts to the 
individual. However, in our view the head of a company should not 
be purely incentivised by money, as this is neither in the interests of 
Dr Hans-Christoph Hirt
shareholders nor the company. At times this excuse has been used to 
xxxxxxxxxxxxxx.xxxx@xxxxxxxxxxxxxxxxx.xxx
increase pay when there was little chance of the CEO leaving. While 
we recognise that companies want to pay their CEOs more than their 
competitors, businesses need to realise that remuneration alone does 
3 https://www.hermes-investment.com/wp-content/uploads/2016/03/Remuneration-
not attract great talent. Ideally, some form of fairness test should be 
Principles-PLSA-NAPF-March-2016-update.pdf 
4 https://www.hermes-investment.com/ukw/blog/2016/04/21/executive-remuneration-in-
the-spotlight/
www.hermes-investment.com  | 11


Public Engagement Report: Q2 2016
Aiming for change – Stewardship in 
Setting the scene
the mining sector
Much of the world’s higher grade mineral resources can be found 
in the more remote parts of developing nations, where there is 
frequently poor infrastructure and weak governance. Operators 
In our engagement with mining 
can therefore face significant local environmental and social 
risks. While best practices can help mitigate many of these risks, 
Strategy
companies, we focus on a variety  climate change presents a number of structural challenges that 
require a whole-business response. The first of these is the energy 
of issues, ranging from climate 
and therefore carbon-intensive nature of mining itself, which 
involves shifting large quantities of bulky materials, followed by 
change to health and safety and 
their processing and smelting. The threat of carbon pricing is a 
significant business risk and mining companies must focus on 
governance. 
energy efficiency and renewable energy solutions. The second 
threat is to the demand of the products, which often are the cause 
of emissions, such as coal, or which may be substituted by other, 
lower-carbon and lighter materials, for example aluminium for 
steel. The good news for mining companies is that while some 
commodities appear threatened by the move to a low-carbon 
economy, others should do better, such as copper, which supports 
better grid infrastructure and the electrification of transport, 
uranium, which is used in nuclear power generation and lithium 
and cobalt, which are used to make batteries for electric vehicles.
major company regarding preparedness for the challenges of climate 
change. The scenario-based analysis underpinning this publication 
was the result of a successful engagement by Hermes EOS in 2014. 
Somewhat reassuringly for investors, due to BHP Billiton’s well-
diversified portfolio, the work set out that even in a more extreme 2°C 
scenario with a cost of carbon of $80/tonne – the latest cost of carbon 
in the EU emissions trading scheme was €5.60/tonne on 30 June 
2016 – climate change is estimated to reduce the operating margins 
of the company over a 20-year period by approximately only 5%. 
While demand for some commodities is anticipated to fall in a lower-
carbon economy, the company expects it to rise for others. We have 
used this precedent to encourage the company’s peers to carry out a 
similar exercise.
Shareholder resolutions
As part of the Aiming for A coalition of investors, we filed climate 
change-related shareholder resolutions at oil and gas majors BP 
and Shell in 2015 in the belief that carefully crafted, supportive but 
Disclosure of climate change risks
stretching shareholder proposals can play a positive role in encouraging 
Mitigating the risks mining companies face from climate change has 
best practice during the transition to a low-carbon economy. Such 
been a core part of our engagements with companies. We have focused 
resolutions also highlight the need to balance the short- and longer-
on improving corporate reporting of climate risks, setting an objective 
term aspects of shareholder value creation. Throughout 2015, we raised 
relating to the disclosure of asset portfolio resilience to climate change 
the idea of filing similar resolutions on the disclosure of asset portfolio 
for several of the mining companies in our engagement programme. 
resilience to climate change with the chairs of three major diversified 
mining companies, namely Anglo American, Glencore and Rio Tinto, all 
We have asked companies to stress-test their portfolios – analysing 
of which are listed in London. 
their assets to see how they would perform in different circumstances 
– using recognised greenhouse gas emissions scenarios, such as those 
Board support increases the likelihood that a resolution will be passed 
developed by the International Energy Agency. This includes analysis of 
and ensures management will be committed to implementing the 
their existing portfolios, as well as the new pipeline of products over a 
resolution. While each chair indicated his informal personal backing 
period to at least 2035. Furthermore, they should assess the impact of 
during the engagement, formal board support could not be guaranteed. 
changes in demand for commodities on the supply curve and develop 
It was necessary to demonstrate the scale of long-term institutional 
price implications before communicating the impact of the resulting 
investor support by meeting the required thresholds for co-filing 
scenarios qualitatively and quantitatively and describe their response to 
required by company law.
the scenarios and the implications for strategy.
The shareholder resolutions we recommended our clients to co-file 
One notable example has been the publication of climate change 
asked for enhanced disclosure of the companies’ approach to climate 
portfolio analysis by Anglo-Australian multinational mining company 
change risks, including management of operational greenhouse 
BHP Billiton in 2015. It set a welcome precedent in transparency by a 
emissions, their strategic portfolio resilience to low-carbon scenarios, 
12


Hermes EOS
research and development into low-carbon solutions, their public policy 
While acknowledging that fatalities are difficult to eliminate, in our 
position on climate change, as well as their overarching corporate 
engagements we have pushed for effective and culturally sensitive 
governance framework and link to key performance indicators. 
health and safety training and that systems and procedures are in place 
across all operations globally and audited and updated regularly. In 
Support
general, we have seen health and safety standards improve across the 
In the end, we successfully met the required thresholds by bringing 
sector, reflected in, for example, lower lost time injury frequency rates.
together over 100 supportive institutional investors for the shareholder 
proposal submitted at Rio Tinto and 50 for the resolution at Jersey-
Good governance
based Glencore. We eventually also managed to pass the required 5% 
We also continue to engage with mining companies on good 
alternative threshold for the shareholder proposal at Anglo American. In 
governance. In the wake of the Bento Rodrigues dam disaster in Brazil 
total, investors responsible for more than $8 trillion, including clients of 
in November 2015, where a dam burst as a result of mining operations 
Hermes EOS, were involved in filing the resolutions.
by Samarco, a joint venture between BHP Billiton and Brazilian mining 
company Vale, we have stepped up our engagement efforts on the 
At the AGMs of the respective companies, the shareholder proposals 
governance of joint venture-operated mines. Above all, we want 
received overwhelming support, namely 99% at Glencore, 98% at Rio 
to make sure that lessons are learned and applied to future mining 
Tinto and 96% at Anglo-American. 
operations across the industry.
Anglo American committed to finalising energy efficiency targets at 
So while the activities of mining companies naturally have an impact 
its AGM, following the restructuring of the business. It also agreed to 
on the environment, locally and globally, as well as on communities 
carry out further analysis of the resilience of its principal commodities 
living or working near mines, in our engagement we have pressed 
to low-carbon scenarios, as well as to explore the link between 
for better environmental, social and governance standards in their 
remuneration and climate change-related key performance indicators.
operations. We are pleased about the steps the mining companies have 
taken on climate change, for which we have helped pave the way, and 
Rio Tinto meanwhile promised to work with institutional investors to 
will continue our engagements in that and other areas.
explore new ways of analysing climate change risks. 
For further information, please contact:
With the shareholder resolutions all passed, we are now working with 
the companies to help define the nature of the additional disclosure 
required to meet the requirements of the shareholder resolutions, 
which ideally should be part of the strategy section of their annual 
reports, and give feedback on first drafts. Glencore has already 
published its view of the robustness of its business to low-carbon 
scenarios and committed to conducting this analysis on the basis of 
a 2°C scenario, which is particularly important given the company’s 
Bruce Duguid
relatively high exposure to thermal coal.
xxxxx.xxxxxx@xxxxxxxxxxxxxxxxx.xxx
Public policy work
As part of our engagement, we collaborated with the Institutional 
Investors Group on Climate Change (IIGCC) to produce the document 
called Investor Expectations of Mining Companies – Digging deeper 
into carbon asset risk5 which outlines the approach and disclosure that 
investors expect of mining companies concerning climate change risks. 
We are also working with the Task Force on Climate-related Financial 
Disclosures, set up by the chair of the Financial Stability Board, to 
establish guidelines for standardised risk disclosures by companies on 
climate change. This will help to increase the scope of reporting across 
more companies, as well as its comparability. It should also mean that 
we do not have to use the administratively cumbersome approach of 
using more shareholder resolutions to achieve the disclosure required 
by investors across the industry.
Social engagements
In addition to the focus on environmental issues over the last year, 
we continue to engage on social issues. This has entailed ensuring 
that during the cost-savings programmes introduced at many mining 
businesses following the downturn in commodities, companies are not 
cutting corners on health and safety, environmental protection and 
investment in their social licence to operate. It includes programmes 
on community relations, as tension with local communities can lead to 
significant reputational, operational and financial risks.
5 http://www.iigcc.org/files/publication-files/IIGCC_2015_Mining_Report_FINAL_WEB.PDF
www.hermes-investment.com  | 13

Public Engagement Report: Q2 2016
Engagement on strategy
Overview
Many of our most successful 
We adopt a holistic approach to engagement, combining 
discussions on business strategy and risk management, including 
engagements include discussions  social, environmental and ethical risks, with structural governance 
issues. We challenge and support corporate management in 
Strategy
on business strategy and 
their approach to the long-term future of the businesses they 
run, often when there is minimal outside pressure for change. 
structural governance issues.
We are generally most successful when we engage from a 
business perspective and present environmental, social and 
governance issues as risks to the company’s strategic positioning. 
Companies may benefit from new perspectives on the board 
and from promoting fresh thinking at the head of the company. 
An independent chair or change of CEO is frequently the key 
to improving performance and creating long-term value for 
shareholders.
Examples of recent engagements 
Cyber security
Board nomination process 
Lead engager: Dominic Burke 
A European company has made significant advances since our 
Lead engager: Jaime Gornsztejn
first conversation on data and cyber security in 2015, recognising 
In a meeting at the head office of an emerging markets company, 
the significant shift in emphasis from traditional sources of 
we were encouraged by the positive development in the board 
communications revenue to data and that its management of 
nomination process. We commended the company for disclosing 
security concerns will be key to its future success. The company 
the board nominees for the first time in advance of its 2016 AGM 
has appointed chief data and security officers with backgrounds 
and challenged its board composition and evolution, in line with our 
in military intelligence and cyber security who, as members of the 
engagement objectives. Although three new independent directors 
executive committees, report to the chair/CEO. We discussed the 
have joined the board over the last three years, it still comprises three 
need to ensure non-executive directors develop sufficient knowledge 
independent directors with tenures exceeding 20 years. The company 
to effectively challenge and oversee management in these areas. The 
sought to reassure us that it has formal procedures in place to verify 
company welcomed our suggestion that an independent director sit 
the independence of these directors, consistent with the country’s 
on the security committee with management. It also acknowledged 
regulations, which does not set a limit on tenure. We shared with 
the importance of planning for effective communication of cyber 
the company best practice in board evaluation and discussed the 
incidents with stakeholders as part of its incident response plan and 
possible benefits to the group’s effectiveness in discharging its duties 
explained that effective communication with clients on data matters is 
resulting from such an assessment. The company was receptive to our 
a priority during product and service development. We also challenged 
engagement and we agreed to follow up with the board secretary. In 
the company on its management of cyber security risk arising from 
a separate meeting, we were pleased to learn that the company has 
its more than 12,000 suppliers and were reassured that additional 
begun preparations to produce its first integrated report in 2017. 
security measures are contractually required from the small number 
of critical suppliers that have privileged access to the company’s data 
Climate change risk management
and systems. On the related matter of protecting the human rights 
Lead engager: Natacha Dimitrijevic
of customers when handling government data requests, the company 
We spoke at the AGM of an oil major on behalf of our clients and 
was able to illustrate a clear legal process and from next year will publish 
10 other institutional investors who together have assets under 
a transparency report detailing the number of requests it receives by 
management of over $3 trillion. Following our intensive engagement 
operating markets, something we have pushed for in line with many of its 
with the company, which led to the publication of its climate change 
peers. The company also offered us a visit to its cyber security business.
report at the shareholder meeting, we highlighted publicly the work it 
has undertaken on climate change to date and the quality of dialogue 
Proxy access
we have had with the company over the past year. We also outlined 
Lead engager: Darren Brady 
the remaining challenges on strategy, reporting and lobbying. In line 
Through discussions with several senior representatives, we advanced 
with our constructive engagement, we had informed the company 
our engagements with a US company seeking a robust proxy access 
in advance of our intervention. The chair welcomed our approach 
right for long-term shareholders and a strengthening of the pay-
and input in his main speech and in his response to our questions. 
for-performance relationship within executive compensation plans. 
Positively, he announced enhanced transparency on lobbying practices. 
Following intensive consultation with the company on how it should 
In a subsequent meeting with the chair, we gained reassurance that 
structure its proxy access policy over the past few months, we were  
the company is committed to addressing the risk of climate change 
pleased to learn that it has implemented our suggestions and approved 
by including renewables in its energy mix, allocating the appropriate 
a proxy access policy in line with our best practices guidance. While 
capital and research and development expenditure.
there are a few deviations made by the company that are appropriate 
to its individual circumstances, the resulting proxy access right is a 
meaningful enhancement to shareholder rights. We commended the 
company for its earnest engagement efforts and uptake of investor 
14

Hermes EOS
feedback. We also challenged it on its executive remuneration practices. 
issues at its AGM. We requested a further meeting to discuss board 
While we do not have major concerns with its pay practices, we have 
leadership arrangements and the company’s governance of political 
been pushing for a higher percentage of long-term awards to be based 
and lobbying donations, noting that we had voted by exception against 
on objective performance criteria to strengthen the alignment of 
the shareholder proposals on these issues. The board had discussed its 
interests between executives and shareholders. The company informed 
governance of political and lobbying donations and while we believe 
us that from next year it will base at least 60% of its long-term awards 
that it has reasonable approaches in place, its disclosures could be 
on disclosed performance goals and enhance the transparency on how 
improved. We subsequently participated in a survey organised by a 
these targets are determined. We will continue to engage on this issue 
consultant to the company in which we called on the company to 
as it implements these enhancements. Furthermore, we questioned 
focus on the issues that we see as most material to it, such as data 
the company’s attempts to promote gender pay equality among its 
protection, privacy and safe use of the internet and technology, 
staff and learned of significant efforts already underway. This gave us 
reduction in its own environmental footprint and helping its customers 
more than ample comfort to support management by not backing a 
with theirs, as well as human and labour rights within its own 
shareholder proposal on this topic, as the company is already able to 
operations and supply chain.
demonstrate robust action in this area. 
Sustainability targets
Lead engager: Tim Goodman
The suggestions we made two years ago for a North American 
company to report on mid-term and long-term sustainability targets 
have directly influenced its sustainability programme and latest 
reporting, according to its sustainability head. This has in turn enabled 
us to progress our sustainability objective. Positively, two more of the 
company’s longstanding directors are to step down in the next few 
months in line with what we have called for in our engagement on 
board composition. The general counsel provided a detailed account of 
how governance at the company functions, how the lead independent 
director is performing and how the committee chairs work together. 
He also described the company’s processes for controlling its political 
and lobbying activity in light of two shareholder proposals on these 
Engagements on strategy and/or governance
United Kingdom
21 6
Developed Asia
North America
Europe
20 11
30 15
20 7
Emerging and
Frontier Markets
23 8
Companies engaged on 
strategic and/or governance 
objectives this quarter: 114
0 0
Companies with progress 
Australia and
on engagements on strategic 
New Zealand
and/or governance objectives 
this quarter: 47
www.hermes-investment.com  | 15

Public Engagement Report: Q2 2016
Public policy and best practice
Overview
We actively participate in debates on public policy matters to 
protect and enhance value for our clients by improving shareholder 
Hermes EOS contributes to 
rights and boosting protection for minority shareholders. This work 
olicy
extends across company law, which in many markets sets a basic 
the development of policy and 
foundation for shareholder rights, securities laws, which frame 
Public P
the operation of the markets and ensure that value creation is 
best practice on corporate 
reflected in value for shareholders, and developing codes of best 
practice for governance, management of key risks and disclosure. 
governance, sustainability and 
In addition to this work on a country-specific basis, we address 
regulations with a global remit. Investment institutions are 
shareholder rights to protect and  typically absent from public policy debates even though they can 
enhance the value of its clients’ 
have a profound impact on shareholder value. Hermes EOS seeks 
to fill this gap. By playing a full role in shaping these standards 
shareholdings over the longer 
we can ensure that they work in the interests of shareholders 
instead of being moulded to the narrow interests of other market 
term.
participants – particularly companies, lawyers and accounting 
firms, which tend to be more active than investors in these 
debates – whose interests may be markedly different.
Highlights
the view that the high-profile breach at TalkTalk in 2015 marked a sea 
change in the way their organisations deal with the issue, which is now 
Climate deal signing ceremony
recognised as a principal risk and matter for board-level oversight. 
Lead engager: Tim Goodman
Directors were concerned about the appropriate level of disclosure 
We were honoured to be invited to the signing ceremony of the 2015 
on cyber risk. We suggested that an appropriate starting point would 
Paris climate change agreement at the UN building in New York. It is 
be confirmation that a documented cyber security strategy has been 
a testament to the commitment of our clients and the work that we 
signed off by the board, covering critical assets and access, clear senior 
have done and continue to do in fighting the risks to the value of their 
level accountability, appraisal of supply chain risk, as well as investment 
portfolios from climate change that we were part of the small non-
in technical capabilities and culture awareness.
state delegation invited to witness the beginning of the agreement 
being put into formal legal effect. We intend to continue working 
Executive pay
vigorously to ensure that the agreement marks a significant milestone 
Lead engager: Bruce Duguid
in the successful fight to limit climate change to 2°C. The fact that 
We hosted a special meeting of the UK Corporate Governance Forum, 
nation states and other actors are taking brave steps now, without 
which comprises corporate governance representatives of leading 
waiting for a perfect solution to solve climate change, was evidence of 
UK-based asset managers, to discuss potential new approaches to 
the historic day.
executive pay. The discussion was based on the interim proposals 
of the Investment Association’s working group on remuneration. In 
Cyber risk
relation to the new structures for remuneration proposed in the paper, 
Lead engager: Dominic Burke
many asset managers now support simplification, together with more 
In the latest of our series of dinners with non-executive directors and 
reliance on higher long-term executive shareholding requirements to 
clients, we discussed cyber risk with representatives from banking, 
ensure alignment of interests. Support is growing for a structure that is 
pharmaceuticals and defence among other sectors. Board members 
based on a one-year bonus scheme with a significant proportion of the 
said that while cyber security is distinctive due to the maliciousness 
bonus being withheld for a number of years in the form of shares. There 
of the threat, they, as well as investors, should not be overwhelmed 
was appetite to also explore the granting of shares to executives either 
by the technical nature of the topic. As well as assigning responsibility 
together with a moderated bonus scheme or even as an alternative to 
to senior executives, including chief information security officers, 
bonuses. 
some companies have convened advisory committees of experts 
which can help boards evaluate and understand mitigation efforts. 
Proxy advisory legislation
It was clear that collaboration within and across sectors is critical to 
Lead engager: Tim Goodman 
developing best practice defences and that certain industries have 
We co-signed a letter from the Council of Institutional Investors (CII) 
benefited from government input, which others might learn from. As 
addressed to the US Congress committee on financial services opposing 
part of their preparation for incidents, companies must also consider a 
proposed legislation which would constrain significantly the ability 
communications strategy, including identifying a suitable spokesperson 
of proxy advisory firms to act on behalf of their clients in the US. The 
who can articulate technical and business dimensions to stakeholders. 
legislation, if passed, would likely have a powerful knock-on effect 
We will adopt many of the key points in our engagements on cyber risk.
elsewhere in the world because of the size of the US capital market. To 
add heft to the letter, we encouraged our clients to sign the letter as 
We were also the sole investor representative at a roundtable meeting 
well and the CII was grateful for our efforts to do so.
of audit committee chairs to discuss cyber security. Participants shared 
16

Hermes EOS
Other work in this quarter included
and regulators. The outcome of the project seems well suited to 
Promoting best practice
provide at least a common starting point for dialogue between the 
key players. We are pleased to have made a contribution to this 
„
„ We spoke with a representative of the Access to Nutrition Index 
which assesses and ranks the world’s largest food and beverage 
important project.
manufacturers on their nutrition-related commitments, practices 
„
„ In our consultation response to the Task Force on Climate-related 
and performance globally. Following the launch of the 2016 Index, 
Financial Disclosures, we explained that disclosure should seek to 
we expressed an interest in joining a collaborative initiative to push 
improve the understanding of climate risks. This means publishing 
companies to take account of nutrition in their product formulation, 
the risks arising as the economy moves to lower carbon, together 
pricing and distribution, as well as to encourage responsible 
with the physical risk of climate change, as well as the low-carbon 
marketing and labelling.
alignment, in other words the progress made and future plans to 
align value-creation with building a lower-carbon economy. We 
„
„ At the quarterly Aiming for A members meeting, our contribution 
to help coordinate the mining sector climate change resolutions and 
advocated companies use the Aiming for A framework which we 
lead the engagement at oil and gas majors was acknowledged by 
have supported in our engagement with oil and gas and mining firms, 
other members. Work is now underway to expand the Aiming for A 
including the results of a stress-test of the value and performance 
coalition to some larger asset owners and managers in continental 
of each materially exposed investment to a range of climate change 
Europe. We seek to explore the potential for supportive but 
scenarios. We also advocated voluntary reporting by including 
stretching resolutions at utilities and automotive players to reduce 
investment intermediaries, such as asset managers reporting to their 
long-term risks and enhance the alignment with the move towards 
clients and, ultimately investors reporting to beneficiaries. 
building a low-carbon economy.
„
„ We welcomed the idea by the Tokyo Stock Exchange to 
develop an online engagement platform for listed companies 
„
„ We participated in the launch of the Corporate Human Rights 
Benchmark which will rank the top 500 companies globally on 
and shareholders and made suggestions for it to be beneficial for 
the basis of their human rights risk management and disclosure. 
investors. As the current plan is to make participation voluntary, we 
This complements a number of other initiatives seeking to drive 
expressed concerns that the platform might be of limited use to 
transparency and better performance on social issues, such as the 
investors should only a small number of companies participate and 
Modern Slavery Act in the UK, the UN Guiding Principles Reporting 
encouraged the exchange to promote the benefits of the system to 
Framework and the EU non-financial reporting directive. 
attract many joiners. We also highlighted the importance of gaining 
the full support from Japan’s Financial Services Agency. 
„
„ At the UK launch of the next phase of the ESG integration initiative 
as part of the fiduciary duty project by the Principles for Responsible 
Public policy
Investment and UNEP Finance Initiative, we promoted the role 
„
„ We lent our support to a bill being introduced in the US Congress 
effective stewardship can play in asset owners – and asset managers 
that takes aim at the lack of transparency in relation to corporate 
as their agents – discharging their fiduciary responsibilities. We 
ownership in the US. This includes convoluted ownership structures, 
recognised the resource constraints of smaller funds in carrying out 
opaque reporting and complex transactions, which can compromise 
stewardship and explored different solutions, including industry 
good governance and raise red flags for investors. The bipartisan 
consolidation, outsourcing of stewardship activities and participation 
Incorporation Transparency and Law Enforcement Assistance Act 
in investor fora such as the UK’s Investor Forum. 
would require US companies, with some exemptions, to disclose 
the individuals who own or control the businesses they incorporate 
„
„ We were one of the few investor representatives to participate in 
and to keep that information up to date. Currently, in all 50 states 
the EU Roadmap to Business and Human Rights Conference. 
companies can be created anonymously, effectively removing 
We encouraged companies to adopt the UN Guiding Principles on 
personal responsibility and accountability from the corporate 
Business and Human Rights Reporting Framework, the development 
equation. 
of which we have supported, in order to effectively communicate 
how they manage human rights impacts. 
„
„ We co-signed the investor statement on climate change supporting 
the announcement by the US and Canadian governments to 
„
„ We had an initial meeting with the CEO and a senior researcher 
work together to reduce methane emissions in the oil and gas 
of the High Pay Centre, a not-for-profit research and lobbying 
industry by 40-45% in the next decade. Target-setting like this is an 
association. We discussed some of the trends in executive 
important public policy initiative to tackle fugitive methane leaking 
remuneration, such as increasing CEO packages and an ever-
into the atmosphere.
widening pay gap, and their underlying reasons. We then focused 
on some of the potential solutions and the role of key stakeholders, 
„
„ We met the CEO of Stewardship Asia, the local think tank owned by 
such as investors and employees.
one of the local sovereign wealth funds leading the development of 
stewardship principles in Singapore. A final draft of the principles 
„
„ We took part in a multi-stakeholder roundtable regarding the 
was completed in 2015 by a working group, of which we are a 
payment of living wages in global supply chains. There was 
member. However, the planned launch for the first quarter this year 
consensus that progress in this area has been slow and we expressed 
has been pushed back as the principles are under review by local 
interest in a collaborative initiative with other investors to address 
regulators and major asset owners. We offered our support in the 
the challenges at an industry level.
conversations taking place but it seems that any remaining issues 
„
„ We participated in a call with Malaysia’s Institutional Investor 
need to be resolved locally. A launch is still likely this year.
Council and provided final input into its main project for 2016, a 
practical corporate governance toolkit for companies, investors 
www.hermes-investment.com  | 17

Hermes EOS makes voting recommendations at general meetings 
wherever practicable. We take a graduated approach and base 
our recommendations on annual report disclosures, discussion 
with the company and independent analyses. At larger companies 
and those where clients have significant interest, we seek to have 
dialogue before recommending a vote against or abstention on 
any resolution.
In most cases of a vote against at a company in which our clients 
have a significant holding or interest, we follow up with a letter 
explaining our clients’ concerns. 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. 
Hermes EOS makes voting 
recommendations at 
companies all over the 
world, wherever its clients 
own shares.

Hermes EOS
Overview 
Over the last quarter we made voting recommendations 
at 6,006 meetings (69,056 resolutions). At 3,127 of those 
meetings, we recommended opposing one or more resolutions. 
We recommended voting with management by exception at 
35 meetings and abstaining at 24 meetings. We supported 
management on all resolutions at the remaining 2,820 meetings.
Global
We made voting recommendations at 6,006 
meetings (69,056 resolutions) over the last quarter.
Total meetings in favour 47.0%
Meetings against (or against AND abstain) 52.1%
Meetings abstained 0.4%
Meetings with management by exception 0.6%
Australia and New Zealand
Developed Asia
Emerging and Frontier Markets
We made voting recommendations at 47 meetings 
We made voting recommendations at 1,019 
We made voting recommendations at 1,134 
(220 resolutions) over the last quarter.
meetings (11,940 resolutions) over the last quarter.
meetings (11,618 resolutions) over the last quarter.
Total meetings in favour 74.5%
Total meetings in favour 29.7%
Total meetings in favour 45.4%
Meetings against (or against AND abstain) 25.5%
Meetings against (or against AND abstain) 68.8%
Meetings against (or against AND abstain) 54.5%
Meetings abstained 0.3%
Meetings with management by exception 0.1%
Meetings with management by exception 1.2%
Europe
North America
United Kingdom
We made voting recommendations at 908 meetings 
We made voting recommendations at 2,450 
We made voting recommendations at 448 meetings 
(13,507 resolutions) over the last quarter.
meetings (25,209 resolutions) over the last quarter.
(6,562 resolutions) over the last quarter.
Total meetings in favour 35.8%
Total meetings in favour 56.1%
Total meetings in favour 59.8%
Meetings against (or against AND abstain) 63.3%
Meetings against (or against AND abstain) 43.0%
Meetings against (or against AND abstain) 37.3%
Meetings abstained 0.7%
Meetings abstained 0.2%
Meetings abstained 2.2%
Meetings with management by exception 0.2%
Meetings with management by exception 0.7%
Meetings with management by exception 0.7%
www.hermes-investment.com  | 19

Public Engagement Report: Q2 2016
The issues on which we recommended voted against management or abstaining on resolutions are shown below.
Global
We recommended voting against or abstaining on 
7,889 resolutions over the last quarter.
Board structure 38.9%
Remuneration 21.8%
Shareholder resolution 7.8%
Capital structure and dividends 14.6%
Amend articles 2.0%
Audit and accounts 6.8%
Governance 3.0%
Poison pill/Anti-takeover device 0.9%
Other 4.2%
Australia and New Zealand
Developed Asia
Emerging and Frontier Markets
We recommended voting against or abstaining on 
We recommended voting against or abstaining on 
We recommended voting against or abstaining on 
20 resolutions over the last quarter.
1,651 resolutions over the last quarter.
1,650 resolutions over the last quarter.
Remuneration 95.0%
Board structure 52.3%
Board structure 46.1%
Amend articles 5.0%
Remuneration 10.4%
Remuneration 10.5%
Shareholder resolution 1.5%
Shareholder resolution 4.5%
Capital structure and dividends 11.3%
Capital structure and dividends 10.4%
Amend articles 1.5%
Amend articles 2.7%
Audit and accounts 19.6%
Audit and accounts 4.5%
Poison pill/Anti-takeover device 3.3%
Governance 10.7%
Other 0.2%
Investment/M&A 0.1%
Poison pill/Anti-takeover device 0.1%
Other 10.4%
Europe
North America
United Kingdom
We recommended voting against or abstaining on 
We recommended voting against or abstaining on 
We recommended voting against or abstaining on 
2,089 resolutions over the last quarter.
2,197 resolutions over the last quarter.
282 resolutions over the last quarter.
Board structure 27.9%
Board structure 34.9%
Board structure 34.4%
Remuneration 33.8%
Remuneration 22.9%
Remuneration 51.4%
Shareholder resolution 4.8%
Shareholder resolution 18.8%
Shareholder resolution 0.7%
Capital structure and dividends 17.5%
Capital structure and dividends 18.6%
Capital structure and dividends 8.2%
Amend articles 2.9%
Amend articles 1.0%
Amend articles 1.1%
Audit and accounts 5.5%
Audit and accounts 0.6%
Audit and accounts 2.5%
Governance 1.5%
Governance 1.2%
Governance 0.4%
Poison pill/Anti-takeover device 0.4%
Poison pill/Anti-takeover device 0.1%
Poison pill/Anti-takeover device 1.4%
Other 5.7%
Other 1.7%
20


Public Engagement Report: Q2 2016
This communication is directed at professional recipients only.
The activities referred to in this document are not regulated activities 
under the Financial Services and Markets Act. 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) does 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 HEOS clients. Please note that 
inclusion on this list should not be construed as an endorsement of 
HEOS’ services. HEOS has its registered office at Lloyds Chambers,  
1 Portsoken Street, London, E1 8HZ.
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.
20160728PR