Germany’s Saxony-Anhalt appoints Hermes EOS for ESG engagement

Investor taps Hermes for sustainability overlay

The eastern German state of Saxony-Anhalt has appointed Hermes Equity Ownership Services (EOS) to provide ESG engagement and proxy voting services across its €2.2bn investment portfolio – including the state’s €844m public pension fund.

Hermes EOS, which beat three other providers to win the new contract, will now be responsible for providing the state with a “sustainability overlay” for its investments in “corporate bonds, convertibles and equities”.

It will also now oversee proxy voting at company meetings and engagement with “issuers of securities” where there is “maladministration with regard to the ESG criteria”, according to the contract notice.

Assets included under the new contract between Hermes EOS and the Ministry of Finance of the State of Saxony-Anhalt also include the state’s “remediation” assets (€818m) and its “tax fluctuation reserve” (€500m).

The appointment is the latest in a raft of contracts to be awarded to the engagement house owned by UK-based Hermes Investment Management since the summer.

Two of UK’s eight new local government pension scheme (LGPS) pools, Brunel Pensions Partnership and LGPS Central, representing £44bn (€50bn) in assets combined, appointed Hermes EOS to provide voting and engagement services between September and October.

And in August First State Super became Hermes EOS’ fourth largest client after the A$90bn (£51bn) Australian superannuation fund appointed it to provide engagement and public policy services for developed markets (excluding Australia).Two months prior to that, RI reported that Willis Towers Watson, the London-based investment consultancy, had named Hermes EOS as voting advisor for its pioneering active Global Equities Focused Fund (GEFF).

According to the tender document, Hermes will be expected to report to the German state’s investment committee on the ESG “evolution” of investee companies twice a year.

A spokesperson for the State of Saxony-Anhalt said that he was unable to comment on the appointment at this time.

Hermes Investment Management, which manages assets of £33.6bn (€38.3bn) and is well known for its strong governance and stewardship stance, was acquired by US asset management giant Federated Investors earlier this year.

The state’s assets, which are managed externally, are currently invested in nine “special alternative investment funds”, including:

– €196m in European equities (STOXX 600)

– €114m in European equities (EUROSTOXX Large)

– €335m in Short-term bonds (BofA ML 1‐3 Y Government, Corporate, Pfandbrief + BofA ML 3-5 Y Corporate)

– €155m in European Corporates (iBoxx EURCorporates)

– €215m in Global convertible bonds (UBS Global Focus Investment Grade EUR‐Hedged Convertible Bond [Total Return])

– €238m in (Government and) corporate bonds (global Barclays GDP GA ex EU Cus tom Curr. (EUR) hedged)

– €75m in Corporates Emerging Markets (JPM CEMBI Broad Diversified IG TR (EUR) hedged)

– €734m in Short-term bonds (BofA ML 1‐3 Y Government, Corporate, Pfandbrief)