Context

As explained in the earlier principles, NatWest Pension Trustee Limited (the Trustee) has delegated voting and engagement activities for its listed equity and credit assets to EOS at Federated Hermes (EOS). EOS has a clear framework for its stewardship, including around the escalation of both engagement and voting. This framework was reviewed as part of the appointment of EOS in 2012, and as part of the regular annual review process thereafter. On the basis of this framework, the Trustee delegates escalation of stewardship activities to EOS. Day to day decisions about allocation of resource and the nature of engagement activity are made in the context of this framework, and are a matter for the EOS business which is best able to judge what path is likely to lead to success. The Trustee is involved in shaping the Engagement Plan annually but would not otherwise seek to influence the conduct of the EOS engagement process which is carried out on behalf of a number of clients. Depending on the relevant issue, the engagement process can involve multiple stages over many years.

EOS will escalate the intensity of engagement activity over time, depending on the nature of the challenges each company faces and the attitude of the board towards EOS’s dialogue. Generally, EOS’s engagement activity becomes more active when they believe engagement will lead to an increase in or prevent/limit a decrease in the value of a company over the long term.

Votes are escalated, including to the executive team where needed, when they are especially significant for the company, are complex, or where a disagreement or potential conflict of interest arises with the recommendation received from EOS. In those limited circumstances where a conflict over EOS’s approach to voting, aside from that directed by client specific policies, or engagement arises, the matter will be escalated to an ‘escalation group’ which reports to an independent sub-committee of the Board of Federated Hermes. The escalation group comprises of the Heads of Investment, Responsibility, Client Relations, Compliance and EOS. The group is guided in reaching its decisions by Federated Hermes’ mission to delivering long-term holistic returns, EOS’s published Responsible Ownership principles, voting policies and other appropriate industry endorsed guidance. If there is no majority view of the group, then the Chief Executive Officer will make the final decision. If such an instance were to occur, it would be documented and reported to Federated Hermes’ Risk and Compliance Committee – an independent sub-committee of the Federated Hermes Board.

Where escalation of an issue proves unsuccessful and a company is no longer willing to engage, it may be appropriate for the RBS Investment Executive Limited (RIEL) environmental, social and governance (ESG) sub-committee to review the issue with EOS and consider whether that company should be excluded from the NatWest Group Pension Fund (the Fund) portfolio. New exclusions in 2021 included Wirecard and AG.

In the case of private assets, where the Trustee retains the rights and responsibilities of stewardship, many significant issues affecting the underlying asset or company are reserved for a shareholder vote. Such votes are notified to RIEL by investment managers who then make a decision on the issue and communicate this to the managers to be executed.

Activities & Outcomes

• Case Study: Escalation of EOS’s engagement with Amazon

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  In Q1 of 2021, EOS, on behalf of the Trustee, co-signed a letter to the company regarding Amazon’s efforts to impede attempts by its workers in an Alabama fulfilment centre to organise a trade union. Amazon claims to uphold the right to freedom of association but its actions indicate otherwise. The company responded promptly but did not add anything substantially new to its previous disclosure, focusing on its general policy rather than the specifics of the situation in Alabama. Following the response from Amazon, EOS decided to escalate their engagement with Amazon, on behalf of the Trustee, by suggesting to the organiser of the letter that in response they need to ask Amazon to explain in detail how its human rights saliency assessment is addressing freedom of association in general, and how its practices are working in Alabama at the moment, including describing its grievance mechanism and access to remedy process. EOS planned a call with the company as a more active and face-to-face engagement usually leads to more significant results.

  This work directly benefits the Fund as a holder of Amazon shares.