ClearBridge Addresses Environmental Risks and Potential Solutions With Publicly-Traded Companies
NEW YORK, May 5, 2020 /3BL Media/ – ClearBridge Investments has identified environmental changes as the most significant risk to the long-term health of publicly-traded companies, and remains committed to engaging with the companies in its portfolios to improve reporting and business performance.
“The importance of analyzing environmental, social and governance factors has come into sharper focus in the past year. In these difficult times, advancing basic issues of sustainability — in particular, taking care of all stakeholders — will support the most positive long-term outcomes,” said Terrence Murphy, CEO of ClearBridge. “Transparency has become a key requirement shareholders are demanding of public companies and we believe that our ESG practices contribute to these efforts.”
ClearBridge, an active equity manager with $120.5 billion in assets under management, is a top 20 shareholder in nearly 300 public companies. As an ESG investor for over 30 years, it remains at the forefront among asset managers in promoting and communicating the benefits of considering environmental, social and governance (ESG) factors when selecting investments.
In its annual Impact Report, released today, ClearBridge details its efforts to engage companies on climate change, carbon emissions, plastic waste, water usage and sustainability disclosure standards as well as other ESG issues such as gender equality and the opioid crisis.
Addressing Climate Change Challenges
ClearBridge assesses the climate-related risks and opportunities faced by individual companies as part of its standard bottom-up stock selection process. In addition to looking at physical risks – for example, damage to company assets caused by floods or wildfires – it examines transition risk, which is the impact of changing market conditions and carbon-lowering policies on business models, competitive dynamics, technology developments and capital allocation decisions.
“We use the influence we have as institutional investors and fiduciaries to encourage management teams to increase carbon emission disclosures, set emissions reduction goals, increase their use of clean energy, improve the efficiency of their supply chains and generally think longer term,” said Mary Jane McQuillen, Portfolio Manager and Head of ESG Investment.
In 2019, ClearBridge analyzed the carbon footprint of companies it holds in its portfolios to identify the most significant sources of direct emissions; it also analyzed industries with low carbon intensity to fully inform its engagement strategies. It found that the carbon intensity of its portfolios was 28%–35% lower than the representative benchmarks.
“We don’t avoid carbon-intensive industries. Identifying industries with the highest direct carbon emissions is not a good proxy for risk exposure because it’s not forward-looking, doesn’t include emissions from products or supply chains and doesn’t consider regulatory factors or market dynamics,” McQuillen explained. “Instead, we integrate industry-specific ESG factors into our fundamental research process and favor companies that promote best practices on ESG issues.”
Midstream Energy Companies Attract More Attention
McQuillen points out that the oil and gas industry, for example, has relatively low direct emissions; most of the emissions are associated with the use of their products.
One part of the industry that’s attracting increased attention from ESG investors is midstream energy companies, which are involved in processing, storing, transporting and marketing oil, natural gas and liquified natural gas. Midstream operators had historically used a master limited partnership (MLP) structure but they are changing to less complicated C-corporations.
In addition to an expanded investor base, the new structure has given investors proxy access, which means they can now voice more ESG concerns via shareholder resolutions. Issues of concern include the industry’s methane emissions, a potent greenhouse gas.
ClearBridge’s new Impact Report contains an analysis of the oil and gas industry with special focus on the midstream segment. It includes details of its efforts to engage companies on their climate strategies, such as improving disclosures and better communicating sustainability efforts.
With $120.5 billion in assets under management (AUM) as of March 31, 2020, ClearBridge Investments is a leading global equity manager committed to delivering long-term results through active management. It has more than 200 employees spread across offices in New York, Baltimore, London, San Francisco and Wilmington, DE.
ClearBridge focuses on three primary client objectives in its areas of proven expertise: high active share, income solutions and low volatility. Its strategies are available in separately managed accounts, mutual funds, collective investment funds as well as custom solutions, commingled vehicles and offshore funds. See more here.
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