ClearBridge believes that ESG is the future of investing and that someday it won’t even be called “ESG” or designated as a separate discipline; it will become an integral part of the way investors analyze companies. At ClearBridge, ESG is not merely a screen or an overlay; it is part of how we conduct fundamental research and it defines how we think about all companies considered for investment in all client portfolios. Our clients, whether or not they desire an explicit ESG mandate, all have investment goals — growing pensions, funding grants or delivering retirement income — to be achieved far into the future. They deserve to invest in companies that plan carefully for what’s ahead and that care about the environment, their employees, their customers and their community. We believe such companies are most likely to provide the kind of performance our clients need to meet their long-term goals.
ClearBridge’s tradition of long-term investing in quality businesses aligns closely with an ESG investing approach. This approach fosters meaningful ownership positions in portfolio companies and significantly lower portfolio turnover compared to peers. This long-term approach is reflected in the Firm’s compensation structure, which bases incentive compensation for portfolio managers primarily on three- and five-year investment performance. A portion of portfolio managers’ compensation is invested in the portfolios they manage and vests over four years. These practices align the incentives of our portfolio managers with the long-term interests of our clients.
Our bottom-up, fundamental research targets companies with:
- Differentiated business models
- High sustainable returns
- Strong financial characteristics
- Seasoned management teams
This overall stock selection process lends itself well to ESG integration. Rather than rely on negative screening or overlays, ESG integration ensures a more holistic approach to sustainability that measures progress and promotes improvement over time.
ClearBridge ESG portfolios do not simply avoid certain industries; we integrate industry-specific ESG factors into our fundamental research process and favor companies that promote best practices on ESG issues. All companies considered for investment across the platform are given an ESG rating, updated at least annually, and only companies rated “A” or better may be included in ESG portfolios. We also work actively with companies seeking to improve their ESG performance through direct engagement and proxy voting.
ESG Integration and Ratings
At ClearBridge, ESG is not merely a screen or an overlay; it is how we conduct fundamental research and defines how we think about all companies considered for investment. Many investors say they integrate ESG into their investment process, but there are many different approaches being employed. When we say our ESG research is “integrated” we mean that it is included in an analyst’s process for covering a company. This is a key point — ESG research is not done by separate analysts or simply as an overlay of research from a third party.