Terrence Murphy

Using approaches such as direct discussions with senior management and proxy voting, asset managers have the powerful ability to drive change in the environmental, social and governance (ESG) practices of public companies, according to ClearBridge Investments^[1].

With US$184 billion globally in assets under management, ClearBridge Investments is a top 20 shareholder in more than 275 public companies. It conducts over 1,000 meetings with the companies in which it invests every year. As an active equity investor, it voted on every eligible shareholder proposal at companies in its client portfolios; last year, that amounted to 16,832 proposals.

ClearBridge Investments’ newly released 2021 Impact Report^[2] catalogues its partnering with companies around ESG issues as wide-ranging as diversity and inclusion, sustainable infrastructure and fossil fuels, among other hot button topics.

“In a year like no other, the global pandemic starkly highlighted the social and economic inequalities in our society. At the same time, it reinforced the value of our decades-long efforts to prioritise ESG factors in our investment approach,” said Terrence Murphy, CEO of ClearBridge Investments.

“We’ve been an ESG investor for over 30 years and it’s exciting to see interest in ESG accelerating globally,” Murphy added.

“New regulations such as the European Union’s Sustainable Finance Disclosure Regulation are giving investors the ability to identify the asset managers whose ESG efforts are delivering positive benefits while companies are realising the public expects them to foster transparency while channelling capital toward a more sustainable economy.”

Rather than simply screening out companies not deemed socially responsible, the investment process at ClearBridge Investments uses a proprietary framework that identifies key ESG considerations for each sector and subsector, focusing on the issues that truly matter for each company. In addition to informing stock selection, these assessments help the firm track progress and drive engagement with company management.

Shane Hurst, Portfolio Manager (global infrastructure strategies) says it is imperative to incorporate an ESG and sustainability framework into any process that analyses infrastructure assets.

“ESG has always been vital for infrastructure as an asset class. The need to lower carbon emissions is not going away, nor is the importance of upgrading and building new infrastructure to achieve lower emissions targets. And part of the world’s response to the pandemic, the urgency of balancing stakeholder’s interests in business operations is a positive for the infrastructure sector.

“Partly, this is because infrastructure companies are well-positioned to manage a balance of stakeholder and shareholder interests that is a key tenet of the corporate response to the pandemic. The tilt toward managing stakeholder interests has been accentuated by the COVID-19 crisis, as companies have found themselves needing to help employees, customers and the general public during these difficult times.”

“Taking a holistic view of ESG is fundamental to our bottom-up investment process, and a crucial part of the way we invest is through that lens of sustainability,” Hurst says.

A meta-study by the New York University Stern Center for Sustainable Business show that ESG and strong financial performance are positively correlated. The study also found that improved financial performance due to incorporating ESG becomes more noticeable over longer time horizons.

“Active voting is also key to influencing change.  These factors have been at the heart of our approach to ESG integration, and it is encouraging to see data confirm them,” Hurst said.

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[1] “ClearBridge Investments” refers to ClearBridge Investments Limited (AFSL 307727) (formerly known as RARE Infrastructure Limited) and its authorised representative ClearBridge Investments, LLC.
[2] https://www.clearbridgeinvestments.com.au/perspectives/clearbridge-2021-impact-report/

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