Terrence Murphy

ClearBridge Investments, part of Franklin Templeton, has launched its sixth annual report on  stewardship efforts to provide a comprehensive view of the latest in ESG investing.

Terrence Murphy, Chief Executive Officer, ClearBridge Investments notes: “Our annual stewardship report offers updates on our progress on net zero and highlights company engagements and proxy votes on pressing sustainability issues such as emissions reduction, responsible online content and board independence. The report also details how we are assessing the investment impacts of decarbonisation, human rights and other urgent topics across ClearBridge Investments portfolios.

“New this year, the report offers ClearBridge Investments’ ESG framework and value-added content on key topics such as the alignment of the firm’s investment framework with the U.N. Sustainable Development Goals.

“A compendium of our recent best thinking on the impact of ESG integration and engagement, ClearBridge Investments’ 2023 Stewardship Report is also an index to topics that will dominate investment conversations in the months and years ahead,” notes Mr Murphy.

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Terrence Murphy

It has never been more important for asset managers to understand their portfolio companies and address the long-term environmental, social and governance (ESG) risks within them, says ClearBridge Investments.

“Since we opened our first client account with a socially responsible approach more than 35 years ago, ClearBridge has been at the forefront of promoting and communicating the benefits of considering ESG factors when choosing investments and building portfolios,” said Terrence Murphy, CEO of ClearBridge.

“Today, asset managers have an important role to play in actively engaging and addressing material ESG risks with the companies in which they invest. I am proud of ClearBridge’s leadership in this space, and I believe our legacy and practices offer powerful examples of long-term thinking.”

ClearBridge, an active equity manager with $190.7 billion in assets under management (AUM) as of March 31, 2022, is a top 20 shareholder in more than 275 public companies. It uses its influence as a significant shareholder to promote positive change through company engagement, proxy voting and thought leadership. In 2021, ClearBridge had a 100% proxy voting record, resulting in 16,885 votes cast at more than 1,000 meetings.

In its fifth annual Stewardship Report, ClearBridge details its efforts around ESG integration, reporting and disclosures as well as human capital management and diversity, equity and inclusion (DEI). The report also details engagements where ClearBridge was able to improve practices within the companies it owns.

Commitment to Net Zero by 2050

In 2021, ClearBridge was proud to join the industry-leading Net Zero Asset Managers initiative (NZAM), an international group of asset managers representing more than $57.5 trillion in AUM that is committed to supporting the goal of achieving net-zero greenhouse gas emissions by 2050.

“ClearBridge has historically engaged companies on climate-related risks, but over the past year, we began explicitly engaging on net-zero alignment,” said Mary Jane McQuillen, Portfolio Manager and Head of ESG at ClearBridge. “We are encouraging companies to set ambitious carbon reduction goals that are ‘science-based,’ meaning their targets are aligned with the reductions needed to achieve the goals of the Paris Climate Agreement.”

Emissions reporting and disclosures

In addition to its work with NZAM, ClearBridge has aligned its climate change reporting with the recommendations of the Task Force on Climate-Related Financial Disclosures (TCFD) since 2018.

ClearBridge integrates ESG analysis into its research and portfolio construction, and as a result, the firm has several funds classified under the European Union’s Sustainable Finance Disclosure Regulation (SFDR) Article 8. The SFDR was established to promote transparency on sustainability risk integration within financial products, and many of ClearBridge’s funds have been determined to promote environmental or social characteristics.

Human capital management and diversity, equity and inclusion

DEI continued to be a firm-wide priority for ClearBridge in 2021, and the firm was encouraged by higher pass rates of shareholder proposals over the year compared to 2020.

Following its continued emphasis on human capital topics in company engagements in 2021, ClearBridge saw several companies, such as Amazon and Microsoft, explicitly acknowledge the importance of human capital management and take steps to make progress on their diversity goals and disclosures.

Looking forward to 2022, ClearBridge will support enhanced diversity disclosures within the companies it invests in and will engage companies on the increasing importance of talent as an asset in the workforce.

Read the 2022 Stewardship Report.

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Jenny Johnson

The Franklin Templeton Investment groups and three of their affiliated specialist investment managers ClearBridge Investments, Brandywine Global and Martin Currie — are delighted to announce that they have joined the industry-leading Net Zero Asset Managers Initiative^[1]. These four signatories collectively represent more than US$948 billion in assets under management (AUM).

Launched in December 2020, Net Zero Asset Manager Initiative is an international group of asset managers committed to supporting the goal of net zero greenhouse gas emissions by 2050 or sooner, in line with global efforts to limit warming to 1.5 degrees Celsius; and to supporting investing aligned with aims for net zero emissions by 2050 or sooner. Delivery of the commitment also includes prioritising the achievement of real economy emissions reductions within the sectors and companies in which the asset managers invest.

As of today, the number of signatories consist of 128 investors who have $43 trillion in assets under management, a clear sign of the asset management industry’s recognition that climate change is an urgent priority that must be addressed.

Jenny Johnson, CEO and President of Franklin Templeton, said: “We are excited to make the commitment to the Net Zero Asset Managers Initiative alongside the growing community of signatories. We approach our journey with the clear acknowledgement that we must commit to finding the data and solutions to help us achieve global net zero emissions by 2050. We will work toward this goal in a spirit of authentic engagement and partnership with our clients and stakeholders, in keeping with our belief that good stewardship as a global asset manager means managing and allocating capital to benefit our clients across generations.”

An active manager, ClearBridge Investments is a top 20 shareholder in more than 275 public companies. Terrence Murphy, CEO of ClearBridge Investments, said: “ClearBridge is pleased to join the distinguished roster of signatories to the Net Zero Asset Managers Initiative. As stewards of our clients’ capital with a 30+ year history of integrating sustainability-related investment risks such as climate change into our stock selection process, ClearBridge recognises the urgency of accelerating the transition toward global net zero emissions. Using a partnership approach, ClearBridge will use its role as large shareholders to drive positive change through ongoing company engagement.”

Commitment to Net Zero

As part of the initiative, asset manager signatories have made nine commitments, including to:

• Set interim targets for 2030, for assets to be managed in line with the net zero goal, consistent with a fair share of the 50% global reduction in CO2 identified as a requirement in the Intergovernmental Panel on Climate Change (IPCC) special report on global warming of 1.5°C,
• Take account of Scope 1 and 2 emissions and, to the extent possible, material Scope 3 emissions in investment portfolios,
• Implement a stewardship and engagement strategy, with a clear escalation and voting policy, that is consistent with the ambition for all assets under management to achieve net zero emissions by 2050 or sooner, and
• Create investment products aligned with net zero emissions by 2050 and facilitate increased investment in climate solutions.

Commenting on climate change as one of the greatest challenges and most defining issues of our time, Adam Spector, Managing Partner of Brandywine Global said: “Climate change is an urgent global threat and an underappreciated investment risk. Brandywine Global’s membership to the Net Zero Asset Managers Initiative underscores our commitment to assessing climate risks across capital structures and real economies. We look forward to continuing our ongoing dialogue with government officials and corporate management teams alike about the risks emanating from climate change. We are proud to be part of an initiative that we believe will positively influence the global economy and how companies operate.”

Julian Ide, CEO of Martin Currie concluded: “Martin Currie is delighted to be part of the Net Zero Asset Managers Initiative – a crucial response to improving transparency around climate risks, accelerating the adoption of net zero targets and providing a mechanism so that real-world emissions reductions are achieved. With the countdown to COP 26 in Scotland now well under way, countries are being asked to come forward with ambitious emissions reduction goals, action plans and interim targets that put us on a path for reaching net zero by 2050. To help achieve this, the asset management industry has an important role to play through its actions as long-term stewards of its clients’ assets, and is positioned to both incentivise the adoption of net zero targets and increase the flow of capital to companies providing climate solutions. As a global asset management business headquartered in Scotland, we believe we have an important platform for signalling the industry’s commitments to net zero at this critical time, and our commitment to this initiative is very much a part of that.”

Franklin Templeton’s Stewardship and Sustainability Council and the Global Sustainability Strategy Team have identified climate change as a key strategic priority for the firm and will be implementing this important agenda for change throughout the organisation, in collaboration with the internal stakeholders and clients.

Net Zero Asset Manager Initiative is managed globally by six founding partner investor networks:

• Asia Investor Group on Climate Change,
• CDP,
• Ceres,
• Investor Group on Climate Change,
• Institutional Investors Group on Climate Change, and
• UN PRI

In turn, the initiative is endorsed by The Investor Agenda, of which the investor networks are all founding partners, with the United Nations Environment Programme Finance Initiative.

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[1] Net Zero Asset Managers Initiative

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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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