Commitment to the UK Stewardship Code
Under Rule 2.2.3R of the Financial Conduct Authority's (FCA) Conduct of Business Sourcebook, Legg Mason Investments (Europe) Limited and Legg Mason Investment Funds Limited (the "Firms") are required to include on this website a disclosure about the nature of their commitment to the UK Financial Reporting Council's Stewardship Code (the "Code") or, where they do not commit to the Code, their alternative investment strategy. The Code is a voluntary code and sets out a number of principles relating to the stewardship of assets of UK based investors. Investors that commit to the Code must comply with its principles in full and explain how they have achieved such compliance.
The Firms are wholly owned subsidiaries of Legg Mason, Inc. ("Legg Mason") a global asset management company. The most distinctive feature of Legg Mason is its specialised approach to managing money. It houses a selection of prestigious investment management businesses, each operating autonomously and focusing on a distinct segment of the market. The Firms have delegated investment management to some or all of these investment management businesses (and in one case to Shiozumi Asset Management Company Limited (“Shiozumi”), a non-Legg Mason owned investment management business in Japan). Accordingly each investment management business pursues different strategies across different asset classes and markets across the globe.
While the Firms generally support the objectives that underlie the Code it is relevant to some but not all aspects of the investment management businesses and hence the Firms’ activities. The approach and policies of the investment management businesses in relation to engagement with issuers and their management are determined by each investment management business. Subject to any requirements that must be complied with, each investment management business takes its own approach to engagement with issuers and their management in all of the jurisdictions in which it invests and, consequently, will have appropriate policies to comply with the Code or similar codes in such jurisdictions.
The Revised Shareholder Rights Directive (“SRD II”) came into force in both the European Union and the United Kingdom on 10th June 2019 and introduces new rules to further promote effective stewardship and long-term investment decision making.
SRD II imposes requirements on the Firms to develop and publicly disclose information on their engagement policies and investment strategies in relation to the shares of companies invested in that are admitted to trading on EEA regulated markets. In the United Kingdom these requirements have been extended to also cover the shares of companies invested in that are admitted to trading on non-EEA regulated markets (deemed comparable by the Firms). Those subject to SRD II may either comply in full with the requirements or choose not to comply with some or all aspects, in which case they are required to explain their non-compliance.
As stated in the SRD II legislation, and acknowledged by the Firms, one of the reasons for the revised rules is that the greater involvement of shareholders in corporate governance is one of the levers that can help improve the financial and non-financial performance of companies which includes environmental, social and governance (“ESG”) factors.
Information that SRD II states is to be included in a shareholder engagement policy covers how:
- Companies invested in are monitored on relevant matters such as:
- financial and non-financial performance and risk;
- capital structure;
- social and environmental impact; and
- corporate governance.
- Dialogue is conducted with companies invested in.
- Voting rights and other rights attached to shares are exercised.
- Other shareholders are co-operated with.
- Relevant stakeholders of the companies invested in are communicated with.
- Actual and potential conflicts of interest in relation to its engagement are managed.
As mentioned in relation to the Code above, investment management has been delegated by the Firms to Legg Mason’s investment management businesses and in one case to Shiozumi. Each investment management business pursues different strategies across different asset classes and markets across the globe.
The actual approach and policies of the investment management businesses in relation to engagement with issuers and their management are therefore determined by each investment management business. Again as for the Code, for SRD II, subject to any requirements that must be complied with, each investment management business takes its own approach to engagement with issuers and their management in all of the jurisdictions in which it invests. The locations of the investment management businesses (some are based outside of the European Union), different approaches by individual EU member states in implementing SRD II and the different regulatory regimes that they each operate within mean that that it is not possible for there to be a “one size fits all” SRD II or ESG approach.
As an example, one of the investment management businesses, Martin Currie (based in the United Kingdom) has for many years integrated ESG factors as part of the normal due diligence it performs as part of its fundamental research and analysis for identifying ideas for client portfolios.
Their particular emphasis on active ownership (engagement and proxy voting) provides the opportunity for Martin Currie to influence the behaviour of companies in which it invests. Martin Currie is also an active participant in long-term collaborative engagements with companies and other stakeholders.
Martin Currie also:
- Has been recognised for the high quality of its ESG integration into its investment process by being awarded the highest possible (A+) rating awarded by the Principles for Responsible Investment (across all three categories: strategy and governance, incorporation and active ownership).
- Worked collaboratively with the International Integrated Reporting Council and UK Financial Reporting Council.
- Has been recognised for its reporting on stewardship activities by the International Corporate Governance Network (ICGN).
Another of the investment management businesses, ClearBridge Investments (based in the United States of America) has for many years integrated ESG factors as part of the normal due diligence it performs as part of its fundamental research and analysis for generating recommendations for its stock selection process.
- Has an internal ESG ratings process across its equity research platform. ESG ratings are proprietary scores intended to signal to investment teams how well a company has executed its ESG practices. This helps ClearBridge Investments to enable its clients to benefit from responsible, sustainable business and promote positive change through direct company engagement, proxy voting and raising awareness of ESG.
- An integrated approach to ESG investment provides an opportunity to interact with companies on these issues and equip leading-edge companies with the economic leverage to advance these issues across their entire value chain.
In relation to annual engagement and voting record approaches vary and may be available on an investment management business’s website, through a client’s usual contact or otherwise on request.
Legg Mason’s mission statement for clients, shareholders and employees is “Investing to Improve Lives”. This starts with the effective stewardship of clients’ capital to achieve investment goals and also broader objectives. Aligning investment behaviour to create sustainable value over a long term horizon means Legg Mason is better attuned to effectively serving clients.”