ENVIRONMENTAL, SOCIAL & GOVERNANCE INVESTING (ESG)

Your values and investment can go hand in hand.

Interested in putting your investments where your values are? ESG investing helps you achieve your goals in a way that is consistent with your beliefs by incorporating environmental, social and governance factors into investment decisions. 

Historically, many assumed that returns would suffer if ESG factors were taken into consideration. But those fears are waning. Each day, more investors are coming to the realization that socially conscious investing can help deliver superior, risk-adjusted returns over the long-term.

Investors concerned with ESG issues haven’t had to sacrifice investment returns.

 

Before “sustainable investing” became mainstream, many assumed that returns would suffer. But today, investors realize that there’s no need for trade-offs: companies that best handle the ESG drivers of business performance have clearly kept pace.

 

Growth of $100 — Gross of fees ($)

Source: Bloomberg, as of December 31, 2016. Past performance is no guarantee of future results. All investments involve risk, including possible loss of principal. Socially aware stocks are represented by the MSCI KLD 400 Social Index, and the broad stock market is represented by the S&P 500 Index.

The MSCI KLD 400 Social Index comprises companies with high Environmental, Social and Governance (ESG) ratings and excludes companies involved in Alcohol, Gambling, Tobacco, Military Weapons, Civilian Firearms, Nuclear Power, Adult Entertainment, and Genetically Modified Organisms (GMO). The Index aims to serve as a benchmark for investors whose objectives include owning companies with very high ESG ratings and avoiding companies that are incompatible with specific values-based criteria. The S&P 500 Index is a capitalization-weighted, composite index of 500 stocks designed to measure the performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. An investor cannot invest directly in an index. Unmanaged index returns do not reflect any fees, expenses or sales charges.

 

ClearBridge Investments, a Legg Mason investment affiliate, believes that investors shouldn’t have to choose between performance and sustainability. That’s why ClearBridge’s ESG Investment program favors companies that promote best practices when it comes to the environment, social issues and corporate governance. ClearBridge feels that the ways in which companies integrate these issues into their operations can potentially impact competitive opportunities and growth potential — and ultimately drive stock prices.

ESG influence that’s set apart.

The ClearBridge ESG Investment program takes a different investment approach from most of its peers. ClearBridge doesn’t look simply at ESG factors to determine which companies go into the portfolio. Instead, ESG factors help shape conviction, influencing whether a particular company should be held, for how long, and at what position size.

Environmental, Social and Governance factors

 


Environment, health & safety

Includes regulatory compliance, occupational/workplace safety, environmental footprint, eco-efficiency, product safety, pollution prevention and life-cycle analysis.


Workplace

Covers workforce diversity, work/life balance, employee retention and training, employee benefits and compensation, labor relations, outsourcing and foreign sourcing.

Community

Consists of mission-related philanthropy, volunteerism, human rights responsiveness and public policy engagement.


Corporate governance

Considers such issues as management structure, board composition guidelines, transparency and disclosure.

 

Trust a pioneer with deep experience in ESG investing.

In 1987, ClearBridge Investments was among the first – and largest – mainstream investment managers to commit to sustainable investing. Today, the firm offers five clear advantages:

  1. Seasoned experience over a wide range of market conditions
  2. In-house portfolio management and research professionals
  3. Analyst-driven, ESG-focused meetings directly with portfolio companies
  4. ESG principles instituted firm-wide, not just within the ESG investment team
  5. Active participation in prominent ESG initiatives, such as the Principles for Responsible Investing and the Forum for Sustainable and Responsible Investment

 

The ClearBridge proprietary ESG valuation process is integrated into the stock selection for each style.

 

Investment Philosophy


  • The ClearBridge proprietary ESG evaluation process is incorporated into the stock selection for each investment, as part of a bottom-up fundamental approach to investing that seeks "best-in-class" companies within each industry
  • All ESG portfolio holdings must meet the underlying strategy's investment criteria
  • Active proxy voting and corporate engagement are key components of the ClearBridge ESG process

Investment Process


  • Initial universe
  • Fundamental research and business model analysis
  • Investment valuation
  • All companies considered for investments are given an ESG rating
  • Environmental, Social and Governance (ESG) integration
  • Portfolio construction
  • Risk management and review/sell process
  • Ongoing company engagement on both fundamental and ESG issues
"At ClearBridge, ESG investing is much more than something we do. It’s something we believe in."
Mary Jane McQuillen, Managing Director, Portfolio Manager, Head of Environmental, Social and Governance Investment, ClearBridge Investments

Multi-Fund Guide - ClearBridge ESG Portfolios - Harmonizing Values and Returns

An in-depth look at the motivations and strategies driving the ClearBridge ESG Portfolios.




Related Literature

Whitepaper

ESG - The Future of Investing

ClearBridge Investments' Mary Jane McQuillen on improving attitudes toward environmental, social and governance (ESG) investing.

Product Profile

Product Profile - ClearBridge ESG Portfolios

Key product details, including primary differentiators, investment philosophy and investment process.

Multi-Fund Guide

Multi-Fund Guide - ClearBridge ESG Portfolios - Harmonizing Values and Returns

An in-depth look at the motivations and strategies driving the ClearBridge ESG Portfolios.

Whitepaper

ESG Ratings

Mary Jane McQuillen, Head of ESG Investment, and Charles Harris, Director of Research, discuss ClearBridge’s proprietary ESG ratings system

The investment process may change over time. The characteristics set forth above are intended as a general illustration of some of the criteria the strategy team considers in selecting securities for client portfolios. There is no guarantee investment objectives will be achieved.

Equity securities are subject to price fluctuation and possible loss of principal.

Separately Managed Accounts (SMAs) are investment services provided by Legg Mason Private Portfolio Group, LLC (LMPPG), a federally registered investment advisor. Client portfolios are managed based on investment instructions or advice provided by one or more of the following Legg Mason-affiliated sub-advisers: ClearBridge Investments, LLC and Western Asset Management Company. Management is implemented by LMPPG, the designated sub-advisor or, in the case of certain programs, the program sponsor or its designee.