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ClearBridge Investments

PRI reporting framework 2019

You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes » (C) Implementation: Integration of ESG factors

(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the ESG factors you systematically research as part of your investment analysis and the proportion of actively managed listed equity portfolios that is impacted by this analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

Since the majority of our ESG research is conducted by our Sector and Portfolio analysts on the fundamental team, the coverage of potentially significant E, S, or G issues are monitored on a regular, timely basis by each analyst. Additionally, these review systems are in place since ESG integration is part of the analyst performance review and incentive compensation structure. 

ESG integration is a firm-wide approach and is applied to almost 100% of our assets under management.

 


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on a robust analysis.

          All fundamental and ESG analysis is conducted internally by each of the firm's sector and portfolio analysts (not a separate ESG team)
        

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

          All internal research notes include the analysts' internal ESG rating (B, A, AA, AAA) in addition to the valuation, risk/reward, target price, etc.
        

09.6. Additional information.[Optional]

All ESG research notes are internally housed on the Bloomberg terminals that are used by PMs and analysts. In addition, PMs will review the ESG ratings assignment by the fundamental analysts continually and for existing holdings, as well as for new investment recommendations. 


LEI 10. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.2. Indicate which methods are part of your process to integrate ESG information into fair value/fundamental analysis and/or portfolio construction.

10.3. Describe how you integrate ESG information into portfolio weighting.

Briefly, ESG factors would be reviewed at the sector/sub-sector level, as well as fundamental research and ESG integration at the company level, then that resulting proprietary ESG rating assigned by the sector analyst would factor into the portfolio construction process by the portfolio managers (but not solely dictate the weighting). The investment thesis, cash flow generation, valuation, risk/reward, ESG rating, etc. would all be part of the portfolio construction construction considerations. 

10.4. Describe the methods you have used to adjust the income forecast / valuation tool

Firstly, based on internal fundamental, as well as industry discussions, we have observed assessing valuation with the inclusion of ESG factors can vary by industry, investment opportunity and  materiality. Similar to how there is more than one approach to valuation, there is not a singular way to view ESG factors in valuation. 

We acknowledge that the forums for discussion around how and if ESG factors impact valuation, or whether to attribute how much alpha was generated from ESG factors is still in early days - and may or may not be directly applicable to fundamental research process in every case. 

Such methods have included (on a case-by-case basis) top line sales forecasts, as well as operating costs and cash flows. In addition, adjustments to discount rates and terminal value, as appropriate, and if the ESG factor is material.

10.6. Additional information. [OPTIONAL]

Since our ESG research is conducted by our fundamental analysts, the ESG issues are systematically factored into the research process and valuation tools as applicable. That said, with regard to above items, the adjustments would primarily be warranted if the ESG information is more material in nature (not minutia).

 


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