clear bridge investment
type of signer: Investment Manager
Head office location: America
What’s in this case study
Asset class: Listed stock
assets under management: $157.4 billion (as of June 30, 2022)
ClearBridge Investments is a leading global equity manager committed to delivering long-term results through active management. We have been taking this approach for over 60 years and have been integrating Environmental, Social and Governance (ESG) factors into our fundamental research process for over 30 years.
Why Portfolio Companies Are Engaging in Net-Zero Alignment
ClearBridge has made a formal commitment to have 100% of its managed assets with net zero emissions by 2050. There are several reasons for this.
- The private sector, especially asset managers, can help accelerate the world’s transition to global net-zero emissions.
- Our portfolio managers and analysts assess low-carbon investment opportunities in the form of climate change mitigation and adaptation, and improvements within high-emission sectors.
- A portfolio to successfully manage risks related to climate change, including physical risks, regulatory requirements and changing consumer preferences.
As an active equity investor, we also see value in helping companies address the challenges of climate change. Engaging with investee companies on key ESG issues such as climate change and providing feedback on their strategies and performance helps us better understand their businesses and their potential for long-term success. . It can also have a positive impact if company engagement helps him improve his performance on ESG issues and leads to real-world results.
Building a flexible approach to verify net-zero integrity
ClearBridge has chosen a combination of the Science Based Targets Initiative’s (SBTi) portfolio coverage approach and the Paris Aligned Investment Initiative’s Net Zero Investment Framework (NZIF) to measure the alignment of our assets to the net zero pathway. increase. By focusing on corporate integrity through science-based objectives, the debate moves beyond the carbon footprint of traditional backward-looking portfolios to preserve shareholder value and identify companies that will thrive well into the future. We are moving to a more forward-looking approach that is aligned with our investment goals. While carbon footprint helps identify sources of emissions, it is not the best metric for assessing a portfolio’s progress towards net zero, or its exposure to transitional and physical risks.
After a thorough review of SBTi’s target verification criteria and discussions with various investee companies, we believe we need to incorporate some flexibility into our net-zero alignment approach. This is primarily to allow third-party validation of the science-based targets set by portfolio companies. ClearBridge goes beyond SBTi to endorse validation by Climate Action 100+. It covers a range of high-emission sectors, including oil and gas (now excluded from his SBTi). We also work with trusted consultants and use our own assessments in special cases, keeping the SBTi criteria in mind. We independently evaluate companies that claim their goals are science-based but have not been verified by a third party.
We also wanted to allow the inclusion of climate solution providers or companies whose products actively promote climate solutions. While there is still much debate about the role of climate solution providers in measuring portfolio integrity, their inclusion may be useful to give credit to companies whose business model/product overall contributes to climate mitigation. I feel it is important.
ClearBridge groups publishers into four categories (see Figure 1) and assigns weights to each. Figure 2 shows these weights applied to aggregate assets across strategies within the first range.
shape1: ClearBridge Rating for Net Zero Alignment of Portfolio Companies
shape2: Placing a ClearBridge baseline
Using this valuation framework and a baseline adjustment of holdings (Figure 2), we prioritize companies for net-zero engagement through a decision tree that takes into account factors such as the weight of the assets in the portfolio and the sector it belongs to. (Fig. 3).
shape3: Priority Engagement Decision Tree
The efforts highlighted below demonstrate the company-specific nuances along the net-zero path and the benefits of setting science-based targets using multiple validation methods. It also shows the importance of open and consistent dialogue.
Net Zeroing Example: U.S. Integrated Power Company
ClearBridge has been actively engaged with U.S. utilities on decarbonization efforts. A recent conference was devoted to the company’s “Real Zero” strategy to eliminate carbon emissions from its operations. The company formally announced targets for reducing Scope 1 and 2 emissions in its operations and purchased electricity without using offsets. The plan has five-year milestone targets, including reducing emissions by 70% by 2025. A combined cycle gas turbine pilot plant that can mix green hydrogen and natural gas as fuel. In addition, the expansion of solar power, which has been underutilized to date, has been a major factor in reducing emissions at the company’s regulated facilities. We also participate in Climate Action 100+ to support the goals of SBTi. Although it does not qualify for SBTi validation due to its insignificant natural gas assets, the Real Zero target has been validated by industry climate consultants as a viable pathway to achieving the SBTi target. I was. That his 2025 goal was validated by Climate Action 100+. So we were relieved given that this company is now adjusting to net zero.
Example of non-alignment to target, net zero: working with multinational shipping/receiving and supply chain management companies
ClearBridge actively engages with multinational shipping/receiving and supply chain management companies that have aggressive carbon reduction targets. The company recognizes that it cannot reliably set science-based company-wide targets at this time as it relies heavily on future technologies such as sustainable aviation. We categorize this company as follows: Target, Not Adjusted to Net Zero (category labeled orange in the chart above). However, the company is working to align all other parts of its business on a net-zero path. Efforts include investing in electric vertical take-off aircraft and fully electrifying ground vehicles towards his 2025 goal of increasing alternative fuels in ground vehicles from his current 24% to 40%. . We will continue to work with the company on our current goals and progress in addressing the aforementioned constraints through policy advocacy and communication with all constituents.