Portfolio Analysts Benedict Buckley, CFA and Nikita Singhal explore the sustainable investing landscape with Investment Strategist Jeffrey Schulze, CFA. During the discussion, Ben and Nikita explain the distinguishing features of ClearBridge's integrated approach to Environmental, Social and Governance (ESG) investing, ways investors can make an impact through ownership of public equities, and how the consideration of ESG factors contributes to portfolio performance.
008 November 3rd V2 Podcast
Investing to Deliver Value and Impact Through ESG
November 3, 2017
JS: Hello, and welcome to the latest ClearBridge podcast. This is Jeff Schulze, CFA Investment Strategist at ClearBridge Investments. ClearBridge is a global equity manager with 131 billion in assets under management committed to delivering long-term results through authentic active management. ClearBridge tailors our strategies to meet three primary client objectives in our areas of proven expertise; high active share, income solutions and low volatility. We integrate ESG considerations into our fundamental research process across all strategies. So, I’m excited to be here today with my colleagues, Benedict Buckley and Nikita Singhal. Ben and Nikita are portfolio analysists for the ClearBridge Environmental, Social and Governance investments programs. Thank you both for joining me.
BB: Thanks for having us.
JS: The topic of today’s podcast is investing to deliver value and impact through ESG. Now, I know this is a topic that most investors have been reviewing over the last couple of years … ways that they can feel good about investing and be able to make a healthy profit on top of it but when I talk to investors, there’s a lot of jargon that’s thrown out there. I’ve heard socially responsible investing or SRI, Socially Aware Investing, ESG or Environmental, Social and Governance investing and then also, sustainable investing and impact investing as well. So, are all these terms the same thing? Ben, maybe you can help us understand what they all mean and how it fits within ClearBridge.
BB: Sure, so I completely understand it’s very confusing. There’s a lot of different terms out there and a lot of them are overlapping. One of the ones you mentioned, Socially Responsible Investing or SRI is a term that’s been around for the longest and traditionally refers to more of a negative screening approach. That’s taking a portfolio, identifying companies that you don’t want to have in there, whether that’s related to things like tobacco or …
JS: (Overlap) Maybe alcohol.
BB: … alcohol or gambling, so called sin stocks and sort of excluding those from the portfolios … really taking sort of a negative approach and that’s sort of the price of doing good or aligning it with your values. So, that was through the original approach that existed but actually in more recent years, that’s sort of been fit from its’ head and there’s really been two additional stages that you’ve seen of this type of investing that’s developed. So, rather than just having negative screens, there’re some managers that will actually put on positive screen. So, that’ll be overweighting companies in the portfolio that maybe have positive attributes related to their environmental performance, their social performance and so on.
JS: Kind of best in class companies if you will?
BB: Best in class companies and yes, overweighting them, tilting the portfolio towards those. Maybe companies that have a lot of common footprint et cetera. But, then there’s a third group of managers that are actually going beyond these sort of overlay approaches whether it’s negative or positive and actually including research on environmental, social and governance issues into the fundamental research process. So, rather than overlaying it after the fact, you’re actually looking at these issues as part of your investment process and constructing the portfolio with those in mind. So, that’s the kind of approach that ClearBridge takes. We do use an acronym I’m afraid. We use ESG, which stands for Environmental, Social and Governance as you mentioned.
JS: Well, it’s a lot shorter than saying of all those over and over again.
BB: (Laughs) So, you hear a lot of people refer to ESG. There’s overlap with sustainable investing, responsible investing and so on and actually, what’s even more confusing is that those things will be used in different ways by different people in the industry, so it’s very important for those looking at these to really understand not just what word is being used, but what’s the actual process that’s being described.
JS: So, in talking about the process, what are the benefits of looking at those ESG considerations from an analyst perspective, Nikita?
NS: Sure. So, with ESG as Ben described, the traditional approach is to really think about it as a values-based approach and yes, that’s absolutely true because we do represent the values of our clients at the end of the day but in terms of ClearBridge’s approach to ESG investing, we look at factors that are material and economic factors impacting the investment and the earnings potential of a company. So, what that means is you might think about fundamental issues that a company faces in the areas of social, governance or environmental and they would vary depending on the sector.
So, if you think about a financial services company, how much weight would you place upon the recycling that happens at the facilities of a commercial bank for example versus their fair lending practices or issues that are really material to the business and so, at ClearBridge because our sector analysts who are doing the fundamental research, they are the ones who are evaluating the environmental, social and governance issues, and thinking about that in the context of risks and opportunities that they can then tie back to their investment thesis. So, it’s really about having that … let’s say two things. One is a business owner’s approach, looking for really great business that we can own over the long term and coincidentally, if you’re looking at long-term returns … 3 year, 5 year, 10 year returns … not necessarily the norm even today of so called long only investors but if that is your approach, then it ties very well to ESG analysis because there are lots of studies that show that ESG analysis are companies that fair well on the ESG spectrum tend to also be fundamentally strong businesses.
JS: So, in thinking about the long term, I would imagine a lot of these ESG companies who are leaders or best in class tend to out-perform just because that translates into just a better business model and a better consumer perception of that company. Do you have any examples that maybe you can share with us or one of these companies that would benefit from that long-term trend?
NS: Yes, so there are certain themes that apply across industries and then some that are very specific to sectors. A couple that come to mind are if you look at the company Costco.
JS: Love Costco.
NS: (Laughs) Costco, a strong company in terms of their business fundamentals and they’ve proven that they have their business model of work and compared to some of the other retail companies, they’ve taken this unique approach where they really prioritize their customers first, then their employees and then their shareholders. We hear a lot about this … shareholders first or profit maximization.
Costco basically has realized that by paying attention to their employees and their customers and serving them first they’re actually serving their long-term performance and so, as an example, they pay some of the highest wages in the retail industry, over 20 dollars per hour, and 88 percent of Costco employees receive health insurance which is again, unique for the industry and some may argue … ‘Well, they’re doing all this good and it’s going to affect their bottom line’ but in the long term really, they believe and it’s been their experience so it’s proven, that happier employees helps retain loyal customers, it helps attract new ones and it eventually leads to increased sales.
JS: Kind of thinking that the social issues … gender diversity is one that comes up quite a bit. Do you have any thoughts on that?
NS: Yes, and there’s been some really interesting research in the last several years about gender diversity. So, a catalyst in organization pointed out that on average, firms that have more women on their board of directors notably have better performance and so in looking at this, it sounds like a good idea but it’s actually higher return on equity, higher return on sales and higher return on vested capital. So, now there is this research that shows the correlation between higher gender diversity on boards and corporate performance.
JS: Wow. I wasn’t aware of that. That’s very interesting. I’ve never thought to even look into the research to be able to ascertain that.
BB: And I’ll throw in one other example. So, when you’re thinking about ESG unit, we’re often talking about risks that maybe haven’t materialized yet but it’s the absence of those controversies or incidence that actually is the value that’s created by looking at these things.
So, one example would be Disney. Disney’s the largest licenser of IP in the world. There’re actually Disney-branded products being made in 34,000 factories around the world but not by Disney themselves, but by people they’ve licensed the Disney brand to. So, there’s extremely high risk for them of issues that would damage their brand by practices in those factories and Disney is a company where brand value is extremely important to them and obviously given their focus on children and so on, there’s increasingly important focus on things like child labor, the standards in the factories where these things are being developed.
So, they have a whole team of people who’s working on the ground in the factories to monitor the conditions of the workers and so on and that team actually reports up to the chief financial officer of the company because they realize that their whole brand value and the growth of their top line is reliant on the protection of that brand and protection of that reputation. So, that’s something that they take very seriously and they see the absence of controversies as their return on investment for that work.
JS: That’s really interesting. I was in Disney not too long ago and I think about Disney and how everybody’s so happy at the theme parks, but I never thought about translating it to all the way down the supply chain and being able to make sure that work standards are equal no matter which country or what job a Disney employee’s been doing.
NS: And that sort of follows into just talking about our approach at ClearBridge, but another common misconception in the field is that if you’re doing ESG investing, some how you’re giving up performance and I think talking about research as the field has gained tremendous traction and there’s more and more interest, there’s more research coming out to prove that that’s just not the case. So, for example at a company level, there’s research by Harvard Business School, Oxford University, Mackenzie Consultants that basically had tested this idea that I was sharing earlier … companies that have strong ESG practices, a strong governance, they are committed to the communities that they are a part of and they have good social practices as well as they’re not creating negative externalities in the environment. These kinds of companies actually or for another word, we could call them high sustainability companies, they’ve actually had better share price performance over the long term. So, there are increasingly more and more studies coming out at a corporate level and then we see that even at a fund level. So, as managers now we’re being asked if we invest in a fund of high sustainability companies, is there going to be a tradeoff and it’s very understandable that if you take an exclusionary approach to investing that can likely happen
JS: And that would be my first thought, right? If you’re excluding a lot of the investment universe, your performance is going to suffer.
NS: And if you as an investor say ‘Okay, I don’t want certain sectors and I think certain sectors are’ … the sin stocks as Ben talked about earlier, you might end up with a portfolio that looks very different from the benchmark and that is going to account for a very different performance. At ClearBridge, because our approach is this integrated approach where we’re really focusing on every day companies and in the Fortune 500 and the Russell 1000 and looking at ESG factors that are material to that company to that sector, you’re going to end up with a portfolio that is very representative of what the world is today but examined for ESG factors and therefore, examined for risks and opportunities that are linked to that.
BB: Sometimes it’s harder to pin down the performance from when you look at a company performance as Nikita just said, there’s been some academic studies that have shown pretty clearly that there seems to be a positive correlation between paying attention to sustainability issues and the performance of the company. When you roll that up to the fund level, you’re adding another big variable which is a skill of the individual managers managing that particular portfolio. That’s where it becomes even more challenging to demonstrate that kind of performance, our performance, for those portfolios but there have been some studies that have tried to do that.
Morgan Stanley did a study last year of 10,000 mutual funds and 3,000 separately managed accounts, some of which were ESG portfolios and some of which were not, and they found that the ESG portfolios performed just as well if not better than the underlying portfolios. So, they were looking at a whole range and I think that there’s been a number of people that have said really, it’s not whether the portfolio is an ESG portfolio or not. It’s really the style of the investors, the skill of the managers and so on. There’s lots of other factors that really will be the determinants of performance, not whether it’s ESG or not.
JS: You think about benchmarks and whether you out perform or underperform it, are there special benchmarks that you’re using? Maybe a good analogy is I’m trying to get better at golfing, I’m failing miserably, but playing from the white tees is a lot easier than playing from the black tees that all the professionals do. Is that the case?
NS: That’s a great question and I think it’s sort of testament to how interesting this industry has become, this area of ESG investing, that you will see indices mushrooming every day and so there are a bunch of sustainability or ESG-oriented indices. At ClearBridge again, in line with what we’ve been chatting about, we kind of really think about our investment as just like traditional investments and if we do not believe that there will be a performance tradeoff, then why compare yourself to a different benchmark?
NS: And so, all of our strategies, our ESG strategies, have very low dispersion compared to traditional strategies, if you call it that. We apply the same benchmarks, the same fees and you look at that in the performance … we’ve been doing this for over 30 years now. We’re one the oldest ESG practitioners in the field and even if you go back just 5 years, 2 out of 5 of the ESG strategies have actually out performed their traditional strategies. The third-year number for one of our strategies is better and it sort of really depends on … you can slice and dice it however you want with really the key message take way being as Ben shared, performance ends up being more a factor of manager selection and underlying style whether it’s value or growth or what kind of market cap you’re going after versus is it an ESG or a non-ESG portfolio.
JS: Yes, 30 years is a long time. I mean, this is a buzz word I feel like over the last 4 or 5 years, but it’s good to know that it’s been going on at ClearBridge for a much longer period of time going back to the 1980s. With that in mind though, how does ClearBridge approach ESG investing? What’s different about ClearBridge’s approach versus others?
BB: It’s really important to know the way that the team is set up at ClearBridge. So, there’s 3 people at ClearBridge that have ESG in their job title but actually, the ESG analysts …
JS: And I’m sitting with 2 of them.
BB: And you’re sitting with 2 of them right here but the ESG analysts and the portfolio construction is actually done by the majority of the entire investment team. So, all of the sector analysts … we have a team of over a dozen sector analysts that each focus on a particular group of companies. Each of them is reviewing the ESG criteria for the companies that they cover and it gets very specific because these issues are not the same whether you’re talking about a healthcare company or a financial sector company or an energy company. So, the material issues are very, very different and the kind of issues that our analysts are focusing on would change dramatically depending on what kind of companies they’re looking at. So, it’s done firm-wide.
Each of the analysts is actually reviewed on the quality of their ESG analysis. It’s part of their review and compensation system, and they have an internal rating system where for every company that an analyst is recommending, every stock that they are suggesting …. the portfolio manager should pop by for their portfolios. They will not only be doing their traditional fundamental analysis. They’ll actually be also assessing it from an ESG perspective and communicating that in terms of an overall ESG rating for the company. So, that’s demonstrating the portfolio managers in one simple coded rating … all the information that’s going into that rating and there will be lots of different factors they’re looking at.
They’re all looking at things like governance, but then environmental issues will really not be that relevant for say some of the healthcare companies or a financial sector company and really will be the drivers for example, an energy company. So, one example of a recent stock that was recommended by one of the analysts is finding natural resources. So, that’s an energy company. It’s an oil and gas company that has a lot of activity done in the Permian basin in Texas and water is a key issue that our energy analyst looks at when he’s talking about environmental, social and governance issues as they relate to the business model of these companies. So, they actually have a differentiated water sourcing strategy as a company. They’ve actually signed a deal with the city of Midland in Texas for over $100 million where they are using the waste water from the city in their operations and that’s helping them avoid using fresh water and compete with other sources for that water. It’s actually reducing costs for the company and it’s securing them a water supply for the next 20 plus years.
BB: So, it’s a win for the company because it’s lower costs and it’s more secure. It’s a win for the local community and a win for the environment because it’s avoiding that draw down of the water in an area where, given the amount of oil and gas activity in the Permian, is going to be increasing water stress issues there. So, that was part of his investment thesis for the company, that was included in the writeup that he did for the portfolio managers, and that enabled them to know whether or not it was a company that would be interesting for the ESG portfolios at ClearBridge.
JS: And I think that’s interesting having an energy company part of an ESG strategy. I think based on those exclusionary types of ESG strategies, they want to look at energy in particular, but here’s a great example of an energy company that’s doing right by the environment and they’re trying to make the environment a better place to extract their resources.
BB: Yes, and I think that having the fundamental analysts who cover these companies doing the ESG analysis is really crucial to us because these are guys and girls who know the companies incredibly well. A lot of them have well over 10 years, many, many decades of experience of covering these companies. They have relationships with the management teams and the investor relations, and they’re the ones that are really able to understand what are the really material environmental, social and governance issues and what quite frankly is not material for that company and therefore, doesn’t sway their view of the company and the investment thesis and having those discussions with them and having that be part and parcel of their just overall research process makes a lot of sense for us and I think is really, in our view, the only way of doing this sustainably over time.
JS: You mentioned something that I found was interesting that you have a regular analyst that is doing ESG considerations, so kind of doing both of best worlds. Is that typical in a company like ClearBridge who’s a larger money manager?
BB: I think it’s very unusual. We don’t know of many others that are doing it this way. I think there’s a lot where you have a separate team of ESG analysts that are doing great work in working with the other teams but being on the ground day to day at a manager, we see how important it is for that to be the same person and drawing all that information together to come to one final conclusion on a stock versus having two different sides that are battling it out and it’s also important to note that this is being done as part of the research process, so it’s not like you’re constructing a portfolio and then reweighting it based on some sort of ESG score … something that is then ending up with a portfolio that’s not balanced in the way that the portfolio managers intended it. So, it’s done as part of the process and hopefully, gets us to a better result at the end of the day.
JS: Now, a big goal here for a lot of investors quite frankly is to feel good about investing but also, making an impact and when you think about public equities, stocks aren’t necessarily usually considered as an asset class from a lot of investors’ perspective. Why is this the case and what are investors overlooking about the impact of potentially investing in public equities?
NS: Sure. So, for the longest time I think most of us, me included, we tend to think about the world in this black and white fashion. You have corporates that are the economic engines of the world and then you have philanthropy that’s really solving the world’s hardest problems. And then there’s this ideology where you can make money with one pocket and then you do good with the other but over the last couple of decades and much more so in the last few years, people are starting to understand that there is a strong interaction between these two worlds and you might be in a situation where your investments might be creating the very problems that your grant making and your charity is trying to solve.
And so, is there a way that you can marry the two where without sacrificing financial returns, you can actually have your money in line with your values and that’s a very powerful concept. The question then comes up like you mentioned ‘Well, but we do that maybe through certain kinds of investments, investing in a microfinance institution that serves women in India or small business loans to basket weavers in Africa, but can we actually achieve that by investing in a Microsoft or a Google?’ How is that impact and the way we like to think about it is that at the end of the day the communities that we live in are largely influenced at an enterprise level.
It’s people who are working through these enterprises that are influencing communities regardless of the tax status, regardless of whether it’s a nonprofit or a for-profit, you’re impacting the community in a positive or a negative way, and I’ll give you some more examples in the way we think about it.
NS: So, one is if you think about a company’s end product in and of itself or their service, is that of impact to the community? And one example I can think about is there is an LED lighting company that we own in one of our funds, and LED lighting products are expected to reduce the consumption of electrical energy by more than 30 percent. Now, when more than 20 percent of the world’s electricity consumption comes from lighting products, you’re looking at net 6 percent reduction in just electricity consumption by moving from non-LED or incandescent bulbs to your LED lighting.
JS: And a lot less times having to change the light bulbs of course.
NS: Yes, and that factors into the economics and so it’s a great economic case and it’s a great environmental case because the energy savings … conservative projections lead to almost $30 billion of savings. And so, there’s a company that their product is having a direct impact on the environment.
JS: Yes, one area that interests me at least on this front of a product or service that can potentially change the world, at least from an environmental perspective is electric vehicles. I had the pleasure of driving an electric vehicle the other day and I think there’s a little bit of a negative cogitation on them, but they worked very quick. You had instant torque, better handling. I was actually quite impressed and if you think about the U.S. here, we only have a 1 percent adoption rate of electric vehicles but I think with Tesla coming out with the Model 3 at a price point that’s very competitive with internal combustion engines, I think this may be like the iPhone when Apple originally launched the iPhone’s moment for EV. Do you have any thoughts on that?
NS: Yes, absolutely. We are like you said on the early side of the adoption curve but when electric vehicles actually do end up displacing our traditional internal combustion engines, I think the demand for oil is likely to dramatically shift and global coal consumption has already peaked. So, if you look at current forecasts for EV adoption, the sale of pure combustion engines could peak by 2020 resulting in oil demand peaking as early as the next decade and we kind of all know that the burning of fossil fuels, oil, coal, gas, they’re a pretty major contributor to climate change, so by investing in companies that are across the value chain and electric vehicles, right?
So, when we think about electric vehicles at ClearBridge, we’re not just thinking about it from a Tesla standpoint, but really breaking down the whole value chain. So, you’re thinking about the lithium that goes into the batteries or the cobalt than the actual battery itself, the engine, maybe the auto parts that go into this new kind of vehicle, and really thinking across the value chain on what those opportunities that’s going to present and the really exciting thing is that we’ve talked about the impact of these companies and the products that they have but if you look at even these themes and they’re sort of like secular themes.
There’s a really great research piece done by Goldman where they talk about … if you look at the three broad themes; LED lighting, renewable energy, so solar and wind in particular, and then electric vehicles. These three themes alone could impact more than 25 percent of the broad market across the universal stocks impacting trillions of dollars in market cap just over the next decade.
JS: Wow. That’s a big number.
BB: And if you think about the research process at ClearBridge … so, it’s being done by the fundamental analysts that cover their companies and actually our energy analysts. One of your generalists and our utilities analyst actually teamed up a while back to do a piece on electric vehicle adoption and they looked how disruptive technologies have been adopted in the past and the speed with which that can happen once it reaches that tipping point and so, they did some (overlap)
JS: And the S-curve, right?
BB: The S-curve, the famous S-curve. So, they did some analysis to look at what if EVs are indeed adopted on an S-curve like the microwave was and the fridge was and the iPhone was, and then they looked at how that would impact all three of their sectors and the interactions there. So, that’s discussions that are actively going on with the teams and sort of shows why it’s so important to have that being there … the same analyst looking at it from both an environmental perspective but as well as an investment perspective.
JS: So, we talked about companies that are making products or services that can make an impact. Is there any other ways that you can maybe think about this?
NS: Absolutely and those companies are actually much fewer relative to all the other companies where there isn’t a direct impact necessarily. So, when, like I said, you talk about Microsoft or Google … and we try and think about the impact that they are inherently having by virtue of their supply chains and the employees that they hire. So, for example, if you think about Unilever, they’re a company that is producing all kinds of products from toothpaste to cereal. It’s every consumer product that you can think of and a lot of people try and break down their supply chain and think about how do we for example impact small farmers around the world, and you can do that at a small scale but by investing in a company like Unilever, Unilever engages with over half a million small holder farmers all over the world.
JS: Half a million?
NS: Half a million and has worked with them to clean up those supply chains, make sure there’s just labor policies, and so there’s a real opportunity to impact at scale with public equities and Unilever is one great example. We talked about Costco earlier. Another important piece of this is the companies themselves having an impact, but our ability as investors to encourage and advocate for more impact.
JS: The engagement.
NS: The engagement, and that is I think a very important piece at ClearBridge and very much integrated with our business model and so what I mean by that is because we are long-term holders, we are active owners, and we have small portfolios that are high-conviction concentrated portfolios, we often end up being the top 10, 20 shareholder of these large companies and what that means is that when we invite them to our offices and we want to talk about gender diversity or a certain human rights issue that we’re seeing in the market place or an environmental issue that an energy company might be facing, they are going to listen and so, it’s very different part of an organization that is needed … maybe a nonprofit or an organization that can generate interest and excitement around a story. We think that’s very much needed. Our role as investors is we kind of work more quietly behind the scenes in partnership with companies over long periods of time to actually create impact.
BB: We’ve heard from companies anecdotally that after having worked with a number of companies over the years and we’ve sort of done a look back with them and they’ve said … for example, engaged a technology hardware company on climate change and water-related issues for their facilities in China, and they ended up setting some reduction targets and have moved to recycling a lot the water there and so on but when we spoke to them, in hindsight looking back at that engagement process, they said ‘You don’t understand how important it was for us to have one of our top shareowners like ClearBridge asking these questions of our investor relations and of our management team, and that gets taken back to the teams and really gives them the impetus internally to work on this when they can say ‘Look, our top shareowners are asking about this.’
We had the same thing with a steel company we work with on some supply chain issues that they had been accused of in Brazil and they some advocates chasing them down related to some of their practices there and many tiers down the supply chain that they weren’t even aware of at the time but when we got involved and said ‘Look, this really is something you should be taking seriously’, that changes the conversation for them because they know that we’re a trusted partner of theirs, we’re one of the largest shareowners in their company. Our primary objective of owning the shares is to do well for our clients. We don’t have any alterative motives there and we’re long-term investors that are going to stick in there. We’re not looking for quick wins. So, we have those very much aligned incentives and therefore, we can work with them to try and move some of these issues forward where we think it’s relevant.
JS: I would imagine in this base the long-termism or being long-term investors, building that relationship with management is so essential in order to actually impacting change or affecting change. If you’re only invested in a company for a year or 2 years, I think it would be hard to actually affect change and get management to listen to what you’re concerns are and actually execute on that.
BB: Yes, and that’s baked into the compensation structure at ClearBridge. I mean, 3 and 5-year performance for the funds accounts for 90 percent of the incentive compensation of our portfolio managers, one-year performance accounts for just 10 percent. So, their finance incentives are aligned with being longer term and at least 10 percent of their compensation has to go into their own fund investor for 4 years. So, they’re not looking to invest quarter by quarter, but looking for long-term investments and as you say, these are issues that really tend to play out over a matter of years, not a matter of quarters.
JS: I know we’ve talked about a lot of the Evergreen issues that we’ve seen in the industries over the last couple of years. Is there maybe any emerging themes that our PMs or analysts have been discussing recently?
BB: Yes, there’s a number of things that come up. One thing actually that came up just a couple of days ago that’s been a topic of ours for a long time now is being data security and privacy within the technology space, particularly social media space.
So, Facebook actually had their earnings quarter a couple of days ago and Mark Zuckerberg was speaking a lot about their investments that Facebook’s going to do to protect the community that relates to fake news, protecting online bullying, et cetera and that’s something they’re taking incredibly seriously and he went on the onus and he was very upfront that that’s going to be somewhat of a hit to short-term profitability. We think that’s the right long-term decision for them to be making. They have such an important role in the social media community. There’s all sorts of other issues.
Our international growth team has been thinking a lot about labor issues in Turkey for example. So, there’s a lot of Syrian refugees that have come across the border into Turkey and are actually working in the garment industry in Turkey. A lot of the apparel manufacturers or apparel companies I should say that we look at in the international growth space source some of their clothes from Turkey, so that’s an issue that we’ve been talking to for example Inditex about, which is a parent company of Zara. How are they dealing with this issue?
It’s really sort of a wicked problem that they have of trying to understand how you manage a supply chain when you have so many undocumented workers flooding that country’s market. So, they have lots of people on the ground in Turkey trying to work on these issues, making sure that labor standards are kept up to scratch. It’s not a simple issue as to sort of saying no, these people can’t work. They all need to have a livelihood, but how you are doing that in a way that’s responsible and when you tie that back to the investment case, again it’s protecting the brand or the company but it’s also doing right by the people on the ground.
JS: Yes, it’s an ever-changing world. The importance of being an active investor is that things will pop up, business models will change and that just reaffirms the need of active managers to be able to assess those changes and try to implement some impact from a financial perspective, but that’s all the time that we have today. Nikita, Ben, thank you so much for joining me here and … (overlap).
BB: Thanks for having us.
NS: Thank you.
JS: Thank you everybody for joining in. I hope you’ve learned a little about our ESG process and how we view the world here at ClearBridge. We hope that you tune in for the next podcast. Thanks again and goodbye.
Please note the following. Past performance is no guarantee of future results. The opinions and views expressed in today’s podcast are of the individual speakers as of November 3, 2017 and may differ from other managers or the firm as a whole and are not intended to be a forecast of future events, a guarantee of future results or investment advice. Any statistics reference have been obtained from sources believed to be reliable, but the accuracy and completeness of this information cannot be guaranteed. Neither ClearBridge Investments nor it’s information providers are responsible for any damages or losses arising from the use of this information.
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