Amid this trend, we see considerable debate regarding what to actually do with such information, whether it involves the exclusion of certain sectors or industries, or company-specific based analysis gauging risk/ return benefits. As active fundamental investors, we have long considered Environmental, Social and Governance (ESG) issues in our analysis and portfolio decisions. In this paper, we seek to frame the ESG issues associated with energy-related investments—both in terms of their effect on underlying companies and their businesses, and their broader implications for the environment and economy.
Overview
Over its 20+ year history, the Neuberger Berman Socially Responsive Group has been a leader in contributing to the discussion, analysis and implementation of environmental, social and governance (ESG) criteria in the investment process. We believe that a thoughtful understanding of ESG factors, and the risks and opportunities they pose to a company’s path to growth, is an essential part of the due diligence process.
The interaction of top-down issues like emissions control and climate change present business risks and investment opportunities that differ across industries. For the portfolio management team, these risks and opportunities need to be analyzed and understood as part of a thorough company-level investment due diligence process. For a plan fiduciary, understanding how these issues are analyzed and implemented in portfolio construction is essential, as it can impact both the prospective return profile and the adherence to the policy mandate of the investment product.
Our views on energy and the environment have been reflected in company engagement and advocacy on environmental issues, the mix of our energy exposure and in our approach to investing in energy efficiency across sectors.
Discussion Goals
In this paper, we outline our philosophy regarding energy investing and the environment in the broader context of our approach to integrating ESG criteria into the investment process. Key takeaways include:
- Statement on Climate Change – formulated as part of our integrated approach to investment research, engagement, and advocacy
- Natural Gas – lower aggregate emissions today and a bridge to a more sustainable future
- Fossil Fuel Divestment – narrowly defines the CO2 challenge while introducing potential tradeoffs that need to be analyzed and understood by investment plan fiduciaries
- Energy Efficiency – Finding Opportunity with Economic Solutions – technologies in new growth markets that address clear unmet needs of cost avoidance and emission reduction
Neuberger Berman and SRI
As an innovator in socially responsible investing (SRI), we believe responsibility is a hallmark of quality. We integrate ESG criteria into the investment process as we seek to identify best-in-class industry leaders that are positioned to gain profitable share in their served markets while generating positive externalities for their broader constituent base including shareholders, employees, the community, and the environment. Our in-house ESG research results in a single point of portfolio accountability through a consistently executed research and investment process. Our objective is to generate attractive risk- adjusted portfolio returns, while being consistent with our client’s stated priorities.
The Neuberger Berman SRI team has been an active contributor to the broader discussion on the analysis of ESG factors and their significance to business performance and investment returns. We are a signatory member of initiatives that advance ESG integration within the investment process and have actively supported specific initiatives engaging policy makers on the environment, including the CDP, Interfaith Center on Corporate Responsibility (ICCR), Principles for Responsible Investment (PRI) and the Forum for Sustainable and Responsible Investment (U.S. SIF).
