Legg Mason ClearBridge US Equity Sustainability Leaders

The environmental and social characteristics of the product include the binding considerations of: climate change environmental regulation and compliance, energy efficiency, environmental impacts of products and services, innovations to reduce environmental impacts, waste reduction and disposal, health and safety, addressing unmet medical needs, community investment and job creation, community relations, data privacy and security and human capital management.

The product is also bound to consider governance characteristics such as: anti-corruption management, business ethics, capital structure and allocation, financial risk management and oversight, shareholder rights and controls, and quality and integrity of management.

When selecting investments for the strategy the investment manager seeks to high-quality companies with outstanding environmental, social and governance (ESG) characteristics. In order to assess each company’s investment potential, the investment manager reviews each security from an investment, as well as an ESG perspective leading to a portfolio of investments which all have strong characteristics related to these categories.

The investment manager uses an established proprietary research and engagement process to determine whether a company is a Sustainability Leader. This proprietary process of the investment manager includes generating an ESG rating based on the investment manager’s long-standing experience managing ESG investment strategies and identifying ESG best practices. sustainability leadership may be assessed both quantitatively and qualitatively, through the Investment Manager’s ESG ratings system and its direct research and engagement process.  The investment manager’s ESG rating system consists of four rating levels: AAA, AA, A and B, which are assigned to companies based on their sustainability strategy and performance on an absolute basis and compared to their peers. The ESG ratings are assigned by the investment manager’s fundamental analysts as part of their company coverage. Companies that receive a B rating per the proprietary ESG rating system are not considered for investment.

The Fund has no exposure to fossil fuel producers, to producers of controversial weapons (i.e., anti-personnel mines, nuclear weaponry, biological & chemical weaponry and cluster munitions) and to companies that generate more than 5% of revenues from conventional weapons or 15% of revenues from nuclear power generation. The Fund has no exposure to companies that produce tobacco and its products but may invest in companies that indirectly generate 5% or more of their revenues from tobacco. On a best effort basis, the Investment Manager proceeds with a formal review of alleged violations of UN Global Compact Principles, international norms on human rights, labour rights, environment standards and anti-corruption statutes. The severity of the violation, response, frequency and nature of the involvement are considered when deciding appropriate action.

The investment manager uses an established proprietary research and engagement process which includes:

• Internal Scoring – Governance Score and Sustainability Score
• Engagement activity and tracking – Environmental, Social or Governance topics and stages of engagement

No index has been designated as a reference benchmark for sustainability.