Texas ban ‘a badge of honour’, says manager of blacklisted fund

Clearbridge’s Derek Deutsch says US situation is ‘troubling’ and hits out at political point scoring.

The manager of a sustainable equity fund blacklisted by the state of Texas has said that his fund sees the ban as “a badge of honour”.

Speaking at a client event in London on Wednesday, Derek Deutsch, co-manager of the $127 million Clearbridge Sustainability Leaders Fund, said the fund “didn’t have any existing business in Texas, so it didn’t cost us anything and I don’t think it was likely that we were going to be doing a lot of business in Texas”.

While Deutsch was not worried by his own fund being banned by Texas, he described the overall situation as troubling.

“We are fiduciaries,” he said. “We’re trying to invest our clients’ capital with a fiduciary mindset and to generate the best risk-adjusted returns, and considering ESG factors as part of our process adds to our ability to do that effectively.”

Describing the integration of ESG factors into the investment process as woke capitalism is just “scoring political points”, he added.

At the same time, he said, there is still “plenty of interest” in ESG investing and the US market is large enough that, while it might become difficult to do business directly with certain states, “that’s not a big problem from our perspective”.

Deutsch is the latest investment figure to hit back at the anti-ESG movement in the US as sustainability-minded investors become more vocal in defence of the sector.

BlackRock has previously said it was “disturbed” by attacks on ESG and called the movement “anti-competitive”, while industry body the Investment Company Institute issued a critical statement in August. A series of Democrat comptrollers and treasurers published a statement this month criticising moves by Republican states to blacklist financial firms.

The fund, which sits within Clearbridge’s $2.4 billion sustainability leaders strategy, is one of three managed by Franklin Templeton or its subsidiaries to be included on Texas’s blacklist. The others are the $33 million Martin Currie International Sustainable Equity Fund and the $1.9 million Templeton International Climate Change Fund.

Franklin Templeton itself escaped divestment. In its response to Texas’s questionnaire, obtained by RI under the state’s freedom of information laws, the firm denied that it had any company-wide policy restricting investment in fossil fuels and said that none of the three funds met Texas’s definition of boycotting fossil fuels.

While both Franklin Templeton and some of its subsidiaries are signatories to various climate initiatives including Climate Action 100+, the PRI and the Net Zero Asset Managers Initiative (NZAMI), the firm said that none of these initiatives “represent a commitment or pledge that would require Franklin to meet environmental standards beyond applicable federal or state law”.

Clearbridge, which has $160 billion in assets under management, is a signatory to NZAMI and has been a member of Climate Action 100+ since 2018. Its parent did not join until earlier this year, when CA100+ steering committee member Anne Simpson joined the firm as global head of sustainability.