The content on this website is intended for investment professionals and institutional asset owners. Individual retail investors should consult with their financial advisers before using any of the content contained on this website. Breckinridge uses cookies to improve user experience. By using our website, you consent to our cookies in accordance with our cookie policy. By clicking “I Agree” and accessing this website, you represent and warrant that you are agreeing to the above statements. In addition, you have read, understood and agree to the terms and conditions of this website.


Perspective published on August 25, 2017

Putting ESG Materiality into Action

Through press releases, corporate social responsibility reporting and mainstream news coverage, investors can learn about companies’ volunteer work, charitable giving and other initiatives that are intended to benefit communities. While these efforts are important, it is also crucial for investors to closely study the operations of corporate issuers and determine what ongoing environmental, social and governance (ESG) business practices are verifiably affecting the financial well-being of these companies. As we note in our companion post, Materiality Imperative in ESG Integration, we aim to make broad-based, in-depth assessments of companies based on both financial and non-financial factors. In our ESG analyses, we aim to focus on the ESG factors most material to each company’s investment risk and credit profile.

To implement materiality into our investment process, Breckinridge considers the standards of the Sustainability Accounting Standards Board (SASB), a nonprofit organization devoted to improving company reporting of sustainability information. Breckinridge collaborates with SASB by providing an investment management perspective, contributing views on the material factors for various industries, and helping to lead and support SASB’s efforts. Peter Coffin, president and founder of Breckinridge, is a founding member of SASB’s Investor Advisory Group. SASB’s research has led to the development of provisional standards for 79 industries in 10 sectors, outlining which ESG factors are material for those industries.

For example, Figure 1 shows the SASB “materiality map” for Railroad companies. The map identifies six ESG issues that SASB considers to be most material to the performance of Rail issuers, such as CSX Corporation and Norfolk Southern Corporation. The map also displays the recommended metrics for evaluating the performance of each issue.

The issues identified in the map reflect SASB’s multi-stakeholder review process. To expand on the thinking behind the issues, as a major part of the transportation system in the U.S., railroads are under considerable scrutiny for their environmental impact. Railroads generate a significant level of greenhouse gas (GHG) emissions, as they are heavily reliant on diesel fuel to power their locomotives. Higher GHG emissions could lead to significant costs for the rails should a carbon tax be passed on the state or national level. However, rails have been proactive in reducing their environmental footprint by experimenting with compressed natural gas as a fuel source and by improving fuel efficiency through the introduction of new locomotives. Another issue, employee safety, is also a major risk for rails. Potential litigation and operation disruptions could come about from employee injuries or fatalities associated with train collisions, on-site accidents and/or transportation of hazardous materials.

Breckinridge analysts consider whether companies are focusing on and/or reporting on issues deemed material, and these issues may be more heavily weighted in our analysis depending on their materiality. For example, in an ESG assessment of CSX Corporation, the Rail analyst could compare CSX emissions data with other rails (Figure 2). The analyst may note that CSX emissions intensity is lower and the trend has been mostly improving, while emissions intensity by other rails is higher and the trend is more mixed. As an example of the data we may use to perform this analysis, Figure 2 shows emissions intensity using data from MSCI ESG DataMetrics reports, which normalizes the emissions metrics by sales to allow comparison on an apples-to-apples basis.


ESG evaluation is fully integrated into the Breckinridge proprietary credit analysis framework. For each corporate issuer, the framework weights ESG indicators and aggregates them into a sustainability score, which may then affect the overall internal rating for an issuer. Figure 3 depicts this process.

As Figure 3 shows, an internal rating may be upgraded to reflect that a corporation has low ESG risks or is taking advantage of sustainability to drive revenue growth. Or, an internal rating may be downgraded to reflect high ESG risks. Breckinridge portfolio managers use these overall internal ratings, sustainability scores, internal outlooks and target weightings to generate relative value assessments and make investment decisions.


DISCLAIMER: The opinions and views expressed are those of Breckinridge Capital Advisors, Inc. They are current as of the date(s) indicated but are subject to change without notice. Any estimates, targets, and projections are based on Breckinridge research, analysis and assumptions. No assurances can be made that any such estimate, target or projection will be accurate; actual results may differ substantially.

Nothing contained herein should be construed or relied upon as financial, legal or tax advice. All investments involve risks, including the loss of principal. An investor should consult with their financial professional before making any investment decisions.

Some information has been taken directly from unaffiliated third party sources. Breckinridge believes such information is reliable, but does not guarantee its accuracy or completeness.

Any specific securities mentioned are for illustrative and example only. They do not necessarily represent actual investments in any client portfolio.