Skip to Content

Longleaf Partners Small-Cap LLSCX Sustainability

| Medalist Rating as of | See Longleaf Investment Hub

Sustainability Analysis

Author Image

Sustainability Summary

Longleaf Partners Small-Cap Fund may not appeal to sustainability-conscious investors.

The fund has the lowest Morningstar Sustainability Rating of 1 globe, indicating that the ESG risk of holdings in its portfolio is rather high compared to those of its peers in the US Equity Mid Cap category. Funds with 4 or 5 globes tend to hold securities that are less exposed to ESG risk. Unlike impact, which focuses on generating positive environmental and societal outcomes, ESG risk measures the degree to which investments could be affected by material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance.

One potential issue for a sustainability-focused investor is that Longleaf Partners Small-Cap Fund doesn’t have an ESG-focused mandate. Funds with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes.

Longleaf Partners Small-Cap Fund has a 12-month asset-weighted Carbon Risk Score of 13.4. This is situated at the lower end of the medium carbon risk band, suggesting that its portfolio holdings are not among the worst-positioned to transition to a low-carbon economy, but they are not among the best-positioned either. Investors concerned about the transition risks may prefer to consider funds with negligible or low carbon risk. Funds with a lower carbon risk classification may be more favored by investors concerned about transition risks, as such funds often tilt toward companies that operate in sectors less exposed to the transition (for example, healthcare and IT) or companies in more carbon-intensive sectors (for example, materials and utilities) that consider climate change in their business strategy, and therefore are positively aligned with the transition. Currently, the fund has 7.8% involvement in fossil fuels, which is roughly in line with 8.7% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas. The fund has a modest level of exposure (7.54%) to companies with high or severe controversies. Companies with controversies are involved in incidents such as corruption, employee abuses, and that pose some degree of business risks to the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they controversies can damage the reputation of both companies themselves and their shareholders.

ESG Commitment Level Asset Manager