The Company’s approach to ESG
Our Manager, JPMorgan Asset Management (‘JPMAM’), has worked hard over a number of years to demonstrate effective ESG integration in its investment processes, not just in the equity funds, including the Company, it manages, but across all asset classes including Fixed Income, Real Assets, Alternatives and Multi-Asset Solutions, with approaches which have been vetted for effectiveness by a central Sustainability Investing Leadership team. JPMAM can show 100% ESG integration across its actively managed products; including the Company’s portfolio.
For all JPMAM equity product ranges, this integration rests heavily on its own proprietary research and on the team of 150 analysts who cover stocks around the world. JPMAM’s research teams complete a standard ESG checklist of 40 questions on every company they follow; 12 on environmental issues, 12 on social factors and 16 relating to governance. Investors also work with the central Stewardship team which sets priorities for corporate engagement both in terms of issues and in terms of a focus list of significant investments held in portfolios across JPMAM.
The Company’s investment policy does not set out a list of excluded stocks or sectors; rather, JPMAM considers on our behalf what ESG issues a company faces, whether those issues can be engaged on and addressed by the company and the risk the issues pose to the company’s fundamentals. This analysis helps determine whether the Company owns the stock and the size of that position. For sectors which face significant ESG issues, for example the mining and oil and gas producer sectors, JPMAM does not exclude them entirely. As owners of these companies on behalf of its clients JPMAM is in a strong position to influence how they address these issues and to enforce accountability to targets that are set.
Why does JPMAM integrate ESG into its investment processes for managing the Company’s assets?
First, consideration of sustainability is intrinsic to a long term approach to investment. When JPMAM invests clients’ assets for them, it has to make judgements about future risks and rewards of any investment, because all of them have the potential to affect the future value of a security. A business that produces huge amounts of carbon emissions or plastic waste, for example, is likely to find itself the subject of scrutiny from regulators and consumers and failure to anticipate this and to change will likely bring a loss of value for shareholders in the long run. The same is true of businesses that neglect their social responsibilities, or fail in matters of governance. In all these instances, investors will eventually assign a higher discount rate to future cash flows, with consequences for the prices of that company’s securities.
Second, JPMAM’s clients require that it considers sustainability factors. The Company’s shareholders and regulators are paying far more attention to this field, and JPMAM must meet their requirements for incorporating ESG in its investment process, and be able to show how this is done. Demonstrating how ESG is addressed is now a basic requirements for any serious asset manager. As JPMAM clients’ interest and requirements in the field of ESG have grown, JPMAM has enhanced its capability.
Finally, the asset management industry itself has responsibilities and obligations, not only to JPMAM’s clients, including the Company, but as a social actor in a broader sense. JPMAM has a duty not just to produce good investment outcomes for its clients, but to be a responsible corporate citizen. This cannot be credibly done if the core practice of our industry, investment management, is not included in the effort. JPMAM must consider the broader consequences of the investment choices that it makes for its clients, including the Company. Given the evolution of public policy, client scrutiny, public attitudes, and trends in the corporate world, it is clear that consideration of ESG has become a key component of the way the industry approaches its fiduciary responsibilities.
Engagement and Voting
The Company seeks to act as a responsible and engaged shareholder of businesses on behalf of its shareholders, through its Manager. JPMAM engages with all companies owned in the Company’s portfolio on a regular basis, often several times in the course of a year. JPMAM does this not just to further its understanding of businesses, but to convey to management any concerns, suggestions or opinions that it has. Ongoing, meaningful dialogue with the management of companies is fundamental to JPMAM’s investment process. Alongside this direct engagement, JPMAM seeks to vote at all the meetings called by portfolio companies.
UN Principles of Responsible Investment
As a strong proponent that companies should act in a socially responsible manner, JPMAM is a signatory to the United Nations-supported Principles of Responsible Investment (PRI), which commits participants to six Principles, with the aim of incorporating ESG criteria into their processes when making stock selection decisions and promoting ESG disclosure.