Our Commitment to Sustainable Investing

J.P. Morgan Global Asset Management is committed to putting our clients’ interests first. With decades of investment experience and over 1200 professionals, we have a deep understanding of investment portfolios across multiple dimensions and a goal of producing the best risk-adjusted returns that align with our clients’ objectives. Through our engagement and partnership with various organizations, we continually increase our knowledge and views on key ESG issues and best practices. We have been a signatory to the United Nations’ Principles for Responsible Investment initiative since 2007 and are committed to incorporating ESG factors into our investment practices, where material and relevant.

To help drive our commitment, we have established a Sustainable Investment Leadership Team (SILT) which has begun implementing a coordinated strategy for sustainable investing across Global Asset Management. This cross-functional team is comprised of senior leaders spanning across all regions with a deep and diverse set of expertise across asset classes and client channels.

SILT’s mandate includes:

  • Promoting internal best practices, including identification and assessment of ESG issues across asset classes and investment offerings.
     
  • Driving thought leadership and innovation through information, education and partnerships to encourage broader awareness and adoption.
     
  • Deepening and broadening current investment capabilities including portfolio analytics, measurement and reporting.
     
  • Sharing our views on sustainable investing and helping clients better understand our capabilities across asset classes and investment strategies.

Implementation of our ESG initiatives is driven by sub-working groups focused on advancing specific agenda items:

  • Investment Capabilities group engages across asset classes to support systematic ESG integration into standard research and portfolio construction processes where material and relevant, including product idea generation and development of investment solutions.
     
  • Research, Sponsorships, and Membership group manages relationships with various sustainable investing networks and forums, engages with industry experts and data providers, and trains internal investment professionals on ESG trends, competitive landscape and initiatives.
     
  • Marketing & Communications group promotes consistent, compelling, and timely internal and external communication and engagement.

We strive to increase transparency around our commitment to sustainable investing through engaging with our clients throughout our journey to ESG integration, while we continue to be stewards of their capital. To learn more about our sustainable investing efforts please visit jpmorgan.com/esg.

Environmental, Social and Governance (ESG) factors are non-financial considerations that are important for stakeholders to keep in mind when assessing a company’s performance.

ENVIRONMENTAL:

Issues relating to the quality
and functioning of the natural
environment and natural
systems, e.g., carbon emissions,
environmental regulations, water
stress and waste

SOCIAL:

Issues relating to the rights, well-being and interests of people and communities, e.g., labor management,
health & safety and product safety

GOVERNANCE:

Issues relating to the management
and oversight of companies and
other investee entities, e.g., board,
ownership and pay

Source: Definitions, PRI; Examples, MSCI.

Climate change as an investment risk

J.P. Morgan Global Asset Management is a trusted fiduciary for clients in many different countries and sectors around the world. In meeting our clients’ needs, we consider a multitude of global market risks and investment objectives including a wide range of environmental risks and the impact they may pose to long-term portfolio returns.

Scientific research finds that an increasing concentration of greenhouse gases in our atmosphere is warming the planet, posing significant risks to the prosperity and growth of the global economy. We recognize that climate change may create investment risks and opportunities across the various entities in which we invest on behalf of our clients including companies, sovereigns, real estate and infrastructure. We believe these risks are multifaceted spanning physical, policy, technology and market impacts. Entities that fail to manage these risks may subject investors to losses. Investors should also bear in mind that winners are likely to emerge as global economies adapt to and address the climate challenge. Policy risk has gained focus more recently as climate change-related laws and regulations emerge globally.

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As the table above highlights, the energy and utility sectors may be subject to a number of climate related investment risks. In these and other industries, the nature of climate risk is broad while the timing and geographical impacts are uncertain. Firms are beginning to account for greenhouse gas emissions through carbon footprint analysis and investors can use this information to lower the contribution of their investment portfolios to climate change. However, carbon footprint analysis by itself has limitations and not all carbon emissions contribute equally to prospective investment risk. For instance, regulations may be placed in some regions or industries and not others. Secondly, emissions data are backward looking and so it is useful to consider company policies and other forward looking information to gauge how emissions may change in the future. As such, we believe combining quantitative analysis with qualitative assessment is crucial to effectively managing portfolio risks including climate risk.

Our approach to managing climate risk

At J.P. Morgan Global Asset Management, our global scale means we are well placed to help our clients manage various challenges and objectives. Our analysts and portfolio managers integrate a wide range of investment risks, including environmental impacts, into the investment process. We focus on risks that are material to cash flows and prospective returns in client portfolios. In-depth, bottom up analysis provides insight into the long-term sustainability of a business or whether the entities we invest in will remain competitive in the future.

Our analysts conduct independent research and have access to third party ESG data providers as well as in-house specialists who maintain a robust meeting schedule to engage with companies around the world. Where climate risk is deemed material to client portfolios, our analysts seek to answer questions such as:

  • How will changing environmental regulations impact the business model?

  • What are the risks for environmental waste or accidents?

  • What is the risk a company’s assets will become stranded?

  • What is the time horizon for material climate risks to play out?

  • What is the best measure of an entity or activity’s contribution to climate risk?

  • How is management positioned to manage such risks?

Areas of focus for climate risk include the energy and utility sectors. In analyzing organisations in this space, we assess whether the company’s assets are worth less than stated, as well as understanding the strategic initiatives companies are embracing to manage their enterprises. For instance, certain fossil fuel energy reserves and power generation resources may become uneconomic to extract or use (i.e. “stranded”). In addition to the concerns above, specific keys to identifying winners and losers in the space include considering technological advances in energy production and the expected life of energy reserves.

“As coal power plants are one of the largest emitters of CO2, the economic and regulatory landscape has been very challenging. Investing in different parts of a company’s capital structure, our Fixed Income team is able to consider both climate risk and cleaner power opportunities.“

TOM SOCHA
Utilities credit analyst for Global Fixed Income, Currency & Commodities

Building on the work of research analysts, our portfolio managers can view integrated ESG information in many of the proprietary systems we use to manage client portfolios. This allows portfolio managers to consider climate risk and other ESG factors within the spectrum of investment risks that our clients face. Where appropriate, methods for managing climate risk include diversification, reducing or eliminating positions, and engagement with company management.

In the changing ESG investment landscape, our Sustainable Investment Leadership Team partners with investment teams to share best practices and develop new products and strategies.

Our Capabilities

We recognize that sustainable investing represents a broad set of opportunities and that clients may choose to implement their views based on explicit portfolio objectives. With that in mind, we offer an array of investment solutions to meet our clients’ financial goals and non-financial objectives. Many of our core investment capabilities incorporate ESG factors into their analysis with the primary goal of delivering exceptional investment returns. Our broad product depth and global research allow us to partner with clients to meet their needs across a spectrum of solutions, including strategies that incorporate a variety of sustainable capabilities.

“Sustainable investing is not just the right thing to do, it is the right way to invest. Energy and water efficiency retrofits to our existing multi-family properties, for instance, can deliver up to 3x the current returns of our new acquisitions.“

CAVARLY GARRETT
Head of Sustainability Task Force for Global Real Assets

To help clients lower the impact of their portfolios on climate change and to meet increasing reporting needs, we are able to measure the carbon footprint of investment portfolios in regions where it is a regulatory reporting requirement.

In 2016, we began our journey to full ESG integration. Since then we have implemented systematic and explicit consideration of ESG factors in the investment decision making process across ~$200bn in assets under management. This represents approximately 20% of our long-term assets under management, which is a 10% increase since our ESG integration efforts began.*

Our flexible approach solves for client-specific goals across a range of sustainable investment solutions

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*Source: JPMAM as of December 31, 2016

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