J.P. Morgan Asset Management has launched a new integrated ESG policy statement for its global funds management business.
The new ESG policy includes a proprietary 10-point ESG scoring system to evaluate its asset management teams on their level of ESG integration.
The coordinated strategy is run by Jennifer Wu, global head of sustainable investing. As part of the new policy statement, the sustainable investing team will focus on building their proprietary ESG scoring system, thematic research and analytics, with a key focus on climate change and carbon transition.
JPMAM has $1.7 trillion ESG integrated as of March 31, which is more than 90% of global client AUM, the firm said.
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JPMAM notes that the sustainable investing team is structured as three pillars. The Sustainable Investing Solutions and Product Innovation pillar partners with investment and distribution teams to provide expertise in developing a sustainable investing product framework.
Using ESG integration, the team "engages with clients on targeted solutions and builds training and marketing tools to help further accelerate the development of our firmwide capabilities."
The Sustainable Investing Research and Data pillar develops ESG research by partnering with investors across asset classes and with data The Investment Stewardship pillar is responsible for an "investment-led, expert-driven stewardship approach, engaging with companies and voting proxies on behalf of clients," JPMAM said.
The five main priorities will be governance, strategy alignment for the long term, human capital management, stakeholder engagement and climate risk.
The sustainable investing team collaborated with a working group of 19 senior portfolio managers, research analysts and investment stewardship specialists across the firm to define a firmwide approach to ESG integration.
The group has developed the 10-point scoring system to evaluate progress toward, and achievement of, ESG integration at each step of a typical investment process. The system is designed to measure three dimensions - research and investment management, documentation and monitoring.
"We believe systematically integrating ESG information into our investment process, where material and relevant, will contribute to achieving an enhanced financial return, through better-informed investment decisions and strengthened risk management," Wu said.
"ESG integration aimed at achieving sustainable risk-adjusted returns is about using research, insights and data to inform investment decisions."
The global asset manager previously told The Sustainability Report that developing a proprietary scoring system is designed to improve the quality of ESG data the fund manager uses for investment decisions, the spokesperson said, pointing to "factors like lack of standardisation, lack of transparency in ESG reporting, limitations of third-party ESG data providers" as limitations to overall ESG integration.
To obtain ESG-integrated status, investment strategies are required to exhibit forward-looking research for material ESG factors embedded in investment management; documentation of proprietary views across investment process; and systematic monitoring of ESG risks, the fund manager said.
For a JPMAM team to receive ESG integrated status under the methodology, the team "must receive an aggregate score of at least 30 points and, for each metric, receive at least a two on a scale of 1-5," according to a paper from JPMAM that outlines the ESG integration policy. If the strategy does not meet this threshold, the working group "will discuss specific shortcomings and the improvements that need to be made before it can be re-evaluated at a later stage. The 10-metric scoring system not only offers guidance on how to evaluate a particular strategy but also can be used to measure progress over time."
JPMAM noted in its policy paper that ESG integration provides additional inputs that "inform better investment decision-making and believe that incorporating these factors into investment processes—ESG integration—may strengthen risk management and contribute to more stable, enhanced financial returns," adding they believe that ESG integration can help deliver "enhanced risk-adjusted returns over the long run."
Further, JPMAM also noted that governments and regulators are seeking enhanced regulations relating to ESG factors and management, impacting on business operations.
"Several such ESG regulations are in the consultation phase or have passed in some jurisdictions, including the European Union's action plan on sustainable finance," the paper said.
"J.P. Morgan Asset Management is working internally, as well as engaging with local regulators and industry bodies across regions, to assess the impact of these regulations and to ensure that we meet all requirements (for example, with our product classifications and disclosures). Where these regulations impact our ESG integrated products, we will provide additional information, including any required disclosures."
This article was first published on The Sustainability Report.