J. P. Morgan Asset Management is developing a proprietary environmental, social and governance (ESG) scoring framework as part of a range of initiatives to enhance its investment stewardship process.
Jennifer Wu, Global head of sustainable investing, J.P. Morgan Asset Management
JPMAM is increasing engagement with companies in five specific priority areas, including climate change, and has become a signatory to Climate Action 100+.
The global fund manager is also developing an ESG scoring framework that will utilise in-house research on the materiality of ESG factors, data science and artificial intelligence. A launch date for the system has not been established, but it will draw upon research generated by analysts during company engagements, as well as raw data from company disclosures and data from third party providers.
The system will also use machine learning algorithms to process “alternative data sets” that will glean insights on material sustainability issues.
The framework will be implemented across all teams covering listed companies, a JPMAM spokesperson confirmed to The Sustainability Report. 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.
JPMAM’s infrastructure and real estate teams have already developed their proprietary ESG criteria for assessing the risks and opportunities in the assets they own, the spokesperson added.
The investment stewardship model will prioritise:
- Climate Risk. JPMAM will engage with companies on embedding and disclosing climate risk considerations into corporate strategy as outlined by the Task Force on Climate-related Financial Disclosures (TCFD).
- Governance. JPMAM “values a strong corporate culture with a focus on directors who represent all shareholders equally and on companies with diverse boards.”
- Strategy Alignment with the Long Term. JPMAM expects companies and boards to align themselves with long-term outcomes, including compensation arrangements for executives.
- Human Capital Management. JPMAM believes managing human capital effectively (e.g. workplace standards, education & training, diversity and gender equality) is a critical component to maintaining a productive workforce.
- Stakeholder engagement. JPMAM “thinks companies’ sustainability depends on companies taking into account the interests of all their stakeholders and the broader impact on the communities in which they operate, including issues such as cybersecurity and privacy, which will be increasingly critical to long-term success.”
“These announcements serve to strengthen our ongoing commitment to sustainability,” said George Gatch, chief executive officer, J.P. Morgan Asset Management. “ESG considerations are an integral part of investing at J.P. Morgan, with over 200 buy-side research analysts applying ESG factors into the buy/sell decisions on securities. We have applied our learnings and best practices systematically across asset classes so that it is part of our DNA. Our data science teams and advanced technologies will enable us to better understand how sustainability-related issues impact financial outcomes and to do even more to help our clients navigate this and build stronger portfolios.”
As part of their enhanced commitments, JPMAM’s annual reporting will incorporate key performance indicators in the firm’s engagement policies, providing transparency to clients and clarity in terms of JPMAM’s expectations for the companies in which JPMAM is invested.
“We’re concentrating our investment stewardship efforts on the most financially material issues where we can help drive the creation of long-term value; this forms the foundation of our investment stewardship work,” said Jennifer Wu, global head of sustainable investing, J.P. Morgan Asset Management. “Our focus is zeroing in on the issues that influence the growth trajectory of companies in which we invest. Our focus on sustainability and value creation has always been an integral factor in our corporate engagement work. Our investment stewardship priorities will be expressed in increased engagement and in our voting, in which we will take positions that promote long-term sustainable business practices.”
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