As Massimo Greco, head of European funds for J.P. Morgan AM, recently pointed out, the asset manager has initiated a major transformation of its activities towards sustainable finance. Patrick Thomson, the asset manager’s CEO, spoke about this at J.P. Morgan AM’s annual European Media Summit in London from 7 to 8 June, stating: “I think there is an opportunity in our ability to offer clients choice in the area of sustainable finance. It’s probably our most important initiative and it’s impacting all of our investors.”
For her part, Jennifer Wu, global head of sustainable investing at J.P. Morgan AM, believes that the issue of climate change represents “an unprecedented challenge that we must face as a whole community, because no one person, company or organisation can solve it alone”. To this end, she has not been shy about reminding stakeholders of their roles. Policy makers have the responsibility to guide and direct the economy while cooperating at the international level. In turn, businesses must find ways to mitigate their risks, even if it means adapting.
As far as asset managers are concerned, “our role as investors is to understand these risks and their time horizon, said Wu. “We want to avoid companies that could potentially face fines or reputational damage.” Gathering signals in anticipation of potential controversies remains a constant task for analysts.
There are some misunderstandings in the market that some people think we are used to worrying about saving the world.
And with risk comes opportunity. “Our job as investors is to find potential futures to generate better returns for our clients.” J.P. Morgan AM looks at each investment target through the lens of operational efficiency, she said. “If a company is able to produce the same level of goods at lower costs because it manages natural resources better, we expect it to generate better quality.” Thus, the very purpose of integrating ESG principles is to “achieve a better risk-adjusted return”. That is something that Wu was keen to point out, in particular: “There are some misunderstandings in the market, which make some people think that we are used to being concerned about saving the world.”
J.P. Morgan AM’s ESG investment approach is therefore to identify companies that can outperform their peers based on other metrics than those of traditional management. This requires a long-term view. “Companies that focus on improving their operations through better retraining, better human capital management or better qualified staff and also focus on building a strong board of directors… are companies that appear over time,” stated Wu.
We are a fiduciary… We do not act in our own interest, but on behalf of the clients.
Identifying companies that meet such criteria undoubtedly involves the collection and analysis of data, fed by disclosures made by the entities. “Data is a fundamental part of trying to ensure that we get accurate data so that we can accurately represent what we do in the funds,” said Thompson. He is quick to point out the need for a “forensic understanding” of each company’s ESG compliance. “We are a fiduciary… We do not act in our own interest, but on behalf of our clients.” Indeed, many clients want to receive detailed data reports, helping them to understand the rationale for investments and the expected outcomes.
Over time, regulatory developments also become an issue for ESG data. Having quality data already allows firms to respond more effectively to questions from regulators. The introduction of the EU’s Sustainable Finance Disclosure Regulation requires asset managers to classify their funds according to whether they have a sustainable or non-sustainable scope, whether they promote environmental and social characteristics, or whether they have a clear sustainable investment objective. This regulation will require an additional level of reporting in January 2023. The regulatory revolution aims to reduce the possibility of greenwashing, which, on the one hand, puts pressure on companies to refine the accuracy of the data they report and, on the other hand, requires asset managers to systematically take into account data analysis.
On the other hand, Wu noted that data processing is only an aid to decision making: “The most important part of our research operations is handled by our analysts and portfolio management.”
This article was published for the Paperjam + Delano Finance newsletter, the weekly source for financial news in Luxembourg. Subscribe using this link.
This article was originally published in French by Paperjam and has been translated for Delano.