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Environmental, social and governance integration
ESG investing means considering environmental, social and governance issues and risks during the investment process. In addition to helping you align your portfolio with your sustainable investing goals, it’s also just good, smart investing. That’s because these factors may affect a company’s financial performance—not just have a positive societal impact. At J.P. Morgan Private Bank, we integrate ESG analysis into our approach and evaluation of all investment opportunities. It’s becoming business as usual.
Watch Marisa Buchanan, Director of Sustainable Finance at J.P. Morgan Chase, introduce the approach of ESG Integration.
Environmental, Social & Governance (ESG) Integration TIME: 4:12
INVESTMENT PRODUCTS ARE NOT FDIC INSURED, NOT A BANK GUARANTEE, AND MAY LOSE VALUE. Please read other important information, which can be found on the link at the end of the podcast episode.
[Transcript]
Ms. Buchanan: The growth in sustainable investing is really being driven by a number of factors. One important one is that I think investors increasingly realize that ESG issues, these are environmental, social, and governance issues, are really important for the companies in which they invest, and that focusing on ESG issues can be important in terms of managing risks but it can also be important in terms of identifying companies that may be positioning themselves for good, strong, long-term performance. Secondly, I think attitudes about investing are really changing. I think the notion that investing is something that is separate from the mission of an organization has really been shifted, and I think the next generation has had a real strong influence on that trend. What we've seen on many of these campuses is that students have been influential in getting schools just to really opena broader dialog around where their investments are being made, the impacts that these are having more broadly, and are really starting to create a new conversation around how endowments should be managed.
While relevant ESG issues may differ for different companies and sectors there are a few that investors commonly look at.These can be things like air pollution, climate change and water. They can also be issues like community relations and labor issues as well as issues with respect to corporate governance. We see some investors using it as a way to identify companies that they may want to avoid because they think these companies may be exposed to higher risk due to these ESG issues. We also see a number of investors starting to use ESG integration as a way to identify the types of companies that they really want to invest in because they think they're best-in-class performers. If you're investing in a company that's in the power sector let's say a power company could face a number of environmental, social, and governance issues, things like impending regulations on air pollution, climate change, issues like water, as well as how that company as a whole is being managed from a governance perspective and really thinking about these risks and how they're going to respond proactively to them. There are many different ways that investors can think about integrating ESG issues into their investment process.We like to think about it as really good fundamental due diligence and analysis. So when an investor is doing their due diligence and looking at all of the financial factors and issues that inform one's investment decision it's also important to look at some nonfinancial factors, some of these environmental, social, and governance factors.
For those institutions that are really interested in learning more about this, the best place to really start is with education. So one, really getting up to speed on the spectrum of sustainable investing and what the different strategies look like, and then secondly I think really looking to create a dialogue with the right stakeholders and people within your organization and also outside of your organization to think about your organization's goals and your missions. There are a number of great resources out there. There are some third-party organizations, some nonprofit organizations that are producing research and insights that may be valuable. J.P.Morgan itself also has a wealth of knowledge and resources and we're here to really work with our clients and help them in any way that we can.
This podcast is intended for informational purposes only, and is a communication on behalf of J.P. Morgan Institutional Investments, Inc. a Member of FINRA and SIPC. Views may not be suitable for all investors, and are not intended as personal investment advice or as a solicitation or recommendation. Outlooks and Past Performance are never guarantees of future results. This is not investment research. Please read other important information, which can be found here. www.jpmorgan.com/eotm
Note: This video opens in a comfortable office, with a dark-haired executive who speaks to US.
Text on screen: Marisa Buchanan. Executive Director. J.P. Morgan Director of Sustainable Finance.
Ms. Buchanan: The growth in sustainable investing is really being driven by a number of factors. One important one is that I think investors increasingly realize that ESG issues, these are environmental, social, and governance issues, are really important for the companies in which they invest, and that focusing on ESG issues can be important in terms of managing risks but it can also be important in terms of identifying companies that may be positioning themselves for good, strong, long-term performance. Secondly, I think attitudes about investing are really changing. I think the notion that investing is something that is separate from the mission of an organization has really been shifted, and I think the next generation has had a real strong influence on that trend. What we've seen on many of these campuses is that students have been influential in getting schools just to really open a broader dialog around where their investments are being made, the impacts that these are having more broadly, and are really starting to create a new conversation around how endowments should be managed.
Text on screen: A wide spectrum of sustainable investing strategies.
Ms. Buchanan: While relevant ESG issues may differ for different companies and sectors there are a few that investors commonly look at. These can be things like air pollution, climate change and water. They can also be issues like community relations and labor issues as well as issues with respect to corporate governance. We see some investors using it as a way to identify companies that they may want to avoid because they think these companies may be exposed to higher risk due to these ESG issues. We also see a number of investors starting to use ESG integration as a way to identify the types of companies that they really want to invest in because they think they're best-in-class performers. If you're investing in a company that's in the power sector, let's say a power company, could face a number of environmental, social, and governance issues, things like impending regulations on air pollution, climate change, issues like water, as well as how that company as a whole is being managed from a governance perspective and really thinking about these risks and how they're going to respond proactively to them.
Text on screen: Making E.S.G. issues a part of the due diligence process.
Ms. Buchanan: There are many different ways that investors can think about integrating ESG issues into their investment process. We like to think about it as really good fundamental due diligence and analysis. So when an investor is doing their due diligence and looking at all of the financial factors and issues that inform one's investment decision, it's also important to look at some nonfinancial factors, some of these environmental, social, and governance factors.
Text on screen: Getting started.
Ms. Buchanan: For those institutions that are really interested in learning more about this the best place to really start is with education. So one, really getting up to speed on the spectrum of sustainable investing and what the different strategies look like, and then secondly I think really looking to create a dialogue with the right stakeholders and people within your organization and also outside of your organization to think about your organization's goals and your missions. There are a number of great resources out there. There are some third-party organizations, some nonprofit organizations that are producing research and insights that may be valuable. J.P.Morgan itself also has a wealth of knowledge and resources and we're here to really work with our clients and help them in any way that we can.
We evaluate ESG characteristics alongside traditional financial criteria. This allows us to identify opportunities with superior risk controls and long-term, sustainability-oriented drivers of performance.
Deciphering the acronym
Let’s start with unpacking what each of the factors means.
- Environmental: Evaluating the way a company uses its resources and sets policies to limit its environmental impact and protect the environment. Waste disposal and recycling efforts. Carbon emission and pollution. Water usage. Companies with comprehensive environmental policies, practices and performance generally receive higher ESG ratings.
- Social: Evaluating a company’s policies and practices toward employees, suppliers, customers and communities. Human rights. Employment and pay equality. Health safety and quality standards. Employee relations. Labor conditions. Community development. And more.
- Governance: Evaluating a company’s corporate policies and procedures. Board composition. Diversity. Executive compensation. Employee relations. Business ethics and reputational issues. Exposure to bribery or corruption. These are all essential tenets of sound corporate governance.
It can be difficult to quantify the exact financial benefits of ESG integration. But several studies have shown that companies with highly rated ESG practices carry less risk and can generate better performance than peer companies that have less focus on ESG factors.* We have the skills and expertise to help you integrate ESG considerations into your portfolio to achieve these benefits.
* Sources: Callan Investments, 2016 ESG Interest and Implementation Survey; University of Oxford and Arabesque Partners, From the Stockholder to the Stakeholder, March 2015; J.P. Morgan, ESG—Environmental, Social & Governance Investing: A Quantitative Perspective of How ESG Can Enhance Your Portfolio, December 2016.
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Exclusionary screening -
Environmental, social and governance integration In addition to helping you align your portfolio with your sustainable investing goals, ESG integration is also just good, smart investing. We can help you utilize this popular investment approach.
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Thematic investing If you’re looking to support a specific social or environmental issue within your portfolio, thematic investing opportunities may be a good fit.
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Impact investing Impact investing may be the most exciting of all the sustainable investing strategies. It's intended to generate measurable positive social or environmental impact alongside financial return. Learn more.
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