Exclusionary screening
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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.
Marisa 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.
While relevant ESG issues may differ for different companies and sectors 00:59:38, 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.
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Opinions expressed are those of the speakers and may differ from those of other JPMorgan employees and affiliates. Neither JPMorgan nor any of its affiliates can represent that the statements or opinions expressed today will materialize.
This is not an investment research video. The views and strategies described may not be suitable for all investors. This video is not intended as personal investment advice or as a solicitation or recommendation. If you are considering any investment or strategy, you should speak with your JPMorgan representative before investing. Past performance is no guarantee of future results.
Please read important information at the end of the presentation.
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This video begins with Marisa Buchanan, a dark-haired brown-eyed woman in an open office space with plush chairs. She wears a bright red shirt.
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Marisa Buchanan. Executive Director, JPMorgan 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.
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A wide spectrum of sustainable investing strategies.
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A close-up of Ms. Buchanan.
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.
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Making ESG issues a part of the due diligence process.
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A close-up of Ms. Buchanan.
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.
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Getting started.
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A close-up of Ms. Buchanan.
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. JPMorgan 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.
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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 ESG
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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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.
We take a global approach to sustainable investing and the solutions offered through our Sustainable Investing Platform meet our internally defined criteria for a sustainable investment. Though we consider our internal criteria to be very thorough and selective, the evolving nature of sustainable finance regulations and the development of jurisdiction-specific legislation setting out the regulatory criteria for a “sustainable investment” mean that there is likely to be, in future, a degree of divergence as to the regulatory meaning of a “sustainable investment”. In particular, in the European Union, the Sustainable Finance Disclosure Regulation (EU) (2019/2088) (“SFDR”) prescribes certain criteria for a product to be classified as “sustainable” or having a “sustainable investment objective”. For further information on our products which promote environmental and/or social characteristics or have a sustainable investment objective within the meaning of Article 8 and/or 9 of the SFDR, please see our SFDR Art 8 and 9 Product Disclosures, available at: link.
