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J.P. Morgan Asset Management

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You are in Direct - Fixed Income » ESG incorporation in actively managed fixed income » (C) Implementation: Integration

C) 実施:ESG問題の統合

FI 10. Integration overview

10.1. ESGを従来の財務分析に統合するアプローチを説明してください。

We have consistently considered ESG factors as part of our investment process. Broadly speaking, we do not apply exclusions, but over the past 3 years we have formalised our approach to integration. We have developed specific ESG initiatives and enhanced our systems to support ESG integration throughout the investment process. Our approach to ESG integration can be considered across three pillars:

Proprietary Research:

  • We have over 68 career research analysts dedicated to thoroughly researching every aspect of an investment, including ESG factors where material and relevant.
  • Analysts have access to third-party data within our research database, which is displayed for each issuer in various ways (analysts are able to track individual “ESG pillar” scores, as well as observe changes over time).
  • This quantitative data is a supplement to, and not a dictator of, our analysts’ view of an issuer’s ESG profile. Our analysts will form their own view based on their research and judgement, and this will be articulated in a written research report, which contains a specific section for ESG comments.
  • Recognising that ESG differs by sector, we have developed a materiality matrix to raise and maintain awareness of the potential ESG factors to consider for each team. Listed by asset class and subsector, it specifies the materiality of E, S and G using a traffic light system (e.g., red for highly material), and provides comments for each sector covering key issues to be aware of. This is updated annually and acts as a baseline of understanding across the platform, and also helps to direct analysts’ research and portfolio managers’ oversight toward the most material areas. It is available to all investors as a reference in our research database.

Engagement:

  • As bondholders, although we do not carry voting rights, we engage on a wide range of ESG issues with a variety of market participants. Our large scale and position within the asset management industry allows us significant representation across asset classes: we often conduct engagement at a firm-wide level, or with our equity counterparts where our specific company interests align.
  • Our investors carry out ESG engagement in various ways:
  • Individual issuers. We carry out over 2,000 meetings with issuers per year, across both company management and government officials. Our investors will raise issues they have identified as material and relevant, including ESG concerns, in an effort to positively influence issuers to adopt best practices.
  • Industry boards and forums. We have board representation on industry bodies, such as the Edison Electric Institute, and are thereby able to encourage closer co-operation among issuers on key ESG initiatives.
  • Ratings agencies. We have worked with rating agencies to promote better corporate behaviour in certain sectors, and to encourage co-operation between legislators, issuers and other industry bodies.
  • Data providers. We work closely with data providers such as MSCI and ISS Ethix in order to improve the overall coverage of the fixed income universe, which currently lags other asset classes, and to ensure data is accurate and timely.
  • The results of our ESG engagement will be reflected in the research report produced by analysts, and will feed back into the overall view of an issuer, thereby implicitly impacting investment decisions.

Portfolio Construction:

  • All quantitative metrics and qualitative assessments are housed in our common technology platform, to ensure full transparency and access across all investors.
  • Portfolio managers have a daily view of their exposure to the risk associated with ESG factors. Each holding’s score (using third-party data at this stage) is visible in PRISM, our portfolio management system, and can be viewed in a customisable window depending on the nature of the portfolio.
  • With our analysts conducting in-depth bottom-up research of each bond, continual monitoring is then required in portfolios to understand the ongoing ESG profile of a portfolio. Our independent risk management team has developed periodic risk reports, sent directly to portfolio managers, to enable them to understand the ESG risks to which they are exposed, and to identify potential outliers in terms of ESG scores.

We have also started collaborating with our centralized Investment Stewardship team as well as Global Equities team in sharing corporate engagement meetings and exchanging views on ESG.

10.2. 投資する債券の各種類に対してESG統合アプローチをどのように調整するのか説明してください。

SSA

GFICC manages holdings in developed and emerging market sovereign bonds, agencies and supranational agencies, and municipal debt. The teams perform fundamental research which is supplemented with access to MSCI ESG data and research reports where available. Based on the team's holistic review of the issuer and market conditions, fundamental, quantitative and technical factors in the marketplace are considered to arrive at an investment decision. These teams are all fully ESG integrated.

In developed market sovereigns, we incorporate ESG factors as part of our regular analysis of sovereign creditworthiness. We believe that sovereign credit risk, including risk from ESG factors, is most pronounced for sovereigns issuing without the support of a domestic central bank. We consider governance issues to be the most material ESG drivers for developed market government bonds at present, followed by social and environmental issues. Our investment decisions are based on our assessment of sovereign creditworthiness, which incorporates both quantitative analysis and qualitative factors such as the impact of political developments on the fiscal and economic outlook. Our quantitative analysis consists of a scorecard process, in combination with a wide range of other factors including valuation and the balance of bond market supply and demand. The scorecard process involves assessing and ranking each country’s standing on a variety of factors, including those specifically related to environmental, social and governance topics such as unemployment rate, government deficit, government debt, control of corruption, World Governance Indicator, demographics, education levels, energy intensity of GDP, renewable energy, energy imports, competitiveness and ease of doing business.  We draw from a wide range of data tools and indicators to capture these ESG dynamics,  including the World Bank's World Governance Indicators and survey measures of the quality of governance such as that conducted by Transparency International.

Our analysis of EM sovereign debt consists of several proprietary tools to assess a country’s ability and willingness to repay its debt, including our Country Fundamental Index (CFI) and Country ESG Index (CESGI). The CFI model provides an independent, objective measure of creditworthiness (by incorporating a number of fundamental indicators spanning solvency, liquidity and structural factors) that is used to calculate fair value spreads. The CESGI model provides a holistic quantitative assessment of ESG factors that is used to calculate an ESG-adjusted fair value spread. The CESGI is constructed by considering over 30 ESG indicators and focusing on those which have more significance in explaining the difference between country spreads and CFI-implied fair value. These factors include: carbon emissions, vulnerability to environmental risks, poverty, gender equality, ease of doing business, corruption and short-term political risks. The output of these quantitative models is supplemented with qualitative comments, informed by analyst research and regular country visits to meet with central bankers, government officials and local analysts.

We integrate ESG analysis into our municipal debt investment process, based on materiality, relevance, and the availability of information, to identify potential idiosyncratic ESG risks or opportunities. Securities are selected based on relative value and internal credit risk assessment, which incorporates our ESG factor analysis. Analysts communicate the credit assessment to portfolio managers, who then consider noted ESG factors into relative value decisions. More specifically, analysts evaluate relevant and material ESG factors in credit research process based on available information, keeping in mind factors that are unique to municipal obligors. ESG factors for municipal obligors are articulated in a materiality matrix for each sector and have both commonality and differences when compared to corporate obligors. In certain circumstances, the analyst also evaluates the use of proceeds where use of proceeds are deemed by the advisor to provide positive social or environmental benefits. This assessment is made for portfolios that have mandated a preference for positive ESG impact. Similarly, analysts identify securities where the ESG risk is determined to create material, negative credit risk, so that the firm can measure such risk in portfolios. Please see section 12 for more detail on the types of ESG risk factors we consider throughout our investment process.

社債(金融)

Our Corporate Research teams, including investment grade, high yield and emerging markets, are fully ESG integrated.

For Corporate (financial) issuers, ESG risks are systematically considered as part the bottom-up fundamental analysis of corporate issuers. As part of the in-depth fundamental research, credit analysts analyze all aspects of a company, including how ESG risks and opportunities are currently affecting a company's cash flows as well as how cash flows may be impacted in the future. If the analyst believes that the ESG factors are material and may impact issuer risks, the analysis will be reflected in analyst credit opinions.

Analysts focus on material investment risks including ESG factors. Credit analyst proprietary fundamental research is supplemented with access to MSCI ESG data, research reports and company engagements. EM credit analysts supplement research by consulting with companies they cover to answer a list of ESG related questions. This process particularly aids in analysis where 3rd party ESG providers do not furnish rankings. This is done in collaboration with equity analyst colleagues where coverage overlaps and information barriers allow. Based on their holistic review of the issuer fundamentals and market conditions, IG credit and EM credit analysts perform a proprietary ranking process. Portfolio managers have access to both the proprietary analyst issuer ranks as well as third party ranks, including MSCI. Analysts also have the ability to explain ESG's role in a particular issuer view in the "ESG Comments" section of research communication. Portfolio managers take this information into account to assess the fundamental, quantitative and technical factors in the marketplace to arrive at an investment decision. In addition, IG credit and EM portfolio managers regularly review and discuss portfolio holdings with low and high ESG scores at regular meetings and this fosters ESG collaboration with credit analysts. Please see section 12 for more detail on the types of ESG risk factors we consider throughout our investment process.

 

社債(非金融)

Our Corporate Research and Investment teams, including investment grade, high yield and emerging markets, are fully ESG integrated.

For Corporate (non-financial) issuers, ESG risks are systematically considered as part the bottom-up fundamental analysis of corporate issuers. As part of the in-depth fundamental research, credit analysts analyze all aspects of a company, including how ESG risks and opportunities are currently affecting a company's cash flows as well as how cash flows may be impacted in the future. If the analyst believes that the ESG factors are material and may impact issuer risks, the analysis will be reflected in analyst credit opinions.

Analysts focus on material investment risks including ESG factors. Credit analyst proprietary fundamental research is supplemented with access to MSCI ESG data, research reports and company engagements. EM credit analysts supplement research by consulting with companies they cover to answer a list of ESG related questions. This process particularly aids in analysis where 3rd party ESG providers do not furnish rankings. This is done in collaboration with equity analyst colleagues where coverage overlaps and information barriers allow. Based on their holistic review of the issuer fundamentals and market conditions, IG credit and EM credit analysts perform a proprietary ranking process. Portfolio managers have access to both the proprietary analyst issuer ranks as well as third party ranks, including MSCI. Analysts also have the ability to explain ESG's role in a particular issuer view in the "ESG Comments" section of research communication. Portfolio managers take this information into account to assess the fundamental, quantitative and technical factors in the marketplace to arrive at an investment decision. In addition, IG credit and EM portfolio managers regularly review and discuss portfolio holdings with low and high ESG scores at regular meetings and this fosters ESG collaboration with credit analysts. Please see section 12 for more detail on the types of ESG risk factors we consider throughout our investment process.

証券化商品

Our Securitized Research and Investment Teams are fully ESG integrated.  Conducting ESG analysis within the securitised sector is important as these factors have the ability to impact risk-adjusted returns. However, there are challenges to performing this research which are unique to the securitised space. There is a significant lack of coverage from third-party ESG data providers, so the ratings systems that are prevalent in the equities, corporate and sovereign bond markets are not available. The inherent nature of a securitisation (packaging together multiple loans), the potential complexity of the structures and the varying disclosure requirements also contribute to why the market has been slower to formally incorporate ESG considerations.

From a top-down perspective, our securitised team, together with our sovereign team, assesses the macroeconomic environment so as to understand the impact of interest rate moves and investor sentiment on the overall securitised market. They also work together to comprehend country specific dynamics, ensuring that we understand the environment of each issuer in which we invest. Additionally, the securitised investors collaborate with the corporate bond team to identify industry trends that may influence the underlying collateral. From a bottom-up standpoint, we conduct research on both the security’s underlying collateral and the deal structure. The analysis of the collateral focuses on the quality of the underlying receivables and the likelihood that future cash flow payments will ultimately be received. The primary focus of assessing the deal structure is to review the structural factors which can alter the payments flowing from the collateral to different tranches in the deal to better understand each security’s expected total return under different prepayment or expected loss scenarios.

Environmental, social and governance factors are key components of both the collateral and structural analysis we perform, as they can have a notable impact on future cash flows. We have developed a proprietary materiality matrix to serve as the foundation of integrating these ESG considerations into our investment process. By highlighting the sources of the most material ESG risks by sub-sector, this matrix serves to guide and direct investors’ research efforts. Please see section 12 for more detail on the types of ESG risk factors we consider throughout our investment process.

10.3. 補足情報 [任意]


FI 11. Integration - ESG information in investment processes

11.1. ESG情報が、通常、投資プロセスの一部としてどのように使用されるのか記載してください。

当てはまるものをすべて選択してください
SSA
社債(金融)
社債(非金融)
証券化商品​
ESG分析をファンダメンタル分析に組み込んでいる
ESG分析が発行体の内部信用評価を調整するために利用される
ESG分析が予想財務業績および将来キャッシュフロー予測を調整するために利用される
ESG分析が発行体の同業グループと比較したランキングに影響する
発行体のESG債スプレッドおよび同セクター企業に対するその相対価値が、すべてのリスクが織り込まれているか否かを把握するために分析される
各種デュレーション/満期の発行体債券へのESG分析の影響が分析される。
感度分析およびシナリオ分析が、ベースケースとESG組み込み証券評価の差を比較する評価モデルに適用される
ESG分析が、ポートフォリオのウェイティング決定に組み込まれている
会社、セクター、国、通貨が、ESGエクスポージャーの変化およびリスク制限の違反についてモニタリングされる
ESGリスクが大きい証券についてポートフォリオのESGプロファイルが検討され、ベンチマークのESGプロファイルと比較して評価される
その他(具体的に記載してください)

11.2. 補足情報 [任意]


FI 12. Integration - E,S and G issues reviewed

12.1. 組織の統合プロセスでESG問題をどのように検討するか示してください。

E(環境)
S(社会)
G(ガバナンス)
SSA

E(環境)

S(社会)

G(ガバナンス)

社債(金融)

E(環境)

S(社会)

G(ガバナンス)

社債(非金融)

E(環境)

S(社会)

G(ガバナンス)

証券化商品

E(環境)

S(社会)

G(ガバナンス)

12.2. 組織の統合プロセスでE/S/G要因を検討する方法を詳しく説明してください。

SSA

Quantitative sovereign fundamental scores are an important metric considered in our integration process. Countries are scored across a range of drivers of sovereign creditworthiness. These drivers include unemployment rate, government deficit and debt, control of corruption and World Governance Indicator, WEF Competitiveness and Ease of Doing Business Index, renewable energy, and education. ESG factors are also assessed continuously on a qualitative basis. In developed market sovereigns, the most important quantitative governance metrics we consider are those related to sound fiscal management, and in particular the level and prospects for government debt and deficits, and the components of deficits, including separating temporary and cyclical factors from structural factors. We also consider the various metrics brought together in the World Bank's World Governance Indicators, as well as survey measures of the quality of governance, such as that conducted by Transparency International. From a qualitative perspective, the most important factors we monitor include elections and political developments, especially in as much as they signal a change in fiscal policy or the growth outlook. Social factors play a role in our economic analysis of sovereigns to the extent they impact our view on economic growth or inflation.

For Emerging Market Sovereigns we have two proprietary models which we use as part of our ESG analysis.

  • Proprietary Country Fundamental Index (CFI) model: Assessment of country’s credit worthiness is based on governance & social factors e.g. growth trends, inflation, liquidity & solvency ratios. Output is a CFI score for each country in the universe. Fair value spread analysis performed for each country.
  • Proprietary Country ESG Index (CESGI) model: The CESGI model provides a holistic quantitative assessment of ESG factors that is used to calculate an ESG-adjusted fair value spread. The CESGI is constructed by considering over 30 ESG indicators and focusing on indicators that have more significance in explaining the difference between country spreads and CFI-implied fair value. These factors include carbon emissions, vulnerability to environmental risks, poverty, gender equality, ease of doing business, corruption, and short-term political risk.

The output of these quantitative models is supplemented with qualitative comments, informed by analyst research and regular country visits to meet with central bankers, government officials and local analysts.

Our analysts also have regular country visits & meetings with government officials (~120/year)

As part of credit risk assessment process, municipal credit analysts consider ESG risk factors.  The team has identified the primary E, S and G factors that are material and relevant to each sector.  Research analysts take both the E, S and G, as well as fundamental factors into account in their analysis.  For electric utilities, for example from the Environmental perspective, we look at pollution abatement and government standards and whether infrastructure meets federal and/or state pollution control requirements.  From a social perspective the costs of pollutants are potentially high and immediate; we also evaluate the sustainability and reliability of supply required.  From a governance perspective we look for transparency, financial controls, independence, fiscal balance and thoughtful capital planning.

社債(金融)

As part of their fundamental research analysts analyze all aspects of a company, including how ESG risks and opportunities affect a company's current and future cash flows. Their research is supplemented with access to MSCI ESG data. They also define a materiality matrix to assess the relative importance of E, S and G factors across sectors. For financial issuers, particular focus is placed on Governance and Social concerns. For example, our analysts evaluate overall board independence and important board committee independence from company management. We analyze management compensation practices and alignment with shareholder interests. We also monitor internal risk management practices and internal controls to avoid large scandals or improper activities.

Portfolio managers have access to review analysts ESG comments in Research Notes and MSCI ESG scores in our proprietary portfolio management systems. In addition the PMs receive monthly risk reports to help them to identify both negative and positive ESG outliers in portfolio on an industry adjusted basis.

社債(非金融)

As part of their fundamental research analysts analyze all aspects of a company, including how ESG risks and opportunities affect a company's current and future cash flows. Their research is supplemented with access to MSCI ESG data. They also define a materiality matrix to assess the relative importance of E, S and G factors across sectors as we recognize that different corporate sectors may have different ESG risks. For example, Oil & Gas, Metals & Mining and Utility analysts pay particular attention to the environmental risks associated with carbon and climate change. Meanwhile, our retail and consumer discretionary analysts focus on the social impacts of the labor used along the supply chain. Our media and telecom analysts analyze the governance risks associated with company ownership structures and corporate behavior.

Portfolio managers have access to review analysts ESG comments in Research Notes and MSCI ESG scores in our proprietary portfolio management systems. In addition the PMs receive monthly risk reports to help them to identify both negative and positive ESG outliers in portfolio on an industry adjusted basis.

証券化商品

Environmental, social and governance factors are key components of both the collateral and structural analysis we perform, as they can have a notable impact on future cash flows. We have developed a proprietary materiality matrix to serve as the foundation of integrating these ESG considerations into our investment process. By highlighting the sources of the most material ESG risks by sub-sector, this matrix serves to guide and direct investors' research efforts. Some of the most material ESG risks in the securitised space that we assess as part of our ongoing analysis include (but are not limited to) the following:

Environmental

  • Geographic concentration and exposure to extreme weather events: Collateral that is overly exposed to risk prone areas can have a material negative effect on cash flows by causing damage and leading to higher vacancy rates, increased maintenance costs and heightened reputational risk.
  • Carbon footprint and energy, water & waste management: Strong energy management practices can extend the longevity of a building, decrease vacancy rates, attract higher quality tenants and lower maintenance costs.

Social

  • Predatory lending: In addition to the social implications of providing financing to weak borrowers at high interest rates, adverse underwriting practices may lead to heightened regulatory risk and decrease borrowers’ credit scores.
  • Consumer protection laws: Local regulations can impact prepayment speeds and uncertainty around new regulations may be reflected via higher risk premiums.

Governance: The below factors can have a direct impact on the transparency and cash flow profile of a deal.

  • Business ethics of issuer, borrower & trustee
  • Potential for underwriting fraud
  • Conservatorship of the government-sponsored enterprises
  • Regulatory risks
  • Management skill & alignment of interests
  • Transaction & collateral structure
  • Quality of reporting

Portfolio managers have access to review analysts ESG comments in Research Notes. The securitized process considers these risks to help gauge whether current market levels appropriately compensate debt holders for the risks.

12.3. 補足情報 [任意]


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