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Jupiter Asset Management

PRI reporting framework 2020

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

(A) Implementation: Screening

FI 04. Types of screening applied

04.1. Indicate the type of screening you conduct.

Select all that apply
SSA
Corporate (financial)
Corporate (non-financial)
Securitised
Negative/exclusionary screening
Positive/best-in-class screening
Norms-based screening

04.2. Describe your approach to screening for internally managed active fixed income

Cluster munitions screening: On an annual basis Jupiter’s Compliance department, acting on behalf of the Fund's management company, Jupiter Unit Trust Managers Limited, sources the "Red Flag List of Cluster Munitions Producers" published by PAX (formerly IKV PAX Christi) in their report "Worldwide Investments in Cluster Munitions: a Shared Responsibility". The report is sourced from the PAX website. Clients are notified of the current exclusion list on request. This exclusion is then applied via automated IT systems to prevent managers from investing in excluded issuers or bonds.

Separately, our approach to labelled green bonds within our thematic environmental fixed income strategy is worth comment. Green bonds rarely finance green projects, instead they finance corporations who in turn promise to invest in green projects.  From an ‘impact’ perspective this subtle distinction is important and is why we have continued to tighten the criteria we apply to green bonds for investment as the market matures. Alongside our financial analysis we seek green bonds from organisations with robust environmental sustainability strategies which are directly linked into a green bond framework, providing a clear pathway to achieving those objectives through additional projects in future.

04.3. Additional information. [Optional]


FI 05. Examples of ESG factors in screening process

05.1. Provide examples of how ESG factors are included in your screening criteria.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

Marfrig issued a Sustainable Transition Bond in September 2019. The framework outlined strong steps the company was taking in addressing sustainable cattle sourcing and management. The projects that were “tagged” to the deal were the acquisition of cattle from suppliers that meet their environmental criteria. However, the bond failed to meet our criteria because we felt the policies outlined in the Transition Bond Framework were social standards that should be met across the firm and not specified to a transition bond. In addition, the bond focused on operating expenditure rather than creating long term impactful assets and the broader environmental impact of the company and its governance standards did not meet our “do no harm” criteria for our Sustainability Fund.  We have provided this feedback to the company and hope to see enhancements to their criteria in future issuance.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

We met representatives from FMO’s treasury team to discuss their Green and Sustainability Bond Framework. We were encouraged by the depth of knowledge of the representatives on climate and sustainability matters.  We supported and encouraged them to continue their good work on thinking through how to formulate an approach to considering the bank's alignment to 2 degrees but also to push for a 1.5 degree pathway. Their framework was particularly interesting to us as it not only met our green bond criteria, but we felt the social impact was also very strong because they help manage the local currency risk to end recipients who are often the people least able to manage it - a limitation of many USD denominated social bonds. We participated in the bond deal, however we did feel the organisation could improve the additionality of the bond and have encouraged them to consider this for future issuance.

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

We met with senior management of Hanwha Energy USA, its Korean parent Hanwha Energy and lenders from its guarantor bank (KDB) to discuss the issuance of a green bond tagged to the activity of Hanwha Energy USA. We did not participate in the deal because it did not meet our criteria due to the activities of the parent entity and a failure to demonstrate a ringfencing of proceeds at the US operating company. The US business and tagged activities are clearly green and consistent with a cleaner world, however the parent entity has substantial activities in coal generation and could not demonstrate a sustainability strategy or the ability to provide any data or reporting on environmental impact.  

Type of fixed income

ESG factors

Screening

Description of how ESG factors are used as the screening criteria

We met with representatives from the Government of Hong Kong (Deputy Chief Executive of HKMA and Assistant Director of Enviromental Protection Department) to discuss their green bond framework and approach to environmental sustainability. Our key concerns were air pollution levels in the city and harbour area as well as strategy to commitments under the Paris Accord. Even though the bond could have performed better under some of our criteria (stronger shorter-term targets to meet longer term ambitions), there were some strong positives (use of capital expenditure was high versus other sovereign bonds).  We did not participate in the bond deal as it was revealed after the meeting that there would be a tax incentive for domestic investors only.  

05.2. Additional information.


FI 06. Screening - ensuring criteria are met

06.1. Indicate which systems your organisation has to ensure that fund screening criteria are not breached in fixed income investments.

Type of screening
Checks
Negative/exclusionary screening

06.2. Additional information. [Optional]


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