As stated previously, our approach is fund manager led and each fund manager is responsible for defining, evidencing and articulating their ESG approach. This takes different forms across our various examples with regards to sector allocations, buy/sell decisions and engagement voting. We provide two examples of how ESG analysis is integrated by two core investment strategies within the Jupiter franchise:
European Growth Equities Strategy
In terms of portfolio construction, the fund will tend over time to be significantly underweight certain sectors including oil and gas exploration and production, mining, aerospace and banks. This positioning reflects the team’s view on the long-term outlook for these sectors, which is influenced by the material environmental, social or governance risks inherent to these business models.
UK Value Equities Strategy
To begin with, the process screens for low valuation, cash generation and strong balance sheets. Having passed these financial measures, the fund managers then assess the company franchise. It is at this point that they consider all aspects of the company franchise, of which the ESG considerations are a key part. Crucially, this strategy looks to make an informed decision about the sustainability of the business model and its durability. This analysis is conducted by internal research using various data sources, liaising with the GS Team and making contact with the company itself. The ESG risks are then debated before any investment decision is taken.
The team have focused their ESG integration via a stakeholder lens. This entails analysing the interests of the three major stakeholder groups in any company: employees; customers (including society more broadly); and shareholders. They believe that for a company to succeed over the long term, the interests of all three stakeholder groups need to be in alignment. If one of these stakeholders is dominant at the expense of the others, performance may be strong in the short term but tends to be unsustainable.
It is rare to come across a company where the interests of all three stakeholders are aligned and the valuation is cheap. As value investors, the team are initially investing in companies that are out of favour, so typically at least one of the three stakeholder parts is out of alignment. This is one reason why the strategy does not operate an exclusion policy based on which sector they operate in or which have low ESG ratings, but instead carefully consider ESG risks before deciding to invest. As a result, the team have a longstanding strategic focus on engaging with their companies and having constructive discussions to try and influence board and management to improve stakeholder alignment and mitigate ESG risks to the durability of their businesses. This engagement feeds through into a robust approach to voting against management items at shareholder meetings where necessary to protect client interests and effect changes in company behaviour, and with regard to collaborative engagement.