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Jupiter Asset Management

PRI reporting framework 2020

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Outputs and outcomes

LEI 12. How ESG incorporation has influenced portfolio composition

12.1. Indicate how your ESG incorporation strategies have influenced the composition of your portfolio(s) or investment universe.

Describe any reduction in your starting investment universe or other effects.

The universe of companies involved in production of controversial weapons is relatively limited and therefore their exclusion does not have a material impact on our ability to allocate assets. 

Specify the percentage reduction (+/- 5%)

0 %

Describe any alteration to your investment universe or other effects.

The Investment Universe is driven by positive inclusion criteria focussing on the revenue contribution from seven sustainable solution/impact themes: Circular Economy, Clean Energy, Water, Mobility, Energy Efficiency, Sustainable Agriculture, Nutrition & Health and Environmental Services.

The inclusion criteria seeks to identify those companies consistently generating the majority (50%+) of revenue from these areas, however also seeks to identify investment opportunities presented by companies making clear strategic intent in this direction with specific timeframes.  There are approximately 1,200 companies globally that meet the criteria described, significantly focussing down the wider global listed equity universe.

Select which of these effects followed your ESG integration.

12.2. Additional information.[Optional]

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.

 


LEI 13. Examples of ESG issues that affected your investment view / performance

13.1. Provide examples of ESG factors that affected your investment view and/or performance during the reporting year.

ESG factor and explanation

The thematic environmental equity strategy applied an upward revision to its Clean Energy thematic allocation focussing on offshore wind. This revision reflected a view, based on stakeholder engagement and field-trip analysis, that the potential for accelerated global growth of offshore wind was under-appreciated in the equity market due to the significant reduction in associated cost of energy, improved access to ‘green’ infrastructure finance and powerful convergence of political and economic incentives.

ESG incorporation strategy applied Thematic

Impact on investment decision or performance

Increased allocation to offshore wind within thematic environmental equity strategy.

 

 

 

ESG factor and explanation

The UK Value Team's ESG evaluation process resulted in the decision not to invest in a number of companies which otherwise performed well on their valuation screens in 2019. For example, the Team chose not to invest in an online clothes retailer which provides consumer credit to customers, charging relatively high rates of interest. One factor which influenced this decision related to the risk of increased regulatory scrutiny on consumer lending practices in the UK, with a focus on borrowers' ability to repay. In the Team’s  view, this 'S' factor in relation to customers presented a risk to the long-term sustainability of the company's financial performance.

ESG incorporation strategy applied Integration

Impact on investment decision or performance

The UK Value Team made the decision not to invest in the company in question. 

ESG factor and explanation

The fund manager of our Asian Equity Income Strategy held an initial meeting with a Hong Kong listed conglomerate which was not held in the portfolio but which our analysis indicated was potentially an attractive investment opportunity. The company is family-controlled and one element of the discussion focused on the group's approach to corporate governance. Pre-investment research by the GS Team indicated that the Board composition lagged best practice in several areas relating to independence but otherwise the group appeared to be a well-managed business. We articulated our view that improved governance standards could lead to an increase in the company's market valuation.

ESG incorporation strategy applied Integration

Impact on investment decision or performance

The Asian Equity Income Strategy did not invest in the group following the meeting but placed the company on a watch list where it will be monitored for indications of improved corporate governance that may influence whether there is a decision to ultimately invest.

ESG factor and explanation

The UK Value team decided to exit their position in an oil and gas major, a long-term holding and one of two oil and gas holdings in the portfolio. They reached this decision based on their view that the oil and gas sector as a whole faces a profound challenge in adapting to the energy transition and that the other oil major is better placed to manage the transition effectively, due to the greater operational flexibility it has developed in the years since a previous crisis. This decision was taken by the fund managers and was the result of a deep process of analysis in collaboration with the GS Team. The UK Value team's climate change research was informed by engagement with the management and board of each company, including an assessment of each company's decarbonisation strategy, collaborative engagement with other IIGCC members, sell-side research, data from Transition Pathway Initiative and crucially their own deep sector knowledge and understanding of each company from an investor perspective.

ESG incorporation strategy applied Integration

Impact on investment decision or performance

The UK Value Team sold the relevant oil and gas holding. This decision had the second order effect of reducing the portfolio's exposure to the sector and its overall carbon intensity.

13.2. Additional information.[Optional]


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