Page 36 - DIY Investor Magazine - Issue 26

EMERGING MARKETS 2020: PART 2 – HOW JPM EMERGING MARKETS PUTS THE ’S’ & ‘G’ INTO ESG
Explore how the JPMorgan Emerging Markets Investment Trust tackles the challenge of ESG in emerging markets.
JPMorgan’s Emerging Markets Investment Trust always embedded ESG in its approach. Its fundamental focus on the long-term growth potential of businesses has sustainability at its core.
ESG and sustainability have been gaining more and more attention in recent years with specific ESG funds increasingly in vogue. However, the concept of sustainability in business is not new and has long been understood by successful long-term investors.
Considering all the factors which could affect a company’s profitability and value in the future leads naturally to a
broad definition of sustainability. The JPMorgan Emerging Markets Investment Trust team call this ‘duration’, a concept incorporating ‘ESG’ and more, which forms the foundation of their investment philosophy.
WHY IS ESG IMPORTANT?
There are essentially three simple reasons why, as investors, we should think about ESG:
Firstly, we all have a responsibility to consider the broader consequences of our investment choices
Secondly, ESG is important to many individual investors from an ethical standpoint
Thirdly and perhaps most importantly, it is entirely consistent with a long-term approach to investing.
On that last point, Investment Specialist Emily Whiting is clear. ‘Put quite simply, it’s because to invest long term you must have companies that do business in the right way.
‘THE IMPACT OF COVID-19 HAS PERHAPS BEEN MOST SIGNIFICANT ON SOCIAL RESPONSIBILITY, PARTICULARLY WITH THOSE FIRMS WHICH ALREADY HAVE A SUSTAINABLE APPROACH EMBEDDED IN THEIR CORPORATE CULTURE’
If they don’t, it’s not going to change their price valuation quarter-on-quarter, but year-on-year and decade-on-decade.’
ESG BUILT IN
The Trust’s approach to assessing ESG performance is built into the framework by which all companies are assessed prior to making any investment.
‘This is something that’s inherent in all our conversations when we appraise stocks,’ says Whiting. ESG is at the heart of every decision we make.’
The team takes a long-term view because they believe such an approach delivers better results, reduces costs, and allows the power of compounding to translate into investment outcomes. ESG is a key element which affects the long-term prospects of companies and as such it is very important to the team.
‘Rather than seeing ESG as something that restricts our ability to generate returns, I think of it as a necessary part of what we do,’ says Lead Portfolio Manager Austin Forey. ‘Rather than constrain our portfolios, it refines them.’
THE CHALLENGE OF ESG IN EMERGING MARKETS
Until recently, several factors made ESG-focused investing in emerging markets particularly challenging.
Firstly, a lower degree of societal pressure on companies to act responsibly.
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