The Merlin approach to ESG
![George Fox Jupiter Assistant Fund Manager Independent Funds](https://www.jupiteram.com/uploads/2021/01/60e7b31ad73afe2c39b2c6c8b0d8789c/george_fox_350x350.jpg?v=1640780876)
George Fox, Investment Manager, Independent Funds, explains the team’s philosophy and process regarding environmental, social and governance (ESG).
By excluding companies with low but improving ESG scores, investors are missing out on one of the most fertile hunting grounds for performance that the market has to offer.
Why not therefore own a passive fund that systematically invests in companies with improving ESG? We firmly believe, as we always have done, that we can identify active managers through our fund selection process who are able potentially to add further value through their analysis, stock selection, portfolio construction and active stewardship (company engagement and voting). This latter point is illustrated by a separate study, below, which clearly demonstrates the value added by active managers, as their engagement activity with companies was associated with outperformance even when unsuccessful.2
Firstly, the Jupiter ESG Hub incorporates Sustainalytics and RepRisk data to assess the ESG rating of each of the companies held in the underlying funds on a range of metrics. This provides us with a clear insight into the stronger and weaker holdings in the portfolio and provides us with important intelligence with which to challenge our managers. The other tool, the Jupiter Merlin ESG Matrix, documents how each of the underlying fund managers assesses their companies on nine separate ESG topics and looks for them to evidence their engagements on each of these areas and detail the outcomes of these engagements.
These two systems combined provide a snapshot of current ESG positioning but also a forward-looking window into active stewardship conducted by our fund managers on our investors’ behalf to improve the underlying companies’ stewardship profiles. Before each of our six-monthly manager meetings we review the data from these sources and can then challenge the manager on the ESG ratings of the individual stocks held or discuss the outcomes from their work. We then evaluate each fund to assess to what extent each manager mitigates ESG risks and exploits ESG opportunities for our clients and the pace of their individual ESG evolution.
Jupiter’s Sustainability team is led by Sandra Carlisle who is responsible for further developing and implementing an integrated and cohesive sustainability strategy for Jupiter, across our dual corporate and investment footprint. This includes partnering with all business areas to integrate sustainability, driving external engagement with clients, collaborating with external bodies, supporting best practice outcomes at an industry level, as well as developing additional targets and reporting to support the company strategy. Sandra also chairs the Sustainability Committee containing members of Jupiter’s Executive Committee. The Sustainability Committee monitors progress linked to operational net zero. To support this work, we also recruited a new Corporate Sustainability Manager, Jayesh Shah, who joined in March 2022. Ashish Ray and his team of governance professionals also support Sandra, working with Investment Managers by linking relevant engagements across the equity and fixed interest teams, providing topical and salient insights, and leading collaborative initiatives and proxy voting.
Right hand bar chart:Source: Alliance Bernstein, ‘Responsible Investors Should Focus on ESG “Offenders”’, 20 Sept 2018. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2977219 As of December 31, 2016. Percentages are excess forward returns for the next 12 months following a two-notch ESG upgrade v equal-weighted S&P 500. US stocks. Period: 1 January 2007-31 December 2016.
2 Shareholder Engagement on Environmental, Social, and Governance Performance, Barko et al, July 2021. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2977219 The study’s source data was a database of a large European asset manager’s completed engagement cases over the period starting in the third quarter of 2005 and ending at the end of 2014. Companies engaged with were based worldwide.
4 Sustainalytics, 31.08.22
5 Data as at 31.12.22; equity, long-only funds
Jupiter Merlin Portfolios
Multi-manager portfolios constructed to deliver a range of specific outcomes.
The value of active minds – independent thinking
A key feature of Jupiter’s investment approach is that we eschew the adoption of a house view, instead preferring to allow our specialist fund managers to formulate their own opinions on their asset class. As a result, it should be noted that any views expressed – including on matters relating to environmental, social and governance considerations – are those of the author(s), and may differ from views held by other Jupiter investment professionals.
Fund specific risks
Important information
This document is for informational purposes only and is not investment advice. We recommend you discuss any investment decisions with a financial adviser, particularly if you are unsure whether an investment is suitable. Jupiter is unable to provide investment advice. Past performance is no guide to the future. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the authors at the time of writing are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. For definitions please see the glossary at jupiteram.com. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Company examples are for illustrative purposes only and not a recommendation to buy or sell. Jupiter Unit Trust Managers Limited (JUTM) and Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ are authorised and regulated by the Financial Conduct Authority. No part of this document may be reproduced in any manner without the prior permission of JUTM or JAM.