The S in ESG has become a growing focus for JP Morgan Asset Management’s corporate engagement with social factors increasingly crucial drivers of innovation, says Singapore and Southeast Asia CEO Sherene Ban.

The fund house said the big data revolution is a game-changer for social investing as the explosion of new information is enabling the firm to better identify stocks with the potential to benefit from positive change.

JPMAM engaged with companies on social issues 1,336 times last year compared to 994 and 801 engagements in environmental and governance, respectively.

‘Out of the 1,336 social-focused engagements, 724 engagements touched on the human capital management perspective, which we are increasingly focusing on to understand whether the company can sustainably grow its value creation capability through stable human resources, ability to attract and obtain quality talent required for innovation, etc,’ she said.

The pandemic’s toll on mental health has made many companies realise the importance of their employees’ well-being and issues related to rights. More companies are prioritising human capital management, recognising that attracting and retaining top talent is critical to business success and could improve share price performance over the long term.

JPMAM has set up a team of data scientists to scour masses of data, including social media and employment platforms, to identify social factors in stocks that could impact financial performance. For instance, a potential red flag about a company’s competitiveness could be its high staff turnover, possibly reflecting poor staff morale or an unpopular work culture.

The asset manager said engagement has been generally effective in driving sustainable outcomes. However, if engagement fails, JPMAM can vote against the company at its annual general meeting and even divest the stock as a last resort.

Asia sustainable funds

Over the past two years, JPMAM has launched four sustainable funds in the region, starting with a sustainable version of its signature fund in 2020.

This year, the $1.2bn Global Bond Opportunities (GBO) Sustainable fund has underperformed its non-ESG counterpart – the $5.6bn Global Bond Opportunities fund. This was mainly due to the divergence in sector performance between the energy sector, which is underweight, and the technology sector, which is overweight.

Global energy stocks and bonds have had a strong run, especially after the war in Ukraine erupted this year as oil prices spiked to multi-year highs, while many low-carbon technology stocks that rely on cheap funding are struggling in a higher interest rate environment.

‘If you look year-to-date [to 14 April], the traditional version GBO is down 3.65%, which is expected in line with what we have been highlighting with the interest rate environment. The sustainable version of it is down 4.05% net of fees,’ said Ban.

‘The relative outperformance of oil stocks and oil bonds has led to the sustainable strategies underperforming, but unless you believe that this trend will happen structurally, I think we [feel] this is a shorter-term issue.’

Global environmental, social and governance (ESG) assets hit a record $2.74tn at the end of 2021, with the sustainable fund universe expanding by 53% last year, data from Morningstar showed. 

The influx of hot money into ESG stocks over the last two years had pushed up valuations.

Sustainable investments have had a bumpy start this year, as soaring inflation, the US lifting rates and heightened geopolitical tensions with the war in Ukraine sparking a selloff in risk assets.

Ban says the correction has thrown up a number of attractive buying opportunities for ESG stocks, reiterating the long-term trends remain intact.

The asset manager launched its first thematic fund this year in Singapore and Malaysia, the JPMorgan Funds – Climate Change Solutions fund, and it is looking into another thematic fund focusing on the social aspect.

‘Next in the pipeline would be other key thematics in sustainability. When you look at ESG, you can see climate change solutions being the E angle, and then you can also see that there could be more to come, especially on the social side,’ Ban added.