FSA showcases a potential investment that a firm has declined on the basis of ESG criteria. The purpose is to highlight firms that are actually putting into practice an aspirational ESG policy.
ESG assessment led by: Richard Webb, JP Morgan Asset Management’s international equities portfolio manager, and included the research analyst team.
Company assessed: A European utility company involved in renewable energy.
Fund: The company was reviewed as a potential investment for the firm’s Europe Sustainable Equity Fund.
Background: Growth potential of the renewable energy sector is high because it is driven by both bottom up forces – investors with an ESG mindset – as well as top-down via governments pushing policies and awarding subsidies to companies that help meet international climate and development goals. Global investment in the sector was $289bn in 2018. However, the rapid push to develop renewable energy has resulted in various risks in addition to rewards.
The company that was evaluated “has a significant presence in wind turbines, with plans to further expand their renewable capacity, which will be key to achieving the utility’s goal of becoming carbon neutral by 2050”, according to Webb.
Additionally, it works with hydropower and owns a stake in a dam in the Amazon rain forest.
According to Webb, “the United Nations voiced concerns over the level of [management] consultation with indigenous people in the region.
“In November 2018, the Inter-American Commission on Human Rights called on Brazilian authorities to address alleged violations of the rights of indigenous communities, citing the people affected by this dam.”
Company management launched programmes to mitigate and compensate the communities that have been affected by the dam, but the team ultimately did not find the efforts to be satisfactory.
“Whilst acknowledging the company had taken some positive steps, JPMAM ultimately determined that the company did not qualify for inclusion into our best-in-class strategy.
“This investment decision was taken on the basis that the company may not yet have taken sufficient action on this issue, as well as put in place adequate measures to prevent future violations.”
However, the company remains an attractive investment opportunity and the team would look at it again, he said.
Management “remains very open to dialogue and we believe they are indeed making goodwill efforts to resolve this situation and take responsibility, therefore we continue to closely monitor the situation”.