The large investment bank with big SRI ideasNovember 2010
JP Morgan was one of the rare financial institutions to come out of the credit crisis unscathed. Mike Scott speaks to vice-president Jemma Green to find out what’s so special about the banking giant
When it comes to responsible investment issues, JP Morgan is not the first name that springs to mind.
It is one of the world’s biggest investment banks and was one of the undoubted winners from the financial crisis – but it does not shout its responsible investment credentials from the rooftops.
However, it has clear policies on sustainability, a subject that it approaches from three perspectives, according to Jemma Green, vice-president in the London-based department of global environmental and social risk management. ‘First, we look at our own footprint. Then there is a focus on financing green industries, and finally we have an overlay of environmental and social standards for our mainstream financing,’ she says.
The New York-based office of environmental affairs, which covers New York-listed companies, also focuses on the company’s own impacts globally and looks at lending practices and policies as well as publishing an annual CSR report.
Meanwhile, the London-based department looks at environmental and social issues through two lenses – policy and reputation. ‘Some people say this means we are just worried about what people might think, but whether or not you would like to see something in the public domain is a pretty good litmus test of whether it’s a good business decision or not,’ Green adds.
The bank does turn down deals that do not meet its standards, Green says, but ‘we do a lot of work to get to “yes”.’ The firm looks for companies to meet international norms and the standards of industry bodies such as the ICMM (the International Council on Mining and Metals), the International Hydro Association and the Roundtable on Sustainable Palm Oil. While such bodies have their critics, sometimes ‘you have to ensure that the perfect is not the enemy of the good’.
The firm’s focus in financing green industries includes advising on deals in carbon markets and renewable energy, but a holistic approach is important, Green states. ‘We don’t want to be involved in projects that reduce carbon but in doing so create a whole lot of other problems.’ JP Morgan is one of the biggest financers of tax equity investments in the US wind sector and has invested in the largest solar project in the US, but it has also been involved in the largest joint implementation project in Russia, which will cut 9.6m tonnes of carbon dioxide by 2012 by reducing gas flaring.
Strong performance on environmental and social issues is a proxy for strong management, the bank believes. ‘We need to be comfortable that a client is managing risks appropriately. They do not always want to do this stuff because it costs them money in the short run.’
The firm’s influence on the companies it advises depends on the type of deal, she adds. ‘If it’s a loan or an IPO, we have a fair amount of leverage – we can advise the company that they will face a world of scrutiny that they have not seen before and will need to be able to respond to these issues before they come up. If it’s a regular issuer of bonds or an M&A deal, we will have much less influence.’
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