FIDA ESG Focus: intervista con Janus Henderson Investors

La dimensione ESG attraverso gli occhi di Paul LaCoursiere e Federico Pons

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Nell’ambito dell’attribuzione del FIDA ESG rating, il Focus rappresenta uno spazio nel quale gli asset manager si raccontano e comunicano agli operatori del settore il loro approccio alla sostenibilità.

Questa raccolta di contenuti prosegue con l’intervista realizzata con Janus Henderson, un gruppo globale di asset management britannico con sede nella City di Londra, Regno Unito.

Company

FIDA: What is the level of vocation to sustainability issues (ESG) and why?

Janus: Being a global asset management organization comes with important responsibilities. As an active manager, this means that integrating Environmental, Social and Governance (ESG) factors into our investment decision-making and ownership practices is fundamental to delivering the results clients seek. An issue as pressing as ESG investing demands active and ongoing engagement and we are committed to maintaining a focus on long-term sustainability and returns. We also recognize that the ESG investment world is evolving and we seek to partner with clients and act as a guide on that journey.

FIDA: Which institutions do you refer to, are involved in and how?

Janus:

ESG Affiliations, Memberships, Initiatives and Certifications

In addition to being a founding signatory of the UNPRI, as part of our commitment to responsible investment, Janus Henderson is involved in a wide range of ESG related initiatives and working groups as a member, supporter or in an advisory capacity.

Our participation in industry working groups along with our sharing of insights and knowledge of ESG through our published materials reflects our firm as active proponents of sustainable finance. In 2020, we shared 13 papers or articles specifically on ESG themes. As part of our Knowledge Shared approach, we share the views of our investment teams as articles, videos and white papers on our website. We publicly support standard setters and industry groups listed above who work with governments to support greater sustainability within investments and where possible, we contribute to ESG policy and regulatory discussions through our response to consultations.

These initiatives include the below list. Affiliations pre-dating the 2017 Janus Henderson merger may relate just to legacy Janus or legacy Henderson.

ESG Memberships / Affiliations / Signatories	Key Areas of Focus	Start Date
UN Principles for Responsible Investment (UNPRI) and various sub-groups	Founded in early 2005 by UNEP FI and the UN Global Compact, the PRI is a set of voluntary and aspirational principles giving a framework for the integration of ESG issues into mainstream investment decision making and ownership practices. The PRI has become the pre-eminent reference point for evaluating the commitment of institutional investors to responsible investment. Legacy Henderson is a founding signatory, joining up in April 2006 when the principles were launched. Legacy Janus joined in 2014.	2006
The Investment Association	The trade body that represents UK investment managers and helps the industry to support the economy with stable, long-term finance, ensuring investors have access to fair and effective markets and embedding the highest standards of sustainable governance in ‘UK plc’.	Pre 1990
UK Sustainable Investment Forum (UKSIF)	UKSIF is the UK’s membership network for sustainable and responsible financial services. UKSIF promotes responsible investment and other forms of finance that support sustainable economic development, enhance quality of life and safeguard the environment. It also seeks to ensure that individual and institutional investors can reflect their values in their investments.	1991
Pensions and Lifetime Savings Association (PLSA)	The PLSA is the representative organisation for workplace pensions in the UK. It has membership in excess of 1300, between them providing pensions to more than 10 million working people with combined assets in excess of £800 bn. A Janus Henderson employee sits on the Stewardship Advisory Group.	1993
Carbon Disclosure Project (CDP)	CDP works to encourage companies to disclose their impacts on the environment and natural resources and take action to reduce them. It now holds the largest collection globally of primary climate change, water and forest-risk information. Janus Henderson is an investor signatory to the CDP.	2000
Institutional Investors Group on Climate Change (IIGCC)	The Institutional Investors Group on Climate Change (IIGCC) is a forum for collaboration between pension funds and other institutional investors on issues related to climate change. IIGCC seeks to promote better understanding of the implications of climate change amongst institutional investors and to encourage companies and markets in which IIGCC members invest to address any material risks and opportunities to their businesses associated with climate change and a shift to a lower carbon economy. Janus Henderson is a founder member.	2002
Access to Medicine Index	The index analyses 20 of the world’s largest research-based pharmaceutical companies on their progress towards making medicines, vaccines and diagnostics more accessible in low- and middle-income countries. Janus Henderson is a supporter of the Access to Medicine Index initiative.	2004
European Sustainable Investment Forum	Eurosif is a pan-European network and think-tank whose mission is to Develop Sustainability through European Financial Markets. Janus Henderson is a member of EUROSIF.	2005
Asian Corporate Governance Association	The Asian Corporate Governance Association (ACGA) is an independent, non-profit membership organization dedicated to working with investors, companies and regulators in the implementation of effective corporate governance practices throughout Asia. ACGA was founded in 1999 from a belief that corporate governance is fundamental to the long-term development of Asian economies and capital markets. Janus Henderson is a member of the ACGA.	2014
The Investor Forum	The Investor Forum helps investors to work collectively to escalate material issues with the Boards of UK-listed companies. The Forum’s purpose is to position stewardship at the heart of investment decision-making by facilitating dialogue, creating long-term solutions and enhancing value. Janus Henderson is a member of the Investor Forum.	2016
Business Benchmark on Farm Animal Welfare	There is growing investor interest in the business risks and opportunities associated with farm animal welfare. However, investors’ ability to make robust comparisons between companies or to use farm animal welfare-related performance in their investment decisions is hampered by a lack of robust reporting by companies and a general absence of tools that enable investors to compare different companies on a consistent basis. The Business Benchmark on Farm Animal Welfare is designed to address these challenges. Janus Henderson is a signatory to the BBFAW Global Investor Statement on Farm Animal Welfare.	2017
Taskforce on Climate-related Financial Disclosures (TCFD)	The FSB Task Force on Climate-related Financial Disclosures (TCFD) will develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers, and other stakeholders. The Task Force will consider the physical, liability and transition risks associated with climate change and what constitutes effective financial disclosures across industries. The work and recommendations of the Task Force will help companies understand what financial markets want from disclosure in order to measure and respond to climate change risks and encourage firms to align their disclosures with investors’ needs. Janus Henderson is a TCFD Supporter. We are currently reviewing our approach to climate risk across JHI with a view to reporting under TCFD in the future.	2018
Climate Action 100+	Climate Action 100+ is a five-year initiative led by investors to engage systemically important greenhouse gas emitters and other companies across the global economy that have significant opportunities to drive the clean energy transition and help achieve the goals of the Paris Agreement. Investors are calling on companies to improve governance on climate change, curb emissions and strengthen climate-related financial disclosures. Janus Henderson is a signatory of Climate Action 100+.	2017
Global Impact Investing Network (GIIN)	The Global Impact Investing Network (GIIN) is the global champion of impact investing, dedicated to increasing its scale and effectiveness around the world. GIIN focuses on reducing barriers to impact investment so more investors can allocate capital to fund solutions to the world’s most intractable challenges. Janus Henderson is a member of the GIIN.	2019
UK and Japanese Stewardship Codes	Stewardship is an integral and natural part of our long-term, active approach to investment management, and a key element of how we discharge our fiduciary responsibility. We seek to protect and enhance value in the companies in which we invest on our clients’ behalf and support the UK and Japanese Stewardship Codes, and similar initiatives around the world. Organisations are required to report every year to the Financial Reporting Council (FRC) on their application of the UK Stewardship Code. Reports are assessed by the FRC and organisations that meet the reporting expectations – such as Janus Henderson – are accepted as signatories.	UK – 2012 Japan – 2014
Sustainability Accounting Standards Board (SASB)	The Sustainability Accounting Standards Board is a non-profit organization founded in 2011 to develop sustainability accounting standards. Janus Henderson uses SASB’s standards on ESG materiality, the SASB Materiality Map® – an interactive tool that identifies and compares disclosure topics across different industries and sectors. SASB identifies financially material issues, which are the issues that are reasonably likely to impact the financial condition or operating performance of a company and therefore are most important to investors.	2020
Net Zero Carbon (NZC10)	Our Global Sustainable Equity Team was a founding member of the Net Zero Carbon (NZC10) initiative in 2020. The NZC10 target requires that 10% or more of a portfolio’s assets are invested in companies that: are already carbon neutral or have net-zero carbon emissions; or have strategies using current technologies to achieve net-zero carbon emissions by no later than 2030; or the portfolio manager is actively engaging with the firms to meet the 2030 target. At Janus Henderson this initiative currently applies to the Global Sustainable Equity strategy.	2020
Transition Pathway Initiative	The Transition Pathway Initiative (TPI) is a global, asset-owner led initiative which assesses companies’ preparedness for the transition to a low carbon economy.	2021
FAIRR Initiative	The FAIRR Initiative is a collaborative investor network that raises awareness of the ESG risks and opportunities brought about by intensive livestock production.	2021
US Sustainable Investment Forum (USSIF)	The Forum for Sustainable and Responsible Investment is a leading voice in the US, advancing sustainable investing across all asset classes. Its mission is to rapidly shift investment practices towards sustainability, focusing on long-term investment and the generation of positive social and environmental impacts.	2021

Sustainability themes

FIDA: In terms of sustainability, as interpreted in the light of the UN SDGs, which ESG issues do you consider most important in corporate management and which, in general, in investment policies?

Janus: In keeping with our belief that our investment teams should structure their processes in ways that can best deliver expected client outcomes, we do not apply top-down rules or an exclusionary approach to ESG integration. Rather, each team defines the ESG considerations they believe are material to their investment approach and the long-term, sustainable growth of the companies in which they invest. Within the overall corporate framework and guidelines that have been established by the firm, we believe strongly that commitments and accountability for the execution of ESG considerations must rest within the hands of portfolio managers and their teams. Rather than pursue a one-size-fits-all approach, teams are responsible for articulating their specific objectives as part of their Investment Policy Statement. This means that the evaluation of our implementation of ESG criteria is carried out at the strategy level and we encourage and support each team to stand on its own ESG vision.

Janus Henderson’s investment teams manage portfolios that reflect different ESG factors. We also have strategies that have a unilateral focus on sustainability. On a corporate level, we support the investment teams in embedding ESG considerations in their work. This support includes centralized functions, such as data management, research, investment platforms and risk management tools:

• Internal Research Platform: Investment teams share relevant ESG research produced in-house by our analysts across a centralized research platform.

• Governance & Responsible Investment Team: Our Governance & Responsible Investment Team is specialized and focused on ESG analysis, company engagement and voting and serves as a resource for all our investment teams. The team’s mission is to promote ESG integration across the business. They play a leading role internally in working with investment teams to enhance their ESG integration processes and externally leading our active participation in numerous ESG initiatives.

• ESG Risk Reporting: ESG data is incorporated into our risk reporting tools, covering issues such as exposure to companies with low ESG ratings, controversies, weak corporate governance, and climate risk.

• ESG Research, Data and Ratings: We subscribe to a broad range of external ESG information providers and make this information available directly to the investment teams.

Investment Considerations

The analysis of ESG factors is an integral component across Janus Henderson’s investment capabilities that utilize a fundamental research process to evaluate corporate equity and debt securities. It is our goal as a steward of client assets to understand all aspects of what can impact a security’s investment returns. Blending quantitative financial analysis with a qualitative evaluation, including any potential impact from ESG factors, helps our investment teams make a more informed assessment of the intrinsic value of a security.

Products

FIDA: With reference to the classification derived from SFDR how have you placed your funds and how do you intend to move soon?

Janus: In June 2020 Janus Henderson established a formal program to oversee the implementation of the EU Sustainable Finance Disclosure Regulation (SFDR) and the EU Sustainable Finance Taxonomy Regulation. The initiative is sponsored by the Co-Head of Equities for EMEA & Asia Pacific and a steering committee of relevant functional leads meets regularly to review progress and consider issues and risks. A number of working groups are responsible for the analysis, design and implementation of the rules including representatives from compliance and risk, distribution, investments, IT, legal, marketing and product.

The program set out a roadmap of deliverables in accordance with the Regulations and implementation started in March 2021. This included the publication for our Sustainability Risk Policy and an update to the remuneration policy as well as the commencement of our phase 1 fund classification including a small number of Article 8 and 9 funds. Our strategy is to not only fulfil the regulatory requirements, but also to ensure that we are meeting the end-client needs related to those regulations and the true intent of the law. Our oversight committee meets fortnightly to address any new regulatory advances, work in progress, and highlight key challenges. Separately, our Investment teams are implementing SFDR at the strategy level depending on their desired designation. Our product strategy in the sustainable investment strategy space is three-pronged (see below). We expect to continually grow our product set in the sustainability space, beyond general ESG integration that already exists. We have hired both a head of ESG, Distribution and ESG, Investments to address those needs.

1. Appropriately designate and comply existing sustainable strategies by region / channel.
2. Develop net-new sustainable strategies dependent on market demand, competitive pressures, and general market dynamics.
3. Re-position existing strategies to sustainable ones, as appropriate.

We do intend to comply for funds that are distributed as sustainable funds in the German market.

Janus Henderson has 70 funds in scope; three are Article 9 and one Article 8 fund; 198 funds are out of scope:

Article 9 Funds

• The Janus Henderson Horizon Global Sustainable Equity Fund
• The Janus Henderson Horizon US Sustainable Equity Fund
• The Janus Henderson Horizon Sustainable Future Technologies Fund

Article 8

• The Janus Henderson Horizon Global Technology Leaders Fund

FIDA: How do you think the market will evolve?

Janus: As ESG issues continue to evolve and mature, we are committed to maintaining an open dialogue with our clients, shareholders, employees, and industry groups. In 2020, we shared 13 papers or articles specifically on ESG themes. As part of our Knowledge Shared approach we make the thinking of our investment teams available as articles, videos and white papers on our website. For informative articles giving insight into future ESG trends, please visit our ESG micro site: Chi siamo – Janus Henderson Investors

FIDA: What impact do you think the new regulations have in terms of organization and costs on your products?

Janus: Risks associated with legal liability often are difficult to assess or quantify and their existence and magnitude can remain unknown for significant periods of time.

From time to time, we receive and respond to regulatory and governmental requests for documents or other information, subpoenas, examinations and investigations in connection with our business activities. In addition, from time to time, we are named as a party in litigation. Even if claims made against us are without merit, litigation typically is an expensive process.

Investment policies

FIDA: How do you integrate ESG issues into your investment policies?

Janus:

Equities

Janus Henderson offers clients a wide range of equity strategies investing across geographies, market capitalizations and styles. When employing fundamental security analysis, teams take a long-term view, seeking to identify companies differentiated by their sustainable competitive advantage, strong earnings potential and shareholder-friendly management teams. As we strive to understand all drivers of company performance, we also strive to understand the risks. An evaluation of ESG factors is integral to this.

Governance is a key part of fundamental analysis with good corporate governance supportive of long-term decision-making and investment returns. The interpretation of environmental and social factors can vary in importance depending on the sector and geographic region in which a company operates. Nonetheless, each ESG factor, in addition to the quantitative and qualitative assessments, are important considerations to calculating the opportunity in an equity investment. Fundamental factors to consider vary by strategy, and may include:

• Financial Analysis: Capital Structure, Balance Sheet Strength, Revenue Growth, Free Cash Flow, Earnings Growth, Return on Invested Capital, Leverage Ratios

• Qualitative Evaluation: Executive Management, Business Model, Industry Growth, Barriers to Entry, Competitive Strength, Product Cycle, Macro Cycle

• Environmental: Sustainable Sourcing, Emissions, Water Usage, Energy Dependency, Regulatory Impact, Waste Management

• Social: Labour Practices, Data Privacy, Workplace Safety, Supply Chain Standards, Diversity, Community Action, Customer Support

• Governance: Accounting Standards, Shareholder Rights, Voting Structure, Transparency, Compensation, Board Independence

• Valuation: Discounted Cash Flow, Sum of the Parts, Dividend Payout, Price to Earnings, Price to Book, Free Cash Flow Yield, Enterprise Value/EBITDA (earnings before interest, taxes, depreciation, amortization)

Fixed Income

Our fixed income investment philosophy is built on the belief that rigorous analysis of ESG factors can enhance risk-adjusted returns by reducing investment risk and unlocking opportunities. Company engagement is an integral part of our ESG approach.

Our ESG process blends top-down thematic research with bottom-up assessment and proactive engagement with issuers. The output of our proprietary ESG analysis is an in-house ESG rating for the issuers our credit teams invest in. These are shared globally across the fixed income platform.

Robust ESG analysis is not simply a matter of evaluating a company’s products and services, but also its sustainability, conduct, corporate governance and other considerations applicable to running the business. Analysis must evaluate a company’s ESG disclosures as well as its forward-looking strategy. Investment decisions based only on backward-looking ESG metrics is sub-optimal. We adopt a forward-looking, dynamic approach to consider ESG risks and opportunities, allowing us to better understand the potential consequences and the likely response from credit borrowers. This is why we conduct proprietary ESG analysis and integrate it into our recommendations and processes, separately addressing each of the “E”, “S”, and “G” components. We incorporate the views of the broader responsible investment resources within Janus Henderson Investors, our fixed income research teams, and a variety of third-party tools into this analysis.

As with other risk metrics, we expect improving ESG risk profiles to lead to a lower cost of capital. Our teams assess the materiality of an issuer’s ESG risks, but also focus on the underlying trends. An improving company is a potential outperformer. A company with material risks and deteriorating trends should be avoided or divested. A pragmatic trends-based approach is how our team prefers to implement an ESG policy rather than rely on blanket exclusion lists. Engagement allows us to corroborate whether an issuer is willing and able to navigate material risks. We inform companies that ESG issues are an important factor in our fundamental analysis and, therefore, our appetite to invest.

Multi-Asset

Janus Henderson manages a wide range of multi-asset solutions that offer clients a variety of outcomes. The implementation of ESG analysis in this group of strategies depends on the method of investment selection and portfolio construction.

Our Multi-Asset Team, in particular, integrates ESG criteria into their investment process. They believe that the combination of traditional financial metrics together with non-financial ESG factors is supportive to effective decision-making. These considerations help the teams mitigate risk and make better informed decisions on behalf of clients, with the aim to enhance value.

There are three key principles that form a cornerstone to the Multi Asset team’s ESG integration process:

1. Active Ownership: We are cognizant that we are the stewards of our clients’ capital. As long-term active investors we regard voting and engagement as a means of promoting strong governance, accountability and management of relevant ESG issues.
2. Risk Management: We believe that incorporating ESG considerations into our investment process helps reduce risks that our portfolios may be exposed to. To us, financial risk and ESG risk are two sides of the same coin. Therefore, in our security analysis we focus on material ESG risks, which are those that are reasonably likely to impact the financial condition or operating performance of a company.
3. Investment Opportunities: In addition to mitigating risks, there are investment opportunities in new technology/ disruptive businesses specifically designed to improve environmental and/or social outcomes. From a returns perspective, there is also increasing academic evidence to suggest that companies with improving ESG practices may be positively re-rated, thereby providing excess return potential, as the market acknowledges that risks within the business have been reduced.

FIDA: Based on your experience, what do you consider to be the key elements of effective sustainability policies?

Janus: Janus Henderson recognizes the high expectations of our stakeholders in relation to CSR and sustainability issues including our impact as an employer, on the environment, on communities, on customers and as a responsible investor. The Janus Henderson Impact Report provides an overview of how we seek to meet those expectations: https://cdn.janushenderson.com/webdocs/2020-impact-report.pdf

FIDA: Has the integration of ESG risks into portfolios had a positive impact on risk or overall performance and how?

Janus: There is currently no industry standard for measuring and reporting on positive impact. Reporting on alignment with the UNSDGs at Janus Henderson is currently limited to our specialist sustainability equity fund, where there is strong alignment between the positive impact themes underpinning the investment process and a large number of the UN Sustainable Development Goals. We are investigating a broad range of options for SDG reporting across our broader product range, including both internal and external research and methodologies, in anticipation of growing client interest in this area.

Janus Henderson is an active member of the Global Impact Investing Network and the Sustainability Accounting Standards Board, both of which are at the forefront of developing industry standards for positive impact reporting

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FIDA ha esteso la propria attività di rating del risparmio gestito nel campo della sostenibilità con un sistema di valutazione proprietario che ruota intorno a specifiche survey periodiche.
Le società di gestione e gli asset manager forniscono direttamente informazioni qualitative e quantitative finalizzate a far comprendere l’approccio alle tematiche ESG in maniera completa. I dati raccolti contribuiscono a definire il grado di sostenibilità previsto dal processo di investimento delle società di gestione e, combinati con le analisi dei portafogli dei fondi, quello dei prodotti gestiti.
Ad integrazione della valutazione quantitativa che culmina con l’attribuzione del FIDA ESG rating, il Focus rappresenta uno spazio nel quale le società si raccontano e sono stimolate dagli analisti a chiarire i temi centrali della vocazione alla sostenibilità.