JPMorgan complies with new ESG rule in Europe

COPENHAGEN: The asset management unit of JPMorgan Chase and Co is breaking away from a number of its peers and voluntarily complying with a new European Union (EU) rule that requires fund managers to report their social and environmental impact.

The Wall Street firm has issued a so-called entity-level principal adverse impact (PAI) indicator statement amid growing pressure on firms to show EU clients the extent to which their business is damaging the environment.

That’s because Mairead McGuinness, the EU’s financial markets and services commissioner, said firms that don’t take environmental, social and governance (ESG) seriously face a bleak future in the bloc.

The PAI rule, enforced on June 30, is designed to provide a set of metrics that help clients compare asset managers in Europe based on their negative ESG impact.

The EU hopes the indicator will be a game changer after previous ESG requirements proved too complex.

PAI has been structured to give firms with smaller operations inside the EU some leeway. Asset managers with fewer than 500 employees in the bloc can make do with disclosing only the impact of the financial products they sell.

Bigger firms need to report the so-called entity-level impact, meaning the social and environmental footprint of their entire EU operations must be made public.

JPMorgan Asset Management issued an entity-level PAI statement despite having fewer than 500 employees based in EU countries, according to an analysis by Morningstar Inc.

Vanguard Group Inc and State Street Corp, which also have under 500 employees in the EU, didn’t provide entity-level PAI reports, according to Morningstar.

Spokespeople for JPMorgan, Vanguard and State Street declined to comment.

Firms that submitted PAI statements clearly struggled with the disclosures required, according to Morningstar and Stockholm-based Datia, a climate financial technology company.

Asset managers “were very, very keen to speak and explain the numbers because they’re very, very nervous about how this could be interpreted,” said Hortense Bioy, global director of sustainability research at Morningstar, who spoke with managers in the weeks after the June 30 deadline for publishing statements.

And asset managers looking at publicly available statements are finding it difficult to gauge a trend.

There’s a “huge difference in the data that is reported,” said Carola van Lamoen, head of sustainable investment at Robeco, which filed an entity-level statement. “The comparability of the different PAI statements is limited.”

Morningstar’s analysis of eight of the largest asset managers operating in Europe revealed “a lot of variations and a lot of divergence”, Bioy said. “But it’s likely to improve over time.”

While there are issues around quality, the data can still be used effectively to get companies – particularly “laggards” – to address ESG risks, said Dennis Haensel, head of ESG advisory at Deutsche Bank AG’s investment unit, DWS Group.

“We can use these numbers as trigger points for interaction with companies and clients,” he said.

The PAI statements feed into the Sustainable Finance Disclosure Regulation, the EU’s landmark legislation enforced in 2021 with the goal of rooting out greenwashing and steering capital into sustainable activities. And like most other ESG reporting requirements, PAI faces meaningful data hurdles.

“For every manager, it was kind of a leap of faith, publishing their first PAI statement, because it had never been done before,” said Kenneth Robertson, head of sustainable investing for client portfolio management at Robeco. “Nobody knew what everyone else was going to do.”

The Morningstar analysis showed that JPMorgan disclosed Scope 3 greenhouse gas emissions of more than 88 million tonnes of carbon dioxide equivalents, compared with 77 million tonnes for Amundi, Europe’s biggest asset manager.

JPMorgan also disclosed the highest reading for emissions to water generated by investee companies.

For social risks, JPMorgan reported the lowest risk for violations of the United Nations Global Compact principles and the Organisation for Economic Co-operation and Development guidelines for multinational enterprises— Bloomberg