Globally, companies and their investors are navigating a rapidly evolving environmental, social, and governance (ESG) landscape. Changes in environmental policy, technological innovation and consumer awareness are creating new sources of ESG-related opportunity and risk, extending the scale and scope of nonfinancial analysis. We approach ESG from a bottom-up, fundamental perspective which is consistent with the approach we have taken to security research since our founding over 50 years ago.
ESG is a Process, Not an Event
At Jennison, we believe that systematically accounting for the materiality of potential risks and opportunities to our investments, including those stemming from ESG issues, supports our primary objective to achieve sustainable risk-adjusted returns for clients over the long term.
We recognize that material ESG issues may potentially affect the long-term financial condition as well as the valuation and performance of an issuer. Deep analysis of issuer fundamentals drives our investment decisions. We view ESG issues as important inputs into fundamental analysis which can help our investment professionals make better long-term decisions. We seek to determine how the ESG profiles of current and prospective investments are likely to impact our investment theses by cultivating a deep understanding of the double materiality1 and dynamic materiality2 of the issues to which issuers are exposed and the associated investment implications.
Anchored by three areas of primary focus – Research, Engage and Monitor – Jennison’s approach to ESG is investment-led and complements our fundamentally-driven investment process. ESG issues may influence our investment theses, portfolio weightings, proxy voting, and company engagement.
As a signatory to the Principles for Responsible Investment (PRI), Jennison is committed to continuing to build out more explicit and transparent ESG processes.
Our first priority is to safeguard the best interests of our clients. Across our equity and fixed income teams we consider the potential risks and opportunities of various factors, including ESG, and their impact on a company’s financial prospects or business model. Where we find areas of concern in our investments, we express our views through engagement as well as through the proxy voting process.
We participate in select collaborative initiatives as part of our commitment to investment stewardship and efforts to further transparency, engagement, and sustainable investing. These groups bring investors together to enhance shareholder advocacy and improve opportunities for engagement. We believe these collective efforts can result in more informed and constructive dialogue with companies.
Jennison is a signatory to the Principles for Responsible Investment (PRI), a United Nations-backed initiative focused on ESG issues. Our other memberships include organizations with distinct focus areas—from tracking the ESG progress of the largest pharmaceutical firms to the adoption of global disclosure systems that measure and manage environmental and climate impacts.
ESG issues are multi-dimensional and we believe they should not be reduced to single scores and judged solely on that basis. Similarly, we understand that institutions may have ESG needs that are nuanced and require tailored solutions. We are pleased to partner to explore ways to pair our expertise with your needs and invite you to contact us.
We believe in a contrarian-like ESG research capability, which involves a deep dive evaluation of disconnects between an issuer’s ESG fundamentals relative to consensus.
1 The concept of double materiality considers the impact of investment decisions on the environment and wider society. In other words, a negative or positive effect of a company on people or the environment can also be material if it does not necessary translate into immediate financial material risks.
2 The concept of dynamic materiality emphasizes that there is a path for issues to become financially material over time. Materiality is thus an evolutionary process. In other words, what may appear financially immaterial today can quickly prove to be business-critical tomorrow.