It’s no secret that 2020 was a challenging year on many fronts, as the world confronted a global pandemic, a series of extreme weather events, and an overlapping of social unrest. It’s probably no coincidence that 2020 also saw a lot of money pour into Environmental, Social, and Governance (ESG) funds that scout sustainable and socially responsible investments.
A record $27.9 billion flowed into ESG funds last year, according to data from Bloomberg Intelligence, representing more than $60 billion in assets. One financial heavyweight that got into the act was JPMorgan Chase & Co., whose J.P. Morgan Asset Management division launched its first green fund as 2020 drew to a close.
The JPMorgan Carbon Transition U.S. Equity ETF (JCTR) bowed on the New York Stock Exchange in mid-December. The JCTR marks JPMorgan’s first U.S.-based exchange-traded fund that focuses on ESG, offering investors a chance to put their money into assets with at least 30 percent less carbon intensity than the Russell 1000 index as a whole. The fund has a year-over-year de-carbonization target of at least 7 percent, which is in line with the EU Climate Transition Benchmark standard for sustainable investing.
JPMorgan launched the ETF to meet the rising demand for socially and environmentally responsible investments, and focusing on carbon reduction was a fairly straightforward and important way to enter the ESG space.
“Investing in carbon transition aware strategies needs to start now,” said Jennifer Wu, J.P. Morgan Asset Management’s global head of sustainable investing. “Differences are emerging between the potential winners and losers in the low carbon transition, and by acting early, before climate risks and opportunities are fully priced in, investors can capture potentially significant returns as prices continue to adjust. We’ve had interest from a range of clients looking to leverage our framework to help meet their specific sustainable investment goals.”
J.P. Morgan Asset Management carries a lot of clout in the investment world, with about $2.3 trillion in assets under management as of Sept. 30, 2020. Its clients include institutions, retail investors, and high-net-worth individuals in every major global market. The business offers global investment management in equities, fixed income, real estate, hedge funds, private equity, and liquidity.
Its new ETF evaluates Russell 1000 companies based on the three following criteria:
- Emissions: How companies manage their greenhouse gas (GHG) emissions
- Resource Management: How companies manage their resources, including water, waste, and electricity usage
- Risk Management: How companies manage other climate-related risks such as physical and reputational risks.
After J.P. Morgan Asset Management analyzes these criteria, it narrows the index down to about 200 holdings. The fund will put a particular emphasis on companies that are actively looking for ways to reduce their carbon footprints, rather than just singling out those that already have effective sustainability programs in place.
“Instead of just going through and deleting out the worst offenders, that gets you to only part of the answer,” Bryon Lake, head of Americas Client ETF at J.P. Morgan Asset Management, told Bloomberg. “How companies are actually managing that transition is a much more interesting and compelling answer. If it’s a heavily carbon-producing company, but they’re dramatically changing their behavior – the emissions piece and the risk-management piece – that’s what we believe is more compelling.”