An active solution for sustainable ETF investing
Environmental, social and governance (ESG) factors are now at the forefront of many investors’ investment decisions and ETFs have been a popular avenue for accessing ESG opportunities. In 2022 alone, there was a net flow of $48bn into ESG UCITS ETFs*.
While passive index ETFs provide cost-effective solutions for building broad equity exposure, active management is often the better route for strategies with an ESG focus. Our range of active sustainable ETFs builds on our established Research Enhanced Index (REI) process, developed over 30 years ago, to provide a solution for today’s ESG investment needs.
Time-tested investment process, with a sustainable investment universe
Our REI ETFs make up one of the largest active UCITS ETF ranges. We have now brought this popular process to a new sustainable investment universe. While our traditional REI range uses an ESG framework to take active positions against traditional benchmarks, such as the MSCI World or S&P 500, our new REI SRI ETFs have bespoke sustainable benchmarks.
From the traditional base index, we exclude certain industries, such as those involved in fossil fuels, weapons and tobacco. Thresholds for exclusions apply. Securities are then evaluated to ensure that greenhouse gas emissions are at least 50% lower at the index level than the wider investable universe, and that carbon intensity is reduced by 7% each year. The results is an index with a smaller, sustainable investment universe that meets the European Union’s (EU’s) Paris-aligned benchmark (PAB) criteria.
From a traditional index to a sustainable Paris Aligned index
A range of industries are either fully or partially excluded from the investable universe. These are stocks from sectors such as gambling, tobacco, fossil fuels, weapons, adult entertainment, alcohol or genetically modified organisms. For some industries a revenue threshold applies.
To fulfil the EU’s Paris-aligned benchmark criteria, the overall benchmark universe must reduce greenhouse gas intensity by 50% compared to the parent universe and additionally must decarbonise by at least 7% year on year.
JPM Research Enhanced Index Equity SRI Paris Aligned ETFs
Webinar: The next chapter of sustainable ETFs
Watch our seven-minute webcast with Christian Preussner, managing director in our US Equities group, who explains the construction and the purpose of our JPM Research Enhanced Index SRI Paris Aligned UCITS ETFs and how they can play a central role in portfolios.
*Source: Bloomberg, J.P. Morgan Asset Management. Data as of December 2022.