Investors have a pivotal role in this shift — helping to manage climate-related risks while supporting companies driving real-world progress. With more clients setting formal climate targets, the question increasingly being asked is: How do we decarbonise in a way that is both effective and credible?

To deliver on these commitments, investors need solutions that are transparent, scalable and aligned to measurable pathways. Paris-Aligned ETFs can help bring climate alignment into the core of portfolios, while stewardship plays a crucial role in supporting real-economy decarbonisation. Together, these tools enable investors to move from ambition to action.

Why Investors are increasingly recognising decarbonisation

Encouragingly, we are still seeing climate awareness among our investors, observing more clients setting formal climate targets. These range from aligning portfolios to net zero by 2050, to setting interim decarbonisation milestones for 2030. Institutional investors asset owner alliances such as the Net Zero Asset Owner Alliance (NZAOA), are committed to aligning their investment portfolios with the Paris Agreement’s goal.

Achieving this alignment requires credible, data driven solutions that support transparency and reporting of progress over time. ETFs provide an efficient mechanism to incorporate decarbonisation across asset classes, while maintaining liquidity and scalability.

Two approaches to decarbonisation

Investors typically pursue two complementary approaches that together support progress in both portfolios and the real economy

1) Real‑world decarbonisation

This approach focuses on reducing emissions in the real economy, not just in investment portfolios. It involves allocating capital to companies that are actively reducing their emissions or are key to enabling the transition. This may include:

• Investing in companies that are in transition, such as those in high-emitting sectors (e.g. energy, materials) that are setting science-based targets and shifting business models
• Allocating to climate solution providers or “enablers”, such as renewables and electrification
• Active engagement with companies to improve disclosure, set net zero targets, and implement credible transition plans
• Using proxy voting and stewardship to hold boards accountable on climate-related risks and strategies

At J.P. Morgan Asset Management, proprietary transition research helps to inform investment decisions and engagement priorities by identifying companies making credible progress towards decarbonisation and those that are lagging behind. Simply divesting from carbon-intensive sectors may reduce a portfolio’s footprint but does little to reduce global emissions if those companies continue emitting and remain unengaged.

2) Portfolio decarbonisation

This approach aims to reduce the carbon intensity of an investment portfolio, often through reallocation to companies with lower emissions profiles or by excluding high-carbon sectors. Metrics such as Weighted Average Carbon Intensity (WACI) and financed emissions per $M invested are commonly used to track progress. Portfolio decarbonisation is increasingly driven by:

• Client demand for low emitting portfolios to meet top-down climate commitments
• Regulatory requirements (e.g.TCFD,)
• Risk management, particularly transition risk

While portfolio decarbonisation does not always directly result in real-world emissions reductions, but it can play an important role in capital reallocation, climate risk mitigation, and alignment with Paris Agreement’s well below 2°C goal. ETFs help enable this reallocation by providing diversified index exposures aligned to clear climate criteria.

The role of Paris-Aligned Benchmarks (PABs) frameworks

One effective way to implement portfolio decarbonisation is through strategies aligned with the EU Paris-Aligned Benchmark (PAB) framework. PABs are designed to ensure that portfolios are not just lower carbon today but continue to decarbonise in line with the Paris Agreement. Under the EU rules, PABs must:

• Achieve an initial 50% reduction in greenhouse gas intensity versus their parent index.
• Maintain a minimum 7% year-on-year decarbonisation trajectory.
• Exclude certain fossil fuel and controversial activities.

At JPMorgan Asset Management, we offer a range of SRI Paris-Aligned ETFs designed to help investors align with these principles across major geographies. Our range includes US, EMEA, global, and emerging market exposures, making it possible for clients to build diversified, core climate-aligned allocations across the equity spectrum.

The Research Enhanced Index Equity SRI PA ETFs take a best-in-class ESG approach – which focuses on companies that lead their peer groups with respect to sustainability performance – and uses a fundamental bottom-up stock selection process. The enhanced index investment approach takes active positions against a bespoke sustainable benchmark that incorporates exclusions and fulfils the Paris-Aligned benchmark criteria. This benchmark, the MSCI World SRI EU PAB Overlay ESG Custom Index, reduces the investable universe by applying values- and norms-based screening to implement exclusions, and seeks to align with the Paris Agreement’s tenets of decarbonisation. The ETFs adhere to EU SFDR article 9 requirements.

Importantly, as active managers, we also bring engagement into our strategy, working with portfolio holdings to encourage further improvement in climate disclosure, target setting, and transition planning. In other words, our PA ETFs don’t just track a lower-carbon index, they use active stewardship to drive further real-world impact. This combination of systematic portfolio construction and active engagement makes our range a compelling solution for clients aiming to decarbonise both their portfolios and the broader economy-real world decarbonisation.

A dual approach for maximum impact

No single strategy will solve the climate crisis. Effective decarbonisation requires both portfolio alignment and real-world engagement. A dual approach – allocating to climate-aligned ETFs like our Paris-Aligned range while actively engaging with companies on transition – can help investors meet near-term targets and support long-term system change. As the world edges closer to being below the 2 degrees threshold, the need for credible, scalable, and measurable solutions becomes ever more apparent urgent. ETFs provide a scalable mechanism to turn climate ambition into tangible investment outcomes.

Conclusion

ETFs are enabling practical decarbonisation at scale: liquid, transparent and aligned with measurable pathways, while stewardship supports progress in the real economy.

At J.P. Morgan Asset Management, we are committed to helping clients on this journey. By combining Paris aligned portfolio construction with active engagement, we aim to accelerate decarbonisation in both portfolios and the wider economy. With clear frameworks and committed action, investors can contribute to climate progress while pursuing long term value.