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    1. ESG Outlook 2022: The future of ESG investing | J.P. Morgan Asset Management

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    ESG outlook 2022: The future of ESG investing

    01/02/2022
    Jennifer Wu

     

    Five reasons why the future of ESG investing is long term

    Investor demand for sustainable investment funds that incorporate environmental, social and governance (ESG) factors is expected to grow sharply once again this year. Here are five reasons why we believe ESG investing is much more than a short-term fad.

    1. Demand is led by investors

    Over $500 billion flowed into ESG-integrated funds in 2021, contributing to a 55% growth in assets under management in ESG-integrated products1. We expect growth in ESG investing to continue through 2022, and well beyond.

    The shift to sustainable investing is so powerful because it’s being driven by demand from the bottom up. Quite simply, investors – from individual savers through to large institutions – are directing an ever-increasing proportion of their portfolios towards sustainable strategies as they look to use their capital to help create a more sustainable world.

    2. Technology is driving product innovation

    New technology is helping fund managers keep pace with this sharp rise in demand for sustainable investments. The internet transformed the way information is captured, documented and disseminated, providing investors with access to more data than ever before. However, it’s only now, with the development of artificial intelligence (AI), that investors have the ability to analyse it all.

    The result has been a dramatic improvement in corporate transparency, as new data sources provide better insights into how companies are being run from an ESG perspective. As fund managers use AI to tap into the “big data” revolution, new and exciting opportunities are being created across an ever-growing range of sustainable strategies.

    3. Companies are being encouraged to take action

    The good news is that many companies around the world already understand the need to take action on ESG issues—not least because they recognise that they can only deliver sustainable long-term growth if they manage the Earth’s resources prudently, treat their workers with respect and look after the natural environment in which they operate.

    However, because the E, S or G issues that matter to one company will differ from those that matter to another, corporate engagement is vital if investors are to encourage companies to take action where the greatest impact can be achieved. Similarly, engaging with sustainable laggards to encourage change can be much more effective than simply divesting.

    At the same time, governments continue to have a key role to play. Supportive government policy and coherent regulation can be vital to encourage companies to meet their ESG obligations and to also convince investors of the long-term viability of sustainable investing.

    4. Investment research is increasingly focused on sustainable outcomes

    ESG research frameworks are being developed and refined to support the growth in sustainable investment management. At J.P. Morgan Asset Management, we look to add value by ensuring that innovative product development, proprietary research and rigorous investment stewardship work together to deliver the ESG exposures that investors demand.

    To help investors tackle climate change, for example, we have developed our own research framework that is based on the analysis of underlying raw data points. Our analysis identifies companies that are developing climate change solutions and those that are helping to enable the transition to a low carbon economy, all while still allowing us to engage with environmental laggards.

    5. The energy transition is creating new risks and opportunities

    As well as focusing on the ESG credentials of individual companies, investors are starting to give more consideration to the sectors, countries and regions that have the resilience and competitiveness to thrive as the world moves towards a low carbon future.

    Resilience is about the readiness of sustainable portfolios to withstand the transition to clean energy and the impact of physical climate events as global temperatures rise. As well as asking which companies are best prepared, investors also need to look at whether the countries in which they invest have the reserves to endure the pain of energy transition and to pay for the adaptation to a low carbon economy.

    Competitiveness is about the commitment of governments to deliver a transformation in their economies so that businesses are not left behind by higher carbon prices globally. Cutting carbon emissions will require significant growth in carbon markets, and this growth will be a key influence on competitiveness. Countries that are able to take advantage of the advances in technology needed to reach net zero carbon emissions will be best positioned to flourish in this environment.

    Sustainable investing is here to stay

    Increasing investor interest, a sharper corporate focus and a significant improvement in data provision are all set to further support the growth in sustainable investing. There remain obstacles to overcome—both in terms of investor acceptance and corporate adoption—but with new ways to capture sustainable returns being developed, and with many more companies committing themselves to sustainable business goals, it’s easier than ever for investors to mitigate ESG risks in their portfolios while contributing to positive change.

    1Source: Morningstar, USD as of 31st of December 2021. Includes all open-end funds and ETFs domiciled in Europe, excluding money market funds. Morningstar Filter: Sustainable Investment-Overall = Yes.

     

    This is a marketing communication and as such the views contained herein are not to be taken as advice or a recommendation to buy or sell any investment or interest thereto. Reliance upon information in this material is at the sole discretion of the reader. Any research in this document has been obtained and may have been acted upon by J.P. Morgan Asset Management for its own purpose. The results of such research are being made available as additional information and do not necessarily reflect the views of J.P. Morgan Asset Management. Any forecasts, figures, opinions, statements of financial market trends or investment techniques and strategies expressed are, unless otherwise stated, J.P. Morgan Asset Management’s own at the date of this document. They are considered to be reliable at the time of writing, may not necessarily be all inclusive and are not guaranteed as to accuracy. They may be subject to change without reference or notification to you. It should be noted that the value of investments and the income from them may fluctuate in accordance with market conditions and investors may not get back the full amount invested. Past performance and yield are not a reliable indicator of current and future results. There is no guarantee that any forecast made will come to pass. J.P. Morgan Asset Management is the brand name for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our EMEA Privacy Policy www.jpmorgan.com/emea-privacy-policy. This communication is issued in the UK by JPMorgan Asset Management (UK) Limited, which is authorised and regulated by the Financial Conduct Authority. Registered in England No. 01161446. Registered address: 25 Bank Street, Canary Wharf, London E14 5JP.

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