Assets in climate transition strategies are increasing as the move towards a net zero world gathers pace. Last year, some USD 40 billion was allocated to climate funds globally, with total assets in climate strategies ending 2023 above USD 500 billion (based on Morningstar data). Demand is rising as investors look to reduce climate risks in their portfolios and ensure that they are best positioned to capitalise on the opportunities created by the decarbonisation of the global economy.

Efficient climate exposure

Our Research Enhanced Index (REI) Equity SRI Paris Aligned ETFs have been designed for investors who want to place sustainability front and centre of their core investments. Based on an investment process that has been refined over the last three decades, these sustainable strategies combine the best qualities of passive ETFs (index-like regional, sector and style exposures) with the potential alpha advantages of active stock selection, applied to a sustainable investment universe.

With strategies investing in global equities (JSEG*) and US equities (JSEU*), these innovative climate ETFs can help investors reduce the carbon footprint of their portfolios, manage the risks presented by the carbon transition, and target incremental excess returns over time – all while sticking close to the index characteristics of major global equity benchmarks.

Combining Research Enhanced Indexing and ESG

The beating heart of our REI Equity SRI Paris Aligned ETFs is a time-tested investment process that provides investors with low tracking error exposure to the best of our fundamental stock-specific research. Our analyst team carries out in-depth research on over 2,500 stocks globally, leveraging a disciplined valuation framework that is used across the whole firm to identify attractively valued companies. This is further complemented by the stewardship efforts of our dedicated Sustainable Investing team of experts across the globe who collaborate with our analysts on company engagement.

These insights are packaged into our REI portfolios by applying small overweight or underweight positions in stocks that our research suggests are undervalued or overvalued, all while ensuring that regional, sector and style exposures remain in line with the index. However, while our Core Equity REI ETFs take active positions against traditional benchmarks, such as the MSCI World or S&P 500, our REI Equity SRI Paris Aligned ETFs* are managed against bespoke sustainable benchmarks.

SRI Paris Aligned benchmarks

These sustainable benchmarks are based on traditional indices, but with unsustainable industries excluded, such as fossil fuels, weapons and tobacco. Thresholds may apply. The resulting sustainable investment universe is then further filtered to ensure that the remaining index constituents show strong SRI characteristics – leaning into companies that MSCI views as strong from a sustainability perspective.

The benchmark is then constructed to meet the European Union’s Paris-Aligned Benchmark (PAB) criteria, which means that the index’s greenhouse gas emissions must be at least 50% lower than the wider investable universe and that carbon intensity is reduced by 7% each year.

As a result, these bespoke sustainable benchmarks provide access to a smaller number of companies than traditional benchmarks, but with much more sustainable characteristics. For example, the MSCI World Index includes approximately 1,500 stocks, while the bespoke SRI and PAB version will only have 600-700 stocks.

Using our REI process, our portfolio managers take small overweight and underweight stock exposures relative to these bespoke sustainable benchmarks, informed by the valuation and insights provided by our fundamental proprietary research. This process also involves constantly monitoring portfolio positions for changes in outlook, including environmental, social and governance risks, and actively engaging with the companies held on ESG issues. The aim is to identify the most attractive opportunities, as well as helping investors to manage transition risks in their portfolios.

Thanks to their ability to apply J.P. Morgan’s rigorous bottom-up stock research to SRI and PAB criteria, we believe our REI Equity SRI Paris Aligned ETFs can offer investors efficient core exposure to a more focused, sustainable investment universe, while also aiming to provide an attractive long-term return.

The funds can act as core portfolio building blocks for a wide range of investors. They may be particularly attractive to investors who want to make ESG considerations a central focus of their investments, given the emphasis of these funds on sustainability. They can also help investors to boost portfolio diversification by complementing existing sustainable ETF allocations, all the while by decarbonising the portfolios too.

• JSEG* | JPM Global Research Enhanced Index Equity SRI Paris Aligned UCITS ETF

Provides access to a diversified global equity portfolio focused on sustainable companies, with index-like tracking error, and active stock-level positioning applied to a customised benchmark that is aligned to the climate objectives of the Paris Agreement.

• JSEU* | JPM US Research Enhanced Index Equity SRI Paris Aligned UCITS ETF

Allows investors to build a low tracking error US equity portfolio focused on sustainable companies, that is aligned to the Paris Agreement, while benefiting from the insights of our fundamental analysts, backed by a time-tested investment process.