Investing in the transition to a sustainable and inclusive economy
A consensus is emerging that addressing the world’s most pressing environmental and social challenges requires bold action if the worst consequences are to be avoided. 1 Collective and coordinated action is needed by government entities, private institutions and individuals across the globe.
While the task ahead appears daunting, we believe that we have more solutions than ever before at our disposal. As a result, investors now have multiple ways to invest in financially attractive opportunities that take into account the transition to a sustainable and inclusive economy while also maximising long-term investment returns.
How J.P. Morgan Asset Management allocates capital to achieve targeted environmental and social outcomes
To achieve targeted environmental and social outcomes, effective selection of investment opportunities is essential. At J.P. Morgan Asset Management, we’ve developed an investment framework for the efficient allocation of capital to the environmental and social challenges we consider most critical, providing the foundation for identifying the most promising companies to include in our outcome-driven funds.
Our Sustainable and Inclusive Economy (SIE) Investment Framework allows us to allocate capital efficiently to the environmental and social challenges we consider most critical, providing the foundation for individual security review across our outcome-driven investment solutions.
Identify goals
Sustainable and Inclusive Economy Guidebook
Select investments
Sustainable Investment Inclusion Criteria
Targeted outcomes
Connecting challenges with the business activities that can help solve them
The top-down SIE Guidebook identifies seven environmental and social challenges we consider most critical to the creation of a global economy that supports equal opportunities and sustainable ecosystems.
To help allocate capital efficiently and meet targeted sustainability goals, we identify existing business activities that address each of the seven challenges. These business activities correspond to specific UN Sustainable Development Goals (SDGs) and must be assessed using targeted sustainability metrics2.
Preserving biodiversity
Global challenge
Preserving biodiversity
Intended outcome
Sustainable ecosystems
Sustainable business activities that help to address these challenges
Material sourcing focusing on ecological risk, water and waste management
Land, marine and biodiversity management
Terrestrial and aquatic ecosystem protection and restoration
Pollution and air quality
Reforestation/deforestation
Environmentally sustainable agriculture
Environmentally sustainable animal husbandry
Climate-resistant agriculture
Sustainable food
UN SDG alignment
Managing climate risk
Global challenge
Managing climate risk
Intended outcome
Sustainable ecosystems
Sustainable business activities that help to address these challenges
Information support systems
Energy conversion equipment
Climate research and development
Low-carbon technology
Negative emission technologies
Energy storage solutions
Climate change adaptation
Energy transition management
Renewable energy use
UN SDG alignment
Retrofitting transport and infrastructure
Global challenge
Retrofitting and constructing resilient transport and infrastructure
Intended outcome
Sustainable ecosystems
Sustainable business activities that help to address these challenges
Sustainable transportation
Autonomous vehicle companies
Infrastructure for new transportations
Low-carbon economy infrastructure
Energy efficiency
Mass transit initiatives
Railway transition
Waterway transportation
Passenger car alternatives
Electric and hybrid vehicles
Infrastructure for clean transportation
UN SDG alignment
Ensuring responsible production and consumption
Global challenge
Ensuring responsible production and consumption
Intended outcome
Sustainable ecosystems
Sustainable business activities that help to address these challenges
Production of goods that ensure transition to a circular economy
End-of-life management in product design
Recycling and reuse
Sustainable supply chains
Sustainable material sourcing
Preservation of natural resources
Cradle-to-cradle design
Second life retailing
UN SDG alignment
Building inclusive and digital infrastructure
Global challenge
Building inclusive and digital infrastructure
Intended outcome
Equal opportunities
Sustainable business activities that help to address these challenges
Enhancing access to digital infrastructure
Cyber security research and development
Data protection program research and development
Physical and cloud-based data management enhancement
Data privacy enhancement
Network resilience and data backup assurance
UN SDG alignment
Enhancing health and wellbeing
Global challenge
Enhancing health and wellbeing
Intended outcome
Equal opportunities
Sustainable business activities that help to address these challenges
Toxic material removal
Clean water provision and water sanitation services
Infrastructure for clean water and water loss prevention
Nutritious meal provision
Protein-rich diet food development
Nutrient supplement research and development
Food delivery systems for food security assurance
Preventative medicine services
Hygiene enhancing solutions
UN SDG alignment
Fostering social advancement
Global challenge
Fostering social advancement
Intended outcome
Equal opportunities
Sustainable business activities that help to address these challenges
Promoting equal employment opportunities
Promoting equal educational opportunities
Promoting equal leadership opportunities
Promoting equal financing opportunities: small and medium enterprise financing
Microfinance program development
Educational financing services for affordable education
To identify individual investment opportunities and ensure capital is efficiently deployed to the sustainable activities identified in the SIE Guidebook, we use our Sustainable Investment Inclusion Criteria to screen the investable universe.
The Sustainable Investment Inclusion Criteria comprises two central evaluations: a top-down analysis of intentionality at the strategy level and a comprehensive bottom-up credibility evaluation of the individual security’s product and service sustainability.
Our outcome-driven investment solutions must specify the sustainability outcomes to which they aim to contribute at the onset of the investment process. As we analyse potential investment opportunities, we want to understand how closely the company’s business practices align with the challenges and solutions outlined in the SIE Guidebook, and ultimately the extent to which an individual investment may help us achieve the goal of a global economy that supports equal opportunities and sustainable ecosystems.
Case studies
Vehicle manufacturers
When evaluating vehicle
manufacturers, we look at the extent to
which they are transitioning to the
production of electric vehicles, with the
understanding that the production of
electric vehicles (the sustainable activity) is
critical for reducing greenhouse gas
emissions in the transportation sector. This
activity helps to manage climate risk (one of
our seven global challenges) by mitigating
climate change, and it also contributes to
more sustainable ecosystems (one of our
two targeted outcomes).
Sustainable forestry
Investing in sustainable forestry practices
(the sustainable activity) enhances the
carbon sequestration capabilities of forests,
reducing climate risk (again addressing the
climate risk management challenge) and
promoting more resilient or sustainable
ecosystems (the targeted outcome).
Health care
In health care, investing in innovative surgical equipment manufacturers (the sustainable activity) could help improve treatment experiences and reduce complications (the challenge), leading to an enhanced quality of life for patients and accelerating us towards a world of increased social equity for those struggling with health conditions (the targeted outcome).
In our asset-level analysis, we seek to gain a forensic understanding of the degree to which an individual investment’s products and/or services contribute to a targeted sustainability outcome – with a focus on why this company in particular over its peers and competitors.
What
What products and services are provided, and why are they sustainable?
Who
Who is benefiting from these products and services?
Reach/scope
At what scale are these products and services delivered? How many products are delivered, and how extensively?
Additonality
Would this outcome have happened without these products or services?
Risks
Are there other business activities in other areas that would negate the positive environmental or social benefits created?
Outcomes
What is the resulting environmental or social outcome?
Sustainable business activity adoption
Inputs from many different types of companies are needed to help drive the transition toward a sustainable and inclusive economy. To narrow down the opportunity set, our Sustainable Investment Inclusion Criteria framework is geared toward three types of companies we believe can have a particularly large impact on sustainability outcomes.
Pure Plays
These companies have a high degree of sustainability and rank well in the intentionality evaluation. They have direct links to the seven global challenges identified in the SIE Guidebook, and we can invest in them now given their alignment to positive change. However, the availability of companies identified as investable pure plays is still relatively limited, which can be challenging for portfolio design.
Improvers
These companies are embedded into the fabric of society, but often lag behind in terms of adoption of sustainable business activities. Importantly, though, many companies in this category are critical for the transition to a more sustainable future. We believe outcome-driven capital can play a key role in accelerating change. When the intentionality evaluation holds, we seek targeted investments in these companies to drive accountability and push them to become the sustainable businesses of tomorrow.
Facilitators
Sustainable business activities rely on inputs from a wide range of companies. The Sustainable Investment Inclusion Criteria acknowledge the contributions of the manufacturing chain and all the stakeholders involved in a particular business activity. As such, companies that serve as sustainability facilitators are credited for the role they play in facilitating the transition to a sustainable and inclusive economy.
Bringing it all together: Targeted sustainability outcomes
Through our Sustainable Investment Inclusion Criteria framework, we maintain our goal of directing our investments toward companies that are adopting sustainable business activities and delivering solutions that facilitate the transition to a more sustainable future, in a manner we believe is measurable and aligned to our sustainability goals.
The goal is to facilitate and enhance the deployment of outcome-driven capital into financially attractive investment solutions that cater to our clients’ needs and drive the transition to a more sustainable future.
1 IPCC – Summary for Policymaker. The World Economic Forum’s The Global Risks Report 2022, 17th Edition. The UN Department of Economic and Social Affairs’ Sustainable Development Outlook 2020. The UN General Assembly’s 2030 Agenda for Sustainable Development . 2 The framework, including the sustainable business activities identified as addressing each challenge, will continue to evolve over time.
