J.P. Morgan Asset Management has launched an ETF that aims to deliver core access to global equities with a meaningful reduction in carbon intensity compared to conventional equivalent exposures.
JP Morgan Asset Management has unveiled a global ‘carbon transition’ ETF that aims to exhibit at least 30% less carbon intensity than the MSCI World.
Based on an in-house index, the JPM Carbon Transition Global Equity UCITS ETF has listed on the London Stock Exchange, Xetra and Borsa Italiana.
It is linked to the JPMorgan Asset Management Carbon Transition Global Equity Index and has been designed to deliver a material reduction in carbon footprint without relying on crude exclusions or sector deviations to achieve this objective.
Specifically, the fund offers investors at least 30% less carbon intensity than the MSCI World Index, combined with a year-on-year de-carbonization target of at least 7%, in line with EU Climate Transition Benchmark (CTB) framework for sustainable investing.
The underlying index methodology makes use of a proprietary research framework that identifies companies, across all sectors, that are most aligned with the transition to a low carbon economy. The framework seeks to differentiate the leaders from the laggards by evaluating each eligible company’s production of direct and indirect emissions as well as its approach to reducing emissions and managing resources.
The framework utilizes primary data, sourced directly from companies, as well as alternative data, including output from its proprietary ‘ThemeBot’ natural language processing tool.
Index methodology
The index is derived from the universe of large and mid-capitalization stocks that constitute the MSCI World Index. The index is constructed by firstly excluding companies with controversial weapons involvement from the investable universe. It then uses a three-step, rules-based approach.
First, the regional and sector weights are allocated in accordance with the investable universe.
Second, all remaining companies are evaluated and allocated an aggregate score derived from the following three scores: (i) emissions score (how effectively the company is managing emissions on-site, as well as through its provision of products and services), (ii) resource management score (how effectively the company is managing the resources which it consumes such as electricity, water and waste), and (iii) risk management score (how effectively the company is managing its supply chain risks, physical risks and reputational risks).
Finally, the companies are re-weighted relative to the weights that they have in the parent MSCI World index based on their aggregate score, leading to companies with higher scores having a higher weighting in the index and similarly those with lower scores having a lower weighting in the index.
The index is rebalanced on a quarterly basis.
‘Transition readiness’
Commenting on the launch, Olivier Paquier, Head of ETF Distribution in EMEA, said: “Many investors are considering the carbon transition readiness of their portfolios, coupled with a need to maintain broad diversification, a low tracking error, and cost-efficiency. Our carbon transition global equity ETF should help meet those needs, as clients look to integrate low carbon transition considerations when investing in global equities.”
Jennifer Wu, Global Head of Sustainable Investing at J.P. Morgan Asset Management, added: “Investing in carbon transition aware strategies needs to start now. Differences are emerging, between the potential winners and losers in the low carbon transition, and by acting early, before climate risks and opportunities are fully priced in, investors can capture potentially significant returns as prices continue to adjust. We’ve had interest from a range of clients looking to leverage our framework to help meet their specific sustainable investment goals.”
The fund has a total expense ratio of 19 basis points and is available on the LSE in USD (JPCT LN) and GBP (JPTC LN) and on Xetra (JPCT GY) and Borsa Italiana (JPCT IM) in EUR.
It is managed by JPMAM’s Quantitative Beta Solutions Chief Investment Officer Yazann Romahi, PhD, and portfolio manager Aijaz Hussain, who use an optimized physical replication process to track the index.