Thematic investing and Climate Change. A new addition from JP Morgan.
We are pleased to welcome a second fund from J.P. Morgan Asset Management, a global firm which is expanding its ESG (Environmental, Social & Governance) and sustainable investment research efforts.
This recently launched proposition aims to deliver a return on your money through investing in the shares of companies providing climate change solutions. It targets sustainable themes or assets and seeks to identify the most innovative companies, particularly in the field of clean and reliable energy.
“Designed by data and perfected by people”*
The approach is somewhat unique as it brings together the firm’s expertise in data science with the investment research process of a 90-strong team of analysts. Their proprietary “ThemeBot” uses natural language processing to trawl through huge amounts of global data, including broker research, earnings reports and news articles, to determine the investable universe and rank stocks by relevance to themes.
At the next stage, human input narrows down this universe by carrying out due diligence and identifying companies on attractive valuations. The fund is managed by three portfolio managers, led by Francesco Conte and each with more than 20 years of experience, supported by a dedicated Sustainable Investing Team which provides climate change insight and stewardship.
The process incorporates a 40 question ESG checklist and a negative screen which excludes activities such as tobacco, coal, and weapons. This combination of sustainability and financial analysis enables the team to construct a focused, thematic portfolio of 50 to 100 of the team’s best ideas which is ‘designed by data and perfected by people’.
The main themes are renewable energy, sustainable transport, sustainable food and water, sustainable construction (including energy efficiency of buildings and cement & steel production), recycling and reuse (technologies to reduce waste and recycle materials).
When assessed, 47% of the portfolio is in companies listed in the US, often with global reach, and there is also a significant 39% allocation to the Europe & Middle East region. If you invest in this fund, you will get exposure to both established industries and some high growth sectors such as wind turbines, green hydrogen, bioenergy, and solar power. Nearly 60% of holdings are classified in the Industrials sector. **
An investable theme: climate change solutions.
As a thematic fund, most of the companies held offer direct ESG solutions, although it should be noted that some do have legacy businesses as well. For example, renewable energy providers that generate some of their power from fossil fuels or a car manufacturer that has developed electric vehicles but still sells petrol models. Exclusions are limited in extent and there is some exposure to controversies.
It is a new fund which launched in June 2021. As such, there is no impact report because the fund has not completed a full year. However, JPM has considerable ESG research resources at group level which we expect the fund to draw on. There is evidence of engagement and some advocacy undertaken by the firm. The fund is most aligned with SDG 12 (Responsible Consumption & Production) for 31% of the portfolio and SDG 7 (Affordable and Clean Energy) at 16%. ***
Impact stock example: Trane Technologies.
One of the companies within the fund, Trane, aims to be a climate innovator by looking at the world’s challenges and finding ways to address them. The company offers environmentally responsible products and services, under the Thermo King and Trane brands. Thermo King provides climate-controlled solutions to move refrigerated food, medicines, and other perishables around the world whilst Trane creates comfortable, energy-efficient indoor environments for commercial and residential applications.
The company has made sustainability commitments by 2030 to help solve some of the biggest global challenges. These include a pledge to reduce customer greenhouse gas emissions by one gigaton (2% of the world’s annual emissions) and be carbon-neutral in their operations. The aim is to lead the way for positive change in their industry and set new standards to improve the health and well-being of their communities, customers, employees, and the planet. We expect to see reporting from JP Morgan on how this company is performing against these aims.
**Fund provider factsheet @ 31/12/2021
***The Big Exchange Fund Assessment September 2021
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