JPM launches carbon transition ETF with proprietary framework

AJ Gonzalez | November 11, 2020

CityWire Selector by

Asset manager unveils sustainable ETF that will make use of natural language processing tool to evaluate investments.

JPM Asset Management has launched a new ETF that will seek to capitalise on the transition to a low carbon economy.

The Ireland-domiciled ETF, which is formally known as the JPMorgan Carbon Transition Global Equity Ucits ETF (JPCT), will be run by the firm’s quantitative beta solutions CIO, Yazann Romahi, and portfolio manager Aijaz Hussain.

The fund will aim to reduce carbon emissions while also investing in opportunities and technologies needed for a successful transition to a low carbon world.

It will do so by tracking the JPMorgan Asset Management Carbon Transition Global Equity Index, which seeks to achieve meaningful reduction in carbon intensity without relying on exclusions or sector deviations.

According to the firm, JPCT will provide investors at least 30% less carbon intensity than the MSCI World index, and a year-on-year de-carbonisation target of at least 7%, which is in line with EU Climate Transition Benchmark (CTB) framework for sustainable investing.

Three-step framework

The fund will also implement a proprietary research framework that aims to differentiate, with specific ratings, the leaders from the laggards when it comes to reducing carbon emissions.

The tool, which has been conceived by the firm’s sustainable investing and quantitative beta solutions, will based its analysis on three main criteria, which include:

  • Companies’ production of direct and indirect emissions, and their plan to manage and reduce emissions;
  • How companies manage resources, including electricity, water and waste;
  • How companies engage with other climate-related risk management such as physical risks.

The framework will import primary data and alternative data sources from JPMAM’s proprietary natural language processing tool ThemeBot, which captures innovative signals, such as a company’s green capital expenditure.

Commenting on the ETF launch, Jennifer Wu (pictured), who is global head of sustainable investing at JPM AM said: ‘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 ETF will be listed on the London Stock Exchange, Borsa Italiana and Deutsche Börse Xetra, with a total expense ratio of 19 basis points.

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