Industry Updates

Actively capturing climate innovation

The speakers were Amara Lalemi-Jacobs, sustainable investing analyst at JPMAM, Hanna Bach-Nielsen, asset management solutions investment specialist at JPMAM and Alfred Le Leon, head of ETF distribution for France at JPMAM

Theo Andrew

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The huge challenge behind the transition to net zero, the trends driving climate change solutions and the benefits of employing a high-conviction active ETF strategy to address climate change were all topics covered in ETF Stream’s webinar with JP Morgan Asset Management (JPMAM).

The discussion, titled Actively capturing climate innovation, started by outlining the scale of the task needed to be undertaken to hit the Paris Agreement, limiting global warming to below 1.5°C, while noting the conversation around net zero has dramatically evolved over the past decade.

Amara Lalemi-Jacobs, sustainable investing analyst at JPMAM, said: “The net-zero movement has come a long way since 2009. Over a decade later, net-zero pledges cover around 91% of the global economy, although the scale of these commitments varies.

“The shift to a net-zero economy does require significant abatement of green house gas emissions across all sectors, for some sectors this will be easy, for others we have to think about removing residual emissions.”

However, with these challenges come opportunities for investors. The Investment Association recently estimated there would need to be $4-6trn of investment each year until 2030 to meet the requirements of the energy transition.

One of the ways investors can capture this is via the JP Morgan Climate Change Solutions UCITS ETF (T3MP), the first sustainable active thematic ETF in JPMAM’s range.

Commenting, Hanna Bach-Nielsen, asset management solutions investment specialist at JPMAM, said: “The strategy focuses on forward-thinking companies investing in the solutions require to address the climate change challenge.”

T3MP is described as a “high conviction strategy” and invests around five sub-themes, renewables and enablers, sustainable construction, sustainable food and water, sustainable transition and recycle and reuse. It is unconstrained, in that it invests globally and sector-wide.

In a bid to bring the sectors that are still heavily reliant on fossil fuels on the transition journey, Bach-Nielson said investing in nascent technologies such as carbon capture can help push this along.

“This technology is still in the early development phase and forms a smaller part of our portfolio but it is one of the workarounds for the industries that are more reliant on traditional energy fuel types,” she said.

Pointing to the fact the strategy takes an active approach, Lalemi-Jacobs added: “We must be aware that the pace at which companies’ transition may vary. It is important to engage and keep them part of the conversation to make sure they meet their targets.”

Analysing how this strategy would fit into a portfolio, Alfred Le Leon, head of ETF distribution for France at JPMAM, said T3MP can be used as a strategic long-bet on new industries, to align values with investments and as a diversification tool. He added investors are also switching due to the benefits of including active ETFs within portfolios.

“Active ETF strategies are becoming increasingly popular, investors are realising the process of active stock selection can bring a lot of advantages to the thematic ETF space,” he said. “An active approach has much more flexibility and can implement investment ideas without the constraints of an index, where everyone ends up in the same companies.”

Looking at how the ETF differs from its rivals, Bach-Nielsen said there will be overlap within the portfolio, roughly 25%, “in a handful of names that are common across the market”.

“Drilling down, we have far more exposure to electric vehicle companies as well as construction and transport,” she said.

“What we will not have in our portfolios that our competitors will, is some of the largest technology companies. Microsoft for example is a great ESG company but they would not have a place in our portfolio because they are not providing a solution to address climate change.”

To watch the full webinar, click here.

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