Sustainable Investing
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Fact: Not necessarily. Sustainable investments can generate comparable returns to a traditional benchmark.
Past performance is no guarantee of future returns. It is not possible to invest directly in an index.
One of the most common misbeliefs surrounding sustainable investing is that it generates lower returns. With years of performance data now available, the numbers show that sustainable strategies often perform in line with—or in some cases, outperform—a traditional benchmark.
From April 2014 to March 2024, MSCI ESG Equity Leaders (which focuses on companies with strong ESG scores) delivered higher returns compared to the broader MSCI World Index.
There are two reasons why we have conviction in sustainable investing’s performance:
Fact: It has, and it can. You can have a voice through active managers and corporate engagement strategies.
Companies often have a global influence, sometimes for the better (e.g., by being a good employer) and sometimes for the worse (e.g., by polluting a local ecosystem). It’s possible to sponsor specific causes through your investments and potentially impact company behavior.
Let’s dive deeper with a real-life case study. An investment manager holds a leading U.S. manufacturer of cement in its sustainable portfolio. However, it is the portfolio’s largest carbon emitter.
Manufacturing construction supplies is a carbon-intensive process. The transformation of calcium carbonate in limestone into calcium oxide is a vital step to produce “clinker”—a component in cement—which is responsible for about 60% of total cement-manufacturing emissions.
After engagement from the investment manager, the manufacturer has taken steps to decarbonize its operations by:
The manufacturer has a 20% carbon intensity reduction goal by 2030 versus a 2011 baseline. To encourage further change, the manager will continue proposing a new science-based emissions target.2
This is just one example of how sustainable investing can help drive change. By investing in actively managed strategies that engage directly with companies, it’s possible to drive positive change over time.
Fact: Social and governance factors, in addition to the environment, are critical to sustainable investments.
Climate change and other environmental concerns are a focus for many sustainable investors. However, social and governance issues—the S and G in ESG—are top of mind for clients as well, and they merit consideration in the analysis of companies and funds. Arguably, every investment should focus on the G—sound governance practices are critical to the long-term success of businesses. And social issues such as diversity practices, and employee health and safety are increasingly seen as important in company analysis.
In fact, E, S and G issues are often interrelated. For example, water stress is not only a risk to ecosystems, but it also affects human health and well-being. It can intensify social and political fragilities in emerging economies, such as the Middle East and North Africa (MENAT), the most water-scarce region in the world. Greater societal stresses can also lead to forced migration across borders. Further, many of these types of environmental risks have been found to disproportionally affect lower-income communities, women and girls.
Fact: Sustainable assets under management have increased and stabilized—and this growth could continue over time.
Sustainable investing assets have nearly tripled since 2020—and despite market volatility, both returns and fund totals have remained stable.
The above data shows that global assets under management in sustainable funds are around $3 trillion as of March 2024. These assets have grown at a 27% compound annual rate over the past four years.
We expect this growth will continue due to several factors, including:
Fact: There are sustainable investment options that span asset classes and objectives.
As sustainable investing continues gaining traction, there are many different strategies and asset classes that can be used across a portfolio.
A total of 153 new sustainable funds have launched since 2022,7 spanning across equities, fixed income and alternative vehicles. There are even sustainable products that focus on specific themes or megatrends, such as healthcare, climate or inclusivity.
Sustainable investing is also more accessible than ever. Investments minimums have gotten lower over time, allowing for more portfolio flexibility and incremental allocations.8
Sustainable investing offers unique opportunities to better align a portfolio with personal goals beyond just financial returns. Contact your J.P. Morgan team to learn more about our different approaches to sustainability and how you can get started.
1Clinker is a byproduct of cement production. For every tonne of clinker produced, nearly a tonne of CO2 is emitted, making it responsible for 90% of concrete’s carbon footprint, https://www.ecocemglobal.com/en-us/our-company/the-future-of-cement/
2All case studies are shown for illustrative purposes only and are hypothetical.
3Deloitte, “2024 Gen Z and Millennial Survey” (2024).
4Net Zero Tracker, October 2023.
5European Union, “Sustainability-related disclosure in the financial services sector” (2024).
6JPMorganChase and Jamie Dimon, “Chairman and CEO Letter to Shareholders” (April 2024).
7Morningstar, “What Are Sustainable Funds and How Have They Performed?” (February 2024).
8J.P. Morgan Private Bank, “Sustainable Investing” (2024).
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