Cop26

Selecting Stocks for an Environmentally Sustainable Future

The transition to a low-carbon economy will yield many opportunities, but investors will require an integrated and disciplined approach, says Paul Quinsee, Global Head of Equities, J.P. Morgan Asset Management.

Even before COP26, the relevance of sustainability was increasingly obvious to governments, companies, consumers and investors. Building a more sustainable world is both an urgent task, with the increasing focus on decarbonisation goals by 2030, and a long-term one that will span decades.

Sustainability is driving decisions at all levels of the economy. Consumers are increasingly opting for more sustainable choices in their daily lives, from reusable shopping bags to plant-based meat substitutes. Companies are factoring sustainability into their long-term investment plans, such as incorporating goals to achieve net zero carbon emissions and reduce waste. And governments around the world are making policy decisions to support and encourage the transition to a low carbon economy.

At J.P. Morgan Asset Management, we believe that to be successful investors, this massive secular shift must be incorporated into investment decisions. That’s why we started to incorporate sustainability into our investment processes years ago, and why we expect to grow our sustainable investing capabilities significantly in the coming years. Also, with our clients increasingly demanding that their money be managed in ways that target ESG factors, the pressure on companies and investment portfolios to act sustainably will increase further.

Investing to protect the environment

Following COP26 in Glasgow, climate and environmental topics are top of mind for many investors. Within climate, the challenge of cutting carbon emissions has moved high up on the sustainability agenda as one of the largest and most pressing themes. The global effort to limit the rise in temperatures will span several decades and require trillions of dollars of new investment across a wide range of economic activities.

Decarbonisation requires significant investment in the development and deployment of renewable energy sources. Wind and solar power currently account for less than 10% of the global energy supply; we expect these sources to triple their contribution by 2030 and become the dominant sources of energy by 2050.

Decarbonisation will result in a general shift towards electrification, a trend that will drive growth across many industries. Electric vehicles will be one of the most visible signs of this change. One million electric vehicles currently drive on US roads; that number could increase to 17 million by 2030, when we expect a quarter of all vehicles sold to be electric – up from just 6% today. All those electric vehicles will need to be charged, meaning the current supply of 100,000 charging stations in the US will have to increase by at least 20 times.

Charging stations are just one type of infrastructure where we expect to see significant investment and growth. Less visible to consumers but just as essential are power grids. These critical pieces of infrastructure need to be both expanded and updated to incorporate renewable sources of energy. Electrification and other efficiency innovations will also spur activity in other types of infrastructure, such as commercial and residential buildings, where more efficient construction will help drive down energy consumption.

Improvements in efficiency will impact sectors ranging from infrastructure to agriculture. Technology will have a large role to play in making many industries more sustainable. In agriculture, for example, the adoption of precision farming techniques has the potential to cut the use of weed killer by 90%.

Identifying investable ideas

We share the enthusiasm of our clients for these exciting new trends, which will transform the global economy over the coming decades. As investors, we are committed to finding the best investable ideas. Already, we see some over-excitement and potential bubbles in some areas of the market. We believe that a long-term theme, such as sustainability, requires taking a long-term view, and we invest in companies only after thorough research that incorporates detailed ESG analysis while employing discipline on valuation.

Transitioning to a sustainable economy requires enormous investment. By taking ESG factors into account in all our portfolios, we – and our clients – can help ensure that capital flows to the companies that are building a more sustainable future.

NOT FOR RETAIL DISTRIBUTION: This communication has been prepared exclusively for institutional, wholesale, professional clients and qualified investors only, as defined by local laws and regulations. The views contained herein are not to be taken as advice or a recommendation to buy or sell any investment in any jurisdiction, nor is it a commitment from J.P. Morgan Asset Management or any of its subsidiaries to participate in any of the transactions mentioned herein. Any forecasts, figures, opinions or investment techniques and strategies set out are for information purposes only, based on certain assumptions and current market conditions and are subject to change without prior notice. All information presented herein is considered to be accurate at the time of production. This material does not contain sufficient information to support an investment decision and it should not be relied upon by you in evaluating the merits of investing in any securities or products. In addition, users should make an independent assessment of the legal, regulatory, tax, credit and accounting implications and determine, together with their own financial professional, if any investment mentioned herein is believed to be appropriate to their personal goals. Investors should ensure that they obtain all available relevant information before making any investment. It should be noted that investment involves risks, the value of investments and the income from them may fluctuate in accordance with market conditions and taxation agreements and investors may not get back the full amount invested. Both past performance and yield are not a reliable indicator of current and future results. J.P. Morgan Asset Management is the brand for the asset management business of JPMorgan Chase & Co. and its affiliates worldwide. To the extent permitted by applicable law, we may record telephone calls and monitor electronic communications to comply with our legal and regulatory obligations and internal policies. Personal data will be collected, stored and processed by J.P. Morgan Asset Management in accordance with our privacy policies at https://am.jpmorgan.com/global/privacy. This communication is issued by the following entities: In the United States, by J.P. Morgan Investment Management Inc. or J.P. Morgan Alternative Asset Management, Inc., both regulated by the Securities and Exchange Commission; in Latin America, for intended recipients’ use only, by local J.P. Morgan entities, as the case may be; in Canada, for institutional clients’ use only, by JPMorgan Asset Management (Canada) Inc., which is a registered Portfolio Manager and Exempt Market Dealer in all Canadian provinces and territories except the Yukon and is also registered as an Investment Fund Manager in British Columbia, Ontario, Quebec and Newfoundland and Labrador. In the United Kingdom, by JPMorgan Asset Management (UK) Limited, which is authorized and regulated by the Financial Conduct Authority; in other European jurisdictions, by JPMorgan Asset Management (Europe) S.à r.l. In Asia Pacific (“APAC”), by the following issuing entities and in the respective jurisdictions in which they are primarily regulated: JPMorgan Asset Management (Asia Pacific) Limited, or JPMorgan Funds (Asia) Limited, or JPMorgan Asset Management Real Assets (Asia) Limited, each of which is regulated by the Securities and Futures Commission of Hong Kong; JPMorgan Asset Management (Singapore) Limited (Co. Reg. No. 197601586K), this advertisement or publication has not been reviewed by the Monetary Authority of Singapore; JPMorgan Asset Management (Taiwan) Limited; JPMorgan Asset Management (Japan) Limited, which is a member of the Investment Trusts Association, Japan, the Japan Investment Advisers Association, Type II Financial Instruments Firms Association and the Japan Securities Dealers Association and is regulated by the Financial Services Agency (registration number “Kanto Local Finance Bureau (Financial Instruments Firm) No. 330”); in Australia, to wholesale clients only as defined in section 761A and 761G of the Corporations Act 2001 (Commonwealth), by JPMorgan Asset Management (Australia) Limited (ABN 55143832080) (AFSL 376919). For U.S. only: If you are a person with a disability and need additional support in viewing the material, please call us at 1-800-343-1113 for assistance. Copyright 2021 JPMorgan Chase & Co. All rights reserved. 09v0211511105028.

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