7 ESG Essentials Investors Need to Know
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7 ESG Essentials Investors Need to Know

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The following content is sponsored by J.P. Morgan Asset Management.


ESG Essentials Investors Need to Know

7 ESG Essentials Investors Need to Know

From consumers to policy makers, many economic actors are backing sustainability—and creating a powerful portfolio opportunity for investors.

The use of environmental, social, and governance factors (altogether known as ESG) is increasingly informing investment decisions. But although ESG investing has grown in prominence in a few short years, there’s a disconnect:

  • 69% of retail investors are interested in ESG, yet…
  • Only 10% actually invest in products that incorporate ESG factors

To properly capitalize on this trend, it’s important to first fully understand it.

According to J.P. Morgan Asset Management, here are seven essentials that can help investors understand the growing importance of ESG investing.

1. ESG considerations are affecting consumer preferences and attitudes.

The public is paying attention to how companies position themselves, to ensure their purchases will be sustainable.

In a survey, respondents around the world were asked whether they agree with the question, “I buy from companies that are conscious of protecting the environment.”

Here are the trends that emerged:

CountryAgreeDisagree
🇨🇳 China71%3%
🇮🇩 Indonesia61%3%
🇸🇬 Singapore52%9%
🇺🇸 U.S.51%15%
🇰🇷 Korea48%17%
🇩🇪 Germany47%11%
🇦🇺 Australia47%15%
🇯🇵 Japan33%22%
🇭🇰 Hong Kong31%17%

Source: J.P. Morgan Asset Management; PwC June 2021 Global consumer insights pulse survey. Data as of June 30, 2021.

Across markets, consumers in China seem to be the most environmentally inclined, but all countries surveyed exhibited a positive shift towards companies that support environmental protection.

Why it matters: Consumers are making decisions based on ESG considerations, and they’re voting with their wallets. This change has ripple effects, and is shifting from individuals to impacting higher levels, such as governments.

2. Policymakers are setting environmental and social goals.

Governments of the world’s top greenhouse gas (GHG) emitters are working towards a net zero future, in which GHG emissions are reduced or offset.

What is the current trajectory of GHG emissions (measured in tonnes per year of CO₂ equivalents, tCO₂e) and what is the gap we need to bridge in the race to net zero?

Year🇪🇺 EU (tCO₂e)🇺🇸 U.S. (tCO₂e)🇨🇳 China (tCO₂e)
19905.7B6.4B3.3B
20005.2B7.3B5.1B
20104.8B7.0B10.9B
20203.7B5.9B13.0B
2030P3.3B5.9B13.8B
2040P1.6B3.0B9.2B
2050P0B0B4.6B
2060P0B0B0B

Source: J.P. Morgan Asset Management; Climate Action Tracker. Data as of June 30, 2021.

Why it matters: Altogether, around 60 countries—representing over half of global GHG emissions—have set ambitious net zero emissions targets for the coming decades.

3. For some, the shift to sustainability may be a headwind.

Traditional energy needs to account for a much smaller proportion of the global energy mix, if we are to achieve the goal of net zero emissions by 2050.

Here’s what each energy source needs to contribute in terms of their share (%) of the primary energy mix, compared to past trends:

YearOilCoalGasRenewablesNuclear
and Hydro
197046.9%30.0%16.9%0.2%6.1%
198045.8%26.9%18.3%0.2%8.7%
199039.7%27.2%20.5%0.5%12.2%
200039.2%25.0%21.9%0.7%13.3%
201034.2%29.9%22.5%1.9%11.5%
2030P26.9%17.0%22.2%20.9%12.9%
2040P15.4%5.5%15.9%47.5%15.7%
2050P6.8%1.9%13.0%59.2%19.0%

Source: J.P. Morgan Asset Management; BP Energy Outlook 2020. Forecast is based on BP’s scenario for global net zero emissions by 2050. Data as of June 30, 2021.

Why it matters: The shift to renewable energy may pose a challenge for industries reliant on fossil fuels. Fortunately, it’s not too late for companies to transition.

4. ESG creates opportunities for those at the forefront of change.

Looking at the movement of global investment, billions of dollars are flowing into the energy transition.

YearRenewable energyStorage, electrification,
carbon capture, other
Total Amount
2004$33B$0B$33B
2008$157B$25B$182B
2012$239B$24B$263B
2016$277B$101B$378B
2020$304B$197B$501B

Source: J.P. Morgan Asset Management; Bloomberg NEF, BP Statistical, Eurostat, Lazard, METI. Storage, electrification, other includes hydrogen, carbon capture and storage, energy storage, electrified transport and electrified heat. Data as of June 30, 2021.

Why it matters: With interest expanding quickly, this provides a unique opportunity to tap into the nascent ESG market.

5. ESG covers more than climate—Social and Governance is growing too.

As the name suggests, ESG is all-encompassing, with a scope that goes far beyond the environment.

MSCI analyzed the corporate mentions of diversity and inclusion in earnings calls (four-quarter moving average for MSCI ACWI companies)—and found that they have almost doubled in the past two years.

Why it matters: This signals rising interest in the varied criteria that make up ESG investing.

6. ESG is affecting the investment landscape.

The demand for sustainable fixed income strategies is also growing rapidly, with global sustainable bond issuance growing over 25x between 2016-2020:

Type of Bond Issuance201220162020
Green$4B$84B$291B
Sustainable$1B$7B$176B
Social$1B$3B$237B

Source: J.P. Morgan Asset Management; Climate Bonds Initiative. Data as of 30 June 2021.

Why it matters: Growth and demand is high, and sustainable investing is not limited to equities—environmental and social projects have increasing access to financing.

7. ESG is changing the nature of investment flows.

Looking at the big picture, here’s what proportion of each country’s assets into sustainable strategies has evolved around the world:

Region/ Country20162017201820192020
🇪🇺 EU5%8%18%27%48%
🇺🇸 U.S.1%0%1%4%22%
🌏 APAC -1%-1%0%2%6%

J.P. Morgan Asset Management, Morningstar. Data as of 30 June 2021.

Why it matters: Although certain regions are leading the way, overall demand for sustainable funds is expected to continue on this upward trend.

As these seven ESG essentials make clear, sustainable investing is becoming a compelling vehicle for change worldwide. But incorporating ESG criteria into investing is as much about doing well financially, as it is about doing good.

Find out more at J.P. Morgan Asset Management’s dedicated sustainable investing hub.

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For the purposes of MiFID II, the JPM Market Insights and Portfolio Insights programs are marketing communications and are not in scope for any MiFID II / MiFIR requirements specifically related to investment research. Furthermore, the J.P. Morgan Asset Management Market Insights and Portfolio Insights programs, as non-independent research, have not been prepared in accordance with legal requirements designed to promote the independence of investment research, nor are they subject to any prohibition on dealing ahead of the dissemination of investment research. This document is a general communication being provided for informational purposes only. It is educational in nature and not designed to be taken as advice or a recommendation for any specific investment product, strategy, plan feature or other purpose 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 examples used are generic, hypothetical and for illustration purposes only. 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. 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, but no warranty of accuracy is given and no liability in respect of any error or omission is accepted. 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 yields are not reliable indicators 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), which 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 all other markets in APAC, to intended recipients only.
Our manager seeks to integrate environmental, social and governance (“ESG”) factors in the investment processes. ESG integration is the systematic integration of material ESG factors in company/issuer selection through research and risk management. It involves proprietary research on financial materiality of the ESG factors in relation to the relevant company/issuer and discretion to invest regardless of whether the company/issuer may be positively or negatively impacted by the ESG factors. Integration of ESG factors in investment processes does not imply the funds or strategies incorporate ESG factors as a key investment focus.
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The Road to Decarbonization: How Asphalt is Affecting the Planet

The U.S. alone generates ∼12 million tons of asphalt shingles tear-off waste and installation scrap every year and more than 90% of it is dumped into landfills.

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Road to Decarbonization - How Asphalt is Affecting the Planet

The Road to Decarbonization: How Asphalt is Affecting the Planet

Asphalt, also known as bitumen, has various applications in the modern economy, with annual demand reaching 110 million tons globally.

Until the 20th century, natural asphalt made from decomposed plants accounted for the majority of asphalt production. Today, most asphalt is refined from crude oil.

This graphic, sponsored by Northstar Clean Technologies, shows how new technologies to reuse and recycle asphalt can help protect the environment.

The Impact of Climate Change

Pollution from vehicles is expected to decline as electric vehicles replace internal combustion engines.

But pollution from asphalt could actually increase in the next decades because of rising temperatures in some parts of the Earth. When subjected to extreme temperatures, asphalt releases harmful greenhouse gases (GHG) into the atmosphere.

Emissions from Road Construction (Source) CO2 equivalent (%)
Asphalt 28%
Concrete18%
Excavators and Haulers16%
Trucks13%
Crushing Plant 10%
Galvanized Steel 6%
Reinforced Steel6%
Plastic Piping 2%
Geotextile1%

Asphalt paved surfaces and roofs make up approximately 45% and 20% of surfaces in U.S. cities, respectively. Furthermore, 75% of single-family detached homes in Canada and the U.S. have asphalt shingles on their roofs.

Reducing the Environmental Impact of Asphalt

Similar to roads, asphalt shingles have oil as the primary component, which is especially harmful to the environment.

Shingles do not decompose or biodegrade. The U.S. alone generates ∼12 million tons of asphalt shingles tear-off waste and installation scrap every year and more than 90% of it is dumped into landfills, the equivalent of 20 million barrels of oil.

But most of it can be reused, rather than taking up valuable landfill space.

Using technology, the primary components in shingles can be repurposed into liquid asphalt, aggregate, and fiber, for use in road construction, embankments, and new shingles.

Providing the construction industry with clean, sustainable processing solutions is also a big business opportunity. Canada alone is a $1.3 billion market for recovering and reprocessing shingles.

Northstar Clean Technologies is the only public company that repurposes 99% of asphalt shingles components that otherwise go to landfills.

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A Visual Guide to the Science Behind Cultured Meat

Cultured meat could become a $25 billion market by 2030, but investment into the technologies that underpin the industry is required.

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A Visual Guide to the Science Behind Cultured Meat

Cultured foods—also known as cell-based foods—are expected to turn our global food system as we know it on its head.

In fact, the cultured meat market is estimated to reach an eye-watering $25 billion by 2030 according to McKinsey, but only if it can overcome hurdles such as price parity and consumer acceptance. To do so, significant innovation in the science behind these products will be crucial for the industry’s growth.

In the graphic above from our sponsor CULT Food Science, we provide a visual overview of some of the technologies behind the creation of cultured meat products.

What is Cultured Meat?

To start, cultured meat is defined as a genuine animal meat product that is created by cultivating animal cells in a controlled lab environment—eliminating the need to farm animals for food almost entirely.

“Cultured meat has all the same fat, muscles, and tendons as any animal…All this can be done with little or no greenhouse gas emissions, aside from the electricity you need to power the land where the process is done.”
—Bill Gates

Because cultured meat is made of the same cell types and structure found in animal tissue, the sensory and nutritional profiles are like-for-like. Let’s dive into how these products are made.

The Science and Technology Behind Cultured Meat

The main challenge facing the cultured meat market is producing products at scale. But thanks to the vast amount of research in the stem cell biology space, the science behind cultured foods is not entirely new.

Given that we are in the very early days of applying these learnings to producing food products, those looking to invest in companies contributing to the industry’s growth stand to benefit. Here is an overview of some of the technologies that underpin the industry that you should know:

1. Bioprocess Design

This is the process of using living cells and their components to create new products. According to experts like the Good Food Institute, bioprocess design holds the key to unlocking cultured meat production at scale.

Specifically, innovation in bioreactor (where the cells grow) design represents a massive opportunity for companies and investors alike.

2. Tissue Engineering

Tissue engineering techniques are used to produce cultured meat that resembles real meat textures and flavors. The first step is taking tissue from the animal for the purpose of extracting stem cells and creating cell lines.

The extracted stem cell lines are then cultivated in a nutrient rich environment, mimicking in-animal tissue growth and producing muscle fibers inside a bioreactor. The muscle fibers are processed and mixed with additional fats and ingredients to assemble the finished meat product.

3. Cell Lines

Cell lines refer to the different types of cells that can be propagated repeatedly and sometimes indefinitely.

Access to cell lines is a major challenge facing the industry today and is an area that requires significantly more research. This is because there is not just one cell type that can be used in cellular agriculture to produce cultured food products.

4. Cell Culture Media

Cells (or cell cultures) require very specific environmental conditions. Cell culture media is a gel or liquid that contains the nutrients needed to support growth outside of the body.

More research in this space is needed to determine optimized formulations and make these products more affordable.

5. Scaffolding

Scaffolds are 3D cell culture platforms that mimic the structure of complex biological tissues, such as skeletal muscle. This platforms can be created through the use of 3D Bioprinting.

Scaffolds are predominantly made up of collagen and gelatin. The problem is these are both animal-derived ingredients which defeats the purpose of cell-based products. Therefore, more sustainable plant-derived options are also being explored.

Investing in the Future of Cultured Meat

CULT Food Science is an innovative investment platform advancing the technology behind the future of food with an exclusive focus on cultured meat, cultured dairy, and cell-based foods.

The company’s global portfolio spans four continents and includes exposure to a diverse pipeline:

  • Cell lines
  • End products
  • Scaffolding technology
  • Growth medium
  • Intellectual property

>>>Want to stay updated? Click here to subscribe to the CULT Food Science mailing list.

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