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:
|🇭🇰 Hong Kong||31%||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)|
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:
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.
|Year||Renewable energy||Storage, electrification,|
carbon capture, other
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 Issuance||2012||2016||2020|
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:
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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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.
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 (%)|
|Excavators and Haulers||16%|
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.
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.
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.
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.”
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.
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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