ESG
Explained
From consumers to policymakers, many economic actors are backing sustainability—creating a powerful portfolio opportunity.
7 Essentials You Need to Know
In just a few years, ESG investing has grown in prominence.
How can investors capitalize on this trend?
What is ESG?
The use of environmental, social, and governance
factors to inform investment decisions
of retail investors are
interested in ESG
69%
Yet only
actually invest in products
that incorporate ESG factors
10%
Source: CFA Institute | June 18, 2020
To properly invest in ESG,
it's important to first fully
understand it.
Here are seven essential reasons that help investors
understand the growing importance of ESG investing.
The 7 Essentials
ESG considerations are affecting consumer
preferences and public attitudes.
A majority of the public is willing to spend more to ensure that their purchases will be sustainable.
“I buy from companies that are conscious of protecting the environment.”
% of respondents
Agree
Disagree
Hong Kong
Japan
Australia
Germany
Korea
U.S.
Singapore
China
Indonesia
31%
33%
47%
47%
48%
17%
22%
15%
11%
17%
51%
52%
71%
61%
15%
9%
3%
3%
Source: J.P. Morgan Asset Management; PwC. PwC’s June 2021 Global consumer insights pulse survey was conducted in March 2021. It polled 8,681 consumers across 22 territories. The respondents were at least 18 years old and were required to have shopped online at least once in the previous year. Data reflect most recently available as of June 30, 2022.
This change has ripple effects,
and is expanding from the individual
to the macro level.
Why it matters
Consumers are making decisions with sustainability in mind, and they’re voting with their wallets.
Policymakers are setting
environmental and social goals.
1
2
3
4
5
6
7
Governments of the world’s top greenhouse gas (GHG) emitters are working towards a net zero future, in which emissions are reduced or offset.
GHG Emissions (1990-2060P)
Tonnes per year, CO equivalent
2
Why it matters
Altogether, over 80 countries — representing 75% of global GHG emissions— have set ambitious net zero emissions targets for the coming decades.
For some, the shift to sustainability may be a headwind.
To achieve net zero emissions by 2050, traditional energy needs to account for a much smaller proportion of the global energy mix.
Global Energy Mix
% of primary energy consumption
Renewables
Nuclear and Hydro
Oil
Gas
Coal
Source: J.P. Morgan Asset Management; Climate Action Tracker. Current policy forecast is the post-Covid forecast provided by Climate Action Tracker. Data reflect most recently available as of June 30, 2022.
Forecasts, projections and other forward-looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections or other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.
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 reflect most recently available as of June 30, 2022.
Forecasts, projections and other forward-looking statements are based upon current beliefs and expectations. They are for illustrative purposes only and serve as an indication of what may occur. Given the inherent uncertainties and risks associated with forecasts, projections or other forward statements, actual events, results or performance may differ materially from those reflected or contemplated.
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.
While the environment dominates discussion, ESG is further-reaching.
The recent jump in corporate
mentions of social issues
signals rising interest and
regulatory pressure.
ESG creates significant opportunities
for those at the forefront of change.
Billions of dollars are flowing into the energy transition.
Global Investment in Energy Transition
As the name suggests, ESG is all-encompassing, with a scope that goes far
beyond the environment.
ESG covers more than climate—the focus
on Social and Governance is growing too.
Alternate View
Global Investment in Energy Transition
US$, nominal
Renewables
Storage, electrification, carbon capture, other
2004
2008
2012
2016
2020
2004
2020
$304B
$197B
USD 304B
USD 197B
Source: Bloomberg NEF, J.P. Morgan Asset Management. Storage, electrification, other includes hydrogen, carbon capture and storage, energy storage, electrified transport and electrified heat. Data are as of June 30, 2022.
Why it matters
Sustainability is propelling investment
opportunities with return potential.
USD 277B
USD 101B
USD 24B
USD 25B
Corporate Mentions of Diversity/Inclusion in Earnings Calls
Number of mentions for MSCI ACWI companies, four-quarter moving average
Why it matters
Source: J.P. Morgan Asset Management, MSCI. Data as of June 30, 2022.
ESG is affecting the investment landscape.
The demand for sustainable fixed income strategies is also growing rapidly, with sustainable bond issuance doubling in 2020.
200
150
100
2021
2019
2017
2015
2013
2011
1970
2050P
2040P
1980
1990
2000
2010
2020
2030P
Net zero forecast
100%
80%
60%
40%
0%
20%
Global Sustainable, Social and Green Bond Issuance
by Morningstar Category Quartile
20B
15B
10B
5B
0
1990
2000
2010
2020
2030P
2040P
2050P
2060P
China
U.S.
EU
However, it's not too
late to change tack.
Current policy forecast
Path to net-zero
Why it matters
Sustainable investing is not limited to equities— environmental and social projects have increasing
access to financing.
Source: J.P. Morgan Asset Management; Climate Bonds Initiative. Data as of June 30, 2022.
Share of Total Net Flows into Sustainable Strategies
ESG is changing the nature of investment flows.
Why it matters
We expect the demand for sustainable funds will continue to increase.
Source: J.P. Morgan Asset Management, Morningstar. RoW is rest of world. Data as of June 30, 2022.
2021
2020
2019
2018
2017
Incorporating ESG criteria into investing is as much about doing well, as it is about doing good.
Find out more at our
sustainable investing hub.
RoW
U.S.
EU
USD 239B
USD 157B
USD 33B
/
/
/
/
2012
2016
2020
-1%
0%
2%
4%
31%
2%
1%
22%
10%
24%
62%
9%
6%
63%
14%
Green
Social
Sustainable
USD 296B
USD 175B
USD 257B
USD 84B
USD
7B
USD 4B
USD
3B
USD 1B
USD 1B
400
350
300
250
