Exclusion is most favoured ESG strategy

Research from JP Morgan has highlighted how ESG strategies are being used to manage ESG funds.

Of the major ESG strategies, exclusions and integration remain the most popular. For global asset under management, JP Morgan found the most popular strategies are:

Negative/ Exclusions Screen: 35% of global AUM

ESG Integration: 32% of global AUM

Norms Based Screen: 9% of global AUM

Positive/Best in Class: 4% of global AUM

JP Morgan has also published those companies that are most and least attractive:

Negative/ Exclusions Screen

Top 5:

Barratt Devs
Lloyds Banking

Bottom 5:
CNP Assurances

ESG Integration

Top 5:
Kuehne & Nagel

Bottom 5:
Swiss Life
Johnson Matthey
United Internet
Gas Natura

More generally, JP Morgan also found the past 6-months has seen ESG show excess long returns of 7.3% with performance starting to favour Social and Governance issues. They warn that ESG investing is to remain highly vulnerable over the short term due to extreme valuations and concentrated style / sector exposure.

The research headed up by Khuram Chaudhry finds that, “ESG valuations now reside above the upper standard deviation band on a prospective P/E relative of 1.4, which is more or less at an all-time high. Moreover, the underlying sector tilts continue to favour long Technology and short Energy at a time when the prospect of rising bond yields make ESG strategies highly vulnerable to rotational risk or a valuation de-rating”.