J.P. Morgan Asset Management is stepping up its use of artificial intelligence in order to identify companies that provide solutions in the fight against climate change and loss of biodiversity. The US asset manager wants to use AI to find between 50 and 100 companies in which investors can invest through its climate solutions fund.
The search for these solution providers requires a non-traditional approach that can identify solutions providers “wherever they exist,” Jennifer Wu, global head of sustainable investing at JP Morgan, told journalists during a media webinar. Traditional selection criteria such as regions and market cap are thrown out of the window, she said.
Theme bot
“We have taken a different approach to building this portfolio, one that leverages AI and big data through a tool that we’ve developed internally called the theme bot,” she said. This bot “effectively allows our portfolio managers to go in and search whatever theme they’re interested in renewable energy, precision farming, recycling, and then the theme bot will scan through tens of millions of data sources.”
JP Morgan’s bot will review company reports, broker research, news, articles, earnings transcripts. As a first step, Wu said, this will her portfolio team with more scale and more breadth that an individual could achieve on their own. Based on the bot’s selection, the team then will perform fundamental analysis, work with research analysts and consider valuations in order to build “a high conviction, thematic portfolio”.
Global movement
JP Morgan expects that sustainability will continue to draw more interest in the financial community this year. “Sustainable disclosure has become a global movement,” said Wu. “This continues to be the case this year, as we see how Europe and China are collaborating on green taxonomy, the international sustainability standards are now formalised and also climate risk disclosure can become mandatory in the US for corporations.”
Wu said she expects “a lot of action” globally that will require attention from investors. They will need to deal with the need to balance “near term versus long term,” to consider biodiversity and to embrace data for sustainability research. “investors need to work harder to find winners of the future by doing fundamental and deep dive research,” she said.
Sustainability here to stay
“The key is not to get distracted and not be rushed to take a blanket exclusionary or inclusionary approach,” said Wu. “We believe that the long term trend towards a more sustainable future is here to stay in full force as the world moves into action and implementation with a solution oriented mindset.”
A financial and regulatory ecosystem for sustainable finance such as found in Luxembourg is necessary to help investment managers and asset managers innovate and let them find new ways of identifying investable companies, Wu said.
Critical role for Luxembourg
“The biggest change that we face as an industry is to revolutionise the way that we’ve been picking stocks. So instead of just focusing on specific sectors, can we actually use data to help us look for opportunities across the board. Having a regulatory ecosystem environment that allows for different kinds of innovation and flexibility is actually really critical for the next phase of innovation when it comes to investment management and research.”
“And it’s especially important for us to find the best available way to channel capital into the most needed area so that we can address this really big problem that we have to face in this decade, which is climate change,” Wu said. “So I think Luxembourg plays a very, very critical role in providing and fostering that environment such that innovation is possible.”
JP Morgan in December launched its new Climate Change Solutions Fund, which was also presented in the media call. The fund is an Article 9 fund under the EU’s SFDR framework, which means it is a ‘dark green’ fund that considers SRI criteria. The fund is managed by portfolio managers Francesco Conte and Sara Bellenda, together with Yazann Romahi, Chief Investment Officer for Quantitative Solutions. The fund is listed as an ETF on the New York Stock Exchange.
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