The ESG risk of JPM USD Emerging Markets Sov Bd ETF's holdings is comparable to its peers in the Emerging Markets Fixed Income category, thus earning an average Morningstar Sustainability Rating of 3 globes. Funds in the same category rated 4 or 5 globes tend to hold securities less exposed to ESG risk. ESG risk measures the degree to which material environmental, social, and governance issues, such as climate change, biodiversity, human capital, as well as bribery and corruption, could affect valuations. ESG risk differs from impact, which is about driving positive environmental and social outcomes for society’s benefit.
JPM USD Emerging Markets Sov Bd ETF promotes environmental and/or social characteristics in accordance with Article 8 of the Sustainable Finance Disclosure Regulation. Funds classified by their managers as aligning with Article 8 or Article 9 would have a higher probability to drive positive ESG outcomes. Jpm Usd Emerging Markets Sov Bd Etf shows 10.6% involvement in carbon solutions. This percentage surpasses the 7.5% average involvement of its peers in the Other Bond category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. The fund aims to avoid or minimize holdings in companies breaching international norms, including the UN Global Compact or the Universal Declaration of Human Rights.
An ESG issue worthy of special attention is JPM USD Emerging Markets Sov Bd ETF's carbon risk exposure. The fund’s asset-weighted Carbon Risk Score of 42.1 is classed as high. Investee companies of this portfolio are therefore positioned to fare poorly in the transition to a low-carbon economy. Investments with high carbon risk classification will likely be disadvantaged in the transition to net zero, while those with low or negligible carbon risk may fare better. Currently, the fund has 68.9% involvement in fossil fuels, which is high in both absolute and relative terms. The average peer in the same Other Bond category has 13.3% exposure to fossil fuel-related businesses. Companies are considered involved in fossil fuels if they derive at least 5% of their revenue from thermal coal, oil, and gas. The fund has extremely high exposure (38.12%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they can damage the reputation of both companies themselves and their shareholders.
By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, and and thermal coal. The fund mostly fulfills this goal; however, it does exhibit 0.69% exposure to companies involved in thermal coal. This compares with 1.12% for its average peer in the Emerging Markets Fixed Income category.