This fund has a Morningstar Sustainability Rating of 5 globes, indicating that the ESG risk of holdings in its portfolio is rather low relative to those of its peers in the Morningstar US Equity Small Cap category. ESG risk measures the degree to which material environmental, social, and governance issues, such as 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.
Based on its latest prospectus, sustainability or ESG factors are a focus in the investment process of JPMorgan Small Cap Sustainable Leaders. Funds with ESG-focused mandates are more likely to deliver positive sustainability outcomes. One key area of strength for JPMorgan Small Cap Sustainable Leaders is its low Morningstar Portfolio Carbon Risk Score of 8.57 and very low fossil fuel exposure over the past 12 months, which earns it the Morningstar Low Carbon Designation. Thus, the companies held in the portfolio are in general alignment with the transition to a low-carbon economy.
Its 12.5% involvement in carbon solutions is higher than the 5.9% average involvement of its peers in the Small Blend category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. No companies held by JPMorgan Small Cap Sustainable Leaders are recognized as being involved in controversies at a high or severe level. 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, thermal coal, and and small arms. Yet this goal is far from achieved, as the fund exhibits 1.75% exposure to thermal coal. This compares with 1.03% for its average peer in the US Equity Small Cap category.