Investment bank JP Morgan worked with Blackrock to launch new suite of fixed income index, the JP Morgan ESG index (JESG).
The idea for the new composite index was conceived in collaboration with Blackrock to address “growing demand from bond investors looking for a benchmark that targets emerging market (EM) issuers with strong ESG practices”, the group said in a statement.
Venezuelan sovereign debt and bonds issued by its state-owned oil company PDVSA are among the exclusions in the ESG index, while Lebanese, Nigerian and Pakistani government debt has also been excluded.
Last year, Goldman Sachs Asset Management came under fire for providing indirect financial support for Venezuela’s autocratic regime by buying $3bn of PDVSA debt, which was labelled “hunger bonds” by critics of the move. JP Morgan was also criticised for its inclusion of Venezuela in its widely-tracked emerging market debt indices.
The new index is independently managed by JP Morgan and will cater to investors looking to gradually incorporate ESG and responsible investing in their overall fixed income investment strategies by anchoring its methodology around the bank’s widely used flagship indices such as the EMBI, GBI-EM and the CEMBI.
Joyce Chang, global head of research for JP Morgan said: “We are launching the JP Morgan ESG index (JESG), the first-of-its kind in emerging markets fixed income, to promote responsible investing. Blackrock played a critical role in its inception.”
Gloria Kim, head of the global index research group at JP Morgan, added: “Responsible investing is becoming the cornerstone of many of our clients’ strategies and having access to a proper global fixed income benchmark that integrates ESG is essential.”
Sergio Trigo Paz, head of Blackrock emerging market debt, said: “Sustainable investing is about investing in progress and pioneering better ways of doing business. Strong ESG practices positively impact creditworthiness in the long term, and up until now ESG in emerging market debt has been more bespoke and project-based, as opposed to providing solutions at scale.
“Establishing these benchmarks will be instrumental in redefining the investment universe and setting an industry standard to help make ESG investment within EMD more broadly accessible to all investor types. This is a big step forward for emerging market investment.”
The initial JESG is available for the EMBI Global Diversified, GBI-EM Global Diversified and CEMBI Broad Diversified. There are five components in the JESG methodology once the baseline index is selected: define the data inputs; establish JESG index scores; apply integration mechanics; consider ethical factors and exclusion and calculate new ESG weights. These newly calculated JESG index scores will be systematically applied to determine the new ESG weights in the index, and issuers with better ESG scores will have their weights increased relative to their baseline index weights. The JESG suite will also overweight green bond issuances.
JESG index scores for over 170 countries and more than 650 issuers are calculated daily, using data from Sustainalytics, RepRisk, and Climate Bonds Initiative (CBI) as inputs.
The JESG indices are produced every business day and rebalanced on the last business day of the month. Index data is available on Bloomberg (JPMX) and on DataQuery via JP Morgan Markets.
