J.P. Morgan has launched a new suite of global fixed income indices, the J.P. Morgan ESG (JESG), which integrates environmental, social, and governance (ESG) factors in a composite benchmark. The idea for the 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 new index is independently managed by J.P. 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.

“We are launching the J.P. 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 and we are excited to see this idea come to fruition,” says Joyce Chang, global head of research for J.P. Morgan.

“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," adds Sergio Trigo Paz, head of BlackRock emerging market debt.

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 650-plus issuers are calculated daily, using data from Sustainalytics, RepRisk, and Climate Bonds Initiative (CBI) as inputs. Ethical screening is also applied for the following controversial sectors: thermal Coal, tobacco, weapons and any violator of the United Nations Global Compact (UNGC) principles.