JPMorgan Chase has launched a series of initiatives which provide leadership across a wide range of critical issues including economic inclusion, sustainable development, and the transition to a low-carbon economy. Underpinned by a landmark US$2.5 trillion financing commitment in these three areas over the next decade, the bank's initiatives have the potential to raise the bar for the private sector's contribution to addressing global issues, and to provide an example of how the finance industry can deploy capital to solve these core challenges. Three women are leading the firm's mission to be a force for a good in the world, developing innovative solutions across the bank's business, drawing on its and its clients' capital to fund a sustainable and inclusive future.
The World is Facing Interlinked Challenges
JPMorgan Chase is the world's largest publicly traded financial services institution with total assets in excess of US$3.7 trillion and a network spanning over 60 countries serving millions of customers. As one of the world's leading financial institutions, the organization is a global leader in the development of new products and services, new markets and services. Given this footprint, the expectations are high for the bank to also take a leading role in tackling many of the challenges facing the finance industry and the world.
As a key member of Business Roundtable, JPMorgan Chase took a leading role in redefining the
The United Nations Sustainable Development Goals (SDGs), agreed by the UN General Assembly in 2015, are perhaps the world's most comprehensive blueprint for achieving a better and more sustainable world, captured in 17 high levels goals for the global community to achieve by 2030. The global coronavirus pandemic and the events of 2020 have highlighted the interrelated nature of the challenges facing the world, particularly those of the low carbon economy, sustainable development, and broad-based inclusion. These three interlinked challenges represent urgent priorities for economies and societies around the world, with ambitious governments and private sector institutions emerging as global leaders in developing and implementing solutions.
Based on the scope and scale of its engagement, it is clear that JPMorgan Chase has chosen to lead in the path to a better more sustainable world and that it is placing a series of increasingly large bets that mobilize the bank's capital, people and other resources for maximum impact.
A Multi-Pronged Approach to being a Force for Good
Having exceeded its 2020 target to finance and facilitate US$200 billion to drive action on
climate change and advance sustainable development, the bank has committed a more than
ten-fold step up
As the Global Head of Sustainability for JPMorgan Chase, Marisa Buchanan plays an integral role in the firm’s efforts to manage this transition and its risks and advance environmentally sustainable solutions for clients and its operations. Under her leadership, the firm is working with its clients to align key sectors of its financing portfolio with the goals of the Paris Agreement, with a goal toward setting the world on a path for achieving net-zero emissions by 2050. The company has also committed to be carbon neutral in its operations every year starting in 2020.
As the Global Head of Sustainability for JPMorgan Chase, Marisa Buchanan plays an integral role in the firm's efforts to manage this transition and its risks and advance environmentally sustainable solutions for clients and its operations. Under her leadership, the firm is working with its clients to align key sectors of its financing portfolio with the goals of the Paris Agreement, with a goal toward setting the world on a path for achieving net-zero emissions by 2050. The company has also committed to be carbon neutral in its operations every year starting in 2020.
As part of this effort, the firm has published 2030 carbon intensity targets for the oil & gas, electric power and auto manufacturing sectors, with reduction targets for further sectors currently in the works. To facilitate these targets, in 2020, the firm has launched a dedicated Center for Carbon Transition to provide its corporate clients with centralized access to sustainability-focused financing, research and advisory solutions. In addition, in early 2021, the firm's Commercial Banking business launched a green economy specialized industry team to support the development and growth of companies in renewable energy, efficiency technology, sustainable finance, and agriculture and food technology.
The bank is aware of considerable transition challenges arising from Paris aligned emission
reductions. Says Buchanan: "It's not as simple as just walking away from fossil fuels,
because many sectors still
While other banks outside of the very largest are unlikely to match JPMorgan Chase's trillion-dollar low carbon commitment, its commitment to align its financing activities with the goals the Paris Agreement may well become a trigger for the broader industry to follow in a country that has only recently reaffirmed its participation in the agreement.
JPMorgan Chase broke new ground last year when it launched the J.P. Morgan Development Finance Institution (JPM DFI) to expand its activities in development finance and attract private investment to emerging markets, with a focus on alignment with the UN’s Sustainable Development Goals (SDGs). The JPM DFI supports a growing array of clients interested in the development impact of projects and transactions in emerging markets.
The managing director of the JPM DFI, Faheen Allibhoy, an 18-year veteran of the International Finance Corporation, sees the model as an opportunity to galvanize private sector development capital, "By supporting the origination and distribution of financial products to investors and lenders interested in financing development, the DFI aims to build development finance as a traded asset class," she says. This aims to create a market for these assets and has potential to draw in huge amounts of capital that is currently reserved for public markets.
The interest and appetite from clients, including institutional investors, in environmental, social, and governance topics and impact investing is growing strongly, and in its first year the DFI qualified over 400 transactions as development finance amounting to US$146bn, well above its initial US$100bn target.
In addition to mobilizing private sector capital in emerging markets, the DFI has
collaborated with the development finance community and brought in government funded
development banks — including the Netherlands Development Finance Company, or FMO, the
German DFI DEG and the Asian
Given the increasing interest in impact investing by institutional investors, the DFI model pioneered by the bank may well emerge as a new standard for the mobilization of private sector capital in these areas, partnering with traditional DFIs in scaled public-private partnerships to fund development globally.
Structural barriers in the U.S. have created profound racial inequalities leading to a significant wealth gap. The median net worth of Black and Hispanic families is US$24,000 and US$36,000, respectively, which is 80-90% lower than the median net worth of White families at US$188,000. Further, 60% of low-income Hispanic and Black households are unbanked or underbanked––nearly twice the rate of low-income White households.
To address these issues and break down systemic barriers, JPMorgan Chase made a US$30 billion commitment to advance racial equity last year, which is the largest private sector investment to date to inclusion and equity. The commitment focuses on helping raise homeownership rates, increase access to affordable housing, bolster financial health and help grow and provide capital to small businesses for Black and Latinx people. It includes loans, equity, direct funding, and philanthropy to provide economic opportunities to underserved communities, supporting an inclusive economic recovery.
Alice Rodriguez, head of Community Impact for the firm, is leading the team working to deliver this commitment at the local level. "We are working across our business and our firm's corporate teams to create opportunity and address issues that are getting in the way of economic mobility for more people in communities that lack access to resources and that have been traditionally underserved by financial institutions."
The firm has already implemented several rounds of initiatives since the commitment was
Looking ahead, meeting the needs of underserved communities at home is also likely to provide important lessons for addressing financial inclusion in less developed markets, where banks will need to tailor their products and services, as well as customer service and delivery models to better meet the needs of these communities, a potentially important opportunity for a bank with a global footprint like JPMorgan Chase's.
Achieving the SDGs Requires Private Sector Leaders to Lead
The UN has recently increased its estimate of the annual financing gap to achieving the SDGs from US$2.5 trillion to US$4 trillion annually, highlighting the need for the scaled application of private sector capital into the themes of sustainable and inclusive development around the world.
Six years after the launch of the SDGs, it is increasingly clear that private capital is necessary critical to achieving the targets for sustainable development by 2030. During the pandemic, governments worldwide provided over US$20 trillion in stimulus for national economies and financial markets, demonstrating the power of governments. Financial institutions were critical components in keeping the financial system working and to avoid the crashes of 2008’s Global Financial Crisis where countries, corporations and small businesses collapsed. This same crisis management approach is required to address the issue funding sustainable development.
The ambitious initiatives spearheaded by these three women make it clear that JPMorgan Chase is an organization that wants to lead the private sector in deploying capital at scale on world issues, and moreover that it is taking its commitment to gender equality serious in an industry that has made only slow progress in elevating women and diversifying its leadership.
As a global financial institution active in over 60 countries managing over US$3 trillion in client assets, JPMorgan Chase clearly is well positioned to lead the industry. Having mobilized its own organization to make a scaled commitment to addressing global challenges, it must now look to building support across the industry to follow it with new commitments. In a competitive industry like finance there is no doubt that other major institutions have been stepping up to the challenge too. The first quarter of 2021 alone has seen four trillion-dollar commitments to addressing climate change and three-billion-dollar commitments to advancing racial equity made by leading US banks, and nearly US$30 trillion of AuM committed to Net Zero by 2050. The expectations are high that the banks can and must emerge as a force for good in the world if the future is to be secured.
JPMorgan Chase is an active participant in the 'Force for Good' Project on the future of capital in support of the UN Secretary General's Strategy and Roadmap for Financing the 2030 Agenda for Sustainable Development.
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The United Nation’s 2030 Agenda for Sustainable Development and accompanying Sustainable Development Goals (SDGs) are facing a funding gap of at least US$42 trillion.
Capturing Hearts and Minds to Change the Flow of Capital
The world needs to find US$4 trillion every year for the next 10 years to meet the SDG goals to 2030. The pandemic has dramatically slowed and even reversed progress on the SDGs, disproportionately impacting the most vulnerable segments of societies, with 115 million people back into extreme poverty and the equivalent of 225 million full-time jobs lost.
Merging Science and Finance to Manage Climate Risk
While the global response to climate change is a long-term one, the physical risks of climate change are both immediate and significant. For Wellington Management, the global investment management firm with over US$ 1 trillion in assets under management, solving for this challenge is something they believe in and is a key opportunity for their business.