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sustainable-signals-sustainable-investing-opportunities | Morgan Stanley

  • Institutional investors globally continue to embrace sustainable investing, with 77% reporting an increased interest since May 2020
  • Sustainable investing market growth could accelerate if asset managers better align ESG investment practices, products and reporting with asset owner priorities
  • Institutional investors express a desire for enhanced data to measure environmental and social impact, and access to more highly skilled sustainable investing talent

New York –

Asset managers have the opportunity to meet asset owners’ growing demands for sustainable investment practices, products and reporting, according to new research by the Morgan Stanley Institute for Sustainable Investing. The latest in the Firm’s Sustainable Signals series, this institutional investor survey polled 110 asset owners in North America, Europe and Asia, as well as 201 asset managers across the same regions to understand what asset owners want and what asset managers are offering—and where the gaps lie in delivering environmental, social and governance (ESG) solutions.

“The results of our latest Sustainable Signals survey show that sustainable investing remains an important focus area for institutional investors globally, with the vast majority reporting an increased interest over the past two years,” said Jessica Alsford, Chief Sustainability Officer and CEO of the Institute for Sustainable Investing at Morgan Stanley. “At the same time, our findings show a significant opportunity for asset managers to better align with asset owner priorities in areas including sustainable investing practices and policies, access to key ESG data and metrics, and development of new sustainable investment products. Closing these gaps could help to boost the credibility and adoption of sustainable investing strategies among institutional investors across the globe.”

According to the survey, the majority of asset managers and owners (77%) reported increasing interest in sustainable investing since May 2020, driven by pressures from clients and investors, shifting public sentiment and regulatory developments. Eighty-five percent of asset managers and 83% of asset owners state that they already implement or plan to implement sustainable investing in all or part of their portfolios. Regional differences were observed as well, with EMEA outpacing other geographies to date, but APAC respondents expressing the most interest in expanding their sustainable investing approach and products in the next 24 months.

However, there is a gap between asset managers and asset owners, with three key areas identified in the survey:

  • Sustainable Investing Practices and Policies – The largest gap in sustainable investing practices relates to ESG reporting and disclosure (49%) – with only 39% of asset managers reporting ESG impact alongside financial performance, despite 88% of asset owners saying they seek third-party managers that provide this information.
  • New and Expanded Sustainable Investing Products – 50% of asset owners identified climate change as their top thematic investment priority, while just 33% of asset managers have product offerings that meet that demand. The disconnect extends to additional areas where there is a gap between asset manager products or solutions compared to asset owner interest on themes including water solutions (19%) and education (10%).
  • Sustainable Investing Data & Metrics – 82% of asset owners want managers to provide carbon footprint data, but only 63% of asset managers surveyed offer this information. The biggest gap lies with fund managers providing climate risk related data to investors, like stress testing and scenario analysis.

In addition to revealing gaps in asset owner and asset manager sustainability priorities, the survey highlights two main challenges to growth, including insufficient data and a talent gap. Eight in 10 asset owners said they lack data to adequately measure their investments’ environmental and social impact, and more than half of institutional investors (57%) agree that sustainable investing loses credibility when investors can’t measure impact.

Another hurdle identified by institutional investors is an industry-wide talent gap. While a majority of asset managers (66%) and asset owners (53%) report increasing their headcount of sustainable investing specialists between May 2020 and May 2022, they also said the talent pool is still not meeting their hiring demands, with just 39% of asset managers and 23% of asset owners finding enough qualified individuals to meet their organizations’ needs.

View the full results of the Sustainable Signals survey here.

About Morgan Stanley

Morgan Stanley (NYSE: MS) is a leading global financial services firm providing a wide range of investment banking, securities, wealth management and investment management services. With offices in 41 countries, the Firm’s employees serve clients worldwide including corporations, governments, institutions and individuals. For further information about Morgan Stanley, please visit www.morganstanley.com.

About Morgan Stanley Institute for Sustainable Investing

The Morgan Stanley Institute for Sustainable Investing (The Institute) builds scalable finance solutions that seek to deliver competitive financial returns while driving positive environmental and social impact. The Institute creates innovative financial products, thoughtful insights and capacity building programs that help maximize capital to create a more sustainable future. For more information about the Morgan Stanley Institute for Sustainable Investing, visit www.morganstanley.com/sustainableinvesting.

Disclosures:

This has been prepared for informational purposes only and is not a solicitation of any offer to buy or sell any security or other financial instrument, or to participate in any trading strategy. This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Securities discussed in this report may not be appropriate for all investors. It should not be assumed that the securities transactions or holdings discussed were or will be profitable. Morgan Stanley recommends that investors independently evaluate particular investments and strategies and encourages investors to seek the advice of a Financial Advisor.

Information contained in this material is based on data from multiple sources and Morgan Stanley makes no representation as to the accuracy or completeness of data from sources outside of Morgan Stanley. Morgan Stanley makes every effort to use reliable, comprehensive information. We have no obligation to tell you when opinions or information in the report change.

Past performance is not a guarantee or indicative of future performance. Historical data shown represents past performance and does not guarantee comparable future results. This material contains forward-looking statements and there can be no guarantee that they will come to pass.

The returns on a portfolio consisting primarily of Environmental, Social and Governance (“ESG”) aware investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria. Diversification does not guarantee a profit or protect against loss in a declining financial market.

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