A majority of institutional asset owners are now pursuing sustainable investing to manage risk and drive returns, according to a new survey published today by the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Investment Management. The new survey polled 118 public and corporate pensions, endowments, foundations, sovereign wealth entities, insurance companies and other large asset owners worldwide, 60% of which had total assets over $10 billion. The survey gathered insights about trends, motivations, challenges and implementation approaches in sustainable investing. By rounding out the sustainable investing landscape with the views of asset owners, this work builds on Morgan Stanley’s previous Sustainable Signals studies focused on individual investors and asset managers.
“As interest in sustainable investing continues to rise, we see investors pursuing a range of approaches with their assets,” said Rui de Figueiredo, Co-Head and CIO of the Solutions and Multi-Asset business at Morgan Stanley Investment Management and Head of the Division’s Sustainability Council. “The growing sophistication among asset owners about when and how to integrate ESG into the investment process creates opportunities to tailor strategies and provide customized portfolio solutions that help investors meet their financial and impact goals.”
Asset owners cite risk management and potential for returns as top drivers of interest in sustainable investing. But despite the recognition of these opportunities, asset owners still highlighted the need for better data and investment information as a challenge to greater uptake.
“The survey results identify a strong commitment to incorporating ESG criteria into investment strategies among asset owners. However, there is still a gap between interest and implementation – with investors citing access to quality ESG data as a top concern,” said Hilary Irby, Co-Head of Global Sustainable Finance at Morgan Stanley. “With this growing momentum in sustainable investing, third-party managers have an opportunity to increase implementation by improving reporting tools and education, and developing capabilities to align portfolios with owners’ unique objectives.”
“The increased uptake of ESG is particularly notable because it is not a reversible trend. Every new instance of ESG adoption creates a new high watermark for the industry,” added Paul Price, Global Head of Distribution at Morgan Stanley Investment Management. “The global results are significant, but it is important also to understand how clients are adopting ESG regionally. Every investment market has its own drivers and barriers, and as a business, our policy is to orientate our solutions around our clients’ needs, so understanding those differences is key for us.”
Results from the survey identify sustainable investing trends reflecting the increasing growth in the impact investing sector as a whole. Key findings include:
Momentum is high in sustainable investing
84% of asset owners are pursuing or actively considering pursuing ESG integration in their investment process
Of those, 60% began implementing ESG strategies in the last four years and 37% within the last two years
70% of asset owners have already implemented ESG strategies; 49% of those have implemented ESG across their entire portfolio and 21% have implemented them in a portion of their portfolio
Increased sophistication and adoption of multiple approaches
78% said risk management was an important factor driving sustainable investing at their organizations, and 77% said return potential was important
Asset owners are pursuing multiple approaches to sustainable investing, led by ESG integration
78% seek to align their investments with the U.N. Sustainable Development goals or are considering doing so
Still room to grow
77% of respondents agree they have a responsibility to address sustainability through their investments, yet;
Proof of market-rate financial performance remains the top challenge
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