Asset owners are prioritising ESG as a way to mitigate risk, says Morgan Stanley

The majority of asset owners actively integrate ESG factors into their investment process and consider sustainable investing a risk mitigation strategy, according to a new survey published today by the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Investment Management.

The new survey polled 110 public and corporate pensions, endowments, foundations, sovereign wealth entities, insurance companies and other large asset owners worldwide, 92 per cent of which had total assets over USD1 billion. The survey gathered insights about trends, motivations, challenges and implementation approaches in sustainable investing. This work builds on the Institute’s research tracking sustainable investing trends over the last six years through its Sustainable Signals survey series focused on individual investors, asset owners and asset managers.

“These results provide an additional proof point that sustainable investing has become table stakes,” says Audrey Choi, chief sustainability officer and CEO of the Institute for Sustainable Investing at Morgan Stanley. 

“This year’s survey found more asset owners identifying return potential as a key driver for sustainability integration, and accordingly many envision a future where they will limit their allocations to managers with formalised sustainability approaches.”

Ted Eliopoulos, vice chairman at Morgan Stanley Investment Management, says: “The majority of investors surveyed believe that companies with ESG-aligned practices can be better long term investments, but continue to need better reporting and data to evaluate holdings on those criteria. Investment managers can play a critical role supporting clients as they implement tools to assess how investments align with their sustainability goals.”

Nearly eight in ten (78 per cent) investors surveyed agree that sustainable investing is a risk mitigation strategy. Additionally, asset owners already practising sustainable investing have identified clear benefits to reputation and stakeholder engagement.

“Sustainable investing has gathered enough momentum in recent years to reach the mainstream, and this survey aims to track the way asset owners are integrating these considerations over time,” says Matthew Slovik, head of Global Sustainable Finance at Morgan Stanley.

“As the appetite for sustainable investing rapidly accelerates, we see technology and third-party investment managers playing a key role in measuring sustainability and further driving adoption.”

Results from the survey identify several trends reflecting the increasing growth in sustainable investing as a whole. Key findings include:

  • Asset owners increasingly embrace sustainable investing
  • Adoption increased from 70 per cent in 2017 to 80 per cent in 2019
  • A further 15 per cent of respondents are actively considering sustainable investing adoption
  • Nearly six in ten (57 per cent) can envision a time when they will only allocate to investment managers with a formal approach to ESG
  • Asset owners seek better tools and data to measure sustainability
  • Asset owners are eager to measure and report portfolio impacts, but nearly a third (31 per cent) lack adequate tools to assess investments against their ESG goals
  • 86 per cent believe that investment managers can play a key role in ESG reporting and education
  • Among asset owners that make thematic or impact investments, 88 per cent seek to address environmental themes
  • Climate change, water solutions, plastic waste and the circular economy are the top environmental issues they seek to address
  • For social issues, gender diversity and education are the top priorities
  • ESG integration remains the most common approach to sustainable investing
  • Across all approaches, investors find the highest quality sustainable investing strategies in public equities (78 per cent) and fixed income (69 per cent)
  • 45 per cent of sustainable investors allocating to fixed income are actively investing in green or sustainability bonds or bond funds