84% of institutions considering ESG integration: Morgan Stanley IM

Pedro Gonçalves
84% of institutions considering ESG integration: Morgan Stanley IM

An overwhelming majority of institutions are considering to integrate ESG into their investment process, figures from Morgan Stanley Investment Management (MSIM) reveal.

The survey conducted by the investment bank showed that almost half (49%) of the 118 participating organisations said they were looking to integrate sustainable investing across the board. Only a small minority (14%) admitted they had not considered it or that after consideration decided sustainable investment was not for them.

"ESG is now becoming part of the ecosystem the way that we invest," Jim Caron, New York-based head of Global Macro Strategies said during a meeting with journalists in London. 

ESG is now becoming part of the ecosystem of the way that we invest"

He added: "I always use the analogy of having seatbelts in cars. When seatbelts first came out, some companies had them, other didn't. Today you won't buy a car without seatbelts, right? Now that's just part of the ecosystem of a car manufacturer. Seatbelts go in without a question.

"It's the same for us. When we think about our investment philosophy and our investment process, part of our ecosystem is ESG. Even if you're not asking for it, you're still going to get it. It's going to be there."

As it stands, assets invested in line with ESG-related strategies reached $30trn last year, according to estimates by the Global Sustainable Investment Alliance, building on a 25% increase from 2014-2016.

And this total looks set to surge as millennial investors - who, according to a Morgan Stanley study, are nearly twice as likely to invest in companies and funds that meet their environmental and social values - are reportedly set to inherit an estimated $30trn in wealth in the coming years. 

The International Equity team at Morgan Stanley Investment Management has sought to strengthen its ESG credentials by assigning equity manager Vladimir Demine to the role of the team's head of ESG research in February. Demine, who has 17 years of investment experience, is work on integrating ESG into the company's global sustainable funds range, which was first launched in 2018.

"Our view is that the world is moving in this direction. It's an unstoppable force in terms of client demand and we need to be positioned to reflect that. But we are in a transition period," commented Paul Price, global head of Distribution.

Although the trend toward sustainable investment has soared over the last decade, ESG integration varies across the different global markets. The US is at about 35% as opposed to the Nordic markets where ESG is almost paramount. Netherlands has also shown an increase in interest with Japan being the only country in Asia where sustainable investing is picking up.

As investors are looking at ESG at different speeds, MSIM is not telling clients what to do in regards to ESG but is ready to offer sustainable investment solutions for those who want it. 

"What we are saying is that if your moral compass is pointing in this specific direction, we as an asset management firm believe that we can still accommodate your needs on returns in the long term while also reflecting your view on how we should consciously be investing," said Price.

"If there is marginal demand for this product, we are going to build the capability internally to fulfil that marginal demand. Because if we don't, we miss out on that additional business," Jim Caron added.

ESG without any compromise

Clients are increasingly looking for ESG funds to meet their investment requirements without any compromise to returns.  "There is no real cost to being ESG conscious in your portfolio and in your investment decision making process," stated Caron, admitting that is one of the first questions investors ask.

Last year, the International Equity Team at MSIM had 406 meetings with management and 229 ESG engagements. As ESG awareness is on the rise, it is also changing the way business is conducted in the world of finance.

"Discussions around ESG are commonplace with our clients. There has been a significant shift in standard review meetings towards discussing ESG. Clients want to hear about how we integrate ESG into our investment process," Bruno Paulson, managing director at MSIM said.

The company's Global Sustain fund was launched in 2018 off the back of Global Brands (2003) and aims to incorporate investor demand and prevailing social sentiment around ESG into its strategy.

It is focused on maintaining excellent returns while withholding the belief that incorporation of ESG risks and opportunities is integral to the success of any long-term investing, especially when it comes to compounding. 

CEO and chairman of Morgan Stanley James P. Gorman said: "Morgan Stanley is in a unique position to harness the capital markets to help address the most pressing challenges facing society today, connecting governments, investors and businesses with the capital to execute at scale."


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