A majority of asset owners globally actively integrate ESG factors into their investment process, according to a new survey published yesterday by the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Investment Management.
The Morgan Stanley survey polled 110 public and corporate pensions, endowments, foundations, sovereign wealth entities, insurance companies and other large asset owners worldwide, 92% of which had total assets over $1bn.
The survey gathered insights about trends, motivations, challenges and implementation approaches in sustainable investing. This work builds on the Institute's extensive body of 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.
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 formalized sustainability approaches."
"These results provide an additional proof point that sustainable investing has become table stakes," said 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 formalized sustainability approaches."
Ted Eliopoulos, vice-chairman at Morgan Stanley Investment Management, said: "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%) investors surveyed agree that sustainable investing is a risk mitigation strategy. Additionally, asset owners already practicing 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," said 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. Below are some of the report's key findings:
Asset owners increasingly embrace sustainable investing:
- Adoption increased from 70% in 2017 to 80% in 2019
- A further 15% of respondents are actively considering sustainable investing adoption
- Nearly six in ten (57%) 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%) lack adequate tools to assess investments against their ESG goals
- 86% believe that investment managers can play a key role in ESG reporting and education
Among asset owners that make thematic or impact investments, 88% 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%) and fixed income (69%)
- 45% of sustainable investors allocating to fixed income are actively investing in green or sustainability bonds or bond funds
Fund houses commit to cut emissions by 2050