Morgan Stanley
  • Wealth Management
  • Sep 21, 2020

How to Tackle Climate Change in Your Portfolio

With threats from climate change mounting, learn how you can align your investment portfolio with your vision for a more sustainable world while pursuing your financial goals.

Even in a year when a pandemic has spotlighted systemic risks, such as economic and racial inequality and the devastation of extreme weather events caused by climate change, disagreement about environmental policy persists. In the U.S., polarization over how to protect its energy future and diversify its energy sources to limit environmental impact and meet demand seems only to have grown.

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Many investors, however, are done with talk and are ready for action, as individuals, families and institutions seek new investment ways that can benefit both people and the planet. According to the Morgan Stanley Institute for Sustainable Investing, 85% of the general population and 95% of Millennial investors are interested in sustainable investing—with climate issues as a top priority for many of them.

Despite the challenges we face in combating climate change, the opportunity to invest in a more resilient and positive future while meeting your financial goals does exist. Working with Financial Advisors, investors increasingly are steering capital to drive positive climate outcomes, using a wide range of investment products, including mutual funds, exchange-traded funds and third-party separately managed accounts across asset classes.  

If you are, or seek to be, a more engaged climate investor, it is important to regularly evaluate the environmental impact of your investments, not just by considering companies and funds that market themselves as environment-friendly. Here are a few key questions that we have been getting from climate-concerned investors:  

  • Aren’t governments primarily driving efforts to reduce carbon emissions? Governments play a key role, but it will take both public- and private-sector commitments to reduce carbon emissions at the scale necessary. Corporations continue to make major commitments to reduce carbon emissions and aid the transition to a low-carbon-emissions economy across all industry sectors. According to the nonprofit Science-Based Targets Initiative, more than 900 companies globally have committed to reducing their carbon footprint. 
  • Are climate-solution investments only focused on renewable and alternative energy? More companies are focusing on developing and using a diversified energy mix across their operations and supply chain, including renewable energy. For example, more than 240 of the world’s most influential companies have committed to sourcing 100% of their global energy needs from renewable sources. However, it will also take infrastructure improvements to support this transition to renewables, which presents additional investment opportunities, such as smart grids, energy storage, control systems and distributed generation, to name a few.
  • What are other investment opportunities in related sectors? Agriculture and food companies are working to reduce the environmental impact of food production and distribution—an important sign of progress, given that the agriculture sector is the fifth largest industry contributor of greenhouse-gas emissions in the U.S. In 2019, the Plant-Based Foods Association and the Good Food Institute reported that U.S. retail sales of plant-based foods, which have a lower carbon footprint that animal protein, had grown by 11% in the past year, bringing the total market to $4.5 billion. We anticipate that this market will continue to grow, creating investment opportunities for all investors.

Your Morgan Stanley Financial Advisor can help you identify companies, funds and partners that are helping to drive these kinds of positive climate outcomes. In addition, new tools are making it easier to measure your portfolio’s environmental impact, including exposure to climate risks and alignment with climate solutions and opportunities. These tools include:

  • Morgan Stanley Impact Quotient®: This award-winning application1 equips clients to identify and prioritize more than 100 social- and environmental-impact preferences and harness data to make investment decisions that help them meet their financial and climate-related goals. Using this application, a Morgan Stanley Financial Advisor can help you identify your portfolio’s exposure to companies with traditional fossil fuel reserves, as well as companies that are leading the way in managing their own carbon emissions and natural resource use. You can also identify strategies for investing in companies that are contributing to climate solutions, such as energy-efficiency technologies, water infrastructure, sustainable agriculture, electric vehicles, and alternative-energy products and services.

Despite regulatory and political challenges, more investors are seeking to align their capital with their vision for a more sustainable world, including financing climate solutions. With new corporate commitments and widespread investor interest, I’m hopeful that the private sector can play a pivotal role in accelerating solutions to one of the greatest systemic issues of our time.

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