Morgan Stanley
  • Institute for Sustainable Investing

7 Insights from Asset Owners on the Rise of Sustainable Investing

Seven key findings show how sustainable investing is gaining traction among asset owners, according to a new Morgan Stanley survey.

The practice of investing in companies or funds that aim to achieve market-rate financial returns, while considering positive social or environmental impact, is gaining more popularity than ever before among institutional investors, according to a new report from Morgan Stanley, jointly issued by its Institute for Sustainable Investing and its Investment Management division.

Among asset owners surveyed, 80% said that they actively integrated sustainable investing in 2019, up 10 percentage points from Morgan Stanley’s last biennial survey in 2017. Factors driving this increase include constituent demand, perceived potential for attractive financial performance and evolving regulations that are driving greater disclosure on environmental, social and governance (ESG) factors, the survey says.

“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 formalized sustainability approaches.

The report polled 110 asset owners, including financial institutions, insurers and pensions in North America, Europe and Asia Pacific between October and December 2019. Eight in ten respondents believe that companies with strong ESG practices may make better long-term investments. The majority (57%) envision a time when they will allocate solely to investment managers with a formal ESG approach, though many cite barriers to sustainable investing writ large, including access to adequate tools to measure sustainability goals and quality data.

“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,” says Ted Eliopoulos, Vice Chairman at Morgan Stanley Investment Management. “Investment managers can play a critical role supporting clients as they implement tools to assess how investments align with their sustainability goals.”

Here are seven key findings showing a marked increase in the adoption of sustainable investing among institutional asset owners:

1. Asset owners are increasingly embracing sustainable investing.

2. Most institutional investors envision a time when they will limit allocations solely to investment managers with a formal sustainable investing approach.

3. Many asset owners have favorable perspectives on ESG investing.

4. Most investors who practice thematic or impact investing seek to address environmental themes.

5. ESG integration is the most common approach to sustainable investing.

Sustainable Investing Approaches Defined:

6. Public equities and fixed income are the asset classes where most institutional investors find quality sustainable investing strategies.

7. Nearly half of sustainable investors allocating to fixed income are investing in green or sustainability bonds or bond funds.

See the full report and our series of Sustainable Signals surveys of individual investors and asset managers.

Get the full Sustainable Signals Report