Morgan Stanley
  • Firm Leadership
  • Sep 26, 2018

A New Threshold for Sustainable Finance

Investors, both individual and institutional, are seeking ways to channel their capital toward climate change solutions.

We’re at a new threshold in the business of sustainable finance.

Nearly a decade ago, when green bonds were just emerging as a new financing tool and impact investing funds were coming of age, these investments were considered charismatic, but lacked investor conviction as part of core investment portfolios. But over time, perceptions have evolved and sustainable investing has moved into the mainstream. Private sector investments and the capital markets are seen as critical to addressing climate change on a global scale. These investments are gaining momentum and scale because they can deliver meaningful impact alongside competitive financial return opportunities. 

Given the momentum in sustainable investing, we are on track for a very different financial world in the years ahead. In the future, I believe credit ratings will necessarily integrate environmental, social and governance (ESG) issues; corporations will view sustainability factors as material; and investors will expect that their portfolios reflect their values.

This week, as global leaders gather in New York to discuss climate change and the innovation necessary to create lasting solutions, the role of the capital markets as catalysts for change must remain front and center. Forward looking policy is critical, as are the contributions of philanthropy, NGO leadership and widespread civic engagement. But the scale and complexity of creating true climate resilience will require the full participation of both the public and private sectors.

Our Experience as a Firm

At Morgan Stanley, we made a commitment to sustainability nearly a decade ago, when we set out to bring social and environmental considerations into all our business lines.

We started Global Sustainable Finance in 2009, at a time when much of Wall Street wasn’t yet looking at ESG as a business opportunity. The group’s charge was to work with each of our core businesses, seeking ways to integrate sustainability into its products and services.

In 2012, we continued to formalize our commitments in this space, first with the launch of the Wealth Management Investing with Impact Platform (IIP), the first platform led by a major financial institution solely dedicated to sustainable investment that gives individual and institutional investors a suite of portfolio options tailored to their values and impact goals. A year later, we established the Morgan Stanley Institute for Sustainable Investing.

Since launch, we’ve seen a dramatic increase in demand from investors, both individual and institutional, for ways to channel their capital toward climate change solutions. In a recent survey by Morgan Stanley Investment Management and the Morgan Stanley Institute for Sustainable Investing, 84% of institutional investors were integrating sustainable investing into their investment process, or actively considering doing so. 

Among millennials, the demand is particularly pronounced: 75% of millennial investors believe their investments can influence climate change, and 90% want sustainable investing options as part of their 401(k) plans, according to a survey by the Institute for Sustainable Investing.

This month, we announced that our Investing with Impact Platform had exceeded its five-year goal of attracting $10 billion in assets. In fact, the platform now has more than $25 billion in client assets under management. Underpinning this success is the 74% of our Financial Advisors who use at least one IIP strategy and 32% who use five or more with their clients. 

Today, there is broad integration of sustainability across our core businesses, from capital markets and municipal finance to equity research, wealth management and asset management. Our Research analysts are embedding ESG factors into their valuations, helping institutional clients and investors see a broader picture of risk and opportunity. Our Investment Banking and Capital Markets teams have worked with clients, both established players and disruptive startups, to raise money for their game-changing ideas and strategies, in fields as diverse as renewable energy and sustainable agriculture. Our Investment Management teams are creating custom asset portfolios designed for specific ESG goals.

And the business reasons for factoring in those considerations are increasingly sound. Climate change is changing the way we think about long-term risk, while creating investment opportunities along the way. Not only is there an enormous need for investment in carbon mitigation, but also for resilient and energy-efficient housing and infrastructure. 

At Morgan Stanley, we have committed to providing $250 billion in low-carbon financing by 2030, and have already financed more than $84 billion in transactions that support clean-tech and renewable energy since 2006. We’ve underwritten sustainable bond transactions valued at more than $27 billion, including the issuance of our own $500 million green bond in 2015. As a firm, we are also reducing the environmental impact of our own operations. We committed to carbon neutrality by 2022, sourcing 100% of our global energy needs from renewable sources.

Looking Forward

When I joined Morgan Stanley in 2007, there was some nascent interest in sustainable investing, but there were also those who assumed it would come with a cost to performance and returns.

Today, we see those assumptions fading. We see that considering ESG is good for business and good for investments. Morgan Stanley is working to lead on ways to measure the cost of climate change, as well as to understand the impact of gender and multicultural diversity in the workplace. Business leaders now ask us how they can integrate sustainability into corporate strategy, while investors tell us they want to align their money with their values. In response, we are delivering solutions across all our businesses.

The key to all of this, however, is simple: We believe that sustainable investments don't inherently sacrifice the bottom line. In fact, they enable our firm to attract top clients and grow our businesses—all while building a culture that is responsive to the way our world is rapidly changing. 

The New Climate Reality