Morgan Stanley
  • Institute for Sustainable Investing
  • Oct 28, 2019

Sustainable Finance’s Era of Innovation

We’re entering a new era in sustainable finance, where innovation is stemming from all corners of the markets and transforming how companies operate and investors allocate capital.

We’re entering a new age in sustainable finance. Strategies that analyze environmental, social and governance (ESG) risks and opportunities have moved into the mainstream, as companies and investors find value in integrating these factors into their strategies and investing in solutions to our greatest global challenges, such as the ramifications of climate change, the crisis of insufficient safe drinking water or complications in plastic waste reduction and recycling.

I’ve seen demand grow in the last decade—we started Global Sustainable Finance at Morgan Stanley in 2009 to integrate sustainability into each of our core businesses, when much of Wall Street wasn’t yet looking at how ESG best practices could create business opportunities.

We connect diverse stakeholders to pioneer new ways of addressing pressing environmental and social issues that require a critical mass of capital.

We collaborate with public and private individuals and entities and connect diverse stakeholders to pioneer and facilitate new ways of addressing pressing environmental and social issues that require a critical mass of capital. In this new era of innovation in sustainable finance, Morgan Stanley will continue to bring sustainable value to clients in all of our businesses by drawing on innovation from all corners of the markets to transform how companies operate and investors allocate capital.

Recently, at Morgan Stanley’s global headquarters in New York, we brought together decision makers—company executives, institutional investors, and policy makers, including Starbucks Treasurer Peter Filipovic, Ford Foundation President Darren Walker and former Securities and Exchange Commission Chair Mary Schapiro—to share ideas and insights at our inaugural Sustainable Investing Summit. It’s a testament to how far we’ve come and, as we approach a new year, to determine where we’re headed next. Here are a few themes that characterize how sustainable finance is evolving:

Finding Alpha Through Sustainability

In their quest for sustainable, long-term returns, global asset owners, especially in Europe and Japan, as well as U.S. endowments, foundations and pension funds, are heeding client demand and showing increasing appetite for strategies that incorporate ESG factors. Fund managers are empowered to question management teams about their sustainability practices and to determine the appropriate framework for integrating ESG data in their analysis of financial performance.

Innovative Approaches to Raising Capital

Governments, companies and investors are increasingly turning to innovative financing solutions to mitigate some of our biggest global challenges. We’ve seen a surge in issuance of sustainable bonds, which raise capital for projects with dedicated environmental and social benefits and repay debt with interest over time. Take green bonds, for instance, which raise money specifically for environmental projects: Issuance swelled to $180 billion last year,1 from just $36 billion in 2014.2

Just this month, PepsiCo, Inc. announced its inaugural green bond offering, for which Morgan Stanley was the sole green structuring advisor and lead underwriter. The proceeds will help one of the world’s largest food, snack and beverage companies achieve goals to reduce virgin plastic content, conserve water, and decarbonize operations and its supply chain. Starbucks, the first company to issue sustainability bonds in the United States, showed how corporate sustainability goals can inspire investors and help support positive social and environmental change. In the past four years, Starbucks raised more than $2 billion through issuances underwritten by Morgan Stanley to fund the purchase of ethically sourced coffee and encourage sustainable farming practices through local support centers and loans for coffee farmers.

The quest for accurate ESG data is one of the most important developments, as investors grapple with a lack of standardized metrics.

Equipping Investors with Data

The quest for accurate ESG data is one of the most important developments in this new era of sustainable finance, as investors grapple with a lack of standardized metrics and aggregate ratings and rankings that are too broad or fragmented for measuring impact.

To address these challenges, Morgan Stanley built Morgan Stanley Impact Quotient™, which equips clients with the information they need to identify and prioritize more than 100 social and environmental impact preferences. Morgan Stanley IQ helps financial advisors measure the alignment of those choices with clients’ current investments using multiple third-party data sources and proprietary analytics, and select strategies that better match their portfolios with their sustainability goals over time.

Reimagining the Plastics Economy

One of the biggest issues weighing on collective consumer consciousness is the desire to mitigate plastic waste, and it’s already altered how some companies approach raising money, sourcing materials, and developing products. Needed systemic changes—the transformation in consumer demand and innovations in industrial design—are making a difference. This is a strategic issue for our firm, and why this year we announced the Morgan Stanley Plastic Waste Resolution, a commitment to facilitate the prevention, reduction and removal of 50 million metric tons of plastic waste in rivers, oceans, landscapes and landfills by 2030.

A decade ago, the U.S. market for sustainable investing was just under $3 trillion. Today, it’s quadrupled to nearly $12 trillion—and globally, more than $30 trillion, or one-third of all assets under professional management.3 As the momentum builds, we’re committed to advancing ESG practices by mobilizing capital, and sharing insights with our clients, colleagues and partners. We brought the conversation to life at the Sustainable Investing Summit, and we’ll continue to share the insights and innovations we uncover.