Sustainable Finance: 4 Investor Priorities

Apr 19, 2023

Investors can use their capital to make a significant difference in climate change and biodiversity.

Key Takeaways

  • Investors should consider four themes in sustainable finance to maximize their environmental impact. 

  • Proven sustainable solutions, such as decarbonization, need financing in order to scale.

  • Investment opportunities also exist in low-carbon transition, sustainability innovations and infrastructure to protect vulnerable communities.

The interconnected nature of global finance, economics and politics means investors play a critical role in driving the systems-level change necessary to battle climate change and preserve biodiversity. As a facilitator of relationships between businesses, governments, nonprofits, philanthropists and individuals, Morgan Stanley is committed to deploying capital at scale in four areas of sustainable finance that will have the greatest impact and are most in need of funding.


1. Proven Solutions 


The path to a net-zero economy is long, but the good news is that it’s increasingly clear how to get there. Much of the reduction in CO2 emissions needed through 2030 can come from technologies already in the market today, such as renewable energy and electric vehicles (EVs), but we will need massive deployment of these solutions. The International Energy Agency (IEA) estimates that meeting this demand will require $4 trillion in annual investments by 2030.1


Sustainable finance through both the equities and bond markets can spur a major expansion in the design, manufacturing and adoption of EVs to reach the estimated 230 million that need to be on the road by 2030.2 For example, Morgan Stanley led EV company Rivian’s 2021 initial public offering and, this year, served as active bookrunner for its $1.5 billion green convertible senior notes offering.  


Government support for charging infrastructure and consumer subsidies, and coordinated efforts across private and public systems, will also be important. 



2. Low-Carbon Transition  


Building a net-zero world will require significant economic and technological transformation, and companies in more carbon-intensive sectors will need to fund the transition to more sustainable models.  


Innovative sustainable finance can provide incentives to change. An example of this is the $3 billion sustainability-linked bond that energy infrastructure company Enbridge issued earlier this year, which was led by Morgan Stanley. Enbridge has a delivery network of crude oil, natural gas and renewable fuels, and the bond incentivizes the company to reduce operational emissions by 35% by 2030.3



3. Sustainability Innovations 


Investing in proven solutions will not be enough on its own. Public and private institutions will need to develop, scale and deploy new sustainability innovations. The IEA estimates that almost half of CO2 emissions reductions after 2050 will need to come from technologies currently in the prototype or demonstration phase.4


For example, new battery-storage capabilities are needed to ensure reliable access to electricity; widescale carbon capture, utilization and storage technologies are important to continue removing CO2 from the atmosphere; and the commercialization of low-carbon hydrogen and hydrogen-based fuels is necessary to help tackle emissions in hard-to-abate sectors and across value chains. 


To meet the innovations and breakthroughs required, it’s important to support visionary entrepreneurs and leaders. That’s why the Morgan Stanley Institute for Sustainable Investing started its Sustainable Solutions Collaborative, which gives founders who have identified sustainability challenges in their communities the capital and resources needed to implement their innovations. The Collaborative has supported initiatives including the replacement of single-use plastic with seaweed alternatives and the use of artificial intelligence to track tree coverage. 


Innovations that aim to decarbonize the global economy are essential. The Morgan Stanley Investment Management’s new 1GT Fund deploys capital to companies whose innovations will mitigate climate change and collectively avoid or remove 1 gigaton of CO2e by 2050. 



4. Climate-Change Adaptation


The whole planet is at risk from the effects of climate change, including record-breaking temperatures and more frequent extreme weather events. But we must seek immediate solutions to protect the most vulnerable communities and ecosystems.  


Climate-change adaptation could cost as much as $340 billion per year by 2030 according to the United Nations, yet current financing totals less than $40 billion per year.5 Investing in partnerships across public and private sectors will be crucial to narrowing this gap. 


One instance is the public-private partnership assisting the Red River Valley of North Dakota—one of the most flood-prone areas in the U.S.6 Over the last two decades, floods in the Fargo-Moorhead area have become more frequent and severe due to a combination of a changing climate and the drainage of multiple wetlands throughout her Red River Basin.7 The Fargo-Moorhead Metropolitan Area Flood Risk Management Project, led by the Metro Flood Diversion Authority and the Red River Valley Alliance with support from the U.S. Army Corps of Engineers, includes infrastructure investments such as channels and dams that will protect approximately 235,000 people in the region from increased flood risk. With Morgan Stanley as joint bookrunner, the Red River Valley Alliance raised over $274 million for its portion of the design and construction of the project through the tax-exempt bond market.8



Looking Ahead 


Investing in our planet means investing for systems-level change: scaling proven solutions, launching new innovations, helping legacy players transition and adapting to the changing realities of our time. And everyone—from data engineers to bankers, scientists to teachers—has a role to play in ensuring this entire ecosystem of solutions succeeds. 

More Insights