Morgan Stanley
  • Institute for Sustainable Investing
  • May 17, 2017

Sustainable Investing Myth Busters

Interested in Impact Investing but still not sure how it works or if it’s a good idea? These myth busters can help you learn more about the growing investment trend.

Sustainable investing is surging, having enjoyed a 135% increase in assets under management since 2012 to $8.72 trillion, and it’s still growing1.

An increasing number of fund managers are now overlaying their investment strategies with environmental, social and governance (ESG) analysis; asset management firms are finding ways to cater to all kinds of Impact Investing demands and innovation continues in the global capital markets to provide new sustainable investment products.

Yet there are still some lingering misconceptions about what sustainable investing is, how it’s done and whether it helps or hurts returns.

We asked Morgan Stanley's Institute for Sustainable Investing to debunk the biggest myths surrounding the practice. Here’s what they said:

Myth 1. Sustainable Investing Means Sacrificing Returns

Reality: Analysis by the Institute shows that sustainable strategies have often performed in line with or even better than their traditional counterparts.

The Institute conducted a proprietary study in 2015 called Sustainable Reality, which examined seven years’ performance of more than 10,000 mutual funds and 2,800 Separately Managed Accounts.2

The results showed that sustainable investments usually met, and often exceeded, the performance of traditional investments. A Harvard study in 2016 also found that firms with good ratings on sustainability issues most relevant to their industries significantly outperformed firms with poor ratings on these issues.3

Myth 2. Investing With Impact Is a Niche Area

Reality: Sustainably invested assets now account for more than one out of every five dollars under professional management in the U.S., according to the 2016 report on sustainable and responsible investing trends by the U.S. SIF Foundation.

The SIF Foundation’s data show that sustainably invested assets now account for 22% of all invested assets under professional management in the U.S.4

Myth 3. Sustainable Investing Products are Limited

Reality: In 2016, 1,002 distinct funds, representing $2.6 trillion in assets, incorporated ESG criteria into their investment decision-making, up from $1.01 trillion in 2012.5 Morgan Stanley’s Investing with Impact framework details the full spectrum of approaches that investors of all sizes can pursue in their portfolio. There is now even a private equity fund of funds being offered. 

Increasingly, traditional investment strategies are incorporating ESG analysis to help steer clear of potential blowups in the stock markets when companies violate ESG regulations6.

Myth 4. You Have to Be a Millionaire to Invest Sustainably

Reality: Millennials are democratizing sustainable investing. According to findings from the Institute in 2015, 84% of millennials — broadly defined as those born between the early 1980s and 2000 — say they are interested in socially responsible investing7. Millennials are also twice as likely to invest in a stock or a fund if it targets specific environmental or social outcomes.  

Their investing demands are driving an increase in the number of products that have more accessible entry minimums.  Morgan Stanley Wealth Management is among them, having recently begun offering two “Impact Access Model Portfolios” with reduced account minimums of $10,000.