Insight Article Desktop Banner
 
 
MSIM Institute
  •  
October 21, 2021

Navigating Evolving Opportunities in Sustainable Investing

Insight Video Mobile Banner
 
October 21, 2021

Navigating Evolving Opportunities in Sustainable Investing


MSIM Institute

Navigating Evolving Opportunities in Sustainable Investing

Share Icon

October 21, 2021

 
 

This Q&A comprises edited highlights of the above-named session with panelists Navindu Katugampola, Global Head of Sustainability for Morgan Stanley Investment Management (MSIM) and the Global Head of Sustainable Investing for MSIM Fixed Income and Liquidity teams, and John Streur, President & CEO of Calvert Research and Management. The panel was moderated by Emily Chew, Executive Vice President and Chief Responsible Investment Officer of Calvert Research and Management.

 
 

Emily Chew (moderator): Has the COVID experience influenced the way you think about sustainable and responsible investing?

Navindu Katugampola: The pandemic has certainly shone a light on the effects of social inequality and, for us, attention to social factors during this period has really grown to be an even more integral part of how we invest. At the corporate level, Morgan Stanley last year added a fifth value to our core values – a commitment to diversity and inclusion – and this is something that we've also focused on at Morgan Stanley Investment Management (MSIM). Social themes are not just important to us from a moral perspective. We believe that they're integral to the success of companies, and even countries.

John Streur: Just picking up on Navindu’s point about social inequality, at Calvert Research and Management we have done research into inequality that reveals, not surprisingly, a lack of access to opportunity as the critical driver creating some of the inequalities that we're dealing with globally. To convert such research into investor-useful information, we have developed a process that is based on the business case for addressing diversity, equity and inclusion. We focus on the business case because we know that a company can undertake to do something that might be for the greater good, but if that effort is unable to produce adequate financial results for the company, those efforts usually collapse on their own weight and don't scale.

Emily: With the rise of social-labeled bonds, do you think their credibility is as robust as the environmentally labeled bonds or so-called “green bonds” at this time? Given the rush of issuance, I worry that standards may have fallen a bit.

Navindu: The simple fact is that on the environmental side – on the green side – the data is a little bit more objective. You can look at things like carbon emissions, which is comparable. It's objective. Essentially, the data translates across different geographies and sectors.

On the social side, it is much more nuanced. What is a definition of a vulnerable population? What is a social issue? And that's when it becomes a little bit more challenging to really identify the most impactful issuers and project sets. And I would say there, the methodology we've developed to try and look through that “social washing”, if you like, is to try to look at change and additionality. In what way is the issuance of this instrument and the projects being supported helping to bring about meaningful, real social change? That is sort of the litmus test, if you like, for social bonds. But I certainly agree with you that it's much more challenging, especially given the acceleration of issuance we've seen in the market.

Emily: John, given the growth in the supply of instruments, as well as the growth in demand that we're seeing across all segments of the market, do you think that the challenge of “greenwashing” or “social washing” could be a phenomenon with the potential to undermine the credibility of the sustainability and responsible investing space?

John: Yes, I do there’s a risk of this happening. For this reason, I think it is critical that we all look at issuance and issuers – whether fixed income or equity – in a fact-based, scientific manner. We have to develop the market infrastructure in order to create the flow of information needed by investors to be able to have confidence in the information that we're working with – particularly as we make these enormously important improvements to our capital market systems globally to get capital to the right place to address immediate and long-term sustainability. Developing this infrastructure entails hard, company-to-company, issuer-to-issuer, skeptical research – research that is scalable and accessible to all market participants.

Emily: Navindu, what are your biggest challenges and opportunities in implementing sustainable investing strategies?

Navindu: The huge challenge is with sustainability data – its availability, its transparency, its comparability, how timely it is, and, actually, the degree to which you can derive useful insight from it. So, that's the challenge. But the opportunity is to develop more incisive ways of bridging that data gap, which, in turn, potentially allows you to make better investment decisions and ultimately achieve better sustainability outcomes.

Emily: John, could you provide some examples of how Calvert has increased the amount of information and disclosure available to the marketplace through engagement?

John: Sure. Calvert is very active, and sometimes fairly aggressive, in terms of how we engage with issuers. I’ll give just one example of the success we’ve been seeing.

In the U.S., corporations are not required to disclose the demographics of their workplaces. So, we've launched a major campaign to work with the 100 largest companies in the United States to get them to disclose the information about the gender and racial makeup of their companies at every level. And in some cases, we have filed shareholder resolutions and taken it to a vote, getting into a proxy fight with management. 

It's been a successful effort. We have gone from having about 18 companies that provided this information to now nearly 75. It is also an example of how Calvert works as a catalyst to create a movement because we now have many, many other asset owners and investment managers moving in this direction, urging corporations to disclose the information.

Emily: To wrap up, what are your thoughts on the one, key thematic investment trend to watch as we head toward 2022?

Navindu: With COP26 in Glasgow in a couple of months, and also the increasing focus on greening the recovery, I expect the theme of net-zero carbon emissions will be key going into 2022, and that's both in the context of demands for companies to commit to it and implement it, but also for us, as asset managers, to provide investment solutions to help our clients achieve net zero in their portfolios.

John: I'm going to stay with Navindu's theme about carbon emissions and I’m going to put a little spin on it. I think we're going to see a theme of going from promises to implementation; from statements to action. And this will be an opportunity of significant importance for investors because this is not going to happen uniformly. There are going to be a small number of companies that have what it takes to effectively transition into a lower-carbon environment, and there are going to be a much larger set of companies that are really going to struggle with this and impair their opportunity sets at the company level.

A significant investment opportunity exists for those investors who can differentiate between companies that just make big statements versus those management teams and the boards that have the discipline and expertise to say what they do and do what they say. The latter group of companies, I think, will be in the minority.

 
 

RISK CONSIDERATIONS

There is no assurance that a Portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the Portfolio will decline. Market values can change daily due to economic and other events (e.g. natural disasters, health crises, terrorism, conflicts and social unrest) that affect markets, countries, companies or governments. It is difficult to predict the timing, duration, and potential adverse effects (e.g. portfolio liquidity) of events. Accordingly, you can lose money investing in this Portfolio. Please be aware that this Portfolio may be subject to certain additional risks. Fixed-income securities are subject to the ability of an issuer to make timely principal and interest payments (credit risk), changes in interest rates (interest-rate risk), the creditworthiness of the issuer and general market liquidity (market risk). In a rising interest-rate environment, bond prices may fall and may result in periods of volatility and increased portfolio redemptions. In a declining interest-rate environment, the portfolio may generate less income. Longer-term securities may be more sensitive to interest rate changes.  Environmental, Social and Governance (ESG) factors could result in relative investment performance deviating from other strategies or broad market benchmarks, depending on whether such sectors or investments are in or out of favor in the market. As a result, there is no assurance ESG strategies could result in more favorable investment performance.

 
Navindu-Katugampola
Managing Director
Global Fixed Income Team
 
john.streur
President and Chief Executive Officer for Calvert Research and Management
 
emily.chew
Chief Responsible Investment Officer, Calvert Research and Management
 
 
 
 

The views and opinions and/or analysis expressed are those of the author or the investment team as of the date of preparation of this material and are subject to change at any time without notice due to market or economic conditions and may not necessarily come to pass. Furthermore, the views will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date of publication. The views expressed do not reflect the opinions of all investment personnel at Morgan Stanley Investment Management (MSIM) and its subsidiaries and affiliates (collectively “the Firm”), and may not be reflected in all the strategies and products that the Firm offers.

Forecasts and/or estimates provided herein are subject to change and may not actually come to pass. Information regarding expected market returns and market outlooks is based on the research, analysis and opinions of the authors or the investment team. These conclusions are speculative in nature, may not come to pass and are not intended to predict the future performance of any specific strategy or product the Firm offers. Future results may differ significantly depending on factors such as changes in securities or financial markets or general economic conditions.

This material has been prepared on the basis of publicly available information, internally developed data and other third-party sources believed to be reliable. However, no assurances are provided regarding the reliability of such information and the Firm has not sought to independently verify information taken from public and third-party sources.

This material is a general communication, which is not impartial and all information provided has been prepared solely for informational and educational purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

The  indexes are unmanaged and do not include any expenses, fees or sales charges. It is not possible to invest directly in an index. Any index referred to herein is the intellectual property (including registered trademarks) of the applicable licensor. Any product based on an index is in no way sponsored, endorsed, sold or promoted by the applicable licensor and it shall not have any liability with respect thereto.

This  material is not a product of Morgan Stanley’s Research Department and should not be regarded as a research material or a recommendation.

The Firm has not authorised financial intermediaries to use and to distribute this material, unless such use and distribution is made in accordance with applicable law and regulation. Additionally, financial intermediaries are required to satisfy themselves that the information in this material is appropriate for any person to whom they provide this material in view of that person’s circumstances and purpose. The Firm shall not be liable for, and accepts no liability for, the use or misuse of this material by any such financial intermediary.

This material may be translated into other languages. Where such a translation is made this English version remains definitive. If there are any discrepancies between the English version and any version of this material in another language, the English version shall prevail.

The whole or any part of this material may not be directly or indirectly reproduced, copied, modified, used to create a derivative work, performed, displayed, published, posted, licensed, framed, distributed or transmitted or any of its contents disclosed to third parties without the Firm’s  express written consent. This material may not be linked to unless such hyperlink is for personal and non-commercial use. All information contained herein is proprietary and is protected under copyright and other applicable law.

Eaton  Vance and Calvert  are part of Morgan Stanley Investment Management.  Morgan Stanley Investment Management is the asset management division of Morgan Stanley.

DISTRIBUTION

This material is only intended for and will only be distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations.

MSIM, the asset management division of Morgan Stanley (NYSE: MS), and its affiliates have arrangements in place to market each other’s products and services.  Each MSIM affiliate is regulated as appropriate in the jurisdiction it operates. MSIM’s affiliates are: Eaton Vance Management (International) Limited, Eaton Vance Advisers International Ltd, Calvert Research and Management, Eaton Vance Management, Parametric Portfolio Associates LLC, Atlanta Capital Management LLC, Eaton Vance Management International (Asia) Pte. Ltd.

This material has been issued by any one or more of the following entities:

EMEA:

This material is for Professional Clients/Accredited Investors only.

In the EU, MSIM and Eaton Vance materials are issued by MSIM Fund Management (Ireland) Limited (“FMIL”). FMIL is regulated by the Central Bank of Ireland and is incorporated in Ireland as a private company limited by shares with company registration number 616661 and has its registered address at The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, D02 VC42, Ireland.

Outside the EU, MSIM materials are issued by Morgan Stanley Investment Management Limited (MSIM Ltd) is authorised and regulated by the Financial Conduct Authority. Registered in England. Registered No. 1981121. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA.

In Switzerland, MSIM materials are issued by Morgan Stanley & Co. International plc, London (Zurich Branch) Authorised and regulated by the Eidgenössische Finanzmarktaufsicht ("FINMA"). Registered Office: Beethovenstrasse 33, 8002 Zurich, Switzerland.

Outside the US and EU, Eaton Vance materials are issued by Eaton Vance Management (International) Limited (“EVMI”) 125 Old Broad Street, London, EC2N 1AR, UK, which is authorised and regulated in the United Kingdom by the Financial Conduct Authority.

Italy: MSIM FMIL (Milan Branch), (Sede Secondaria di Milano) Palazzo Serbelloni Corso Venezia, 16 20121 Milano, Italy. The Netherlands: MSIM FMIL (Amsterdam Branch), Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, Netherlands. France: MSIM FMIL (Paris Branch), 61 rue de Monceau 75008 Paris, France. Spain: MSIM FMIL (Madrid Branch), Calle Serrano 55, 28006, Madrid, Spain.

MIDDLE EAST

Dubai: MSIM Ltd (Representative Office, Unit Precinct 3-7th Floor-Unit 701 and 702, Level 7, Gate Precinct Building 3, Dubai International Financial Centre, Dubai, 506501, United Arab Emirates. Telephone: +97 (0)14 709 7158).

EVMI utilises a third-party organisation in the Middle East, Wise Capital (Middle East) Limited ("Wise Capital"), to promote the investment capabilities of Eaton Vance to institutional investors. For these services, Wise Capital is paid a fee based upon the assets that Eaton Vance provides investment advice to following these introductions.

U.S.

A separately managed account may not be appropriate for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing. A minimum asset level is required. For important information about the investment managers, please refer to Form ADV Part 2.

Please consider the investment objectives, risks, charges and expenses of the funds carefully before investing. The prospectuses contain this and other information about the funds. To obtain a prospectus for the Morgan Stanley funds please download one at morganstanley.com/im or call 1-800-548-7786 for the EatonVance and Calvert Funds please download one at https://funds.eatonvance.com/open-end-mutual-fund-documents.php or contact your financial professional. Please read the prospectus carefully before investing.

Morgan Stanley Distribution, Inc. serves as the distributor for Morgan Stanley Funds.

Eaton Vance Distributors, Inc. (“EVD”), serves as the distributor for Eaton Vance and Calvert Funds.

NOT FDIC INSURED | OFFER NO BANK GUARANTEE | MAY LOSE VALUE | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NOT A DEPOSIT

Hong Kong: This material has been issued by Morgan Stanley Asia Limited for use in Hong Kong and shall only be made available to “professional investors” as defined under the Securities and Futures Ordinance of Hong Kong (Cap 571). The contents of this material have not been reviewed nor approved by any regulatory authority including the Securities and Futures Commission in Hong Kong. Accordingly, save where an exemption is available under the relevant law, this material shall not be issued, circulated, distributed, directed at, or made available to, the public in Hong Kong. Singapore: This material should not be considered to be the subject of an invitation for subscription or purchase, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor under section 304 of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”); (ii) to a “relevant person” (which includes an accredited investor) pursuant to section 305 of the SFA, and such distribution is in accordance with the conditions specified in section 305 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. This publication has not been reviewed by the Monetary Authority of Singapore.   Eaton Vance Management International (Asia) Pte. Ltd. (“EVMIA”) holds a Capital Markets Licence under the Securities and Futures Act of Singapore (“SFA”) to conduct, among others, fund management, is an exempt Financial Adviser pursuant to the Financial Adviser Act Section 23(1)(d) and is regulated by the Monetary Authority of Singapore (“MAS”). Eaton Vance Management, Eaton Vance Management (International) Limited and Parametric Portfolio Associates® LLC holds an exemption under Paragraph 9, 3rd Schedule to the SFA in Singapore to conduct fund management activities under an arrangement with EVMIA and subject to certain conditions. None of the other Eaton Vance group entities or affiliates holds any licences, approvals or authorisations in Singapore to conduct any regulated or licensable activities and nothing in this material shall constitute or be construed as these entities or affiliates holding themselves out to be licensed, approved, authorised or regulated in Singapore, or offering or marketing their services or products. Australia: This publication is disseminated in Australia by Morgan Stanley Investment Management (Australia) Pty Limited ACN: 122040037, AFSL No. 314182, which accept responsibility for its contents. This publication, and any access to it, is intended only for “wholesale clients” within the meaning of the Australian Corporations Act.  EVMI is exempt from the requirement to hold an Australian financial services license under the Corporations Act in respect of the provision of financial services to wholesale clients as defined in the Corporations Act 2001 (Cth) and as per the ASIC Corporations (Repeal and Transitional) Instrument 2016/396. Calvert Research and Management, ARBN 635 157 434 is regulated by the U.S. Securities and Exchange Commission under U.S. laws which differ from Australian laws. Calvert Research and Management is exempt from the requirement to hold an Australian financial services licence in accordance with class order 03/1100 in respect of the provision of financial services to wholesale clients in Australia.

Japan:

For professional investors, this material is circulated or distributed for informational purposes only. For those who are not professional investors, this material is provided in relation to Morgan Stanley Investment Management (Japan) Co., Ltd. (“MSIMJ”)’s business with respect to discretionary investment management agreements (“IMA”) and investment advisory agreements (“IAA”).  This is not for the purpose of a recommendation or solicitation of transactions or offers any particular financial instruments. Under an IMA, with respect to management of assets of a client, the client prescribes basic management policies in advance and commissions MSIMJ to make all investment decisions based on an analysis of the value, etc. of the securities, and MSIMJ accepts such commission. The client shall delegate to MSIMJ the authorities necessary for making investment. MSIMJ exercises the delegated authorities based on investment decisions of MSIMJ, and the client shall not make individual instructions.  All investment profits and losses belong to the clients; principal is not guaranteed. Please consider the investment objectives and nature of risks before investing. As an investment advisory fee for an IAA or an IMA, the amount of assets subject to the contract multiplied by a certain rate (the upper limit is 2.20% per annum (including tax)) shall be incurred in proportion to the contract period. For some strategies, a contingency fee may be incurred in addition to the fee mentioned above. Indirect charges also may be incurred, such as brokerage commissions for incorporated securities. Since these charges and expenses are different depending on a contract and other factors, MSIMJ cannot present the rates, upper limits, etc. in advance. All clients should read the Documents Provided Prior to the Conclusion of a Contract carefully before executing an agreement. This material is disseminated in Japan by MSIMJ, Registered No. 410 (Director of Kanto Local Finance Bureau (Financial Instruments Firms)), Membership: the Japan Securities Dealers Association, The Investment Trusts Association, Japan, the Japan Investment Advisers Association and the Type II Financial Instruments Firms Association. 

 

Morgan Stanley Investment Management (Australia) Pty Limited operates under AFSL No: 314182.

Not to be shown, quoted or distributed to the public. The information shown in this website is not personal advice and does not take into account the investment objectives, financial situation or needs of any person.

Information on this website should not be considered a solicitation to buy, an offer to sell or a recommendation for any security in any jurisdiction where such an offer, solicitation or recommendation would be unlawful or unauthorized. In addition, investments may not be made via this website.

Past performance of any product described on this site is not a reliable indication of future performance.


Privacy & Cookies    •    Terms of Use

©  Morgan Stanley | Investment Management (Australia) Pty Limited ACN 122040037