Insight Article Desktop Banner
Sustainable Investing
October 16, 2020

Sustainability: Material Actions Speak Louder Than Words

Insight Video Mobile Banner
October 16, 2020

Sustainability: Material Actions Speak Louder Than Words

Sustainable Investing

Sustainability: Material Actions Speak Louder Than Words

Share Icon

October 16, 2020


Sustainability analysis is an integral element of the Applied Equity Advisors portfolio decisions. Over the years, while remaining true to our core investment process, the Applied Equity Advisors team has gradually refined and tweaked that process, striving to add value in our quest to deliver superior returns relative to our benchmark. As a result, we are able to offer portfolios that better reflect our commitment to sustainability and align more directly with the United Nations Sustainable Development Goals.


The United Nations introduced its Sustainable Development Goals (SDGs) in 2015, designed to be the sustainability blueprint for countries across the globe. Recently, we have witnessed a notable increase in the number of institutional requests for investment product tied to sustainability, and aligned with the SDGs specifically. The SDGs were not originally designed for the corporate or investment world. The question in our minds was, could we build a bridge within our portfolios to the SDGs by focusing our sustainability analysis on material corporate issues with regards to sustainability?

We think so. Absolutely. For example, the World Business Council for Sustainable Development in collaboration with DNV GL (an Oslo-based “global transformation” firm) found that among the 250 global companies surveyed in 2019, 82% have reported on the SDGs. Similarly, the Sustainable Development Investments Asset Owner Platform (SDI AOP), whose current members have a collective $1.0 trillion in AUM, helps investors assess companies on their contribution to the SDGs. That companies can make that connection to the SDGs in terms of their revenue streams implies that we as portfolio managers can create portfolios that are in alignment with the SDGs.

Again, the challenge for Applied Equity Advisors is effectively linking the sustainability alignment of the 20-25 holdings of our Global Concentrated ESG portfolio to the SDGs while meeting portfolio performance objectives. By concentrating on the material sustainability for the portfolio constituent companies, we think the outcome has been positive and reflective of a commitment to sustainability and the SDGs.



Aligning with the SDGs: Materiality Matters

To determine what constitutes a material issue for the companies being considered for inclusion within AEA investment portfolios, we look to the Sustainability Accounting Standards Board (SASB) and the SASB Materiality Map® for guidance.

Why the SASB? Well, independent third-party research has shown that stocks in which the companies devote more resources in areas deemed material and less in those that are not - as defined by the SASB - should demonstrate better stock price performance over the longer term.1

Taking things a step further, a company’s focus on material sustainability issues may also provide alignment to the SDGs, as posited by Costanza Consolandi and Robert Eccles in the MIT Sloan Management Review.2 There are two parts to their published thesis:

1. Knowing what constitutes a material sustainability issue for a given company.

2. Having the ability to measure a company’s contribution to any of the SDGs.

With regards to the first question, we addressed this same issue in our November 2019 paper “ESG Investing: Living in a Material World,” summarizing the concept of materiality with this simple example:

Serving fair-trade coffee in the corporate cafeteria might reflect ethical behavior, but won’t increase shareholder value. However, a food distributor reworking supply-chain logistics to minimize truck routes will improve the carbon footprint of the planet and reduce fuel costs, a positive material outcome.

As per the second question, the challenge from an investment perspective is how to select and subsequently measure a group of portfolio holdings that will meaningfully align with the SDGs, particularly if the primary investment mandate is to perform against a benchmark. We find it’s a bit like managing to two benchmarks: alignment with the SDGs and relative performance against the MSCI World Index. But the AEA team has found that selecting companies that focus on material issues through the SASB Materiality Map® creates a way for us to more directly align with the SDGs.

When considering the impact a broad-based portfolio representative of the global markets has on the SDGs, we note that some sectors and industries tend to have a greater potential contribution on SDGs than others. Similarly, certain material issues as defined by SASB Sustainability Dimensions will impact a greater number of SDGs (Display 1).

DISPLAY 1: A Sample of SASB Materiality Issues Mapped to the United Nations Sustainable Development Goals

Source: Consolandi and Eccles - “Supporting Sustainable Development Goals Is Easier Than You Might Think” (Feb 2018), TruValue Labs and MSIM Applied Equity Advisors – May 2020. The content of this publication has not been approved by the United Nations and does not reflect the views of the United Nations or its officials or Member States. See for more details on the Sustainable Development Goals



As suggested by the chart, 60% of all SASB material issues map directly to SDG 3: Good Health and Well-Being, while only 13% of SASB material issues map to SDG 4: Quality Education. Thus, a broad-based portfolio that includes companies from a diverse set of sectors will not perfectly map to all the SDGs. However, constructing a portfolio that focuses on companies having a material impact on sustainability should have a higher impact on SDGs than one that does not.

The SDG Solutions Assessment: A Practical Portfolio Application

AEA has been managing our Global Concentrated Equity strategy since January 2008 and incepted our Global Concentrated ESG Equity strategy in September 2018.

With our Global Concentrated Equity ESG strategy, we seek to provide a highly-active, style-flexible, global equity portfolio that will outperform its MSCI World benchmark over the longer term, and which will be comprised primarily of companies that address the sustainability/ESG issues most material to their businesses and relevant to their stakeholders. As discussed above, the resulting portfolio is designed to align with the SDGs.

Morgan Stanley Investment Management continually reviews datasets specifically designed to measure the potential contribution to the SDGs in publicly traded portfolios. The data identifies companies in which products and services - and revenue streams - can make a positive (or negative) contribution towards attaining the SDGs (Display 2). We recognize that revenue streams are backward-looking, but believe they are directional as to a company’s future impact on the SDGs, and will therefore align our portfolio decisions with our clients’ interest in sustainability. A clear “win/win” in our minds.

DISPLAY 2: The AEA Global Concentrated Equity ESG Portfolio Alignment with the UN SDGs

Source: ISS SDG Solutions Assessment data as of June 30, 2020.



In the case of a large software firm holding, their commitment to cloud computing helps to reduce energy consumption, waste, and carbon emissions (SDG 13: Climate Action), while it simultaneously can help improve profitability by lowering the need for capital investment in physical IT infrastructure. What can be good for the globe can in fact be good for the bottom line.

A Final Thought

It is our firm belief that a continued focus on material issues as defined by SASB has the potential to have a pronounced positive impact on sustainability considerations, specifically on the SDGs, and our investment results. This is especially true as data improves with more companies embracing the SDGs. As investors, AEA, in collaboration with the Morgan Stanley Global Stewardship group, has the opportunity to influence companies’ decisions through engagement with their management teams.

We’ve said it before, but it is worth repeating: AEA believes our integrated approach will continue to drive good corporate citizenship, while helping investors thrive in the world of sustainability investing.

In short, our portfolio “actions” should speak for themselves.


1 Corporate Sustainability: First Evidence on Materiality. Mozaffar Khan, George Serafeim, and Aaron Yoon, March 2015. Past performance is no guarantee of future results.
Consolandi and Eccles - “Supporting Sustainable Development Goals Is Easier Than You Might Think” – February 2018.



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 and that the value of portfolio shares may therefore be less than what you paid for them. 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. ESG strategies that incorporate impact investing and/or 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. In general, equities securities’ values also fluctuate in response to activities specific to a company. Stocks of small-and medium-capitalization companies entail special risks, such as limited product lines, markets and financial resources, and greater market volatility than securities of larger, more established companies. Investments in foreign markets entail special risks such as currency, political, economic, market and liquidity risks. Illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk). Non-diversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility. Derivative instruments may disproportionately increase losses and have a significant impact on performance. They also may be subject to counterparty, liquidity, valuation, correlation and market risks.

Executive Director


The views and opinions are those of the author as of the date of publication and are subject to change at any time 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 portfolio managers at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, 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. These conclusions are speculative in nature, may not come to pass and are not intended to predict the future performance of any specific MSIM product.

Certain information herein is based on data obtained from third party sources believed to be reliable. However, we have not verified this information, and we make no representations whatsoever as to its accuracy or completeness.

The information herein is a general communications which is not impartial and has been prepared solely for information 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 material contained herein has not been based on a consideration of any individual client 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.

Past performance is no guarantee of future results.

This communication is not a product of Morgan Stanley’s Research Department and should not be regarded as a research recommendation. The information contained herein has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Prior to investing, investors should carefully review the strategy’s / product’s relevant offering document. There are important differences in how the strategy is carried out in each of the investment vehicles.

This communication 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.

Ireland: Morgan Stanley Investment Management (Ireland) Limited. Registered Office: The Observatory, 7-11 Sir John Rogerson's Quay, Dublin 2, Ireland. Registered in Ireland under company number 616662.  Regulated by the Central Bank of Ireland. United Kingdom: Morgan Stanley Investment Management Limited 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, authorised and regulated by the Financial Conduct Authority. Dubai: Morgan Stanley Investment Management Limited (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). Germany: Morgan Stanley Investment Management Limited Niederlassung Deutschland, Grosse Gallusstrasse 18, 60312 Frankfurt am Main, Germany (Gattung: Zweigniederlassung (FDI) gem. § 53b KWG). Italy: Morgan Stanley Investment Management Limited, Milan Branch (Sede Secondaria di Milano) is a branch of Morgan Stanley Investment Management Limited, a company registered in the UK, authorised and regulated by the Financial Conduct Authority (FCA), and whose registered office is at 25 Cabot Square, Canary Wharf, London, E14 4QA. Morgan Stanley Investment Management Limited Milan Branch (Sede Secondaria di Milano) with seat in Palazzo Serbelloni Corso Venezia, 16 20121 Milano, Italy, is registered in Italy with company number and VAT number 08829360968. The Netherlands: Morgan Stanley Investment Management, Rembrandt Tower, 11th Floor Amstelplein 1 1096HA, Netherlands. Telephone: 31 2-0462-1300. Morgan Stanley Investment Management is a branch office of Morgan Stanley Investment Management Limited. Morgan Stanley Investment Management Limited is authorised and regulated by the Financial Conduct Authority in the United Kingdom. Switzerland: Morgan Stanley & Co. International plc, London, Zurich Branch Authorised and regulated by the Eidgenössische Finanzmarktaufsicht (“FINMA”). Registered with the Register of Commerce Zurich CHE-115.415.770. Registered Office: Beethovenstrasse 33, 8002 Zurich, Switzerland, Telephone +41 (0) 44 588 1000. Facsimile Fax: +41(0) 44 588 1074.

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 manager, 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 please download one at or call 1-800-548-7786. Please read the prospectus carefully before investing.

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


Hong Kong: This document 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 document have not been reviewed Futures Commission in Hong Kong. Accordingly, save where an exemption is available under the relevant law, this document shall not be issued, circulated, distributed, directed at, or made available to, the public in Hong Kong. Singapore: This publication 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. In particular, for investment funds that are not authorized or recognized by the MAS, units in such funds are not allowed to be offered to the retail public; any written material issued to persons as aforementioned in connection with an offer is not a prospectus as defined in the SFA and, accordingly, statutory liability under the SFA in relation to the content of prospectuses does not apply, and investors should consider carefully whether the investment is suitable for them. This publication has not been reviewed by the Monetary Authority of Singapore. 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.

Japan: For professional investors, this document is circulated or distributed for informational purposes only. For those who are not professional investors, this document 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 document 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.

EMEA: This marketing communication has been issued by Morgan Stanley Investment Management Limited (“MSIM”). Authorised and regulated by the Financial Conduct Authority. Registered in England No. 1981121. Registered Office: 25 Cabot Square, Canary Wharf, London E14 4QA.

Charts and graphs provided herein are for illustrative purposes only.

The information contained in this communication is not a research recommendation or ‘investment research’ and is classified as a ‘Marketing Communication’ in accordance with the applicable European or Swiss regulation. This means that this marketing communication (a) has not been prepared in accordance with legal requirements designed to promote the independence of investment research (b) is not subject to any prohibition on dealing ahead of the dissemination of investment research.

MSIM has not authorised financial intermediaries to use and to distribute this document, 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 document is appropriate for any person to whom they provide this document in view of that person’s circumstances and purpose. MSIM shall not be liable for, and accepts no liability for, the use or misuse of this document by any such financial intermediary.

The whole or any part of this work may not be reproduced, copied or transmitted or any of its contents disclosed to third parties without MSIM Ireland’s express written consent.

All information contained herein is proprietary and is protected under copyright law.

Morgan Stanley Investment Management is the asset management division of Morgan Stanley.


It is important that users read the Terms of Use before proceeding as it explains certain legal and regulatory restrictions applicable to the dissemination of information pertaining to Morgan Stanley Investment Management's investment products.

The services described on this website may not be available in all jurisdictions or to all persons. For further details, please see our Terms of Use.

Privacy & Cookies    •    Terms of Use

©  Morgan Stanley. All rights reserved.