Strong on Engagement, Low on Carbon, Built on Quality
The trend toward sustainable investing has exploded over the last decade, with an estimated $23 trillion in assets under management globally.1 With our focus on high quality companies with earnings resilience, sustainability is key. In our view, understanding and integrating environmental, social and governance (ESG) factors is essential for successful compounding.
We believe material social and environmental risks are more important than ever given political and technological changes. Naturally, any material ESG risk to the sustainability of a company’s returns may pose a risk to the prospects for long-term sustainable compounding. However, many investors miss that companies with good governance and the ability to lead the way on social and environmental issues can also be a positive force for corporate success, driving consumer loyalty, and improving employee retention and stakeholder engagement. We believe that clients are increasingly looking for ESG funds to meet their investment requirements without any compromise to returns. Global Sustain is Morgan Stanley Investment Management’s solution for this—aiming to deliver compounding with a conscience.
The strategy builds on the International Equity Team’s existing foundation of high-quality investing. It combines our historical focus on good governance, our successful and regular engagement with company managements, full integration of ESG into the investment process, and the exclusion of certain industries that conflict with social or environmental considerations.
Global Sustain includes 25-50 of the world’s highest quality compounders at reasonable valuations. It is naturally carbon light, given the avoidance of low-return polluting sectors, such as bulk commodities, energy, and gas and electric utilities. It has exposure to corporations leading the way in consumer and staff engagement through a focus on material social and environmental issues. It benefits from superior allocation of capital driven by good management and the right attitude to governance. Furthermore, the strategy excludes controversial industries, including tobacco, alcohol, weapons, gambling, adult entertainment and fossil fuels.
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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 value of securities owned by the portfolio will decline. Accordingly, you can lose money investing in this strategy. Please be aware that this strategy may be subject to certain additional risks. Changes in the worldwide economy, consumer spending, competition, demographics and consumer preferences, government regulation and economic conditions may adversely affect global franchise companies and may negatively impact the strategy to a greater extent than if the strategy's assets were invested in a wider variety of companies. In general, equity securities' values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. Stocks of small-capitalization companies carry special risks, such as limited product lines, markets and financial resources, and greater market volatility than securities of larger, more established companies. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed markets. 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. Nondiversified 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. Illiquid securities may be more difficult to sell and value than public traded securities (liquidity risk).