Morgan Stanley finds 'record levels' of ESG investors

Interest in sustainable investing is continuing to increase as evidence mounts that investment choices can deliver positive social or environmental benefits. But the sector is still being hampered by the “myth” that sustainable investing requires a financial trade-off.

That is one of the main conclusions from the latest survey on attitudes towards sustainable investment undertaken by banking giant Morgan Stanley.

The bank published its latest Sustainable Signals report last week, revealing the results of a survey of 1,000 active individual investors undertaken earlier this year.

The survey, which provides an update to the same poll carried out in 2015, found that the proportion of people describing themselves as “very interested” rose from 19 percent to 23 percent, while 52 percent said they were “somewhat interested,” staying constant. As a result, the overall share of investors claiming they were interested in sustainable investing stands at three-quarters of respondents.

Significantly, engagement with sustainable investing is significantly higher among millennials, who are set to make up three-quarters of the U.S. workforce by 2025. The survey found 38 percent of millennials describe themselves as very interested in sustainable investing, up from 28 percent two years ago. Overall, 86 percent of millennials said they were interested in sustainable investing.

Audrey Choi, chief sustainability officer and chief marketing officer at Morgan Stanley, said the survey provided further evidence that “as widespread attention to sustainability continues to increase, consumers and investors alike are now more than ever factoring sustainability issues into their investment decisions.”

The survey also found millennials were twice as likely as the overall population to invest in companies targeting social or environmental goals and had high levels of confidence that their investment choices delivered positive impacts.

For example, three-quarters thought their investments could help tackle climate change and 84 percent thought they could help lift people out of poverty.

In addition, the survey found that a large majority of all investors wanted more information on assets’ environmental and social performance and more flexibility in how they invest in sustainable companies. The report said:

The poll showed a strong desire for the ability to customize sustainable investments. 80 percent of individual investors and 89 percent of Millennials are interested in sustainable investments that can be customized to meet their interests and goals. It’s interesting to note that nine out of 10 millennial investors expressed interest in pursuing sustainable investments as part of their 401(k) portfolios. This implies that offering sustainable investment funds as 401(k) options may be an additional way for companies to attract and retain Millennial talent in competitive job markets.

Morgan Stanley said the growing interest in sustainable investing is being reflected in the market with a recent report from the Forum for Sustainable and Responsible Investment revealing that sustainable, responsible and impact investing rose 33 percent between 2014 and 2016 to $8.72 trillion assets under management.

However, the survey also suggested the market required further “myth-busting” if it is to grow even faster. More than half of investors “still believe sustainable investing requires a financial trade-off,” Morgan Stanley said, rising to 59 percent among millennials.

A host of academic studies in recent years have shown that sustainable investments can deliver returns that require no trade off from investors, with some analyses suggesting sustainable investment strategies promise above market-rate returns.

Choi said Morgan Stanley’s Institute for Sustainable Investing was focused on driving “scalable investment solutions that seek to deliver positive social or environmental impact alongside the market-rate returns that clients expect.”