A majority of large investors are now pursuing sustainable investing to manage risk and drive returns, according to a new survey.
The survey report, issued last week by the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Investment Management found that momentum is high in sustainable investing, with 84% of asset owners pursuing or actively considering pursuing environmental, social and governance (ESG) integration in their investment process.
Of those, 60% began implementing ESG strategies in the last four years and 37% within the last two years. 70% of asset owners have already implemented ESG strategies; 49% of those have implemented ESG across their entire portfolio and 21% have implemented them in a portion of their portfolio.
“As interest in sustainable investing continues to rise, we see investors pursuing a range of approaches with their assets,” said Morgan Stanley Investment Management Solutions and Multi-Asset business co-head and CIO and Head of the Division’s Sustainability Council Rui de Figueiredo.
“The growing sophistication among asset owners about when and how to integrate ESG into the investment process creates opportunities to tailor strategies and provide customised portfolio solutions that help investors meet their financial and impact goals.”
While the asset owners cited risk management and potential for returns as top drivers of interest in sustainable investing, they were of the view that better data and investment information remains a challenge to greater uptake, despite the recognition of these opportunities.
77% of respondents said they have a responsibility to address sustainability through their investments, yet proof of market-rate financial performance remains the top challenge and only 42% feel they have adequate tools to carry out such assessments.
“The survey results identify a strong commitment to incorporating ESG criteria into investment strategies among asset owners. However, there is still a gap between interest and implementation – with investors citing access to quality ESG data as a top concern,” said Morgan Stanley co-head of Global Sustainable Finance Hilary Irby.
She said that with this growing momentum in sustainable investing, third-party managers have an opportunity to increase implementation by improving reporting tools and education, and developing capabilities to align portfolios with owners’ unique objectives.
The survey also found that there has been increased sophistication and adoption of multiple approaches, with 78% saying risk management is an important factor driving sustainable investing at their organisations, and 77% said return potential was important. Asset owners are pursuing multiple approaches to sustainable investing, led by ESG integration.
The survey polled 118 public and corporate pensions, endowments, foundations, sovereign wealth entities, insurance companies and other large asset owners worldwide, 60% of which had total assets over $10 billion, on trends, motivations, challenges and implementation approaches in sustainable investing.
The full survey report can be found here.