Morgan Stanley
Institute for Sustainable Investing

Investing Opportunities for the Earth and Climate

Apr 19, 2024

Growing interest in sustainable investing, scalable innovations and new technologies are helping investors, companies and municipalities combat climate change, protect biodiversity and preserve ecosystems.

Some of the world’s most challenging sustainability issues—climate change, public health, biodiversity and plastic waste—are interrelated, and require systemic solutions that investors and companies can help mobilize at scale. Market participants are recognizing the potential for positive impact and performance; individual investor interest in sustainability is on the rise, and sustainable funds outperformed their traditional peers across all major asset classes and regions in 2023. Sustainable fund assets now account for 7.2% of total global AUM.

Sustainable Funds' AUM was $3.4 Trillion in December 2023, 7.2% of Total AUM

Source: Morgan Stanley Institute for Sustainable Investing analysis of Morningstar data. Data as of February 9, 2024.

Morgan Stanley’s Institute for Sustainable Investing accelerates sustainable finance and helps drive sustainability initiatives for the firm’s business lines, including Wealth Management, Institutional Securities Group—which encompasses Investment Banking, Global Capital Markets and Sales & Trading—and Investment Management.

Based on the Institute’s work in many areas of capital markets, its reports and surveys, transactions facilitated by Morgan Stanley and insights from the firm’s sustainability leaders, the following sustainable investing themes offer a template for investors and companies to consider when analyzing their portfolios and operations for sustainability-related opportunities: 

  1. Climate change and its impact on issues such as health and nature

  2. Rising interest in sustainable investing and recent outperformance of sustainable funds

  3. Innovative solutions, including in sustainable materials, from startups

  4. AI and its role in resource consumption, savings and portfolio analysis

Dive more deeply into these themes and the firm’s sustainable investing insights below.

Disclosures

Disclosures

This material was published in April 2024 and has been prepared for informational purposes only and is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy. This material was not prepared by the Morgan Stanley Research Department and is not a Research Report as defined under FINRA regulations. This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Morgan Stanley Smith Barney LLC and Morgan Stanley & Co. LLC (collectively, "Morgan Stanley"), Members SIPC, recommend that recipients should determine, in consultation with their own investment, legal, tax, regulatory and accounting advisors, the economic risks and merits, as well as the legal, tax, regulatory and accounting characteristics and consequences, of the transaction or strategy referenced in any materials. The appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives. 

Past performance is not a guarantee or indicative of future performance. 

This material contains forward-looking statements and there can be no guarantee that they will come to pass. Information contained herein is based on data from multiple sources and Morgan Stanley makes no representation as to the accuracy or completeness of data from sources outside of Morgan Stanley. References to third parties contained herein should not be considered a solicitation on behalf of or an endorsement of those entities by Morgan Stanley. 

Certain portfolios may include investment holdings that consider one or more Environmental, Social and Governance (“ESG”) factors (referred to as “ESG investments”). For reference, environmental ("E") factors can include, but are not limited to, climate change, water, waste, and biodiversity. Social ("S") factors can include, but not are not limited to, employees, diversity & inclusion, cyber security, data privacy, health & wellness, supply chains, product safety & security, community engagement, and human rights. Governance ("G") factors can include, but are not limited to, board structure & oversight, leadership composition, pay and incentive structures, corruption & bribery, ethics & business conduct, shareholder rights, accounting & audit practices, tax evasion, and risk management. You should carefully review an investment product's prospectus or other offering documents, disclosures and/or marketing material to learn more about how it incorporates ESG factors into its investment strategy. 

ESG investments may also be referred to as sustainable investments, impact aware investments, socially responsible investments or diversity, equity, and inclusion (“DEI”) investments. It is important to understand that ESG definitions and criteria used within the industry can vary, and ESG ratings of the same subject companies and/or securities can vary among different ESG ratings providers for several reasons including, differences in definitions, methodologies, processes, data sources and subjectivity among ESG rating providers when determining a rating. Certain issuers of investments including, but not limited to, separately managed accounts (“SMAs”), mutual funds and exchange traded funds (“ETFs”) may have differing and inconsistent views concerning ESG criteria where the ESG claims made in offering documents or other literature may overstate ESG impact. Further, socially responsible norms vary by region, and an issuer’s ESG practices or Morgan Stanley’s assessment of an issuer’s ESG practices can change over time. 

Portfolios that include investment holdings deemed ESG investments or that employ ESG screening criteria as part of an overall strategy may experience performance that is lower or higher than a portfolio not employing such practices. Portfolios with ESG restrictions and strategies as well as ESG investments may not be able to take advantage of the same opportunities or market trends as portfolios where ESG criteria is not applied. There is no assurance that an ESG investing strategy or techniques employed will be successful. Past performance is not a guarantee or a dependable measure of future results. For risks related to a specific fund, please refer to the fund's prospectus or summary prospectus.

Investment managers can have different approaches to ESG and can offer strategies that differ from the strategies offered by other investment managers with respect to the same theme or topic. Additionally, when evaluating investments, an investment manager is dependent upon information and data that may be incomplete, inaccurate, or unavailable, which could cause the manager to incorrectly assess an investment’s ESG characteristics or performance. Such data or information may be obtained through voluntary or third-party reporting. Morgan Stanley does not verify that such information and data is accurate and makes no representation or warranty as to its accuracy, timeliness, or completeness when evaluating an issuer.  

Morgan Stanley’s assessment of an issuer’s ESG practices or an ESG portfolio is as of the date of this material. No assurance is provided that the underlying assets have maintained or will maintain any applicable ESG designations or any stated ESG compliance, or that the underlying assets have been operated or will be operated in an ESG-compliant manner. The ESG impacts of the securities and any underlying assets may vary over time.]

This can cause Morgan Stanley to incorrectly assess an issuer’s business practices with respect to its ESG practices. As a result, it is difficult to compare ESG investment products.

Morgan Stanley makes no representation as to the compliance or otherwise of any fund or portfolio with any laws or regulatory guidelines, recommendations, requirements or similar relating to the ESG characterization of any fund or portfolio, or in connection with or to meet any of your investing ESG objectives, metrics, or criteria. 

The appropriateness of a particular ESG investment or strategy will depend on an investor’s individual circumstances and objectives. Principal value and return of an investment will fluctuate with changes in market conditions. 

There is no assurance that an ESG investing strategy or techniques employed will be successful. Past performance is not a guarantee or a dependable measure of future results.

The appropriateness of a particular ESG investment or strategy will depend on an investor’s individual circumstances and objectives. Principal value and return of an investment will fluctuate with changes in market conditions. 

Diversification does not guarantee a profit or protect against loss in a declining financial market. 

Artificial intelligence (AI) is subject to limitations, and you should be aware that any output from an IA-supported tool or service made available by the Firm for your use is subject to such limitations, including but not limited to inaccuracy, incompleteness, or embedded bias. You should always verify the results of any AI-generated output.

Any securities mentioned are provided for informational purposes only and should not be deemed as a recommendation to buy or sell. Securities discussed in this report may not be appropriate for all investors. It should not be assumed that the securities transactions or holdings discussed were or will be profitable. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor.  The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives. 

Morgan Stanley makes every effort to use reliable, comprehensive information, but we make no guarantee that it is accurate or complete. We have no obligation to tell you when opinions or information in this report change. 

Historical data shown represents past performance and does not guarantee comparable future results. 

Investing in the markets entails the risk of market volatility. The value of all types of investments, including stocks, mutual funds, exchange-traded funds (“ETFs”), closed-end funds, and unit investment trusts, may increase or decrease over varying time periods. 

An investment in an exchange-traded fund involves risks similar to those of investing in a broadly based portfolio of equity securities traded on exchange in the relevant securities market, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. The investment return and principal value of ETF investments will fluctuate, so that an investor’s ETF shares, if or when sold, may be worth more or less than the original cost. 

Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies. 

Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment. Companies paying dividends can reduce or stop pay-outs at any time. 

Growth investing does not guarantee a profit or eliminate risk. The stocks of these companies can have relatively high valuations. Because of these high valuations, an investment in a growth stock can be more risky than an investment in a company with more modest growth expectations. 

Bonds are subject to interest rate risk. When interest rates rise, bond prices fall; generally, the longer a bond’s maturity, the more sensitive it is to this risk. Bonds may also be subject to call risk, which is the risk that the issuer will redeem the debt at its option, fully or partially, before the scheduled maturity date. The market value of debt instruments may fluctuate, and proceeds from sales prior to maturity may be more or less than the amount originally invested or the maturity value due to changes in market conditions or changes in the credit quality of the issuer.  Debt instruments issued by U.S. corporate and municipal issuers that provide a return in the form of fixed periodic payments and eventual return of principal at maturity. Fixed income investments are advantageous in a time of low inflation, but do not protect investors in a time of rising inflation. Interest income on government securities is subject to federal income taxes, but exempt from taxes at the state and local level. 

Bond funds and bond holdings have the same interest rate, inflation and credit risks that are associated with the underlying bonds owned by the funds. The return of principal in bond funds, and in funds with significant bond holdings, is not guaranteed. 

Morgan Stanley, its affiliates and Morgan Stanley Financial Advisors do not provide tax, accounting or legal advice. Individuals should consult their tax advisor for matters involving taxation and tax planning, and their attorney for matters involving legal matters. 

This material may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the material refers to website material of Morgan Stanley Wealth Management, the firm has not reviewed the linked site. Equally, except to the extent to which the material refers to website material of Morgan Stanley Wealth Management, the firm takes no responsibility for, and makes no representations or warranties whatsoever as to, the data and information contained therein. Such address or hyperlink (including addresses or hyperlinks to website material of Morgan Stanley Wealth Management) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through the material or the website of the firm shall be at your own risk and we shall have no liability arising out of, or in connection with, any such referenced website. Morgan Stanley Wealth Management is a business of Morgan Stanley Smith Barney LLC.

© 2024 Morgan Stanley & Co. LLC and Morgan Stanley Smith Barney LLC. Members SIPC. All rights reserved.  

CRC 6539568 04/2024

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