A discussion with Audrey Choi, Morgan Stanley’s Chief Sustainability Officer and Chief Marketing Officer
The biggest myth—and until recently, the biggest obstacle to the pursuit of sustainable investing—has been that to invest sustainably, one must sacrifice returns.
Q: WHAT IS THE ROLE OF SUSTAINABLE INVESTING AT MORGAN STANLEY?
AUDREY CHOI: We believe that sustainability is core to good business—and good investing. Sustainable investing, as we define it, means enhancing the best practices of traditional investing with valuable insight and data gained when factoring in environmental, social and governance (ESG) issues. At Morgan Stanley, we founded the Global Sustainable Finance Group more than a decade ago—in 2009—confident that sustainable investing would one day become mainstream. At the time, our peers didn’t see sustainable investing as crucial. But fast-forward to today, and it is now a $30 trillion market globally,1 accounting for $1 out of every $3 under professional management around the world, and nearly all of our peers have commenced their own sustainability initiatives.
Over the years, we have developed a suite of exclusive tools and strategies for our Wealth Management clients, allowing them to understand what they own and then align their investments with the issues and priorities about which they care the most. In 2012, we launched the Wealth Management Investing with Impact Platform,2 which not only screened out sectors that investors didn’t want to hold, but allowed them to choose investments in companies with strong sustainability practices, and focus on driving positive impact on issues like climate change, gender diversity or other sustainability goals. Interest in these types of investments has grown exponentially, and today our clients have invested more than $50 billion in these strategies, and upward of 80% of our Financial Advisors use one or more of the 160+ investment options included on the platform with their clients.
In 2019, we launched a new proprietary tool, Morgan Stanley Impact Quotient™ (Morgan Stanley IQ),3 which helps investors take a customized, in-depth look at their portfolios and ascertain whether their portfolios are truly aligned to their individual preferences in terms of impact on the environment, social issues or whatever sustainability issues are most important to them.
Q: WHAT IS THE BIGGEST MYTH ABOUT SUSTAINABLE INVESTING?
AUDREY CHOI: The biggest myth—and until recently, the biggest obstacle to the pursuit of sustainable investing—has been that to invest sustainably, one must sacrifice returns. But, in fact, we have analyzed the data and found that this simply is not true.
Recently, the Morgan Stanley Institute for Sustainable Investing analyzed 11,000 mutual funds, comparing the performance of sustainable strategies versus traditional strategies from 2004 to 2018. And we discovered that the sustainable strategies performed in line with the traditional strategies—with one big difference: The sustainable funds had lower volatility and a 20% smaller downside deviation compared to the traditional funds.4 And in the last 15 months, we’ve discerned an even more interesting pattern. In 2019, sustainable strategies actually outperformed traditional funds by 2.8 percentage points.5 And in the volatile first half of 2020, these same sustainable strategies were more resilient—declining by 3.9 percentage points less than traditional strategies.6
All this is ample endorsement of our early vision: that sustainable investing is sound investing, and that factoring in how businesses impact the environment, society and the global community is not at odds with good investing—indeed, it can make it more robust.
Q: IS SUSTAINABLE FINANCE A SERIOUS AREA OF INVESTING OR A FAD TO ATTRACT YOUNGER INVESTORS?
AUDREY CHOI: I have often been asked this over the last decade. And while it is true that younger investors have led the way with their passion for sustainable investing, it has absolutely become a major sea of change in mainstream investing. When we first started polling investor attitudes in 2015, 84% of millennials said they were interested in sustainable investing, compared with 78% of women and only 62% of men. Two years later, millennials and women were at 86% and 84%, respectively, with men at 67%.7 Fast-forward to 2019, and a full 95% of millennials,8 86% of women and 83% of men are interested.9 Couple that with the fact that over the next 30 years, $30 trillion10 will be passed from baby boomers to Generation X and millennials, we predict the movement will endure and accelerate.
It’s vital to note that the momentum is not just in interest, but in action: 52% of the general population and 67% of millennials already take part in at least one sustainable investing activity, and 84% of all investors say they want the ability to tailor their investments to their impact goals.
Most encouraging to me, 88% of those polled believe it is possible to balance financial gains with a focus on social and environmental impact.11
Q: WHAT IS THE MORGAN STANLEY PLASTIC WASTE RESOLUTION, AND CAN INVESTORS HAVE AN IMPACT ON THE GLOBAL CHALLENGE OF PLASTIC WASTE?
AUDREY CHOI: In April of 2019, we announced the Morgan Stanley Plastic Waste Resolution—our commitment to facilitating the prevention, reduction and removal of 50 million metric tons of plastic waste from nature by 2030.12 This made us the first—and so far, the only—major financial institution to focus on the issue of plastic waste. We did this because we see the issue of plastic waste as a major environmental and economic challenge that must concern us all.
Consider just a few facts: Since plastic was invented around 70 years ago, it has grown faster and permeated the economy more completely than any other manufactured substance in our history. However, of the more than 8 billion metric tons we have produced, more than 5 billion metric tons of it are now sitting in rivers, oceans, landfills and landscapes.13 And it never disappears— it simply disintegrates over time into smaller particles that find their way into nature, including our food, water and table salt. Every year, we throw away around $100 billion of economic value in the form of single-use plastic packaging alone.14
To solve this challenge, we need to work across the economy, collaborating with the makers of plastic, the users of plastic and the institutions that collect, recycle and dispose of it. We believe that we, as a global financial services provider, can help catalyze the reengineering and re-imagination needed so that we can continue to enjoy the many beneficial qualities of plastic while reducing the burdens of plastic waste on our ecosystem.
The COVID-19 crisis has heightened awareness of single-use items, including (but not limited to) plastic for hygienic considerations. We believe that plastic has and will continue to play an important role in hygiene and health care in many contexts. But we also need to think about innovation and invention to ensure that plastic is being put to its best and highest use. This will allow us to have the same benefits and sense of security that come from single-use plastic without continuing to contribute to a growing environmental concern, and leaving the search for a solution to our children and grandchildren.
We know Morgan Stanley alone won’t solve this problem, but we are optimistic that in working with the different players in the plastic economy— including individuals—we can together facilitate a smart, systemic approach to helping solve the problem.
Q: WHAT DO YOU SEE AS THE FUTURE OF SUSTAINABLE INVESTING?
AUDREY CHOI: More than ever before, sustainability is understood as not only an environmental issue, but also a fundamental economic driver, and a moral imperative. The magnitude and complexity of the challenges we face underscore that business as usual is not producing solutions quickly enough, and that the existing challenges require innovative, systems-level thinking.
That is why we launched the Morgan Stanley Sustainable Solutions Accelerator,15 to inspire innovative thinking for systemic change. The Accelerator will seek out breakthrough ideas that help address global sustainability issues, such as climate change, social justice and plastic waste. In the first year, we will award $250,000 to help develop and scale each of five outstanding sustainability innovations. Our awardees will participate in a yearlong strategic partnership with the Institute for Sustainable Investing, and then continue to participate in the Accelerator as part of the Morgan Stanley Sustainable Solutions Collaborative, an ongoing brain trust focused on helping solve some of the world’s most pressing sustainability challenges.
We have been committed to integrating sustainability into our businesses for more than a decade, with the mission of bringing sustainable investing into the mainstream of capital markets. Solving the world’s biggest sustainability challenges will require a new kind of innovation, one that leverages insights and expertise from across a broad spectrum of sectors and industries, and that is the next frontier in sustainable investing.
This article appears in Insights & Outcomes, a magazine from Morgan Stanley Private Wealth Management providing in-depth reports, analysis and thinking from our Firm’s leading specialists.
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