How Sustainable Investment Unlocks Lasting Progress on a Large Scale

October 8, 2015

Audrey Choi, CEO of Morgan Stanley’s Institute for Sustainable Investing, discusses the innovations in sustainability that are pointing the way to a new future for investment    

Anyone who’s been inspired to ask “How can I make a difference?” in relation to key economic and environmental challenges probably asks at least one follow-up question:

“What can I do to really make a difference—something lasting, with a broad impact?”

Questions like these are at the heart of sustainable investing and are what make this trend so essential to watch, as Audrey Choi, CEO of Morgan Stanley’s Institute for Sustainable Investing explains.

Q: How do you define sustainable investing and why is it important?

A: We believe that sustainable investing should apply all the same tools, rigor and due diligence that any quality investment does—and enhances it by incorporating additional data and insights about environmental, social and governance factors.

It is important because integrating a strategic long-term view of issues like climate change, population trends and resource scarcity can make your investment decisions even more robust. Such strategic considerations help provide insights into the short-, medium- and long-term factors that can influence investments. These investments can create real impact in the world. When investments are identified that have robust business models that are expected to (or are designed to help deliver) deliver competitive returns and are, therefore, economically sustainable, while also environmentally sustainable, they can create lasting positive outcomes for investors and communities alike.

Q: Why is longer-term thinking important for sustainable development and how can we create useful best practices to encourage and enable longer-term thinking?

A: Longer-term thinking is important for both sustainable development and investment because it is that long view that enables you to understand how secular megatrends like population growth or climate change can have material financial impact. When you start realizing that sustainability isn’t an “extra-financial” consideration but can have material financial impact, you start to understand that longer-term thinking is critical to mitigate risk and maximize opportunity. This perspective can bring into focus the significant growth opportunities available to investors and to those companies that can successfully anticipate what the future will demand and what markets or sectors are poised to grow faster than others.

Audrey Choi, CEO of Morgan Stanley’s Institute for Sustainable Investing

Audrey Choi, CEO of Morgan Stanley’s Institute for Sustainable Investing

Q: How can sustainable investments help deliver inclusive economic growth?

A: Some of the greatest opportunities for investors coincide with fostering inclusive economic growth. Think about what’s going on to promote inclusive economic growth: investments in healthcare delivery and education, affordable quality housing that not only provides a good quality of life but is also potentially more environmentally friendly than old, creaking infrastructure and, of course, job creation in small and medium-sized organizations that provide opportunities for wealth accumulation.

One of the best ways to achieve positive economic impact and inclusive economic growth is by providing the capital to allow sustainable opportunities to grow at scale—investing in a marketplace where you see high demand curves. That can be a powerful investment: As you grow those businesses and create social impact, it can become a virtuous cycle. If you’re choosing businesses that are focused on meeting critical demands, the success and growth of that business could be correlated with the success and growth of the positive impact they’re having.

Q: Thinking about sustainable alternatives on the level of individual consumer choices—whether it be energy-efficient light bulbs or free trade coffee—is increasingly popular. How can individual sustainable choices and large-scale investing work together to drive progress on sustainability?

A: Sustainable investing is becoming increasingly important to individual investors and is consistent with the increasing awareness of sustainability as part of consumer choices. In turn, organizations are starting to focus more on it as well. One good example is the influence of students on university endowments. Members of the millennial generation—those born after 1982 and future heirs to a massive amount of wealth amassed by their baby boomer parents—have identified the improvement of society as a primary purpose of business. According to recent research from the Morgan Stanley Institute for Sustainable Investing, 84% of millennial investors are interested in sustainable investing. Just look at the growth of the United Nations Principles for Responsible Investment—when that was launched in 2007, which has grown over the years to include more than 1,300 signatories, including some of the largest asset managers and recognizable household names.

More and more individuals are saying: “I want to be able to make sustainable choices for my consumer products, my job, and my investments.” They’re also advocating for this stance within the organizations to which they belong. That, in turn, means that you’re starting to see a virtuous cycle where asset managers are creating investment products that leverage their skills to integrate sustainable considerations into their work.

We already believe sustainable investing is quality investing. Our longer-term goal is for all investors to understand sustainable investing as something that is synonymous with quality investing—that, for example, people would have a hard time not thinking about climate change or resource scarcity as part of a best-in-class way of making their investments even more robust. To do this, we’re focusing on three major fronts:

  • Help to build out investor awareness — Clearly, interest in sustainable investment is growing, and people have a lot of questions about what that means and what their options are. One of the things the Morgan Stanley Institute for Sustainable Investing is working on is providing answers to those questions.
  • Build out products and solutions — We want to help grow sustainable investing as a field by making great products available. A lot of people think of sustainable investing too narrowly—that it’s a single asset class, a single fund, a single slice of my portfolio. We’re showing with a multi-asset class, multi-sector portfolio that sustainable investing is a template you can apply across a diversified range of investment products and portfolios. Overall, I think that one of the most important developments I’d like to see continue in sustainable investing is the increased integration of sustainability considerations with financial considerations. That includes thinking of sustainability in research and product development.
  • Help develop the next generation of corporate and investment leaders — We really have seen that the next generation of best-and-brightest young minds is especially interested in sustainable investing—they want to see a tight integration of what they do professionally and what they are passionate about. This is why we’ve created the Sustainable Investing Challenge to say bring us your best ideas for an investment product that seeks to deliver market rate of return, is scalable and targets positive impact.

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