Sustainable investments have more than doubled since 2012. Have asset managers risen to meet demand? Morgan Stanley’s Institute for Sustainable Investing and Bloomberg L.P. surveyed 402 asset management professionals to find out how well they have adapted to the onslaught of demand for impact investing. Here are some of the highlights of their new report, “Sustainable Signals: The Asset Manager Perspective.”
Sustainable investing has entered the mainstream, with two-thirds of asset managers surveyed now aiming to achieve competitive market-rate financial returns alongside positive social and/or environmental impact and with nearly nine in 10 familiar with the practice. This surge in activity has been spurred by rising investor demand and media coverage,1 resulting in a proliferation of new products from specialist and mainstream asset management firms.
Key findings
- Industry engagement in sustainable investment is surging with a continued positive outlook.
The survey found that 89% of asset managers were familiar with sustainable investing, 65% currently practice sustainable investing and a further 19% work at firms actively planning to do so. Even among respondents at firms that don’t practice sustainable investing, 52% believe adoption will increase in the next five years. Of respondents already engaged in sustainable investing, 54% plan new environmental, social and governance (ESG) strategies and 45% plan new sustainable thematic investment strategies in the next 12 months. This suggests to us that many firms are thinking about this area in new ways and expect to see growth over the coming years. Yet, as the field grows, firms are being forced to make decisions on their positioning within the market. Among asset managers interviewed, there was much discussion over the development of customizable products to address the diversity of client interests, demonstrating a spectrum of approaches ranging from styles that aim to be all things to all investors, to highly customized products.
- Asset managers we engaged are divided on how they differentiate themselves to clients, an indicator that firms are wrestling with demonstrating credibility in sustainable investing.
Survey respondents reported three top factors as ways to differentiate themselves from their peers: a “strong firm reputation” (28%), offering customized “products tailored to the sustainability themes that matter most to clients” (28%) and offering “innovative and new sustainable investing products” (27%). This pattern of responses highlights the differences we heard in interviews about what it means to develop a credible sustainable investing practice, complicated by varying opinions on what credibility along both financial and impact criteria means to clients, to internal colleagues and to external stakeholders. - Asset managers we engaged cite a wide variety of motivations behind their engagement in sustainable investing.
Client demand (29%) is clearly the leading motivator for sustainable investment, but far from a majority. Financial return potential (15%), personal values of leadership (10%), fiduciary duty (9%), global investment trends (9%) and portfolio risk management (8%) were also cited as leading motivating influences. While client demand is not always the major driver behind asset managers’ engagement in sustainable investing, for interviewees that saw this as a major motivating force, the diverse and changing nature of client demand across all segments of the market was a significant source of debate. The variety in expressed client demand posed challenges not just for acting on existing demand, but also attempting to deduce future interests. Additionally, some interviewees pointed to an internal motivation to expand their sustainable investing practice tied both to financial opportunity and to a belief in the value of sustainable investing analysis.
