Eighty-four percent of asset owners globally are pursuing or considering ESG investing, said a survey released Monday by the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Investment Management.
Among the 70% of owners who already are incorporating environmental, social and governance factors into their investment decisions, 60% began doing so in the past four years and 37% within the past two years.
Risk management was cited as the biggest factor driving ESG adoption, according to 78% of asset owners, followed by return potential and mission alignment at 77% each. (Multiple answers were permitted.)
Despite many asset owners citing performance as an important factor driving their adoption of sustainable investing, respondents said proof of market-rate financial performance was the biggest challenge to ESG adoption (24%), followed by quality ESG/sustainability data (23%), and supply of quality managers/strategies (20%). Multiple answers were not allowed for this question.
Additionally, only 42% of respondents said they felt their organization had adequate tools to assess how investments align with their sustainability goals. The remainder said they did not have adequate tools or were unsure.
Hilary Irby, managing director and co-head of Morgan Stanley's global sustainable finance group, said in a telephone interview that while she sees a lot of work being done to address the data quality and performance concerns, the industry needs to continue to find ways to make that information "digestible" and "tangible" for asset owners.
Regarding which asset classes provide the most attractive sustainable investing opportunities, the majority of respondents (65%) said public equities, followed by real assets (which includes infrastructure, agriculture and real estate) 50%; fixed income, 37%; private equity, 36%; and hedge funds, 7%.
Other findings from the survey include:
- Seventy-seven percent of asset owners agreed they have a responsibility to address sustainability through their investments.
- Climate change was cited as the leading area of focus by 31% of investors, followed by investments that seek to deliver economic growth and employment opportunities, and gender diversity.
- Eighty percent of respondents said they participate in direct shareholder engagement on ESG issues.
There also is "quite a call" from asset owners for innovative investment approaches, said Rui de Figueiredo, co-head and chief investment officer of the solutions and multiasset group at Morgan Stanley Investment Management, in the same telephone interview.
According to the survey, only 50% of respondents agreed with the statement that they were satisfied with third-party investment managers' responses to ESG investing. Thirty-six percent said they neither agreed nor disagreed with the statement and the remainder said they disagreed.
Morgan Stanley surveyed 118 asset owners, including executives at public and corporate defined benefit plans and defined contribution plans, endowments, foundations and sovereign wealth funds. The majority of respondents were from Europe, followed by Asia/Pacific and North America. Current and prospective clients were surveyed.
The full survey is available on Morgan Stanley's website.