Sustainable Investing Segues From Niche to Mainstream

Seventy-five percent of U.S. asset managers in a new survey said their firms had adopted sustainable investing, up from 65% in 2016.

Nine of out of 10 asset managers agreed that sustainable investing was no longer a fad, and nearly two-thirds said they expected it to continue to grow in the next five years.

At present, $12 trillion, or one-quarter of U.S. assets under professional management, employ sustainability principles, according to recent research.

The survey, from the Morgan Stanley Institute for Sustainable Investing and Bloomberg, polled 300 respondents at U.S. asset management firms with at least $50 million in client assets.

“The survey results demonstrate that sustainable investment strategies are now a strategic imperative,” Matthew Slovik, head of global sustainable finance at Morgan Stanley, said in a statement. “It is clear that asset managers will continue to invest new resources and expand their product portfolios in the coming years.”

Respondents said high client satisfaction, investment stability, product popularity and possible high financial returns were key factors driving success in sustainable investing.

But even as they recognized the strategy as a business imperative, nearly all asset managers in the poll stressed the need for increased expertise, better data and impact reporting to ensure future success in the space.

“As investors increasingly consider sustainability factors across asset classes and investment products, we expect to see a shift toward better data tracking and reporting mechanisms,” Curtis Ravenel, global head of sustainable business and finance at Bloomberg, said in the statement. “This will increase credibility and improve measurement of impact across portfolios.”

The survey found that as sustainable investing matures, asset managers are putting financial considerations in the vanguard of their sustainable investment strategies.

Eighty-two percent of respondents said that robust environmental, social and governance practices could bring higher profitability and that companies with ESG practices may be better long-term investments.

Sixty-two percent believed that it was possible to maximize financial returns while investing sustainably.

More asset management firms are offering an increasing number of ESG-tailored investment vehicles and expanding investor choice, according to the survey. Sixty-three percent of asset managers said they employed multiple strategies across shareholder engagement, restriction screening, ESG integration, thematic investing and impact investing.

Nine out of 10 respondents reported that their firms would pour more resources into sustainable investing in the next two years. These were common strategies they cited for developing in-house skills and capacity:

• Employee training — 41%
• Dedicating more employee time — 36%
• Specialist hires — 34%

Some 70% of asset managers agreed that the industry lacks standard metrics to measure nonfinancial performance of sustainable investments. The field is wide open for better data and the development of impact measurement tools, Morgan Stanley and Bloomberg said.