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Wealth managers have an opportunity to meet growing demand from wealth owners for sustainable investment practices, products and reports, according to new research from the Morgan Stanley Institute for Sustainable Investing. The latest survey, part of the company’s Sustainable Signals series, surveyed 110 asset owners across North America, Europe and Asia, and 201 asset managers in those same regions, to find out what asset owners want and what asset managers offer – and where the gaps lie in delivering ESG (Environmental, Social and Governance) solutions.
“The results of our recent Sustainable Signals survey show that sustainable investing remains a key focus for institutional investors worldwide, with the vast majority indicating increased interest over the past two years,” said Jessica Alsford, Chief Sustainability Officer and CEO of the Institute for Sustainable Investing at Morgan Stanley. “At the same time, our findings show that there is significant potential for asset managers to better align with asset owners’ priorities when it comes to sustainable investment practices and policies, access to key ESG data and metrics, and the development of new, more sustainable investment products Closing these gaps could help increase the credibility and acceptance of sustainable investment strategies among institutional investors worldwide.”
According to the survey, a majority of wealth managers and owners (77%) reported an increasing interest in sustainable investing since May 2020, driven by pressure from clients and investors, changing public sentiment and regulatory developments. Eighty-five percent of wealth managers and 83 percent of wealth owners say they already implement or plan to implement sustainable investing in all or part of their portfolios. Regional disparities were also observed, with EMEA currently ahead of other regions, but APAC respondents expressing the greatest interest in expanding their approach and products to sustainable investing over the next 24 months.
However, there is a divide between wealth managers and wealth owners, with three key areas identified in the survey:
Sustainable Investment Practices and Policies – The biggest gap in sustainable investment practices is ESG reporting and disclosure (49%) – only 39% of money managers report on ESG impacts in addition to financial performance, although 88% of money managers said they seek third-party providers who provide this information.
New and further developed products for sustainable investments – 50% of wealth owners cited climate change as their top thematic investment priority, while only 33% of wealth managers have a product offering that meets this demand. This disparity also extends to other areas where there is a mismatch between wealth managers’ products or solutions and the interest of wealth holders, e.g. B. in water solutions (19%) and education (10%).
Sustainable investing data and metrics – 82% of wealth owners want managers to provide carbon footprint data, but only 63% of wealth managers surveyed provide this information. The biggest gap is in relation to fund managers that provide investors with data on climate risk, such as g. stress tests and scenario analyses.
The survey not only reveals gaps in the sustainability priorities of asset owners and managers, but also points to two key growth challenges: insufficient data and skills shortages. Eight in ten asset owners said they lack data to adequately measure the environmental and social impact of their investments, and more than half of institutional investors (57%) believe sustainable investing loses credibility when investors unable to measure the impact.
Another obstacle identified by institutional investors is the industry-wide skills shortage. While the majority of wealth managers (66%) and wealth owners (53%) say they hired more sustainable investing professionals between May 2020 and May 2022, they also reported that the talent pool still does not meet their hiring needs: only 39% of wealth managers and 23% of wealth owners find enough qualified employees to meet their organizations’ needs.
The full results of the Sustainable Signals survey can be found here.
About Morgan Stanley
Morgan Stanley (NYSE: MS) is a leading global financial services company providing a wide range of investment banking, securities, wealth management and investment management services. With offices in 41 countries, the firm’s staff serves clients worldwide, including corporations, governments, institutions and individuals. For more information about Morgan Stanley, visit www.morganstanley.com.
About the Morgan Stanley Institute for Sustainable Investing
The Morgan Stanley Institute for Sustainable Investing (the Institute) develops scalable financial solutions that deliver competitive financial returns while making a positive impact on the environment and society. The Institute develops innovative financial products, thoughtful insights and capacity-building programs that help maximize capital to create a more sustainable future. For more information about the Morgan Stanley Institute for Sustainable Investing, visit www.morganstanley.com/sustainableinvesting.
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