More than half of investors are planning to increase their allocations to sustainable investments over the next year, as interest in sustainable investing remains high, and continues to grow, according to a new study released by Morgan Stanley, which found that a large majority of investors believe that strong ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. practices can lead to better long-term returns.
For the report, “Sustainable Signals,” Morgan Stanley surveyed over 2,800 investors with over $100,000 in investable assets across the U.S., UK, France, Germany, Switzerland and Japan.
The survey found that over 77% of investors reported being interested in sustainable investing, including 40% who are “very interested,” while 57% said that their interest has increased over the past two years, and 54% expect to increase the percentage of their portfolios allocated to sustainable investments within the next 12 months.
By region, U.S. and European investors indicated the strongest levels of sustainable investing interest and investment plans, with 84% of U.S. respondents, and 85% or Europeans, reporting that they are interested, and nearly two thirds of respondents in each group indicating an increased interest in sustainable investing over the past two years. Interest levels were particularly high in these regions amongst millennial investors, including 96% of respondents in this demographic in the U.S., and 97% in Europe.
In Japan, only 56% of respondents reported being interested in sustainable investing, and only 36% indicated increased interest, potentially due to a less developed sustainable investing market, according to the report.
The survey found that most investors don’t see a conflict between ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. and financial performance, with high levels of interest in sustainable investing persisting even as “maximizing financial returns” remains by far the most commonly indicated investment priority, cited by 90% of investors. Moreover, even investors who are aware that their sustainable investments underperformed in the prior year reported an increased interest in sustainable investing, suggesting a long-term investment horizon for sustainability-focused investors, according to Morgan Stanley. Additionally, around three quarters of investors agreed that “leading ESGEnvironmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. practices can potentially lead to higher returns, and such companies may be better long-term investments.”
The report also examined the key drivers and barriers to sustainable investing, with investors citing inflation (56%), new climate science findings (53%) and financial performance (52%) as the top events that have changed their interest in sustainable investing, and a lack of transparency and trust in reported data (63%), and concerns about greenwashing (61%), as well as concerns about investment performance (61%) as the top factors preventing them from including sustainable investments in their portfolios.
The survey found that a large majority of investors want companies to address sustainability issues, including 82% of respondents that believe that companies should address environmentalEnvironmental criteria consider how a company performs as a steward of nature. issues, and 77% that said companies should address socialSocial criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. issues. Investors appear to be integrating these beliefs into their investment choices, according to the report, with nearly 80% reporting that they consider a company’s reporting on sustainability practices, carbon footprint, and emissions reduction commitments when making a new investment, and 58% said that they would be likely to select a financial advisor or investment platform based on their sustainable investment offerings. Additionally, more than half of respondents reported that they would only invest in traditional energy companies if they have robust plans to reduce emissions, and 60% said that they would be likely to purchase carbon offsets for their investment portfolios, if available.
Click here to access the report.