New research by the Morgan Stanley Institute for Sustainable Investing revealed that asset managers who align ESG investment practices, products and reporting with the investing needs of asset owners could catalyse sustainable investment market growth.
According to the institute, 77 per cent of asset managers and owners reported increasing interest in sustainable investing since May 2020, driven by client and investor pressures, shifting public sentiment and regulatory developments.
In the firm’s most recent Sustainable Signals series, 110 asset owners in North America, Europe and Asia were surveyed, in addition to 201 asset managers across the same regions, to better gauge the desires held by asset owners and how asset managers are meeting them.
The survey revealed that 85 per cent of asset managers and 83 per cent of asset owners claimed to have implemented or planned to implement sustainable investing in all or a part of their portfolios.
However, Morgan Stanley identified a gap between asset managers and asset owners in three key areas: sustainable investing practices and policies, new and expanded sustainable investing products, and sustainable investing data and metrics.
The biggest gap in sustainable investing data and metrics lies with fund managers providing climate risk-related data to investors. While 82 per cent of asset owners said they wanted managers to provide carbon footprint data, only 63 per cent of managers admitted to offering it.
Eight in 10 asset owners reported a lack of data to adequately measure the environmental and social impact of their investments, and more than half of institutional investors agreed that sustainable investing loses credibility when investors aren’t offered a means to measure impact.
Chief sustainability officer and CEO of the Institute for Sustainable Investing at Morgan Stanley, Jessica Alsford, said, “The results of our latest Sustainable Signals survey show that sustainable investing remains an important focus area for institutional investors globally, with the vast majority reporting an increased interest over the past two years.”
“At the same time, our findings show a significant opportunity for asset managers to better align with asset owner priorities in areas including sustainable investing practices and policies, access to key ESG data and metrics, and development of new sustainable investment products,” she continued.
Moreover, 88 per cent of asset owners said they seek third-party managers that provide ESG impact alongside financial performance, while only 39 per cent of asset managers were found to do so.
This disconnect extends to 50 per cent of asset owners identifying climate change as their top thematic investment priority, while only 33 per cent of asset managers have product offerings that meet that demand.
“Closing these gaps could help boost the credibility and adoption of sustainable investing strategies among institutional investors across the globe,” Ms Alsford concluded.
