• Institute for Sustainable Investing

Could Sustainable Investing be the Key to Our Survival?

Today’s high wealth investors could play an important part in shaping the future for all of us – particularly when it comes to their decisions around sustainable investment options.

According to Morgan Stanley’s Institute for Sustainable Investing, private investors can make a significant difference by funnelling their capital into areas that prioritise sustainability. A recent report from the Institute made the following observation: “While government and philanthropy serve valuable roles, private capital can and must likewise address complex, global issues on the horizon.”

Morgan Stanley defines sustainability as a commitment to economic, social and environmental well-being for both the present and the future, balancing society’s needs today with the demands of tomorrow.

FUTURE SUSTAINABILITY CHALLENGES

The risks and challenges associated with future global projections can be broadly divided into the four categories of Population Growth; Resource Scarcity; Urbanisation; and Environmental Risk, which are briefly outlined below.

There will be more of us

In 1900, the world population was estimated at 1.7 billion. By 2000, this had increased to approximately 6.1 billion. By 2050 it is forecast to reach 9.7 billion.

There will less to go around

Resource scarcity will pose an increasing threat as climate change escalates and impacts on global food supplies. The growing population will see demand for food, water and energy skyrocket, with some projections estimating water demand will increase as much as 55%; food demand as much as 60%; and energy demand as much as 80% by 2050.

We will flock to the cities

Urbanisation will complicate things in the future, presenting challenges for infrastructure, overcrowding, pollution levels and accommodation in ever-expanding metropolises. For comparison, back in 1950 less than one third of all people resided in an urban area. By 2050, it is estimated that two-thirds of the global population will reside in cities.

Climate change will turn up the heat

Morgan Stanley Research references recent findings from the Sustainability Accounting Standards Board that suggest climate change affects 72 out of 79 industries studied, equating to 93% of the capital markets. Adding to the future environmental angst will be growing sectors of commercial development that place intense demands on energy supplies or natural resources. Examples include data centres that cater to the needs of technology firms requiring space and capacity to store and process data; and clothing companies that source climate-vulnerable crops, such as cotton.

WHAT IS SUSTAINABLE INVESTING?

Sustainable Investing incorporates a focus on positive future opportunities that represent the sunnier flipside of a daunting smorgasbord of looming challenges.

Sustainable investing, also referred to as Ethical Investing, is an investment strategy that mobilises capital in consideration of Environmental, Social and Governance (ESG) factors. These factors can include issues of an environmental, social or ethical nature. For example, businesses may be screened out as investment options if they don’t adhere to best environmental practices. Another example might involve screening out companies who are not committed to the employment and advancement of women.

It’s a pro-active approach towards tackling the problems of tomorrow, with a focus on positive opportunities that represent the sunnier flipside of a daunting smorgasbord of looming challenges.

Because, despite the overwhelming nature of the numbers when they’re crunched, it isn’t all gloom and doom.

The hope is that consistent investment across sustainable sectors will propel a burgeoning headwind of productivity and innovation. Like killing two birds with one stone, the merger of business, economy and sustainability can benefit all three.

This would particularly be the case if such a cooperative effort were backed by a healthy dose of capital - and that’s where high wealth investors come in. Any decision to invest in sustainable sectors, however, could never be interpreted as charity - with investable opportunities in a host of sustainability-related sectors estimated to reach as much as $10 trillion annually by 2050.i

While the $10 trillion figure may seem high, it’s a projection that falls in line with a growing body of research linking sustainable investments to robust profit margins. One example is a proprietary study conducted by Morgan Stanley’s Institute for Sustainable Investing that covered more than 10,000 mutual funds and 2,800 Separately Managed Accounts over 7 years. The results showed that sustainable investments usually met, but often exceeded, the performance of traditional investments.ii

 

For more information on Sustainable Investment opportunities please contact your Morgan Stanley Financial Adviser.