NEXTGEN

A Conversation on Climate Change & Sustainable Investing

Sustainability is a top priority for many young investors who want to align their portfolios with their values. While Morgan Stanley has long been a leader in sustainable investing, the Firm made some significant commitments this year when it comes to addressing climate change and environmental impacts. Mandell Crawley, Head of Private Wealth Management at Morgan Stanley, sat down with Matthew Slovik, Head of Global Sustainable Finance at Morgan Stanley, to learn more about the Firm’s efforts and discuss how the members of our NEXT community can get involved.

Mandell Crawley,
Head of Private Wealth Management at Morgan Stanley

Matthew Slovik,
Head of Global Sustainable Finance at Morgan Stanley

Mandell Crawley: Earlier this year, Morgan Stanley was the first major U.S. bank to commit to publicly disclose its net financed emissions—in other words, how much its loans and investments contribute to greenhouse gases warming the atmosphere.1 Why does the Firm believe it is so important to measure this?

Matthew Slovik: Morgan Stanley is committed to taking a leadership role on climate change. The science is clear that climate change represents an environmental, social and economic reality demanding urgent attention – and, more specifically, that global greenhouse gas emissions must dramatically decrease in order to limit global warming and avoid the worst projected impacts of climate change.

Guided by this scientific reality – and building on the Firm’s prior commitments to reach carbon neutrality across our global operations and to catalyze $250 billion in financing for low-carbon solutions – Morgan Stanley became the first major U.S. bank to commit to reaching net-zero financed emissions by 2050.2 We also became the first major U.S. bank to join the global Steering Committee of the Partnership for Carbon Accounting Financials (PCAF), a collaboration seeking to standardize carbon accounting for the financial sector.3 We believe the Firm has a role to play in enabling a harmonized approach to the assessment and disclosure of greenhouse gas emissions financed by loans and investments.

Mandell: What are some of the trends in sustainable investing you are most excited about?

Matthew: Globally, we have continued to see strong growth and demand for sustainable investing. According to data from Morningstar, ESG funds globally have now surpassed $1 trillion in assets. In a recent analysis by the Morgan Stanley Institute for Sustainable Investing, U.S.-based sustainable equity funds outperformed their traditional peers by a median of 3.9% in the first half of 2020. These findings build on a growing body of work that shows how sustainability considerations can be material to investment and business decisions, even in the most volatile and uncertain markets.

From a thematic perspective, we are seeing growing investor demand – and an expanding set of investment solutions – to address climate change, plastic waste reduction, and gender and racial equity. Helping to advance each of these sustainable investment themes is a proliferation of high quality environmental, social and governance (ESG) data, which represents an opportunity to better serve and inform our clients. For example, in 2019, we launched Morgan Stanley Impact Quotient® (Morgan Stanley IQ), a proprietary impact reporting application that allows clients of Morgan Stanley Wealth Management to prioritize from among 100+ social and environmental impact objectives, and evaluate the alignment of their portfolios with those unique preferences.

Mandell: How might Morgan Stanley IQ empower investors to align their investments with their values?

Matthew: Morgan Stanley IQ provides a new lens with which to view investment portfolios and is designed to put our clients’ impact preferences at the center of the equation. Supplementing traditional financial reporting and analysis, Morgan Stanley IQ can provide transparency and suggestions across multiple dimensions of impact. These include exposure to sectors, issues or business practices that an investor may seek to avoid – for example, the sale of tobacco or firearms – as well as alignment with positive social and environmental outcomes – for example, companies that provide access to healthcare or are working to reduce their carbon footprint.

Mandell: What can individual investors do to manage risks associated with climate change in their investment portfolios?

Matthew: As the Morgan Stanley Institute for Sustainable Investing explored in a recent report, direct and indirect impacts from climate change span physical and transition risk dimensions. Physical climate risks result from extreme weather events and changes in natural cycles, whereas transition risks, encompass shifts in policy and technology that enable a transition to a low-carbon economy.

When it comes to transition risk, many investors are taking a closer look at minimizing exposure to companies with high greenhouse gas emissions or that own significant fossil fuel reserves, among other examples. By working with a Morgan Stanley Financial Advisor – and supported by applications like Morgan Stanley IQ – investors can prioritize their specific climate change goals and identify a range of climate-oriented investment solutions.

Mandell: Why do you think sustainable investing is such a priority for younger investors?

Matthew: According to a survey conducted by Morgan Stanley’s Institute for Sustainable Investing in 2019, 95% of millennial investors are interested in sustainable investing, up 9% from 2017. This trend reflects a broader shift in how younger generations view their role in society, including where they want to work and spend their money. When asked about transparency, 91% of millennial respondents expressed interest in an impact report that tracks social and environmental return on their sustainable investments. Underlying this desire to better understand performance and track progress towards impact goals is a broader trend towards more sustainable lifestyle choices, like using less single-use plastic and eating more locally-sourced food or plant-based protein.

Mandell: Sustainable Investing can be a powerful bridge to connect generations and spark discussions around shared family values and legacy. How have you seen sustainable investing bring multi-generational family members together?

Matthew: Sustainable investing can be a natural bridge for next generation wealth holders to take an active role in investing, and potentially help expand investment decision-making to include a broader set of environmental, social or ethical values – above and beyond a family’s philanthropic activities. Opening a dialogue around sustainable investing may be an opportunity for older generations to initiate conversations about family legacy and succession planning.

Sustainable Investing can be a powerful bridge to connect generations and spark discussions around shared family values and legacy.

Mandell Crawley,
Head of Private Wealth Management at Morgan Stanley

Mandell: What are some examples of ways young investors are addressing climate change in their portfolios?

Matthew: Next gen investors are often globally-minded and forward-looking. As a result, many are approaching climate investing with a critical eye on solutions. What are the key technologies and innovations needed to accelerate the transition to a global low-carbon economy? Which companies are developing the products and services to lead that transition? At the same time, many next gen investors also recognize the complexities of climate change and its social implications – such as the expected growth in climate refugees and global wealth disparities. As a result, they are looking for investment solutions that take a holistic view of climate change and its broader impacts, and approach climate-related investment opportunities with an eye on authenticity, innovation and inclusivity.


Disclosures:

Equity securities may fluctuate in response to news on companies, industries, market conditions and general economic environment. Companies paying dividends can reduce or stop payouts at any time.

The Morgan Stanley Impact Quotient® report is an assessment of an investor’s portfolio (or subset thereof) utilizing various environmental, social and governance (“ESG”) factors. The metrics included in the report are based on key topic areas for sustainable and impact investing. Assessment of the investor’s portfolio alignment with ESG factors, established by Morgan Stanley, is evaluated based on available data and expertise from MSCI ESG Research, ISS-ESG, Fossil Free Indexes and Equileap.

The Morgan Stanley Impact Quotient report does not represent Morgan Stanley’s view of any individual fund or security, is not a judgment on any company’s commitment to sustainability issues and is provided for informational purposes only. The report is not a “research report” as defined by FINRA Rules 2241 and 2242. It is not prepared by the Research Departments of Morgan Stanley Smith Barney LLC or Morgan Stanley & Co. LLC or its affiliates.

The returns on a portfolio consisting primarily of ESG-aware investments may be lower or higher than a portfolio that is more diversified or where decisions are based solely on investment considerations. Because ESG criteria exclude some investments, investors may not be able to take advantage of the same opportunities or market trends as investors that do not use such criteria.

Morgan Stanley offers a wide array of brokerage and advisory services to its clients, each of which may create a different type of relationship with different obligations to you. Please consult with your Financial Advisor to understand these differences.

Because of their narrow focus, sector investments tend to be more volatile than investments that diversify across many sectors and companies.

Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors and Private Wealth Advisors do not provide tax or legal advice. Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning, charitable giving, philanthropic planning and other legal matters.

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Any securities mentioned are provided for informational purposes only and should not be deemed as a recommendation to buy or sell. Securities discussed in this report may not be appropriate for all investors. It should not be assumed that the securities transactions or holdings discussed were or will be profitable. Morgan Stanley recommends that investors independently evaluate particular investments and strategies, and encourages investors to seek the advice of a Financial Advisor. The appropriateness of a particular investment or strategy will depend on an investor’s individual circumstances and objectives.

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Historical data shown represents past performance and does not guarantee comparable future results.

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