Sustainable investing: Beyond the tipping point
The saga of ESG data looks promising, but the questions about its usefulness for investors drag on.
Sustainable investing has now reached a tipping point.
Morgan Stanley’s bi-annual Sustainable Signals survey, published in May, interviewed 110 asset owners from North America, Europe and the Asia-Pacific region and found that the majority recognize that considering environmental, social and governance policies will be standard business practice.
Some, 57% said they foresee a time when they will only allocate to third-party investment managers with a formal ESG policy.
That’s encouraging news, although not much had changed since Morgan Stanley’s previous report in 2018. The asset owners again listed risk management and return potential as the main drivers for adopting sustainable investment policies.
Indeed, if there were still doubts that firms with good ESG perform better and have less downside risk those have surely been ironed out over the Covid-19 crisis.
By the time you file this article there will be more ESG ratings providers than when you started - Audrey Choi, Morgan Stanley
In May, S&P Global Market Intelligence released its analysis of 17 exchange-traded and mutual funds with more than $250 million in assets under management that select stocks for investment based in part on ESG criteria.
Of those funds, the report showed that 14 have lost less value this year than the S&P500, up from 12 in April.
The top performer in the latest analysis, the Nuveen Winslow Large-Cap Growth ESG Fund, even gained 3.4% in the year to May 15, compared with an 11.4% decline in the S&P500.
One difference, however, in the more recent Morgan Stanley data is the role of stakeholder appetite.
The single most important driver listed by asset owners for investing sustainably this year was ‘constituent demand’, indicating that an ESG strategy is now simply part and parcel of fiduciary duty: end investors, pension fund trustees and shareholders are all pushing for change.