How can you invest with impact?
Last summer, four friends and I completed an 8,500-mile motorcycle adventure from Key West, Florida, to Seattle. We rode through manicured farmlands, pristine mountain valleys and miles of virgin forest. We passed through national parks and in the shadows of the snowcapped Rocky Mountains, past raging rivers and motionless glaciers. And we encountered amazing wildlife, from bison and bald eagles to grizzly bears and moose. A trip like this reinforces one’s sense of the need to keep the natural world beautiful for future generations.
To that end, over the past 20 years, investors have sought to create socially responsible portfolios aligned with their personal values. In the United States, sustainable and impact investing continues to rise, with total assets in these strategies amounting, in early 2016, to $8.7 trillion, up 33 percent from $6.6 trillion in 2014.
Institutional investors hold the major portion of these assets; however, individual investors have growing interest, as well. Sustainable investments now account for 26 percent of all professionally managed assets worldwide.
And this makes sense: For decades, investors have worked to align a core component of a diversified portfolio with their values through “restriction screening,” seeking not just to avoid certain objectionable industries (tobacco, weapons, gambling), but to invest proactively in companies creating solutions to global social and environmental challenges. These companies are creating a positive environmental and social impact:
- Through their environmental, social and governance corporate policies.
- With products and services generating solutions to key sustainability challenges.
Our clients have access to the Impact Solutions U.S. Model Portfolio, a proprietary Morgan Stanley portfolio consisting of U.S. equities well positioned seeking to generate positive environmental and social impact. All stocks in the portfolio have 30 percent or more revenue exposure to the following global challenges:
- Climate change. Physical and regulatory risk associated with rising global temperatures.
- Water scarcity. Demand to exceed supply by 40 percent in 16 years.
- Waste management. Urbanization estimated to drive waste generation to 2.2 billion tons by 2025.
- Food availability. Agriculture under strain due to population growth and rising incomes.
- Health and wellness. Illness as a growing burden, and increased safety regulation.
- Improving lives. The breakdown of societal inequalities and a rise in standards of living.
These themes and challenges represent megatrends for corporations and investors alike.
And, in this context, pioneering global companies have evolved their corporate practices to consider not just the financial impact of their actions, but the social and environmental impact. In 2015, 81 percent of S&P 500 companies produced some version of a sustainability report detailing their commitment to the environment and to the communities with which they do business.
This was up from 20 percent, in 2011. Good corporate governance is an outgrowth of the ongoing demands from America as a whole. This trend illustrates how investors are helping to create a more socially responsible society. And socially responsible companies can help keep the world beautiful for generations to come.
Source: Lily S. Trager, Zachary A. Apoian, Yogesh Gupta, Partap Singh Ahuja, “Impact Solutions U.S. Model Portfolio,” May 3, 2017.
Eugene Fiamma is a Wealth Advisor with the Wealth Management division of Morgan Stanley in Boca Raton, Fla. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, member SIPC (www.sipc.org). Morgan Stanley Financial Advisor has engaged Worth to feature this profile. He may only transact business in states where he is registered or excluded or exempted from registration (www.morganstanleyfa.com/eugene.fiamma). Transacting business, follow-up and individualized responses involving either effecting or attempting to effect transactions in securities, or the rendering of personalized investment advice for compensation, will not be made to persons in states where they are not registered or excluded or exempt from registration. The strategies and/or investments referenced may not be suitable for all investors.Certified Financial Planner Board of Standards Inc. owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™ and federally registered CFP (with flame design) in the US.Investment Management Consultants Association, Inc. owns the marks CIMA®, Certified Investment Management AnalystSM (with graph element)®, and Certified Investment Management AnalystSM. CRC1895424 09/17