Morgan Stanley
  • Institute for Sustainable Investing
  • Feb 27, 2018

Can Investment Choices Change the World?

There is mounting evidence to suggest that ethical and sustainable investing options are actually a smart financial choice.

According to a quote by Tom Brokaw: "It's easy to make a buck. It's a lot tougher to make a difference."

But what if we could do both?

As an increasing number of investors demand alternatives that align with their values, many financial organisations have responded by offering up a range of ethical investment pathways.

There has long been a myth, built on an assumption, that investing ethically means sacrificing returns. That myth is contradicted by findings from Morgan Stanley Research that show sustainable strategies performing in line with, or better than, their traditional counterparts. The same research also identifies a positive relationship between corporate investment in sustainability, stock price and operational performance.i

A 'FLY ON THE WALL' PERSPECTIVE

Imagine you are a fly on the wall of a large corporation.

You have a view into every aspect of their operations.

The first things you notice are a lack of gender diversity and a lack of any training or progression opportunities. There is no flexibility with regard to working hours and no effort to accommodate a work-life balance. You see staff with low morale, who work long days for below average remuneration.

Because of all this, you see many people resign during your time on the wall. High staff turnover means no strong bonds are built - and confusion reigns over processes and the constant need to train new staff. This confusion leads to employees and managers cutting corners on regulatory compliance, while no real thought is given to processes around toxic waste disposal or workforce safety requirements. You see workers injure themselves in the office and watch toxic sludge poured into a local estuary.

What you observe is a company largely devoid of values around environmental sustainability or workplace diversity. It is a company that doesn't embrace the ethical framework of family - offering no flexible alternatives for busy parents or caregivers. It fails to exercise any duty of care toward staff and is devoid of community values.

With low staff morale and poor managerial engagement, what is the likelihood of such a workplace fostering fresh ideas and innovation?

Consider the potential for legal strife, reputational damage, compensation claims, and a continued deterioration of staff performance.

In the wake of your time as an insightful wall dwelling insect, would you ever be willing to invest in this company long term, irrespective of its profit margin?

This fly on the wall analogy demonstrates the simple idea that companies who act sustainably and ethically are more likely to run their businesses well, keep their employees loyal and happy, inspire innovation and comply with regulation. Similarly, they are less likely to encounter legal issues, court controversy or damage their reputation.

And all of that is good for business, and good for investors.

Research from Morgan Stanley found that nearly half of all individual investors believe companies focused on sustainability are more innovative, and one in three individual investors believes sustainable companies attract better talent.ii

A NEW DIRECTION GATHERS MOMENTUM

If demand for sustainable and ethical investment options continues to grow, it stands to reason that more banks will start to screen out less desirable options. This could negatively impact the bottom line and returns of those companies – making them less attractive for investors across the board.

And demand for ethical investment shows no signs of slowing down.

In fact, the generation that will become the investors of the future is showing a strong preference for investing in a way that benefits their conscience as well as their wallet.

According to Morgan Stanley Research, Millennial investors are nearly twice as likely to invest in companies or funds that target specific social or environmental outcomes.iii

There has even been a shift in how some investors define the concept of ‘long-term value’ within their portfolios.

Ethical investors are looking for attractive long term financial returns, as well as results that generate positive environmental or ethical outcomes. Both are given weighted value and influence when it comes to assessing potential investment strategies.

It’s another sign that growing numbers of people are embracing a new way of thinking about investing. The investor of the future knows that, while a single investment choice won’t change the world overnight, there will always be strength in numbers, and profits to be had by all.

 

For more information on sustainable and ethical investing options, please contact your Morgan Stanley Financial Adviser.

 

iOnly Human. Morgan Stanley Institute For Sustainable Investing. 2016.

iiWhen Superstition Works. Angela Chen. Wall Street Journal. Nov. 25, 2013. 
https://www.wsj.com/articles/when-superstition-works-1385424892

iiiKeep your fingers crossed! How superstition improves performance. Damisch, L., Stoberock, B., & Mussweiler, T. (2010). Psychological Science, 21, 1014-1020. http://dx.doi.org/10.1177/0956797610372631

 

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