Last summer, four friends and I completedย an 8,500-mile motorcycle adventure fromย Key West, Florida, to Seattle. We rodeย through manicured farmlands, pristineย mountain valleys and miles of virgin forest.ย We passed through national parksย and in the shadows of the snowcappedย Rocky Mountains, past raging rivers andย motionless glaciers. And we encounteredย amazing wildlife, from bison and baldย eagles to grizzly bears and moose. A tripย like this reinforces oneโs sense of theย need to keep the natural world beautifulย for future generations.
To that end, over the past 20 years,ย investors have sought to create sociallyย responsible portfolios aligned with theirย personal values. In the United States, sustainableย and impact investing continues toย rise, with total assets in these strategiesย amounting, in early 2016, to $8.7 trillion,ย up 33 percent from $6.6 trillion in 2014.
Institutional investors hold the majorย portion of these assets; however, individualย investors have growing interest,ย as well. Sustainable investments nowย account for 26 percent of all professionallyย managed assets worldwide.
And this makes sense: For decades, investorsย have worked to align a core componentย of a diversified portfolio with their valuesย through โrestriction screening,โ seeking notย just to avoid certain objectionable industriesย (tobacco, weapons, gambling), but to investย proactively in companies creating solutions toย global social and environmental challenges.ย These companies are creating a positiveย 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 Impactย Solutions U.S. Model Portfolio, a proprietaryย Morgan Stanley portfolio consisting of U.S.ย equities well positioned seeking to generateย positive environmental and social impact.ย All stocks in the portfolio have 30 percentย or more revenue exposure to the followingย global challenges:
- ย Climate change. Physical and regulatoryย risk associated with rising global temperatures.
- Water scarcity. Demand to exceed supplyย by 40 percent in 16 years.
- Waste management. Urbanizationย estimated to drive waste generation to 2.2ย billion tons by 2025.
- Food availability. Agriculture underย strain due to population growth and risingย incomes.
- Health and wellness. Illness as a growingย burden, and increased safety regulation.
- Improving lives. The breakdown of societal inequalities and a rise in standards of living.
These themes and challenges representย megatrends for corporations andย investors alike.
And, in this context, pioneering globalย companies have evolved their corporateย practices to consider not just the financialย impact of their actions, but the social andย environmental impact. In 2015, 81 percent ofย S&P 500 companies produced some versionย of a sustainability report detailing theirย commitment to the environment and to the communities with which they do business.
This was up from 20 percent, in 2011.ย Good corporate governance is an outgrowthย of the ongoing demands fromย America as a whole. This trend illustratesย how investors are helping to create a moreย socially responsible society. And socially responsible companies canย help keep the world beautiful for generationsย to come.
Source: Lily S. Trager, Zachary A. Apoian, Yogesh Gupta, Partap Singh Ahuja, โImpact Solutions U.S. Model Portfolio,โ 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 CFPยฎ, CERTIFIED FINANCIAL PLANNERโข and federally registered CFP (with flame design) in the US.Investment Management Consultants Association, Inc. owns the marks CIMAยฎ, Certified Investment Management AnalystSM (with graph element)ยฎ, and Certified Investment Management AnalystSM. CRC1895424 09/17