More than half of individual investors, or 54%, plan to increase their sustainable investments in the coming year, and more than three fourths of individuals, or 77%, are interested in sustainable investing, according to a widely watched survey of investor sentiment by Morgan Stanley.
The findings come at a time when sustainable investing has been the subject of increased scrutiny by some Republican politicians, as well as investor skittishness in the United States related to performance. In the U.S., sustainable funds suffered their first calendar year of outflows since Morningstar began keeping track more than 10 years ago. Globally, however, flows into sustainable funds remained positive in 2023.
According to the latest Morgan Stanley Sustainable Signals survey, some 77% of individual investors are interested in sustainable investing. The survey polled 2,820 active individual investors across the U.S., Europe, and Japan to assess interest in sustainability and to understand where investors see the most opportunity and potential risk. The survey is widely followed by the asset-management and wealth industries.
Sustainable investing encompasses a range of investment approaches that address the impact of climate change and other environmental, social, and corporate governance issues on their investments, and that seek to deliver competitive financial results. Sustainable investing is the umbrella term Morningstar uses, but “responsible investing,” “ESG investing,” and “impact investing” are also used more or less interchangeably to describe the same set of investment approaches.
ESG Investing’s Growing Fan Base
“This stands in stark contrast to recent stories that ESG investing was on the decline,” says Tim Smith, senior policy advisor for the Interfaith Center on Corporate Responsibility. “It clearly highlights the fact that sustainable investing is alive, well and growing among retail investors in the U.S. and Europe.”
In the U.S., 84% of those surveyed by Morgan Stanley were “very” or “somewhat” interested in sustainable investing. The least interested group in terms of age was the so-called Silent Generation, who are 78 or older, where 60% of respondents were interested in sustainable investing. By contrast, 96% of millennials were interested. In terms of political leanings, some 94% of those who identified as “very liberal” were interested in sustainable investing, compared with 77% of those who identified as “conservative.”
Driving interest in sustainable investing are inflation, new climate science findings, and the performance of sustainable investments, the report found. “Even investors who know or assume that their sustainable investments underperformed their traditional investments in 2022 report growing interest in sustainable investing. This suggests that sustainability-focused investors tend to be more focused on long-term investment horizons and may not be deeply concerned by short-term fluctuations,” according to the report.
Interest Grows in ESG Investing
According to the survey, 57% of individual investors globally say their interest has increased in the past two years. The findings jibe with surveys that show institutional investors remain committed to ESG investing. According to the Morningstar Voice of the Asset Owner global survey, two thirds of asset owners believe that ESG has grown even more financially relevant to investing over the past five years.
The top sustainable investing theme in the Morgan Stanley survey was climate action, at 15% of those surveyed, followed by healthcare (13%), water solutions (11%), and the circular economy (11%).
“A lot of the focus is on investment opportunities that can [be] identified in the coming years, thinking about increased transparency and risk mitigation in environmental and social issues,” says Maria Lettini, CEO of US SIF, the trade group for the sustainable investment industry.
Says Smith: “The survey reinforces the business case for sustainability goals for managers.”
What’s holding investors back? Some 63% cited a lack of transparency and trust in sustainability reporting (63%) and 61% cited the potential for greenwashing. In addition, some 52% of respondents reported that their knowledge was limited about how to start investing sustainably. These findings indicate opportunities for asset managers and others to provide guidance, Morgan Stanley said.
In a statement, Jessica Alsford, Morgan Stanley’s chief sustainability officer and CEO of the Institute for Sustainable Investing said, “A majority of individual investors ... express a desire for their investments to advance positive environmental and social impact, creating opportunities for finance professionals to meet these needs.”
You can see the full survey here.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.