June 6, 2016

Sustainable investing: Just a fad or the future?

Over the last few years, many investors have expressed increased interest in sustainable and socially responsible investing as a new way to protect our planet, both environmentally and socially. In fact, professionally managed assets invested sustainably have grown by 76 percent over the past two years.

So what exactly is sustainable investing? Is it just a passing trend or the future?

We recently had the chance to witness firsthand the surging interest in sustainable investing. Last March, Morgan Stanley's Seattle office sponsored an event around its initiative called Investing With Impact.

Held at the Bullitt Center in downtown Seattle, the audience heard panel discussions about how to deliver positive environmental and social impact through a variety of investment strategies.

We define sustainable investing as proactively making investments in companies or funds that aim to achieve market-rate financial returns while also pursuing a positive social and/or environmental impact. We believe that sustainable investing is here to stay and have a strong commitment to helping our clients understand the various investment possibilities it offers.

Our firm polled 1,003 high net worth (HNW) U.S. investors ages 25 to 75 in January and found increasing interest in these investments. Fifty-five percent of respondents were at least somewhat, if not very, interested in sustainable investing, and 32 percent rate it as a “good” investment for 2016.

However, 80 percent of HNW millennials (born after 1982), expressed interest in sustainable investing and 58 percent deemed it a “good” investment for 2016. These findings are further bolstered by the current investment climate where $1 out of every $6 of professionally managed assets in the U.S. is invested in some form of sustainable investment, for a total of $6.57 trillion.

This level of engagement from next-generation investors is only going to increase the popularity of, and demand for, sustainable investing going forward.

There are some who believe there is a trade off in activating portfolios toward positive impact. Yet research shows that investing in sustainability has usually met — and often exceeded — the performance of comparable traditional investments. This is on both an absolute and a risk-adjusted basis, across asset classes and over time.

The first step towards sustainable investing is to determine your specific goals. Do you want your investments to reflect your religious beliefs, or your passion for clean energy?

Next, determine your budget. Will you include all of your investible assets in this portfolio, or a percentage? You can develop a strategy that can not only help you “put your money where your mouth is” but potentially provide returns in line with the market.

As investors become increasingly attracted to using their portfolios as a vehicle to create positive change, sustainable investing offers the opportunity to personalize their strategies, themes and goals to support positive local or global causes.

As with any investment, if you are considering these types of investments for your portfolio, it's important to have a complete understanding of your options and the implications of each before making a decision.

Bareq Peshtaz and James Carney are with the Global Wealth Management Division of Morgan Stanley in Seattle.