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March 06, 2015
Individual Investors Struggle with Sustainability
    by Robert Kropp

More than half of individual investors surveyed by Morgan Stanley believe financial returns will be compromised by a sustainable investment strategy, but demand from millennials and women are likely to drive an increase in the strategy.

It may not have amounted to much more than an afterthought—after all, the members of the regional forums that comprise the Global Sustainable Investment Alliance (GSIA) are mostly institutional investors—but in its second overview of sustainable investment trends, GSIA did address the role of individual, or retail, investors.

“Interest by retail investors in SRI is growing,” GSIA reported. “The relative proportion of retail SRI (sustainable and responsible investing) investments in Canada, Europe and the United States increased to 13.1 percent in 2014 from 10.7 percent in 2012.”

Compared to a reported 76% increase in sustainable investment strategies by institutional investors during the same time period in the US, the increase by individual investors seems modest; but, as a recent survey by Morgan Stanley Institute for Sustainable Investing demonstrates, the interest in sustainability by individual investors is pronounced.

According to Morgan Stanley, “Individual investors are sending signals that display clear interest in
integrating sustainability into their personal investment portfolios.” Seventy-one percent of respondents, the survey found, express an interest in sustainable investing; furthermore, “58% of individual investors see their responsibility as consisting of more than just profit maximization.”

The numbers themselves are encouraging, but more so is what the future potentially holds. Millennials—those born between the 1980s and the early 2000s—are more likely to incorporate sustainability criteria into their investment strategies. Also, women, who as consumers have been more likely to determine sustainability practices in measures such as product packaging, seem more inclined to translate their real life experiences into a sustainable investment space.

What factors are currently challenging a more vigorous uptake of sustainability by individual investors? According to the survey, “Individual investors are divided over perceptions of sustainability and financial gains being a trade-off (54% vs. 46%).” With an abundance of studies by now emphatically demonstrating that in fact a sustainable investment strategy can result in superior financial returns—especially over the long term, which is of especial importance to individuals whose investments are in retirement accounts—it would appear that education might result in significant changes in the portfolios of individuals.

“For this investment approach to reach its full potential, the financial services industry must not only create investment products, but also equip individual investors with the tools and resources needed to properly evaluate and compare sustainable investments across asset classes,” the survey concludes. “As sustainable investing scales from what has traditionally been perceived as a niche opportunity to a mainstream investment approach, these resources will become all the more critical in helping investors of all sizes make informed decisions.”

The Morgan Stanley Institute for Sustainable Investing also conducts an annual competition for teams of graduate students, “on how institutional investment capital can aim to deliver competitive returns while driving positive social and environmental impact.” The winners of this year's award will be announced in April at the firm's London office.


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