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RI Interview: Morgan Stanley’s Audrey Choi: Pushing the envelope on sustainability data

Investment bank teams up with Bloomberg to look at ‘Sustainable Signals’

Investment bank Morgan Stanley and data giant Bloomberg want to “push the envelope” on sustainability data in response to asset managers complaining it has a lack of credibility to inform their decision-making.

The issue was highlighted in new survey, Sustainable Signals, The Asset Manager Perspective, involving 400 individuals working at US asset managers with at least $50m worth of assets.

The survey, a joint project between Morgan Stanley and Bloomberg, found 89% are familiar with sustainable investing, 65% practice sustainable investing and 64% believe its adoption will continue to grow.

Speaking to RI, Audrey Choi, Managing Director and Head of Morgan Stanley’s Global Sustainable Finance Group, said this demonstrates a clear sign that sustainable investing is something that asset managers need to at least know about and engage with.

However, while there are growing signs of interest in sustainable investing, 55% of asset managers say that the field lacks credible data to inform decision-making.

Choi says: “We are very much an industry movement that is in development so we need the data to be able to catch up. I think a number of players are doing a great job trying to get data out there but there is not yet consensus data.

“So it’s an evolution. I think we all collectively need to do more work on what are the factors that we think are material, how do we measure those and how does it ultimately flow into people’s valuations models.”

She continues that the findings have pushed Morgan Stanley and Bloomberg to “push the envelope” on sustainability data. “There is clearly the interest and the will on behalf of asset managers to do more sustainability investing. This is really giving us the challenge to say ‘help us get more data that helps us understand the impact of sustainable investing and the impact of including or not including’.”

The analysis of sustainability data at Morgan Stanley has led to changes in the work of the firm’s investment teams.

Choi says the equity research’s sustainable investing team partners with 30 industry analyst groups on identifying material ESG factors. “It has helped our analysts have a real structured way of integrating those inputs into their valuations and what we’ve seen has been fascinating: analysts changing their up and down calls on stocks as a result. We are increasingly starting to integrate those materially relevant ESG factors in the core evaluation models of stocks across Morgan Stanley equity research.”Earlier this year Morgan Stanley announced plans to incorporate diversity into how it approaches its investments after research found that gender-diverse companies delivered better returns and lower volatility than their low-diversity or sector peers.

“Whether or not diversity or gender equity is someone’s passion, I’m hard pressed to finding investors who aren’t interested in something that contributes to outperformance on stock price,” says Choi.

Another interesting theme coming out from the survey is the likely growth of sustainable products spurred by rising investor demand and media coverage. Among respondents not currently engaged in sustainable investing, 59% said they would begin implementing such approaches in the next twelve months and of those engaged 54% plan new ESG strategies and 45% plan new sustainable thematic investment strategies.

But Choi says as the number of sustainable investing offerings grow, what will distinguish products is the rigour, integrity and the calibre with which they integrate ESG. “Those who really care about the development of sustainable investing wants to make sure it is done in a best of class way.”

Morgan Stanley beefed up its sustainable investing three years ago with the launch of the Institute for Sustainable Investing tasked with reaching $10bn in assets under management by 2018 through the firm’s Investing with Impact platform – the figure currently stands at $6bn. Choi was chosen to lead the Institute, which also collaborates across the firm on sustainability. Prior to joining Morgan Stanley, Choi had held senior policy positions in the Clinton Administration where she served as Chief of Staff of the Council of Economic Advisers and Domestic Policy Advisor to the Vice President.

She says it is too early to predict what a Trump administration could mean for the sustainable and impact investing agenda.

“My hope is if the leadership of the various agencies, whether it’s the SEC (Securities and Exchange Commission) or the Labor Department or the White House itself, have a pro-growth agenda and they want the economy to fare well, it’s critical to have an understanding of inclusive growth and making sure our companies are benefiting their workers and the communities they touch.

“So I hope that any administration that has a pro-growth, pro-worker agenda would have an open mind to the importance of those issues.”