With the eyes of the world on COP26, Morgan Stanley financial advisors are using heightened awareness of environmental issues to discuss climate-aware investing with their clients.
“Advisors are capitalizing on the timeliness of COP26 to inspire a conversation with clients on this important topic and implement investment portfolio solutions,” said Lily Trager, head of investing with impact at Morgan Stanley Wealth Management.
“One is innovation around investment opportunities for our clients. We’re seeing significant innovation from asset managers in terms of their investment strategies — for example, through [carbon] offset strategies, commodity inputs and some interesting transition strategies around the electric vehicle industry.”
COP26 — the United Nations‘ 26th annual climate change conference — aims to accelerate global action toward the goals of the 2015 Paris Agreement on climate change. It kicked off in Glasgow, Scotland on October 31 and runs until November 12.
The Paris Agreement, which was adopted at COP21, aims to limit global warming to 2 degrees Celsius, and ideally 1.5 degrees Celsius, compared to pre-industrial levels. On November 4, Fatih Birol, executive director of the International Energy Agency, tweeted that climate pledges made in Glasgow could limit global warming to 1.8 degrees Celsius.
Client Interest
Morgan Stanley’s Trager says the level of interest from clients about climate-related investing is already extremely high.
Lily Trager
“This is the top issue that our clients of all sizes are focused on,” she said. “Climate is the top interest area — fossil fuel-aware investing remains the top issue of impact focus.”
Trager notes that Morgan Stanley’s offerings to clients have evolved to reflect their interests in a wide range of environmental issues. That’s a reflection of demand, she notes, as clients were initially focused on solar or wind-powered investments, but are now interested in much broader climate-related investing.
“We have seen the market for climate-related investments become more sophisticated — from a product and demand perspective — going beyond passive exposure to a basket of alternative investment stocks into all asset classes,” she said. Those asset classes include public equity, fixed-income and private markets for qualified investors, she notes.
Investments have also broadened to address themes such as sustainable agriculture, water infrastructure, alternative proteins, green/blue bonds, conservation, electric vehicles, and carbon offsets, according to Trager.
Advisor Support
In February 2016, Morgan Stanley Wealth Management introduced its Climate Change and Fossil Fuel Aware Investing Tool Kit for advisors. That was aimed at supporting advisors helping individual and institutional clients develop tailored investments that integrate climate change and fossil fuel impact goals. The tool kit is updated multiple times through the year, according to Trager.
In July 2019, Morgan Stanley rolled out its Morgan Stanley Impact Quotient, which measures progress towards clients’ portfolio goals, such as climate solutions. “It’s an application that sits on the desktop of all our financial advisors,” Trager said.
Investment Trends
Trager says Morgan Stanley is keeping an eye on any investing trends related to COP26.
“We don’t tend to see a significant shift in asset allocation immediately following a global event, given our clients mostly pursue long-term investment goals, but we do track trends over time and there might be something interesting to report in the future,” she said.
“As ESG [environmental, social and governance investing] becomes increasingly mainstream and talked about by every major financial institution, it is less about convincing clients this is important and more about how to implement a credible solution that can drive real change,” she added.
Morgan Stanley, like many other large businesses, has been vocal about its efforts to reduce emissions.
“We were the first U.S. headquartered financial services firm to commit to achieving net zero financed emissions by 2050,” Trager said.
Financed emissions involve measuring the impact of climate change across a vast range of portfolios, the Financial Times reported earlier this year, noting that the measurement is an extremely complex task.
Morgan Stanley made its commitment to achieve net zero financed emissions in September 2020. Earlier this week, the firm set 2030 interim targets to reduce financed emissions in the auto manufacturing sector, energy and power sectors by 35%, 29% and 58%, respectively.
FA-IQ reached out to other wirehouses, Merrill Lynch, UBS and Wells Fargo, to request comments on how their advisors work with clients on climate-aware investing but didn’t receive replies as of this writing.
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Source: financialadvisoriq.com
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