Interest in sustainable investing among individual investors globally is surging – and American investors are leading the way on several fronts, according to a new report from Morgan Stanley.
The "Sustainable Signals" report, published by Institute for Sustainable Investing and Morgan Stanley Wealth Management, draws from a survey of 2,820 active individual investors across the US, Europe, and Japan.
"Nearly 80% of individual investors believe that it is possible to balance market rate financial returns with a focus on sustainability," Jessica Alsford, Morgan Stanley's chief sustainability officer and CEO of the Institute for Sustainable Investing, said in a statement. “A majority of individual investors also express a desire for their investments to advance positive environmental and social impact, creating opportunities for finance professionals to meet these needs.”
Globally, 77 percent of investors expressed interest in sustainable investments, with 57 percent reporting an increased interest over the past two years. Furthermore, 54 percent of respondents anticipate increasing their sustainable investment allocations in the coming year.
This interest is particularly pronounced in the US, where 84 percent of individual investors are keen on sustainable investing. This enthusiasm is most notable among millennials (96 percent) and Generation Xers (91 percent), as well as among Hispanic/Latino (91 percent), Black (89 percent), LGBTQ+ (89 percent), and female (87 percent) investors.
American investors also tend to allocate a larger portion of their portfolios to sustainable investments compared to their counterparts abroad, with 19 percent of Americans having more than half of their portfolio in sustainable investments. This is modestly higher than Europe (15 percent) and double that of Japan (9 percent).
When it comes to investment themes, climate action emerged as a top priority – chosen by 15 percent of investors – closely followed by health care (13 percent), water solutions (11 percent), and the circular economy (11 percent). Despite a strong focus on sustainability, 51 percent of investors would still consider investing in traditional energy companies, provided these companies have concrete plans to reduce emissions and tackle climate change.
However, challenges such as a lack of transparency, fear of greenwashing, and uncertainty on how to invest in social themes are significant barriers. Sixty-three percent of respondents shared concerns over transparency and trust in sustainability reporting.
Investment professionals and asset managers could play a key part in overcoming these challenges. With 52 percent of global investors saying they have limited knowledge on where to start their sustainable investing journey and 47 percent perceiving a lack of sustainable financial products, 58 percent of global investors would likely choose a financial advisor or platform based on sustainable investment options.
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