8 Tips on Investing with Impact from ESG Leaders Kathy Roeser and Emily Thomas of Morgan Stanley

The most successful investors understand that investing is about more than just compounding cash. Rather, savvy investors use their money to support the most important things in life, because that’s good for their bottom line financially and emotionally. In other words, they look to maximize “social impact” — because burgeoning data demonstrates that the businesses which do right by the communities they serve and the environment are more successful in the long run than the ones which only prioritize short-term bottom lines for shareholders.

This “impact investing” concept – also known as ESG (Environment, Social, Governance) Investing – was pioneered by the Rockefeller family and blossomed quickly into a financially successful movement. Doing right by people and the planet works when finances work!

With that in mind, Morgan Stanley — an investment firm that helps raise, manage and distribute their clients’ capital — initiated its Investing With Impact Platform. It promotes thoughtful, personalized investing in businesses reflecting the values and passions of individual clients. It also ensures that analysts, fund managers and others within the firm use their financial muscle to help companies poised to make a greater impact accomplish this more quickly.

In a recent Live MIB TV Event, Kathy Roeser, Managing Director and Wealth Advisor at Morgan Stanley and Emily Thomas, CFA, Executive Director, Senior Impact Strategist on the Investing with Impact Team at Morgan Stanley drew on the firm’s deep expertise to provide the following top tips on investing with impact.

1. Impact Investing Sounds Complicated; But, It’s Actually Quite Simple

Roeser began the conversation with words that everyone wants to hear – impact investing is “quite simple,” actually. Think through your own priorities and use those as a lens to make investment decisions.

However, in these complicated times, the younger investors feel compelled to tackle the most difficult issues posing threats to our world — sustainability, social justice, gun violence, wellness and health care, education, animal rights, poverty, affordable housing … the list goes on. Businesses need to develop to appeal to the millennials, Gen Z, women and others who are assuming greater control of wealth and corporate finances.

2. 99% of Surveyed Millennials Support Impact Investing Values

Thomas explained that Morgan Stanley has seen the demand for impact investing grow exponentially.

“Roughly 99% of millennials say they care about [having] environmental and social data in their portfolio. This is the next generation. They will be taking over capital going forward!”

These younger generation investors center their pursuits on ESG (Environmental, Social and Governance) causes.

3. The Climate Crisis is a Top-line Concern for ESG Investors

With the 27th annual United Nations Climate Change Conference (COP) just around the corner, from Nov. 6-18, what seems like an endless and escalating cycle of life-threatening weather, and underachievement in the carbon emission goals — there’s never been a more appropriate time to invest in the companies poised to make the greatest impact in carbon reduction and climate response.

4. On Average, 401K Investments Have the Worst Carbon Footprints

Older investors did not use an impact investing screen as they amassed wealth in their retirement accounts. Now is the time for these investors to pay closer attention to these holdings, in order to maximize future growth.

5. Use the Three Is of Investing:

Morgan Stanley’s Three Is of Impact “represent the range of customizable approaches investors can pursue across asset classes to maximize positive impact.”

Intentional: Are you purposefully reducing your “exposure” to companies you find “objectionable”?
Influencing: Are shareholders and investors playing an active role in the change they seek?
Inclusion: How does diversity manifest across your portfolio, from the organizations you invest in to the firms that serve you?

6. Work with a Wealth Advisor and/or Excellent Online Tools to Educate Yourself

Through a wealth advisor, asset manager or the Morgan Stanley Impact Quotient — a new application that puts a client’s unique preferences at the center of their portfolio analysis — people can be sure that their investing is intentional and transparent. This “X-ray” of their portfolio and hands-on approach can assist clients in funneling their money directly to those businesses or organizations that ignite change and partnership across respective communities.

“A lot of times, clients just want to be educated,” Roeser explained. “And it’s a process that can take many years.”

7. Use the Following Strategies to be Sure That the Firms and Investments You Work With are Financially Sound:

Is the fund you’re looking to invest in “well documented”? Do they have proof of their initiatives?
How have those initiatives been implemented?
Does the team reflect the organization’s priorities? Is diversity important to them?
Are their ideas in alignment with outcomes? Does the data reflect their claims of sustainability or diversity?
How are they measuring these outcomes?

8. Educate, Set Goals and Align Your Portfolio With Your Values

As Roeser promises at the start of the discussion, being an impact investor is easy once you take the initiative to educate yourself, understand your values and those of the younger generations who are now driving most business decisions too. You align the investments you hold with those values.

For more information please see the Investing With Impact Platform on the Morgan Stanley website, and listen to the firm’s audiocast “10 Ways to Invest with Impact” by Lily Trager, Head of Investing with Impact for Morgan Stanley Management.