Morgan Stanley: Building Long-Term Sustainability

1. Discuss the various sustainable investment initiatives by Morgan Stanley, including their
impacts.
2. Analyze their relative attractiveness from carbon perspective.
3. Do these indicate that investors have seriously taken up climate change in their investment
decisions? Why or why not?
4. How do you see the path ahead for Morgan Stanley in the long-term sustainability and what
could be the major challenges? Please suggest a way forward?

1. Discuss the various sustainable investment initiatives by Morgan Stanley, including their
impacts.

• Investing with Impact platform in wealth management division.

• Launching Morgan Stanley branded impact investing products in Investment Management.
• Enhanced the dialogue around Environmental, Social and Governance (ESG) factors in risk
management.
• Deeply embedding ESG into equity research for making investment calls in nearly all sectors
covered by the firm.

-A new Environment and Social Finance Group (ESF) was made in 2009 in the company. It helped
launch Morgan Stanley into leveraging employees’ business skills for financial transactions that
created positive social impact. Further they recognised that the dialogue needed to move away from
applying finance skills to sustainability, and move towards the concept of applying sustainability to
finance.
They did not make a separate ESG vertical rather all activities and products should ultimately be part
of the everyday operations of the firm’s entire business segment. In 2010 this ‘ESG’ was renamed the
Global Sustainable Finance Group (GSF).

Initiative in Wealth Management (April 2010): Investing with Impact

The platform intended to make environmental and social impact products available to all investors
from individual to large scale institutions.
It’s investing with Impact Platform offers a diverse range of funds and other investments designed to
advance environmental, economic and social goals — while striving for competitive performance.
They make it easy to craft an investment portfolio of any size that is tailored to meet the impact
goals of your choice.
The goal of the platform was to integrate a sustainable product offering and build on what the team
viewed as some of Wealth Management’s core strengths such as large scale infrastructure, deep due
diligence expertise, and strong client advice.
Impacts:
By the end of 2017, clients had invested more than $7.5 billion through the Platform. After launching
of this platform the advisors had strong relationship with the clients as they were meeting more
frequently with multiple generations of families at once.
By bringing sustainability products into mix, advisors were able to help client align their values with
their investments.
All 16000 of firm’s financial advisors across the globe were trained with online training program that
outlined the product offerings.
ESG and impact was becoming part of an ever-increasing number of client conversations.
Revenue in 2017 increased 154% as compared to 2013. (Exhibit-3)

Investment Management
In partnership with GSF,IM designed and launched a private equity impact fund of funds platform
that was accessible to both their large institutional clients as well as individuals through Wealth
Management.

Impact:
ESG- driven scaled customization became an integrated strategic effort across IM and Wealth
Management.ESG prepared Morgan Stanley for the wave of mass customization that was predicted
to be a growing trend in asset management and would be relevant in both Wealth Management and
IM.

Institutional Securities
Morgan Stanley developed the Carbon Principles in 2008 along with JP Morgan Chase and Citigroup
to discourage/reduce the emission of GHG.
It also made policy on doing business in the coal and oil sands industry
It successfully structured, underwrote and advised several green bonds and sustainable bonds.

Impact:
Different energy companies issued green bonds. Morgan Stanley started using green bonds to
finance sustainability projects in companies not directly engaged in the renewable business. Uniliver
partnered with Morgan Stanley to issue first “consumer green bond”.
Morgan Stanley itself issued a $500 million green bond to help fund the development of renewable
energy and energy efficiency projects.

Morgan Stanley Research

A sustainable research team was launched to cover sustainability themes and integrating ESG factors
into research.
The team created a framework to embed sustainability into 30 sectors with industry-specific ESG
factors.
It has an impact on price of the target company’s valuation during merger and acquisitions.
2. Analyze their relative attractiveness from carbon perspective.

Institutional Securities: The green bond and sustainability bonds were a win-win situation if we see from
the carbon perspective as through these instruments the companies were able to mobilize capital to
reduce carbon emission and carbon footprint.

The inclusion of ESG factors in equity analysis also helped in reducing carbon emission and carbon
footprints as now equity prices of the companies are affected by their ESG factors.

3. Do these indicate that investors have seriously taken up climate change in their investment
decisions? Why or why not?

The investors have seriously taken up climate change in their investment decisions:
 The growing market of Green Bond indicates that investors, governments as well as companies
are concerned about climate change.
 Not only energy sector companies are issuing the green bond but the consumer goods
companies like Unilever has also issued Green bond.
 ESG factors are now more discussed in the meeting between clients and financial advisers.
 The equity prices which depend on the demand from the investors are now being calculated
keeping in view of the ESG factors.
 Sustainability bonds have also come into the market which is a step ahead from the Green
bonds.

4. How do you see the path ahead for Morgan Stanley in the long-term sustainability and what could
be the major challenges? Please suggest a way forward?
1. Franchise supported by greater contribution of relatively stable revenue sources, driven by $10bn of
growth from relatively stable sources, resulted in less reliance on relatively volatile sources and drove
higher returns

ISG:
 Expand Leadership in Investment Banking
 Continue targeted growth in lending to institutional securities group clients

WM:
 attract client assets held away
 increase lending penetration with existing clients
 invest and grow digital offering

IM:
• Enhance Client Partnerships
 Pursue Product Innovation
 Explore “Fill-In” Acquisitions (e.g., Mesa West)

New opportunities:

• Asia pacific – opportunities to deepen presence in high growth region longer term
• Equity S&T / Research
• International Wealth Management
o Invest in talent and grow client base
o strengthen cross-divisional partnership to expand products and services offered to
ultrahigh net worth clients
• Shift Towards Advisory Assets Helps Grow Relatively Stable Revenue Base
• Wealth management:
o Maintain investment in order to drive technology adoption and consolidate assets held
away
o Expand banking and lending offerings and increase client penetration
o Acquire new households through digital workplace wealth solutions for integration?

Challenges:

• Conventional businesses like coal power plant, mining etc will not be a part of its clientele.
• Attract new clients while retaining the existing one.
• IT related and cyber security issues.
• Compliance with regulations which require huge investment reducing profit margin.