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Based on experience working with diverse asset owners, the Morgan Stanley Institute for Sustainable Investing and Morgan Stanley Investment Management have developed a four-part framework tailored to help asset owners develop, implement and maintain a dynamic sustainable investing strategy.

Key quotes

“Organizations should first define the reasons why they want to integrate sustainability factors into their investment processes. All key internal stakeholders, including senior leadership and investment teams, should be engaged in defining the investment philosophy.”

“Investors can choose the approaches that best reflect their investment philosophy. Restriction screening: Avoiding investments in certain sectors or specific issuers, based on values or risk-based criteria. ESG integration: Considering ESG criteria alongside financial analysis to identify risks and opportunities throughout the investment process. Thematic investments: Investing focused on certain themes and sectors positioned to solve global sustainability-related challenges. Impact investing: Allocating to funds or enterprises structured to deliver a specific and measurable set of positive social and/or environmental impacts alongside market-rate financial returns. Company/issuer engagement: Aiming to drive improvement in ESG activities or outcomes through proxy voting or active dialogue with invested companies/issuers.”

“Institutions may opt to first introduce sustainability considerations when existing investment mandates roll over or there’s new cash to invest. They might also consider a dedicated strategy consisting of one or multiple asset classes that mirror the overall asset allocation, which can help build proof-of-concept internally. Achieving total portfolio integration across asset classes and investment teams may require implementation and refinement over many years, as well as a supporting operational and governance approach.”

“Appropriate governance forms the operational backbone for supporting implementation and for defining, communicating and meeting sustainable investing goals. A set of formalized and documented sustainable investing goals – including the use of an annual sustainability report or website – can also help align key stakeholders. Beyond governance and communication, asset owners must identify the needed resources – employees, skill-sets, data and tools – to support a dynamic sustainable investing strategy for the long term.”