Bill and Melinda Gates have long worked to reduce disease and poverty. For Mark Zuckerberg and Priscilla Chan, education ranks as a top cause. And Michael Bloomberg is battling climate change and gun fatalities. Of course, plenty of room for overlap exists, but you get the point: Not all philanthropists care about the same things.
The same goes for impact investors. While some form of sustainable, responsible and impact (SRI) investment appeals to many people—of roughly 1,000 high-net-worth investors polled last year by Morgan Stanley Wealth Management, 71 percent expressed interest in SRI—taking action can be challenging due to the plethora of options available, many of which have broad objectives.
It’s an issue that has not escaped notice within the asset management industry, where a trend of theme-based customization is developing. Morgan Stanley Wealth Management and J.P. Morgan have launched platforms aimed at making the impact investment process simpler and more efficient for investors and their advisors, and themed investment is a big part of the strategy.
"Investing with impact as a monolithic concept can be somewhat unapproachable by nature, so we wanted to break down this concept into really relevant themes that high-net-worth individuals could relate to," says Lily Scott Trager, director of investing with impact for Morgan Stanley Wealth Management in New York.
Morgan Stanley uses the term “toolkit” to describe its platform’s options, which allow its financial advisors to develop tailored investment approaches for both individual and institutional clients. Last month, the bank introduced a toolkit for the climate change and fossil fuel conscious, its second offering following the launch of a Catholic values toolkit in the fall. Additional products will be rolled out over the coming months and years, Trager says.
J.P. Morgan, meanwhile, kicked off its own Ethos Investments platform last month, offering a range of customizable products—from passive indices to actively managed funds across equity, credit and fixed income, as well as green and social impact bonds—for both institutional and private bank clients interested in environmental, social and governance (ESG) products.
"A couple of years ago most client requests were centered around finding an ESG benchmark index or stocks selected based on generic ESG guidelines. People were really going into broad benchmarks,” says Nicolas Robin, head of specialist structuring within the equity derivatives group at J.P. Morgan in London. “Now there is a high level of tailoring going on. For example, some of my high-net-worth investor base focus on things like carbon efficiency and insist that no fossil fuel companies be included. So we have to make sure the fossil fuel sector is completely removed.”
The environment and climate change has emerged as one of the themes most in demand among investors, but even within a particular area, you can find a range of objectives.
“Divestment of fossil fuels is an approach, but it’s not the only approach,” Trager says. “We also see many investors seeking to orient their portfolios toward environmental leaders. These are companies that may still be in the energy sector or other sectors reliant on traditional energy sources, but when you break down their supply chain operations, break down their corporate operations, how do they compare to their peers? Are they using less water, using less energy, using more renewables as part of their energy mix?”
Other areas of interest common with impact investors include social justice and workers’ rights, healthcare, education, women-owned businesses, poverty eradication—the list goes on. And while specific objectives can be as unique as the person, themes seem to resonate with investors.
“If I look at our product development work, this is probably the majority of what we’re now doing,” Robin says. “We’re either working with an investment manager to pick those stocks that fit a themed criteria or working with index providers to roll out indices focusing on these areas.”
