Morgan Stanley recently surveyed c.200 people with US pension plans about their attitudes to sustainable investing, as well as c.100 corporates.

Sustainable Investment Options in Employer Retirement Plans - Morgan Stanley Institute for Sustainable Investing - Link to Full Document

It was a broad spread of people, and the findings are fascinating: 

1️⃣ Individual interest in sustainable investing is not diminishing

24% of respondents said they already include sustainable investments in their pension plan, and a further 52% said they are interested in doing so in the future.

So even in a country seeing a ‘backlash’ against ESG from government and many corporates, 76% of all respondents seeing sustainable investments as attractive.

2️⃣ One third of US pensioners think sustainable investing delivers alpha

When respondents were asked why they were interested in sustainable investing, the survey returned a range of answers.

The most common answer is unsurprising; 40% said they wanted to support real-world sustainability alongside a market-rate financial return.

But what did surprise us was 33% said investing in sustainable funds “could offer stronger financial returns than traditional investments”.

More Zoomers than Boomers think this, unsurprisingly, but the spread around the 33% average is not huge. 

3️⃣ ~50% of U.S. pension savers are interested but not currently invested in sustainable options

The two key reasons found for this is that investors are either:

🔸 Unaware of existing sustainable investing options

Although the vast majority of corporate pension plans offer sustainable options, only 36% of pension plan holders know this.

Why are corporates not communicating more effectively on these options?

Because of a significant disconnect: a majority of US corporates surveyed (62%) don’t think their employees are interested.

🔸 Concerned that existing sustainable investment options are inauthentic or greenwashing

The largest single ‘barrier to including sustainable investments’ cited by pension plan holders, is “concern about authenticity or ‘greenwashing’”.

This reinforces points we have made before about key reasons for waning investment in sustainable funds; investors thinking they are not going to bother investing in such funds, because they don’t believe them to be truly sustainable.

So what's the solution here?

The investment industry needs to cure itself of greenwashing, not rely on regulators to do it. It needs to drill down into funds marketed as sustainable using up-to-date holdings-level data, and call out inauthentic funds.

With investor confidence restored, growth in demand will resume.