Last spring, Morgan Stanley made news when it launched its Investing with Impact Platform, a framework designed to make it easier for retail and institutional investors to combine financial returns, personal values and positive social or environmental impact. This was the first rollout of its kind by a major financial institution. How has the platform fared, and what lies ahead? Hilary Irby, an executive director at Morgan Stanley and head of its Investing with Impact initiative, spoke with FA this week.

FA: Where does the platform currently stand?

Irby: It has been up and running since late last spring. But as we announced when we launched the platform, it is a starting point. We continue to develop it and we’ll continue to do so in the coming months jointly with our advisors and clients to make sure we’re developing it in a direction that meets client interests. Some clients are interested in integrating impact considerations into their portfolios broadly, while others are interested in pursuing deep impact around specific geographies and/or themes.  We aim to help advisors and clients achieve those goals. 

Since launch, we have added a number of products and there are many others in the pipeline awaiting approval. The majority of products on the platform are in the values alignment, ESG integration and sector exposure categories as client interest has been primarily in the more liquid products.  We continue to identify interesting product opportunities in these categories as well as impact investing.    

FA: Approximately how many investors and advisors currently use the platform?

Irby: There are a lot of investors—it’s hard to say, we don’t track it that way. I would say there has been tremendous interest in it. And since the launch, we’ve added quite a number of clients to the platform. We look at it from an asset perspective but that’s also not something that we really disclose externally. I would say there has been good growth in the platform.

It is almost a surprisingly equal split between individual and institutional investors. Clearly there are pockets of the institutional market that have been very active in this for a long time, but we’ve had broader institutional interest than originally anticipated.
We currently have more than 3,000 advisors accessing the Investing with Impact Platform.

FA: Why did Morgan Stanley create the platform and what kind of developments are in progress?

Irby: Over the last few years, we have increasingly heard from clients across the spectrum who have expressed an interest in considering the environmental and/or social elements of their investments, and we wanted to be able to work with them to deliver––in addition to a risk-adjusted, market-rate financial return––a positive environmental or social impact. So our goal with the platform was to pull together the different offerings that we thought could make sense for our clients in such a way that advisors and clients could navigate the available products to try to address or direct the specific impacts that they were interested in.

Our platform today includes all products that offer a risk-adjusted, market-rate return. We have tried to ensure that we’re offering products across a wide range of social and environmental impacts. That’s something that we’ll continue to work on both as we identify new products in the space and as new products become available. A lot of asset managers are increasingly focused on the “investing with impact” or sustainable investing space. We’re actively in dialogues with many of them around products that we think could attract significant investor interest.

FA: Can you briefly discuss the four categories that are part of your platform—values alignment; environmental, social and governance (ESG) integration; sector investing; and impact investing?

Irby: In order to create a platform that was accessible for the wide range of investors that we deal with, we needed to think more broadly than the way some people define impact investing. Values alignment, sometimes known as socially responsible investing, can include positive and negative screening. ESG integration tends to look at integrating those elements into the financial due diligence of companies as portfolio managers are making their selections. Sector focus tends to be more thematic, such as renewable energy or water, agriculture, community development. These first three categories in our framework focus on public equity and public debt. We put a line between that and impact investing and all of our private equity/private debt opportunities we classify in the impact investing space.

FA: Are the private equity and private debt offerings available to individual investors?

Irby: Yes, absolutely for those that are qualified appropriately depending upon the product. Most of them would need to be accredited or qualified for most of those products that are available in the space. We hope that over time more products become available which don’t require that.

FA: What is the platform’s breakdown in terms of asset classes and themes?

Irby:  I would say the majority of the products that are currently on the platform are the mutual funds, ETFs, SMAs and UITs. Most of them do focus in that public equity/public debt space. A lot of them have an environmental bent, but we also do have quite a number that have a social or a governance-oriented bent. There is also probably a heavier weight on equity-focused products than debt-focused products.

FA: What about within the impact investing category?

Irby: The ones we see tend to be more on the private equity side. There are also quite a number of private debt investments. Many of them have been historically around the microfinance space and the SME [small and medium enterprise] space, and also community development. But we see quite a range. There’s a pretty broad spectrum of themes. One of the challenges within that category is that a lot of the funds that are there tend to be small, may not have a long track record and they tend to be fairly geographically and/or thematically fragmented. In order to find those that are appropriate for our clients and our platform, we have to think carefully about balance across those areas.

FA: How is the platform marketed?

Irby: We’ve really been interested in driving the platform through the advisors. This allows us to help educate them as part of the process and to help them understand what’s available and where they can find resources to learn more about both the space and the products that are available. It enables them to take it out to clients who may have an interest in the space and the products. We have focused our energy on creating an internal portal that is accessible to advisors.

But I think it may not resonate until they have a specific reason for it to do so. So we have provided a number of communications out to the broad field letting them know that this does exist. I think the level of awareness probably varies greatly across the advisor universe based on those that either know they have a client interested or who may have an interest themselves, or may see this as an opportunity to try to build out their client base around this space.

FA: Is the platform currently open to advisors who are not affiliated with Morgan Stanley?

Irby: It’s currently available only to Morgan Stanley Wealth Management advisors across the full wealth management business.

FA: How are fees set up, and what benefits does the platform offer?

Irby: The fee structure for the impact investing platform currently is no different than how a client of the firm would work with an advisor on any traditional investment product. All products that are part of the Investing with Impact Platform go through the traditional due diligence channels and the traditional platforms of the firm.

If a product is being branded as an impact-oriented or sustainable-oriented product we make sure that they have actually outlined clearly in their documentation and materials what that means and how they’re implementing that. We must also feel comfortable with the way the organization is structured and that the investment process they have in place matches the commitment they’re making.

FA: What types of measurable environmental and social impact variables does Morgan Stanley look for? 

Irby: Morgan Stanley has devised a platform that allows our clients to invest in many areas that align with their own personal mission. As a firm, we look for portfolio managers with clearly stated impact goals and investment practices that support the stated impact goals.

FA: Where do you see impact investing heading?

Irby:  I think there is a lot of movement happening in this space globally. The U.S. has clearly lagged and is behind Europe. I think that is starting to change. We’re seeing a lot more interest, whether it be broadly in this space or around specific issue areas, but I think this is something that is going to continue to increase as a focus area down the road—and by down the road I probably mean about 10 years. I don’t know that it will be a separate and distinct category any more, but I think the majority of the factors in this space can be viewed in the context of financial opportunity and/or risk and will be mainstreamed increasingly into the investing process.

FA: What is your professional background and how did you come to your current position?

Irby: I started out in finance and consulting around finance, and most recently I was a partner in a venture capital firm. I became very interested in the environmental and social impacts of investing and joined Morgan Stanley’s Global Sustainable Finance group, which is where I sit today. We drive the firm’s sustainability strategy and increasingly recognize an opportunity with the large number of clients that we serve through the wealth management platform to put together something that could offer clients products in the space.