Morgan Stanley Sustainable Signals Report: Corporate Sustainability as a Value Creation Imperative

Companies worldwide are increasingly recognizing sustainability as a pivotal element in long-term corporate strategy. According to the recent report by the Morgan Stanley Institute for Sustainable Investing, "Morgan Stanley Sustainable Signals: Understanding Corporates’ Sustainability Priorities and Challenges," the primary motivator for adopting sustainability practices is the potential for value creation.

This article delves into the key findings of the report, highlighting the drivers, challenges, and future outlook of corporate sustainability strategies.

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Key Highlights from the Morgan Stanley Sustainable Signals Report

• 85% of companies view sustainability as a significant value creation opportunity, integrating it into crucial business decisions such as capital expenditures, R&D, and mergers and acquisitions.

• 70% of companies cite high investment needs as a significant barrier to implementing sustainability strategies.

• 84% of respondents emphasize the importance of investor support for executing sustainability strategies.

• 23% of companies already feel the impacts of climate change on their business models, expected to rise to 92% by 2050.

• 31% see high levels of investment as a very significant barrier, followed by conflicts with financial goals (28%) and macroeconomic uncertainty (25%).

• 55% report that key business decisions are subject to sustainability criteria, though only 37% state that their boards have sufficient sustainability expertise.

• Companies express mixed views on the financial implications of sustainability: while 70% anticipate rising costs due to raw materials and regulation, over 80% believe sustainability will drive stronger cash flows, higher profitability, and revenue growth.

• Regional insights show that North America is least likely to see sustainability as a value-creation opportunity (43%), Europe faces challenges with data availability and regulatory uncertainty, and APAC has the highest belief in sustainability as a value-creation opportunity (60%) .

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Sustainability as a Value Creation Opportunity

The Morgan Stanley Sustainable Signals report reveals that 85% of surveyed companies view sustainability as a significant opportunity for value creation. This perspective is driven by the integration of sustainability factors into core business decisions, such as capital expenditures, research and development, and mergers and acquisitions.

Notably, sustainability as a value-creation opportunity is particularly strong in the Asia-Pacific region, with 60% of companies endorsing this view, led predominantly by Chinese respondents.

Investment: A Major Hurdle

Despite the clear recognition of sustainability’s benefits, the high level of required investment stands out as the most significant barrier. The Morgan Stanley Sustainable Signals report indicates that 70% of companies cite investment needs as a major hurdle, with 31% viewing it as a very significant barrier.

This underscores the critical need for access to capital, with 84% of respondents acknowledging investor support as crucial for executing sustainability strategies.

Access to Capital is Key

Companies are increasingly looking to align their financing with sustainability objectives through instruments like green bonds and sustainability-linked loans. However, only 42% of companies report meeting or exceeding expectations in this area, indicating substantial room for improvement.

Melissa James, Head of the Global Capital Markets ESG Center of Excellence, emphasizes that as the market matures, there will be a greater push for financing clean tech and facilitating the energy transition.

Climate Change: An Immediate Business Risk

The impacts of climate change are already being felt by 23% of respondents, equating its significance with traditional business risks like geopolitical conflict and supply chain instability.

By 2050, 92% expect climate change to impact their business models. This growing recognition of climate risks highlights the urgency for companies to integrate sustainability into their risk management frameworks.

Sustainability in Decision-Making

Sustainability criteria are becoming increasingly integrated into key business decisions. Over half of the surveyed companies report that sustainability influences capital expenditures, R&D, new product development, and mergers and acquisitions.

However, there remains a gap in board-level expertise, with only 37% of companies reporting that their boards possess sufficient sustainability knowledge.

Regional Insights

The Morgan Stanley Sustainable Signals report highlights regional differences in sustainability perspectives and challenges:

• North America: Least likely to see sustainability primarily as a value creation opportunity (43%), with a strong emphasis on the role of government policy and board support.

• Europe: Faces challenges with data availability and regulatory uncertainty but sees higher revenue growth opportunities from sustainability (39%).

• APAC: Most likely to view sustainability as a value creation opportunity (60%), with a significant focus on investor support and a favorable economic environment.

Balancing Costs and Opportunities

Looking ahead, companies express mixed views on the financial implications of sustainability. While 70% anticipate higher costs due to raw materials, regulation, and process changes, over 80% believe sustainability will drive stronger cash flows, higher profitability, and revenue growth.

This apparent contradiction may reflect the transitional nature of sustainability investments, where short-term costs pave the way for long-term benefits.

As companies navigate these challenges, the role of investor support and innovative financing mechanisms will be crucial in realizing the full potential of sustainable practices.

For more detailed insights, the full report is available from the Morgan Stanley Institute for Sustainable Investing​.

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