Morgan Stanley CEO Says Clients’ Enthusiasm for ESG is ‘Exploding’

By Miriam Rozen October 21, 2020

Morgan Stanley CEO James Gorman said this week that the zeal for environmental, social, and governance investments among the bank’s clients is “exploding.”

ESG is “an important, if not the most important component” of clients’ investments, Gorman said at the Sifma Annual Meeting 2020. “It isn’t a fad. It isn’t going away.”

Investing in ESG strategies was just one of a broad range of topics discussed by Gorman during an interview session conducted by Sifma president Kenneth E. Bentsen, Jr. at the virtual conference.

Gorman also touched on some expectations and goals. He said he expects Morgan Stanley to continue to “take [a] hard inward look” at its diversity and for the bank’s technology to get a “kick” from its E*Trade purchase. Moreover, the bank wants wealth management and institutional revenues to come close to each other. Finally, Gorman said the bank wants clients to factor in macro-economic uncertainty in investments.

ESG

Morgan Stanley “blew through” its 2019 targets for supporting ESG investments, Gorman said.

The bank had a $24 billion target last year for supporting green, social, sustainability and blue bond transactions, according to its 2019 Sustainability Report, released in April this year. As of 2018, the bank had $25 billion in assets on its wealth management division’s Investing with Impact Platform, more than double its five-year goal of $10 million, the report noted.

Despite its growth, the ESG asset class still represents "a tiny fraction of [a] very low” single-digit percentage of Morgan Stanley clients’ holdings, Gorman said. But that means growth potential is “extraordinary," he added.

Gorman said the environmental and social issues behind the growing ESG interest have hit him personally.

He doesn’t view climate change as debatable. “The planet is warming,” he said.

Diversity

Gorman reflected on Morgan Stanley’s own response to the social issues of diversity and inclusion, noting “It’s just not good enough.”

In the aftermath of George Floyd’s killing in May, Morgan Stanley announced in June plans to invest $25 million to create an Institute of Inclusion. The institute sets diversity policy, puts in place metrics, coordinates internal and external communications, and oversees mentoring, development and promotion of the firm’s diverse employees, according to the bank.

At the Simfa conference, Gorman said the institute is reviewing the images that populate its marketing material to address diversity concerns.

Gorman also said CEOs should “not pontificate” about diversity and instead hire to “properly represent the demographics of society.”

He added: “We actually want to get serious about this. We want to move the needle.”

Gorman gave no specifics about representation in Morgan Stanley’s employees or FAs, however. A spokesperson declined to provide details for this story.

Technology, revenues, people

Gorman predicted, without going into specifics, that Morgan Stanley’s technology will improve because of the E*Trade deal, which closed October 2. The bank spends about $4 billion annually on technology, he said.

“Frankly, they’ll give us a little kick because they are a technology-driven company, first and foremost, and some of their technology is more sophisticated than what we have,” he said.

Gorman expects the bank’s wealth and asset management units to deliver about $26 billion in annual revenues with the integration of E*Trade and Eaton Vance, though the purchase of the latter is still pending. The bank’s institutionally-focused units should generate about $20 billion in annual revenues, he said. The retail side has lower profit margins, but higher returns on capital than the institutional side, he noted.

About 10% of Morgan Stanley’s U.S.-based employees continue to work remotely because of the coronavirus pandemic, Gorman said. Most will return to offices, he said, without giving a timetable. It’s unlikely that 100% of the company's workforce will return in the future, he noted.

Investment advice

Gorman expects “uncertainty” in the near term for the U.S. economy, due largely to a “tumultuous” election period and the ongoing pandemic.

“We have a very fractured country at the moment and we have, still, Covid to deal with for at least another nine-plus months,” he said.

In light of those expectations, Morgan Stanley is advising clients to stay “close to the shore, even if that means losing out on some opportunities,” he said. “We’d rather be secure.”

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