Morgan Stanley Sees Japan Assets More Than Double on ESG

(Bloomberg) -- Morgan Stanley’s asset management division has more than doubled the size of its Japanese portfolio over the past three years, aided by the increased appetite for funds strong on environmental, social and governance factors. 

The value of Japanese investors’ assets overseen by Morgan Stanley Investment Management rose to 6.6 trillion yen ($58 billion) in September, compared with about 3.1 trillion yen around the end of 2018, according to the divisions’s Japan head, Hiroyuki Shimizu. Holdings in ESG-related funds accounted for about a third of the increase, he said.

Japanese interest in ESG products has “clearly strengthened,” Shimizu said in an interview. “Not everyone is investing yet, and some are still studying them.”

It’s a global trend that pushed ESG assets worldwide above $35 trillion last year and is forecast to grow beyond $50 trillion by 2025, according to Bloomberg Intelligence. Cases of greenwashing, where environmental benefits are exaggerated or misrepresented, mean companies must stay cognizant of possible risks, Shimizu said. 

Morgan Stanley Investment Management talks directly to the firms in which it invests, in addition to conducting research about them, to mitigate the greenwashing risk, he said. 

“We are focusing on generating alpha, meaning that we should do everything to ensure we invest in good companies,” he said. “We confirm through engagement that companies are working on ESG in an appropriate manner.”

Fund Swells  

The Global ESG High Quality Growth Fund, an investment trust owned by Mizuho Financial Group Inc. and managed by Morgan Stanley, has particularly caught on with the Japanese. It has attracted $10 billion within a year and a half of its launch, becoming one of the largest of its kind in Asia. The vehicle initially drew regulatory scrutiny because of inadequate disclosure about social and environmental effects. 

Overall ESG investments held by the Japanese reached $2.9 trillion in 2020, Global Sustainable Investment Alliance data showed. Strong investor demand prompted 51 ESG-related mutual funds to launch in Japan during the first eight months of this year, overwhelming the previous annual record, according to the country’s Financial Services Agency. 

Morgan Stanley Investment Management manages client assets worth $1.5 trillion globally and generated about a tenth of the U.S. bank’s revenue in the quarter ended September.

Other highlights from Shimizu 

• More than 60% of new Japanese money received by Morgan Stanley Investment Management is in equities, the remainder in bonds
• Foreign private-credit products, including so-called alternative lending funds, are attracting interest from Japanese investors as concerns mount abroad over inflation and potential interest-rate increases
• Alternative assets, such as shares of unlisted companies, account for less than 10% of the Japanese portfolio of Morgan Stanley Investment Management

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