Investment innovation of the year - Morgan Stanley Investment Management

Morgan Stanley's commitment to sustainability began with the formation of the Global Sustainable Finance group in 2009 which it followed with the creation of the Morgan Stanley Institute of Sustainable Investing in 2013. In 2015, MSIM and the institute combined forces to create the private equity Impact programme and more recently its 1GT strategy.

It is the latter that caught judges' attention for the investment innovation award of 2022.

The asset manager's aim to establish a portfolio with a climate goal of reducing CO2 emissions by 1 gigaton while linking 50% of carried interest to this impact goal, creating a sustainable value add for portfolio companies and for insurance investors.

All the while the firm has been looking to create attractive private equity returns.

It has done this by making private equity investments across mobility—including in car sharing and batteries—power, sustainable food and agriculture tied to reduction of food waste, and circular economy aimed at better waste management and building materials.

The targets are early-stage, fast growing businesses which, the asset manager believes can potentially generate impact for decades. These companies are at a growth inflexion point where the climate solution is intrinsic to their businesses.

With its high allocation to long-term equity investments in Western Europe, the portfolio is designed to be relatively capital efficient for Solvency II regulated insurers, leveraging the favourable long-term equity capital charge of 22%.

Since 2015, MSIM's fourteen-person Impact team has committed $565m to 20 investments in its existing Impact strategy that have generated net returns of 1.7x total value to paid-in capital and 29% IRR, as of 30 September 2021.

The judges praised the initiative for its "clear link between carried interest and impact goal".