Sustainable Signals
Understanding Corporates’ Sustainability Priorities and Challenges
MAY 2024

SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

Key Insights
1 ustainability is a Value Creation Opportunity for 85%
S
of Companies
Value creation is the top reason for a company to pursue its sustainability strategy,
closely followed by legal requirements. Over half of respondents report thatsustainability is a factor in core business decisions such as capex, R&D, lending, newproducts and M&A. Across the board, companies consistently selected financial issues
as key drivers, enablers and barriers of their sustainability strategies, ahead of nonfinancial factors such as societal expectations or responsibilities to trade bodies.

2

 orporates Face High Investment Needs as a Top Barrier toCSustainability, Making Access to Capital a Key Enabler
The high level of investment is the top barrier to implementing or delivering on acompany’s sustainability strategy. Access to capital is a key enabler, with over 80%
citing support from investors as “very” or “somewhat important” for their sustainability
strategy. Aligning corporate financing with a company’s sustainability strategy via
labelled bonds or loans is more likely to garner a “room for improvement” rating from
respondents than “meeting expectations,” suggesting further growth to come in thelabelled debt markets as companies make progress.

3

Climate Change is Impacting Businesses TodayMore than 90% expect climate change to impact their business model by 2050,
and almost a quarter have already seen its effects on their business. This is similar
to responses for traditional business risks such as geopolitical conflict andtechnological change.

4

 orporates Have Mixed Views on Sustainability’s Impact on
CFinancials Over the Next Five Years
Looking ahead, almost three quarters of respondents believe that sustainability could
bring rising cost pressures whether from raw materials, regulation or changing existingprocesses. Despite this, more than 80% see opportunities for sustainability to drivestronger cash flows, higher profitability and higher revenue growth in the coming
years. These apparently contradictory views could reflect relatively low visibility on
costs, short term cost headwinds leading to longer term financial benefits or a belief
that companies will be able to manage through the pressures.

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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES?%

Methodology
This is the first edition of the Morgan Stanley Sustainable Signals: Corporates survey. This report is led by the
Morgan Stanley Institute for Sustainable Investing and presents results from an online survey of sustainability
decision makers at corporates conducted by Dynata LLC on behalf of the Institute for Sustainable Investing.
From Feb. 27 to March 19, 2024, a sample of 303 sustainability decision makers at public and private companies
with over $100 million in annual revenue were surveyed across North America, Europe and APAC, with 101
responses from each region. To qualify, respondents had to:•	Self-identify as one of the main sustainability decision makers or as someone who contributes to thesustainability decision making at their company;•	Agree that they could anonymously share information about their company’s sustainability strategy.
To obtain a range of responses, quotas were applied at both regional and global levels for publicly listedcompanies, their annual revenue and GICS® Sectors.1 For more information on the sample profile and quotas,
please see page 16 in the Appendix.
As with any survey, eliminating all potential bias is impossible. Answers to some questions suggest that
there may be exclusion or representation bias due to the requirement that respondents be a sustainability
decision maker. As a result, the sample may skew towards companies that prioritize sustainability. For example,
only 1% have no documented sustainability strategy and no plans to create one, and 0% are not pursuing asustainability strategy at all. As such, it is important to frame these survey responses as reflecting a set ofcorporates engaged with sustainability rather than representative of corporates as a whole.

CONTACT US

For any questions related to the report, please reach out to the Institute for Sustainable Investing team at
globalsustainability@morganstanley.com.
To get insights like this report delivered to your inbox, subscribe to the Institute for Sustainable Investing’s
newsletter here.

1	Global Industry Classification Standard GICS® - Global Industry Classification Standard - MSCIMORGAN STANLEY INSTITUTE FOR SUSTAINABLE INVESTING

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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

Sustainability is a Value Creation Opportunity for 85%
of Companies
When asked how sustainability impacts long-term corporate
strategy, 85% say it is primarily (53%) or partly (32%) a value
creation opportunity. Value creation is also the most common
reason sustainability decision makers cited for their company
pursing its sustainability strategy, ranking ahead of legal.
Expectations from external stakeholders such as lenders
and wider civil society saw much lower response rates.
Value creation is particularly strong in APAC, although this islargely led by the 93% of China’s respondents reporting thatsustainability for their company was primarily about value

creation. This may reflect the important role China plays
in supplying growing green industries such as renewableenergy and electric vehicles.
Industries traditionally considered more at risk from thetransition to a low-carbon economy still see sustainability
as a value creation opportunity. Two thirds of Energy
companies rate sustainability as primarily a value creation
opportunity, with only Information Technology companies
having a higher response rate (86%).

FIGURE 1

How does sustainability impact your long-term corporate strategy?*
85% see sustainability as a value creation opportunity
53%
32%

Global Total
Primarily Value Creation

Both Value Creation and Risk Management

1%

15%

Primarily Risk Management

Not Material

FIGURE 2

Why companies are pursing their sustainability strategies“Very significant” reasons
0%

10%

20%

30%

40%

50%

60%

50%

Sustainability is a value creation opportunity
Compliance with government regulation

55%
54%
51%

Moral obligation to people and the planet

51%

Sustainability challenges our business model
51%

Expectations from our customers and/or clients
Expectations from our Board of Directors

Companies
were 2x more
likely to cite
value creation
as a “verysignificant”
reason for
pursing theirstrategy
compared withpressure fromcivil society.

CEO and/or senior management expectations
Investor expectations (shareholders, bondholders)
Responsibilities to trade associations or other networks
Employee expectations
Government incentives (subsidies, tax credits)
Supplier expectations
Lender expectations
26%

Pressure from civil society (NGOs, activists, media)
Global Total

North America (n=101)

Europe (n=101)

APAC (n=101)

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.
*Sums may not equal 100% in some figures due to rounding.
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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES?%FIGURE 3

How does sustainability and/or ESG impact your long-term corporate strategy?*0%20%

Global Total

40%

60%

80%

53%

32%

15%

67%

Energy (n=33)

24%

38%

Materials (n=32)

44%

6% 3%
19%

58%

Utilities (n=33)

100%

1%

27%

15%

Industrials (n=33)

45%

42%

12%

Consumer Discretionary (n=33)

42%

45%

12%

59%

Consumer Staples (n=34)

18%

30%

Health Care (n=20)

24%

50%

20%

48%

Financials (n=21)

38%

14%

86%

Information Technology (n=21)

10%

67%

Communication Services (n=21)

29%

45%

Real Estate (n=22)
Primarily Value Creation

5%

18%

Both Value Creation and Risk Management

5%

32%

5%

Primarily Risk Management

Not Material

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.

FIGURE 4

Progress on company’s sustainability strategy or practices*59%
0%

believe they are “meeting” or “exceeding expectations”
on their sustainability strategy, with 34% seeing “roomfor improvement” and 4% “initiating efforts.”

20%

40%

60%

80%

100%

Global Total

19%

40%

34%

4%

North America (n=101)

19%

42%

33%

5%

Europe (n=101)

18%

45%

28%

APAC (n=101)

20%

33%

Exceeding Expectations
Meeting Expectations
Not Yet Started
Facing Challenges

42%

5%
3%

Making Progress, Room for Improvement
Initiating Efforts
Stagnant; Progress Has Plateaued
Declining

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.
*Sums may not equal 100% in some figures due to rounding.
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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

Corporates Cite High Investment Needs as Top Barrier to
Sustainability, Making Access to Capital a Key Enabler
or established business model, near-term negatives
for company financials) tend to rank ahead of nonfinancial issues (e.g., internal accountability, measuring
sustainability performance, restrictive regulation and alack of commitment or skills within the company).

31% of respondents say “high levels of investment” isa “very significant” barrier to delivering or establishinga sustainability strategy, followed by other financial
considerations (Figure 5). That number rises to 70%
when also including respondents who said investment
requirements were a “somewhat significant” barrier.
By industry, Consumer Staples and Consumer Discretionaryrate investment highest as a barrier (both 79%, whencombining “very” and “somewhat significant” responses),followed by Energy (78%) and Industrials (76%). Materials(59%) and Communication Services (57%) were the lowest.
When considering all the barriers respondents cited todelivering a sustainability strategy, financial issues (e.g.,
investment requirements, conflict with financial goals

31%

of companies see high levels of investment
as a “very significant” barrier to executing theirsustainability strategy

FIGURE 5

How significant are the following as barriers to delivering or establishing asustainability/ESG strategy?
“Very significant,” global total
0%High levels of investment required
Conflict with the financial goals of the company
Macroeconomic uncertainty
Conflict with established business model
Government has not created sufficient incentives
Hard to justify near-term negatives for company financials
Current public anti-ESG sentiment (e.g., in media)
Lack of data to inform our strategy
Lack of technological advancements needed
Difficulty translating strategy into tactical action
Uncertainty over regulatory and government policy outlook
Hard to communicate business value of sustainability
Unusual circumstances (ongoing M&A, management change)
Lack of internal accountability for sustainability/ESG
Hard to measure current sustainability performance
Regulation is too restrictive or focused in the wrong areas
Low customer and/or client interest
Lack of corporate leadership and commitment
Lack of sustainability experience and skills in the company

10%

20%

30%

40%

31%
28%
25%
24%
24%
22%
22%
Investment ranks
21%
21%
higher than lack21%of leadership20%
commitment
20%
or skills
20%
20%
20%
20%
19%
19%
19%

>1.5x

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.

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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

As a result, access to capital is seen as a key enabler forcompanies to finance these investments, with over 80%
seeing support from investors as important to delivering
their sustainability strategy.
While there are multiple ways that a sustainability strategy
can be financed, respondents do appear to want to increase
their use of labeled instruments such as green bonds orsustainability-linked bonds. Only 42% are “meeting” or84%“exceeding expectations” around aligning corporate financing
with their sustainability strategy. This was the lowest rate
across a list of 19 sustainability actions provided to respondents(full list on page 17 in the Appendix). As corporates move
forward with their sustainability financing, there may be more
growth in the supply of labeled debt instruments.
Key challenges included reputational concerns as well asa lack of eligible projects to be financed.

76%

see support from investors
as important to delivering
their sustainability
strategy

60%

think sustainability could drivea lower cost of equity and/or
debt for their company inthe next five years, even
if it is negative forfinancial metrics

find that difficulties
communicating the businessvalue of sustainability area barrier to theirstrategy

FIGURE 6

Aligning corporate financing with sustainability strategy

9%

15%

Not Started / Challenged / No Plans

Exceeding Expectations

15%
Initiating Efforts

27%
Meeting Expectations

34%
Room for Improvement

FIGURE 7

Challenges in issuing ESG-labeled financing instruments“Very significant,” respondents who had issued
0%

10%

20%

30%

40%

31%

Reputational concerns

30%

Lack of significant green/sustainableprojects to be financed
Difficulty in setting or measuring targets
Lack of demand from investors

Global Total
North America (n=91)
Europe (n=88)
APAC (n=95)

Lack of internal resources to manage
Not relevant to our business model

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.
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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

Sustainability Issues Impact Business Models Today23%

We asked sustainability decision makers to rate how arange of risks impact their company’s business model.
Almost one quarter believe climate change is alreadyhaving an impact—similar to the traditional risks oftechnological change, competitor actions, geopoliticalconflict and supply chain instability. Financials andIndustrials companies are the most likely to report an
impact from climate change today.

believe that climate change is already impacting
their business model today

FIGURE 8

How does your company view the following risks to your business model today?

30%

20%

10%

0%

0%

10%

20%

30%

8%

Climate Change

9%Macroeconomic Volatility

9%Competitor Actions

25%

10%

Technological Change

25%

10%

Geopolitical Conflict

11%

Government Regulation

12%

Supply Chain Instability

13%

Demographic Shifts

14%

Socioeconomic Inequality

16%

Biodiversity LossNo Impact by 2050

23%
19%

23%
21%
23%
15%
19%
14%

Already Impacted

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.

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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

By 2050, more than 90% of respondents expect climatechange to impact their business. Just 8% report that they
expect “no business impact” from climate change even in
the long term, lower than any of the other risks listed.

expect some impact by 2025 and almost one third do by
2030. By industry, Energy companies are the most likely
to see biodiversity loss as a risk by 2025 (18% already
impacted, 39% short term risk), followed by Consumer
Staples (24% already impacted, 29% short term risk).

Companies appear to see biodiversity loss as less likely
to impact their business today, but more than one quarter

FIGURE 9

How does your company view climate change as a risk to your business model today?*

92% expect climate change to impact their business by 2050
Global Total

23%

25%

24%

21%

TODAY

2025

2030

2050

Already Impacted

Short-Term Risk (by 2025)

Medium-Term Risk (by 2030)

8%Long-Term Risk (by 2050)

No Impact

Impacted by climate change today

23%

Global
Total

33%

28%

23%

North
America

Europe

27%

30%

20%

18%

APAC

27%

Privately
Owned

REGION

Publicly
ListedOWNERSHIP

18%

Small

Financials Industrials

SIZE

15%

Utilities

HealthCare

INDUSTRY

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.

FIGURE 10

How does your company view biodiversity loss as a risk to your business model today?*

83% expect biodiversity loss to impact their business by 2050
Global Total

14%

26%

32%

11%

TODAY

2025

2030

2050

Already Impacted

Short-Term Risk (by 2025)

Medium-Term Risk (by 2030)

16%

Long-Term Risk (by 2050)

No Impact

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.

*Sums may not equal 100% in some figures due to rounding.
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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

Sustainability Criteria Inform Key Business Decisions
When asked about oversight of the company’s sustainability
strategy, more than half reported that key business decisions
including capex, R&D, new products and M&A are subject
to sustainability criteria. Incorporating sustainability targets
into executive compensation and having sustainability
committees reporting directly to the board were the next

most common ways to oversee sustainability strategies.
Just over one third agreed that their company’s board hassustainability expertise. The most commonly cited shortfall inexpertise is around sustainability-related regulations (57%).
Respondents in APAC were more likely to report knowledge
gaps at the board level.

FIGURE 11

Oversight of sustainability strategy
0%

10%

20%

30%

40%

50%

60%

70%

Key business decisions (e.g., capex, R&D, lending,new products, or M&A) are subject to sustainability criteria
Sustainability targets inform executive compensation,either for annual bonuses or long-term incentives
There is an internal sustainability committee thatreports directly to the board

55%
report thatkey businessdecisions are
subject tosustainability
criteria

There is a board-level responsibility for sustainability
There is an internal sustainability committee
chaired by a C-level executive
Our board has sustainability expertise

Global Total
North America (n=101)
Europe (n=101)
APAC (n=101)

None of the above
Don’t know

FIGURE 12

Areas where board members could benefit from more knowledge and expertise0%

Sustainability Regulations

10%

20%

30%

40%

50%

60%

70%

57%

Sustainability-Labeled Financing Instruments
Diversity, Equity and Inclusion
Sustainability Disclosures
Carbon Offsets/Credits
Climate Risk
Biodiversity and Nature
Decarbonization
Human Rights
Just Transition
Don’t Know
Other

Global Total
North America (n=101)
Europe (n=101)
APAC (n=101)

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.
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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGESThe Next Five Years: An Uncertain Outlook on Costs,
But Optimism on Strengthening Financial Metrics
Views were mixed—and at times contradictory—when
respondents were asked about the opportunities andchallenges from their company’s sustainability strategy
in the next five years.

challenges listed also relate to costs, including restructuring
supply chains and obsolescence of workforce skills or
facilities.
At the same time, many anticipate opportunities tostrengthen financial metrics. More than 80% believe thatsustainability was “somewhat” or “very likely” to drivestronger cash flows, higher profitability and higher revenue
growth in the next five years.

Three of the top four challenges cited relate specifically tocost pressures, with around 70% anticipating higher costs
from raw materials, compliance with regulation or theneed to change their business practices. Many of the other

FIGURE 13

Challenges sustainability could pose in the next five years
Global Total
0%

40%

60%

27%

47%

Raw material scarcity and/or higher costs

24%

49%

Higher costs or legal risks from sustainability regulation

28%

44%

Costs of changing our processes mean higher prices
to customers or reduced profitability

28%

41%

Fluctuating government policies causing friction between
our sustainability goals and public sentiment

28%

40%

A significant proportion of our workforce today
have skills which may no longer be needed

27%

41%

Reputational risk from greater scrutiny of establishedbusiness model

28%

39%

Reduced pricing power or ability to achieve
economies of scale

26%

40%

Demand for my company’s products or services
could decline

23%

41%

Part or all my company’s manufacturing facilities
could become obsolete

24%

36%

Restructuring supply chain to meet human rights obligations
THREE OF TOP FOUR
CHALLENGES RELATE TOCOST PRESSURES

20%

Very Likely

80%

Somewhat Likely

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.

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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

This apparent contradiction could reflect low visibility on
potential cost pressures, with only around one quarter of
respondents seeing rising costs as “very likely” compared
to 35%-40% “very likely” for stronger financial metrics.
There could be timing differences between costs andfinancial benefits: 58% report difficulties in reconcilingnear-term negatives for company financials with longer
term benefits. It could also be an example of “managerial
optimism,”2 whereby managers typically believe that capital
markets undervalue their firm while also overvaluing theirown projects, notably when they are highly committed tothe outcome.

FIGURE 14

Opportunities sustainability could create in the next five years
Global Total
0%

20%

40%

60%

Improve visibility over our cash flows

37%

46%

Improve our cash generation capabilities

38%

44%

Differentiate us in attracting/retaining talent

35%

47%

Drive higher profitability

40%

41%

Drive industry consolidation

38%

43%

Drive higher revenue growth

35%

44%

Enable a lower cost of equity and/or debt

37%

40%

Very Likely

80%

Somewhat Likely

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.

FIGURE 15

Expectations by industry for the next five years
OPPORTUNITIESCHALLENGES• Information Technology companies are the most positiveon opportunities, with over two thirds rating higher
profitability, stronger cash generation and higher revenue
growth as “very likely.”• Energy companies are most concerned about redundantskills in the workforce (45% “very likely”).

• Communication Services (62%) and Industrials (55%)
have the highest “very likely” responses for industry
consolidation via M&A.
• Communication Services (62% “very likely”) and Utilities(48%) see the strongest potential for lower cost ofequity/debt.

• Consumer Staples and Information Technology are most
focused on challenges from restructuring supply chains,
reduced pricing power or ability to achieve economies ofscale3 and fluctuating government policy (“very likely”
all 44% for Consumer Staples and 43% for Information
Technology).

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.

	Heaton, J. B. “Managerial Optimism and Corporate Finance.” Financial Management, vol. 31, no. 2, 2002, pp. 33–45.
JSTOR, https://www.jstor.org/stable/3666221. Accessed 10 Apr. 2024.
3
	Economies of scale refers to cost advantages companies can realize by producing goods or services in larger quantities.
2

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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

Regional Differences
NORTH AMERICA

Most Concerned about High Investments and Costs;
Government Policy is a Key Enabler

Sustainability is primarily a value
creation opportunity•	Least likely to see sustainability as primarily avalue creation opportunity, at 43%.
•	Most likely to view government policy and board
support as key enablers in delivering sustainability
strategy, with 51% and 54% respectively rating as“very important.”

55%

60%

43%

•	Increased costs were the most commonly citedfor North American respondents.
•	More than one third say it is “very likely” in thenext five years to see reduced profitability or
higher prices to customers due to the costs ofchanging corporate practices.

North America

EuropeAPAC

Enablers for sustainability strategy

Challenges in next five years“Very important”“Very likely”

54%
47% 46%

51%
Cost of changing
corporate practices

41%
32%

Increased scrutiny ofbusiness model

New regulation
imposing higher costs

Support from our
Board of Directors

24%
27%
23%
26%

22%

28%

34%

36%

34%

Government policy toestablish financial support
North America

EuropeAPAC

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.

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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGESEUROPE

Regulatory Uncertainty a Key Concern Alongside High Investments;
Potential for Stronger Revenue Growth

Sustainability is primarily a value
creation opportunity•	Sustainability seen strongly as a value creation
opportunity, at 55%•	Most likely to view lack of data and uncertain
regulatory outlook as key barriers to delivering
sustainability; European respondents were themost likely to cite higher revenue growth as anopportunity from sustainability (39%).

60%

55%
43%

•	Challenges posed by sustainability again focusedon regulatory or policy uncertainty (34% “verylikely” a challenge in the next five years), as wellas potential for higher costs from regulation (28%)
and a risk that demand for products and services
could decline (26%).
North America

EuropeAPAC

Barriers to delivering
sustainability strategy

Opportunities innext five years

Challenges innext five years“Very significant”“Very likely”“Very likely”

35%
29%
30%

High levels ofinvestment
requiredLack of data to
inform strategy
Uncertainty overregulatory/
policy outlook

21%
28%
14%
17%
16%

Higher
profitability

41%
41%
40%

Fluctuating
government
policies

29%
34%
23%

Higherrevenue
growth

33%
39%
35%

New regulation
imposing
higher costs

34%
28%
22%

Demand for
products/
services could
decline

23%
26%
20%

28%

North America

EuropeAPAC

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.

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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

APAC

Highest Belief in Value Creation;
Progress on Sustainability Strategy Least Mature

Sustainability is primarily a value
creation opportunity•	Most likely to see sustainability as value creation,
at 60% (and China at 93%).

93%•	More focused on support from investors(49% rated “very important”) and favorable
economic environment (47%) as key enablers
for sustainability strategy.
•	Most likely to see improved cash generationand talent attraction/retention as key
sustainability-related opportunities over the
next five years.

55%

43%

North America

Enablers for sustainability
strategy

Sustainability opportunities
in the next five years“Very important”“Very likely”

Europe

60%

APAC

China

Progress on sustainability
strategy
57%

49%
42%

39%

Support frominvestors (e.g.,shareholders,
bondholders

47%
39%

41%

41%
41%
40%

Higher
profitability

42%
33%
28%

Improved
cash
generation

33%
34%

Attracting/retaining
talent

34%
32%
40%

48%

Favorable
economicand operating
environment

Making progress, but room
for improvement

North America

Europe

APAC

China

Source: Morgan Stanley Institute for Sustainable Investing, May 2024.

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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

Appendix
Methodology and Sample ProfileQUALIFIERSQUOTASTo qualify, respondents had to:

Seeking a broad range of responses, the survey design set a
number of quotas for company size, industry and ownership,
which applied both globally and for each region. These areset out in the table below. The survey did not have quotas forthe respondent’s role, but the natural fallout was 52% in a
dedicated sustainability function and 48% in other functions(e.g., Strategy, Risk Management, Business Development/
Sales, Finance/Investor Relations).

• Self-identify as a “sustainability decision maker”
at their organization. Respondents answered, “Whichof the below best describes your own participation indecision making for your company’s sustainability
and/or environmental, social and governance (ESG)
strategy?” with either “I am one of the main decision
makers” or “I contribute to the decision making.”•	Represent a company with annual revenue of$100m or more.

COUNTRIES•	Represent a publicly traded or privately held for-profit
company.
•	Agree that they could anonymously share information
about their company’s sustainability strategy.

•	North America: United States (n=76), Canada (n=14),
Mexico (n=11).
•	Europe: France (n=22), Finland (n=2), Denmark (n=2),
Germany (n=13), Ireland (n=1), Netherlands (n=3), Norway(n=1), Spain (n=14), Sweden (n=8), Switzerland (n=1),
UK (n=34).
•	
APAC: Australia (n=7), Mainland China (n=14), Hong Kong
SAR (n=3), India (n=18), Japan (n=29), Malaysia (n=13),
New Zealand (n=3), Philippines (n=3), Singapore (n=3),South Korea (n=7), Taiwan (n=1).

SAMPLE PROFILEGLOBALNORTH AMERICAEUROPE

APAC

303

101

101

101

Publicly Listed

153

51

51

51

Privately Held

150

50

50

50

Small ($100M–$999M)

60

20

20

20

Medium ($1B–$9.9B)

121

40

40

41

Large (>$10B)

122

41

41

40

Total
OWNERSHIP

Quota ~50/50 public/private

ANNUAL REVENUE (USD$)

Quota ~20/20/40 small/medium/large

Low
Emitters*

MediumHigh
Emitters* Emitters*

INDUSTRY (GICS® SECTOR)

Quota ~33/33/33 high/medium/low emitters

Energy

33

11

11

11

Materials
Utilities

32
33

11
11

11
11

10
11

Industrials
Consumer Discretionary
Consumer Staples
Health Care
Financials
Information Technology
Communication Services

33
33
34
20
21
21
21

11
11
11
7
7
7
7

11
11
11
7
7
7
7

11
11
12
6
7
7
7

Real Estate

22

7

7

8

RESPONDENT ROLE

No quota, natural fallout 52/48 dedicated sustainability role/other function

Dedicated Sustainability/ESG Function

157

48

46

63

Other Function

146

53

55

38

*GICS® refers to the industry classification; the high/medium/low emitters distinction was made separately to seek a broad range of responses.
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SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

Definitions
THE FOLLOWING DEFINITIONS WERE PROVIDED TO SURVEY PARTICIPANTS:

Green, Social
Sustainability Bonds

Bonds where the proceeds will be exclusively applied to finance or re-finance a combinationof both green and social projects. Source: The International Capital Market Association (ICMA)

Green, Social,
Sustainability Loans

A form of financing that enable borrowers to use the proceeds to exclusively fund green andsocial projects. Source: World Bank

Just Transition

Considering the social implications of the transition to a low-carbon economy, which includes
engaging with stakeholders and communities to maximize the social and economic benefits ofclimate action for all (such as reskilling workers) while minimizing and managing inequitable
impacts (such as displacement of communities).

Sustainability/ESG

The integration of environmental, social, and governance factors into corporate strategies,
operations, and decision-making process.

Sustainability-Linked
Bonds

Any type of bond instrument for which the financial and/or structural characteristics can varydepending on whether the issuer achieves predefined Sustainability/ESG objectives.
Source: The International Capital Market Association (ICMA)

Sustainability-Linked
Loans

Aim to facilitate and support environmentally and socially sustainable economic activity andgrowth. Source: The International Capital Market Association (ICMA)

Transition Bonds

A subset of sustainable debt finance instruments whereby the issuer is raising funds in debt
markets for climate and/or just transition-related purposes. They can be either Use of Proceeds
instruments or general corporate purpose instruments aligned to the Sustainability-Linked
bonds principles. Source: London Stock Exchange

Full list of potential sustainability actions referenced on page 7:•	Using resources
efficiently (e.g., minimize
waste, conserve water)•	Measuring and minimizing
overall carbon footprint•	Minimizing air, water andsoil pollution•	Using sustainable
materials across our
products, services
and operations•	Reducing theorganization’s impact
on nature and wildlife•	Innovating products/
services to help solve
an environmental orsocial issue•	Educating and training
employees on sustainable
practices•	Advancing sustainable
practice among partners
in the supply chain•	Advancing diversity,
equity and inclusion
initiatives•	Addressing human rights
in the supply chain

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•	Protecting customer
and/or end user privacy•	Communicatingtransparently about
impacts on theenvironment and/or
society•	Prioritizing good
governance•	Supporting local
communities•	Donating a percentage
of profits to a charitablecause•	Offering sustainable/
ESG options for employee
retirement plans•	Aligning corporate
financing with oursustainability/ESG
strategy (e.g., via labeledbonds/loans)•	Conducting a materiality
assessment•	Presenting oursustainability/ESG
strategy to investors

17

SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGESDISCLOSURESThis material was published in May 2024 and has been prepared for
informational purposes only and is not a solicitation of any offer tobuy or sell any security or other financial instrument or to participate
in any trading strategy. This material was not prepared by the
Morgan Stanley Research Department and is not a Research Report
as defined under FINRA regulations. This material does not provide
individually tailored investment advice. It has been prepared without
regard to the individual financial circumstances and objectives of
persons who receive it.
Morgan Stanley Smith Barney LLC and Morgan Stanley & Co. LLC(collectively, “Morgan Stanley”), Members SIPC, recommendthat recipients should determine, in consultation with their own
investment, legal, tax, regulatory and accounting advisors, theeconomic risks and merits, as well as the legal, tax, regulatory andaccounting characteristics and consequences, of the transaction
or strategy referenced in any materials. The appropriateness ofa particular investment or strategy will depend on an investor’s
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employees and Morgan Stanley Financial Advisors do not provide tax,
accounting or legal advice. Individuals should consult their tax advisor
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Past performance is not a guarantee or indicative of future
performance. Historical data shown represents past performanceand does not guarantee comparable future results.
Certain statements herein may be “forward-looking statements”
within the meaning of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. These statements are nothistorical facts or statements of current conditions, but instead are
based on management’s current expectations and are subject touncertainty and changes in circumstances. These statements are
not guarantees of future results or occurrences and involve certain
known and unknown risks, uncertainties and assumptions that are
difficult to predict and are often beyond our control. In addition, thisreport contains statements based on hypothetical scenarios andassumptions, which may not occur or differ significantly from actual
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being representative of current or actual risk or forecasts of expectedrisk. Actual results and financial conditions may differ materiallyfrom those included in these statements due to a variety of factors.
Any forward-looking statements made by or on behalf ofMorgan Stanley speak only as to the date they are made, andMorgan Stanley does not undertake to update forward-looking
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Certain portfolios may include investment holdings deemed
Environmental, Social and Governance (“ESG”) investments. For
reference, environmental (“E”) factors can include, but are not limited
to, climate change, pollution, waste, and how an issuer protects and/or conserves natural resources. Social (“S”) factors can include, but
not are not limited to, how an issuer manages its relationships with

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individuals, such as its employees, shareholders, and customers aswell as its community. Governance (“G”) factors can include, but
are not limited to, how an issuer operates, such as its leadershipcomposition, pay and incentive structures, internal controls, andthe rights of equity and debt holders. You should carefully review
an investment product’s prospectus or other offering documents,
disclosures and/or marketing material to learn more about how it
incorporates ESG factors into its investment strategy.
ESG investments may also be referred to as sustainable investments,
impact aware investments, socially responsible investments ordiversity, equity, and inclusion (“DEI”) investments. It is important tounderstand there are inconsistent ESG definitions and criteria within
the industry, as well as multiple ESG ratings providers that provide
ESG ratings of the same subject companies and/or securities that vary
among the providers. This is due to a current lack of consistent global
reporting and auditing standards as well as differences in definitions,
methodologies, processes, data sources and subjectivity among
ESG rating providers when determining a rating. Certain issuersof investments including, but not limited to, separately managed
accounts (SMAs), mutual funds and exchange traded-funds (ETFs)
may have differing and inconsistent views concerning ESG criteria
where the ESG claims made in offering documents or other literature
may overstate ESG impact. Further, socially responsible norms
vary by region, and an issuer’s ESG practices or Morgan Stanley’s
assessment of an issuer’s ESG practices can change over time.
Portfolios that include investment holdings deemed ESG investmentsor that employ ESG screening criteria as part of an overall strategy
may experience performance that is lower or higher than a portfolio
not employing such practices. Portfolios with ESG restrictions
and strategies as well as ESG investments may not be able to takeadvantage of the same opportunities or market trends as portfolios
where ESG criteria is not applied. There is no assurance that an ESG
investing strategy or techniques employed will be successful. Past
performance is not a guarantee or a dependable measure of future
results. For risks related to a specific fund, please refer to the fund’s
prospectus or summary prospectus.
Investment managers can have different approaches to ESG and
can offer strategies that differ from the strategies offered byother investment managers with respect to the same theme or
topic. Additionally, when evaluating investments, an investment
manager is dependent upon information and data that may be
incomplete, inaccurate or unavailable, which could cause themanager to incorrectly assess an investment’s ESG characteristics
or performance. Such data or information may be obtained throughvoluntary or third-party reporting. Morgan Stanley does not verify thatsuch information and data is accurate and makes no representation
or warranty as to its accuracy, timeliness, or completeness whenevaluating an issuer. This can cause Morgan Stanley to incorrectly
assess an issuer’s business practices with respect to its ESG practices.
As a result, it is difficult to compare ESG investment products.
The appropriateness of a particular ESG investment or strategy will
depend on an investor’s individual circumstances and objectives.
Principal value and return of an investment will fluctuate with changes
in market conditions.

18

SUSTAINABLE SIGNALS: UNDERSTANDING CORPORATES’ SUSTAINABILITY PRIORITIES AND CHALLENGES

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