More than four in five institutional investors expect to increase the share of their portfolios committed to sustainable strategies over the next two years, according to new global research released by Morgan Stanley.
According to ESG Today, the findings indicate that confidence in sustainable investment performance is strengthening, even as concerns around data availability and regulatory uncertainty continue to grow.
The report, Sustainable Signals, Institutional Investors 2025, surveyed more than 950 institutional investors across North America, Europe and Asia Pacific. This included 664 asset owners and 303 asset managers. Across both groups, expectations for increased sustainable allocations have risen.
Among asset owners, 86% anticipate that a greater proportion of their assets will be directed towards sustainable funds in the next two years, up from 79% in last year’s report. Similarly, 79% of asset managers expect a higher proportion of their AUM in sustainable investments, compared with 78% previously. Only a small minority foresee reductions in allocations.
North American respondents were the most bullish, with 90% of asset owners planning to raise allocations, compared with 82% in Europe and 85% in Asia Pacific. Performance remained the strongest motivator, with 22% of asset owners citing strong financial outcomes from sustainable strategies as their primary driver. A further 18% pointed to the growing maturity and established track records of these approaches.
For asset managers, future growth is expected to come from multiple fronts. Demand from existing clients was highlighted by 42% of respondents, while 39% expect to win fresh mandates based on their sustainable investing capabilities. Another 36% anticipate interest from asset owners allocating to sustainable investing for the first time.
Sustainable investing has also become a differentiator in mandate selection. According to the report, 90% of asset owners strongly or somewhat agreed that the availability of sustainable options plays a key role in retaining or choosing asset managers. Likewise, 88% of asset managers said sustainable investing options are critical to securing new clients. A large majority of asset owners—89%—now expect external managers to have a formal sustainable investing policy.
In terms of investment themes, renewable energy retained the top spot, mentioned by 30% of respondents. Energy efficiency followed at 28%. Notably, climate adaptation and resilience surged from sixth place last year to third, cited by 23% of investors. The shift reflects growing concern over the financial impact of climate change, with more than three-quarters expecting major effects on asset prices within the next five years. Over half of investors (53%) include climate resilience as a core part of their risk-return modelling for physical assets, rising to 65% among North American respondents.
Despite strong appetite for sustainable allocations, investors reported mounting challenges. Data consistency and availability topped the list of “very significant” concerns at 47% — a steep rise from 32% last year. Regulatory fluctuations were flagged by 43%, while 37% expressed worries about the political environment.
Morgan Stanley chief sustainability officer and chair of the Institute for Sustainable Investing Jessica Alsford said, “In our latest global survey of institutional investors, the majority expect to increase their proportion of assets in sustainable funds – with financial performance and a maturing track record driving these allocations. Similar to individual investors and corporates surveyed in this year’s Sustainable Signals series, asset owners and asset managers anticipate growing impacts from climate risk in the coming years and are aligning their priorities to mitigate these challenges.”
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