Sustainable Investing Set for Growth: 86% of Asset Owners Expect Allocation Increase, Finds Morgan Stanley Survey

Institutional Investors Maintain Optimism as Sustainable Allocations Poised to Rise

According to the 2025 Morgan Stanley Institute for Sustainable Investing “Sustainable Signals” survey, institutional appetite for sustainable assets remains robust. In a global poll of over 900 institutional investors, a striking 86% of asset owners and 79% of asset managers indicated they expect the proportion of sustainable investments in their portfolios to grow over the next two years.

Notably, asset owners cited the strong financial performance of sustainable investments and a solidified track record as top motivators for increased allocations. For asset managers, most anticipate that additional assets under management (AUM) will come from both existing clients raising their allocations and from new mandates. This confidence signals the continued maturation of sustainable investing in major markets across North America, Europe, and Asia Pacific.

Climate Risk and Adaptation Move to Forefront of Investment Priorities

Climate considerations have clearly moved up the institutional agenda. More than three-quarters (75%+) of survey respondents expect physical climate risks—such as extreme weather—to significantly impact asset prices over the next five years. Reflecting this, over half of institutional investors now consider climate resilience an essential part of their risk-return model for sustainable investments.

Investment priorities continue to focus on emissions-related solutions. Energy efficiency and renewable energy remain the leading areas for new capital, but climate adaptation solutions—measures to cope with changing climate conditions—jumped to the third spot this year, up sharply from sixth in 2024. This marks a meaningful shift as adaptation strategies gain recognition for their potential to mitigate risk and safeguard portfolios.

Growing Challenges: Data Gaps, Regulation, and Political Uncertainty Top Concerns

Even as optimism holds, institutional investors are becoming more mindful of hurdles. The percentage of respondents viewing external risks as very significant jumped to 38% in 2025, up from 25% last year. Data availability and consistency top the list of concerns, followed by a need for clearer regulatory guidance and rising political uncertainty around sustainable finance. These worries could affect decision-making and signal the need for improved transparency and stable policy frameworks.

Sustainability Now Seen as Core to Risk Management and Mandate Differentiation

Beyond returns, sustainability is now viewed by over 80% of both asset owners and managers as critical for managing investment risks. It also plays a key role in the selection and award of mandates, acting as a clear differentiator for firms competing to win or retain business. As ESG practices and expectations mature, sustainable investing has become woven into both long-term strategy and competitive positioning across global institutions.

Takeaway: Maturing Conviction Meets a New Set of Challenges

Institutional conviction in sustainable investing is only getting stronger, with clear signals that more capital will flow into sustainable assets through 2027. Yet, this momentum comes alongside a recognition of mounting challenges—from data consistency to the complex political environment—that could shape the evolution of sustainable finance. As adaptation and climate risk strategies move to center stage, market participants will be watching closely to see how institutional portfolios adapt—and whether sustainable investing’s proven track record continues to grow.

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