A recent survey conducted by the Morgan Stanley Institute for Sustainable Investing indicates that a significant majority of institutional investors anticipate growth in sustainable assets over the next two years. The "Sustainable Signals" report surveyed over 900 institutional investors from North America, Europe, and Asia Pacific during July and August 2024 to gauge their perspectives on sustainable investing.
The findings reveal that 78% of asset managers expect an increase in assets under management (AUM) in sustainable funds, driven by new mandates and increased allocations from existing clients. Similarly, 80% of asset owners foresee a rise in the proportion of their assets allocated to sustainable investments. Furthermore, more than three-quarters of asset owners agree that sustainable investing offerings influence mandate decisions, with many requiring asset managers to have a sustainable investing policy or strategy.
Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley, stated: “Institutional investors see a growth trajectory for sustainable assets globally in the coming years to meet increasing client and stakeholder demands in a more mature sustainable investing market.”
The survey also highlighted challenges faced by both asset owners and managers. Data availability was identified as the top challenge (71%), followed by fluctuating regulatory guidance (69%) and greenwashing concerns (68%). Investors from the Asia Pacific region reported these challenges at higher rates compared to their European and North American counterparts.
In terms of investment themes, institutional investors globally prioritize healthcare (41%) and financial inclusion (40%). Regional differences were noted; for instance, European investors ranked nature and biodiversity solutions higher. Climate adaptation solutions are considered one of the most underappreciated investment opportunities across all regions.
Regarding net-zero targets, nearly two-thirds of asset owners and managers have set such targets with plans to achieve them. However, views on carbon offsets are mixed among institutional investors. While some view offsets as valid for decarbonization efforts, others believe they should only be used for hard-to-abate emissions or are cautious about their use pending greater certainty.
The "Sustainable Signals" series began in 2015 to measure views on sustainable investing among individual investors, corporates, and institutional investors.
Morgan Stanley is a global financial services firm offering investment banking, securities trading, wealth management, and investment management services worldwide through its offices in 42 countries.