More than four out of five institutional investors expect to increase allocations to sustainable investments over the next two years, according to a new survey released by Morgan Stanley, although the rate of growth anticipated has moderated compared with last year.
Key drivers of increased sustainable investment allocations include exposure to growth opportunities and the rising materiality of sustainability risks, while investors also indicated lower levels of concern about sustainable investing, most notably including a sharp drop in significant concerns about negative views in media and wider society, according to the survey.
For the report, “Sustainable Signals, Institutional Investors 2026,” Morgan Stanley surveyed 900 institutional investors across North America, Europe and Asia Pacific, including 600 asset owners and 300 asset managers.
The survey found that a significant majority, including 82% of asset owners and 85% of asset managers expect to increase the proportion of assets allocated to sustainable strategies over the next 2 years, roughly similar to last year’s survey. By region, European investors are the most likely to anticipate increased allocations, at 93%, followed by APAC investors at 80%, and 77% in North America. Across all regions, almost no investors reported plans to decrease allocations to sustainable investments.
While the proportion of investors expecting to increase allocations remained steady from last year, the pace of the anticipated growth has moderated, according to the report, which found that around half of investors (52% of asset owners and 51% of asset managers) forecast growth rates (excluding investment performance) of up to 5%, and only around a third expect more than 5%, while last year nearly two thirds anticipated growth above 5%.
The survey indicated a change in factors driving investors’ plans to increase allocations as well, with exposure to growth opportunities cited as the top reason (up from #3 last year) by both asset owners and asset managers, followed by the rising materiality of sustainability-related risks (which ranked #7 last year). In 2025, investors cited strong financial performance of sustainable investments or ESG strategies and the increasing maturity of sustainable investing as the top drivers.
For asset owners, 75% view increased allocations from existing clients as the most likely source of sustainable investing AUM, followed by new clients allocating to sustainable investments for the first time at 14%, according to the report.
For asset owners, nearly all (95%) agreed that sustainable investing options are a key differentiator in asset manager selection and retention, and more than 80% said that they require external asset managers to have a sustainable investing policy or strategy.
In addition to identifying a range of drivers for increased allocations, the survey also found that investors key concerns about sustainable investing have eased over the past year, with fewer respondents reporting “very significant” concern about a wide variety of factors such as corporate greenwashing, disclosure burdens for corporates and investors and the political environment. Most notably, the proportion of investors reporting significant concern about negative views in the media and wider society about sustainable investing dropped sharply from 34% last year to only 8% in 2026.
While most issues became less pressing, the survey found a jump in investors citing “very significant” concern regarding data availability and consistency for sustainable investing, at 64%, up significantly from 47% last year.
Examining investor’s sustainable investing practices, the survey found that nearly all investors take a broad approach to themes, with two thirds addressing both social and environmental themes. By specific topics, climate adaptation and resilience emerged as the top theme addressed by investors as part of their sustainable investment practice, cited by 59%, followed by climate mitigation at 52%, and economic empowerment and circular economy, each at 41%.
The sharp focus on climate adaptation comes as the vast majority of view climate change as a risk to their portfolios, including a third who anticipate that climate-related physical risks will have major pricing impacts on asset prices across the market in the next five years, 39% expecting major pricing impact on a limited number of assets, and 26% expecting moderate pricing impacts across the market. Nearly 90%, however, also said that it is difficult to assess the impact of physical climate risk on their assets, up from around a third last year.
The survey also found that more than 90% of investors use engagement approaches alongside investment approaches to address sustainable investing themes, with most asset owners (58%) and asset managers (61%) reporting that they allocate the most time to fewer, deeper engagements with portfolio companies where they feel they can have the most impact.
Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley, said:
“Our annual survey of institutional investors indicates that a majority expect to increase sustainable investment allocations in the coming years, recognizing growth opportunities and the rising materiality of sustainability-related risks. In 2026, a consistent picture has emerged across our Sustainable Signals series – with individuals, corporates and institutional investors all showing high levels of continued commitment to sustainability, yet at a more measured pace and with a sharper focus on managing risk.”
Click here to access the survey.
