More than four out of five institutional investors expect to increase their allocations to sustainable investments over the next two years, according to a comprehensive new survey released by Morgan Stanley. While the overarching sentiment toward sustainable finance remains overwhelmingly positive and forward-looking, the data reveals a distinct shift in the market environment: the anticipated rate of growth has moderated notably compared with previous years as investors adopt a more measured, risk-managed approach to portfolio construction.
The newly published report, titled “Sustainable Signals, Institutional Investors 2026,” draws on insights from a broad and diverse pool of 900 institutional investors across North America, Europe, and Asia-Pacific. The respondent base includes 600 asset owners and 300 asset managers, offering a detailed cross-section of global institutional sentiment.
According to the survey findings, a significant majority—specifically 82% of asset owners and 85% of asset managers—anticipate increasing the proportion of their assets allocated to sustainable strategies over the upcoming two-year period. This widespread intention remains roughly similar to the high levels of commitment recorded in last year’s survey. Regional variations persist within the global data, however. European investors continue to lead the pack in their forward-looking projections, with 93% anticipating increased allocations. They are followed closely by investors in the Asia-Pacific (APAC) region at 80%, and North American investors at 77%. Notably, across all surveyed geographic regions, virtually no institutional investors reported active plans to decrease their allocations to sustainable investments, underscoring a baseline stability in the asset class.
Despite the steady proportion of investors planning to boost allocations, the pace of expected growth has pulled back. The report indicates that roughly half of the surveyed investors—comprising 52% of asset owners and 51% of asset managers—now forecast individual growth rates, excluding investment performance, of up to 5%. Meanwhile, only about a third anticipate growth exceeding 5%. This represents a marked cooling from the previous year, when nearly two-thirds of respondents anticipated robust growth trajectories above the 5% threshold.
The survey also points to a notable evolution in the core factors driving institutional investors’ plans to increase their sustainable allocations. Exposure to growth opportunities has surged to become the top-cited reason by both asset owners and asset managers, climbing from the third position it held in the previous year’s survey. Concurrently, respondents placed a significantly higher emphasis on the rising materiality of sustainability-related risks, a driver that previously ranked much lower at seventh place in 2025. By contrast, top drivers from the prior year—such as the strong historical financial performance of sustainable investments or ESG strategies, and the increasing overall maturity of the sustainable investing ecosystem—have shifted in relative priority.
For asset owners looking at the mechanics of their sustainable assets under management (AUM), 75% view increased allocations from existing clients as the most probable source of growth. This is followed by new clients allocating capital to sustainable investments for the first time, which accounts for 14% of expectations. Furthermore, asset owners place immense strategic value on sustainability integration: nearly all respondents, or 95%, agreed that sustainable investing options serve as a critical differentiator when it comes to selecting and retaining asset managers. More than 80% explicitly stated that they require external asset managers to maintain a formal sustainable investing policy or strategy.
Alongside these shifting strategic drivers, the survey revealed that institutional investors’ key concerns regarding sustainable investing have eased across several fronts over the past year. Fewer respondents reported "very significant" levels of concern about a wide variety of administrative and external challenges, including corporate greenwashing, mounting disclosure burdens for both corporations and investors, and the broader political environment. Most notably, the proportion of investors expressing significant concern about negative views in the media and wider society regarding sustainable investing dropped sharply, moving from 34% last year down to just 8% in the 2026 survey.
While most traditional friction points became less pressing for the market, the survey did highlight one major area of rising anxiety: data availability and consistency. A striking 64% of investors cited "very significant" concern regarding data availability and consistency for sustainable investing, marking a substantial jump from the 47% who reported similar worries the previous year.
A closer examination of institutional sustainable investing practices reveals that nearly all market participants take a broad, multi-themed approach to their portfolios. Two-thirds of respondents address both social and environmental themes simultaneously. When breaking down specific topics, climate adaptation and resilience emerged as the preeminent theme addressed by investors, cited by 59% as part of their core sustainable investment practice. This was followed by climate mitigation at 52%, alongside economic empowerment and the circular economy, each capturing 41% of institutional focus.
This sharp, localized focus on climate adaptation coincides with widespread recognition of climate change as a systemic risk to investment portfolios. The vast majority of institutional investors view climate change as a direct portfolio hazard. Specifically, one-third anticipate that climate-related physical risks will trigger major pricing impacts on asset prices across the broader market within the next five years. Another 39% expect major pricing impacts to affect a limited number of specific assets, while 26% foresee moderate pricing impacts across the wider market. However, despite this acute awareness, nearly 90% of respondents acknowledged that it remains difficult to accurately assess the impact of physical climate risk on their specific assets, reflecting a steep increase from roughly a third who held that view last year.
To navigate these complexities, institutional investors are heavily utilizing corporate engagement alongside direct investment approaches. More than 90% of survey respondents reported using engagement strategies to address sustainable investing themes. Among these, the majority of asset owners (58%) and asset managers (61%) stated that they dedicate the most time and resources to fewer, deeper engagements with portfolio companies where they believe they can exert the most meaningful influence and impact.
Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley, reflected on the findings, noting that the research points to a maturing market defined by measured resilience.
"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," Alsford said. "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."
