• Majority of global asset managers (78%) and asset owners (80%) expect sustainable assets to increase over next two years
• Nearly 90% of institutional investors say sustainable investing activities are driven by client and external stakeholder demands
• Top challenges to sustainable investing include data availability, political and regulatory environment, and greenwashing
• Institutional investors have mixed views on use of carbon offsets as part of investees’ decarbonization strategy

Most institutional investors expect assets in sustainable funds to grow in the next two years, according to a new “Sustainable Signals” report by the Morgan Stanley Institute for Sustainable Investing. The survey, which polled more than 900 institutional investors across North America, Europe and Asia Pacific in July and August 2024, assesses attitudes of asset owners and asset managers toward sustainable investing, as well as emerging trends in the space.

The majority of asset managers (78%) expect AUM in sustainable funds to increase over the next two years, driven by a combination of new mandates and higher allocations from existing clients. Similarly, 80% of asset owners expect the proportion of their assets allocated to sustainable investment options to increase during the same period. More than three-quarters of asset owners “strongly” or “somewhat” agree that sustainable investing offerings influence mandate decisions, with 80% requiring their asset managers to have a sustainable investing policy or strategy in place.

“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,” said Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley. “This year the Institute has released Sustainable Signals reports with views from individual investors, corporates and institutional investors, with each group seeing sutainability as an opportunity for growth and value creation.”

Other key survey findings include:

• Challenges and Concerns – The top reported challenge in sustainable investing for both asset owners and managers is data availability (71%), followed by fluctuating regulatory guidance (69%) and greenwashing (68%). APAC investors cite challenges at higher rates than European and North American counterparts, with particular concerns around the burden of disclosure requirements for investors (71%).
• Sustainable Investment Themes and Solutions – Globally, institutional investors prioritize investments in healthcare (41%) and financial inclusion (40%). Regional differences emerged when asked about investment priorities for specific sustainable solutions, with European investors ranking nature and biodiversity solutions higher for example. Notably, climate adaptation solutions are seen as one of the most underappreciated investment opportunities across all regions.
• Net-Zero Targets – Close to two-thirds of asset owners and managers have set a net-zero target, with almost all saying they have a plan to deliver their target. About 2% of institutional investors are reportedly already at net zero.

When it comes to assessing the use of carbon offsets, institutional investors have mixed views. Nearly 40% of asset owners currently use carbon offsets to mitigate portfolio emissions, and 31% of asset managers offer clients offsets linked to specific products or aggregated emissions. But while some consider offsets a valid approach to decarbonization (32% of asset owners, 31% of asset managers), others think they should only be used for hard-to-abate emissions (21% of asset owners, 22% of asset managers). Still others are cautious about the use of offsets and are waiting for greater certainty (28% of asset owners, 27% of asset managers).

The Sustainable Signals series was launched in 2015 and measures the views of individual investors, instititutional investors and corporates on sustainable investing. View the full results of the latest survey here.

About Morgan Stanley

Morgan Stanley (NYSE: MS) is a leading global financial services firm providing a wide range of investment banking, securities, wealth management and investment management services. With offices in 42 countries, the Firm’s employees serve clients worldwide including corporations, governments, institutions and individuals. For further information about Morgan Stanley, please visit www.morganstanley.com.

About Morgan Stanley Institute for Sustainable Investing

The Morgan Stanley Institute for Sustainable Investing (The Institute) builds scalable finance solutions that seek to deliver competitive financial returns while driving positive environmental and social impact. The Institute creates innovative financial products, thoughtful insights and capacity building programs that help maximize capital to create a more sustainable future. For more information about the Morgan Stanley Institute for Sustainable Investing, visit www.morganstanley.com/sustainableinvesting.

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