Institute for Sustainable Investing
Dec 2, 2024

Why Institutional Investors Expect Sustainable Investing to Grow

Both asset managers and asset owners see sustainable assets growing in the next two years, though lack of data and greenwashing continue to be challenges.

Almost eight in 10 asset managers (78%) and asset owners (80%) expect sustainable assets under management (AUM) and allocations to rise in the next two years, according to the Morgan Stanley Institute for Sustainable Investing. The survey of more than 900 institutional investors globally during July and August 2024 found that a majority (80%) of asset managers and asset owners see sustainability as a path for pursuing growth opportunities.

Why Institutional Investors Anticipate Growth
Global total who expect allocation/AUM to increase

Source: Morgan Stanley Institute for Sustainable Investing, August 2024

Sustainability: Unlocking Growth and Meeting Investor Demand

For 79% of asset managers, sustainable investing offerings are seen as a key differentiator for winning or retaining new clients. They are mostly split evenly on identifying why they expect sustainable AUM to grow:

Asset owners that want access to sustainable investing offerings are expected to be willing to switch asset managers to do so.
Asset managers see their existing clients increasing their allocation to sustainable investments.
Asset managers are seeing asset owners allocating to sustainable investing for the first time.

Asset Managers: Sources of Growth in AUM for Sustainable Investing
Global asset managers who expect AUM to increase

Asset owners are also demonstrating their interest in sustainability: More than 80% globally say they require asset managers to demonstrate a sustainable investing policy or strategy, and more than three-quarters say that sustainable investing offerings are a key factor in selecting or retaining asset managers.

Nearly 90% of institutional investors (90% of asset managers and 88% of asset owners) say their sustainable investing activities are driven by demand from their stakeholders.

Why are Institutional Investors Practicing Sustainable Investing?
% who cite as a "very" and "somewhat significant" reason

Regional Differences

Globally, institutional investors are currently invested in a range of sustainable themes, with healthcare (41%) and financial inclusion (40%) with a slight lead.

When asked to prioritize specific environmental and social solutions, global investors across North America, Europe and Asia Pacific (APAC) rank renewable energy, energy efficiency and climate adaptation among the highest priorities. Notably, climate adaptation solutions are also seen as one of the most underappreciated investment opportunities across all three regions.

However, some notable differences emerged at the regional level. In Europe, “protecting wildlife on land and in water,” “preventing deforestation” and “ocean conservation” are all top 10 sustainable solutions, while there was no mention of nature or biodiversity in the top 10 for North America or APAC. “Biofuels” and “support for aging populations” were top ranked themes unique to APAC, while “racial diversity, equity and inclusion” was in the top 10 for North America but not the other regions.

Limiting Factors and Challenges

Several concerns about sustainable investing persist among institutional investors. For 71%, data availability and consistency are the most pressing challenges. Fluctuating regulations and the threat of greenwashing—claims about a company or asset’s environmental benefits that may make it appear more environmentally friendly than it is—follow closely behind (69% and 68% respectively).

Negative perceptions about sustainable investing in the media or broader society rank lower, at 59%. In addition, 67% of asset managers say that asset owners have unrealistic expectations about the sustainability outcomes of their investments.

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Disclosures

This material was published in December 2024 and has been prepared for informational purposes only and is not a solicitation of any offer to buy or sell any security or other financial instrument, or to participate in any trading strategy. This material does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives of persons who receive it. Securities discussed in this material may not be appropriate for all investors. It should not be assumed that the securities transactions or holdings discussed were or will be profitable. Morgan Stanley recommends that investors independently evaluate particular investments and strategies and encourages investors to seek the advice of a Financial Advisor.

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