Most asset owners and managers expect allocations to sustainable funds to increase in the next two years, amid increasing concerns over the financial impact of physical climate risks.
A global survey of 900 institutional investors by the Morgan Stanley Institute for Sustainable Investing found that 86% of asset owners expect allocations of assets to sustainable funds to grow over the next two years, a six-percentage point increase from 2024. A total of 79% of asset managers expect an increase in AUM invested sustainably over the same period.
Asset owners cited strong financial performance of sustainable investments as their top driver, followed by the established track record of sustainable investing.
Over 75% of institutional investors told the survey they expect physical climate risk to have a “major impact” on asset prices in the next five years. Just over a third believe the pricing impact will be widespread across the market, while 42% see the impact as limited to a smaller subset of assets. Accordingly, more than half of respondents deem climate resilience a core part of their risk-return model for sustainable investments.
“Asset owners and asset managers anticipate growing impacts from climate risk in the coming years and are aligning their priorities to mitigate these challenges,” said Jessica Alsford, Chief Sustainability Officer at Morgan Stanley and Chair of the institute.
Both asset owners and managers expressed growing concerns around external factors impacting sustainable investing, with data availability and consistency the most significant issue, followed by regulatory guidance and political uncertainty.
But both groups said they regard sustainable investment options as a key differentiator when awarding or winning mandates, with four in five viewing sustainability as an important part of managing investment risks.
