Asset managers around the globe see growth in sustainable funds continuing for the next two years, despite political headwinds from U.S. election results and backlash to ESG investing in other parts of the world, a new Morgan Stanley survey shows.
The reason: Asset owners are asking that more of their portfolios be directed toward sustainable investments.
The new Sustainable Signals report by the Morgan Stanley Institute for Sustainable Investing, out this week, found that 78% of asset managers expect their assets under management in sustainable funds to increase through 2026.
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 managers say that growth will be driven by a combination of new investing mandates and requests for higher sustainable allocations from existing clients. The survey found that 80% of asset owners expect the proportion of their assets allocated to sustainable investment options to increase during the next two years.
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 sustainability as an opportunity for growth and value creation,” she said in a press release announcing the survey findings.
Other key survey results:
- 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%). Asia-Pacific 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 health care (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.
Sustainable debate: Carbon offsets
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 Morgan Stanley Institute for Sustainable Investing 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.
The Sustainable Signals series was launched in 2015 and measures the views of individual investors, institutional investors and corporates on sustainable investing. View the full results of the latest survey here.
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