Institute for Sustainable Investing

Institutional Investors Expect Modest Growth in Sustainable Allocations

Oct 22, 2026

Morgan Stanley's 2026 survey finds that most asset owners and asset managers expect sustainable allocations to increase, although at a slower pace than last year. Many concerns about sustainable investing have eased, and investors are focused on climate adaptation and responsible AI.

Key Takeaways

  • More than 80% of institutional investors expect to increase their sustainable allocations over the next two years, although anticipated growth is more measured than in 2025.
  • Many concerns about sustainable investing have eased since last year, and two-thirds of institutional investors cite portfolio risk reduction as a reason to invest sustainably. 
  • Climate adaptation and resilience has become institutional investors’ leading sustainability theme, ahead of climate mitigation.
  • Two-thirds of institutional investors include responsible AI in their sustainable investing strategies, with most focused on how companies oversee and govern their use of AI.

Institutional investors remain committed to sustainable investing, but their expectations for growth in allocations are becoming more measured. According to the latest Sustainable Signals survey from the Morgan Stanley Institute for Sustainable Investing, most asset owners and asset managers expect to increase their sustainable allocations over the next two years. However, compared to 2025, far fewer anticipate large increases.

 

The survey polled 900 institutional investors across North America, Europe and Asia Pacific between August and October 2026, all of whom currently practice or plan to practice sustainable investing. 

 

More than eight in 10 asset owners and asset managers expect to increase their allocations to sustainable strategies over the next two years, broadly consistent with the 2025 and 2024 findings. But, only 2% of asset owners and 4% of asset managers anticipate growth of more than 10 percentage points, compared with around one-fifth in 2025. As in prior years, very few investors expect their allocations to decrease.

 

“Our annual global 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,” said Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley.

 

Source: Morgan Stanley Institute for Sustainable Investing, October 2026. Data as of October 1, 2026. *See pp.21-23 for regional detail. **To qualify, respondents had to be practicing sustainable investing or have plans to.

Asset owners are also seeking more control over how their sustainable investments are managed. On average, 41% of their externally managed sustainable assets are held in customized investment mandates or separately managed accounts, and 86% expect that share to rise over the next two years. Asset owners say these structures give them greater control over their sustainable investment strategies and the timing of investment decisions. 

 

Concerns Ease, but Data Challenges Grow 

Institutional investors note lower levels of concern related to most of the issues covered in the survey. On average, 27% rate these concerns as very significant, down from 38% in 2025 and close to 2024 levels. Concern about negative views of sustainable investing in the media or wider society fell sharply, from 34% to 8%. 

 

Data is the clear exception. Almost two-thirds (64%) of respondents cite data availability and consistency as a very significant concern, up from 47% in 2025, making it the most pressing challenge in this year’s survey. At the same time, fewer investors view sustainability disclosures themselves as a burden for investors or corporates.

 

Source: Morgan Stanley Institute for Sustainable Investing, October 2026. Data as of October 1, 2026. 

Despite these data challenges, sustainability remains important to institutional investment decisions. More than 90% of asset owners and asset managers say sustainable investing options are a key differentiator in awarding or winning mandates. A similar share consider sustainability important to managing investment risk, while more than two-thirds cite portfolio risk reduction as a reason to invest sustainably, up from half in 2025. 

 

“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,” Alsford said. 

Source: Morgan Stanley Institute for Sustainable Investing, October 2026. Data as of October 1, 2026. 

 

 

 

Source: Morgan Stanley Institute for Sustainable Investing, October 2026. Data as of October 1, 2026. 

 

Climate Adaptation Tops the List 

Climate adaptation and resilience has become the most commonly pursued sustainability theme among institutional investors globally, cited by 59% of respondents, compared with 52% for climate mitigation. Interest in adaptation is highest in Europe, where 65% of investors say they aim to address the theme compared to 54% in North America and 59% in APAC. 

 

This focus comes as investors increasingly anticipate financial effects from physical climate change but continue to face challenges assessing their exposure. Almost 90% say it is difficult to evaluate the potential impact on their assets, up from 66% in 2025, with access to high-quality, localized data cited as the leading barrier. Even so, most expect physical climate risks to affect asset prices within the next five years, whether across the broader market or a more limited group of assets. 

 

Source: Morgan Stanley Institute for Sustainable Investing, October 2026. Data as of October 1, 2026. 

 

 

 

Source: Morgan Stanley Institute for Sustainable Investing, October 2026. Data as of October 1, 2026. * Not at all difficult / Don’t know, and No significant impact / Don’t know had zero responses in 2026. 

 

Two-Thirds See Responsible AI as Part of Sustainable Investing

The responsible development and use of artificial intelligence is also becoming part of institutional investors’ evaluation of sustainability-related opportunities and risks. Two-thirds of respondents consider responsible AI part of their sustainable investing strategy, including 72% in Europe and 59% in North America. Most are focused on how companies oversee and govern their use of AI, rather than concentrating primarily on large language model (LLM) providers or AI’s broader economic and social impacts.

Source: Morgan Stanley Institute for Sustainable Investing, October 2026. Data as of October 1, 2026. 

 

Shareholder Engagement Is Concentrated on Fewer, Deeper Interactions 

Almost 90% of respondents engage with companies in addition to incorporating sustainability considerations into their investment decisions. Most favor depth over breadth: 59% concentrate their efforts on fewer, more substantive interactions rather than engaging with as many companies as possible. Direct, private discussions with company management are viewed as the most effective approach, with more than 60% of both asset owners and asset managers rating them as very effective. n the next five years, whether across the broader market or a more limited group of assets. 

Source: Morgan Stanley Institute for Sustainable Investing, October 2026. Data as of October 1, 2026. 

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