More than eight in 10 global institutional investors expect to expand their sustainable investment allocations over the next two years, though at a significantly more measured pace compared to previous years, according to the latest Sustainable Signals report published by the Morgan Stanley Institute for Sustainable Investing.
The annual survey, conducted between August and October 2026, polled 900 asset owners and asset managers across North America, Europe, and the Asia-Pacific region to assess market sentiment, risk considerations, and allocation strategies.
While over 80 per cent of respondents anticipate increasing sustainable allocations, growth projections have softened. Approximately 30 per cent of surveyed institutions plan to increase allocations by more than five percentage points over the next two years, down from two-thirds of respondents in 2025. Furthermore, just 2 per cent of asset owners and 4 per cent of asset managers expect expansion exceeding 10 percentage points, compared to roughly one-fifth in 2025.
Key findings and strategic insights from the report include:
- Data availability concerns: Data quality and consistency emerged as the primary operational hurdle, with 64 per cent of respondents citing it as a major concern, up from 47 per cent in 2025. Conversely, concerns over public or media scrutiny regarding sustainable finance dropped sharply from 34 per cent to 8 per cent.
- Integration of responsible AI: Two-thirds (66 per cent) of institutional investors now incorporate responsible artificial intelligence into their sustainable investment frameworks, focusing primarily on corporate governance and oversight rather than pure technology providers.
- Focus on climate resilience: Climate adaptation and resilience took precedence over climate mitigation, pursued by 59 per cent and 52 per cent of respondents, respectively. While nearly all investors expect physical climate risks to affect asset pricing within five years, 90 per cent reported difficulties accurately modeling long-term physical climate impacts.
- Shift to customised mandates: Asset owners are increasingly demanding tailored investment structures. Currently, 41 per cent of externally managed sustainable assets are held in bespoke mandates or separately managed accounts, with 86 per cent expecting this share to grow.
- Targeted engagement strategies: Engagement remains a priority, with nearly two-thirds of respondents actively engaging portfolio companies. Among those, 59 per cent report focusing resources on deeper, private, direct dialogues over broad public campaigns.
Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley, stated that while institutional commitment to sustainability remains high, the 2026 data reflects a shift toward execution, portfolio risk management, and value creation.
