Sustainable Bottom Line: Institutional investors, especially in North America, are expecting an increase in sustainable allocations, driven primarily by financial performance and maturing track records.
Notes of Explanation: Sources: Morgan Stanley Institute for Sustainable Investing, Sustainable Signals survey, November 2025, Sustainable Research and Analysis LLC.
Observations:
• Based on an online Morgan Stanley survey drawn from a large global sample of 967 institutional investors, including 664 asset owners and 303 asset managers, covering North America, Europe, and APAC, institutional appetite for sustainable investing is strengthening. According to Morgan Stanley’s November 2025 Sustainable Signals survey, 86% of asset owners expect to increase allocations to sustainable strategies within the next two years, six percentage points higher than in 2024. For asset managers, 79% anticipate an increase in assets under management, one percentage point higher than in 2024. While a common definition is lacking, Morgan Stanley defines sustainable investing as the practice of making investments in companies or funds that aim to achieve market-rate financial returns while considering positive social and/or environmental outcomes.
• Financial performance is now the leading catalyst, with 22% of asset owners citing strong sustainable investment or ESG returns as the top reason they plan to increase allocations. This is closely followed by 18% citing the strategy’s increasingly established track record. Both drivers represent a shift back toward fundamentals-led growth, rather than policy-driven or reputational motivations.
• For asset managers, expected assets under management (AUM) growth is overwhelmingly tied to demand from existing clients as 42% “strongly agree” that this is the primary source. At the same time, 39% of asset managers expect to win new mandates and 36% expect to receive first-time allocations, signaling a widening institutional base.
• The rationale is clear: sustainable strategies are viewed as offering growth opportunities, including thematic exposures (renewables, efficiency, resilience) that align with long-run macro trends.
• Globally, the top three sustainable investment themes out of a list of the top ten themes are renewable energy and energy efficiency (30%), renewable energy (30%) and climate adaptation (23%). In North America, however, climate adaptation and resilience ranks ninth, at 18%. That said, adaptation finance, or capital directed toward strengthening climate resilience in infrastructure, communities, and ecosystems, is accelerating, driven by a convergence of physical, economic, and policy realities that are becoming impossible for governments, businesses, and investors to ignore. Latest evidence is the call at the just concluded COP 30 to triple adaptation finance for vulnerable countries by 2035. Still, investors include policy uncertainty, lack of common language and frameworks and insufficient risk models as barriers to investing in climate adaptation.
• Among North American respondents, the top concerns about sustainable investing include data availability and consistency (16%), lack of real-world impact (15%), fluctuating regulatory guidance (13%) and tracking error (13%). This suggests a landscape where investors see growth opportunities but continue to wrestle with measurement, lack of definitions, verification, and credibility.
• Most survey respondents are well established in sustainable investing, with 94% consisting of asset owners and managers who have had a sustainable investing program for at least one year. Because the survey excludes institutions that do not engage in sustainable investing, the results reflect sentiment among active or likely adopters, not the full institutional market. Also, it remains to be seen how the survey’s growth expectations are likely to impact and potentially lift focused sustainable long-term mutual fund and ETF assets under management in the US, a $380.01 billion (as of October 31, 2025) segment of the sustainable investing market that has experienced outflows in recent years as well as fund liquidations resulting in a declining number and type of funds offered as well as the number of investment management firms offering focused sustainable long-term mutual funds and ETFs (see Focused sustainable funds: Visible but still a niche). To be noted, the status of sustainable mutual funds and ETFs stands in contrast when a broader lens is applied to the sustainable investing landscape, beyond mutual funds and ETFs. According to data compiled by US SIF, the U.S. sustainable investing market size sits at about $6.5 trillion or 12% of the US market size that is around $52.5 trillion. In other words, 1 in 12 dollars in the US is invested pursuant to a sustainable investing approach.
