90% of North American asset owners plan on increasing allocations to sustainable strategies

Despite the ESG backlash in the US, asset owner confidence in sustainable investment strategies is growing. New research conducted by the Morgan Stanley Institute for Sustainable Investing shows that globally, 86% of asset owners expect to increase allocations to sustainable funds over the next two years.

The research surveyed 664 asset owners and 303 asset managers across North America, Europe and Asia Pacific. The findings suggest that demand for sustainable strategies is strongest in North America.

90% of North American asset owners reported an expected increase in sustainable fund allocation. Within the sustainable investment opportunity set, investors reported strong interest in renewable energy, energy efficiency and energy storage.

In Europe and APAC too, the numbers tell a similar tale. Here too, asset owners are expecting to increase exposure to these investment themes in the near future.

The data suggests adaptation is becoming a central focus of allocations to sustainable strategies. 75% of surveyed investors said they expect physical risks to impact asset prices within five years.

Particularly in the context of infrastructure and real asset allocations, the survey finds climate resilience emerging as a critical input for investment decisions.

Performance-backed

Strong financial performance of sustainable investment strategies was the most cited reason for increasing allocations.

“In our latest global survey of institutional investors, the majority expect to increase their proportion of assets in sustainable funds – with financial performance and a maturing track record driving these allocations,” said Jessica Alsford, chief sustainability officer and chair of the Institute for Sustainable Investing at Morgan Stanley.

While the survey finds strong evidence of growing investor confidence, it also concludes that this year, more respondents flagged concerns as ‘very significant’ compared to the previous survey.

While an uncertain political environment was amongst the top concerns reported, investors seem to be more concerned with greenwashing by asset managers.

Increasing asset owner interest in sustainable strategies therefore, is backed by performance but conditioned by a range of risks with an increasing level of perceived intensity.