Demand for sustainable investment strategies rising on the back of long-term performance

Despite the US-led ESG backlash, investor demand for sustainable investment strategies is not only surviving but also rising. That is according to new research from Morgan Stanley – an American asset manager.

92% of respondents in a survey conducted by the firm’s Institute for Sustainable Investing signalled an interest in sustainable investing – an increase relative to 2025. A closer examination of the data reveals two key drivers of sustainable investment demand – private markets and performance.

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Investor interest

The survey assessed the views of 2250 individual investors evenly spread across North America, Europe and Asia. Of the 750 North American respondents, 54% said they were ‘very interested’ in sustainable investing. This was the highest tier of interest respondents could signal. The comparative number for APAC was reported at 51%.

The average exposure to sustainable investment strategies across both groups was similar. 31% of the average North American and 32% of the average APAC portfolio was invested in these strategies.

Performance

The survey suggests performance is leading driver of investor demand for sustainable investment strategies.

One in two respondents who reported exposure to such strategies within their portfolio, have over five years of performance data to base their analysis on. These financial returns were the most commonly reported reason for interest in sustainable investing – across regions, age and exposure levels.

45% of respondents said their interest had to do with supporting ‘real-world outcomes’ whilst pursuing a ‘market-rate financial return’. Another 40% believe sustainable investing can outperform traditional investing.

“Our latest Sustainable Signals survey shows that performance continues to be the top driver of individual investors’ interest in sustainable investing as they look to achieve both market-rate returns and real-world impacts,” commented Jessica Alsford, chief sustainability officer and chair of the Institute for Sustainable Investing at Morgan Stanley.

The Institute’s own analysis backs up investor logic. A research note published earlier this shows sustainable funds outperforming traditional funds over longer time horizons (since 2018).

The underlying data, sourced from Morningstar, suggests that investing $100 into a sustainable fund in December 2018 would yield $162 in December 2025. Investing the same amount at the same point in a traditional fund would equate to $152 by December 2025.

Asset allocation

A performance-based interest in sustainable investing is also shaping asset allocations. 64% of respondents reported an intention to increase allocations to sustainable investing strategies over the coming year.

Private markets are emerging as the preferred route. Two-thirds of investors in the survey believe private markets to offer the greater share of sustainable investment opportunities going forward.

Diversification benefits explain much of the interest, followed by exposure to new technologies and high-growth assets.

“Looking ahead, a majority of individual investors see greater opportunity for sustainable investments in private markets, especially for portfolio diversification and investing in innovation”, says Alsford.

There is, however, evidence to suggest that allocations marginally lag interest. The average sustainable investment allocation in 2026 (31%) was slightly lower than 2025 (33%). The institute views this as signs of a ‘potential disconnect between sentiment and behaviour’.

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