Most institutional investors expect assets in sustainable funds to grow in the next two years, according to a“Sustainable Signals” report by the Morgan Stanley Institute for Sustainable Investing. The survey, which polled more than 900 institutional investors across North America, Europe and Asia Pacific last year, assesses attitudes of asset owners and asset managers toward sustainable investing, as well as emerging trends in the space.
The majority of asset managers (78%) expect AUM in sustainable funds to increase over the next two years, driven by a combination of new mandates and higher allocations from existing clients. Similarly, 80% of asset owners expect the proportion of their assets allocated to sustainable investment options to increase during the same period. More than three-quarters of asset owners “strongly” or “somewhat” agree that sustainable investing offerings influence mandate decisions, with 80% requiring their asset managers to have a sustainable investing policy or strategy in place.
The top reported challenge in sustainable investing for both asset owners and managers is data availability (71%), followed by fluctuating regulatory guidance (69%) and greenwashing (68%). APAC investors cite challenges at higher rates than European and North American counterparts, with particular concerns around the burden of disclosure requirements for investors (71%). Meanwhile, institutional investors around the world are prioritising investments in healthcare (41%) and financial inclusion (40%). Regional differences emerged when asked about investment priorities for specific sustainable solutions, with European investors ranking nature and biodiversity solutions higher for example. Notably, climate adaptation solutions are seen as one of the most underappreciated investment opportunities across all regions.
Close to two-thirds of asset owners and managers have set a net-zero target, with almost all saying they have a plan to deliver their target. About 2% of institutional investors are reportedly already at net zero. When it comes to assessing the use of carbon offsets, institutional investors have mixed views. Nearly 40% of asset owners currently use carbon offsets to mitigate portfolio emissions, and 31% of asset managers offer clients offsets linked to specific products or aggregated emissions. But while some consider offsets a valid approach to decarbonisation (32% of asset owners, 31% of asset managers), others think they should only be used for hard-to-abate emissions (21% of asset owners, 22% of asset managers). Still others are cautious about the use of offsets and are waiting for greater certainty (28% of asset owners, 27% of asset managers).
