Morgan Stanley Institute for Sustainable Investing has officially published the results from its latest “Sustainable Signals”, which reveals that most institutional investors expect assets in sustainable funds to grow over the next two years.
According to certain reports, the stated research effort took into account the responses of more than 900 institutional investors across North America, Europe and Asia Pacific during July and August 2024. Once the responses were in, researchers assessed attitudes of asset owners and asset managers towards sustainable investing, as well as emerging trends in the space.
More on the same would reveal it was discovered that a total of 78% respondents expect AUM in sustainable funds to increase over the next two years. This growth, on its part, will be driven by a combination of new mandates and higher allocations from existing clients. Almost like an extension, 80% of asset owners expect the proportion of their assets, allocated towards sustainable investment options, to increase during the same period.
Next up, the report discovered that well over three-quarters of asset owners “strongly” or “somewhat” agree that sustainable investing offerings influence mandate decisions, whereas on the other hand, 80% required their asset managers to have a sustainable investing policy or strategy in place.
“Institutional investors see a growth trajectory for sustainable assets globally in the coming years to meet increasing client and stakeholder demands in a more mature sustainable investing market,” said Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley. “This year the Institute has released Sustainable Signals reports with views from individual investors, corporates and institutional investors, with each group seeing sustainability as an opportunity for growth and value creation.”
Moving on, the new Morgan Stanley report also digs into how the top reported challenge in sustainable investing for both asset owners and managers is data availability (71%). This is closely followed by fluctuating regulatory guidance (69%), and greenwashing (68%). Here, markedly enough, APAC investors cite challenges at higher rates than European and North American counterparts, with their concerns largely revolving around the burden of disclosure requirements for investors (71%).
Next up, the report digs into sustainable investing themes and solutions where, on a global note, investors were found to prioritize investments in healthcare (41%) and financial inclusion (40%). Markedly enough, regional differences would end up emerging when asked about investment priorities for specific sustainable solutions. Having said so, climate adaptation solutions are seen as one of the most underappreciated investment opportunities across all regions.
Another detail worth a mention here is rooted in the prevalence of net-zero targets. You see, an estimated two-thirds of asset owners and managers reported to have set a net-zero target, with almost all saying they have a plan to deliver their target. From the surveyed lot, almost 2% of institutional investors were already at net zero.
Among other things, we must mention that, in regards to assessing the use of carbon offsets, institutional investors came back with a mixed view. In essence, 40% of asset owners said that they currently use carbon offsets to mitigate portfolio emissions, whereas on the other hand, 31% of asset managers offer clients offsets linked to specific products or aggregated emissions. Now, with some of the respondents considering offsets a valid approach to decarbonization (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).
All in all, respondents showed an element of caution when it came to the use of offsets and are waiting for greater certainty (28% of asset owners, 27% of asset managers).
