More than 80% of institutional investors plan to grow sustainable allocations, but at a far slower pace than 2025
Sustainable investment allocations are set to keep growing - but at a more measured pace than the surge recorded in 2025, according to new global research from Morgan Stanley.
More than 80 per cent of asset owners and asset managers worldwide expect to increase their sustainable investment allocations over the next two years, the Morgan Stanley Institute for Sustainable Investing found in its 2026 Sustainable Signals report.
The survey, conducted between August and October 2026, polled 900 institutional investors across North America, Europe, and Asia Pacific - all of whom already practise or plan to practise sustainable investing.
The headline figure signals continued momentum, but the details tell a more cautious story. Roughly 30 per cent of respondents anticipate increasing their sustainable allocations by more than five percentage points over the next two years - down sharply from two-thirds in 2025.
Those expecting growth of more than 10 percentage points have fallen to approximately two to four per cent, compared to around one-fifth of respondents the prior year.
"Our annual survey of institutional investors indicates that a majority expect to increase sustainable investment allocations in the coming years, recognizing growth opportunities and the rising materiality of sustainability-related risks," said Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley. "In 2026, a consistent picture has emerged across our Sustainable Signals series - with individuals, corporates and institutional investors all showing high levels of continued commitment to sustainability, yet at a more measured pace and with a sharper focus on managing risk."
Data gaps rise as the top concern
The survey paints a nuanced picture of how institutional sentiment is shifting. Data availability and consistency has emerged as the field's most pressing challenge, cited as a very significant concern by 64 per cent of respondents - up from 47 per cent in 2025.
For Canadian advisors and wealth managers attuned to the growing ESG data debate on wealthprofessional.ca this finding will resonate: unreliable or incomplete data continues to undermine confidence in sustainable investment decision-making globally.
At the same time, the survey recorded a steep decline in concerns tied to reputational risk. The share of respondents citing negative media or societal views on sustainable investing as a significant concern fell from 34 per cent in 2025 to just eight per cent in 2026 - suggesting that the political headwinds that roiled ESG discourse in recent years may be losing their grip.
Climate adaptation moves ahead of mitigation
On climate, the survey found that adaptation and resilience has overtaken mitigation as the most-pursued sustainability theme, cited by 59 per cent of respondents, compared with 52 per cent for mitigation.
Nearly all respondents expect physical climate risks to affect asset prices within the next five years - but almost 90 per cent also say it is difficult to assess those impacts, up from 66 per cent the previous year.
The data suggests that while the acknowledgment of climate risk is near-universal, the tools to quantify and act on it remain underdeveloped - a gap that represents both a challenge and an opportunity for managers building sustainable mandates.
Responsible AI enters the ESG conversation
One of the more striking findings is how quickly artificial intelligence governance has entered sustainable investing frameworks. Two-thirds of respondents (66 per cent) now consider responsible AI to be part of their sustainable investing strategy.
Most are focusing on how companies oversee and govern their AI use internally, rather than concentrating primarily on large language model providers or the broader economic impacts of the technology.
This development reflects a broader shift in how institutional investors are defining the scope of sustainability. For wealth professionals tracking the intersection of technology and ESG, Wealth Professional's coverage of sustainable investing trends provides useful context on how this space has evolved.
Customised mandates on the rise
Asset owners are also seeking more direct control over how their sustainable investments are managed.
According to the survey, 41 per cent of externally managed sustainable assets are currently held in customised investment mandates or separately managed accounts, and 86 per cent of respondents expect that proportion to increase over the next two years.
More than 90 per cent of asset owners and managers said sustainable investing options can help differentiate firms when mandates are awarded - a finding with clear implications for advisors and managers competing for institutional business. A similar share considers sustainability important to managing investment risk overall, and more than two-thirds cited portfolio risk reduction as a reason to invest sustainably, up from approximately half the prior year.
On shareholder engagement, nearly two-thirds of respondents said they engage directly with portfolio companies, and of those, more than half said they allocate most of their time to fewer but deeper interactions, prioritising private, direct engagement as the most impactful approach.
The Sustainable Signals series, which Morgan Stanley launched in 2015, tracks attitudes across individual investors, institutional investors, and corporates. The 2026 institutional edition reflects a market in transition - one where the case for ESG integration among Canadian institutional investors continues to strengthen, even as expectations for headline growth moderate and the demand for rigorous, reliable data intensifies.
