Institutional Investors Forecast Growth in Sustainable Investments
Institutional investors worldwide remain committed to sustainable investing, but the pace of new allocations is slowing. More than 80% of global asset owners and managers expect to increase their sustainable investment holdings over the next two years. However, the scale of those increases looks set to shrink significantly compared with previous expectations.
This shift reflects a more cautious investment environment. Interest remains high, yet institutions are now demanding clearer evidence of performance and measurable outcomes before committing capital. Consequently, the sustainable investment market appears to be entering a phase of consolidation after years of rapid growth.
The findings come from Morgan Stanley Institute for Sustainable Investing's latest Sustainable Signals survey. Conducted between August and October 2026, the research questioned around 900 institutional investors across North America, Europe and Asia-Pacific. All respondents currently practice sustainable investing or plan to do so.
For UK businesses, these trends matter. Institutional investors shape the cost and availability of capital. Their allocation decisions influence which sectors attract funding and which sustainability claims gain credibility. Moreover, the survey reveals how investment professionals now view environmental and social risks alongside traditional financial metrics.
Slower growth after years of expansion
The survey shows broad support for sustainable strategies, but expectations of rapid expansion have cooled. Only about 30% of respondents anticipate allocation increases exceeding five percentage points over the next two years. That figure stood at roughly two-thirds in the previous year's survey.
Even more striking is the decline at the upper end. Just 2% of asset owners and 4% of asset managers expect increases above 10 percentage points. In 2025, approximately one-fifth of respondents anticipated growth at that level.
These numbers reveal a significant recalibration. While the direction of travel remains positive, institutions are scaling back their projections. The 2025 survey found that 86% of asset owners expected higher sustainable allocations, alongside 79% of asset managers anticipating growth in assets under management.
The moderation appears to reflect tighter scrutiny rather than declining interest. Investors continue to see value in sustainable strategies but are less willing to expand portfolios without robust evidence. Financial performance, data quality and measurable impact now matter more than broad commitments.
Financial risk drives institutional interest
Institutional investors increasingly treat sustainability as a financial issue rather than a values-based preference. According to Morgan Stanley's 2025 institutional research, more than 80% of asset owners and managers viewed sustainability as important for investment risk management. Approximately one-quarter identified portfolio-risk reduction as their primary motivation.
This perspective aligns sustainability with conventional risk assessment. Environmental and social factors are now considered alongside credit risk, market volatility and regulatory exposure. For example, more than 75% of respondents in the 2025 survey expected physical climate risk to significantly affect asset prices over five years.
Asset owners in the earlier survey linked future growth to the financial performance of sustainable investments and the maturity of their track records. Asset managers, meanwhile, expected expansion to come from larger allocations by existing clients and new mandates from first-time investors.
These motivations reflect a market where sustainability must deliver returns as well as impact. Institutions are no longer treating environmental or social goals as separate from financial objectives. Instead, they view sustainability as integral to long-term value preservation.
For UK businesses seeking investment, this shift has practical implications. Companies must demonstrate how sustainability measures reduce risk, protect assets and support financial performance. General commitments or aspirational targets may carry less weight than quantified improvements and transparent reporting.
Individual investors mirror institutional caution
A related survey of individual investors provides further context. Morgan Stanley's 2026 research found that 92% of individuals expressed interest in sustainable investing. Nevertheless, the average portfolio allocation to sustainable investments fell from 33% in 2025 to 31% in 2026.
Among those surveyed, 64% planned to increase sustainable allocations over the following year. However, 28% expected to maintain current levels and 5% planned to reduce them. Strong interest therefore coexists with measured action.
Although individual and institutional investors operate differently, both groups appear to be prioritizing financial returns. Enthusiasm for sustainability remains high, yet capital flows are becoming more selective. Investors want proof that sustainable strategies can deliver competitive performance.
This pattern suggests that the sustainable investment market is maturing. Early-stage growth driven by broad interest is giving way to a more demanding phase. Investors now expect rigorous data, transparent methodologies and evidence that sustainability considerations improve risk-adjusted returns.
Corporate sustainability strategies adapt
Companies are also recalibrating their approach to sustainability. A separate Morgan Stanley survey of 300 corporate sustainability decision-makers, conducted in March and April 2026, found that more than 90% reported continued execution of sustainability strategies.
However, nearly half identified room for improvement, an increase of more than 10 percentage points from the 2025 and 2024 surveys. Furthermore, the survey revealed a shift in how companies frame sustainability within their organizations.
In 2026, 62% of respondents viewed sustainability as both a value-creation and risk-management exercise. That compared with just 35% in 2025. Meanwhile, the proportion viewing sustainability primarily as a value-creation opportunity fell sharply, from 53% in 2025 to 22% in 2026.
This change suggests that sustainability is moving from a growth or reputational initiative into mainstream corporate planning. Companies now integrate environmental and social considerations into financial risk management and operational resilience.
For UK businesses, this trend reinforces the importance of treating sustainability as a core business function. Investors and stakeholders expect sustainability to be embedded in strategy, governance and reporting. Standalone initiatives or communications-led approaches may no longer suffice.
What institutional investors now expect
The survey results indicate that institutional demand for sustainable investing remains solid, but investors are becoming more selective. Asset owners continue to expand allocations, yet they prioritize certain factors more heavily than before.
Demonstrable risk-adjusted returns now matter more than general sustainability claims. Investors want evidence that sustainable strategies deliver financial performance comparable to or better than conventional portfolios. Track records, peer comparisons and third-party validation carry weight.
Transparent and comparable sustainability data also ranks high. Institutions need reliable metrics to assess environmental and social impacts. Inconsistent reporting standards and data gaps create uncertainty, which can slow allocation decisions.
Clear investment mandates and measurable outcomes are equally important. Investors seek well-defined strategies with specific objectives. Vague commitments or aspirational language may not meet the due diligence requirements of institutional mandates.
Protection against greenwashing allegations has become essential. Regulatory scrutiny and public attention mean that sustainability claims must withstand external review. Investors want assurance that products and strategies deliver genuine impact rather than marketing narratives.
Exposure to financially material themes matters as well. Climate resilience, resource security and energy transition represent areas where sustainability intersects directly with financial risk. These themes attract institutional capital because they link environmental factors to asset values and business continuity.
Key findings from the 2026 survey
- More than 80% of asset owners and managers expect sustainable investment allocations to increase over the next two years, showing continued demand despite economic uncertainty.
- Only 30% of respondents anticipate allocation increases exceeding five percentage points, down from approximately two-thirds in the 2025 survey.
- Just 2% of asset owners and 4% of asset managers expect increases above 10 percentage points, compared with roughly one-fifth of respondents in 2025.
- Financial risk management drives institutional interest, with more than 80% of investors viewing sustainability as important for managing portfolio risk.
- Individual investor portfolio allocations to sustainable investments declined from 33% to 31% between 2025 and 2026, despite 92% expressing interest.
- Corporate sustainability decision-makers increasingly view sustainability as both value creation and risk management, with 62% taking this dual perspective in 2026 compared with 35% in 2025.
- More than 75% of institutional investors expect physical climate risk to significantly impact asset prices over the next five years.
Implications for UK businesses and advisers
The survey findings carry practical consequences for UK businesses. Access to capital increasingly depends on credible sustainability performance. Companies that can demonstrate measurable environmental and social improvements alongside financial returns will find it easier to attract institutional investment.
Asset managers face a related challenge. Future growth in sustainable strategies depends on proving that products deliver competitive returns, meet fiduciary standards and withstand regulatory scrutiny. General interest from investors will not translate into capital without strong performance evidence.
For businesses preparing to raise capital or tender for contracts, these trends suggest several priorities. First, sustainability reporting must be transparent, comparable and aligned with recognized standards. Investors need consistent data to make allocation decisions.
Second, sustainability initiatives should be financially material. Efforts that reduce operating costs, mitigate regulatory risk or improve supply chain resilience align with investor expectations. Consequently, businesses should focus on measures that deliver both environmental and financial benefits.
Third, companies should prepare for greater scrutiny of sustainability claims. Investors and regulators are alert to greenwashing risks. Businesses need robust evidence and third-party verification to support public commitments.
UK businesses seeking public sector contracts face additional considerations. Procurement policies increasingly include sustainability criteria. Our sustainable procurement support helps suppliers understand and meet these requirements, particularly where carbon reporting and environmental standards form part of tender evaluation.
Similarly, businesses working towards carbon reduction targets may benefit from structured support. Our net-zero program provides frameworks for measuring, reporting and reducing emissions in line with investor and regulatory expectations.
Understanding the shift in investor priorities
The survey reveals a market transition. Sustainable investing is moving from rapid expansion toward consolidation and quality improvement. This shift does not signal declining relevance. Rather, it reflects a more mature market where financial performance and impact measurement matter more than broad commitments.
Institutions can grow their sustainable allocations gradually while maintaining exposure and developing new mandates. However, managers must demonstrate stronger performance, reliable impact measurement and greater transparency to convert interest into capital.
This environment favors businesses that integrate sustainability into core operations rather than treating it as a separate initiative. Investors want to see environmental and social factors embedded in strategy, governance and financial planning. Companies that can show this integration will be better positioned to attract institutional capital.
For UK SMEs, the message is clear. Sustainability is not a passing trend but an enduring feature of capital markets and business relationships. Nevertheless, success depends on evidence and execution rather than aspiration. Businesses must invest in measurement, reporting and verifiable improvements.
The survey also highlights the importance of understanding investor motivations. Institutions view sustainability through a financial lens. They assess how environmental and social factors affect risk, returns and long-term value. Businesses that align their sustainability efforts with these financial considerations will find it easier to engage with institutional investors.
Where to find additional information
The Morgan Stanley Institute for Sustainable Investing publishes the full Sustainable Signals survey results and analysis on its website. These reports provide detailed breakdowns of investor attitudes, allocation plans and regional variations.
UK businesses seeking guidance on carbon reporting and reduction can consult resources from the Department for Energy Security and Net Zero. The department provides information on government policy, regulatory requirements and support programs for businesses transitioning to lower emissions.
For companies preparing sustainability reports or responding to investor inquiries, the Financial Conduct Authority offers guidance on disclosure requirements and expectations. These resources help businesses understand regulatory standards and avoid greenwashing risks.
Industry bodies such as the Institute of Environmental Management and Assessment provide technical guidance, training and professional standards. Their resources support businesses in developing credible sustainability strategies and ensuring competent implementation.
Our ESG compliance services help UK businesses navigate reporting requirements and develop sustainability strategies that meet investor and regulatory expectations. We work with SMEs to build practical, evidence-based approaches that support both financial and environmental objectives.