82% of Institutional Investors to Raise Sustainable Allocations: Morgan Stanley

More than four in five institutional investors — 82% of asset owners and 85% of asset managers — plan to increase the share of assets allocated to sustainable strategies over the next two years, according to Morgan Stanley's new survey of 900 institutional investors across North America, Europe and Asia Pacific. That headline commitment held steady from last year, but the pace behind it has clearly cooled: only about a third of respondents expect allocation growth above 5%, versus nearly two-thirds a year ago.

The report, "Sustainable Signals, Institutional Investors 2026," surveyed 600 asset owners and 300 asset managers. For practitioners tracking where circular-economy capital actually flows, the regional and thematic splits matter more than the topline.

Where is the money moving?

By region, European investors are the most bullish on increased allocations, at 93%, followed by APAC at 80% and North America at 77%. Across all regions, almost no investors reported plans to cut sustainable allocations — the direction of travel hasn't reversed, it has simply slowed.

Around half of respondents (52% of asset owners and 51% of asset managers) forecast growth rates, excluding investment performance, of up to 5%. Roughly one-third expect more than 5%. Last year, nearly two-thirds anticipated growth above that threshold.

The drivers have shifted too. Exposure to growth opportunities now ranks as the top reason for increasing allocations, up from third place last year, cited by both asset owners and asset managers. The rising materiality of sustainability-related risks moved into second, up from seventh. In 2025, the leading drivers were strong financial performance of ESG strategies and the increasing maturity of sustainable investing. Read that as a rotation from "it performed well" to "we can't afford to ignore the risk" — a harder-nosed framing that tends to survive political and market cycles better than performance-chasing.

For asset owners, 75% see increased allocations from existing clients as the most likely source of sustainable AUM growth, with new clients allocating for the first time at 14%. And the manager-selection bar stays high: 95% of asset owners agreed that sustainable investing options are a key differentiator in selecting and retaining external managers, and more than 80% require their external managers to hold a sustainable investing policy or strategy.

What does the circular economy angle look like?

Nearly all investors surveyed take a broad thematic approach, with two-thirds addressing both social and environmental themes. By specific topic, climate adaptation and resilience leads, cited by 59% of investors, followed by climate mitigation at 52%. Economic empowerment and circular economy tie at 41% each — meaning roughly two in five institutional investors now have the circular economy somewhere in their mandate.

That focus on adaptation is driven by pricing expectations. A third of investors anticipate climate-related physical risks will have major pricing impacts across the market within five years, 39% expect major impacts on a limited number of assets, and 26% expect moderate impacts across the market. But there's a measurement gap: nearly 90% said it is difficult to assess the impact of physical climate risk on their assets, up from around a third last year. That's the number that should worry recyclers and materials processors building capacity in physically exposed locations — capital is watching, but it can't price what it can't measure.

Engagement remains near-universal: more than 90% of investors use engagement alongside investment approaches, and most — 58% of asset owners and 61% of asset managers — concentrate their time on fewer, deeper engagements with portfolio companies where they feel they can have the most impact.

Which concerns are fading — and which one is spiking?

Investor anxiety about sustainable investing eased broadly over the past year. Fewer respondents reported "very significant" concern about corporate greenwashing, disclosure burdens for corporates and investors, and the political environment.

The sharpest drop concerns reputational pressure. The share of investors reporting significant concern about negative views in the media and wider society toward sustainable investing fell from 34% last year to just 8% in 2026 — a collapse of more than three-quarters in a single year. For anyone whose projects sat in limbo during the anti-ESG noise, that's a signal the political headwind has lost much of its grip on allocation decisions.

One concern moved the other way. "Very significant" concern about data availability and consistency for sustainable investing jumped to 64%, up from 47% last year. For operators in secondary materials, where verified tonnage, recovery rates and carbon accounting remain patchy, that's an opening: the investors want in, and they're hungry for data they can rely on. The firms that can produce clean, auditable metrics are the ones that will clear due diligence.

Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley, said: "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."

What happens next?

The commitment is intact; the growth rate isn't. Watch whether next year's edition shows the above-5% cohort recovering or shrinking further — and whether that 64% data-consistency concern translates into real spending on measurement infrastructure, or stays a complaint.