• 84% of institutional investors expect the share of sustainable AUM to rise in the next two years, according to Morgan Stanley’s 2025 Sustainable Signals survey.
• Climate adaptation climbs to the third-highest investment priority as physical risks intensify.
• Data reliability, policy uncertainty and political volatility remain core challenges, even as more than 80% see sustainability as essential for managing risk.

Investor Expectations Strengthen Despite a Harder Operating Environment

Institutional investors are preparing to increase allocations to sustainable strategies through 2027, even as concerns around political volatility, shifting regulatory guidance and data constraints grow. That is the central finding of Morgan Stanley’s 2025 Sustainable Signals survey, which polled more than 900 asset owners and asset managers across North America, Europe and Asia-Pacific in August and September.

The survey shows sustained momentum: 79% of asset managers and 86% of asset owners expect the proportion of sustainable assets in their portfolios to rise, with the strongest expectations in North America, where more than 90% of asset owners surveyed anticipate increasing allocations. Investors in Europe (82%) and APAC (85%) show similarly consistent plans to expand their sustainable holdings.

Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley, said the findings reflect a consolidation of sustainable finance as a performance-driven strategy. “In our latest global survey of institutional investors, the majority expect to increase their proportion of assets in sustainable funds – with financial performance and a maturing track record driving these allocations,” she said.

Asset owners planning to raise allocations cited stronger performance histories and more established track records as key drivers. This points to a shift from early thematic positioning toward a more integrated approach, particularly as climate risk becomes harder to price or discount.

Rising Concerns Around Data, Policy and Politics

While allocations are expected to grow, investors report a tougher environment for implementation. Thirty-eight percent of respondents described their concerns about sustainable investing as “very significant,” compared with 25% in 2024. The greatest challenges include data availability and reliability, fluctuating regulatory guidance and political uncertainty across several major markets.

More than 80% of the asset owners and managers surveyed said sustainability plays an important role in managing investment risk, with around one-quarter naming risk reduction as their primary motivation for adopting sustainable strategies. This year’s results mirror the concerns expressed by companies and individual investors in the broader Sustainable Signals series.

Alsford said this convergence reflects a longer-term alignment around climate risk management. “Similar to individual investors and corporates surveyed in this year’s Sustainable Signals series, asset owners and asset managers anticipate growing impacts from climate risk in the coming years and are aligning their priorities to mitigate these challenges,” she said.

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Climate Adaptation Moves to the Forefront

The survey shows climate adaptation and resilience moving rapidly up the priority list. More than 75% of respondents expect physical climate risks to affect asset prices within five years. That mirrors the Institute’s recent work indicating that more than 60% of companies expect climate-related disruptions to their operations over the same period.

Investors are responding by seeking exposure to adaptation-aligned opportunities, including climate data and analytics, water infrastructure and modernized electricity systems intended to withstand extreme weather events and shifting demand. Globally, half of institutional investors say climate resilience is now a core part of their risk-return model for physical assets such as infrastructure or real estate, with an additional 42% considering it selectively.

Adaptation has also climbed significantly as a thematic investment area. It now ranks third among priority sustainability solutions, up from sixth in 2024. Energy efficiency and renewable energy remain the top two priorities across North America, Europe and APAC.

However, investors continue to cite barriers to scaling adaptation finance. These include policy uncertainty, limited frameworks to measure adaptation performance and insufficient modelling of physical climate risk. These gaps constrain broader capital mobilisation into resilience-focused infrastructure and technologies.

Why This Matters for Global Markets

The findings reflect a maturing phase in sustainable investing, where performance, risk management and resilience increasingly shape allocation decisions. For corporates, financial institutions and policymakers, several implications stand out.

Physical climate risks are becoming central to asset valuation. Adaptation is expanding from a niche theme into a mainstream investment priority. Regulatory clarity and consistent data remain essential to unlocking larger investment flows. And sustainability is increasingly viewed as fundamental to long-term risk management rather than a discretionary overlay.

As economies experience more frequent climate-related disruptions, the alignment of institutional capital with adaptation, resilience and clean energy will influence infrastructure development, supply chains, real asset valuation and long-term portfolio construction. The survey’s global scope shows that, despite political contention, investors are preparing for a financial landscape shaped by climate risk and the opportunities emerging from the transition.

Read Morgan Stanley’s 2025 Sustainable Signals Survey here.

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