Stockholm (NordSIP) – At a time when ESG investments and sustainable finance are facing a barrage of pushback, with lacklustre support for transition at the COP29 and plastic pollution control at an impasse, it is easy to be disparaged and believe that the world has given up on the sustainability agenda. A new study by American investment bank Morgan Stanley provides hope to the contrary.
Sustainable Growth on the Horizon
According to Morgan Stanley’s Institute for Sustainable Investing’s December 2024 Sustainable Signals from Institutional Investors report, 78% of global asset managers and 80% asset owners expect sustainable assets to increase over next two years. The report also notes that 90% of institutional investors say sustainable investing activities are driven by client and external stakeholder demands.
“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.”
Globally, 41% institutional investors report prioritising investments in healthcare, while 40% focused on financial inclusion. All respondents agreed that climate adaptation solutions are one of the most underappreciated investment opportunities. However, the devil is in the detail.
Regional Differences
The report highlights regional differences between institutional investors. Thematically, European investors prioritise climate action, while Americans prefer healthcare investments and investors from the Asia/Pacific region prioritise the circular economy.
Regional differences also appear to exist regarding preferred solutions. In Europe, “protecting wildlife on land and in water,” “preventing deforestation” and “ocean conservation” are all top 10 sustainable solutions, while there was no mention of nature or biodiversity in the top 10 for North America or APAC. “Biofuels” and “support for aging populations” were top ranked themes unique to APAC, while “racial diversity, equity and inclusion” was in the top 10 for North America but not the other regions.
Challenges and Mixed Feelings
The main challenges facing sustainable investors appear to remain the same as always. with respondent’s to the survey conducted by the Morgan Stanley Institute for Sustainable Investing highlighting data availability, the political and regulatory environment, and greenwashing as the top challenges to sustainable investing.
Last but not least, the report notes that institutional investors also have mixed views on use of carbon offsets as part of investees’ decarbonization strategy. While some consider 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).
