Institutional Investors Remain Committed to Sustainable Investing
Despite the rhetoric - institutional investors have held on to their sustainable investing goals and are engaging with investment managers and companies on sustainability issues
If you read the headlines, sustainable investing has fallen out of fashion. Or, in some cases, might even be a legal risk. But when you look closer, the data is clear – the majority of asset owners are holding on to their sustainable investing frameworks and goals.
According to Mercer’s Large Asset Owner Barometer 2025, organizations managing over US$20 billion in AUM were more likely to incorporate sustainability goals into portfolios. 81% included sustainability goals in their investment policies. For organizations with less than US$20 billion in AUM the figure was 64%. Nearly half of asset owners in the survey further said they have introduced climate transition targets, with an additional 15% planning to do so within the next two years.
The focus on sustainability comes with real money behind it, according to the report respondents impact strategies are expected to be the third most popular destination for inflows, with only private credit and infrastructure having higher net expected inflows over the next 12 months.
A shift in impact
The capital flowing into so-called impact investing funds isn’t backing the same strategies it was a decade ago. Impact investing has shifted from strategies that feel almost philanthropic in their approach to areas like specialist infrastructure funds. According to data from Mercer, around 55% of the financing needed for the global transition must come from the private sector – almost six times the current annual funding levels – with private capital also needed to help close a projected $15 trillion global infrastructure shortfall by 2040.
Asset owners in particular can play a big role here given their ability to write large tickets as well as their desire to invest in long-term projects and opportunities. Institutions are also taking a systemic approach to sustainability looking across asset classes and the value chain to ensure that they are working toward their goals at each level.
Bill Rogers, Managing Director, Head of Sustainable Energies at CPP Investments said in a recent interview that the pension system is taking a holistic view working together across asset classes with connections among teams including Sustainable Energies, Infrastructure, Credit, Private Equity, Active Equities, and Portfolio Value Creation. This structure supports investment across the full energy value chain—from grid infrastructure and storage to industrial decarbonization and new fuels.
Rogers described this as “investing in the system, not just the pieces,” pointing to the value of long-term capital that can move across sectors and strategies.
CalSTRS is taking a similar approach. Last week the pension system tapped Nick Abel to be Sustainable Investment and Stewardship Strategies investment director. In his new role, Abel will lead and manage the SISS team; direct the SISS Portfolio across global private asset investments that deliver financial performance and provide climate solutions; lead sustainability-related collaboration with CalSTRS private-market asset classes; oversee proxy voting activities in alignment with CalSTRS’ Corporate Governance Principles and engagement with corporations and public policy makers on CalSTRS Stewardship Priorities; and guide the Teachers’ Retirement Board’s net zero portfolio emissions strategy.
Abel has an integrated portfolio of responsibilities that the pension system sees as core to maintaining its sustainability goals.
Sustainability assets to increase
These moves track with capital flows Morgan Stanley is seeing in the market. About eight in 10 asset managers (79%) and asset owners (86%) told the investment firm that they expect to see the amount of sustainability focused assets under management to increase significantly over the next two years.
Asset owners who plan to increase their allocations to sustainable investments named strong financial performance and increasingly established track records among their main reasons for doing so.
Much of that activity is happening in North America. 90% of North American asset owners surveyed by Morgan Stanley said they expect to increase their sustainability assets in the next two years, slightly ahead of investors in Europe (82%) and APAC (85%).
“Asset owners and asset managers anticipate growing impacts from climate risk in the coming years and are aligning their priorities to mitigate these challenges,” said Jessica Alsford, Chief Sustainability Officer and Chair of the Institute for Sustainable Investing at Morgan Stanley.
More than 75% of institutional investors said they expect physical climate risks to have an impact on asset prices in the next five years. This echoes the Institute’s recent finding that more than 60% of companies anticipate negative impacts to their own operations from the physical effects of climate change over the same period. From a risk management perspective, this means it’s important for fiduciaries to take concrete steps now to ensure the long-term viability of their portfolios and investments.
Institutional investors reported that alongside investments like specialty infrastructure they would be looking closely at existing and new energy investments to identify new opportunities to improve resilience.
These findings and more will be the focus of the upcoming AIF Institute Sustainable Investing Symposium, to be held in New York on December 9, 2025. Asset owners worldwide will gather in person and virtually to discuss strategies for risk management in an era of growing climate risk. Leading academics and industry experts will also provide insights and new findings on the state of corporate governance, which will likely inform how investors operate their engagement strategies and manage their upcoming proxy votes.