About this report

This report synthesises findings from 18 months of research, including interviews with 70+ individuals, six roundtables with investors in Europe, Asia and North America, and an online survey that received 77 analysable responses. The institutional investors engaged collectively represent approximately USD 33 trillion in assets under management (AUM).

Current state of investor climate policy engagement

Climate policy engagement remains a poorly resourced add-on rather than a core strategic function for most institutional investors. The majority of engagement is conducted via collaborative initiatives, with 79% of institutions reporting participation in the policy working groups of relevant associations or coalitions (p.10).

Engagement is mostly limited to climate-related disclosure regimes and financial regulation. Disclosure rules and standards are engaged on by 89% of investors that engage on climate policy, sector-level transition policies by 76%, and financial regulation by 70% (p.28). However, pioneer institutions indicate that real economy policy represents the next frontier. Roundtable polling showed participants would optimally double engagement on sector-level policies (from 14% to 27%) and cross-sector instruments such as carbon pricing (from 10% to 22%), while more than halving engagement on disclosure standards (from 38% to 16%) (p.10).

What drives investor engagement on climate policy?

The main motivations for engaging are: fiduciary duty and protecting long-term returns; the systemic and undiversifiable nature of physical climate risks; the need for an enabling policy environment to support targets and transition plans; and the potential to unlock investment opportunities through stable, credible climate policy.

What explains the variability in investor climate policy engagement?

Diversified, long-term asset owners — such as pension funds and sovereign wealth funds — are most likely to prioritise systemic stewardship, but are often constrained by limited resources, limited expertise, concerns about legitimacy, and a perceived lack of agency. The signal from asset owners to asset managers remains weak: 75% of asset managers surveyed identified stronger client demand as a prerequisite for increasing real economy climate policy engagement (p.26). Political and cultural dynamics are also a major factor, with engagement more advanced in jurisdictions where the perceived political costs are low.

Guidance for investors: Creating a compelling rationale

Four converging realisations underpin the case for real economy policy engagement: escalating and undiversifiable climate risk — for example, Norges Bank Investment Management found the present value of average expected losses from physical climate risk on its US equity investments under a current policy scenario to be 19% (p.34); the non-inevitability of rational climate policy; the inadequacy of current investor strategies; and the limitations of disclosure as a tool for addressing market failure rather than information gaps.

Prioritising where — And on what — To engage

Effective prioritisation requires assessing two criteria: materiality (the importance of policy action for the firm’s financial and climate objectives) and agency (the firm’s capacity to influence policy outcomes). Priority sectors typically include power/energy, transportation, built environment, land use and heavy industry.

Executing effectively

Institutions must assign clear internal responsibility for climate policy engagement and dedicate appropriate resource. Externally, alignment across all direct and indirect channels — including portfolio companies, external asset managers, and industry associations — is essential for consistent messaging. Tactical choices should be guided by issue maturity, political dynamics and institutional constraints.

Building the field: Key priorities for action

Three priorities are identified: mobilising asset owners to strengthen expectations across the industry; building the talent pipeline by recruiting people with policy and advocacy experience and upskilling existing staff at an inter-firm level; and strengthening the capacity of investor coalitions to conduct real economy climate policy work, including improved coordination between initiatives and with non-investor organisations.