Introduction

This report examines the role of investors in addressing climate change amid contested investor influence and uncertain policy momentum. It draws on insights from five workshops with over 60 representatives from asset owners and managers managing USD 40–50 trillion in assets.

What we heard from investors

Climate change remains a material financial risk but competes with other priorities like energy security and AI. Investors recognise government policy and technological innovation as the primary drivers of climate action. Stewardship is effective within commercial limits, but investor agency has been overstated. Consequently, top-down target setting is losing credibility. Differences exist between asset owners, who view climate as a system-level risk, and asset managers, who focus on short-term asset-level risks. Investor coalitions are important but suffer from scope creep and fatigue.

The necessary reframing of investor climate action

Investor climate action must shift from a market-led to a policy-led narrative. The market-led approach relies on disclosure, targets, and accountability but fails when economic incentives misalign with decarbonisation. A policy-led transition acknowledges that governments set frameworks to shape incentives. Investors should support and enable policy rather than dictate corporate changes against economic realities. Climate goals should align with the Paris Agreement (limiting warming below 2°C) or remain directional. Stewardship should focus on ‘limitations-aware engagement’, encouraging actions within a company’s commercial viability while advocating for enabling policies.

A pragmatic and focused approach to objective setting

Investors should move from broad portfolio targets to focused, bottom-up objectives based on realistic agency. Top-down frameworks often lead to complex financed emissions metrics disconnected from real-world impacts. The objective-setting process should start with an overall climate ambition, identify points of leverage, consider available tools, and filter options based on contribution, materiality, efficacy, and comparative advantage. This process must be underpinned by fiduciary duty to protect beneficiaries’ interests across realistic scenarios.

Where investors could choose to do more

Investors can maximise impact by stepping up policy advocacy to reshape economy-wide incentives, starting with specific issues where they hold expertise. Asset owners should integrate climate action expectations into mandates to align asset manager incentives and selection. Increasing capital flows to climate solutions in emerging markets and developing economies (EMDEs) is critical, requiring dedicated internal capability. Integrating physical climate risks, adaptation, and resilience into core investment processes ensures accurate market pricing. Finally, investor coalitions should be revitalised by clarifying their scope, focusing on specific targets, and mitigating legal and governance risks.

What can investors do when governments retreat?

When policy momentum slows, investors cannot substitute for government action but should sustain their efforts. They must continue affirming the financial materiality of climate change to policymakers. Investing in climate capability to price resilience and adaptation remains vital. Opportunities persist in technology-driven transitions, such as electrification, which are less reliant on climate policy. Investors should persist with limitations-aware engagements and use this period to improve mandates and coalitions.

Conclusion

The limitations of investor climate action stem from misspecifying their agency, not a lack of effort. True investor impact requires a reinforcing role that enables policy and targets commercially feasible outcomes. Climate leadership demands courage to state the reality of climate risks, honesty about limitations and trade-offs, curiosity to learn new skills, and long-term commitment to a structural challenge.