Time to re-energise investor climate action

Simon Hallett is head of climate strategy at Cambridge Associates

An action-oriented approach that focuses on impact more than alignment can revive waning investor momentum on climate goals

All of a sudden, everyone is talking about a “pragmatic reset” of net zero policies.

Some of these calls come across as special pleading from vested interests. But the more thoughtful say something like this: top-down targets and collective initiatives have failed to drive sufficient progress or maintain consensus, and so policymakers should take a more pragmatic and flexible approach. Move on from perfectionism, and focus on cost-effective results.

Similar dynamics may be unfolding for institutional investors’ approaches to net zero goals. The initial wave of investor net zero commitments was marked by enthusiasm and a proliferation of alliances, pledges and reporting frameworks.

But today, it is difficult to avoid the sense of waning energy and commitment. Some are even questioning the value of net zero strategies altogether.

There have been achievements. But years of focus on portfolio emissions and Paris Agreement alignment have not — if we are honest — delivered the level of real-world impact or investor engagement that we hoped for, even if we can agree on what “alignment” means.

Investors have found themselves mired in complex reporting exercises, while the goals and frameworks have, in our experience, often failed to connect with investment leaders as they do not speak to the kinds of decisions they can actually make.

Given that an investor’s footprint is secondary, deciding whether to set an emissions target for 2040 or 2050 is less important than a dynamic strategy for identifying and pulling those levels of change

How can we turn this around, re-energise and recover our ambition?

We can start by being honest about — perfectly understandable — past mis-steps. Then we can advance an action-oriented, flexible and prioritised approach, that maximises positive climate impact without being performative or challenging the laws of economics.

Here are some ideas that may help:

1. Net zero is a team sport

Net zero is a global collective goal. No investor can achieve it in isolation in a way that truly matters. What does matter is the contribution that each investor can make to push real-world emissions in the right direction, based on their unique constraints, capabilities and portfolio context.

2. It is not your footprint that matters, but your levers of change

The available levers of change may be different for each investor and will be different for each component of a portfolio. They fall into two groups: what you invest in (capital allocation) and how you behave as an owner (engagement and voting).

Use the right tool for the right job, and remember that climate-driven decisions require a plausible and material theory of change. Rather than fixating on portfolio emissions metrics, investors should prioritise actions that have the greatest potential for real-world impact. 

3. Collaboration is still important

The effort we have put into investor collective initiatives is still precious, particularly in communicating expectations to companies.

True long-term investors have the rare privilege of speaking on behalf of future generations, positioning them as influential thought leaders and policy advocates. Those leading the businesses that need to decarbonise cannot deal with a cacophony of contradictory demands.

4. You need a strategy, as well as a target

Given that an investor’s footprint is secondary, deciding whether to set an emissions target for 2040 or 2050 is less important than a dynamic strategy for identifying and pulling those levels of change.

Purists might say that this is not building a net zero portfolio. I would disagree. But let us not fall out over semantics: the approach we propose might equally and more clearly be described as a climate impact strategy, and it may be better for that. 

5. It is a risk management problem, not a maximisation problem

It is taken as a given that investors will be continue to require market-competitive returns. But be honest about what you know — and do not know — about future returns.

Given the range of potential outcomes in today’s political, geopolitical and economic environment, investors will be riding the wave of radical uncertainty for decades. This means juggling multiple scenarios, technology and policy possibilities, not to mention how markets choose to discount rising climate risk as costs mount.

Do not try to build the perfect portfolio for a world that does not happen, but operate a strategy that is dynamic and diversified in respect of the opportunities for return and impact. 

6. Do not forget nature

A credible net zero strategy should also recognise the critical role of nature in climate mitigation and adaptation. Nature is often overlooked in investor climate policies, which typically focus narrowly on energy and industrial emissions. By valuing and protecting natural capital alongside decarbonisation, investors can support a more robust, sustainable transition.

Overall, we need to re-energise investor climate action to broaden dramatically its adoption and effectiveness. What matters is meaningful impact. This does not require perfect information, but clear strategies and the confidence to act.