Asset owners should rethink their approach to net zero targets and place greater emphasis on policy advocacy, according to a new paper from the London School of Economics (LSE).
The paper, What can investors do about climate change?, argues that in order to be credible, net zero strategies must be better aligned with policy, technology and economic reality.
Authored by Tom Gosling, Hans-Christoph Hirt and Fernanda Gimenes at the LSE, in collaboration with the Environmental Defense Fund and the LSE Global School of Sustainability, the purpose of the report was to examine what investors can do about climate change, given their influence and constraints.
Its conclusions draw on five half-day workshops held in 2025 with 60 representatives from asset owners and asset managers in New York, Amsterdam, London and Singapore managing around $40trn-$50trn (€34trn-€42trn) in assets.
The paper calls for a shift away from a market-led model, in which investors seek to drive decarbonisation through portfolio targets, towards a more policy-led approach.
“Over the past decade, investor approaches to climate action have been largely shaped by a market-led narrative: investors, acting individually and collectively, were expected to play a leading role in economy-wide decarbonisation through disclosure, target setting, capital allocation, and stewardship. That narrative has now run into fundamental limits,” the authors state in the report.
Under a more policy-led model, asset owners focus their efforts on reinforcing the policy conditions needed for the transition, instead of relying on portfolio-level decarbonisation targets and corporate engagement.
Speaking to IPE, Gosling, a professor in practice at the LSE, said: “The starting point is to acknowledge that a pension fund cannot have a net-zero strategy independent of societal progress to net-zero. In turn, this is dependent on policy and technology developments, with investors playing a supporting role.”
The report comes at a time of increasing debate on the limits of investor-led climate action within the asset management industry, along with managers leaving climate initiatives such as Climate Action 100+ and the Net Zero Asset Managers (NZAM) initiative.
Investors cannot substitute for government action, the paper warned.
“Investors are a reinforcing rather than driving force,” it added. “Their influence is stronger when policy is supportive, and weaker when it is not.”
“This does not mean that investor action becomes irrelevant, but the nature of the role shifts, and is inevitably more constrained,” the report added.
The paper sets out five areas for investors to focus on. These include stronger policy advocacy, clearer climate requirements in asset manager mandates, more expertise in emerging-market climate investment, better integration of climate risks and opportunities into core investment decisions, and more focused investor coalitions.
For Gosling the question of mandates and manager selection is critical.
“Asset owners do need to lead and they need supportive asset managers,” he told IPE. “But asset managers cannot take climate action, especially action that involves resources, costs or trade-offs, without this being clearly laid out in the mandate.”
“Furthermore, for asset owners who care about policy influence and system influence, they probably want an asset manager who is philosophically aligned with them in terms of beliefs and approach on climate change,” Gosling added.
