The world of climate finance is facing a chilling reality as alliances for net zero targets unravel, leaving many to question the future of these initiatives.
The Rise and Fall of Climate Alliances
In a bold statement, Douglas Flint, the outgoing chair of Aberdeen Asset Management, admitted that the financial industry made a critical mistake by turning climate action into a marketing gimmick. This sentiment reflects a broader shift in sentiment since the COP26 summit in Glasgow, where the Glasgow Financial Alliance for Net Zero (Gfanz) proudly announced a commitment of $130 trillion in assets towards climate action.
Fast forward to the upcoming COP30 summit in Brazil, and the atmosphere is markedly different. Gfanz and its sectoral alliances are in crisis, with several key players withdrawing their support. The Net-Zero Banking Alliance has voted to cease operations, following a series of exits by major US and UK banks. Similarly, the asset management sector alliance suspended operations in January, and the Net-Zero Insurance Alliance disbanded in 2024.
Political Pressure and Fossil Fuel Resilience
One of the key factors behind this unraveling is political pressure from US Republican officials. They argue that financial companies belonging to these alliances may be violating their fiduciary duties to clients and antitrust rules. This has led to some US state governments withdrawing business from financial institutions involved in these coalitions, including BlackRock, the world's largest asset management company.
Another issue is the resilience of the fossil fuel industry. Despite expectations of government action to curb output, global fossil fuel production has remained strong. This has been reflected in the financing patterns of big banks, which are reluctant to cut ties with the oil and gas sector, still chasing growth. The 65 largest global banks increased their financing for fossil fuels by $162.5 billion last year, reversing the declines seen in the previous two years.
Pension Funds: A Bright Spot in the Climate Finance Landscape
Amidst this turmoil, one segment of the financial sector is strengthening its engagement with climate change: pension funds and other long-term investors known as "asset owners." In contrast to other coalitions, the Net Zero Asset Owner Alliance has only seen a slight decrease in membership.
Laura Hillis, director of climate and environment at the Church of England Pensions Board, emphasizes the ongoing focus on climate change within the pension fund sector. She highlights the increasing physical impacts and updated scientific assessments in 2025, which should serve as a wake-up call for the industry.
This year, pension funds, particularly in Europe, have taken a more assertive approach on climate risk with asset managers. They are warning their asset managers of potential consequences if they do not engage more strongly on climate risk with companies. This reflects a widening divide between European and US asset managers, with European managers showing greater support for environmental shareholder proposals.
Navigating the Financial Implications of Climate Change
Pension funds and long-term investors are also grappling with the financial implications of severe climate effects. Carine Smith Ihenacho, chief governance and compliance officer at Norway's $1.8 trillion wealth fund, warns of the risk of meaningful losses at the portfolio level due to climate change impacts on invested companies.
Some asset managers are capitalizing on pension funds' concerns about climate risks. Resolution Investors, a UK-based firm, launched in September with a promise to invest in companies with robust business models and strong climate credentials. This approach contrasts with the "euphoria" around green investment in 2021, when fund managers focused on the energy transition without sufficient emphasis on business quality.
The Rise of Green Investment Strategies
Despite the challenges, many green investment strategies have flourished this year. US clean energy stocks have surged, driven by tech companies' appetite for renewable energy to power data centers for artificial intelligence. Solar and wind plants are now cost-competitive due to technical advances and economies of scale.
Daniel Weiss, managing partner of Angeleno Group, a US venture capital firm focused on low-carbon businesses, argues that the adoption of green technology is increasingly driven by markets and economics rather than politics and policy. He sees "interesting pockets of opportunity" in the turbulent climate and sustainability capital markets.
Europe's Climate Leaders: A Call for Action
The FT is compiling its sixth annual list of Europe's climate leaders, recognizing companies making significant progress in cutting greenhouse gas emissions and remaining committed to reducing their environmental impact. The deadline for entries is November 15. Explore the FT's coverage of where climate change meets business, markets, and politics at Climate Capital, and learn more about the FT's environmental sustainability commitments.
