The finance sector sits at a critical juncture in the fight against climate change, wielding unprecedented influence over the net zero transition. Through mechanisms like lending practices, stewardship, engagement, and innovative financing strategies, financial institutions can create powerful feedback loops that influence real economy companies and the broader ecosystem.
The finance sector sits at the center of the net zero transition. Climate change is an economy-wide risk that reaches every kind of financial institution, from banks and insurers to asset owners and asset managers, because it affects the systems that portfolios and business models depend on. For long-term investors in particular, the climate transition creates portfolio-level risks and opportunities that cannot be managed through diversification alone, which makes understanding and managing them part of fiduciary responsibility. Within this sector, C2ES focuses on investor stewardship and the role these long-term, diversified investors play in managing systemic climate risk across their portfolios.
Engaging Asset Owners and Asset Managers
C2ES’s approach to investor stewardship acknowledges that long-term, highly diversified investors effectively own a slice of the whole economy. Their returns track the market more than any single holding. For these universal owners, fiduciary duty means protecting not just individual positions but the systems those returns depend on a stable climate, functioning labor markets, and legitimate governance. That responsibility sits at the portfolio level, not the company level.
An approach to managing investment portfolios that focuses on economy-wide and market-wide risks that affect all holdings, rather than only on individual company performance. It recognizes that a diversified investor’s returns depend more on the health of entire systems, such as the climate, labor markets, and supply chains, than on selecting better-performing stocks. Managing these systemic risks is one way universal owners can fulfill their fiduciary duty.
Lukomnik & Hawley, Moving Beyond Modern Portfolio Theory: Investing That Matters (Routledge, 2021); Lydenberg, Burckart & Ziegler, Effective Investing for the Long Term: Intentionality at System Levels (The Investment Integration Project, 2021)
Execution risk, loss of social license, and macro-level labor and demand exposure. These variables determine whether the transition is deliverable at the pace and in the form universal owners’ portfolios depend on.
Asset Owner Influence on Managers
The highest-leverage systemic lever universal owners hold. The mandates, voting expectations, and escalation thresholds asset owners set cascade across every portfolio their managers run. A gap the ecosystem has named but under-resourced.
Corporate Decarbonization
Where forward-looking fiduciary duty meets execution. A credible transition plan is the artifact through which an investor, its managers, and its portfolio companies demonstrate they are managing the risk they are obligated to manage.
These are not three separate agendas. They are three angles on the same fiduciary problem.
Credibility in this space is built collaboratively. C2ES participates in the networks and standard-setting bodies that shape investor practice on climate.
C2ES convened a closed-door investor feedback session with As You Sow, Trillium Asset Management, and the Office of the New York City Comptroller. The session gave investors a forum to exchange insights and identify emerging best practices for investor engagement on climate transition planning, a timely and growing priority. It featured investor perspectives on key successes, challenges, and opportunities within these engagements, and highlighted leading use cases for the newly updated Transition Plan Index tools.
The session covered:
Speakers
A kickoff discussion with Carly Jacobs, Head of Investor Engagement and Innovation at the UN-supported Principles for Responsible Investment, and C2ES President Nat Keohane. The conversation explored how investors leverage climate engagement and integration to drive corporate action, guide investment decisions, reduce emerging systemic risks, and uphold fiduciary responsibilities.
This session kicked off the Finance and the Net Zero Transition thematic brief series and the report Navigating the Finance Sector Net Zero Transition.
Not general-audience explainers. Each resource is built so an asset owner can set manager expectations, an asset manager can translate it into proxy priorities, and a stewardship lead can bring it into a coalition without rebuilding the fiduciary argument from scratch.
Coming soon: Just Transition guidance resource for investors.
This report examines the crucial roles of various financial sector actors including banks, asset owners, asset managers, insurers and reinsurers, and private markets in driving and implementing transition plans globally. By leveraging a diverse array of strategies, the finance sector is not merely adapting to climate change but actively steering capital flows to accelerate the transition.
As part of the research underpinning Navigating the Finance Sector Net‑Zero Transition: Levers for Decarbonizing in a Complex Landscape, C2ES developed a set of thematic briefs to explore priority issues shaping the future of climate‑aligned finance and investor engagement. Together, these briefs examine how the financial sector is responding to a shifting political and legal environment, how investors can leverage corporate transition plans to guide investment decision-making, and how fiduciary duty is evolving to include the management of climate‑related risks.
The Net Zero Investment Framework (NZIF) is a model that helps investors align portfolios with net-zero goals by setting targets, measuring progress, and integrating climate-related risks. It guides capital allocation to drive real-world decarbonization and supports the net zero economy. The NZIF 2.0 enhanced framework offers improved methodologies for portfolio alignment, target-setting, and transition finance. It refines key concepts like the Portfolio Decarbonization Reference Objective and Asset Alignment Target, ensuring investors can accelerate emissions reductions. By prioritizing climate solutions, aligned firms, and phaseout projects, NZIF 2.0 enables financial institutions to develop net-zero transition plans and drive systemic change.
Similarly, GFANZ Recommendations and Guidance on Finance Sector Transition Plans acknowledges this linkage and outlines four key financing strategies that support the real economy’s transition to net zero:
These strategies enable financial institutions to direct capital toward real-world emissions reductions, accelerating the global transition.
