Investors are sounding the alarm, emphasizing the importance of corporate governance and alignment with shareholder interests.
In the realm of finance, a significant shift is underway as asset managers in Europe and the UK are increasingly prioritising climate change initiatives. This trend, driven by regulatory shifts and growing investor demand for sustainability, is creating ripples in the market.
The European Union has spearheaded this change with the introduction of the Omnibus I package, which includes simplification measures for sustainable finance rules, the Carbon Border Adjustment Mechanism (CBAM), and investment frameworks. The EU Taxonomy has also been simplified to reduce administrative burdens while preserving core objectives, effective from January 1, 2026.
In the UK, the government has launched consultations on transition plan requirements, focusing on climate-related policies during London Climate Action Week.
Climate-focused investments are on the rise, with the European Investment Fund (EIF) planning to invest $677M to $903M in private equity funds focused on climate transition strategies across Europe.
Efforts to simplify sustainability reporting under the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) are ongoing in the EU, with potential changes to reduce the scope and simplify rules.
Asset owners in Europe and the UK are under pressure to integrate climate change considerations into their investment strategies due to regulatory demands and investor expectations. The European Securities and Markets Authority (ESMA) has emphasised the need for asset managers to effectively integrate sustainability risks and disclosures.
However, this focus on climate change is not without its challenges. Reform UK politicians have described climate change as a "hoax," and the UK has seen a landslide by the Reform UK party in the May 2025 local elections. One speaker warned that the Local Government Pension Scheme (LGPS) is being turned into a political football, with newly elected Reform UK members now sitting on pension fund boards.
Despite these challenges, speakers argue that navigating pushbacks in the LGPS can be achieved by increasingly making the financial case for investing in the energy transition. The People's Pension, for instance, has moved £28bn out of State Street, citing stewardship misalignment.
The trend of emphasising stewardship alignment is not limited to Europe. The New York City Comptroller is asking all third-party managers for listed market funds to enhance disclosure on climate stewardship. JP Morgan Asset Management identifies a $11.7 trillion opportunity for asset managers who stand firm on climate.
The LAPFF, an umbrella body coordinating stewardship efforts across seven LGPS Pools, collectively manages more than £300bn in assets. Speakers at a recent event held near the House of Commons in Westminster expressed concern about asset managers engaging in greenwashing and not taking rigorous stewardship seriously.
In the absence of leadership from governments, LAPFF and other asset owners have a huge opportunity, as per one speaker's conclusion. The focus on alpha has been harmful, as it has taken attention away from tackling climate change at a systemic level, according to another speaker.
As the world grapples with the impacts of climate change, the financial sector is playing an increasingly important role in driving the transition to a low-carbon economy. The trend towards climate-focused investments and stewardship alignment is expected to continue, offering significant opportunities for asset managers who prioritise sustainability.
- The EU, with the introduction of the Omnibus I package, Environmental-Science rules, and the EU Taxonomy, is leading a significant shift in Finance, prioritizing climate-change initiatives, particularly in the realm of Investment.
- Despite challenges such as political pushbacks and the risk of greenwashing, Asset managers in both Europe and the US are capitalizing on the trend of Climate-focused investments and Stewardship Alignment, with the New York City Comptroller and JP Morgan Asset Management identifying substantial financial opportunities in this area.
