Investment Community Skeptical About the Inevitability of Low Carbon Transition
In a strategic pivot towards sustainability and resilience, institutional investors are increasingly adopting a comprehensive approach to Environmental, Social, and Governance (ESG) investments. This trend, which combines traditional and renewable energy investments, net zero goals, impact investing, and nature-based solutions, is shaping the investment landscape for 2025.
According to a recent Nuveen survey, over half (55%) of institutions manage a separate sleeve in their portfolio for impact investments. This focus on impact investments, particularly those related to climate solutions and social benefits, is driven by growing demand among institutional Limited Partners (LPs) for transparency and meaningful ESG outcomes.
The integration of traditional and renewable energy sources is a key component of this strategy. Institutions are prioritizing investments that support the energy transition, balancing legacy energy assets with renewable alternatives to align portfolios with evolving regulatory and market demands. This aligns with the emphasis on transition finance, which facilitates moving from carbon-intensive to low-carbon energy sources.
In line with this energy transition, investors are increasingly allocating capital to strategies that contribute to achieving net zero emissions. A significant 44% of institutions already have net zero commitments, and another 25% plan to make these commitments in the coming 12 months. Among those with net zero goals, more than half have set interim 2030 targets, while 37% have established 2025 benchmarks.
Nature-related investments, those protecting or restoring ecosystems, are also rising in priority. Among those prioritizing nature-based investments, 79% are seeking strategies that go beyond sustainability to proactively mitigate environmental degradation. Sectors such as water and waste management, pollution reduction, and recycling are emerging as key opportunities in nature-related investing, offering a dual benefit of environmental risk mitigation and attractive return potential.
Despite economic uncertainty, including market volatility, trade tensions, and interest rate pressures, institutions remain optimistic about private and alternative assets. Transparency, data availability, and flexible, diversified portfolios are considered essential to managing risks and capturing opportunities in this landscape.
The Nuveen survey covered 800 institutions globally, spanning North America, Europe, Middle East and Africa, and Asia Pacific, in October and November 2024. Respondents were decision-makers at various institutional types, including corporate pensions, public/governmental pensions, insurance companies, endowments and foundations, superannuation funds, sovereign wealth funds, and central banks.
Even among institutions not setting net zero commitments, the majority are investing in clean energy strategies or reducing carbon in their portfolios. A notable 93% of institutions are either incorporating or planning to incorporate environmental and social impact factors into their investment strategies.
Insurers, in particular, are demonstrating a confident and sophisticated approach to portfolio construction, with a focus on private credit, infrastructure, and sustainability-aligned investments.
However, despite the growing focus on nature-related investments, only three in 10 institutions are increasing their focus on nature-related themes within their portfolios, despite 45% identifying nature loss as a top five economic risk.
In summary, institutional investors in 2025 are increasingly embracing a multi-faceted ESG strategy that combines traditional and renewable energy investments, commits to net zero goals, emphasizes impact investing, and incorporates nature-based solutions as integral components of their overall portfolio construction. This trend reflects broader macroeconomic challenges but a strategic pivot towards sustainability and resilience.
Scientists recognize the significant role that environmental-science plays in shaping the future of climate-change solutions, as institutional investors increasingly invest in strategies aligned with these fields. In view of this, many institutions are allocating capital towards impact investments that foster a transition from carbon-intensive to low-carbon energy sources, thereby incorporating finance and investing into their sustainability efforts.
