Investment Sector Shows Skepticism About Irreversible Low-Carbon Shift
In a recent survey, 45% of institutions identified nature loss as a top five economic risk, yet only three in 10 are increasing their focus on nature-related themes within their portfolios. This suggests that nature-related investing is still a developing area, with many allocators in the process of educating themselves and building their understanding.
The survey, conducted in October and November 2024, polled decision-makers at corporate pensions, public/governmental pensions, insurance companies, endowments and foundations, superannuation funds, sovereign wealth funds, and central banks. Among those prioritizing nature-based investments, 79% are seeking strategies that go beyond sustainability to proactively mitigate environmental degradation.
The current trend among institutional investors, including insurers, shows a cautious rebalancing from traditional fossil fuels towards renewable energy, driven by net zero commitments and a rising interest in impact investing.
Wall Street banks are cutting oil and fossil fuel financing by about 25% in 2025, partly due to political and market uncertainties. This shift away from traditional energy sources is not fully compensated by mainstream bank investments in renewables; rather, private equity firms are increasingly financing renewable projects, often under stringent terms, filling a financing gap that traditional banks are avoiding.
Insurers are demonstrating an increasingly confident and sophisticated approach to portfolio construction, focusing on private credit, infrastructure, and sustainability-aligned investments. Institutional investors like J.P. Morgan are spearheading hybrid financing models, blending debt, equity, and government incentives, to de-risk energy transition projects. They prioritize diversification across renewable energy, carbon capture, and hydrogen hubs, aiming for both environmental impact and financial viability.
Policy uncertainty and shifting subsidies add risk, making many investors cautious, especially conventional banks. However, large renewable projects backed by power purchase agreements (PPAs) or hedges for fixed-price electricity sales are gaining traction as more reliable revenue sources.
The insurance sector is increasingly incorporating impact investing principles, favoring investments that not only provide financial return but also contribute measurably to decarbonization and sustainability goals aligned with net zero commitments.
In summary, insurers are moving cautiously but purposefully towards increasing their allocations in renewable energy and related transition technologies, leveraging emerging financing structures and partnerships, but still face challenges from market, policy, and technological risks. Their strategies combine reducing fossil fuel exposure, investing selectively in renewables with strong economic fundamentals, using diversified, hybrid financial models, and aligning investments with net zero and impact goals to manage risks and meet fiduciary duties.
The survey covered 800 institutions globally, with respondents representing organizations with assets of over $10bn (55%) and less than $10bn (45%), and a minimum asset level of $500m. 44% of institutions have net zero commitments, and another 25% plan to in the coming 12 months. Even among those who do not intend to set net zero commitments, the majority (64%) still invest in clean energy strategies or reduce carbon in their portfolios.
Over half (55%) of institutions report managing a separate sleeve in their portfolio for impact investments. Most institutions prioritize clean energy and carbon reduction, either as part of net zero goals or to capture compelling risk-return opportunities. More than half of institutions (51%) with net zero goals have set interim 2030 targets, while 37% have established 2025 benchmarks.
Sectors such as water and waste management, pollution reduction, and recycling are emerging as key opportunities in nature-related investing. 73% of investors agree that near-term energy needs cannot be met without incorporating both traditional and renewable energy sources.
[1] Source: Various reports and articles by financial news outlets [2] Source: J.P. Morgan's official statements and press releases [3] Source: Nuveen's 2024 Global Institutional Investor Survey [4] Source: International Renewable Energy Agency (IRENA) reports and studies
- Despite the increasing focus on nature-related themes in institutional portfolios, only a fraction of surveyed investors are actively investing in these areas, indicating that nature-related investing continues to be a growing, yet largely untapped sector within the financial industry.
- Institutions are adopting a cautious yet strategic approach towards renewable energy investments, favoring hybrid financing models, selective investments in economically viable renewable projects, and diversification across renewable energy, carbon capture, and hydrogen hubs to balance environmental impact and financial viability.
