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“Our industry . . . made a huge mistake,” Douglas Flint, the outgoing chair of UK asset manager Aberdeen, said earlier this year. “It became a marketing thing: let’s tell everyone we’re saving the world.”

Flint was referring to a wave of financial-sector enthusiasm for climate action that reached a conspicuous climax at COP26 in November 2021. At the UN summit in Glasgow, former Bank of England governor Mark Carney announced that $130tn in financial sector assets had been committed to climate action under the Glasgow Financial Alliance for Net Zero (Gfanz).

In the lead-up to this year’s COP30 summit in Brazil the mood has been very different, with Gfanz and its sectoral alliances falling into crisis. Last month the Net-Zero Banking Alliance voted to cease operations, following a string of exits by big US and UK banks. A similar rush of departures prompted the alliance for the asset management sector to suspend operations in January. The insurance sector group Net-Zero Insurance Alliance disbanded in 2024.

A major factor behind the climate alliances’ woes has been political pressure from US Republican officials, who have said financial companies belonging to these groups may be in breach of fiduciary duty to their clients, as well as antitrust rules. Some US state governments withdrew business from financial institutions that were part of the coalitions — including BlackRock, the world’s largest asset management company, whose departure from the Net Zero Asset Managers’ initiative earlier this year helped precipitate its suspension.

Another issue has been consistent strength in world fossil fuel production, defying expectations of government action that would hit output during the 2020s. This has been reflected in the financing patterns of big banks, which have been reluctant to sacrifice their business with an oil and gas sector still chasing growth. The 65 largest global banks increased their financing for fossil fuels by $162.5bn last year to $869bn, reversing the falls in the two prior years.

Yet one segment of the financial sector continues to strengthen its engagement with climate change: pension funds, and other long-term investors known as “asset owners” (institutions that directly own investment assets on behalf of members). In contrast to the other coalitions, the Net Zero Asset Owner Alliance has only two fewer members than a year ago.

“Climate change remains as much in focus for us as ever,” says Laura Hillis, director of climate and environment at the Church of England Pensions Board. “If anything, the increasing physical impacts and updated scientific assessments we’re seeing in 2025 should raise more alarm bells across our sector.”

This year, pension funds, particularly in Europe, have adopted a more assertive approach on climate risk with asset managers. In February, 26 asset owners controlling a total of $1.5tn warned their asset managers they would risk being dropped if they did not engage more strongly on climate risk with companies. Two weeks later, the UK’s People’s Pension fund pulled a £28bn investment mandate from US asset manager State Street, citing concerns over sustainability. In September, Dutch fund PFZW moved about €14bn from BlackRock for similar reasons. The pension funds’ moves reflect a widening divide between European and US asset managers, with the former showing far greater support for environmental shareholder proposals than the latter.

They also come as long-term investors grapple with the financial implications of increasingly severe climate effects. Climate change “will impact the companies we invest in and the value of the fund”, Carine Smith Ihenacho, chief governance and compliance officer at Norway’s $1.8tn wealth fund, said last month. “Our analysis suggests risk of meaningful losses at the portfolio level.”

Some asset managers are seeking to capitalise on pension funds’ concern about climate risks. UK-based Resolution Investors launched in September promising to invest in companies with robust business models as well as strong climate credentials.

This approach contrasts with a wave of green investment around 2021, when fund managers succumbed to “euphoria” around the energy transition without sufficient emphasis on business quality, argues David Lowish, a co-founder at the firm.

That euphoria had already dissipated before Donald Trump returned to the US presidency, as rising interest rates hit the capital-intensive renewable energy sector, as well as many green start-ups. Trump has taken a far more hostile tone towards renewable energy than during his first term, deriding the sector as a “joke” and cutting back its tax credits.

Yet many green investment strategies have been flourishing this year. US clean energy stocks have been surging: the Nasdaq Clean Edge Green Energy benchmark index is up over 30 per cent since January 1, driven partly by tech companies’ eagerness to power data centres for artificial intelligence. They have shown appetite for renewable energy, partly because solar and wind plants are now cost-competitive due to technical advances and economies of scale.

Green technology adoption “is being driven less and less by politics and policy, and more and more by markets and economics”, says Daniel Weiss, managing partner of Angeleno Group, a US venture capital firm focused on low-carbon businesses. “It is definitely a confusing and turbulent time in the capital markets around climate and sustainability. But there are very interesting pockets of opportunity.”

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