Unlocking over $23trn of capital from the world's largest 100 asset owners will be critical to achieving global net zero targets, research by the Thinking Ahead Institute has suggested.
According to TAI, pension funds remain the biggest group of asset owners worldwide accounting for over 58% of assets, followed by sovereign wealth funds (34.7%) and outsourced CIOs and master trusts combined (7.2%).
Capital held by the world's 100 largest asset owners grew by 15.7% last year to $23.5trn.
This relatively small group of investors are right on the front line of the investment community's fight to become net zero."
Roger Urwin, co-founder of the Thinking Ahead Institute, said: "This relatively small group of investors are right on the front line of the investment community's fight to become net zero, and their power is even more concentrated among the top 20, which are responsible for nearly $13trn."
TAI's study found that there are only three accredited net zero committed organisations in the top 20 asset owners, and only 14 in the top 100.
Urwin added: "While the pledges from Glasgow Financial Alliance for Net Zero (GFANZ) organisations are critical, the largest asset owners hold the ‘keys to the castle'. Their allocations, ownership muscle and trickle-down influence will be important in opening the door to net zero pathways.
"But to successfully manage the complexity and challenges of sustainable investment and net zero pathways, asset owners will need to develop enhanced governance and investment sophistication.
TAI's research argued that the development of ‘systems-leadership' practices that acknowledge the size and interconnectedness of climate change will support "much-needed" innovation and collective action.
However, asset owners will need to face up to and overcome numerous impediments, including narrow interpretations of fiduciary standards, that have pushed them to maintain established practices.
Urwin concluded: "The research highlights how some asset owner groups have attempted to overcome these impediments by ‘maturing' their governance, investment and sustainability models and revamping their organisational purpose. As part of this they have built their capacity to innovate in readiness for the imminent transformational change, and other asset owners should take note."