Last month, Sir Jim Skea, Chair of the Intergovernmental Panel on Climate Change (IPCC) for its seventh assessment cycle, opened his plenary session at the IIGCC Summit 2026 with a reality check. In his words, we are right at the edge of the envelope, and limiting global temperature rise to 1.5 degrees Celsius is almost certainly unobtainable. However, he was also clear that there is still reason for hope, and still enormous value in what we do next.
That was just one example of the honest and sometimes heated conversations across a scorched London. Alongside insightful conversations with industry experts during London Climate Action Week, we’ve also been talking to our clients in Europe about their immediate priorities for their climate strategies. In this article, Matt McGlinchey, Associate Director, Product Specialist, highlights some of his key takeaways, insights, and conversations over this period.
Is the Market Pricing Transition Leaders Correctly?
Fossil fuel demand looks likely to peak around 2030,1 even in a scenario in which policy ambition stalls entirely. Beyond an analysis of policy momentum, the energy transition now has its own commercial momentum. For investors, the question is no longer if somebody capitalizes on this momentum, but who and how fast. Analysis of climate transition exposure now goes beyond the policy space.
We hear from clients who are often looking to take advantage of a perceived mispricing between companies genuinely leading on transition and those engaging in window dressing. Although this mispricing could be problematic, it could also provide an opportunity for investors.
The scope of this opportunity is broader than most portfolio conversations acknowledge. Listed companies currently account for roughly 40% of global emissions,2 and the energy transition touches input costs, supply chains, physical assets, and regulatory exposure for the majority of companies. Despite this, only 1,700 companies have set ambitious reduction targets, representing just 42% of direct emissions from listed companies.3 This is not an ESG investment product story, it’s a systemic risk and opportunity for investors. Appetite for transition data now also spans well beyond public equities into the sovereign and private asset space.
Sustainalytics’ recent research report, Transition or Illusion? What Capital Flows Reveal About Net Zero Credibility, examines capital flows and transition credibility, linking corporate capex decisions directly to real-world climate outcomes. Capex will become an increasingly valuable dataset as our clients look to find decision useful and alpha generating transition insights to feed their core investment strategies.
Nature Investment Strategies Need Their Own Lane
Within the global architecture for nature investment — including the Global Biodiversity Framework, multilateral frameworks, and international negotiations — progress remains fragmented and slow. There is growing agreement among investors that a bottom-up investment approach can still achieve positive results, coupled with a thesis that nature investment does not need to follow the structural coattails of climate-positive investment.
The UK government is actively building a portfolio of investable, nature-positive projects, pulling together biodiversity net gain requirements, a new land use framework, and nature market standards into something coherent and bankable.4 For investors, the pitch is straightforward: here are real assets, a pipeline, and a policy floor.
The investment case for nature is less about preventing irreversible lock-in, and more about backing active recovery. Investors are also able to target localized investments as part of their nature strategy. This is a different thesis compared to climate investments, which are often less localized, and have the goal of slowing or reversing global temperature rise.
For many portfolios, water has replaced deforestation as the area with the most material risk. Water-related risks cut across food production, infrastructure, energy, and sovereign resilience. We consistently hear from investors that a granular analysis of water risk and opportunity is a good potential entry point.
Physical Risk Continues to be Increasingly Prevalent For Investors
Only around a quarter of climate-related losses in Europe are insured — in some countries the figure is below 5% — and that protection gap is widening, according to the European Central Bank and European Insurance and Occupational Pensions Authority.5 Vast sectors of the economy still have no adaptation plan in place, even as annual fixed-asset losses from climate hazards for listed companies are projected to reach USD 560 billion to USD 610 billion by 2035.6
In terms of data to support this analysis, physical risk modelling is mature in some areas, such as flood data, and fragmented in others, with meaningful divergence between data providers (or data vendors) even on core outputs. Focusing on a single portfolio or company-level exposure number that clients can't explain, defend, or connect to value has become problematic; it looks precise, but it’s largely unusable.
For investors, there is a demand for a combination of physical asset-specific datasets, geospatial location data, and derived metrics. If this data is used together, an investor can identify the hotspots for physical risk for a specific issuer, rather than relying on broad regional assumptions. Then, business critical decisions can be made.
For example, an electric vehicle manufacturer's charging stations are numerous but individually have a low impact on overall risk. However, its factories and distribution centres are where hazard exposure genuinely threatens the business. That distinction is the basis of how Sustainalytics is evolving its own physical risk toolkit — combining asset-level business intelligence with engineering-based hazard modelling to identify, for a given company, which specific sites are both exposed and material. The output is concrete, defensible data to support engagement and valuation. For investors, the solution is not a bigger dataset that sits behind a black box, but rather one that feeds decision-making directly.
Direct Corporate Engagement Alone Won’t Deliver the Transition
The investment industry is still organized in ways that prevent systemic thinking. Stewardship, as currently practised, has not delivered at the scale required.
We hear regularly hear from clients that direct corporate engagement needs to be complemented by a broader systemic approach, working simultaneously across policy makers, regulators, industry bodies, and value chains.
In practice, this will involve:
- Collaborative investor commissions (such as the Global Investor Commission on Mining 2030).
- Sovereign engagement through vehicles like the Principles for Responsible Investment.
- Direct policy advocacy connecting capital allocation to government decision-making.
- Cross-sector value chain alignment where structural barriers — such as grid connectivity, planning permission, electric vehicle charging infrastructure — sit outside any individual company’s control.
The ESG backlash in some key markets is consistently flagged as an obstacle to this kind of systemic change.7 Coordinated lobbying, routed through trade associations, think tanks, the media, and political funding, is actively shaping the policy environment investors are trying to operate in.
A small group of asset owners are starting to operationalize total portfolio approaches to climate investment. However, there is still almost no research linking transition plan indicators to financial materiality. Some investors feel that an obsession with portfolio-level decarbonization targets may have crowded out more important work. I certainly hear from investors all the time that they are looking to move beyond just external disclosures and reporting, towards a sharp focus on decision-critical metrics at both issuer and portfolio level, driving investment decisions first, and reporting second.
The qualitative insights from our recent Asset Owner Perspectives Survey 2026 survey outlines some of the approaches asset owners are taking to grapple with these challenges.
No Time to Waste
Despite some of the stark realities we are already dealing with, I feel energized working with clients that are “walking-the-walk” when it comes to practical delivery. I speak to investors every day who are merging climate and core investment processes in ways I wouldn’t have thought possible when I joined Sustainalytics in 2020. From our own perspective, we will be laser focused on supporting our customers with climate data and insights that can help them achieve these goals.
The last month has clearly shown that there isn’t any time to waste.
References
- IEA. 2025. “World Energy Outlook 2025.” November 12, 2025. https://www.iea.org/reports/world-energy-outlook-2025.
- Bouchet, V. 2025. “To what extent do listed companies contribute to climate change?” EDHEC Business School. December 10, 2025. https://www.edhec.edu/sites/default/files/2025-12/2025-12-dataviz-edhec-climate-change-listed-companies.pdf.
- Ibid.
- IIGCC. 2026. “From Ambition to Delivery: Assessing the UK’s success in capturing the economic opportunities of the energy transition.” July 21, 2026. https://www.iigcc.org/hubfs/2026%20resources/IIGCC%2007%202026%20UK%20Policy%20Paper.pdf.
- European Central Bank. 2024. "The Climate Insurance Protection Gap." https://www.ecb.europa.eu/ecb/climate/climate/html/index.en.html.
- World Economic Forum. 2024. “Climate Hazards Will Slash 7% Off Corporate Earnings Annually by 2035, Research Warns.” December 11, 2024. https://www.weforum.org/press/2024/12/climate-hazards-will-slash-7-off-corporate-earnings-annually-by-2035-research-warns/.
- Robinson-Tillett, S. 2026. “Investors grapple with corporate climate lobbying amid sustainability pullback.” April 2, 2026. IPE. https://www.ipe.com/analysis/investors-grapple-with-corporate-climate-lobbying-amid-sustainability-pullback/10136074.article.
