A severe summer drought has intensified pressures on new UK prime minister Andy Burnham, who has little time to make a big impact.
Having signalled a ‘pragmatic’ approach to climate policy, which could dilute the Zero Emission Vehicles mandate and boost domestic oil and gas production, the former mayor of Manchester faces the prospect of a climate-fuelled cost-of-living crisis in the autumn, with food, water and energy costs set to rise.
Successive UK governments have struggled to provide a consistent and credible pathway for the net-zero transition they must deliver by law, and which is backed by most voters.
Burnham could lower the political temperature by championing the work of the Net Zero Council (NZC), an independent advisor to the Department for Energy Security and Net Zero (DESNZ), which is due to unveil its sector transition plan (STP) programme for 2027-29 in September.
The NZC’s approach – which emphasises co-creation over consultation – also hands asset owners the chance to ensure the ‘investibility’ of transition pathways covering 85 percent of the UK economy. According to former net zero minister Chris Skidmore, it has the potential to unlock private capital flows to transition-related projects, securing jobs, growth and long-term returns to pension-holders.
“The more asset owner clients demand this kind of shift in resource allocation, the more likely we will achieve meaningful progress over time.”
Leanne Clements, People’s Partnership
“We want to make sure investors have confidence that this is a process they can be involved in, and which has learned from past experience,” says Skidmore, co-chair of the STP programme.
But asset owners face multiple barriers to getting onboard with climate policy initiatives. These include internal co-ordination, access to skilled lobbying resources, support from asset managers, concerns over legitimacy and agency, and a scepticism founded on the failure of policymakers to stick to positions or listen to science-based evidence.
Critically, however, they mostly now hold a solid mandate for climate policy engagement, based on acceptance by trustees, C-suite executives and beneficiaries that climate change represents a financially material threat to returns.
“If we think something is potentially detrimental to our investment portfolio, we believe it is incumbent on us to address those financial risks. Looking through that financial materiality lens, policy engagement becomes a priority for us,” says Naomi Clark, head of investment management at Universities Superannuation Scheme (USS), the UK’s largest private pension scheme.
Updating its own transition roadmap, global insurer Aviva flagged the need for “ambitious, timely, clear, and long-term public-policy frameworks”.
UK trends are part of a global pattern. The latest annual survey of senior policy professionals at signatories to the Principles of Responsible Investment (PRI), to be released next month, found a “strong and consistent interest” in economic incentives and climate policies. Transition planning topped the poll, with 72 percent of respondents “highly interested” in the policy area.
“Having kicked off many of the financial policy reforms, including on corporate disclosures, investors realise they also have to push for equally ambitious, coherent and consistent policy changes that affect the investible universe,” says Margarita Pirovska, director of policy at the PRI, which is updating its policy engagement handbook to reflect “evolutions in the landscape”.
Hand in glove
The NZC builds on the work of the Transition Finance Council (TFC), formed by the UK government and the City of London Corporation, with COP26 President Alok Sharma leading its delivery of tools and frameworks needed to establish leadership in transition finance largely completed in Q1 2026.
The NZC was relaunched in February 2025 by then-DESNZ Secretary of State Ed Miliband, with a remit to ensure the clean energy transition drives economic growth and creates jobs. It has taken ownership of the TFC Finance Playbook, which outlines the processes and principles for developing the plans that fund STPs.
“The idea is for investors and others from the financial ecosystem to work hand in glove with the relevant industry business to come up with a co-created solution, with government also at the table to provide certainty and confidence,” says Skidmore, who also chaired the TFC working group responsible.
The TFC also produced a pilot focused on long duration energy storage to demonstrate the nascent sector’s value proposition and to match financing needs across asset classes against technical readiness levels.
“When an STP has a finance plan alongside it, investors have a clearer idea of what they might be investing in at different stages,” adds Skidmore.
Finance plans are already being created by the NZC’s finance subcommittee for four existing STPs covering the waste, retail, hospitality and agrifood sectors, developed last year with industry input.
“Investors often assume that the strongest analysis will prevail. But you also need the right political and policy relationships to achieve positive impact.”
Caroline Escott, Railpen
The work is shared between roughly 30 members – including the big four banks, Aviva Investors, Federated Hermes and Fidelity International – based on independent analysis and due diligence from the Center for Economic Transition Expertise (CETEx) at the London School of Economics (LSE).
The NZC’s 2027-29 programme could include as many as 17 consolidated finance and sector plans, including for “foundational” industries, on which other sectors rely for their own decarbonisation pathways.
Asset owners can shape finance plans across sectors as members of the finance subcommittee, lean into their own sector expertise by reviewing plans’ heads of terms, or serve as sounding boards via regional roundtables.
Skidmore expects STPs and finance plans to be revised regularly, reacting to ongoing inputs by investors, and decision-useful data feeding into sector-specific dashboards.
Policy dependencies
To date, climate policy engagement by UK asset owners has centred on formal consultations about disclosures needed to manage portfolio exposures to GHG emissions.
According to Katharina Lindmeier, head of sustainability strategy at auto-enrolment workplace scheme Nest Pensions, this has shifted as the policy dependencies of investee firms’ emissions trajectories become clearer.
Nest participated in the Transition Plan Taskforce – launched in April 2022 by HM Treasury to develop an internationally applicable reporting framework – which Lindmeier describes as a “genuinely cross-sector” initiative. It also set the tone for transition policy development through its operational independence from government, extensive engagement processes and academic rigour.
But the scheme might take a different stance on the NZC’s STP programme due to its model of outsourcing day-to-day portfolio management to external managers, directed by in-house asset class specialists.
“We’d see our role as being involved in a broader setting of the principles and the direction of travel, then being clear in our mandate to managers that this is something that we would like them to contribute to,” says Lindmeier.
While Nest includes systemic stewardship factors when monitoring the performance of asset managers, asset owners overall have been slow to mandate climate policy engagement, recent research by the LSE’s Global School of Sustainability suggests.
The People’s Pension scheme assesses alignment of managers’ industry and policy engagement activities and the extent of their role as “endorsers” of collaborative stewardship initiatives as part of its selection, appointment and monitoring processes.
Leanne Clements, head of responsible investment at People’s Partnership, the service provider to People’s Pension, says industry and policy engagement should be “core” to managers’ climate stewardship proposition.
“The more asset owner clients demand this kind of shift in resource allocation, the more likely we will achieve meaningful progress over time,” she says.
Jon Lukomnik, adjunct professor for impact and sustainable investing at Columbia University, argues asset owners should be bolder in their policy expectations of managers. As a baseline, the former should stipulate that the latter’s lobbying should not seek outcomes at the expense of end-beneficiaries.
Further, they should codify their growing need for policy engagement support from those best equipped to provide it. “In most contractual relationships, the one providing the capital has some amount of power to determine what the contract includes,” says Lukomnik.
In addition, asset owners’ steep learning curve requires a reappraisal of strategy, tactics and resources.
In a recent handbook on system-level investing, co-edited by Lukomnik, former SEC policy director Corey Klemmer noted how institutional investors tend to rely on evidence files to argue for a policy reform, while professional lobbyists will specify the text or grammar change that will deliver the outcome they seek.
Few asset owners are yet ready to take up Lukomnik’s recommendation to fight fire with fire, by hiring external lobbyists. But they realise their prevailing reliance on corporate stewardship teams – as reflected in a survey of current practice by thinktank Volans – leaves them outmanoeuvred.
In common with peers, Railpen is boosting internal expertise by offering public policy training, recruiting staff with policy skills to its sustainable ownership team, and ensuring co-ordination on priorities across investment, external affairs and sustainability teams.
“Investors often assume that the strongest analysis will prevail, but the UK listing rules debate demonstrated that evidence alone is rarely enough: you also need the right political and policy relationships to achieve positive impact,” says Caroline Escott, Railpen’s head of investment stewardship.
She notes that a key aim of the Governance for Growth Investor Campaign is to ally soft power to hard evidence.
Skin in the game
Growing in-house expertise and experience will change how asset owners collaborate with each other and investor networks on climate policy engagement, with implications for inputs on transition pathways.
At this nascent stage, many asset owners are taking a case-by-case approach to the initiatives they participate in. This may look unstructured, but USS’s Clark says priorities should reflect unique circumstances, informed by factors including size, resource, sector and asset class exposures, ownership and structure.
USS speaks regularly at events and works with academics, notably on scenario analysis. It also makes use of doors opened by its backing for government efforts to increase pension sector allocations to private markets and leverages an experienced corporate affairs team.
“Having a highly skilled corporate affairs team can make a big difference in terms of the access and conversations you can have,” says Clark.
The scheme recently laid out its views on transition policy, noting the long-term investor’s need for clarity at every stage of a multifaceted process. Beyond high-level principles, Clark says schemes’ policy engagement around the transition should follow similar principles to corporate engagement priorities.
“Schemes need to think about where their exposure is and what might encourage them to be able to invest more. If you’re investing in renewable energy and grid infrastructure, planning reform is a big consideration,” she says.
“Schemes that own assets that rely on grid connectivity could look to influence planning policy because they’re knowledgeable and have capital the government wants to attract.”
Individual assessments of agency, legitimacy and leverage are likely to lead to investors more frequently forming “coalitions of the willing”, with groups of stakeholders coalescing around specific investment-driven objectives, perhaps determined by location, sector or asset class.
“There may be a greater role now for smaller, more nimble coalitions to come together to address dedicated climate or sustainable finance policy issues that are particularly material to firms in these groups,” says Oscar Warwick Thompson, head of policy and regulatory affairs at UKSIF.
He notes that coalition-building on a particular issue can receive “positive recognition” from policymakers.
A new narrative
Appreciation of the policy dependencies of long-term returns is leading asset owners to invest in climate advocacy at what Pirovska calls “a time of hesitation” for the net-zero transition. But they are also setting out their terms for funding the transition just as both electors and elected are noticing that the levers of government no longer work.
Progress on granular decarbonisation pathways for key sectors of the UK economy has been stymied by “a lack of sustained commitment by policymakers and frequent changes in government”, according to UKSIF’s Warwick Thompson, making it “challenging” for institutional investors to engage consistently on the subject.
“There may be a greater role now for smaller, more nimble coalitions to address dedicated climate or sustainable finance policy issues that are particularly material to firms in these groups.”
Oscar Warwick Thompson, UKSIF
DESNZ has not responded to its own consultation on transition plan disclosure requirements for large corporates, while the Financial Conduct Authority (FCA) has acknowledged systemic barriers to scaling finance flows for decarbonisation.
Delays and obstacles have made it harder for all parties to join the dots between short-term realities and the longer-term planning need for an orderly transition to a low-carbon economy.
Skidmore wants the Burnham government to leverage STPs and their finance plans to frame a new narrative focused on affordability and growth, advising the new PM to get to grips with the opportunities of electrifications rather than getting bogged down in battles over “renewables vs fossil fuel”.
“These are quite antiquated arguments, relative to a focus on a transition around modernising existing assets,” he says, noting that decarbonisation of transport and the built environment would get the UK halfway to net zero – with scope for significant efficiency savings for consumers and businesses.
While STPs are far from the only vehicle for climate policy engagement by asset owners, their five-year horizons, arm’s-length relationship with government and consultative genesis give them a fighting chance of attaining broad consensus – and align with Burnham’s devolution instincts by offering opportunities for transition-focused investments across regions.
Mark Manning, senior visiting fellow at CETEx and former policy advisor on sustainable finance at the FCA, says STPs’ integrated finance plans will also help to address asset owner concerns about the dependencies – and thus investibility – of portfolio firms’ transition plans.
“Asset owners can use the outputs of credibly financed STPs to understand and respond to transition financing needs across the economy, assess remaining barriers to progress and benchmark the transition planning efforts of investee companies.”
Almost five years after the public and private sectors pledged to work together toward the net-zero transition, at COP26 in Glasgow, their investment in lobbying expertise suggests asset owners are no longer willing to leave the policymaking solely to the policymakers.
“Investors recognise that achieving long-term financial outcomes also depends on the real-economy policies that shape the transition itself,” says Clements.