This chapter provides insights into how pension and insurance investors integrate risks that may affect the long-term sustainability of their portfolios into their investment and risk management processes. It discusses the regulatory context and other drivers for these investors to consider sustainability risks and the challenges they face in doing so. It also looks at how institutional and governance frameworks are adapting and how investors are thinking about and integrating sustainability considerations in practice.
OECD Pensions Outlook 2026
Are We Saving Enough for Retirement?
Abstract
The integration of risks that may affect the long-term sustainability of the portfolios of pension and insurance investors is increasingly becoming mainstream in investment processes and decisions, as these risks can have significant implications for the long-term returns of portfolios. Regulatory frameworks and other measures to support the integration of sustainability risks have been evolving rapidly and have served as a key driver for pension and insurance investors to consider these risks in their investment processes. These investors’ institutional and governance frameworks have also been adapting to accommodate these changes, with the systematic consideration of these risks becoming embedded in the investment process.
This chapter aims to better understand how pension and insurance investors are integrating these sustainability risks into their investment and risk management processes and the drivers for them to do so. It provides insights to regulators and supervisors regarding the challenges these investors face and how they are thinking about and applying sustainability considerations in practice. The information included draws significantly from interviews with pension and insurance stakeholders involved in investment processes.1
The discussion focusses on the drivers and processes of integration. The first section describes the relevant measures in place for pension and insurance investors to incorporate risks affecting the long-term sustainability of their portfolios to provide some context for the environment in which they operate. The second section highlights how these investors are thinking about sustainability in the context of their investment strategies and the drivers for them to integrate these considerations further into their investment processes. The third section looks at how they are adapting their institutional and governance frameworks to better integrate the consideration of sustainability risks. The fourth section examines in more detail how they are integrating these risks into their investment processes in practice, providing case studies to illustrate the aspects discussed. The final section concludes.
Regulatory frameworks and measures to incorporate risks affecting the long-term sustainability of the portfolios of pension and insurance investors have been evolving rapidly. To understand the approaches and extent to which these investors integrate sustainability considerations in practice, it is useful to first understand the regulatory environment in which they operate and the frameworks and tools they may have at their disposition.
Jurisdictions have introduced numerous measures to require, facilitate, or standardise how pension and insurance investors integrate sustainability risks into their investment processes. Such measures, which are described in Table 3.1, play a large role in shaping how investors consider and incorporate these risks. The analysis herein uses the information that the OECD has collected about the measures jurisdictions have implemented to incorporate environmental, social and governance risk factors into insurance and pensions investments.2 This information provides insights into global developments and standard setting relevant to insurance and pension investors and allows for a comparison of approaches across jurisdictions.
Source: OECD (2026[1]), OECD Database of measures to incorporate environmental, social and governance risk factors into insurance and pensions investments, https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/pensions-and-insurance/Database-of-Sustainable-Investment-Measures-for-Insurance-and-Pensions.xlsx
Pension and insurance investors are often subject to specific requirements regarding whether and how they should consider sustainability risks in their investment decisions. Pension funds are more often required to disclose whether and how they incorporate these risks into their investment and risk management processes, even if they are not required to do so. This is the case for pension funds in Canada (Ontario), Colombia, Israel and Switzerland. Insurance companies in Israel are also required to disclose any consideration of sustainability.
However, requirements are increasingly moving away from simple disclosure to requiring that pension funds and insurance companies integrate sustainability risks into their investment processes. Figure 3.1 shows that 41 of the 53 jurisdictions assessed have some requirement for pension or insurance investors to integrate sustainability risks in their investment and risk management processes.3 Of these, three have requirements in place only for pensions and two for insurers but not pensions. Six jurisdictions additionally have mandatory exclusion policies prohibiting investment in certain sectors, usually applying to all investors. France is unique in requiring that occupational pension funds offer a sustainable investment option to members.
Note: Requirements noted under European Union apply to all 27 EU Member States. Jurisdictions listed in the table are included in the OECD Database of measures to incorporate environmental, social and governance risk factors into insurance and pensions investments, except for EU Member States not implementing additional requirements. In Norway, mandatory exclusions of companies involved in severe environmental or social misconduct apply only to the Norwegian Government Pension Fund Global. Jurisdictions with no requirements are not listed in the table.
Source: OECD (2026[1]), OECD Database of measures to incorporate environmental, social and governance risk factors into insurance and pensions investments, https://www.oecd.org/content/dam/oecd/en/topics/policy-issues/pensions-and-insurance/Database-of-Sustainable-Investment-Measures-for-Insurance-and-Pensions.xlsx
Requirements for corporate disclosures on sustainability are now the norm across the OECD. Such requirements, however, usually only apply to listed or large companies and allow for more flexibility for smaller companies. All OECD Members have implemented or will be implementing sustainability-related corporate disclosure requirements. Thirty also require the disclosure of sustainability-related metrics, and three recommend that companies do so (OECD, 2025[2]).
Taxonomies are a classification system to define which economic activities are considered sustainable. They normally include clearly defined objectives, details of the economic activities that contribute to these objectives, and criteria to determine whether the activity can be considered sustainable against that objective. As such, they can provide a common understanding of what sustainability means and provide investors with more certainty regarding whether their chosen investment aligns with their own priorities and objectives. In this way, they can also help to prevent greenwashing, where a financial product is marketed as sustainable without necessarily being so, as claims of sustainability can be more easily verified. Of the 53 jurisdictions covered in the OECD’s Database of measures to incorporate ESG risk factors into insurance and pensions investments, 41 either have their own taxonomy or, in the case of EU Member States, apply a common regional framework (OECD, 2026[1]). Some taxonomies, such as the Mexican Sustainable Taxonomy and the draft Brazilian Sustainable Taxonomy, go further by integrating social and developmental priorities alongside traditional environmental objectives. More recent taxonomies have often aimed to align with existing taxonomies of adjacent jurisdictions, as is the case for Iceland, Türkiye and the United Kingdom with respect to the EU Taxonomy.
Labels intend to provide assurance to customers that products being sold as sustainable are indeed integrating sustainability considerations into their investment strategy and go hand in hand with product disclosure that provides evidence that the investment products meet the criteria required for the label. They intend to provide more transparency around how these risks are accounted for and to prevent “greenwashing”. Labels may involve a specific sustainability focus, allow for several categories within the label, and sometimes require independent certification for products to use the label.
A number of jurisdictions have introduced rules to ensure that sustainability labels are meaningful and not misleading. Label‑based or certification-style systems require investment funds to meet defined sustainability criteria, apply exclusions, and provide transparent information, and are often supported by independent verification. Others (e.g. Brazil, the European Union, the Slovak Republic, Thailand, the United Kingdom, the United States) have introduced naming regulations that control the use of sustainability‑related terminology, requiring that products using such terms actually invest in line with the terminology used and disclose clearly how sustainability considerations are integrated. Overall, despite differences in exact requirements, the common regulatory trend across jurisdictions is to strengthen transparency, comparability, and the credibility of sustainability claims.
A growing number of jurisdictions are adopting standardised reporting frameworks for sustainability-related information. These aim to provide investors with comparable, reliable, and financially relevant data that can be integrated into risk assessments and investment decision‑making processes. Despite the numerous frameworks available, there has been a strong global convergence towards the adoption of the International Sustainability Standards Board (ISSB) IFRS Sustainability Disclosure Standards. IFRS S1 and S2 establish a global baseline for sustainability reporting by setting out general requirements for sustainability‑related financial disclosures (S1) and specific climate‑related disclosure requirements (S2). Thirty-nine jurisdictions have already mandated adoption, initiated harmonisation processes, or developed national sustainability standards directly based on IFRS S1 and S2 (IFRS, 2026[3]). In parallel, regional frameworks such as the European Union’s European Sustainability Reporting Standards (ESRS) represent another major pillar in the global reporting landscape. While conceptually aligned with international efforts, the ESRS reflect the European Union’s distinct regulatory approach, characterised by double materiality and a broader disclosure scope under the Corporate Sustainability Reporting Directive (CSRD).
Regulation is one of the main drivers of the integration of risks affecting the sustainability of portfolios in investment processes, with particular challenges and considerations relevant for pension and insurance investors. However, many other factors also play a role in pension and insurance investors’ consideration of these risks in their investment decisions. These include financial results, concerns around image and reputation, member or client preferences, competition and market practices, structural differences, and finally societal norms and values.
3.2.1. Regulation
Regulation has been a strong driver for the integration of sustainability risks to investment. Thirty per cent of Principles for Responsible Investment (PRI) signatories indicate that they took action on sustainability in response to legal and regulatory developments (PRI, 2025[4]). A survey by the CFA Institute in Europe indicated that 60% of asset managers considered regulation to be a top driver for them to consider sustainability-linked factors in their investment strategies and products. Another survey of selected institutional investors in the United Kingdom indicated that 70% felt that regulation was the top driver of integration (Barnett Waddingham LLP, 2025[5]).
There is a consensus among those interviewed that corporate disclosure requirements and the increased transparency they have brought has been significantly beneficial to investors’ ability to integrate sustainability risks to investment in their investment decisions. Several pension and insurance investors felt that disclosure could go even further by requiring more granular data in some cases, or data for areas that are more difficult for investors to assess, such as biodiversity, supply chains, and tax compliance. Others nevertheless cautioned that it may still be early to go too far with standardised requirements before there is more industry-wide agreement on the most useful measures and metrics.
Pension and insurance investors have also largely welcomed sustainability disclosure requirements as positive for their efforts towards integrating risks affecting the sustainability of their portfolios into their own investment processes Several investors observed that the requirement to simply disclose their own practices provided an incentive to do more and make sure their processes and procedures were robust. Stronger regulations pushed those who were already integrating sustainability risks in their investment processes to formalise this in their approach and governance structures. In some cases, investors have been proactive in anticipating additional regulation, particularly in Latin America, preferring to develop robust processes and procedures in advance rather than be rushed into complying with the regulations later on. However, others observed that many would not take any actions regarding sustainability unless regulation forced them to do so.
Pension and insurance investors have also welcomed standardised reporting frameworks such as IFRS S1 and S2 to improve the comparability and understandability of the information disclosed. Even where the use of such frameworks is not mandatory, companies often rely on them on a voluntary basis because they provide a common language for reporting. Taxonomies have additionally helped investors to assess reported targets and companies’ ambitions relating to their sustainability goals.
While many of these regulatory initiatives are broadly viewed as positive, numerous challenges to ensuring an effective regulatory framework remain. Additional challenges are more specific to insurance and pensions, including the interpretation of fiduciary duty and its compatibility with the integration of risks that may affect the sustainability of their investment portfolios.
Regulatory challenges
Regulatory challenges that investors have highlighted include a lack of clarity and coherence, complexity, political commitment, and the fragmentation of regulation.
Pension and insurance investors feel that sustainability disclosures need improvement with regards to definitions and the relevance of the information disclosed. The information disclosed is not always comparable. One survey of 350 institutional investors indicated that 80% felt that sustainability reporting needed more comparability (EY, 2024[6]). In addition, there are often no clear thresholds regarding the materiality of the information to disclose, leading companies to disclose too much, including information that is not necessarily meaningful for investors.
Investors’ lack of confidence in the information disclosed also leads to concerns around “greenwashing”, with 85% indicating that the problem has worsened over the last five years (EY, 2024[6]). Investors have expressed broad support for external audits of sustainability disclosures to improve the quality and comparability of data. Sixty-four per cent of investors in the survey expressed support for independent audits of ISSB and CSRD disclosures (EY, 2024[6]). Countries are increasingly adopting such measures. New Zealand, Norway and Türkiye have already adopted limited assurance requirements and another 27 OECD jurisdictions plan to do so. Colombia, Mexico and Spain plan to adopt reasonable assurance requirements at the level required for the auditing of financial statements (OECD, 2025[2]). Australia is currently consulting on potential amendments to its current approach of a staggered implementation of assurance requirements for different tranches of corporates (Australian Treasury, 2026[7]).
Several pension and insurance investors in Latin America expressed dissatisfaction with the lack of clear definitions for information that companies disclose. The quality of local companies’ reporting tends to be poor, particularly from smaller companies, with different interpretations of the information to be disclosed that are not always comparable. In addition, regulators and supervisors are not necessarily providing the needed clarifications and guidance.
In Europe, the Sustainable Finance Disclosure Regulation (SFDR) has been subject to wide criticism for not providing sufficiently clear definitions and standards. In particular, there was confusion around the interpretation and market use of Articles 8 and 9, which were increasingly used as de facto product labels despite not being designed for that purpose.4 Over time, this informal labelling system contributed to inconsistent classifications, concerns about “greenwashing” and limited comparability for end investors. Such criticism led to the European Commission’s proposal for a revised Sustainable Finance Disclosure Regulation (often referred to as “SFDR 2.0”) in November 2025. The Commission’s proposal replaces the Articles 8 and 9 with a voluntary three‑category system: Sustainable, Transition and ESG Basic. These categories aim to provide clearer distinctions around the sustainability ambition while simplifying product‑level disclosures and limiting the use of sustainability related terms. The proposal nevertheless still has to be negotiated and adopted by the European Parliament and the Council of the EU (European Commission, 2025[8]; Robinson-Tillett, 2025[9]).
While clear definitions are important, the enforcement of inflexible standards can have a negative impact on investors’ willingness to publicly commit to sustainable investment even when they are practicing it, a tendency commonly referred to as “greenhushing”. Pension and insurance investors have broadly echoed the need for better engagement with the industry and communication guidelines to assist investors with regulatory compliance and avoid greenwashing. The greenhushing phenomenon has been observed in Australia, where the regulator ASIC’s greenwashing enforcement actions have primarily been taken against institutional investors, some of which are now more measured in their communications about their consideration of sustainability risks in their investment strategies. Pension investors in Europe also expressed potential legal liability as a concern, leading them to downplay the extent to which their fund offerings consider sustainability factors, while noting that this was not the case for all their competitors. Anti-trust laws may also present a barrier to net zero alliances, with concerns that collective action could be anti-competitive (Dhondt, Chadd and Rocha, 2025[10]). Recently, several large pension and insurance investors have pulled out of their net zero commitments due to regulatory uncertainty. The Canada Pension Plan Investment Board (CPPIB) ended its net zero commitment following changes to Canada’s Competition Act requiring entities to prove any environmental claims (Robinson-Tillett, 2025[11]). However, CPPIB officials have indicated that this change does not affect other climate‑related actions it is taking and has recently announced an expanded portfolio carbon footprint reporting. Munich Re pulled out of several net zero alliances and coalitions due to conflicting regulatory requirements.
Another challenge is a lack of coherence in definitions and requirements across regulations, even within a given jurisdiction. In Europe, stakeholders have highlighted inconsistencies across the SFDR, the EU Taxonomy, the EU Benchmark Regulation and the Corporate Sustainability Reporting Directive (CSRD) (Boni and Scheitza, 2025[12]). For example, there is no clear and common definition of sustainability across the SFDR and the EU Taxonomy. Additionally, disclosure requirements for benchmark providers have not been sufficient for the users of those benchmarks to meet their own reporting requirements under the SFDR. Furthermore, regulations do not apply equally across the investment chain. Recently adopted regulation for ESG rating providers is expected to reduce investors’ sole responsibility for ensuring these outputs are fit for purpose by requiring providers to disclose methodologies, models, assumptions and data sources.
Disclosure requirements can also be overly complex and resource intensive to comply with. Pension and insurance investors feel that the information required is not always necessarily useful or relevant at a portfolio level or for different countries or regions. Furthermore, given the resources required to comply with requirements, they risk becoming a tick-box exercise, particularly for smaller companies and in emerging markets, highlighting the importance of proportionality and consideration of local context. In an effort to reduce compliance burdens, the SFDR review in Europe seeks to remove previously required entity‑level disclosures reflecting the overarching policy objective of streamlining sustainability regulation and reducing reporting complexity.
There is a need for additional efforts to ensure that product disclosure requirements are effective and understandable for their target audience. Retail consumers generally do not understand the information provided by sustainability product disclosures such as the SFDR. One survey of retail investors in Europe showed that 45% reported increased confusion from the amount and complexity of the information being disclosed to them when making an investment decision (CFA Institute, 2024[13]).
In addition to clear and internally coherent requirements, investors also need requirements to be consistent with political objectives and other regulations. If countries have net zero goals, for example, policies implemented for other sectors of the economy need to be consistent with that goal. A reallocation of capital to sustainable sectors by institutional investors will not achieve the desired objective, including in terms of better returns for consumers, unless the real economy also moves in that direction.
The stability of political objectives and guidance is also important to give pension and insurance investors the comfort to commit the resources necessary to effectively consider sustainability risks in their investment processes. Government commitment and stability have helped to advance sustainable investment practices in South Africa. Japan’s government has also demonstrated commitment to sustainability over the years, which is one reason why it is more advanced in terms of sustainable investment compared to other jurisdictions in the region. Investors have indicated that political objectives in relation to sustainability are now more predictable across Asia, which should increase the appetite from pension and insurance investors to adopt more sustainable investment policies.
In contrast, the US Department of Labor has modified its guidance to fiduciaries for the consideration of sustainability factors several times since 1994 leading to difficulties for pension plan fiduciaries to consider such factors. Changes in political priorities globally, however, will not necessarily deter all investors who have already established sustainable investment policies from continuing their approach, particularly for those with a long-term investment horizon like pension funds. Nevertheless, political changes have still affected investors’ views and engagement on sustainability-related issues. Net zero alliances have lost support in recent years, and the Net Zero Banking Alliance was disbanded in 2025.
The fragmentation of regulations across jurisdictions can present compliance challenges for global investors. Generally, investors must comply with the most restrictive regulations. Global investors, particularly asset managers, are having increasing difficulty to create funds that are globally relevant and compliant with all applicable requirements for product labelling, for example. Adoption of the South African Green Finance Taxonomy has been low in part because entities choose to apply the EU Taxonomy to be compliant with requirements of international providers of capital (FSCA, 2024[14]). In the Netherlands, local requirements tend to be more advanced and ahead of other countries, so Dutch pension investors outsourcing their investment management sometimes have difficulty because their asset managers are not yet familiar with their local requirements and must consequently adapt their approach.
Conflicting regulations and requirements are also emerging that make it more difficult for institutional investors to integrate sustainability considerations in their investment processes. For example, the US Securities and Exchange Commission (SEC) recently updated its interpretation of shareholder engagement on environmental, social and governance issues, which increases disclosure requirements if shareholders intend to influence the issuer’s policies (SEC, 2026[15]). This complicates investor engagement with US entities regardless of where they are based. In addition, the SEC has proposed rescinding Rule 14a‑8 which would make it more difficult to get shareholder resolutions on proxy ballots. Such regulatory fragmentation can increase compliance costs and harm effective resource allocation, preventing investors from considering financially material risks that could have a negative impact on returns. This can be particularly harmful on the competitiveness of medium-sized companies (Empresa Global, 2025[16]).
Regulatory considerations specific to insurance and pensions
Insurance and pension investors operate under specific regulatory frameworks that may also have consequences relating to their integration of risks impacting the long-term sustainability of their portfolio. The extent to which the regulatory framework requires or prevents the integration of sustainability risks can vary across insurance and pensions. In the United Kingdom, for example, trustees of workplace pension schemes are under more stringent requirements to consider sustainability factors in their investment decisions than insurers are (PRI, 2024[17]). In contrast, European regulatory requirements relating to sustainability are largely not applicable to the pension plans for independent workers in Germany, which is a significant factor in the lack of integration of sustainability factors among these plans. German insurers, however, more often integrate sustainability factors in part because they are subject to many of the European regulatory requirements in place.
Capital requirements could also be a barrier to integrating sustainability considerations more comprehensively into investment decisions. While insurers subject to Solvency II requirements in Europe must now include climate risks in their Own Risk and Solvency Assessment (ORSA), capital charges have not been adjusted to reflect sustainability risks. This is currently under discussion.
Some investors indicated that another potential barrier to integration, particularly for pensions, is the cost of doing so when regulators and supervisors in many jurisdictions have been focussed on reducing costs to members. The effective integration of sustainability risks into investment processes involves additional costs to gather and analyse the relevant information and to develop internal tools to use that information for investment decisions. Cost pressures may also impede more granular approaches to integration by asset class or fund as investors aim to be as efficient as possible in managing their portfolios.
The use of performance benchmarks that do not incorporate sustainability considerations may also be a barrier to integration. The comparison of investment returns of pension funds to such benchmarks can present a challenge for funds to integrate sustainability risks in their investment decisions because of the increased risk of tracking error. Several investors highlighted this as a challenge considering the government mandated performance test used for superannuation funds in Australia.
Interpretation of fiduciary duty for pensions
Fiduciary duty obliges pension investors to act in the best interests of plan beneficiaries and ensure their investment activities are carried out with loyalty and care and in the sole interest of their members. The interpretation of fiduciary duty in any given jurisdiction, and more precisely the interpretation of the scope of members’ interests, will strongly influence the approach that a pension investor will take to incorporate sustainability risks in its investment strategy because the interpretation must view doing so as being in the interest of members.
The interpretation of fiduciary duty can vary widely across jurisdictions and is one driver of differences observed globally regarding pension investors’ approaches to integration. Broadly speaking, this hinges on how members’ interests are viewed. The narrowest interpretation of fiduciary duty is that member interest is only the short-term financial return they receive, and therefore only factors that are financial in nature may be considered. A similar but more flexible interpretation is that members’ interest should also consider non-financial factors that may be financially material because these can also be expected to impact financial returns over the long term. More general interpretations of interest include considering the impact that factors may have on members’ future standard of living and accounting for the preferences of the members themselves. The spectrum of the interpretation of members’ interest in the context of fulfilling fiduciary responsibilities is illustrated in Figure 3.2.
The narrowest interpretation of fiduciary duty is that fiduciaries may only consider factors of a financial nature in their investment decisions and only short-term financial returns are relevant for members’ interest. Most fiduciaries of occupational plans in the United States rely on this interpretation, largely because of precedent, frequently changing guidance, and fear of legal liability. The definition of fiduciary duty in the United States requires that the sole purpose of fiduciaries be to ensure the provision of benefits and to pay reasonable administrative costs of the plan. The Department of Labor has frequently changed its guidance on the interpretation of fiduciary duty since 1994 and has since 2020 issued binding rules on the topic (Muir, 2022[18]). The 2020 rule was in line with the narrow interpretation of fiduciary duty and discouraged the consideration of non-pecuniary factors. The 2022 rule broadened the interpretation and explicitly clarified that fiduciaries were allowed to consider climate risk and other sustainability risks in their investment selection. However, the Department of Labor has indicated that the rule no longer applies and that they will replace it with a new rule resembling the 2020 rule and prohibiting or discouraging the consideration of non-financial factors in investment decisions. Fear of legal liability is a significant barrier to the consideration of non-economic factors in the investment of pension plans in the United States. Barriers to prove that fiduciary duty was not breached in the consideration of non-financial factors are high, as fiduciaries must demonstrate that the risk-return profile was not compromised, and in the case of defined contribution plans, that offering any investment options explicitly considering sustainability factors did not come at the expense of more traditional investment options (PRI, 2020[19]). Such assessments cannot reflect the potential for investments that consider sustainability risks to outperform over the long term.
The most common interpretation of fiduciary duty takes a broader view of financial interest and requires fiduciaries to consider any factor that is likely to impact financial returns over a longer time horizon. As such, fiduciaries must also account for material non-financial factors that could impact the sustainable long‑term value creation of the investment. Integration requirements that require pension or insurance investors to consider sustainability are often justified on these grounds, suggesting that proper due diligence and risk assessment of investment requires accounting for all material risks, including non-financial risks.
This interpretation of fiduciary duty focusses on the mitigation of material risk factors, which may prevent investors from having any other objective relating to sustainability or impact. Indeed, this is the general interpretation of fiduciary duty by pension funds in Chile, which are required to consider sustainability risks in their investment strategy. Pension funds approach sustainability factors as one of many other relevant factors they need to consider in their investment decisions to maximise financial returns. They do not have decarbonisation targets or social impact objectives, as they see this as conflicting with their mandate to focus solely on returns.
A broader interpretation of fiduciary duty considers members’ interest as not only financial but also related to their standard of living. The definition of fiduciary duty in South Africa may be interpreted in this manner, as it states that fiduciaries should aim to achieve “adequate risk adjusted returns suitable for the fund's specific member profile, liquidity needs and liabilities”, implying that member characteristics should be considered. In addition, Regulation 28, which requires pension funds to consider sustainability factors in their investment decisions, obliges fiduciaries to aim for “adequate risk adjusted returns” rather than requiring them to maximise profits (Muir, 2022[18]). Indeed, pension funds in South Africa do take their members’ broader interests into account. For example, the plan for workers in the metal and engineering sectors is interested in financing job creation because it is in their members’ best interests to be employed, and the sector has lost a lot of jobs over the last decade.
In Europe, the IORP II Directive states that Institutions for Occupational Retirement Provision (IORPs) should be allowed to account for the long-term impact of their investment decisions on sustainability factors, which in principle could include factors having an impact that may not be directly financial. This implicitly recognises that some of these impacts could be relevant for the plan members, though does not oblige the IORP to take them into account to fulfil its fiduciary duty. Some stakeholders in the United Kingdom are also promoting a broad interpretation of members’ interest as including their standard of living. As such, investments that could contribute to a higher standard of living in the future – such as healthcare, education, and infrastructure – could also be considered in fulfilling fiduciary duties (Eversheds Sutherland, 2025[20]).
In some cases, member interest is viewed as including member preferences. The Law Commission of England and Wales offered this interpretation of fiduciary duties for pension fund investment, indicating that trustees should be able to consider factors that are not necessarily financially material for the investment if there is reason to believe that members share that belief and that the consideration of the factor would not result in significant financial detriment (Financial Markets Law Committee, 2024[21]). The United Kingdom’s Occupational Pension Schemes Investment and Disclosure regulations require trustees to disclose whether and how they consider the views of their members with respect to non-financial issues in their investment decisions. Nevertheless, in practice interpretations of fiduciary duty still vary widely across the United Kingdom, and many investors remain reluctant to apply this interpretation because the law does not explicitly allow for this.
In the Netherlands, the social partners, government and pension funds signed the Agreement on International Responsible Investment for the Pensions Sector that requires signatories to ensure their members’ support with respect to any responsible investment strategy they may implement (Bauer and Smeets, 2021[22]). As such, pension funds commonly survey their social partners and/or members regarding their preferences towards sustainable investment and any non-financial objectives their investment strategies should target. However, while being supportive of sustainable investment strategies, member preferences largely indicate that their main priority remains financial returns, with the majority not willing to sacrifice returns for other objectives. For example, 59% of members of ABP in the Netherlands were supportive of sustainable investments as long as there was no negative impact on returns (Bauer and Smeets, 2021[22]). Another Dutch fund indicated that its members were more willing to sacrifice some return, while acknowledging that the member demographics were skewed towards higher-income individuals, highlighting the importance of also considering member characteristics.
Requirements to integrate sustainability factors into investment and risk management processes make explicit that the consideration of non-financial risks is aligned with the fiduciary duty of pension funds, thereby excluding the narrowest interpretation of fiduciary duty. However, such requirements usually do not go beyond requiring material risks that could impact long-term financial returns. Some jurisdictions have issued clarifications or guidance as to what extent pension funds are allowed to consider sustainability factors in their decisions. In Australia, for example, the regulator has clarified that superannuation trustees should consider material risks linked to ESG factors in their investment decisions and may pursue environmental or social objectives as long as they are consistent with the outcomes sought for members. Norway has required that the government pension fund exclude companies involved in severe environmental or social misconduct.
As a fiduciary duty is a legal concept, differences in legal structures may also explain to some extent the differences in interpretations across jurisdictions. For example, fiduciary duties of plan sponsors in the United States are grounded in trust law developed within the common law system, while in South Africa the legal system has origins in Dutch civil law. These two frameworks take a slightly different approach in how they see the fiduciary relationship. Under common law, fiduciary laws relate to property rights whereas under civil law they relate to contractual rights. The differences in legal structure do not seem to change much with respect to the ultimate goal of fiduciary laws, however, with both aiming to prioritise the best interest of members (Muir, 2022[18]). Nevertheless, companies in civil law countries score higher in their corporate social responsibility performance, meaning they are more likely to take action to improve social welfare. One study found legal origin to be a stronger predictor of corporate social responsibility than political institutions, regulations, social preferences, or a firm’s financial performance (Liang and Renneboog, 2017[23]).
The returns generated for members are always fiduciaries’ first priority, regardless of the interpretation of fiduciary duty that they apply to their investments. One survey of equity portfolio managers revealed that over two‑thirds were not willing to sacrifice returns for environmental or social objectives, regardless of whether their investment fund was sustainable or traditional, primarily because of their fiduciary duties (Edmans, Gosling and Jenter, 2025[24]). Pension investors largely shared this sentiment, indicating that they strive to achieve the best returns regardless any sustainability-related objectives they may have.
3.2.2. Financial results and investment risk management
The view that incorporating risks to the sustainability of portfolios into investment decisions is good risk management and is likely to result in better returns over the long run is the main driver of integration after regulatory requirements. The 2024 survey of PRI signatories indicated that 44% believe taking action on sustainability is important for financial risk and returns. Furthermore, 20% highlighted due diligence as a reason they engage in responsible investment, 16% cited value creation, 16% their long-term horizon, and 14% risk management (PRI, 2025[4]). Another survey of selected investors in the United Kingdom indicated that financial risk was the second most important driver of integration after regulation (Barnett Waddingham LLP, 2025[5]).
Indeed, maximising financial returns over the long term is a key driver for integrating sustainability risks to investment for many pension and insurance investors, who see this as ensuring they are carrying out appropriate due diligence and risk management. As such, this practice is not new for many, who have already been considering sustainability risks in their investment strategies for decades. However, the regulatory requirements drove them to formalise their approach in their processes and governance framework. Additionally, as the sustainability topic became more mainstream, they started communicating more about their approach to their clients as a way to demonstrate the added value they could offer.
3.2.3. Image and reputation
Corporate image has been another strong driver for investors to adopt sustainable investment practices. The 2024 survey of PRI signatories indicated that 20% are motivated to protect their reputation and 14% want to enhance their social license to operate (PRI, 2025[4]). The survey of selected investors indicated that reputational risk was one of the three top drivers for integration (around a third of participants), along with comparison to peers (around 5%) (Barnett Waddingham LLP, 2025[5]).
Investors often link their motivation to their company’s purpose and culture. This requires strong and proactive leadership from the executive level, particularly where the regulatory framework is less developed and not requiring change (Lachance and Stroehle, 2021[25]).
Investors are also driven to preserve their reputation, particularly for pension funds and insurers whose inherent purpose is to contribute to social well-being and provide financial protection to individuals. In the United Kingdom, public bodies, including pension schemes, have been more advanced in adopting sustainable investment practices in part because they are subject to the freedom of information act and their activities are more transparent to the public. Corporate disclosure requirements have driven companies to improve their practices to demonstrate that they were doing well and convey a positive image regarding their role in society. For one pension fund in Chile, the social unrest of 2019 was one driver in advancing its sustainable investment practices, as there was demand for increased transparency and pension funds were being severely criticised for not caring about their members or society.
3.2.4. Member and client preferences
Demand for more sustainable investment can also come from members, beneficiaries or shareholders. This has been a key driver for 14% of PRI signatories (PRI, 2025[4]).
When they are supportive of sustainable investment approaches, the preferences of clients and beneficiaries can help to drive the approach taken by the pension or insurance investor. The regulatory framework can also support this. In Europe, Solvency II requires insurers to take into account their client’s sustainability preferences in their investment strategies, where relevant. Clients’ input can inform the design products that people want to invest in. Shareholder pressure to adopt more sustainable investment practices may also influence investment priorities.
For pensions, member characteristics often influence investment targets, objectives, or exclusions. This is particularly the case when the pension fund is catering to specific professions, like teachers or doctors, who want to support the social causes they dedicate themselves professionally to. Member demographics can also shape objectives, as with Nest’s focus on promoting living wages given a significant portion of their membership base is low income (Amundi, 2024[26]). Some funds rely on member surveys not only to gauge appetite for sustainable investments but also to highlight areas that members feel are most important, which can then influence the pension fund’s targets and indicators. Nevertheless, the responses to such surveys are likely to reflect the views of the most engaged members, and may not fully reflect the views of all members.
3.2.5. Competition and market practices
The consideration of risks to the sustainability of portfolios in investment processes has become increasingly mainstream, leading to increased integration by investors to remain competitive and because this is becoming common market practice.
Competition with other market players has driven some pension and insurance investors to integrate sustainability considerations in their investment. This has been one driver of some of the more ambitious goals linked to decarbonisation, though these goals have recently become more realistic. Providers of defined contribution pension plans often consider that having a sustainable investment option for their members is a competitive positioning, and easy to do because members always have a choice to elect the option or not. Nevertheless, even when members may be positive regarding sustainable investment options, actual take‑up of these options tends to be low, and consumers generally do not fully understand the underlying issues and implications.
In some markets, pension and insurance investors have increased their adoption of sustainable investment practices following the lead of the biggest market players. This is driven not only by the large pension funds setting an example in the market, but also by the asset managers and investment consultants that they work with. The market for external advisers to pension and insurance investors tends to be rather concentrated with a small number of firms dominating the market, so they can play a significant role in expanding sustainable investment practices to their clients who are slower to adapt (Fabian et al., 2023[27]).
Indeed, asset managers have played a large role in expanding sustainable investment practices. This occurred in Japan, for example, after the government Pension Investment Fund (GPIF) was required to consider all financially material factors, including those linked to sustainability, in its investment decisions. This requirement forced its external asset managers to integrate the consideration of these factors into their own processes and procedures, which they expanded to their corporate pension clients, increasing the magnitude of investment considering those factors by six times over 2016-2019 (PRI, 2021[28]). This also happened in South Africa after the government Employees Pension Fund (GEPF), the largest asset owner and pension fund in the country, began considering sustainability risks in its investment processes. Private sector investment managers then became PRI signatories, which ultimately led to a push for regulation to require pension funds to integrate sustainability risks in their investment processes, resulting in the promulgation of Regulation 28 which does just that (Muir, 2022[18]). Ultimately it was then the investment consultants driving pension funds to consider sustainability risks and make improvements in corporate disclosures. Similarly, once the Employees Provident Fund of Malaysia began considering sustainability risks, the asset managers they worked with began to change their own practices to incorporate sustainability considerations in their investment processes.
3.2.6. Structural differences
Structural differences may also influence the extent to which pension and insurance investors integrate risks affecting the sustainability of their portfolios into their investment decisions and processes. Such factors include the nature of the pension plan or insurance contract for which assets are invested, organisational structures and market fragmentation.
The nature of the pension plan and its underlying investments can impact the ability for plan managers to integrate sustainability risks into their investment processes. Investments for defined benefit plans must aim to sustain adequate funding levels. The increased focus on funding levels has led many defined benefit plans to prioritise limiting the funding risk of plans rather than integrating sustainability risks into their investment decisions (PRI, 2020[19]). Additionally, because investments of defined benefit plans are backing guaranteed liabilities, they tend to have a high proportion of fixed income investments. There are generally fewer sustainable investment opportunities for fixed income investments compared to equity investments, and the opportunities for engagement with the issuers are more limited. For defined contribution plans, underlying investments tend to require more liquidity so they are less able to invest in private markets where there may be more opportunities to take advantage of sustainable investment opportunities (PRI, 2024[17]).
Sustainability risks impact insurance companies on both sides of the balance sheet and are generally less constrained in how they invest compared to pension funds, so the integration of sustainability considerations in their investment processes is more likely to be a priority. Their investment to limit global warming or biodiversity loss can have a direct impact on their future claims, thereby reducing future liabilities in addition to having a positive societal impact. Nevertheless, some insurers, notably in Latin America and Asia, indicated that their investment strategies do not necessarily aim to mitigate such risks on the liability side of their balance sheet. However, they may take other measures to mitigate these risks such as initiatives to educate the population and help them to be better prepared in the event of a natural catastrophe.
Organisational and governance structures may also influence the extent of integration. International financial groups tend to have an advantage in terms of resources available to develop effective integration of sustainability considerations in their investment and risk management processes. In addition, these entities are able to leverage their expertise and experience across the group, facilitating the development of local processes and practices.
Public pension entities that are accountable to the government may be limited in the issues they are able to prioritise in their investments. Such entities may face higher expectations to be aligned with political priorities, even if operating independently, which may also limit the extent to which their priorities in term of sustainability can be influenced by internal views or the preferences of their own beneficiaries.
The proximity of decision making and oversight with investment activities can also be a factor. In the United States, for example, the trustees of corporate pension plans tend not to have proximity to investment activities. These factors can create a lack of incentives to engage in stewardship activities (PRI, 2020[19]).
The extent to which retirement markets are fragmented can be an impediment to pension investors’ abilities to integrate sustainability considerations in investment processes. One study relying on PRI membership as a proxy of the prevalence of sustainable investment practices found a positive correlation with the number of asset owners with scale and the overall consideration of sustainability factors across the retirement system, in particular when comparing the United States and the United Kingdom. Retirement systems demonstrating high fragmentation with many smaller funds also tend to face more challenges with respect to governance, resources and expertise (Fabian et al., 2023[27]). Private pension assets are also very fragmented in Japan, where defined benefit plans have been slow to adopt sustainable investment practices (PRI, 2021[28]).
3.2.7. Societal norms and values
Finally, societal norms and values, supported by legal frameworks that enshrine these values, can be an important factor in the adoption of sustainable investment practices. The Constitution in South Africa, for example, grants citizens the right to a healthy environment that will be protected for future generations, in addition to the rights of equality, dignity and freedom. Societal values and beliefs therefore include environmental protection and social equality, which has provided foundational support for sustainable investment and contributed to South Africa’s broad interpretation of fiduciary duty. The first four of Sweden’s AP funds are required by law to “manage fund assets in an exemplary way through responsible investments and responsible conduct”.5 To fulfil this requirement, the funds take sustainability risks into account in both their investments and their own operations. In France, the PACTE law passed in 2019 introduced the concepts of corporate purpose and mission-driven company. This has encouraged institutional investors to more clearly define their values beyond profit and their contribution to society. Several large investors have since adopted and communicated their values related to sustainability, which also extend to their investment approach.
Pension and insurance investors are increasingly adapting their institutional and governance frameworks to support the consideration of risk impacting the long-term sustainability of their portfolios and prioritise their integration across the organisation. Boards and senior management are usually involved in establishing priorities, with the development of sustainability policies delegated to supporting committees. The extent to which the organisation has staff dedicated to sustainability efforts also depends on its size, with larger organisations setting up teams dedicated to the integration of sustainability risks not only for investment but also in organisational practices. Organisations also collaborate both within their group and across the industry to share knowledge and best practices and take advantage of potential synergies.
3.3.1. Boards and senior management
Senior management generally defines the priorities related to sustainability. It is usually up to the board to establish the strategic direction and expectations regarding the approach to sustainability. Management must provide the reasoning and rationale behind the strategic decisions and then incorporate that vision into the investment policy and procedures, including any exclusions and the sustainability criteria used. The involvement of senior management is especially important where the investor has impact objectives that go beyond effective due diligence and risk management of their investment portfolio, because these objectives will determine the limits and guidelines around how the portfolio managers can make their investment selections. Their involvement can also speed up the integration process. Executive management can also be responsible for ensuring compliance with the company’s policies and monitoring the progress towards any objectives or targets. Board or executives are formally accountable for and have oversight of their company’s responsible investment strategy for 91% of PRI signatories (PRI, 2025[4]). This accountability, however, does not impede the delegation of deciding the investment strategy to investment teams, who then have the ability to execute the vision on sustainability in the way they see most appropriate to achieve the investment objectives.
Some entities have set up boards dedicated to sustainability. For example, Allianz has established a dedicated Group Sustainability Board to support the Management Board in its sustainability-related decisions. The dedicated board suggests sustainability-related targets, monitors progress towards those objectives and aims to integrate sustainability considerations in all areas of the business. It also oversees sustainability-related communication and reporting (Allianz, 2023[29]).
Board members may be required to have or to acquire adequate knowledge of issues relevant to sustainability risks. In the Netherlands, good practice is that one board member becomes an expert on the topic and develops their expertise through specialised training if needed. The Dutch Central Bank can refuse the appointment of board members who do not have knowledge about sustainability risks.
Executive‑level management commonly oversees the implementation of the sustainability strategy. The Chief Investment Officer (CIO) normally directly oversees sustainable investment activities, though several institutions have also created a dedicated Chief Responsible Investment Officer or Chief Sustainability Officer that does so. A few insurance companies indicated that executive remuneration is linked to sustainability targets to provide incentives to ensure the effective implementation of the sustainability strategy and promote action to make progress towards those objectives and targets.
Senior-level commitment to sustainability is also important to ensure consistency with investment priorities. The opinions and views of the investment teams do not necessarily always align with the priorities and strategy defined by executive management, and the involvement of senior leaders in the organisation can ensure a consistent and coherent view on sustainability risks and opportunities.
3.3.2. Sustainability committees
The development of sustainability-related policies is often delegated to a sustainability committee who advises the decisions of the board. Such committees are more common in medium- to large‑sized entities. These committees are usually responsible for developing sustainability-related policies, which can be related to investment and/or corporate policy more broadly. In some cases, the entity may have two separate committees, one for overseeing corporate sustainability initiatives and one for overseeing sustainable investment. These committees can be specialised or have representatives from other relevant teams (e.g. asset management, risk management) to discuss sustainability issues related to their specific areas of expertise. Some entities also have committees specifically focussed on climate and/or environmental risks, rather than covering all risks relating to sustainability. Some pension and insurance investors also have a stewardship committee.
Other entities have chosen to cover sustainability issues within existing committees. As such, the investment committee would also be responsible for overseeing the integration of sustainability risks into investment practices, and the risk committee would be responsible for overseeing risks related to sustainability. This can help to promote a deeper integration of sustainability issues across the organisation, as all areas would be responsible for incorporating sustainability considerations in their day-to-day activities. In Czechia and Ireland, audit committees are required to oversee issues relating to sustainability (OECD, 2025[2]).
3.3.3. Dedicated staff
Smaller entities may lack the resources to set up teams dedicated to sustainability. Instead, they may make certain individuals responsible for ensuring that the investment processes integrate sustainability considerations. Several pension funds in Latin America indicated that there are one or two people in each fund responsible for overseeing sustainable investment practices. Smaller local entities of international groups may also not have dedicated teams, even if the headquarters prioritises sustainability efforts of the group.
Large entities are more likely to have entire teams dedicated to sustainability-related issues. Such teams often sit within the investment department and frequently report directly to the CIO. The team’s function is generally to support the investment team in their efforts to integrate sustainability risks and opportunities in investment decisions and align their processes with the strategic objectives of the organisation. Such teams are commonly responsible for co‑ordinating across the different investment teams and portfolio managers to ensure a coherent approach across asset classes. These teams can assist the investment experts to adopt a sustainability perspective for their strategies that is aligned with their investment principle and objectives. They may also be responsible for data analytics and research to inform the investment decisions of portfolio managers. Due diligence procedures for sustainable‑focussed investments often go through internal screening with final approval from the CIO and investment committees.
Dedicated sustainability teams can also sit within the corporate affairs department if their activities and mandate are broader than only investment. These teams serve a strategic function that is also linked to the entity’s reputation and image. They may work with functions across the organisation to ensure the implementation of the entity’s sustainability strategy and can work with investment teams to agree on milestones or targets and monitor progress towards those objectives.
Large groups may have multiple teams dedicated to sustainability, each with a distinct mandate. These teams may oversee the overall corporate sustainability strategy, ensure regulatory compliance, focus on product development and commercial functions, manage external communications and/or collaboration with various coalitions and alliances or other industry-wide sustainability initiatives. Teams may also be responsible for stewardship and engagement activities, often working closely with or integrated into research teams.
Sustainability teams may also serve as internal consultants, working with other areas of the organisation to assist others to integrate sustainability considerations in their own activities. It is common for consulting firms to have specialist sustainability consultants to accompany regular consultants to assist with specific client needs, for example when the client wants to assess their own sustainability strategy. Internal sustainability consultants can also work closely with portfolio managers to develop their investment processes and strategy.
3.3.4. Intra-group collaboration
International groups typically have an advantage in terms of the integration of sustainable investment practices due to their size. The push to integrate sustainability considerations tends to come from the top, meaning that local entities of international groups operating in less advanced markets are often the first movers on sustainability initiatives. Affiliation with a large group also provides the advantage that they can share good practices across the other entities. Entities can leverage experience in the development of questionnaires, for example, or more advanced practices such as scenario analysis.
Nevertheless, it can be challenging to co‑ordinate internationally across the group in an efficient manner, and local entities often still face their own resource constraints. Knowledge and methodologies developed at the group level can be shared with local entities, but it can still be difficult for them to replicate with limited resources and adapt the approach to account for local specificities. Additionally, exploiting synergies and avoiding the duplication of efforts across entities can be challenging.
Intra-group collaboration can be a combination of formal and ad hoc interactions, especially where local entities are less advanced in their integration efforts. While there may be formal reporting lines to the group sustainability teams or committees, local teams can also take the initiative to reach out to other entities to collaborate on specific issues.
3.3.5. Industry-wide collaboration
Pension and insurance investors are often members or signatories of standard setting bodies as well as industry alliances and coalitions that aim to advance sustainable investment practices and related objectives and targets. Such industry-wide collaboration can facilitate engagement and stewardship efforts and the sharing of best practices among participants.
Investors most often cite the increased efficiency and effectiveness of engagement and stewardship activities as a key benefit of being involved in collaborative efforts. PRI signatories reported that 48% prioritise collaborative stewardship for their engagement activities (PRI, 2025[4]). Several pension and insurance investors highlighted that joining engagement efforts along with other investors increased the impact that they could have on their objectives related to sustainability and increased the pressure on companies to change their practices. This can be particularly true for fixed income investment, where individual investors may have less influence on the issuer. Others highlighted that collaboration on engagement helps them save time and resources, particularly on a local level. For example, the Colombian pension fund association Asofondos has set up a committee with its members to facilitate engagement activities at the industry level, saving time for both the pension funds and the issuers.
Many pension and insurance investors also highlight the benefits of collaboration in engagement with policymakers and regulators. Sixty-three per cent of PRI signatories reported engaging with policymakers (PRI, 2025[4]). Engagement as a collaborative effort has aided in getting policymakers to understand how regulations are impacting investors in practice and has helped to drive regulatory changes.
Another key benefit of industry-wide collaboration is the opportunity to share best practices among investors and build knowledge and competence. These initiatives can serve to monitor developments and define industry norms. Collaborative efforts can also allow for the co-financing of research initiatives that individual investors may not have the resources to finance themselves, increasing the expertise on sustainability topics across the industry. Collaborative efforts are often undertaken at a local level, with investors sharing their approaches within a specific field and/or region. Investors within a specific region may work together to adapt international models to the local context, for example, or to have a common interpretation of regulations. Collaboration can also be across public and private stakeholders, as with the Green Agreement (Acuerdo Verde) in Chile, organised with the Treasury, Central Bank, regulators and industry (Ministerio De Hacienda de Chile, 2026[30]). The Green Agreement aims to share views regarding climate risks and opportunities and identify common principles and areas where stakeholders can take action.
Additionally, alliances can serve to drive sustainable investment practices of investors. European pension funds who were members of a net zero coalition are six times more likely to have a climate target and five times more likely to take concrete actions around decarbonisation (Micale et al., 2024[31]). While it may be that those joining such alliances are more likely to be those willing to take action, the alliances themselves can also put pressure on members to do so. This occurred in South Africa, for example, when the PRI threatened to de‑register South African signatories who had not met their commitments as signatories, which ultimately led to regulatory change that facilitated their compliance (Muir, 2022[18]). Nevertheless, some have felt that becoming a member of such alliances can sometimes be more for publicity and image rather than conviction, or something that investors feel obliged to do to demonstrate their credibility and commitment to sustainable investment.
While pension and insurance investors vary in how they integrate sustainability risks in their investment policies and decisions, their policies involve similar processes. Processes generally include a) assessing the materiality of sustainability risks and opportunities; b) establishing objectives relating to sustainability and the approach to account for those objectives and identified risks in portfolio construction; c) assessing individual investments (asset selection) given the risks identified and chosen approach; and d) monitoring and managing the risk exposures of the portfolio. This is not necessarily a linear process and may be iterative as investors revise and review their investments and their overall strategy.
3.4.1. Materiality
Pension and insurance investors generally prioritise the inclusion of material risks in their investment processes and therefore must carry out an assessment to determine which risks are material. Financial materiality – or risks that are likely to have an impact on investment returns – is a key determinant of these investors’ priorities and the main focus of materiality assessments. Indeed, one global institutional investor survey indicated that 77% prioritise sustainability issues that are financially material (Georgeson LLC, 2025[32]).
Determining materiality is nevertheless challenging for investors, as materiality can depend on many different factors and involves both quantitative analysis and qualitative judgement. Pension and insurance investors may also deem factors to be socially material, to the extent that certain issues may be aligned with their institutional values or the values of the society in which they operate. While these other factors may not necessarily have a direct impact on portfolio returns, they can still have a financial impact for the investor, for example if investing in certain activities would present a reputational risk.
Risks considered most material
Governance is one of the most common risks that pension and insurance investors prioritise, and one which many have long been considering in their portfolio decisions as financially material. Generally, nearly 60% of institutional investors surveyed in Europe, the United Kingdom and the United States indicated that governance was a top priority (McCahery, Pudschedl and Steindl, 2022[33]). Around two‑thirds of global institutional investors rank governance issues as the most important sustainability-related consideration in their investment decisions, with the top risk factors being board structure, ownership structure, board diversity and the quality of financial reporting (Larcker, Tayan and Lee, 2024[34]).
Environmental and social issues have been gaining importance in more recent years. Pension and insurance investors indicated that environmental risks are now a key priority, with natural hazards viewed as a significantly material risk. Surveys show that around a quarter of institutional investors prioritise environmental considerations in their investment strategies, and one survey shows climate change as the single most important risk factor for 78% of investors (Larcker, Tayan and Lee, 2024[34]; McCahery, Pudschedl and Steindl, 2022[33]). Climate risk has also become more socially material, with pension funds in Europe facing increasing pressure to no longer invest in oil and gas, though risk from investing in these sectors may also be financially material in light of the potential for stranded assets (Amundi, 2024[26]).
Pension and insurance investors are also increasingly paying attention to biodiversity, which is now seen as a priority for 55% of global investors (BNP Paribas, 2025[35]). In France, it is standard practice for insurers to assess the impact of biodiversity risks on their portfolios. Deforestation is a key risk factor for biodiversity loss, and insurance companies and pension funds are beginning to develop related policies and strategies. One survey of 230 investors in Asia indicated that 21% have taken some action related to deforestation, with asset managers advancing more on this topic than asset owners (AIGCC, 2025[36]). Nevertheless, while investors view biodiversity as an important issue to take into account, several indicated that it is difficult to demonstrate its financial materiality.
While social issues are not the main focus of most pension and insurance investors, with few seeing it as the most important factor, over 70% of global investors still prioritise their consideration (Larcker, Tayan and Lee, 2024[34]; BNP Paribas, 2025[35]). Key social risk factors investors account for include data security, leadership and workforce diversity, employee health and safety, and employee pay practices (Larcker, Tayan and Lee, 2024[34]). Many social issues are also viewed as financially material. NOW pensions, for example, prioritises gender equality as it believes that companies with more gender equality have a competitive advantage and face less reputational and regulatory risks (UNPRI, 2024[37]). Where a social issue is not considered to be financially material, investors may require that its consideration would not present a risk of financial detriment.
Considerations and approaches to determine materiality
The materiality of any given risk factor can vary depending on many contextual elements, and pension and insurance investors adopt a wide range of approaches to determine which sustainability factors are significant enough to incorporate into their investment processes. Materiality assessments often involve a combination of external frameworks and internal tools, as well as both quantitative and qualitative analysis.
A starting point for many financial materiality assessments is the SASB Materiality Map, which identifies the most relevant sustainability risks by industry. The Materiality Map covers 77 industries across 11 sectors, and includes 26 sustainability factors relating to environment, social capital, human capital, business model and innovation, and leadership and governance (SASB, 2025[38]). The Materiality Map highlights where investors may want to focus their due diligence efforts when assessing a potential investment opportunity. While investors find the SASB Materiality Map to be very useful, they also stressed the need to adapt the framework to their specific context. The materiality of sustainability-related factors also depends on geographical and regional differences, the nature of the investment fund, time horizon, and client preferences.
Regional differences are another factor incorporated into materiality assessments. Some sustainability factors may carry a heavier weight in certain jurisdictions, for example in Japan where manufacturing is a large industry with electricity, steel and cement companies producing the most emissions. Some geographies may also be more exposed to certain natural hazard risks, which could have a more significant impact on certain industries than those located in less exposed areas. Local attitudes and priorities may also play a role. One European pension fund found the SASB framework to be too narrow and pointed out that cultural differences also impact their materiality assessment.
The nature of the investment portfolio is another factor to consider for materiality assessments. Defined benefit pension funds tend to be more focussed on financial materiality, whereas defined contribution funds are more likely to consider materiality also from a social perspective, particularly where members have a choice in their investments and the investor is catering more to member preferences. The nature of the pension fund also influences its asset allocation, and the materiality of sustainability risks can vary by asset class.
Time horizon is also important for materiality. Some sustainability risks can become more material over the long term, whereas they may be less material for investments of a short duration. As such, materiality assessments for longer-duration investments – such as those made by life insurers – can be very different from shorter duration investments made by general insurers. For pensions, the demographic profile of members will also influence the investment duration. Many sustainability risks are likely to be more material for younger members who have a much longer investment time horizon compared to members near or in retirement. Nevertheless, not all pension and insurance investors consider time horizon when assessing the materiality of sustainability risks for their investments. This may be in part due to the uncertainty of risk and how it could materialise over the longer term.
Client and member preferences will also influence materiality assessments, particularly from a values perspective. Even if a risk factor is financially material, clients may reject its consideration in investment decisions if it is not in line with their values. As such, one asset manager indicated that it has created a governance and risk monitoring process to ensure a structured framework to assess and report risks and ensure risk awareness, even if the consideration of those risks for investment decisions is not strictly required. Pension funds and insurance companies incorporating client or member preferences often send surveys for feedback from their members and beneficiaries to understand their preferences. A survey conducted by Nippon Life, for example, highlighted that its customers wanted them to prioritise climate risk (UNPRI, 2024[39]).
Pension and insurance investors tend to use a combination of quantitative assessment and qualitative judgement in their assessments of materiality. Many have developed matrices by industry, similar to the SASB Materiality Map, but adapted to their own views of risks and opportunities. For example, one pension fund has developed a more granular scoring method that also considers country and asset class. Another indicated that it performed a strictly quantitative analysis to identify, via back testing, a specific data point related to sustainability that was correlated with positive returns to inform investment decisions for their global portfolio. Others indicated that they rely primarily on judgement without a sophisticated model, assessing materiality through exchanges across teams and learning from the bad and good practices they observe in each sector. Scenario testing can also be useful to highlight new factors that may not have been previously identified. One insurance company indicated that it considers dynamic materiality and how a risk factor may become more material over time. Box 3.1 illustrates in detail one pension fund’s assessment and rationale for the sustainability risks it considers to be material.
Responsible Investment Strategy
The London Pensions Fund Authority (LPFA) adopts a responsible investment (RI) approach that recognises the importance of the long-term health and stability of financial markets. The primary objective of RI is to reduce investment risk and improve risk-adjusted returns. LPFA’s RI approach is focussed on two key practices:
incorporating material sustainability factors into investment analysis and decision making
actively exercising ownership rights to promote sustainable value creation.
LPFA evaluates sustainability factors on a case‑by-case basis to determine their materiality, considering global standards rather than applying blanket exclusions. Sustainability factors are considered over the time horizon within which specific investments are likely to be held to provide context for how risks and returns may develop and aid in assessing investment opportunities.
RI Framework
LPFA structures its RI strategy around four strategic pillars that set the fund’s long-term priorities and define how sustainability factors are incorporated across asset classes. These pillars establish four areas of financial risk and opportunity that are considered most material to the fund and are then translated into six themes that guide the practical application of the RI approach.
RI Pillars
Climate Change: LPFA sees climate risk as a systemic and long-term financial risk with implications for all asset classes, affecting portfolio returns, valuations and allocation decisions.
Natural Capital: Declining biodiversity, ecosystem degradation and resource constraints create material financial risks by affecting production systems, supply reliability and operating costs. These factors can influence asset valuations, sector performance and long-term portfolio resilience.
Just Transition: Workforce adaptation, public health, equity, access to technologies and broader social cohesion are considered critical to ensuring transition is effective and supportive of long-term financial stability.
Strong Governance: Transparency, accountability and oversight help limit operational and regulatory exposures. Effective governance supports better risk management and resilience against governance failures and cyber threats.
RI Themes
The six themes translate these pillars into core focus areas, guiding capital allocation and engagement priorities towards sectors aligned with RI objectives and supporting the identification of material sustainability risks and investment opportunities. The themes are often inter‑linked and may relate to multiple pillars. They include:
Renewable Energy Solutions & Distribution
Pollution and the Circular Economy
Fair Pay
Diversity, Equity and Inclusion
Accountability and Oversight
Cybersecurity and Responsible Technology Development.
Source: LPFA (2023[40]), Responsible Investment Policy 2023, https://www.lpfa.org.uk/download/LPFA%20Responsible%20Investment%20Policy%20Final%202023.pdf.
3.4.2. Objectives and approaches to portfolio construction
Pension and insurance investors can generally take either a top-down or bottom-up approach to integrating sustainability risks into their investments. Top-down approaches are normally driven by strategic considerations and high-level objectives, and are often linked to strategic asset allocation, such as targeting a specific percentage of fixed income investment in green bonds. Bottom-up integration, in contrast, is more about the analysis and selection of individual securities. Top-down approaches have the advantage of allowing for a more consistent approach across investment portfolios, but can be more disruptive to the investment process and existing asset allocations (Lee, 2023[41]). In practice, pension and insurance investors often combine both approaches, but seem to rely more on a bottom-up approach considering sustainability risks when selecting investments. Investors also employ a range of methodologies to account for material sustainability factors when constructing their portfolios, which can involve both top-down and bottom-up integration.
Investment objectives related to sustainability
Pension and insurance investors taking a top-down approach are often guided by specific goals or targets relating to sustainability. Targets linked to emissions reduction are one of the most common targets. Achieving net zero by 2050 is cited as a target by nearly a quarter of public pension and sovereign wealth funds (UNCTAD, 2023[42]). Another survey of pension plans indicated that 70% are adopting net zero targets (Amundi, 2023[43]). One reason that net zero targets are common is because emissions data are more readily available, facilitating the monitoring of progress towards the target. Some investors nevertheless criticise net zero targets as ignoring the ultimate objective of reducing emissions for the planet, rather than simply for the portfolio. Higher emissions from certain companies may not be negative to the extent that they are able to manage their activity more efficiently than others, and diverting financing away from companies contributing to the transition could be detrimental to the objective of reducing emissions for the planet.
Pension and insurance investors may also link their sustainability targets with other frameworks, the most common being the United Nation’s Sustainable Development Goals (SDGs). Over half of PRI signatories reference the SDGs in their investment policies (UNPRI, 2025[44]). Similarly, nearly half of public pension and sovereign wealth funds consider at least one SDG in their investment selections, a proportion that has been increasing rapidly over recent years. Nevertheless, some funds treat the exercise of reporting on SDGs as a mapping exercise rather than using the framework to guide their investment strategy (UNCTAD, 2023[42]). Other frameworks that investors commonly reference include the Paris Agreement, the UN Guiding Principles on Business and Human Rights, OECD standards (notably the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct and Guidance on Responsible Business Conduct for Institutional Investors), and the EU Taxonomy (UNPRI, 2025[44]). Asset owners more commonly reference such frameworks in their investment policies than asset managers (UNPRI, 2025[44]).
For pension and insurance investors, the consideration of factors linked to sustainability tends to be primarily driven by their focus on optimising returns and risk management. As such, they do not necessarily have specific goals or targets linked to sustainability, and consider sustainability factors as an inherent part of their investment selection process. Some pension investors do not have targets linked to sustainability because they view such targets as a conflict with their obligations to achieve the best returns for their members since targets could limit their investable universe. While most investors are focussed on risk mitigation, they may still invest for a positive impact where it is also expected to enhance returns, for example, by investing in communities to allow businesses to continue operations over the long term.
Additionally, many investors do have climate commitments even if they may not have specific targets, which can allow them to have more flexibility regarding their investment selection. Among PRI signatories, 69% have a climate policy, even if they may not have specific climate‑related targets (UNPRI, 2025[44]). The focus on climate is even higher among public pension and sovereign wealth funds, with over 80% having a strategy to manage climate risk or reduce emissions (UNCTAD, 2023[42]). Portfolio decarbonisation is a priority for nearly three‑quarters of global investors, and 45% of investors surveyed in Asia have adopted investment policies to move away from fossil fuels (BNP Paribas, 2025[35]; AIGCC, 2025[36]).
Investment approaches to account for sustainability in portfolio construction
Pension and insurance investors take a variety of approaches to integrate risks affecting the sustainability of their portfolios when constructing them. Using criteria to exclude certain investments from consideration is a common first step in the process. Investors may also apply a positive screen to select investments, invest in certain sustainability-related themes, or integrate the analysis of sustainability risks and opportunities from the bottom up when carrying out due diligence on potential investments.
The investment approach taken can be linked to the nature of the particular risk and whether it is financially material or material from a societal or values perspective. Exclusions and screening tend to be more values-based, whereas broader integration is more focussed on risk and returns. Thematic and impact investment can relate to both, aiming for example to further certain sustainability-related objectives while also taking advantage of investment opportunities where innovative companies are looking to address certain problems in society.6 Box 3.2 describes how one investor views and integrates these different approaches.
Pension and insurance investors increasingly employ exclusion criteria to account for broader sustainability considerations, in particular those relating to climate and emissions. The proportion of public pension funds and sovereign wealth funds relying on exclusion criteria or negative screening increased from 40% in 2020 to 63% in 2023 (UNCTAD, 2023[42]). Historically, exclusion criteria have been linked to international standards and norms or legal requirements, with common exclusions linked to child labour, controversial weapons or human rights violations. Tobacco has been another, commonly cited, values-based exclusion. Such criteria are often linked to perceived reputational risk. More recently, exclusion criteria more often include environmental factors such as coal or oil. Pension and insurance investors are also considering whether and how to adjust their exclusion policies as societal values evolve, for example with respect to nuclear or conventional weapons and defence.
Aon applies a framework centred on a spectrum of responsible investment strategies that range from financially motivated to values motivated, or a combination of both, enabling investors to select and integrate approaches aligned with their specific objectives when constructing portfolios in line with client mandates.
Source: AON (2023[45]), Global Responsible Investment Policy, https://www.aon.com/getmedia/b9490828‑4267‑4943‑9526‑1bbfc1ce8da1/global-responsible‑investment-policy.pdf.
Not all pension and insurance investors rely on exclusions, and even those that do may use some discretion in their application. Some may not apply broad exclusions on principle, with the view that they can have a more positive impact by remaining invested and engaging with the company in question to improve their practices. Nevertheless, they may still be willing to apply exclusions on a case‑by-case basis.
Positive screening is also prevalent. Among public pension funds and sovereign wealth funds, 40% rely on positive screening for investments (UNCTAD, 2023[42]). In the United Kingdom, 80% of pension funds operating as a defined contribution master trust have employed positive screens or tilts for most of their default investment strategies (Simon and Greenwood, 2024[46]). One common positive‑screening approach is best in class, where investors select investments that are the best performers in their sector. One survey indicates that 46% of investors globally employ a best-in-class strategy, and investors in the EMEA region are more likely to rely on this strategy compared to investors in APAC or the Americas (BNP Paribas, 2025[35]).
Interest is also increasing in thematic investment to integrate sustainability considerations into investment portfolios. Around 50% of investors globally employ thematic investment strategies, with little variation across regions, and just under 40% use impact investment, with more investors using this strategy in the EMEA region (BNP Paribas, 2025[35]). Around 70% of public pension and sovereign wealth funds incorporated thematic or impact investment in 2022, though this proportion has decreased slightly since 2020 when this was the most common strategy employed (UNCTAD, 2023[42]). Defined contribution plan providers in the United Kingdom are also increasing the proportion of their investments in impact funds (Simon and Greenwood, 2024[46]).
A bottom-up approach of general integration of sustainability risks in asset selection remains quite common, as pension and insurance investors tend to be focussed on the risk and return characteristics of investments. All interviewed investors indicated that they actively consider material risk factors in the selection of their investments, including those related to sustainability, though they may not do so to the same extent across all asset classes.
The integration approach may also depend on geography. For insurance companies and pension funds in small or concentrated markets, some exclusions may not be practical because it would eliminate a large proportion of local investment opportunities.
The inclusion of sustainability considerations for investment decisions may also lead to under- or over-weighting regions or sectors. Emerging markets tend to be more exposed to climate risk and underperform on ESG ratings. Bias in certain markets may also result from differences in company sizes and a lack of availability of standardised data. Fossil fuel exclusions can lead investors to be underweighted on energy, and investing in the transition can lead to increased investment in technology (Amundi, 2024[26]).
Such tilts can also lead to increased tracking risk where fund performance is compared to average benchmarks that do not account for sustainability factors. One pension fund in Australia indicated that it had to adjust its exclusion policy because the trustees did not want to take the additional benchmark risk given the government mandated performance test, particularly given the concentration of the market. Nevertheless, tracking risk does not always seem to be an issue. Another European pension fund indicated that it has little tracking error for its listed equity portfolio despite integrating sustainability goals.
3.4.3. Integration of risks to the sustainability of investments in asset selection
Most pension and insurance investors systematically integrate the consideration of material sustainability risks into their decisions to invest for both the selection of investments managed internally as well as the selection of external investment managers.
Integration for internally managed investments
The integration of risk to the sustainability of investments into the selection process for internally managed investments involves assessing the material risks and opportunities identified and using that information to inform investment decisions. This first requires the collection and analysis of relevant information and data to evaluate investment opportunities. Insurance companies and pension funds then need to adapt their investment processes and methodologies to account for that information and inform their investment decisions. The level of detail and extent of integration can differ across asset portfolios, and pension and insurance investors have tended to gradually develop and expand their processes as they gain experience and resources.
Information and data collection
Pension and insurance investors commonly rely upon external data and research as well as internal research and assessment in their analysis of sustainability risks to inform their investment decisions. Many insurance companies and pension funds begin integration by relying on external data providers who offer research and analysis on sustainability risk to investors for a fee. Providers offer numerous products and services to inform investment decisions (Table 3.3). These products include data, the screening and monitoring of companies against specific criteria, and the rating or ranking of companies based on sustainability criteria, among others.
Smaller insurance companies and pension funds and those who are at an earlier stage of integration tend to rely more heavily on ratings, which provide a score for companies based on a weighted calculation of sustainability metrics. The most common data providers identified by investors are MSCI (Box 3.3) and Sustainalytics. The choice may depend on coverage and specific issues observed in their market.
MSCI is a major provider of financial market indexes and analytics, including sustainability data and ESG ratings used by investors globally to assess sustainability-related risks and opportunities.
ESG Ratings
MSCI’s ESG Ratings are designed to assess a company’s resilience to long-term, industry-specific sustainability risks and opportunities. They focus on how well a company manages those risks relative to peers in the same industry.
Institutional investors use MSCI ESG Ratings to monitor and compare sustainability risk exposures across portfolios. For its ratings MSCI assigns a letter rating from AAA to CCC. This industry-relative scale enables comparisons of sustainability risk management among companies in the same sector.
Data and methodology
MSCI aggregates and standardises thousands of data points from multiple sources, including:
public disclosures (company reports, regulatory filings)
alternative data (government and non-governmental organisation sources, third-party content)
controversies and governance outcomes
governance structures (e.g. board composition).
MSCI provides its ESG ratings and related data through subscription services, offering tools and research that investors can use to analyse and compare sustainability risks across companies and funds.
Source: MSCI (2026[48]; 2024[49]), ESG Ratings, ESG Ratings Process Methodology Document, https://www.msci.com/data-and-analytics/sustainability-solutions/esg-ratings , https://www.msci.com/downloads/documents/access/sustainability-and-climate-resources-and-disclosures/msci-sustainability-and-climate-methodologies/esg-ratings/core-methodologies/esg-ratings-methodology.pdf
Insurance companies and pension funds are increasingly moving away from relying primarily on ratings and using them more as an input to their own analysis of sustainability risks and opportunities. This is partially in recognition of the well-documented shortcomings of ratings, including a lack of transparency and comparability in their methodology, their bias towards larger companies and regions with higher reporting requirements, as well as concerns around potential conflicts of interest and excessive focus on company policies rather than actual impact (OECD, 2025[50]; IOSCO, 2021[51]; Publications Office of the European Union, 2021[47]). Standardised ratings also do not necessarily account for local specificities, particularly around social and governance issues, because of geographical and cultural differences. Pension funds may still use ratings to have an indication on where the potential gaps are and where they need to focus their own analysis. Larger pension and insurance investors, in particular asset managers, rely very little on ratings, emphasising the importance of having their own view and narrative around sustainability issues to inform their investment decisions.
Pension and insurance investors also reported relying on other products from data providers. Screening services are used to ensure investments comply with international norms and conventions and to monitor controversies. However, the use of controversies also has its limitations, as these measures tend to focus on issues arising in a company’s operations or supply chain rather than on the quality of their due diligence and risk management procedures (OECD, 2025[50]).
Many pension and insurance investors rely on data providers for the data they use in their own analysis of sustainability risks and opportunities. Asset managers commonly rely on multiple data providers, doing much of their data analysis and assessment in house. However, the number of providers has declined as the market has become more consolidated and mature. Criteria used for the selection of data providers include data reliability, the stability of the company and the coverage across sectors.
Data is reported as the largest barrier to the integration of sustainability risks to investment. Cost, poor quality and inconsistency across vendors are commonly reported challenges (BNP Paribas, 2025[35]; Russell Investments Research, 2024[52]). Pension and insurance investors noted that they have little power to negotiate with data providers because the market is so concentrated. Some providers may, however, offer some flexibility in their pricing depending on how they provide the data, for example if they just provide the cleaned data rather than prepared and aggregated data. Investors also expressed frustration that they have little flexibility to change providers. One reason for this is because it is expensive to do so, as they then have to adapt their own processes and data interface to accommodate the data format of the new provider. Another reason is because data coverage can be very limited in some geographies or sectors, with only one provider, if any, providing data for that area, so investors may not even have the option to select another provider. There can also be an issue with the duplication of cost and effort, with the same data coming from multiple sources including the investor’s own research.
Pension and insurance investors also have concerns around the quality of data, noting inconsistencies and discrepancies across providers. In addition, it is hard for investors to assess and verify the quality of the data provided given the sheer volume of data. Having the resources to process and use the data, and not necessarily the cost of the data itself, can be the biggest challenge. The subscriber-fee model, where investors pay providers for their products, may also put pressure on providers to increase the quantity of data provided even if they cannot assure the robustness and quality of that data (IOSCO, 2021[51]). Nevertheless, investors interviewed remarked that data quality had significantly improved in recent years.
While data providers remain an important source of information for pension and insurance investors, they also rely on other sources of information to inform their analyses. This is similar for investors more broadly, with one survey reporting that the main source of qualitative data on sustainability for around one‑quarter of investors is their own engagement with the companies they invest in. A slightly lower proportion rely mainly on company reports and external vendors (Russell Investments Research, 2024[52]).
Pension and insurance investors regularly engage with potential investee companies to collect company information that may not be publicly available. Companies generally seem to be open to sharing information with investors, particularly given the weight that larger investors have in smaller markets. Indeed, companies may be more interested to engage with investors on sustainability issues than they are with data providers and may even proactively engage with some investors (Publications Office of the European Union, 2021[47]). Many investors indicated that they rely on questionnaires that they send to companies, which help them to identify potentially material risks.
Getting information from investees is especially important for investments in the private market where less information is publicly reported. These can include specific audits on social risks with lower visibility, such as supply chain governance or labour violations. Investors may not consider investing in a company that does not respond to their request for information. Nevertheless, completing separate questionnaires for each investor is burdensome and resource‑intensive for companies. Some jurisdictions such as Mexico are therefore making efforts to co‑ordinate and standardise the information required by the market.
Pension and insurance investors also engage with companies to encourage them to collect and provide more data in areas where it is less available or to identify risks they may not be accounting for. Several mentioned, for example, that they are engaging with companies on biodiversity to provide more data and inform the development of related metrics as a longer-term goal, even if they are not currently using this information to inform their investment decisions. Thematic research on certain issues, such as human rights, can help to identify data or metrics to use to assess those issues.
Data providers and pension and insurance investors are increasingly leveraging technology to facilitate the collection of data and expand the data sources and metrics that they rely upon to assess sustainability. Artificial intelligence can help to automate data collection processes and facilitate the collection of company data. Some investors are also using satellite imagery to inform their assessment of environmental risks, such as wildfires or deforestation. Artificial intelligence can also facilitate the collection and use of unstructured data from public sources, such as social media, to provide insights into company practices and culture.
Investment processes and decisions
Pension and insurance investors compile the information from external providers, companies and their own research to inform the investment decisions they take. They often do this by calculating a score for companies or developing other metrics or models to assess sustainability risks or the impact of a potential investment on sustainability-related objectives.
A common approach that investors use to assess a potential investment is to calculate a rating or scorecard for each company or investment. Such scores are often similar to the sustainability ratings calculated by external data providers but integrate additional data or insights the investor has collected and aim to better reflect the investor’s priorities and investment philosophies. It is useful for the investment managers themselves to develop the metrics used to score investments rather than relying on third-party ratings because they can better ensure that the underlying metrics are reflective of the risks they want to focus on and their investment philosophy.
The factors considered in the score can reference specific themes reflective of those priorities, such as climate, corporate governance or human rights. The approach to calculate the rating often varies by sector and may also be used to rank companies’ performance within their sector compared to their peers. The scores can also lead to less granular scores, for example grouping investments into three categories of good, average, and poor to provide an indication of the potential sustainability of an investment. While some pension and insurance investors have a separate sustainability score for their investments, others define a weight for sustainability factors and integrate that information with other risks to have an overall score for an investment that accounts for all risks.
Some pension and insurance investors develop more elaborate internal tools to assess investments against specific objectives or risks, such as emissions targets or limits. Such tools can be used to optimise portfolio construction given sustainability and other risk and return criteria. Models can be strictly quantitative relying on criteria that are correlated with positive risk premia, but this can be more difficult for sustainability criteria where expected negative impacts on returns have not necessarily been observed in the past. More often, models involve some level of judgement about how sustainability risks or opportunities may affect future returns. Developing internal tools focussed on sustainability criteria can nevertheless be quite costly, so pension and insurance investors who do so tend to be those who have more resources or who aim to differentiate themselves in the market with their focus on sustainability.
Internal ratings and models are then used to inform the investment decisions of portfolio managers. Often investment managers use these outputs to inform their judgement rather than relying on them to determine their portfolio construction. For example, lower sustainability scores can lead to a lower weighting of certain sectors in the portfolio. Some pension and insurance investors use model outputs to indicate soft limits. For example, where an investment falls outside a certain threshold, the investment managers may need to justify further their decision to invest and get additional approvals, but they are not necessarily prevented from investing. Occasionally model outputs represent hard limits where investments that do not obtain a minimum rating cannot be considered.
Opportunities and challenges for integration across asset portfolios
Pension and insurance investors’ approach to integrating sustainability risks to their investment often varies across their different investment portfolios (Box 3.4). Additionally, many indicated that they took a gradual approach to integration, beginning very simply with passive sustainability funds or specific asset classes such as listed equities where integration is easier. Indeed, investors most commonly integrate sustainability considerations into their equity portfolios (23% of assets in portfolio), followed by private equity (17%), fixed income (15%), infrastructure (15%) and real estate (14%) (BNP Paribas, 2023[53]).
Provida AFP in Chile applies a differentiated approach to the integration of sustainability risks across portfolios and asset classes. While it employs a top-down responsible investment policy and has PRI commitments providing the overarching framework, the specific tools and weighting schemes used vary by asset class, reflecting differences in data availability, risk profiles and investment processes. Provida has progressively expanded the incorporation of sustainability risks since 2019, and by 2024, 64% of total assets under management (34% equities, 27% fixed income, 3% alternatives) were invested using processes that explicitly integrate sustainability considerations.
Local equities
Integration is most advanced in Provida’s internally managed equity portfolio. A dedicated Manual for Equity Selection defines a scoring system based on fundamentals, valuation, and sustainability risks. Analysis of these risks is embedded through monthly monitoring and includes metrics tied to sustainability issues, as well as transition and other climate‑related risks. These factors form a distinct component of the overall equity evaluation process used by the investment team.
Mutual funds and ETFs
For indirect equity and fixed income exposure through mutual funds and ETFs, the fund selection model incorporates sustainability criteria differently than direct holdings. Sustainability factors contribute to the quartile ranking system used to set internal investment limits. Monitoring is conducted quarterly by the Financial Risk Management unit, and sustainability risk assessments rely primarily on data from external providers, with a focus on identifying climate related risks and opportunities at the fund level.
Local fixed income
Integration in fixed income follows a risk management-oriented approach. The “Credit Risk System’’ assigns scores to issuers based on qualitative and quantitative credit metrics that incorporate sustainability factors. Crisis simulations, issuer specific materiality, and climate risk considerations feed into the scoring and are reviewed quarterly by the Credit Risk Committee. Given the different informational environment relative to equities, sustainability risks represent a smaller but explicit component of the assessment framework.
Alternative assets and private markets
For alternative investments the emphasis is on information gathering and due diligence. Provida relies heavily on company or manager provided disclosures, including questionnaires and case specific risk analysis, to evaluate material sustainability risks and climate factors in contexts where public information is limited. These assessments are used to monitor risks and identify gaps in sustainability practices within the underlying assets.
Source: Provida AFP (2025[54]), Reporte Integrado 2024, https://www.provida.cl/content/dam/metlifecom/provida/images/newweb/pdf-new-page/memoria-anual/memorias-anuales/reporte-itegrado-proVida-afp-dise%C3%B1o.pdf .
The options to integrate sustainability considerations for passive investments are rather limited. Investors cannot do much more to integrate sustainability into their passive investment strategies beyond voting and stewardship efforts with the investee companies. However, investment funds or ETFs that have a sustainability-linked objective or follow a benchmark integrating sustainability factors, such as a climate transition benchmark, can also be a simple area for investors to begin integrating sustainability in their investment decisions in a passive manner.
Listed equities tend to be the easiest portfolio for integrating sustainability risks, as more data to assess sustainability-related risks and opportunities is publicly available. As such, it is another common starting point for investors to begin integration. Investors can also influence investees’ business practices by voting in shareholder meetings.
Integration for fixed income portfolios is more difficult, which poses a particular challenge for pension and insurance investors who tend to have a larger proportion of their investments in fixed income. There is limited opportunity for investors to influence investee practices as they cannot vote in shareholder meetings, which also means that integration for fixed income portfolios is more focussed on mitigating risks than taking advantage of opportunities. Some investors indicate that they rely primarily on ratings for the integration of sustainability considerations into their fixed income portfolio, potentially combining a sustainability rating with the credit rating. This may also include reliance on sovereign ESG ratings for the decision to invest in sovereign bonds, though one pension fund reported that it does not rely on sovereign bond indices because it was not comfortable weighing climate issues against corruption issues.
Many pension and insurance investors have looked to green bonds to have more sustainable fixed income portfolios. Some evidence indicates that pension funds invest more in green bonds compared to other investors (6.9% compared to 4.3% for insurers and 1.9% for banks), and that they do not seem to be sensitive to price (Boermans, 2023[55]). Indeed, green bonds can be oversubscribed in some jurisdictions, with returns that are not competitive with government bonds, which may make it hard to rationalise their investment especially where governments’ agendas prioritise addressing sustainability issues. In addition, it can require significant resources for investors to perform appropriate due diligence to ensure the proceeds from green bonds are actually going towards the promised outcomes (Fixsen, 2025[56]). However, some investors indicated that more stringent rules and criteria for green bonds have helped in this regard.
There is significant opportunity for integration of sustainability risks in alternative assets, such as private equity and real assets, though this should be done in line with the investment policy and mandate. Sustainability considerations for real assets such as real estate and infrastructure can be especially important given that they tend to be more susceptible to natural hazards. However, there can be challenges around liquidity and the lack of publicly available data to assess investment opportunities in private equity, which increases the resources required to ensure adequate due diligence for investments.
Many investors prioritise integration for their local assets where they are more familiar with the markets and potential risks and opportunities. It can also be easier for pension and insurance investors to engage with local companies to obtain information, and they often have a larger influence in their local markets due to the size of their investments. Nevertheless, for smaller markets this can also mean that investors cannot exclude any investment opportunities strictly based on sustainability considerations because local investment opportunities that meet investors’ risk and return criteria can be more limited.
The nature of the pension or insurance business is also an important consideration for integration. Integration tends to be easier for portfolios with longer durations, not only because sustainability risks and opportunities can take longer to materialise but also because investors have fewer reasons and opportunities to engage the issuers of short-term assets. As such, integration is likely to be higher for life insurance compared to property insurance. Nevertheless, some sustainability-related risks, such as climate, are very relevant for even the short-term investments of property insurers because of the link to insurance losses. For pensions, the opportunities for integration for defined contribution plans may also be lower compared to defined benefit plans because of frequent valuation and liquidity needs.
Integration for externally managed investments
Pension and insurance investors often engage external managers to select and manage at least a portion of their investments. As such, the managers and the funds they select need to be aligned with the investment philosophies, priorities and objectives of the asset owners.
Most pension and insurance investors therefore have a formal selection process for external asset managers to ensure alignment (e.g. Box 3.5). Nearly all PRI signatories report that their assessment of external managers includes how the managers consider sustainability in their investment processes (UNPRI, 2025[44]). Assessment criteria can include the resources and expertise of managers, how they use research to inform their investment decisions and the decision-making process, the integration of sustainability issues prioritised by the asset owner, voting and engagement practices and the related investment and engagement outcomes. While it is more common to assess external asset managers at the time of selection, many pension and insurance investors also monitor their performance and practices relating to sustainability.
A significant share of Mercer’s clients invest through fiduciary arrangements in which Mercer Investment Solutions (Mercer IS) acts as the discretionary investment manager. Mercer IS does not directly select securities. Instead, it appoints specialist third‑party investment managers to implement investment strategies designed to meet Mercer IS’s policy and sustainability requirements. Under these delegated mandates, most clients’ assets are invested in a suite of specialist multi‑client funds managed by external investment managers appointed by Mercer IS. Clients accept that they may not have the ability to directly influence the approach taken by managers to integrate sustainability and stewardship considerations, however, they do expect Mercer IS to manage their assets in line with their best interests and agreed mandate. These third-party investment managers manage strategies tailored to meet Mercer IS’s specific policy requirements which are combined into Mercer Funds, and for certain clients, these funds are combined into portfolios.
Mercer incorporates sustainability considerations into its investment manager selection process primarily through its ESG ratings, which serve as a core input into manager research and selection. These ratings assess the extent to which investment managers integrate ESG factors and stewardship practices into their investment processes, including the robustness of governance structures, resourcing, and alignment with Mercer’s sustainability priorities depending on the investment strategy (Table 3.4).
Source: Mercer, (2024[57]), Mercer Investment Solutions 2024 Sustainability and Stewardship Report, https://investment-solutions.mercer.com/content/dam/mercer-subdomains/delegated-solutions/responsible-investment/Mercer%20Sustainability%20and%20Stewardship%20Report.pdf
Mercer complements the ratings with systematic monitoring of managers’ stewardship activities. Assessments consider how investment managers incorporate Mercer’s global engagement priority themes – climate change, biodiversity and natural capital, labour practices and human rights, and diversity, equity and inclusion – into their investment processes and active ownership practices.
This analysis is supported by MercerInsight, Mercer’s digital investment analysis platform which collects structured data from investment managers and provides tools to convert these data into charts, tables, and comparative analytics. The platform enables Mercer to holistically evaluate managers’ approaches to sustainability integration, covering policies, governance, resourcing, investment decision‑making, stewardship activities, and thematic issues such as climate risk, biodiversity impacts, and diversity and inclusion.
Source: Mercer (2024[57]), Mercer Investment Solutions 2024 Sustainability and Stewardship Report, https://investment-solutions.mercer.com/content/dam/mercer-subdomains/delegated-solutions/responsible-investment/Mercer%20Sustainability%20and%20Stewardship%20Report.pdf
Assessments of external managers vary to the extent to which they are standardised or adapt to different managers and approaches. The first step to assess external managers is often based on a questionnaire. Some assessments follow a more automatic approach based on a checklist. Procedures may also be more automatic for asset classes where more information is available, such as listed securities. However, more involved procedures aim to take a more principles-based approach to avoid ticking boxes and to better understand the manager’s philosophy. Processes can also vary by asset class given the necessary differences in integration approaches across portfolios. This can involve additional data collection and meetings with the manager to have a more holistic assessment. Such assessments can involve more judgement based on the engagement and interactions with the managers and the resulting understanding of how they incorporate sustainability frameworks into their investment processes.
The assessments of external managers often result in a rating or scorecard. These can be a ranking of managers or a classification grouping managers into one of three categories of integration (e.g. low, average, high). Some assessments result in a specific sustainability rating for managers, but may also include financial performance criteria to provide a more complete view of the quality of the manager. Consultants often perform their own assessments of external managers to develop ratings to share with their clients. Some investors rely more on interactions with the external manager to assess whether their practices are in line with investment policies rather than any scoring system. Others actively try to influence and improve the practices and procedures of the external managers they assess rather than just take the resulting rating as given. In these cases, the teams in charge of selection will engage with the external manager to indicate areas where they could improve and better align their practices with key sustainability priorities.
Investors may have hard limits for whether they can engage an external manager or not. Some hard limits include involvement in legal controversies, misalignment with sustainability philosophies and objectives such as decarbonisation, or failing to obtain a minimum rating or score from the assessment. Others have not defined a minimum performance that would preclude working with an external manager. However, even if the external manager is considered acceptable, several investors highlighted that it was rather challenging to then ensure the investments made by external managers are actually in line with internal policies and objectives.
3.4.4. Risk management
Pension and insurance investors are also active in monitoring the risks in their portfolio and taking action to manage and mitigate those risks. They rely on various metrics, tools and methodologies to assess risks, often with a focus on a specific theme such as climate. Stewardship and engagement activities are core to the management of sustainability risks, with investors using their financial power to influence companies to adopt more sustainable practices.
Risk monitoring and assessment
Many pension and insurance investors develop metrics and measures to monitor their risk exposures and progress towards sustainability objectives and targets. Over half of the largest public pension and sovereign wealth funds use KPIs to assess the sustainability of their portfolios, with the most common related to climate and emissions (UNCTAD, 2023[42]). Metrics may be standardised metrics or internally developed. Using metrics developed by portfolio managers themselves rather than third party metrics can ensure that the measures are aligned with reality and the investment philosophy being applied.
A few pension and insurance investors have developed dashboard tools that allow the calculation and analysis of numerous metrics to have a tailored and transparent view of the risk exposures of the portfolios. Such tools can consolidate information from external and internal data sources to calculate a variety of metrics by investment, at the portfolio level or by asset class or investment manager. Complementing quantitative data with a qualitative overlay can provide useful insights into exposures to natural hazards and options to mitigate them.
Pension and insurance investors also conduct more comprehensive assessments of portfolio risk on specific topics. Investors frequently review the risk of climate litigation against the companies they invest in, as litigation is not only costly in itself but can also pose a significant reputational risk which can impact long-term value (EY, 2024[58]). Blackrock’s Aladdin tool integrates climate‑related risk metrics to support clients’ risk management and reporting (BlackRock, 2025[59]). The AP2 pension fund in Sweden has developed its own quantitative model to assess human rights risk in its equity portfolio, which identifies risks that often lead to violations of human rights (UNPRI, 2024[60]).
Pension and insurance investors frequently assess the performance of their portfolios against benchmarks to compare financial returns or progress towards certain sustainability goals. Some rely on benchmarks incorporating environmental or other sustainability considerations, with a starting point often being with their passive investments (Amundi, 2024[26]). One asset manager tracks its progress against climate aligned benchmarks to better manage stranded asset and transition risks, but tracks in parallel how the economy is decarbonising to limit its tracking error and make sure the benchmark remains relevant. Most, however, seem to rely on standard benchmarks to assess financial performance. One reason is that they do not trust the methodology behind the construction of benchmarks incorporating sustainability considerations (Amundi, 2024[26]). Other reasons may relate to regulatory requirements, as in Australia where performance benchmarks that do not adequately reflect sustainability risks are imposed for pension funds. Investors may also feel that their integration of sustainability considerations should not translate into sacrificed returns and therefore standard benchmarks remain suitable.
There is increased interest in using stress testing and climate scenarios to assess the resilience of portfolios to physical and transition risks. Many investors in Asia have conducted comprehensive physical risk assessments to assess weather and climate impacts given the importance of these risks in the region (AIGCC, 2025[36]). Some jurisdictions such as Mexico are developing models to assess scenarios of climate impacts on the real economy and financial markets for general use by impacted stakeholders. Several pension and insurance investors, however, remain sceptical about the external climate scenarios that have been developed and the methodology used, finding them overly simplistic or too opaque to be able to explain the outputs to regulators and supervisors. As such, some have developed their own scenarios or adapted existing scenarios to better reflect internal views and needs (Box 3.6). Such scenarios can account for factors such as technology, policy developments, market views and preferences in addition to the physical impacts of climate risks. However, for now, pension and insurance investors seem to use scenario analysis more as a tool to promote internal awareness and education rather than to inform their investment decisions.
GPIF
The Government Pension Investment Fund (GPIF) in Japan uses the Climate Value‑at-Risk (CVaR) model to assess the potential financial impact of climate‑related risks and opportunities on its portfolio under eight different scenarios, including three scenarios in which global temperature rise reaches 3.0°C. CVaR quantifies expected losses in extreme cases and evaluates transition risks, physical risks, and opportunities from green technologies across assets such as equities and alternative assets.
Alecta
Alecta in Sweden conducts portfolio-wide stress tests against multiple climate scenarios, including 1.5 °C and 2 °C pathways, using carbon pricing assumptions and transition risk models. The analysis begins at the company level, incorporating Scope 1‑3 emissions data, and is aggregated to assess portfolio exposure. In addition, Alecta monitors implied temperature alignment relative to Paris Agreement objectives.
Under a 1.5 °C scenario, the analysis indicates that equity valuations could decline significantly, highlighting the potential financial impact of transition risks. These insights inform Alecta’s engagement strategy: companies assessed as misaligned or presenting ESG concerns are prioritised for dialogue, with the aim of encouraging improved climate action and risk management.
Source: GPIF (2024[61]), Sustainability Investment Report, https://www.gpif.go.jp/en/investment/Sustainability_Investment_Report_2024_E_02.pdf, Alecta (2024[62]), Climate Reporting according to TCFD, https://www.alecta.se/media/xqrjr4ob/alecta-klimatredovisning-2024.pdf.
Supervisors are increasingly looking at how investors consider sustainability factors in their risk management processes. While strict requirements are not common, some supervisors are promoting a more consistent and harmonised approach across investors (Box 3.7).
The DNB’s Guide to managing climate and nature‑related risks sets out sector‑specific practices intended to support financial institutions in managing climate‑ and nature‑related risks. It functions as a supervisory reference that explains how these risks can be incorporated into core elements of institutions’ risk management frameworks, including business models, governance arrangements, risk processes and disclosures. While the practices described are not legally binding, they interpret existing regulatory requirements and illustrate approaches that meet supervisory expectations. The guide also reflects recent regulatory developments and emerging analytical insights, providing institutions with an organised and up‑to‑date overview of expectations in this area.
In addition to outlining general principles, the guide offers methodological examples and identifies areas that supervisors consider particularly relevant for the effective integration of sustainability risks. These include the use of forward‑looking scenario analysis, more granular assessments at sector and asset‑class level, and the alignment of climate action plans with institutions’ strategic planning processes. The guide is used as a part of supervisory dialogue and risk‑based assessments, with the aim of promoting more consistent practices and supporting institutions in further developing their management of climate‑ and nature‑related risks.
Source: DNB (2025[63]), Guide to managing climate and nature‑related risks, https://www.dnb.nl/media/fbjjzf1o/guide-to-managing-climate-and-nature-related-risks-update-september-2025.pdf
Engagement and stewardship
Engagement and stewardship activities are increasingly important for the integration of risks to the sustainability of portfolios into investment processes. Engaging with companies on their business practices and encouraging them to focus on long-term sustainability are means for investors to mitigate the sustainability risks they have identified in their own portfolios and ensure alignment with their sustainability objectives and priorities. Nevertheless, engagement is a resource‑intensive activity and ensuring its effectiveness can be challenging.
Approaches to engagement and stewardship
Voting in shareholder meetings is the first way for pension and insurance investors to influence the decisions and practices of the companies in their listed equity portfolios. Many rely on proxy voting services, though some also manage the voting process in-house. Among PRI signatories, around 60% have a proxy voting policy or guidelines, with half of those addressing sustainability risks (UNPRI, 2025[44]). Around 45% of the largest public pension and sovereign wealth funds rely on proxy voting (UNCTAD, 2023[42]). Others choose to manage their voting in-house. ATP in Denmark manages their own voting based on the belief that combining stewardship and investment activities improves investment decisions (ATP, 2025[64]). Asset managers tend to be more likely to manage their engagement in-house, with many having teams dedicated to stewardship. The decision to outsource engagement activities may also be linked to the financial importance of a portfolio. Asset managers may outsource engagement for asset classes for which they do not have sufficient weight on their own.
Investors seem to take a practical approach to engagement, aiming to balance risk and return. Pension and insurance investors can file and vote on shareholder proposals for companies to take certain actions such as improve their decarbonisation trajectory or their labour practices. Nevertheless, support for such proposals has been decreasing, partly as a result of an increase in the number of prescriptive proposals put forward, which can be viewed as expensive and impractical to implement and which would have a negative impact on returns (EY, 2024[58]; ECGI, 2025[65]).
Many pension and insurance investors are also relying on collaborative stewardship with other investors in their region or industry. Among PRI signatories, 48% of asset owners now prefer collaborative stewardship, a higher proportion than investment managers (PRI, 2025[66]). Collective engagement can reduce the cost and resources required to engage, and collectively investors have more weight to influence the decisions and practices of companies.
Pension and insurance investors also bilaterally engage with the boards and management of companies on sustainability issues and practices. Such engagement is normally targeted at specific issues investors have identified as important. While such engagement can be used to improve company practices and disclosures, investors have expressed that it is also a means to exchange on topics that they would like to learn more about, such as biodiversity, and discuss together how to consider and move forward on those issues.
However, some investors may be reluctant to push for more sustainable practices if it could have a negative impact on short-term profits, even if changes would likely lead to higher returns over the long term. Reasons for this could be that investors feel that their portfolio is sufficiently diversified with respect to sustainability risks, or that they have difficulty quantitatively proving the financial materiality of a certain issue (EY, 2024[58]).
Prioritising stewardship activities
While important, stewardship activities can be resource intensive, and investors need to prioritise on which issues to engage and with whom. Criteria that pension and insurance investors use to prioritise their resources include financial materiality, the potential for impact, or more broadly alignment with investment practices with their own objectives relating to the integration of sustainability considerations. Financial materiality is a key driver of engagement with companies. One global survey indicated that 77% of investors prioritise issues that are likely to have financial impacts, including climate, human capital and cybersecurity (Georgeson LLC, 2025[32]). Several stakeholders prioritise engagement with companies presenting the highest carbon exposures to their portfolios or regions. Another pension fund targets companies that have been involved in an environmental controversy.
The sustainability priorities and objectives of pension and insurance investors may also guide the topics they focus on for engagement. Investors may have a short-list of companies to engage with and set their priorities in line with their own interests and objectives relating to decarbonisation, disclosure, governance, or their investment values and philosophy. Scorecards may be used to rate companies on priority issues to monitor their progress and the impact of engagement. AP2, which has prioritised the consideration of human rights in its investments, relies on its in-house model on human rights outcomes to identify which companies it should prioritise for engagement (UNPRI, 2024[60]).
Other pension and insurance investors prioritise engagement where they feel they will be most likely to have an impact. Indeed, one survey indicated that 65% of investors target companies where they are likely to have more influence (Georgeson LLC, 2025[32]). These investors may, for example, be more likely to engage with companies in which they have a larger stake or those that have been more responsive to engagement in the past. They may feel that they have better access to companies in their private equity portfolios to engage with them on sustainability issues (Amundi, 2024[26]). Internal risk assessment may also provide an indication of potential impact. One asset manager indicated that the internal sustainability ratings for its investments helps to prioritise who to engage with, as those at the lower end have a larger potential to improve.
For certain asset classes, engagement may be the main way for pension and insurance investors to integrate sustainability considerations. Investors in passive and index funds have little say in which companies are included, and the only means they have to influence their risk exposures is to engage with the companies to improve their practices. Investors also tend to engage with their fixed income investments given the limited sustainability criteria on which to base the selection of those investments. Among PRI signatories, 81% are conducting stewardship relating to their fixed income portfolios (UNPRI, 2025[44]). Investors may also prioritise engagement with issuers of illiquid investments to ensure they have the data they need to assess their risk exposures.
Making stewardship credible
Pension and insurance investors engage in stewardship activities to have an impact on business practices, and if they are not successful in having an impact, they need to take some action for their engagement to be credible. Divestment is the main option available, but many investors are reluctant to divest because they feel that they can be more effective at changing practices if they remain invested. Additionally, if they divest, other investors may not have the same priorities with respect to sustainability which could perpetuate unsustainable business practices. Nevertheless, some pension and insurance investors indicated that they would consider divesting if they do not see progress within two to three years.
Pension and insurance investors have other options to exert their influence further if their engagement with a company has not been successful in improving its practices. Rather than divesting, some may intensify their engagement activities with the problematic companies. This may involve escalating the dialogue with corporate debt issuers (UNPRI, 2025[44]). A more common escalation tool for fixed income, however, is a refusal to invest in future debt issuance (UNPRI, 2025[44]). Others may take a stronger stance against the issuer. One global survey indicated that 33% of investors would vote against management if they were not satisfied with the company’s progress (Georgeson LLC, 2025[32]).
The understanding and consideration of risks that may affect the sustainability of portfolios in investment processes is evolving rapidly. Regulations that impede or promote the integration of sustainability risks into the investment and risk management processes of pension and insurance investors are a key driver of investors’ considerations of these risks. However, as integration becomes more mainstream, many of the other drivers discussed in this chapter are likely to become more influential. The way in which investors are adapting their institutional frameworks and investment processes should also evolve as they obtain more experience in the assessment of these risks and as relevant data and information become more readily available.
The regulatory landscape will also continue to evolve. The OECD’s Database of measures to incorporate environmental, social and governance risk factors into insurance and pensions investments will be regularly updated and should serve as a valuable reference to monitor global developments in this space.
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← 1. The interviews were carried out between April and June 2025. The stakeholders interviewed are 50% from Europe (including the United Kingdom), 19% from Latin America, 15% from Asia-Pacific, 12% from North America and 4% from Africa. Their institutional distribution is 42% pension funds, 25% asset managers, 13% consultants, 12% life insurance and 8% associations.
← 2. See the OECD Database of measures to incorporate environmental, social and governance risk factors into insurance and pensions investments (OECD, 2026[1]).
← 3. The 41 jurisdictions include 14 non-EU jurisdictions and the 27 EU member states.
← 4. Article 8 products were those promoting environmental or social characteristics, while Article 9 products were intended for investments with a sustainable objective.
← 5. The funds have since been consolidated, with the third and fourth fund absorbing the assets of the first fund at the beginning of 2026.
← 6. Impact can also be pursued via engagement and stewardship activities with investees. This topic is addressed in Section 3.4.4, as it does not necessarily relate to investment approach and selection.