The 2025 Net Zero Investment Report
The Investor Group on Climate Change (IGCC) has once again released its flagship annual State of Net Zero Investment report 1, offering what remains the most comprehensive picture of how Australian institutional investors are addressing climate change. Based on a survey of 65 organisations managing a combined AU$4.2 trillion on behalf of Australian beneficiaries, the 2025 edition reveals progress, pain points, and a sobering dose of reality for those watching the race to net zero.
While the investment landscape has never been more complex—rattled by political polarisation, rising climate disasters, and incoming regulatory frameworks—the report shows a sector that is, by and large, rising to the occasion. Investors are expanding their efforts to align portfolios with net zero by 2050, with encouraging signs of stronger interim targets, deeper corporate engagement, and a growing focus on physical climate risk. But despite the momentum, serious gaps remain between ambition and action, particularly when it comes to adaptation finance and capital deployment in emerging markets.
Climate Commitments Strengthen
Perhaps the most heartening finding is the continued growth in formal net zero commitments. Over 75% of respondents now have public net zero by 2050 targets, with 82% of asset owners covering their entire portfolios—up from 68% in 2023. Interim targets have also gained ground, now adopted by 72% of respondents, indicating that long-term ambition is being matched with short-term accountability.
Meanwhile, climate investment strategies are becoming the norm. Nearly all asset owners (95%) and asset managers (93%) now integrate climate risks and opportunities into investment processes. In other words, climate has moved from the sidelines to the mainstream.
Physical Risk Moves Into Focus
If 2023 was the year of pledges, 2024–25 is the year physical climate risk came to the fore. Spurred by Australia’s mandatory disclosure regime and rising financial impacts from natural disasters, whole-of-portfolio physical climate risk assessments more than doubled—jumping from 16% in 2023 to 43% in 2024.
Even more importantly, most of those who conducted assessments acted on them: 60% implemented risk management responses. Real estate and infrastructure saw the greatest attention, with over 70% of investors assessing risk and more than half implementing resilience strategies. Private equity, however, remains an outlier—only 30% of investors assessed for physical risk, and just 14% took action.
Despite growing awareness, only a fraction (22%) have invested in climate adaptation solutions. Disclosure of physical risk assessments also remains limited, but with new requirements under AASB S2 approaching, this is expected to change.
Engagement Grows Up
Investor engagement with companies has also evolved. This year, 83% of respondents reported engaging with investees on decarbonisation strategies, 80% on target setting, and 74% on physical climate risk and resilience. Significantly, investors are moving beyond box-ticking toward “systems stewardship”—engaging not just with companies but with value chains, policy frameworks and sector-level transition blockers.
For instance, 89% of respondents now participate in climate policy advocacy, and 52% engage with companies across their broader ecosystems, not just directly.
Fossil Fuel Exposure Under Pressure
A clear majority of investors are now taking direct action on fossil fuel exposure. Almost 90% apply dedicated strategies to fossil fuel investments, through exclusion policies, stewardship efforts, or both. Thermal coal remains the most excluded activity (72%), followed by coal-fired power, tar sands and oil. There’s also a sharp rise in investors referencing fossil fuels in their investment policy—from 43% in 2023 to 69% in 2024.
However, only 25% apply exclusions across all assets under management, with many preferring to retain influence through engagement. Encouragingly, the share of investors applying time-bound escalation strategies in fossil fuel engagement increased to 25%, up from 14% in 2023.
Adaptation and Emerging Markets: Still the Weak Links
Despite rapid progress in understanding and managing physical risks, investment in adaptation solutions remains minimal. Just 22% of investors surveyed have directed capital into resilience-focused assets or solutions. That’s despite evidence suggesting climate-related disasters could cost Australia up to $94 billion by 2060 under high-emission scenarios.
It’s a similar story for emerging markets. While 86% of asset owners and 74% of asset managers have net zero by 2050 targets, only 23% of asset owners and 35% of managers are allocating capital to climate solutions in emerging and developing economies—despite these regions accounting for the bulk of future emissions and climate vulnerability.
Barriers Remain, But So Do Opportunities
Six key themes emerge from IGCC’s analysis for accelerating climate progress:
Policy certainty remains critical. Although uncertainty has declined, 44% of respondents still cite it as a major barrier to investment.
Investment-ready opportunities are lacking. Despite investor appetite, 61% report a shortage of climate projects with viable risk-return profiles.
Adaptation finance is underdeveloped. A systemic gap persists, one that only public-private collaboration can address.
Systems stewardship is needed. Traditional engagement is insufficient—sector-wide and policy-driven levers must be pulled.
Mandatory disclosure clarity is essential. Investors are hesitant amid concerns about greenwashing and lack of regulatory guidance.
Global goals require global capital. EMDE investment remains far too low, given its centrality to achieving net zero.
The Bottom Line
The State of Net Zero Investment 2025 report is a reminder that while Australia’s institutional investors are moving in the right direction, the speed and scale of change remain inadequate to the urgency of the climate challenge.
The transition to a low-carbon economy is underway—but it’s uneven, fragile, and still weighed down by policy ambiguity, capital bottlenecks, and underinvestment in physical resilience and emerging markets. Progress has been significant. But the hard yards—deploying capital at scale, financing adaptation, and executing on stewardship that drives real-world emissions reductions—still lie ahead.
There is no doubt investors are alert to the risks. They are increasingly armed with tools, frameworks, and mandates that would have been unthinkable five years ago. But the next frontier isn’t more reports or pledges—it’s action. Tangible, portfolio-wide, economy-shaping action.
The clock is ticking, and the planet isn’t waiting.
References
1 “The state of Net Zero Investment in 2025”, Investor Group on Climate Change, April 2025, https://igcc.org.au/new-research-australias-2025-state-of-net-zero-investment-report/
Important Information
EnviroInvest Pty Ltd ACN 685 107 957 (“EnviroInvest”) is an Authorised Representative of Daylight Financial Group Pty Ltd ACN 633 984 773 (“DFGPL”) which is the holder of an Australian Financial Services Licence (AFS Licence No. 521404).
Information in this commentary is current as at date prepared unless otherwise stated. However, please bear in mind that investments can go up or down in value, and that past performance is not a reliable indicator of future performance. For more Important Information please refer to the Disclaimer section of this website.
This communication may contain general financial product advice. It has been prepared without taking into account your personal circumstances, and you should therefore consider its appropriateness in light of your objectives, financial circumstances and needs before acting on it.
If our advice relates to the acquisition or possible acquisition of a particular financial product, you should obtain a copy of and consider the Product Disclosure Statement (PDS) before making any decision.