Institutional investors across Asia are strengthening climate action and policy engagement despite mounting geopolitical tensions and signs of a broader global retreat from environmental commitments, according to a recent report.

Notably, 240 investors active in the region, who collectively manage US$123 trillion in assets, made measurable progress across 28 climate-related indicators over the past year, finds the Asia Investor Group on Climate Change ( AIGCC )’s seventh annual State of Investor Climate Transition in Asia report. Of those investors, 202 are headquartered in Asia, giving weight to what the AIGCC describes as the region’s growing leadership role in climate finance.

One of the most significant shifts, the report notes, came in investor engagement with policymakers and regulators, with 25% of investors now directly advocating for clearer and more investable climate policy frameworks, an 18 percentage-point increase from 2024.  Policy engagement activity among AIGCC members has tripled over the past two years, rising from 19% to 58%.

Asian institutional investors, the report suggests, increasingly view policy engagement not as a peripheral sustainability exercise, but as embedded and central to protecting long-term portfolio returns while also accelerating the region’s energy transition.

Climate, financial risk

Investors are becoming more assertive, says Rebecca Mikula-Wright, AIGCC’s chief executive officer, as climate risks increasingly affect economic performance and financial stability.

“This year’s results have shown that investors’ increased awareness of climate risks has led to stronger investor ambition and implementation,” she adds. “We have seen a step change in policy engagement which is getting results. Investors engaging with policymakers and regulators is the most critical lever to co-design investible policy frameworks and plans that can unlock the trillions needed for the transition.”

As well, investor concerns about the economic impact of extreme weather events across Asia, the report highlights, are growing with more than half of the investors surveyed saying they have now started incorporating physical climate risks into their disclosures.

Asia’s exposure to floods, heatwaves and other climate-related disruptions, Mikula-Wright notes, could significantly affect regional economic growth over coming decades.

“Over half of the investors have started including physical risks in their disclosures,” she states. “This is an important step in the right direction to understand how their beneficiaries and clients’ returns are being impacted, with Asia’s extreme weather events to affect 16% of regional GDP by 2050.”

Along with greater policy engagement, investors are also increasing allocations to climate solutions and transition finance. Notably, 30% of investors, Mikula-Wright points out, increased investments into climate-related opportunities this year, an increase of 11 percentage points from 2024.

Asset owners, including pension funds and sovereign wealth funds, emerged as particularly active participants with around 35% of asset owners increasing allocations to climate solutions, compared with 26% of asset managers.

The trend comes despite ongoing uncertainty around global climate policy and persistent market volatility linked to geopolitical conflicts and energy security concerns.

“In spite of ongoing geopolitical risks and conflicts that have worsened this year, investors are increasing their allocations to renewables and other low-carbon solutions,” Mikula-Wright shares. “Asset owners are leading by example and not only stepping up climate-related investments, but also sending clear market signals about the transition trajectory they are on.”

Stronger climate stewardship 

Continued momentum in investor stewardship activities, including proxy voting and corporate engagement, the report points out, has occurred, with around 26% of investors now actively using stewardship tools to influence investee companies on climate-related issues.

A growing number are also adopting broader “whole-of-system” stewardship strategies that focus not only on individual companies, but also across supply chains and regulatory systems.

Still, significant gaps, the AIGCC warns, remain. Less than one-third of investors in Asia have established policies covering fossil fuels or other high-emitting sectors, while only 22% have published detailed climate transition plans.

‘Just transition’ planning is identified by the report as an emerging but underdeveloped area, with only 11% of investors demonstrating progress.

Overall, however, climate finance now remains firmly embedded in Asia’s institutional investment landscape, the report reveals, even as political support for net-zero initiatives becomes more fragmented and diluted in some Western markets.

The growing participation of regional investors, points out Liu Chunyen, AIA Singapore’s chief investment officer, is helping build confidence around climate implementation efforts.

“It is encouraging to see many of our peers also stepping up, giving us a confidence boost to work on the climate transition, which is a complex issue that requires all hands on deck,” Liu shares. “As many investors now are moving towards implementation, we look forward to having closer collaboration with policymakers to accelerate a low-carbon economy.”