Policy Not Promises
Serious investors and companies shifting from feel-good pledges to system level action
For too long the climate conversation has been dominated by two comforting myths. The first is that corporate net‑zero commitments are by themselves a credible route to economy‑wide decarbonisation. The second is that financial markets can be a substitute for the hard, political work of changing the rules that govern our economy. Both myths serve to let companies and investors off the hook.
Why? Because the climate crisis is a systems failure. Treating it as a collection of corporate projects or market innovations is a recipe for delay, and delay is increasingly likely to result in disaster.
I’ve written before about the need for companies to look beyond their own net-zero efforts and focus more on the broader requirement to lobby for changes in public policy that can make those ambitious net-zero goals something more than a pipe dream.
A similar reckoning is now beginning in finance. At a recent climate conference in Singapore, the limits of the sector’s faith in financial markets and carbon trading were hard to ignore. Yet a recent London School of Economics research project (What Can Investors Do About Climate Change?) suggests that more and more investors now recognise that markets cannot be a substitute for sound policy.
The LSE initiative is eye-catching because of its participants: It draws on insights from representatives of some 60 asset owners and managers in Amsterdam, London, New York, and Singapore, with estimated combined assets of USD 40–50 trillion. The LSE’s own executive summary of its findings puts it plainly, with emphasis added by me:
“Over the past decade, investor approaches to climate action have been largely shaped by a market-led narrative: investors—acting individually and collectively—were expected to play a leading role in economy-wide decarbonisation through disclosure, target setting, capital allocation, and stewardship. That narrative has now run into fundamental limits.
“The next phase of investor climate action requires a reframing towards a policy-led transition, grounded in a more realistic assessment of investor agency…. Where policy does not align incentives with climate goals, investors cannot—on a sustained basis—force companies to act against economic reality. Persisting with a market-led narrative in this context risks a loss of credibility and ineffective or performative action.”
These emerging views from both corporate and financial sectors point to a convergence that could reshape the climate debate: companies and investors alike are waking up to the fact that private pledges and market tinkering cannot by themselves rewire incentives at a scale or speed sufficient to address the climate emergency. If decarbonisation is a systemic challenge, then public policy – not corporate rhetoric or financial engineering – must reclaim control of the climate narrative.
This is not an argument against markets or private action per se. Corporate innovation, voluntary action and even carbon offset markets can all potentially have a role to play. But they must be secondary to, and certainly not substitutes for, robust public policies that address the systemic nature of the climate challenge.
A well‑designed carbon price is a textbook example of a policy that aligns incentives across the economy. By putting a price on greenhouse gas emissions using a carbon tax or emissions trading system, a carbon price makes low‑carbon choices economically rational for producers, consumers and investors. Using the proceeds to return funds to households, invest in green solutions or other targeted investments (“revenue recycling” in the jargon) can address concerns about costs and fairness that often doom carbon pricing politically.
Dividend payments to households, in particular, and when communicated effectively, can convert an abstract tax into a visible, recurring benefit for ordinary people, which can blunt opposition and build constituencies for climate policy.
Industrial strategy to decarbonise hard‑to‑abate sectors, more stringent building and appliance standards, electricity grid investment and permitting reform, targeted innovation subsidies, and border carbon adjustments (which prevent domestic businesses being undercut by those in other countries that are not subject to a carbon price) are all part of a similar system-level response. The point is not that there is a single silver policy bullet, but that policy design and political strategy must be front and centre of corporate and investor climate strategies.
This new consensus demands concrete action:
Investors should prioritise engagement on public economic climate policy and allocate resources accordingly. In practice, that means treating policy engagement as a normal part of investors’ responsibilities: checking how their asset managers engage in policy debates, being open about those activities, and making sure their voting and engagement efforts support credible climate policies.
Companies should be transparent about what parts of their net‑zero plans are within their control and what parts are conditional on policy or technology. They should publicly advocate for the policy changes that would make their targets deliverable and ensure their trade associations and lobbying budgets are aligned with, not opposed to, their climate commitments. That honesty may be uncomfortable, but it is essential for long-term accountability, credibility and trust.
Policymakers should design policies that are predictable, equitable and administratively feasible. Where carbon pricing is already on the political agenda, as it is in the European Union, revenue recycling options that return money to households can broaden support. Governments everywhere can send similarly clear signals by reducing or better still removing fossil fuel subsidies, setting firm rules for industry, using their buying power to shape markets, and investing directly in infrastructure for the energy transition. Sustained publicity is key: communicate professionally and consistently to debunk disinformation and maintain consensus.
Powerful incumbents will no doubt resist rules that impose costs or disrupt business models. That’s why investors and companies need to help build coalitions and publicly advocate for policy change. When large asset owners and corporate leaders articulate support for well‑designed policies, they change the political calculus. They also expose the hypocrisy of those who claim to support net‑zero while funding trade associations that lobby against the very policies needed to deliver it.
It’s also vital that policies avoid design pitfalls. For example: poorly calibrated pricing can cause leakage or hurt competitiveness; revenue recycling must be transparent and equitable; and carbon markets must be regulated to ensure integrity. But these are solvable problems, not reasons to retreat.
The emerging consensus among investors and realistic corporate communicators is a welcome corrective: we must put public policy back at the centre of the climate debate. Carbon pricing with revenue recycling is one powerful example of the kind of systemic policy that can change corporate, investor and household behaviour at scale, though it need not be the only one.
If companies and investors are serious about net‑zero, they should stop pretending that private pledges can substitute for public choices and start using their influence to make those choices happen.