Institutional Investors and the Behaviourial Barriers to Taking Action on Climate Change

This paper presents the findings of a research project funded by ClimateWorks Foundation on Institutional Investors and the Behavioural Barriers to Taking Action on Climate Change. The project focuses on the behavioural drivers that impact on institutional investors’ ability and/or willingness to integrate climate-related risks and opportunities into their investment decisions.

While many investors recognise the growing need to incorporate climate change into investment decisions, it is not a straightforward task and there are a multitude of challenges that investors face that slow down the speed and scale of action required to adapt investment processes. Some of these challenges have been widely debated and often cited, such as lack of consistent signals from government policy makers, the need to upscale new technology advances, a lack of suitable investable opportunities or lack of data, models or suitable metrics.

However, there are additional challenges within the investment community beyond those most commonly cited (which tend to be ‘informational’ barriers), and these relate specifically to investor behaviour itself (Figure 1). Moving beyond the neoclassical assumptions of rationality and perfect information as part of that philosophy’s inadequate approach to investing opens up the door to considering a number of internal behavioural conditions that might be slowing down real action by institutional investors on climate change.