7th July 2026

Climate realism: why infrastructure investing needs a policy lens

A new report from the Financial Markets Group at the London School of Economics and Political Science (LSE) has sparked debate across the investment industry. Drawing on workshops with more than 60 asset owners and managers representing US$50 trillion in assets, the researchers concluded that investor influence over economy-wide decarbonisation has been overstated. Decarbonisation, they argue, will be driven primarily by government policy and technology. Investors can support the transition, but they cannot replace policy through capital allocation, stewardship or portfolio targets alone.

For those of us investing in infrastructure and real assets, much of this will feel familiar.

Infrastructure investors have always operated closer to policy, regulation and physical systems than most other parts of the market. The assets are long-lived, capital-intensive and directly shaped by permitting, pricing and regulatory frameworks. The relationship between policy and investability is not a theoretical observation. It’s the day-to-day reality of underwriting, owning and managing these businesses.

The LSE research provides evidence and a language for something infrastructure practitioners have long understood: climate outcomes are primarily a function of policy and technology. The role of investors is to allocate capital and manage assets where those forces create commercially viable pathways.

Good intentions, wrong mechanism

The tension at the heart of the LSE findings is one that infrastructure investors navigate routinely.

Climate change is, in economic terms, a policy-defined externality. Change happens when regulation shifts the underlying economics through carbon pricing, efficiency standards, electrification incentives or market design. When it doesn’t, voluntary action by investors or companies is unlikely to solve the problem at system scale. In competitive markets, expecting firms to internalise costs ahead of regulation creates tensions with fiduciary duty and competitiveness that are hard to sustain.

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