Asset managers are key enablers of capital allocations.
The financial system shapes the economy not only through direct contributions by financing projects, but also indirectly as an enabler through its shareholding and corporate lending activities, as explored by CPI’s Ownership Methodology.
Take the power sector, for instance: Among financial institutions, banks are by far the largest providers of direct financing for both new energy projects—both clean and fossil fuel—accounting for 95% of observed direct financing in both categories, primarily in the form of commercial debt.
However, analysis of data captured in CPI’s Net Zero Finance Tracker (NZFT) shows a different picture for the money behind the investment (see Figure 1). Asset managers play a major role in enabling such investments—accounting for 53% of clean energy financing and 61% of fossil fuel financing—largely by allocating capital to the institutions, corporates, and real-economy actors that ultimately invest in these assets.
Figure 1. Project-level energy investments by actor and project type, 2023
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Given their pivotal role in enabling capital allocation, it is vital to engage with asset managers on the real-economy impacts.
Pension funds are uniquely positioned to drive climate impact if they can positively influence their asset managers. With large, long-term portfolios and system-level exposure, many pension funds are “universal owners”—meaning their performance is tied not just to individual holdings but to the overall health of the global economy. In this context, meeting climate goals is essential for these institutions to manage climate risks, fulfil fiduciary duties, and align with rising stakeholder expectations.
Yet, despite having similar climate pledges and growing net-zero commitments, individual pension funds vary dramatically in their real-world impacts. A critical reason for this lies in a frequently overlooked relationship: How pension funds govern the asset managers that control and deploy their capital.
CPI’s 2024 report The State of European Pension Funds’ Net-Zero Transition highlighted wide disparities in the implementation of net-zero targets across a sample of 342 European institutions. Importantly, the report found that the way pension funds delegate investment decisions—often through complex chains of external managers and advisers—creates challenges for ascribing responsibility for meeting net-zero targets.
Forthcoming research using data captured by the NZFT dives deeper into this topic by introducing a framework to classify asset owner–asset manager (AO-AM) relationships. Early findings suggest that these relationships are powerful levers for real-economy impact. What’s more, their setup varies widely across pension funds.
Pension funds can rethink and reshape their influence over delegated capital to deliver real-world climate impact.
A principal-agent problem
The capital flows enabled through delegation to asset managers represent a vast and largely opaque portion of the financial system. Asset managers control trillions in capital on behalf of pension funds, shaping decisions in sectors critical to the climate transition, such as infrastructure, real estate, and energy. Yet, the oversight of delegated finance remains a weak spot in climate governance, with many pension funds lacking full visibility on how their capital is ultimately managed.
The challenge is a structural one. When delegation occurs without robust mandates, clear expectations, or mechanisms for accountability, pension funds face a classic principal–agent problem: While the asset owner (principal) may set high-level ambitions, the asset manager (agent) may lack the incentive—or the instruction—to act on them. And when managers control voting rights or engagement strategies without clear guidance, real-world outcomes can stall—or even regress.
Only 6% of pension funds in CPI’s sample retain full internal control of their asset management, and nearly 90% delegate to multiple asset managers.
Recent developments highlight the risk of relying on voluntary coordination on this issue. The Net Zero Asset Managers initiative (NZAM), once hailed as a major step forward, is now on hold after BlackRock and several peers exited in early 2025. Departures from prominent asset managers from Climate Action 100+ further fuel doubts about alignment on climate goals within the industry. These shifts have been affecting how asset owners view their manager relationships, with pension funds expressing disappointment over dropouts and being forced to re-evaluate their asset management setups. Meanwhile, state-level anti-ESG laws in the U.S. are restricting public pension funds from incorporating climate considerations in their asset manager mandates—reversing earlier progress.
Closing the gap
The result is a system where pension funds’ capital is often governed without rigorous oversight and accountability. This not only undermines climate credibility but makes it difficult to correct misalignment—or even detect it.
This is not inevitable. CPI’s initial research shows that some funds are designing effective delegation models—combining multi-manager setups with strict mandate terms, policy-aligned voting, and enforceable escalation paths. These pension funds treat mandate alignment in capital management as a whole-system governance challenge. Others, like Denmark’s PFA, are adapting by taking capital management increasingly in-house. This can be effective, but it is not the only option. Our recent research suggests that even fragmented delegation models can work if control is strong.
European funds like ATP and PFZW embed net-zero KPIs directly into mandates and require asset managers to report, act, and escalate when performance lags. Their models prove that influence through delegation is possible and effective.
CPI is shedding light on AO-AM relationships
The terms of the asset owner and asset manager relationships—for example, whether mandates are passive, active, or discretionary, who controls voting, and whether climate priorities are enforced—have so far received little cross-comparison or scrutiny.
CPI’s Net Zero Finance Tracker is evolving to map these pathways—linking pension fund capital, through asset managers, to real-economy finance. The aim is to enable better attribution of responsibility and facilitate comparisons of which delegation models support climate alignment and constitute best practices in the field, along with their specific characteristics. This is meant to inform pension funds on what next steps they could take in improving their net-zero performance.
At the heart of this analysis is a new, six-criteria framework developed by CPI to assess pension fund–asset manager relationships, grouped under two pillars:
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In this research, real-economy net-zero influence potential refers to the practical ability and accountability of a pension fund to shape how its capital is managed in relation to net-zero goals, i.e., the extent to which a fund retains decision-making power, sets enforceable expectations, and monitors the implementation of net-zero-related objectives across its asset manager relationships.
This framework will help answer critical questions:
- Which asset managers are key intermediaries in climate finance flows?
- Are stronger pension fund–asset manager relationships performance by asset managers in terms of their net zero alignment?
- best support net–zero alignment and increase asset manager performance?
The way forward
Delegation is not abdication, so if trustees want to deliver on their climate goals, they must better address how delegated capital is governed. As stewards of long-term capital, they have a fiduciary duty to ensure delegation does not dilute direction.
In an era where voluntary coalitions are facing rising political headwinds, understanding and improving asset owner–manager relationships is more than a procedural fix. It is a strategic imperative for the net-zero transition. For many European funds, this work is underway. For others—particularly in the U.S. and other jurisdictions facing political headwinds—asset owners may need to further explore the longer-term risk management and fiduciary duty implications of the capital allocation decisions made by their asset managers.
Pre-register to receive our final report on OECD pension funds’ progress toward net zero, to be released later this year.
