How can investors use policy engagement to support their sustainability goals?
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We recently published the results of our 2025 responsible investment survey of investment managers.
One of the areas that caught my attention was that, among the managers that are working towards net zero for some assets, 95% said they expected to use engagement with companies or other issuers to help them meet that goal, while only 64% selected engagement with regulators and policymakers to promote system-level decarbonisation. Given that net zero is unlikely to be achieved without supportive policy and regulatory frameworks, this points to managers needing to do more in terms of policy engagement.
Against this backdrop, the discussion at a webinar we hosted explored what more effective policy engagement could look like in practice, to help asset owners and investment managers consider how they could use policy engagement to support their sustainability goals. Our speakers included Sir Steve Webb, Partner at LCP and former pensions minister, and Paul Scaping, Public Policy Specialist at the Investment Association.
We recognise that many asset owners may not have the resource to undertake policy engagement directly themselves. However, asset owners can encourage asset managers to engage on policy issues on their behalf, so the webinar’s insights are relevant to a wide audience.
The conversation came at a time of heightened polarisation about sustainability, including net zero goals. With governments around the world, including in the UK, grappling with economic priorities, energy security, and climate commitments, it is important that they are aware of the views of the various participants in the investment industry and the potential impacts of policy decisions on investors’ beneficiaries. As policy landscapes shift, asset owners, asset managers, insurers and advisors can emphasise the important role that policymakers and regulators have in shaping sustainable outcomes.
Although the experience of our speakers primarily relates to UK policy engagement, much of the discussion also has international relevance.
Here are a few key questions we considered.
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Sustainability challenges such as climate change represent systemic risks (these are issues that affect a whole sector, market or economy, rather than a small number of individual companies). While traditional company-focused stewardship is important, policy engagement is often necessary to address whole-market risks.
Everyone has a key role to play in engagement and this only seems to be growing as the scale of systemic sustainability risks becomes clearer.
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For Paul and Steve, the answer is yes, but with the caveat that policy engagement should not be treated as a tick-box exercise. Instead, it should be approached with a clear and deep understanding of the topic of the engagement, grounded in the interests of clients and stakeholders. Managers’ engagement with government and regulators should generally be treated as a valuable component of their stewardship activities and not a discretionary nice-to-have, given managers’ fiduciary duty to their clients. Engaging with policymakers could influence policy decisions in ways that have a positive financially material impact for investors and their beneficiaries, as well as being valued by policymakers.
However, there are circumstances where policy engagement may not be appropriate, particularly where different stakeholders’ interests are not aligned and so policy advocacy work may be in conflict with some stakeholders’ interests.
Maintaining influence and credibility requires more than just participation – it requires deep knowledge of the issues being discussed and an understanding of the perspectives of both the policymakers and stakeholders within the investment world.
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One of the key takeaways was the importance of curiosity (being “nosy”) and relationship building. Asking questions and having multiple conversations to help build relationships with the real decision-makers is essential for influencing outcomes.
Where it can be achieved, broad, cross-party engagement is also often effective. Parties’ positions can change quickly, highlighting the importance of not assuming that a policy view is fixed. In a world that is increasingly polarised, cross-party engagement becomes harder but is no less important.
Engagement is almost always most effective when it is done as early in the policy development process as possible, anticipating future decision points. In the wise words of Steve Webb, “the best time to change someone’s mind is before they’ve made it up”.
There are arguments that both collaboration and bilateral action have their place in policy engagement, and both speakers suggested that using both methods is your best bet. Collaborative engagement, for example through trade bodies, can provide efficiency for policymakers and collective weight for asset owners and managers, but individual voices can also be impactful, for example during consultations, where the same message from different types of stakeholders can support collaborative engagement and strengthen the case for change.
Resource
Whether through in-house public affairs specialists, collaboration with trade associations, or external advisers, dedicated capacity is needed to make policy engagement effective. A useful starting point to grow and improve internal capacity may be working with organisations who have politically-engaged people, such as a public affairs agency, trade association or a consultancy with public policy expertise. Much of this work requires keeping up with day-to-day updates from government agencies and building networks within the policy sector, which requires considerable time to be effective.
Straying into politics
While policy engagement inevitably strays into the political arena, it should be grounded in financial reasoning, in particular how policies affect financial outcomes for stakeholders and beneficiaries. The current political climate, however, is increasingly framing systemic risks such as climate change through a partisan lens. This makes it all the more important for all investors ensure that policy engagement conversations stay anchored in long-term financial outcomes rather than short-term political narrative.
Final thoughts
Several months on, the message still feels more relevant than ever: effective policy engagement by investors is not just desirable but essential for driving meaningful change that focuses on asset owners and long-term financial outcomes for their beneficiaries. This is even more important in a polarised world, where there may be strong interests arguing against your stakeholders’ interests.
The months ahead will bring fresh challenges and shifting policy landscapes, but also opportunities to influence outcomes that matter. So do consider policy engagement as part of your overall sustainability approach.
Top tips from our experts
Steve Webb: “Keep the main thing the main thing – stick at it and persevere.”
Paul Scaping: “Always keep front of mind that you are doing this to get better outcomes for your beneficiaries."
