New Sierra Club Paper Calls On Investors To Confront Climate Change As Systemic Financial Risk

WASHINGTON, D.C. - A new white paper released today by the Sierra Club challenges conventional approaches to climate-conscious investing and urges institutional investors-particularly asset owners like pension funds-to confront climate change as a systemic financial threat to the global economy and long-term portfolio returns.

• Read the paper: The Long Term Will Be Decided Now: Why Climate Risk Demands System-Level Action from Investors

"Understanding climate change as a system-wide financial threat should serve as a wake-up call: traditional investing strategies-including many labeled 'sustainable'-are not designed to mitigate the economy-wide impacts of the climate crisis on most retirement funds and long-term portfolios," said Ben Cushing, author of the paper and Director of the Sierra Club's Sustainable Finance campaign. "Too much of what passes for sustainable investing today fixates on how climate risks might affect individual companies-but the far greater financial threat stems from how some companies are fueling the climate crisis. Climate change is a systemic financial risk, and investors-especially large asset owners-can't safeguard long-term portfolios unless they help reduce emissions across the economy. It's time for sustainable investing to prioritize real-world outcomes over optics."

The paper is organized in two parts: first, it explains why climate change must be treated as a system-level financial threat; then, it outlines how investors can use their influence to reduce emissions and protect long-term portfolio value. It argues that conventional strategies-such as ESG integrationand shareholder divestment-don't confront companies' climate pollution or the broader economic damage driven by rising emissions. Instead, it lays out a practical framework for "system-level investing" that prioritizes real-world impact to mitigate systemic risk.

Why Systemic Climate Risk Demands a New Approach

Climate change poses a massive and growing threat to the global economy and to long-term investment performance. Research cited in the paper projects that if emissions continue on their current path, climate change could lead to $38 trillion in annual economic losses and a 40% drop in global stock valuesby mid-century. Yet many investors continue to rely on outdated models and narrow frameworks that fail to account for these systemic risks. For diversified investors, the primary driver of long-term returns is the health of the overall market-which cannot be safeguarded through firm-level risk management alone.

Conventional sustainable investing strategies like ESG integration, shareholder divestment, and portfolio decarbonization focus on managing exposure to specific companies, rather than addressing the root causes of climate disruption. These approaches may adjust portfolio optics or reduce firm-specific risks, but they leave investors exposed to the far greater financial damage caused by unchecked emissions. To protect long-term value, investors must use their influence to reduce real-world emissions and address the drivers of climate breakdown.

How System-Level Investing Can Mitigate Systemic Climate Risk

To mitigate systemic risk, investors must understand how their actions influence real-world outcomes-and focus their strategies on shifting corporate behavior, the cost of capital, and access to financing. These mechanisms are the pathways through which investor influence can accelerate decarbonization and reshape markets. By applying a system-level lens-tailored to the structure of capital markets and the nature of emissions-intensive sectors-investors can more effectively restrict funding for harmful activities, expand investment in climate solutions, and protect the long-term value of their portfolios.

Investors' levers are most effective when used together to shift financial incentives, redirect capital, and hold companies accountable-key actions for reducing emissions and protecting diversified portfolios. System-level risks demand system-level solutions-using financial influence not just to manage company risks, but to safeguard the resilience of the global economy.

The paper outlines four strategic levers for investorsto confront systemic climate risk:

• Capital allocation: Restrict new debt and equity financing for fossil fuel expansion, condition capital access for major emitters on credible decarbonization commitments, and scale investments in the development and deployment of clean energy and other climate solutions.
• Corporate stewardship:Enforce accountability for portfolio companies' emissions, capital expenditures, and lobbying practices. Exercise shareholder voting rights, corporate engagement, and bondholder leverage to drive climate progress.
• Policy advocacy: Support robust climate policies-emissions limits on heavy emitters, clean energy incentives, financial regulations, and lobbying reforms-that drive decarbonization across the economy and strengthen market-wide stability.
• Service-provider accountability: Ensure asset managers, proxy advisors, and consultants integrate systemic climate risk considerations into capital allocation and stewardship mandates-aligning intermediaries with long-term fiduciary responsibility.

While the case for system-level investing rests on the fiduciary duty to protect long-term portfolios, many investors also aim to align with moral principles. The paper argues that ethical investing should be assessed by its ability to mitigate climate damage-not just by avoiding ties to polluters or exposure to firm-level risks. System-level investing uses financial leverage to influence corporate behavior and shift market incentives. It offers effective and repeatable tools for values-driven investors to advance climate action while safeguarding long-term portfolio value.

"Perpetuating a financial system that defers to corporate self-interest over global prosperity and resilience is no longer tenable," the paper concludes. "The window to prevent far greater economic and financial harm is closing. To support a stronger, more sustainable economy, investors must prioritize credible impact over symbolic alignment, and use their full influence to accelerate decarbonization-now."

About the Sierra Club

The Sierra Club is America's largest and most influential grassroots environmental organization, with millions of members and supporters. In addition to protecting every person's right to get outdoors and access the healing power of nature, the Sierra Club works to promote clean energy, safeguard the health of our communities, protect wildlife, and preserve our remaining wild places through grassroots activism, public education, lobbying, and legal action. For more information, visit https://www.sierraclub.org.