Embedded Files
Helpful prior knowledge and learning objectives
Helpful prior knowledge and learning objectives
Helpful prior learning:
Section 1.1.1 The economy and you, which explains what an economy is and how it is relevant to students’ lives
Section 1.1.2 The embedded economy, which explains the relationship between the economy and society and Earth’s systems
Section 1.3.4 Doughnut Economics model, which explains a model for considering meeting human needs within planetary boundaries
Section 6.1.1 Money systems, which describes the parts, relationships and functions of money systems
Section 6.1.3 Modern money creation, which explains how forms of money are created in modern money systems
Section 6.2.1 What is finance?, which defines finance and describes the main tools of finance
Section 6.2.2 Purpose of finance, which distinguishes between regenerative and extractive finance, and between values and financial valuation; and discusses the extent to which profit-oriented finance can support regeneration
Section 6.2.3 Financial power and inequality, which defines financial power and identify key actors and factors that influence where money flows
Section 6.2.5 Financialisation, which discusses how financialisation impacts everyday life and is a barrier to regenerative economies
Section S.1 What are systems?, which explains what a system is, the importance of systems boundaries, the difference between open and closed systems and the importance of systems thinking
Section S.8 Leverage points, which describes various leverage points for systems change
Learning objectives:
describe the role of institutional investors in the financial system
explain some ways that institutional investing could be redesigned to be more regenerative
In 2021, teachers and other public employees in the Netherlands were asking about where their pension savings were going. Their savings were managed by ABP, one of the world’s largest pension funds.
It turned out ABP had invested billions in fossil fuel companies and firms linked to human rights abuses. Many people who cared about social and environmental issues were unknowingly supporting those industries through their pensions. Protests grew, led by young people and workers under the banner ‘ABP Fossil Free.’ Within months, ABP announced it would stop investing in fossil fuels. Pressure from citizens had shifted the direction of a financial giant. ABP has continued to review its investments, and in 2025 confirmed it had sold stakes in Tesla, Meta, and Alphabet because of concerns about their business practices and governance.
Figure 1. Chair of the pension fund ABP's board accepts scissors to cut ties with the fossil fuel industry.
(Credit: 350.org, CC BY-NC-SA 2.0)
Who are institutional investors, and why do they matter?
Who are institutional investors, and why do they matter?
Institutional investors manage large amounts of money on behalf of others (Section 6.2.3). They include pension funds, insurance firms, and investment companies. They invest directly in businesses by taking partial ownership, buy shares and bonds in businesses, and lend money to states. Of roughly US$400 trillion in global financial assets, they control about 39%, with most held by pension and sovereign wealth funds. Their size and influence has grown since the 1970s as can be seen through the growth in ownership of US stocks (shares) by institutions in Figure 2.
These investors are so big that their choices shape the whole financial system. Where they invest sends signals to banks, companies, and governments what counts as valuable or safe. Their decisions influence which industries expand, which jobs appear, and how nature is treated. Although most people rarely hear about them, institutional investors quietly steer the economy.
Figure 2. Increase in the proportion of institutional vs. individual investor holdings of USA equities (stocks/shares) from 1970-2024.
(Credit: Earth4All)
Ownership and influence
Ownership and influence
Because they own shares in thousands of companies, institutional investors have power inside those firms. They can vote at shareholder meetings and influence boards and strategies. This ownership can be used to push for change. Investors may, for instance, demand lower emissions or better labour standards.
There is debate about how best to use this power, through divestment or engagement. Divestment means selling shares in harmful companies, as ABP did. This does not remove money from the company, but transfers ownership, like a landfill being sold to a new owner. Its main effect is reputational, signalling that industries such as coal or tobacco are unacceptable. Engagement means keeping shares and pressuring companies to change from within. Both strategies matter: engagement provides direct influence, while divestment builds social and political pressure.
Institutional investors and fiduciary duty
Institutional investors and fiduciary duty
Institutional investors have a legal responsibility called fiduciary duty. They must act in the financial interests of the people whose money they manage. In some countries, especially the United States, this is interpreted as a duty to maximise short-term profit. These rules can limit what institutional investors do with their money. Even if a fund manager cares about climate or equity, they may feel unable to act unless it brings quick returns.
Risks that come back
Risks that come back
The risks institutional investors create also come back to harm them and their clients. Because they hold shares across many sectors and countries, institutional investors cannot avoid the impacts of climate change, biodiversity loss, or social instability (Section 6.2.6). When crises hurt the companies they invest in, fund values fall. This threatens the savings, insurance, and pensions of billions of people worldwide.
Figure 3. Climate change induced wildfires like the ones in Los Angeles, California in 2025 threaten the value of institutional investors' funds, so they impact and are impacted by their investing decisions.
(Credit: CAL Fire, public domain)
How can we redesign the way institutional investment works?
How can we redesign the way institutional investment works?
If institutional investors hold so much power, then their rules, tools, and incentives must support long-term wellbeing for people and the planet. The Earth4All report Investing to reconnect financial value with people, nature, and the real economy (2025) suggests several paths forward.
Redefine fiduciary duty and how value and risk are measured
Redefine fiduciary duty and how value and risk are measured
Fiduciary duty should reflect long-term responsibility. Instead of focusing only on quick profits, it could require attention to ecological stability, public health, and shared prosperity. For this to work, investors also need better measurement tools. As explained in Section 6.2.2, common valuation methods like cost–benefit analysis or return on investment often ignore long-term costs to people and nature. This is a major problem when trillions of dollars depend on them. A coal mine may look profitable today, but creates future risks for climate, health, and communities.
New tools are starting to fill this gap. Some rating systems now ask how companies treat workers or indigenous communities. Others track land use or carbon emissions. Some Dutch pension funds are testing ‘3D Investing,’ which weighs risk, return, and real-world impact together. These experiments show that finance can begin to reflect real values, not only market prices and profit.
Invest in structures that share value fairly
Invest in structures that share value fairly
Instead of supporting companies that fuel inequality, institutional investors could back businesses that share wealth and power more evenly from the start. This is called predistribution. Examples include employee-owned firms, co-operatives, or community housing projects. These models create long-term security and reduce risk. Groups like the Predistribution Initiative and the World Benchmarking Alliance are exploring how to make such strategies mainstream.
Make decision-making more democratic
Make decision-making more democratic
Too often, investment decisions are made far from the people affected by them. Public money, such as pensions or sovereign wealth, should come with public responsibilities. One approach is citizens’ forums where ordinary people guide how funds are run. In Norway, a citizens’ assembly in 2025 called the Future Panel debated what the country’s sovereign wealth fund, based on its oil revenues, should do now and for future generations. Movements like ABP Fossil Free in the Netherlands show that public pressure can hold even the largest investors accountable.
Figure 4. The Future Panel in Norway made recommendations on the country’s sovereign wealth fund in 2025.
(Credit: FRAMTIDSPANELET)
Institutional investors have enormous influence on the economy, but they are not beyond reach. Their money comes from the public: workers, citizens, and states. This creates a shared responsibility to manage it in ways that protect life. Change is possible and it can start with ordinary people and communities demanding a say in how money flows.
6.3.2 Activity
6.3.2 Activity
Concept: Systems, power, and regeneration
Skills: Research (information literacy), Thinking skills (critical thinking)
Time: varies, depending on the option
Type: Individual, pairs, or group
Option 1 - Connections between schools and institutional investors
Time: unclear - students need time to talk to the schools administration team, do some research and present findings
Ask your school administration if the school is connected to institutional investors through staff pensions, insurance schemes, or other financial links.
Research what those investors say about their social and ecological impact. They might also be listed in the World Benchmarking Alliance (WBA) website listed in activity Option 2. This can provide you additional information.
Share your findings with classmates. Discuss whether the investors’ claims match what you would expect.
If you feel that these institutions’ investments don’t match the school’s values, you may wish to share the information you found with the school administration and open a discussion about whether the school can or should change the institutional investors it works with.
Option 2. Benchmarking institutional investors on social and ecological impact
Time: 30 minutes
The World Benchmarking Alliance (WBA) measures how the 2,000 most influential companies in the world are performing on the UN Sustainable Development Goals (SDGs). You can filter the database to look specifically at financial firms, including pension funds and other institutional investors.
Go to the WBA SDG2000 database: https://www.worldbenchmarkingalliance.org/sdg2000/#company-overview.
Use the filters to find financial firms, and then pension funds or other institutional investors.
Choose one institutional investor connected to a country you care about.
Explore how it performs on social and ecological benchmarks.
Summarise your findings and be ready to share whether you think the benchmarks measure what matters most.
Option 3 - Case study: The debate over Norway’s sovereign wealth fund
Time: 40 minutes
Norway’s sovereign wealth fund, often called the Oil Fund, is the largest in the world. It is worth more than US$1.5 trillion and was built from Norway’s oil and gas revenues. Managed by Norges Bank Investment Management (NBIM), it invests in over 9,000 companies across 70 countries. Its decisions affect businesses, workers, and communities all around the world.
From the beginning, people have disagreed about what the Oil Fund should do. Some say its only job is to maximise financial returns for Norwegian citizens. Others argue that, because it was built on fossil fuel wealth, it also has a duty to lead on climate action, human rights, and fairness between generations. The fund excludes some industries such as tobacco, coal, and controversial weapons, but it still invests in companies linked to climate change and social harm.
The Oil Fund’s ethics remain under debate. In 2025, it divested from several Israeli companies over concerns about the war in Gaza and the West Bank. It also excluded the U.S. company Caterpillar, whose bulldozers were linked to home demolitions in occupied territories, sparking diplomatic tension with the United States. At the same time, the fund chose to engage with some other companies, such as mining giants with environmental problems, rather than divest completely. These controversies show that ethical investing is complex, and even the world’s largest public fund faces pressure and criticism over its choices.
Figure 5. The growth in value of Norway’s sovereign wealth fund over time.
(Credit: Norges Bank Investment Management)
In 2025, a citizens’ assembly called Framtidspanelet (the Future Panel) brought 56 ordinary Norwegians together to debate the fund’s future. Members were chosen to reflect the country’s diversity. Over several months they heard from experts and discussed difficult questions. Should Norway accept lower profits to do more good globally? Should the fund act mainly as a piggy bank for national wealth, or as a tool for change to build a fairer, more sustainable world? The assembly recommended investing more in renewable energy, applying stricter ethical rules, and supporting development in poorer countries. They called the Oil Fund “the people’s fund,” a responsibility for both present and future generations.
Questions to consider:
What is Norway’s sovereign wealth fund, and how was it created?
Why is it sometimes called “the people’s fund”?
Why has the fund grown so large? (Hint: it’s not just the revenues from selling oil)
What are the arguments for using the fund only to maximise profit? What are the arguments for using it to promote wider social and ecological goals?
Why do some people compare the fund to a “piggy bank” while others see it as a “tool for change”?
How do the recent controversies (such as Caterpillar and the Israeli companies) show the difficulties of ethical investing?
If a citizens’ assembly on public funds were created in your country, what priorities would you want it to focus on?
Do you think democratic input makes funds like this stronger or weaker? Why?
Ideas for longer activities and projects are listed in Subtopic 6.5
Checking for understanding
Checking for understanding
Coming soon!
Further exploration
Further exploration
The Future Panel - the website of Norway’s citizen’s assembly, which among other topics, considered what should be done with the country’s sovereign wealth fund. Difficulty level: easy
Part 3: Structuring Finance to Work for All Stakeholders - a short video from the organisation Predistribution Initiative about the need to shift institutional investors to more diverse investments that consider social and environmental impacts. Difficulty level: medium
World Benchmarking Alliance - this organisation gives ratings to the 2,000 ‘most influential’ companies according to their efforts on SDG-related issues. You can filter for financial firms and more specifically for institutional investors like pensions to see how some of the biggest/most influential firms are doing. Difficulty level: easy
Follow This - the website of an organisation that campaigns to make oil and gas companies reduce emissions by filing shareholder resolutions. It shows how ordinary investors, working together, can push some of the world’s most powerful companies to act on climate change. Difficulty level: medium
Pension Funds Should Protect Our Future, Note Destroy it - a Greenpeace article arguing that pension funds, as some of the biggest institutional investors in fossil fuels, should stop funding harmful industries and instead invest in climate solutions and justice. Difficulty level: medium
Sources
Sources
Boffey, D. (2021, October 26). One of world’s biggest pension funds to stop investing in fossil fuels: ABP says it will no longer invest in sector and will sell €15bn of holdings by first quarter of 2023. The Guardian. https://www.theguardian.com/environment/2021/oct/26/abp-pension-fund-to-stop-investing-in-fossil-fuels-amid-climate-fears
CFA Institute. (2025). Portfolio management for institutional investors [Level III curriculum]. CFA Institute. https://www.cfainstitute.org/insights/professional-learning/refresher-readings/2025/portfolio-management-institutional-investors#:~:text=On%20a%20global%20basis%2C%20institutional,significant%20influence%20over%20capital%20markets
Follow This. (2021, October 26). Largest Dutch pension fund suddenly loses trust in climate policies of fossil fuel companies. Follow This. https://follow-this.org/largest-dutch-pension-fund-suddenly-loses-trust-in-climate-policies-of-fossil-fuel-companies/
Fouche, G. (2024, October 30). Wanted: Norwegians to help form future of country's $1.8 trillion piggy bank. Reuters. https://www.reuters.com/world/europe/wanted-norwegians-help-form-future-countrys-18-trillion-piggy-bank-2024-10-30/?utm_source=chatgpt.com
Framtidspanelet. (n.d.). Framtidspanelet. https://www.framtidspanelet.no/
Hagen, K. (2025, February 18). Pension fund ABP no longer invests in Tesla, Meta and Alphabet. Algemene Onderwijsbond (AOb). https://www.aob.nl/en/actueel/artikelen/pensioenfonds-abp-belegt-niet-langer-in-tesla-meta-en-alphabet/
Irish, J., & Fouche, G. (2025, September 25). US-Norway spat over wealth fund's Caterpillar exit is settling, foreign minister says. Reuters. https://www.reuters.com/sustainability/society-equity/us-norway-spat-over-wealth-funds-caterpillar-exit-is-settling-foreign-minister-2025-09-25/
Jess, T., Blom, P. and Dixson-Declève, S. (2023). From financing change to changing finance. The Club of Rome. https://www.clubofrome.org/wp-content/uploads/2023/10/Changing_Finance_2023-3.pdf
Norges Bank Investment Management. (n.d.). https://www.nbim.no/en/
Predistribution Initiative. (n.d.). https://www.predistributioninitiative.org/
Rothenberg, D., Danso, H., & van Gansbeke, F. (2025, March). Investing to reconnect financial value with people, nature, and the real economy: An iterative blueprint for capital markets actors, policymakers, and regulators (Earth4All Deep-Dive Paper No. 18). The Club of Rome. https://www.clubofrome.org/wp-content/uploads/2025/03/Earth4All_Deep_Dive_Rothenberg.pdf
Terminology
Terminology
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