Shifting Expectations - Limited Partners and Climate Financial Risk

Table of Contents

• Introduction: The Long View
• The Rise of Climate Risk Mandates: Key Takeaways From The Data
• Taking Action: What Are LPs Looking For In Practice?

Introduction

The Long View

The Limited Partners (LPs) allocating capital to private markets managers (GPs) are long term investors. They must fund families, pensioners, government programmes, and universities for decades to come. This makes large LPs natural custodians of long term, systemic financial risks like climate change.

Climate related financial risks are not necessarily long term in nature. Many have already transpired - the Los Angeles wildfires, for example, or the struggles of formerly dominant German car manufacturers to adapt to electric vehicles. But the trend is clear, with the magnitude of losses set to increase over time.

This presents a material challenge to large LPs. Since most have portfolios with broad market exposure, experiencing negative climate-related financial impacts is near inevitable over time. Temasek, the world's largest allocator to private markets, acknowledges that “climate change will lead to significant economic losses” for the global economy, “with some regions experiencing more intense effects than others.” As a “generational investor”, Temasek monitors climate-related risks closely across a range of time horizons.

Dr Ashby Monk is the Executive Director of Stanford University's Research Initiative on Long-Term Investing. He explains why climate risk is a natural focus for Temasek and its peers:

Large institutional investors are, by their very nature, stewards of the long term. The capital they manage must endure across generations, which means systemic risks like climate change cannot be treated as peripheral - they are central to fiduciary responsibility. Climate risk is financial risk, and the institutions that integrate it rigorously into investment decisions will be the ones best positioned to preserve and grow wealth for families, pensioners, and universities over decades to come.Dr Ashby Monk, Executive Director, Stanford Research Initiative on Long-Term Investing

University of Cambridge Investment Management Limited (UCIM), the investment organisation that manages the Cambridge University Endowment Fund, exemplifies this long-term fiduciary perspective:

As an LP, we are particularly conscious of investing for the long-term because we invest money on behalf an institution which is over 800 years old, and which we hope will still be supported by its endowment in 800 years' time. Our mission is to serve the University, Colleges and Trusts by delivering world-class, sustainable investment performance: we believe that over the long-term, embedding climate considerations into our investment process goes hand-in-hand with delivering great financial returns. In that context, systemic climate risks are a real concern. While we are comfortable investing with managers at the beginning of their climate journey, we seek to find philosophically aligned partners who actively manage climate-related risks and aim to decarbonise the real economy, not just measure sustainability metrics as a compliance exercise.Honor Fell, Associate Director and Sustainable Investment Lead, UCIM

Temasek and many other large LPs actively manage climate related risks through strategic asset allocation, risk monitoring, and general financial discipline. But like UCIM, most also recognise that such risks should also be addressed at the level of each individual investment.

In the face of systemic risk, idiosyncratic attention matters: from identifying climate related risks during diligence; to pricing those risks accurately; to managing them at the level of the business model, operations, and individual physical assets in each investment. Such attention can even make climate risk into a strategic advantage, setting a business apart from competitors that share the same systemic exposure but are less resilient to it.

This reality is the basis for the unambiguous finding of this report: that the GPs investing on behalf of LPs in private markets are increasingly expected to factor climate-related risks into their investment process.

The Anecdotal Evidence

Unwritten develops Unwritten 360, a climate risk platform used by private markets GPs and large corporates.

GPs procure tools like ours for lots of reasons: regulatory pressure, known risk exposure, to identify value creation opportunities, and so on. Over the last 24 months, however, we have frequently been told that LP mandates on climate risk management are a central reason behind a GP's decision to procure a climate risk tool. Some have indicated that not having a capability could hinder their ability to raise capital.

The Data

In response to this anecdotal evidence, we gathered quantitative data on stated attitudes to climate risk management. We focused on the world's hundred largest LPs, who collectively allocate $2.6 trillion to private markets. We also gathered extensive qualitative data from public quotes and on- and off the record interviews.

This report summarises our findings and their implications for GPs. Section 1, “The rise of climate risk mandates”, explores the data and takeaways in depth. Section 2 adds a practical lens, examining what LPs are looking to see in practice.

Key Takeaways

The key takeaways from our analysis are as follows:

1. Nearly three quarters of the world's largest LPs require or expect GPs to assess climate risk
2. Climate risk requirements vary by region, with the United States as an outlier
3. LPs are more likely to require climate risk assessment than emissions targets
4. LP type has limited impact on basic climate risk expectations, but can affect the dynamics of concern
5. LPs expect climate risk assessment to encompass qualitative and quantitative data, and to be an integral part of the investment process

The rise of climate risk mandates: key takeaways from the data

1. Nearly three quarters of the world's largest LPs require or expect GPs to assess climate risk

More than two thirds (68) of the world's 100 largest LPs state publicly that they require managers to assess climate related financial risks in the investment process. A significant number of these also state that climate risk management is a criterion in the GP selection process. For example, the Abu Dhabi Investment Authority (ADIA) states:

Investment Departments incorporate climate change impact and risk assessment as part of investment proposals, company and external manager due diligence, portfolio reporting, and departmental planning.ADIA

Another four of the 100 LPs either imply such a requirement or present it as an expectation rather than a mandate. For example, CalSTRS states that “climate change presents material risks to the portfolio” and notes that external managers are pushed to integrate ESG into their “philosophies, practices, analytics and decision-making”.

Our data is based on public statements alone, so it is possible that the number of LPs requiring climate risk assessment is even higher than stated. In any case, since most funds have multiple LPs, it is likely that an overwhelming majority of GPs raising from large owners now face pressure from one or more of their investors to assess climate risks.

Figure: LP climate risk mandates - Required: 68; Not expected or required: 28; Expected: 4.

Climate risk as a unique subcategory

One notable trend is that whilst many LPs also mention broader ESG risk assessment, climate frequently receives a dedicated mention. For example:

ESG integration is predominantly achieved through the selection and appointment of new investment managers, and monitoring through the assessment of, and engagement with, our existing investment managers. … We explicitly assess an investment manager's maturity on two thematic topics: climate change and modern slavery.Australian Retirement Trust

These specific mentions may reflect the unique features of climate as a subcategory of ESG risk, such as the scale of its potential financial materiality; the specialist tools used to assess it; and its emergence as a risk category in its own right (perhaps analogous to cyber risk in the early 2000s).

2. Climate risk requirements vary by region, with the United States as an outlier

Figure: Requirement to assess climate risk by region (Yes / No - but expects / No). Sample sizes: Asia-Pacific N=15; Europe N=20; US N=53; Canada N=10; Middle East N=2.

Outside of the United States, between 80 to 100% of large LPs require or expect managers to conduct climate risk assessment. In the US, the figure is just over 50%. (Rather than using a North America category, we separated Canadian and US LPs to accurately capture approaches in each jurisdiction.)

This difference clearly reflects the evolving politics of climate change in the US and concern about presence of “non-pecuniary” factors in investment management. For example, Florida Retirement System writes that:

an investment decision must be based only on pecuniary factors… Pecuniary factors do not include the consideration of the furtherance of social, political, or ideological interests.Florida Retirement System

It is important to stress that despite the politics, a majority (53%) of large US-based LPs nonetheless want their managers to assess climate risks. Indeed, many have doubled down as others retreat, with New York City Comptroller Brad Lander, for example, stating earlier this year that:

We will not retreat from our strong climate action, a position that remains consistent with our fiduciary duty. Climate risk is financial risk, as exhibited by the unprecedented wildfires, extreme flooding, and dangerously hot temperatures become [sic] more prevalent throughout the globe.New York City Comptroller Brad Lander

Whilst these differences in expectation may be challenging to navigate, focusing on climate in single materiality terms - i.e., looking only at financial risks to investments from climate change, not the impact of those investments on the climate - remains largely uncontroversial. For example, the Teacher Retirement System of Texas (TRS) sets out its position as follows:

In making investment decisions, the Investment Decision will consider ESG factors that are material to long-term returns and levels of risk. All investments must be made prudently and in accordance with fiduciary and ethical standards, without promoting interests unrelated to the portfolio's stated objectives of controlling risk and achieving a long-term rate of return.Teacher Retirement System of Texas

In fact, the data suggests that many LPs share TRS's strong emphasis on single materiality. This is reflected in our third key takeaway.

3. LPs are more likely to require climate risk assessment than emissions targets

Whilst 72 of the 100 largest LPs publicly state a requirement or expectation for climate risk assessment, only 62 expect or recommend an emissions target - and none require membership of Net Zero Asset Managers or an equivalent initiative.

Moreover, the language relating to emissions targets is generally more muted than language relating to climate risk assessment. Whereas the former is frequently stated as a requirement and an explicit part of manager selection, net zero targets are expressed either as “expected” (46%) or simply as a preference (16%).

Figure: Climate risk versus emissions targets - Climate risk required or expected; Emissions target expected; Emissions target recommended; NZAM or similar membership required.

Whilst climate risk assessment is explicitly focused on financial risk to an investment, emissions have an ambiguous relationship with risk at asset or company level.

There is no link between emissions and physical climate risk: the extent of a company's emissions has no impact on the likelihood of its assets being hit by a devastating flood, for example.

Whether there is a link between a company's emissions and its exposure to transition risk depends on factors like:

• the company's sector: if the sector is hard to abate, there may be no risk in any relevant timeframe
• its growth: a green solutions provider could have fast-growing emissions because more people are buying its product
• its end market: a low emissions service provider could have high customer concentration in, for example, the thermal coal sector
• its reliance on government support: the repeal of the IRA, for example, represents an inverse transition risk for many climate solutions providers

Overall, our data suggests that whilst commitments to emissions targets may be in question - this year has seen many large financial institutions withdraw from Net Zero Asset Managers' Initiative, Climate Action 100+, and similar organisations - large LPs continue to emphasise climate, but often through a single materiality lens.

4. LP type has limited impact on basic climate risk expectations, but can affect the dynamics of concern

We categorised LPs into five types:

• University Endowments & Foundations
• Public Pension Funds
• Sovereign Wealth Funds
• Institutional Asset Managers (primarily the investment arms of large insurers)
• Other (primarily development institutions)

LP type does not appear to be predictive of a requirement for GPs to assess climate related risks. The relatively small divergences visible in the chart are instead indicative of skews in geography: more than half of the Public Pension Funds in the data are US based, and all of the Sovereign Wealth Funds considered are outside of Europe (NBIM is prohibited from investing in private markets).

However, anecdotally, LP type does have an impact on the nature of concern about climate-risks. The asset manager arms of large insurers, for example, frequently have access to dedicated climate modelling teams. They are therefore particularly well informed about physical climate risks and may tend towards thinking about climate in terms of risk transfer rather than in terms of systemic shocks.

Figure: Requirement to assess climate risk by LP type (Yes / No - but expects / No). Sample sizes: University Endowment or Foundation N=13; Public Pension Fund N=61; Institutional Asset Manager N=16; Sovereign Wealth Fund N=8; Other N=2.

Family Offices

There are no family offices among the largest 100 private markets LPs. However, family offices are an interesting case study for how LP type can affect the dynamics of interactions with GPs about climate risk.

According to Roy Kuo, CIO at Galilei Investment Office, a multi family fund:

Generally we see that climate risk isn't a priority amongst first generation entrepreneurs but that it is viewed as an increasingly important issue for second and third generations of families. Amongst these later generations based in Europe, climate risk is generally viewed to be a primary concern which needs to be addressed, whereas in other jurisdictions like the US it is viewed as a nice to have or even counterproductive in today's politically charged environment amongst some families.Roy Kuo, CIO, Galilei Investment Office

This difference between generations is likely to reflect differences in both culture and time horizon, with second and third generations being perhaps more concerned about experiencing major climate shocks in their lifetimes.

Taking action: what are LPs looking for in practice?

According to a large investor association, the first three questions GPs ask about climate risk assessment are, roughly: “What should I do?”, “What does it cost?”, and “What are my peers doing?”.

The uncertainty reflects the fact that climate risk assessment can take many forms. For example:

• High level reporting
• Qualitative assessment
• Consultant assessment during deal diligence, as part of a wider ESG DD
• On the ground inspection of assets with high physical risk exposure
• Investment analyst assessment of transition trends affecting a target's business model

The range of options can make it hard to know what level of attention and spend is appropriate.

Most LPs are not overly prescriptive about what they expect and implicitly trust the judgement of their managers about what is appropriate for a given deal or portfolio.

However, our analysis identified four expectations that are mentioned frequently by a wide range of LPs:

1. LPs expect climate risks to be reported, with quantitative as well as qualitative risk assessment
2. LPs expect climate risk to be integrated into the investment process
3. LPs expect active risk management throughout the hold period
4. LPs expect senior leadership to view climate risk management as a part of responsible fund governance

1. LPs expect climate risks to be reported, with quantitative as well as qualitative risk assessment

In our sample, 92% of LPs who require or expect GPs to assess climate risk also want them to publish a TCFD report.

Figure: TCFD disclosure expectations - TCFD expected: 47%; TCFD not expected or recommended: 34%; TCFD recommended: 19%.

This may not be surprising, but it is significant. The TCFD framework is demanding. Qualitative assessment is not sufficient for full compliance: transition and physical risks must be assessed under a range of technical climate scenarios and, ideally, quantified in financial terms.

(For more detail on the TCFD, there are a range of open-source resources and templates on Unwritten's website.)

Anchoring to TCFD suggests that LPs are setting a relatively high bar, expecting managers to use quantitative tools and methods in addition to qualitative risk assessment. It also implies that they want managers to engage with the “so what”, translating assessment results into risk management strategy. The remaining three expectations underline this point.

The TCFD created the first internationally recognised voluntary framework for climate risk assessment organised around four pillars: Governance, Strategy, Risk Management, and Metrics & Targets. This framework has since been mandated by several national regulators. The International Sustainability Standards Board (ISSB) adopted the TCFD and has now released IFRS S2, a climate-specific disclosure standard designed to represent a global baseline.

2. LPs expect climate risk to be integrated into the investment process

LPs ask managers to conduct climate risk assessments because they identify climate change as a material risk to their portfolio. It follows that they expect risk assessments to be a meaningful part of those managers' investment processes, not a compliance exercise. Border to Coast Pensions Partnership, for example, explain that they have “specific requirements relating to the integration of ESG by managers into the investment process which includes assessing and mitigating climate risk, and their approach to engagement.”

As Border to Coast outlines, it is common for LPs to expect managers to:

1. Assess risk at the due diligence phase and subsequently
2. Develop strategies to mitigate risks identified at both company and portfolio level
3. Engage with individual portfolio companies to support their risk awareness and mitigation efforts

3. LPs expect active risk management throughout the hold period

Climate risk management should extend beyond initial diligence. Ongoing risk assessment is an important part of this, but engagement with portfolio company leadership is particularly important.

In a briefing paper to Sovereign Wealth Funds, Ben Caldecott of Oxford University's Sustainable Finance Programme recommends that funds should “clearly outline their expectations of investee companies regarding climate-related risks and impacts. This should include the expectation that company boards are aware of the physical and transition risks facing their company … and have prudent strategies in place to manage risks and reduce impacts over time.”

The emphasis on board engagement makes sense: ultimately, it is companies themselves, with investor support, that are best placed to invest in risk mitigation.

4. LPs expect senior leadership to view climate risk management as a part of responsible fund governance

Lastly, many LPs articulate climate risk as a governance matter that requires senior leadership oversight.

This is consistent with the TCFD framework, which recommends that climate-related risks are treated as part of an organisation's overall governance and risk management framework, with lines of responsibility from management to the board.

Summary: TCFD as more than a reporting framework

Overall, the data suggests that LPs look to see the recommendations of the TCFD implemented in practice rather than solely as a template for disclosure.

They expect GPs to assess risks in detail at the level of individual investments, using both qualitative and quantitative tools. Once a company is part of the portfolio, its climate risk exposure should remain under review and GPs should engage with stakeholders at the company to help them manage those risks. Lastly, risks should be fed into senior leadership as part of the manager's overall risk management framework.

New York State Common Retirement Fund (NYSCRF) exemplifies this with a public KPI framework for managers' climate risk strategy, at each level of a fund's activities:

Wide-reaching expectations such as these for climate risk assessment can feel onerous at the outset. But they offer real advantages over time. Diligence helps avoid costly mistakes. Engagement can help portfolio companies win out against competitors who are less well prepared for emerging systemic risks. There is good evidence from public markets that attention to climate risk increases firm value. And unlike public market counterparts, private market investors have the ownership, influence, and time to help their portfolio pull ahead.

In a recent report looking at climate risk through a political lens, the Tony Blair Institute wrote “Pricing climate risk is not just a technical challenge – it is a political and economic imperative. Leaders must recognise that adaptation and resilience is not a costly burden, but a strategic investment in long-term economic stability, competitiveness and security.” Our analysis suggests that LPs share this view in relation to investing. Climate risk has shifted from a compliance exercise towards an increasingly routine aspect of good fund management.

About Unwritten

Unwritten helps private market investors quantify and manage physical, transition, and nature risks to your portfolio. With Unwritten 360 you can:

• Detect climate risks in due diligence, with an easy interface to assess every vector of physical, nature, and transition risk
• Report those risks, with AI-driven templates for LPs and disclosure rules in every jurisdiction
• Act, engaging stakeholders with depth, context, and cost-assessed interventions - turning climate risk into value

Unwritten was founded in 2022 and is backed by leading climate academics, practitioners, and policy makers.

References

1. Temasek, (2025). Scenario Analysis and Resilience. Available at: temasek.com.sg/en/sustainability/managing-sustainability-and-climate-risk-and-performance/scenario-analysis-and-resilience
2. Dr. Ashby Monk, Executive Director, Stanford Research Initiative on Long-Term Investing, quote to Unwritten, August 2025.
3. Honor Fell, Associate Director and Sustainable Investment Lead, UCIM, in conversation with Unwritten, July 2025.
4. As ranked by PEI, privateequityinternational.com/pei-300/
5. Abu Dhabi Investment Authority: Sustainable Investing (website).
6. Maiden, B. (2019). How CalSTRS make sustainability work. Governance Intelligence. Available at: governance-intelligence.com/shareholders-activism/how-calstrs-makes-sustainability-work
7. CalSTRS. (2025). Path to net zero. CalSTRS. Available at: calstrs.com/path-to-net-zero
8. Australian Retirement Trust, “Sustainable Investment Report 2023—24”, 2025, p16-17.
9. Florida Retirement System, “Defined Benefit Plan Investment Policy Statement”, 2023.
10. Lander, B., (2025). Office of the New York City Comptroller.
11. Teacher Retirement System of Texas, “Guiding Principles: Policy Committee Meeting”, 2023.
12. Roy Kuo, in conversation with Unwritten, July 2025.
13. Border to Coast, Responsible Investment Policy 2024, p. 6.
14. Turning Ambition into Action, Oxford Sustainable Finance Programme, 2019, p. 5.
15. New York State Common Retirement Fund, “Progress Report: Climate Action Plan”, 202[5], p.5.
16. The impact of climate risk disclosure on firm market value, Vestrelli et al, 2024.
17. Protecting the Future: An Agenda for Building Climate-Resilient Economies, TBI 2025.