Over the past century, finance has become increasingly disconnected from the physical world it depends on. Every day, trillions of dollars move through financial markets as stocks, bonds and derivatives. Much of that money never reaches the businesses, infrastructure and systems that power the real economy.

The scale of this shift is striking. In 2024, around $149 trillion worth of shares were traded on global stock markets. Yet, companies raised only $741 billion in new capital through those same markets. So, for every dollar directed to an actual business, roughly $200 simply changed hands between investors. A significant portion of global capital now circulates in secondary markets, largely disconnected from the physical economy.

As financial markets offer faster and more liquid returns, investment in real-world assets, like infrastructure and industrial systems, has declined as a share of GDP. A significant portion of global capital now circulates within secondary markets, largely disconnected from the physical economy. In a way, that money has become theoretical: capital that rarely touches the systems that sustain it.

That disconnect is becoming harder to sustain. Climate change, resource pressures and geopolitical instability are reminding investors that long-term returns ultimately depend on the resilience of the physical world.

Recent tensions around the Strait of Hormuz, through which roughly a fifth of the world’s oil and a quarter of traded natural gas pass, have highlighted how vulnerable global economies remain to disruptions in critical physical systems. Energy, food and water security have returned to the top of national agendas. At the same time, global renewable investment kept growing, despite policy uncertainty. Increasingly, the case for the energy transition is being driven by climate goals and by the need for stable energy prices and geopolitical security.

Investors are also confronting growing concentration risk. A small group of technology companies now accounts for roughly around a third of the S&P 500 and drove more than 40% of its 2025 returns; in one survey of investors managing close to $30 trillion, four in five expected a correction in 2026, naming concentration their fastest-rising risk. Many are looking for diversification beyond public markets with real assets — infrastructure that offers long-term, inflation-linked cash flows and a fundamentally different risk profile.

Built for the long horizon

Pension funds and insurers together manage more than $100 trillion globally — the largest single pool of patient capital on earth. Their liability horizons run for decades, matched almost exactly to the duration of the infrastructure a warming world needs to build. Their exposure to climate instability is direct and sits on the balance sheet. Their scale is sufficient to move markets. No other investor class holds this combination of duration, exposure and capital scale simultaneously pointing towards environmental infrastructure investment.

These two groups of asset owners have additional incentives to invest in the future: many large pension funds see their definitions of fiduciary duty evolving, as securing a prosperous retirement can no longer be separated from securing environmental stability. As Generation Investment’s David Blood has noted, “a pensioner living in a 5.5°F world with degraded biosystems and rampant inequality will not enjoy the fruits of their retirement.”

The insurance industry is reaching a similar conclusion. Inflation-adjusted global insured losses from natural disasters have climbed about 5–7% a year since the early 1990s, roughly doubling their weight relative to global GDP. Climate risk now sits inside the financial system, and many insurers are looking to their asset management branches for the only way to hedge against this systemic risk: investing in the solutions. Investing in the infrastructure that reduces their own claims’ exposure can become a virtuous cycle in which funding physical resilience lowers climate losses and the cost of covering them. The logic has been in the industry’s financial models for years. What is changing is the willingness to act on it.

From pricing risk to reducing it

A broader shift is beginning across finance: from pricing climate risk to reducing it.

In Australia, IFM Investors — an asset manager owned by a collective of 15 Australian and one UK pension fund, managing about A$232 billion (roughly US$150 billion) — deploys members’ retirement savings into infrastructure, such as offshore wind and decarbonized transport. And in Canada, La Caisse — managing $517 billion for more than six million Quebecers — has built $226 billion in climate action investments.

The insurance sector is beginning to move in a similar direction. In March, German insurer Allianz committed €500 million to a portfolio of eleven German battery-storage projects, its first direct equity investment in the sector, aimed at firming the grid and integrating renewables. Battery storage illustrates the speed at which a physical asset class can attract capital once the economics mature. Global investment in battery energy storage systems climbed from $20 billion in 2022 to an estimated $66 billion in 2025 — approaching investment levels in gas-fired power generation. For institutional asset owners (IAOs) seeking long-duration, inflation-linked returns, a battery system operating under a 20-year grid services contract looks a great deal like a toll road. Allianz’s move is a single data point in what is beginning to look like a pattern.

The examples above point to something larger. Grids, storage and demand-response infrastructure — taken together as a single, long-duration asset class — offer IAOs the kind of stable, essential, inflation-protected returns they have found in roads and airports. The capital exists and now the coordinating structures are what remain to be built. Models like IFM provide examples that other pension systems can copy: pooled member capital, deployed patiently into assets it intends to hold for decades.