Big investors want the Australian government to make it less risky to invest in a cleaner economy, backed by deeper cuts in national emissions.

Unless climate change is addressed in an orderly and fair way, the long-term retirement savings of millions of Australians are under threat, according to the Investor Group on Climate Change.

The group, whose members manage more than $3 trillion in Australian funds, issued a report on Wednesday detailing the federal action they say will protect returns and unlock essential private capital.

Climate change will be a crucial factor in long-term financial returns, and the biggest benefit will come from limiting economic damage from global warming, according to the group’s CEO Rebecca Mikula-Wright.

Emissions milestones for 2030, 2035 and 2040 are needed to avoid putting at risk the communities and financial and environmental systems that investors operate within, the report said.

A national target aligned with limiting global warming to 1.5 degrees would require emissions to be reduced by approximately three-quarters (75 per cent) by 2035.

Newly set federal policy under the Albanese government will see emissions cut by 43 per cent this decade, with no commitment to deeper cuts by 2035.

Ms Mikula-Wright said institutional investors have the capital to finance a less harmful economy run on clean energy.

“Governments can’t finance this transformation itself, but they can set policies that will unlock billions in private investment,” Ms Mikula-Wright said.

The report found unstable policy around investment in new technologies, goods, and services was the biggest barrier.

Climate change has become a mainstream consideration in global capital markets during Australia’s “climate wars” as successive governments changed policies and created uncertainty for investors.

Australia should commit to phasing out all fossil fuel subsidies by 2025, in consultation with investors, business and people who will need new jobs, the report said.

A mandatory climate risk disclosure regime that is consistent with international best practice and fit for purpose for Australia’s emissions-intensive economy is also on the wishlist.

The regime should be aligned with the global Task Force on Climate-related Financial Disclosures and signal that international sustainability standards for accounting will be adopted in Australia.

The investors also call for an incentive across the electricity market to help replace coal-fired plants, and more effort to grow demand for alternative fuels such as green hydrogen.

Australia can’t avoid significant change across most industries and regions, and costs and opportunities must be spread fairly, the report warns.

Without community support, the transition to net-zero emissions could be slower and more costly.

Investment policy for net-zero economy

• Set emission reduction milestones for 2030, 2035 and 2040
• Establish sector by sector goals out to 2050 to support investor certainty
• Align the current carbon pricing tool, the so-called safeguard mechanism, to 1.5 degrees
• Fund the Climate Change Authority to guide policy and investment
• Establish a National Transition Authority to support the transition to net zero
• Include climate risk in planning, land use rules, and building codes to support adaptation.