Climate Change ‘Could Wipe Out Pensions’

Climate change and the strain it puts on natural resources could effectively “wipe out” assets in pension pots and reduce pensions to negligible levels, according to a report from the Global Sustainability Institute at Anglia Ruskin University.

Economic growth has received significantly more attention globally over the past few years, but while traditional growth has been very visible through the consumption of resources, the resources required to sustain the current level of economic growth may not be available over the next decades, according to Resource Constraints: Sharing a Finite World – Implications of Limits to Growth for the Actuarial Profession.

The report, which was commissioned by the UK’s Institute and Faculty of Actuaries, models how constraints on resources such as water and oil will impact the global economy and the institutions that invest in them. In a best case scenario these constraints will increase energy and commodity prices over the next century and, at worse, they will trigger “a long-term decline in the global economy and civil unrest,” the report says.

In what the report calls “the more extreme” scenarios, assets of pensions schemes will be “effectively wiped out” leaving pensions reduced to “negligible levels.” These more extreme scenarios are not worst-case visions of the future, the report said: they are what would happen if governments, businesses and financial institutions continue business as usual and remain focused on the short term.

In December, the Asset Owners Disclosure Project published what it calls the first-ever global climate investment index showing how the world’s biggest investors, including pension funds, are managing climate risk, and no US firms ranked in the top 10. The survey “paints a disturbing picture” as the majority of funds don’t recognize the investment challenges that climate change presents, according to AODP.

Australia’s Local Government Super pension fund ranked first in the AODP index. New York State Common Retirement Fund was the leading US fund in 14th place, and Canada’s British Columbia Investment Management Corporation was the highest North American fund in sixth place.