Millions of people’s retirement savings are at risk due to pension funds relying on economic research that ignores critical scientific evidence concerning the financial risks associated with a warming climate.
Financial organisations, central banks, regulators, and governments are allegedly underestimating the risks and financial costs of climate change, according to a paper by Professor Steve Keen and the financial think tank Carbon Tracker. Keen says that these institutions place a lot of reliance on a tiny group of climate economists’ work, which ignores the effects of climatic “tipping points.”
According to the paper, many pension funds base their investment models on scenarios in which global warming will only increase by 2 to 4.3°C, with little to no effect on member portfolios. These models, however, rely on inaccurate projections of climate change effects.
The research suggests that such economic studies cannot be in line with the dire predictions of climate scientists, who warn that this level of global warming represents “an existential threat to human civilisation.”
The paper warns of the serious prospect of an “unpleasant, abrupt and wealth destroying” “Climate Minsky moment” with a sudden collapse in asset values as financial markets wake up to the gap between mainstream economist forecasts and the reality of climate impacts.
Keen says: “Global warming is not a minor cost-benefit problem that will mainly affect future generations, as the economic literature asserts, but a potentially existential threat to the economy, on a timescale that could occur within the lifespan of pensioners alive today. We are talking about the financial futures of millions of people.”
Carbon Tracker founder & director Mark Campanale says: “To ensure that the world moves into a new climate secure energy system, it’s crucial pension schemes send the market the right investment signals. The signal has to be that a swift, orderly transition is in everyone’s financial interests, particularly for scheme beneficiaries.
“However, the relationship between economics, climate science and assessing financial risk is not a comfortable one: as this report demonstrates, the advice pension schemes are receiving risks trivialising the potentially huge damage climate change will have to asset values.”
Make My Money Matter CEO Tony Burdon says: “This report shows that the climate models used by our pension funds are not only implausible – they’re dangerous too. This so called ‘expert advice’ is underpinning the investments of millions of UK savers, yet is jeopardising both our pensions and the planet.
“When temperatures on Earth last rose 5 degrees, 95 per cent of living species were wiped out, and sea levels rose 20 meters. Yet these models suggest the impacts of such temperature rises on GDP – and our pensions – will be minimal. These predictions are flawed, complacent and dangerous. Pension funds have a fiduciary duty to urgently act on this report, and take immediate steps to protect both our pensions, and the planet.”