Institute denounces “misleading” climate advice to pension funds
The Actuary 29/11/2023
"Climate risk advice to pension funds is often misleading, uses flawed models and fails to communicate future uncertainty, according to recent research.
An EDHEC-Risk Climate Impact Institute position paper, Portfolio Losses from Climate Damages, has warned that markets and investors are underestimating potential climate damages.
It pointed to reporting by UK Local Government Pension Scheme authorities on their governance and management of climate risks. Drawing on investment consultants’ advice, reports have included simulations of climate impacts on investments that suggest portfolios would be marginally impacted – even in high temperatures.
The paper, written by the institute’s scientific director Riccardo Rebonato, argued that pension trustees have been “poorly served” by consultants, meaning their estimates of portfolio losses due to climate change are “implausibly tame”.
It said the most glaring flaw in the advice was “the failure to communicate the huge uncertainty in damage estimates”, and further denounced the “nonsensical” precision of some estimates..
Climate scenarios should include “approximate probabilities” to prevent pension consultants and financial markets from “sleepwalking into the climate crisis”, the paper added."
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Institute denounces “misleading” climate advice to pension funds
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Operating from campuses in Lille, Nice, Paris, London and Singapore, EDHEC is one of the world’s top 15 business schools. Fully international and directly connected to the business world, EDHEC commands a strong reputation for research excellence and the ability to train entrepreneurs and managers capable of breaking new ground. EDHEC functions as a genuine laboratory of ideas and produces innovative solutions valued by businesses. The School’s teaching is inspired by its research work and a focus on “learning by doing”, all with the aim of equipping people with the skills to succeed in business.
