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Study: Pension Fund Strategies for Net-Zero Carbon Emissions Underestimate Climate Risk Significance

A new study published today claims that pension schemes' plans for transitioning to net zero need to adequately account for the risks and opportunities that climate change presents.

The Economics of Energy Innovation and System Transition (EEIST) project, headed by the University of Exeter, put forth a report concluding that the pensions industry carries a "substantial responsibility" in aiding the move towards net zero.

The EEIST has recommended that pension funds and other asset owners embrace "decision-useful climate scenarios" to craft and implement tailored transition strategies. Additionally, the EEIST has outlined several principles of transition planning to guide pension funds in making decisions that contribute to a net zero carbon target and incorporate the necessary changes in risk culture.

When transitioning, the principles include customized situations, non-conventional strategies, sudden changes, adaptive activities, and potentials, among other topics.

Implementing these situations would help secure resources and promote the shift to net zero emissions.

Jack Oliver, a co-author of the paper, asserted that pension funds must reconsider their strategic risk indicators and adjust their investment decisions, even if it necessitates a change.

The risks and opportunities approach employed by EEIST suggests that pension funds review their plans to evaluate the extent to which they consider potential forthcoming developments, given the extraordinary unpredictability of financial markets due to climate change - a lot of which cannot be simulated.

Hot on the heels of Carbon Tracker's research from last month, a new study has been released warning that the retirement savings of millions of people may be put in jeopardy if pension funds keep using what is deemed "flawed" climate economics. This research suggests that climate scenarios utilized by financial institutions, such as pension plans, may be underestimating climate change's risks and financial implications because they are based on economic research that disregards crucial scientific evidence.


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