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A think tank targets economic climate assumptions

A recent report from Carbon Tracker, a think tank founded by FaithInvest Advisor Mark Campanale, asserts that ‘pension funds are risking the retirement savings of millions of people by relying on economic research that ignores critical scientific evidence about the financial risks embedded within a warming climate’.

The report, entitled Loading the DICE against pension funds: Flawed economic thinking on climate has put your pension at risk, (DICE refers to the Dynamic Integrated Climate-Economy model developed by Nobel Laureate William Nordhaus) asserts that pension funds, relying on flawed data from investment consultants data that is at odds with the scientific literature on the impact of warming ­– have informed their members that global warming of 2-4.3°C will have only a minimal impact upon their portfolios. However, the report underscores that such economic studies cannot be reconciled with warnings from climate scientists that global warming on this scale would be extreme, in fact 'an existential threat to human civilization'.

The report contends that the result of this chain of bad information is a situation in which pension funds and their beneficiaries are underappreciating the risks to their investments while a severe wealth-damaging correction is becoming virtually inevitable.

How disparate are the predictions being relied upon?

  • Economists have claimed, in refereed economics papers, that 6°C of global warming will reduce future global GDP by less than 10%, compared to what GDP would have been in the complete absence of climate change.

  • In contrast, scientists have claimed, in refereed science papers, that 5°C of global warming implies damages that are ‘beyond catastrophic, including existential threats’, while even 1°C of warming—which we have already passed—could trigger dangerous climate tipping points.

Disparities across the models therefore represent a ‘huge disconnect between what scientists expect from global warming, and what pensioners/investors/financial systems are prepared for’.

A potential lesson for FBAOs is the importance of close scrutiny of the various climate assumptions in use by their investment managers, and a strong argument for the inclusion of scientific analysis in the determination of the probability of severe economic disruption due to climate change.


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