'The relationship between economics, climate science and assessing financial risk is not a comfortable one'
Pension funds and advisers were accused of using false climate economic data and predictions regarding global warming and its financial impact by a report published by financial think tank Carbon Tracker and Steve Keen, a professor at University College London, as reported by IPE.
The report mentioned investment consultant Mercer, Shropshire County Pension Fund (SCPF) and Australian superannuation firm UniSuper to be using such data that had flawed economic thinking about the climate crisis.
Mercer was reportedly estimating that the global economic damages from a 3°C global warming trajectory would only be 0.5% of the GDP by 2050. SCPF said that a climate heating trajectory leading to 4°C by 2100 would be able to reduce annual returns by 0.1% by 2050. UniSuper concluded that the overall risk to their portfolio, even in the event of a 4.3°C increase in global temperatures by 2100, would still be acceptable.
“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,” said Keen.
Carbon Tracker’s report said that scientifically false assumptions made by climate economists are persisting because their studies are only peer-reviewed by fellow economists and do not incorporate key science. This eventually ignores the possibility of predicted triggering of tipping points which can contribute to the acceleration of economic damage.
However, Mercer said that Carbon Tracker’s report focused only on the old versions of the consultancy’s climate change model.
“We are disappointed that Carbon Tracker’s report presents an incomplete, and therefore misleading, summary of Mercer’s climate change analysis,” the company said in an interview with IPE.
The investment consultancy firm added that it has a new climate change model that was created in collaboration with Ortec Finance, which reflects their current point of view and produces scenarios that has different impacts in comparison to what was cited in the report.
Mark Campanale, founder and director of Carbon Tracker, said that pension schemes should send the right investment signals to the market so that the world can head into a new climate secure energy system.
“However, the relationship between economics, climate science and assessing financial risk is not a comfortable one,” he said.
“As this report demonstrates, the advice pension schemes are receiving risks trivializing the potentially huge damage climate change will have to asset values.”
