Great article on Lou Daves's comments following Carbon Tracker publishing its "loading the dice against pensions" paper

1. By Michael Hurley
The UK’s Pensions Regulator (TPR) “shares concerns” that the outputs of climate scenario
models may be unreliable, a senior executive has said.
Louise Davey, TPR’s director of regulatory policy, analysis and advice, said: “We recognise
and share concerns that some climate scenarios may show impacts that seem relatively
benign and appear to be at odds with established science.
“We expect trustees to address data shortcomings and modelling limitations found in their
initial rounds of scenario analysis and to seek improvements.”
Davey, who was speaking on a podcast by V-FM Pensions, was responding to a report by
Carbon Tracker last week, which said pension funds are risking retirement savings by relying
on economic research that “ignores critical scientific evidence”.
Many pension funds use investment models that predict global warming of 2°C to 4.3°C will
have only a minimal impact on member portfolios, Carbon Tracker said, adding that some
economists have claimed that 6°C of global warming will reduce future global GDP by less
than 10%.
It came after a report by the Institute and Faculty of Actuaries, a UK membership body for
actuaries, warned financial institutions against relying unquestioningly on climate-related
scenarios, with results from some models “far too benign and, in some cases, implausible”.
UK pension schemes are required to conduct scenario analysis in at least two scenarios of
average global temperature rise, in scenarios ranging between 1.5°C above pre-industrial
levels and 2°C and above, under rules set by the Department for Work and Pensions and
Financial Conduct Authority. These are based on the recommendations of the Task Force on
Climate-related Financial Disclosures.
While Davey did not indicate the TPR was preparing to take action to further regulate which
climate scenarios are used, she added: “Trustees really need to be quizzing their advisors on
the scenarios that are being put before them.
“I get that we are talking very long-term, but the focus has to be on savers’ outcomes, and
those are going to be in 20-, 30- or 40-years’ time so we need to be thinking along those kinds
of time scales.
“From a personal viewpoint, if I was a trustee and I was presented with [an extreme warming
scenario] … and was told it would not have very much impact on economic scenarios… I
would say, ‘really?’ and I would want to make sure I was given in-depth explanation of how that
assessment had been made.”
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Pensions regulator voices 'concerns' on climate scenarios
Pensions regulator voices 'concerns' on climate scenarios
Pensions regulator voices 'concerns' on climate scenarios
Pensions regulator voices 'concerns' on climate scenarios
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Pensions regulator voices 'concerns' on climate scenarios Environmental Finance.pdf
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group.
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Louise Davey