Marvin OnumonuPension funds are set for tough times as both slow growth and rising inflation, driven by climate change, put pressure on returns, according to research from Ortec Finance.
Research found that if the world fails to make a low-carbon transition, pension fund returns could fall by 33% by 2050 under a high warming scenario.
Analysis by Ortec Finance used its 2025 climate scenarios on 180 pension funds in the six largest global pension systems.
It showed that the average impact on pension fund returns would be 2% by 2028, rising to 6% by 2035 and 33% by 2050.
In a high warming scenario, global GDP could be over 10% below current forecasts by 2050.
After 2050, developed economies could see GDP growth stall until 2075.
Rising temperatures, heat stress and lower crop yields are likely to push inflation up.
A successful net-zero transition would help keep GDP growth steady by recycling carbon revenues, increasing investment and spending, and reducing physical risks, according to data.
Doruk Onal, climate risk specialist at Ortec Finance, said: “By 2035, performance of the global pension portfolios under high warming scenarios is already worse than under the worst-case transition scenarios, highlighting the catastrophic implications of not transitioning.”
By 2050, high warming scenarios would see a 33% drop in returns, compared to 8% in a delayed net-zero and 4% in a net-zero financial crisis scenario.
When inflation is included, real returns drop even more under high warming.
Maurits van Joolingen, managing director, climate scenarios & sustainability at Ortec Finance, said: “Climate change is systemic, but it does not impact all geographies equally.
“If superannuation funds are to mitigate climate risk, they must rethink strategic asset allocation to incorporate geographic variation.”
The report also found that many physical risks, such as uninsurable or irreversible climate tipping points, are not fully included in current asset prices.
Van Joolingen added: “This report clearly shows that the immediate costs of transitioning to a low-carbon economy are significantly outweighed by the long-term physical impacts and escalating costs of continued climate inaction.
“Climate change poses profound risks to global pension funds, but also a clear opportunity: an immediate and coordinated low-carbon transition offers the best long-term outcome.
“Delay, by contrast, risks stranded assets, higher inflation, and escalating losses.”
He said: “While no single pension fund can shift the global trajectory alone, the collective influence of institutional investors is substantial.
“Thus, pension funds play a key role in supporting the low-carbon transition for both financial security and societal well-being.”
