Warming of around 2°C to 3°C by 2100 could reduce long-term pension fund returns by approximately 10% to 30% relative to current expectations, a report from Ortec Finance shows.
The report – A changing climate, a changing risk landscape: The 2026 global pension fund perspective – analysed 180 pension fund portfolios in the UK, US, Canada, Australia, the Netherlands and Switzerland.

Under a ‘limited action’ scenario, which assumes a 2.8°C increase in warming by the end of the century, the firm’s analysis showed the long-term investment returns of pension savings could be cut by between 10% and 30% by 2050.

The report cites recent scientific studies which point to a “consistent conclusion” among scientists that a Paris agreement-aligned outcome of 1.5°C of warming appears increasingly unlikely, while warming of around 2°C to 3°C “sits closer to the centre of the probability distribution”.

The UK showed the widest dispersion of outcomes across pension funds, owing to the varying risk profile of schemes’ portfolios. Mature defined benefit (DB) schemes, with significant allocations to fixed income, are more resilient, while growth-oriented schemes with higher allocations to equities and alternative assets face “materially larger losses”.

Dutch and Swiss pension funds “appear comparatively resilient”, while greater allocations to riskier assets in the Australian, Canadian and United States systems mean they exhibit larger projected impacts.

However, the report said that “no major pension market appears insulated from the economic consequences of climate change”. It said the findings shift climate change from a tail-risk exercise to a current risk which could directly impact returns, funding ratios, and retirement security.

The impact on returns in Ortec’s analysis represents the incremental impact of a climate scenario compared to the firm’s baseline economic and financial outlook. The figures quantify the gain or loss attributable to that specific climate scenario.

The scenarios also suggest that climate change could simultaneously reduce economic growth and increase inflation, posing a challenge to sovereign borrowers at a time when public debt levels remain high.

Compounded by ageing populations, rising healthcare expenditure and growing pension obligations, the report suggests climate change could weaken nations’ fiscal strength and ability to respond to economic shocks.

Ortec said that financial markets may reprice climate exposure, leading to higher risk premia, wider spreads and higher refinancing costs for sovereigns.

However, the vulnerability of government bond markets varies significantly between warming scenarios, with ‘limited action’ leading to a 1% drop in returns on UK government bonds and ‘high warming’ of 3.8°C leading to a 5% drop.

Uninsured losses from major climate disasters, including relief efforts, reconstruction funding and support for affected households, could further strain government finances.

Rising insurance premiums and insurance affordability pressures might “affect property values, mortgage markets and broader economic resilience before physical climate impacts are fully reflect in asset prices”.

In Australia, around 15% of households already face severe home insurance affordability pressure, according to estimates from the Australian Prudential Regulation Authority.

Ortec climate risk specialist Doruk Onal said: “One of the clearest signals investors should watch is the growing protection gap in insurance markets. As insurance becomes less available or less affordable, the impact can quickly extend beyond insurers into property values, lending markets and the broader economy.”

Under the ‘limited action’ scenario, annual global economic growth is projected to be around 0.8 percentage points lower by 2065, rising to 1.6 points under the ‘high warming’ scenario, a level which would bring global growth close to zero.

The report said that for pension funds, slower growth, higher inflation, weaker public finances and rising insurance costs “ultimately feed through into long-term investment returns and portfolio resilience”.

Ortec managing director, climate scenarios and sustainability Maurits van Joolingen said: “To fulfil their fiduciary duty, pension funds must understand climate change as both an asset-level and systemic risk.

“The wide range of outcomes across our limited action and high warming scenarios show how climate-related risks can interact, compound and amplify one another, producing markedly different outcomes for portfolios.”

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