Until recently, those of us who tried to understand the interactions between climate breakdown and pensions could be stymied by paywalls or impenetrable jargon.

That changed in 2023, when critiques of economic modelling broke through to the mainstream, exposing deep flaws in the way portfolio managers assess climate-related risks to pension funds.

As the think tank Carbon Tracker highlighted, concerns revolve around the reliability of ‘integrated assessment models’ (IAMs), used to calculate potential economic damage from global warming.

Developed and peer-reviewed by economists - without input from climate scientists - IAMs ignore key factors such as extreme weather events and climate tipping points, as well as potential loss of lives and livelihoods, displacement and migration, conflict, bread basket failure and the destruction of the natural environment.

They also assume that climate collapse is not a substantial threat to GDP because most of it - 87% in the United States - is generated in ‘carefully controlled environments’ (otherwise known as ‘indoors’).

As a result, IAMs indicate that rising temperatures will have negligible climate-related impacts on the global economy. They forecast a drop of only 8.5% to 12.5% in GDP at 6ºC of warming - a ludicrous conjecture that categorically conflicts with climate science. In the words of one climate expert, "actually having financial markets would be a miracle in a +6ºC world".

But most portfolio managers continue to base their investment decisions on such gross underassessments of potential climate impacts. Their ongoing reliance on IAMs effectively puts the retirement savings of millions at risk, while exacerbating climate and ecological breakdown.

On the positive side, 2023 marked the year that risk management experts and climate scientists issued a joint call for realistic climate scenario modelling. The UK’s biggest private pension scheme, USS, is helping to drive this switch to ‘real-world’ risk- and opportunity - assessments.

In addition, research published in 2023 demonstrates that in wealthy countries such as the UK, rapid divestment from fossil fuels - essential if we are to avert catastrophic climate impacts - would be ‘cheap for governments to compensate’. The same year saw the Church of England decide to divest from fossil fuel companies that are not aligned with 1.5°C.

Of the £3 trillion in UK pensions, £88 billion is invested in fossil fuel companies, including £16 billion through local government pensions. How does your retirement fit into that? And how can you safeguard your pension and a livable future? Make My Money Matter and UK Divest offer useful tips.

  • Tania Inowlocki is a member of Climate Emergency Camden (climateemergencycamden.org/).