Ocean-related shocks could simultaneously erode pension schemes’ real investment returns, increase inflation-linked liabilities and weaken employer covenants, actuaries have warned.
The Institute and Faculty of Actuaries (IFoA) has called for ocean-related shocks to be incorporated into financial risk assessments, warning that their impact could be systemic and difficult to diversify away.
Its new report, Ocean Maelstrom: navigating the climate storm, produced in collaboration with the University of Exeter and The Ocean Race, warns that ocean-related risks are already severe and worsening, and could become catastrophic without action.
According to the report, ocean disruption could trigger inflationary pressures that increase the cost of providing inflation-linked pension benefits, while simultaneously reducing real investment returns and putting financial pressure on sponsoring employers.
The report warns that these effects could persist over time, creating systemic risks that pension schemes may struggle to diversify away.
“Ocean risks do not remain environmental risks. They can cascade through food systems, supply chains, inflation, economic growth, financial markets and retirement outcomes,” the report warns.
The authors argue that the ocean’s role in regulating the climate and supporting economic activity makes its health a long-term financial concern for pension schemes, particularly as members will continue to rely on their retirement savings well beyond 2040.
The findings follow the publication of draft UK government guidance on pension trustees’ investment duties on 5 November.
The Department for Work and Pensions (DWP) said trustees should consider climate change and biodiversity loss where financially material, including risks that could affect entire markets and economies.
David Obura, chair of the Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), also warned that the financial consequences of environmental damage could accumulate over time.
“As those impacts accumulate within natural and social systems, they eventually reappear as heightened economic, financial and societal risks,” he wrote.
The challenges of assessing the financial materiality of nature-related risks have also been highlighted by Dutch pension asset manager APG, which manages approximately €639bn in assets.
APG has argued that nature can be financially material to a business even when the natural resources on which it depends are not recognised as assets on its balance sheet.
The IFoA report comes as the COP31 presidency has identified oceans and seas as a priority at the UN climate summit in Antalya, Turkey. A thematic day on 17 November will focus on oceans, seas, nature and land use.
