The EDHEC Infrastructure & Private Assets Institute has written to the European Insurance and Occupational Pensions Authority (EIOPA), warning it of the consequences of climate risk for pension investors.

As reported by our sister publication European Pensions, in the letter, EDHEC called for reinforcement of the integration of climate risk in the assessment of the solvency of pension institutions.

It also included a research paper from the institute, which found that physical risks created by climate change were not limited to the “distant future” for infrastructure investors.

EDHEC warned that, in a worst-case scenario, pension investors could lose up to 50 per cent of the value of their infrastructure portfolios by 2050 if climate risk is not addressed.

“This very high loss potential for a category of asset that is presented as highly risk-free is not only due to infrastructure projects' exposure to physical risk but is also the result of the considerable level of concentration of portfolios that do not always take account of the climate characteristics of investments in their construction,” the institute stated.

The letter explained that EDHEC had conducted the first in-depth analysis of physical climate risk for unlisted infrastructure investments.

It found that the impact of ‘runaway’ climate change on the value of infrastructure investments before 2050 was “significant”.

Furthermore, the analysis warned that if no serious measures were taken, financial losses from physical risk would be a twice as high than in a low-carbon scenario.

EDHEC concluded: “The authors believe that EIOPA's position as an advisory body to the European Commission, the European Parliament and the Council of the European Union will allow it to draw attention to the impact that a lack of climate action can have on the stability of the pensions and insurance system, and on financial stability more generally, at a time when institutional investors are playing an increasingly important role in the financing of infrastructure.”

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