Net-Zero Transition Planning for Pension Funds and other Asset Owners Applying EEIST’s Risk and Opportunity Analysis

The document proposes a paradigm shift in how pension funds approach net-zero transition planning. It critiques the reliance on modern portfolio theory and 'official' climate scenarios, which it claims are not 'decision-useful' due to their linear nature and long time horizons. Instead, it advocates for the application of 'EEIST Thinking'—rooted in complexity economics—to develop bespoke, qualitative scenarios that account for non-linear dynamics, tipping points, and systemic risks. The report introduces 'Ten Transition Planning Principles for Pension Funds' to move decision-making from a backward-looking, optimization-focused approach to one that is forward-looking and adaptive. It highlights the Universities Superannuation Scheme (USS) as a case study in applying these systemic views to investment strategy.

• Current net-zero strategies for pension funds are overly reliant on modern portfolio theory and the Capital Asset Pricing Model (CAPM), which fail to account for climate change because they rely on historic market returns.
• Official climate scenarios, such as those from the Network for Greening the Financial System (NGFS), are increasingly viewed as not 'decision-useful' because their time horizons are too long and they omit critical physical risks like tipping points and feedback loops.
• The report recommends the adoption of 'Decision-Useful Climate Scenarios' based on plausible narratives and the Real World Climate Scenarios (RWCS) initiative, which analyzes the interaction between policy intervention and market dynamism.
• The authors propose 'Ten Transition Planning Principles for Pension Funds' to replace traditional decision-making. Key shifts include moving from backward-looking to forward-looking analysis, from optimization to adaptive processes, and from a focus on numbers to a focus on narratives.
• Climate risks should be analyzed through 'systems thinking' rather than in isolation, incorporating other macro drivers such as geopolitical shocks, financial market volatility, and disruptive technologies.
• The Universities Superannuation Scheme (USS) is collaborating with the University of Exeter to integrate a systemic view of climate and transition considerations into its investment strategy and risk processes.

APA

Clark, M., & Oliver, J. (n.d.). Net-Zero Transition Planning for Pension Funds and other Asset Owners Applying EEIST’s Risk and Opportunity Analysis. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2023/08/2023IIB041-EEIST-Financial-Sector-report-AW.pdf

Chicago

Clark, Mike, and Jack Oliver. Net-Zero Transition Planning for Pension Funds and other Asset Owners Applying EEIST’s Risk and Opportunity Analysis. Climate Strategies, n.d. https://climatestrategies.org/wp-content/uploads/2023/08/2023IIB041-EEIST-Financial-Sector-report-AW.pdf.

Wikipedia

{{cite report |last1=Clark |first1=Mike |last2=Oliver |first2=Jack |title=Net-Zero Transition Planning for Pension Funds and other Asset Owners Applying EEIST’s Risk and Opportunity Analysis |publisher=Climate Strategies |url=https://climatestrategies.org/wp-content/uploads/2023/08/2023IIB041-EEIST-Financial-Sector-report-AW.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{clarkndnetzero, author = {Clark, Mike and Oliver, Jack}, title = {{Net-Zero Transition Planning for Pension Funds and other Asset Owners Applying EEIST’s Risk and Opportunity Analysis}}, institution = {Climate Strategies}, url = {https://climatestrategies.org/wp-content/uploads/2023/08/2023IIB041-EEIST-Financial-Sector-report-AW.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }