The Global Risks Alliance (GRA)
Pension funds, insurers, endowments and sovereign funds hold liabilities that run for decades, far beyond the window of most risk models. Over those horizons, climate change, nature loss, demographic ageing and technology shifts can reprice whole sectors and change the returns assumed in funding plans. This page sets out how long-horizon risks reach portfolios, how scenario and macro-financial methods treat them, and why their outputs are explorations of possible futures rather than forecasts.
GRA · Established · service level R0
Long-horizon investment risk is the risk to investors whose liabilities run for decades, such as pension funds, insurers, endowments and sovereign funds, from slow drivers that can reprice whole sectors suddenly: climate change, nature loss, demographic ageing and technology shifts. Much of it is systemic and cannot be diversified away.
Where a portfolio's assets sit, and how much of its value is most exposed. Hypothetical assets, not an assessment.
Climate, demographic and technology shifts. The dossier below sets out how the risk develops, what is measured, where the data come from, how it is modelled and who decides.
Physical climate change, ageing and technological diffusion move slowly, but markets can reprice them abruptly when policy, a disclosure or an event changes expectations. The risk lies in the timing of recognition as well as in the drift.
Funding plans rest on assumed long-run returns, inflation and discount rates. A structural change in growth, productivity or interest rates changes contributions, funding levels and the asset allocation that follows from them.
Longevity, wage growth, inflation indexation and discount rates change the value of pension and insurance liabilities. A shock that moves assets and liabilities together differs from one that pulls them apart.
Risks that touch every sector and region, such as unmitigated warming or widespread loss of ecosystem services, cannot be diversified away. Universal owners carry them as exposure to the whole economy, which makes them a question of stewardship and policy as well as allocation.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Climate value at risk | A scenario-based estimate of the change in a portfolio's value from climate policy and physical risks. |
| Capital market assumptions | Long-run expected returns, volatilities and correlations used for strategic asset allocation. |
| Liability duration | The sensitivity of the present value of liabilities to interest rates, roughly their weighted average timing. |
Each indicator carries its unit, its cadence, the kind of source behind it and the evidence label a value would carry. No values are shown: a programme supplies them under its own authority.
| Indicator | Unit | Cadence | Source type | Label |
|---|---|---|---|---|
| Climate value-at-risk under a named scenario | percent of portfolio value | annual | Scenario models applied to holdings | MODELLED |
| Exposure to transition-sensitive sectors | percent of assets under management | quarterly | Holdings mapped to sector classification | ESTIMATED |
| Physical hazard exposure of investee assets | share of portfolio value by hazard class | annual | Asset locations on hazard layers | MODELLED |
| Dependency on ecosystem services | share of portfolio value by dependency rating | annual | Sector mapping of holdings with ENCORE | ESTIMATED |
| Liability duration | years | annual | Actuarial valuation | OFFICIAL |
| Funding level sensitivity to the discount rate | percentage points per basis point | annual | Asset-liability models | MODELLED |
| Long-run expected return assumption | percent per year, real | annual | Published capital market assumptions | DECLARED |
| Scenarios tested against the strategic allocation | count of scenarios by type | per review | Investment committee records | REPORTED |
The topic as a computational graph: named sources feed the methods, an evidence review gates the outputs, and the decisions stay with the authorities that hold them.
Fig. 02Nodes carry their type, two metric rows and a state; connectors show what feeds what; dashed frames name the owners; the timeline is the cadence. Design of the pipeline, not a record of a run.
Named public datasets and institutional records, each with its licence class. Sources by agreement are used only under their terms and never republished.
| Source | What it gives | Licence class |
|---|---|---|
| NGFS climate scenarios | Transition and physical risk pathways for macro-financial variables, by scenario and region | Free, attribution under the scenario explorer terms |
| IPCC Sixth Assessment Report | Assessed physical climate projections and mitigation pathways | Free to read, IPCC terms |
| ENCORE (UNEP-WCMC, UNEP FI, Global Canopy) | Sector dependencies and impacts on nature for screening portfolios | Free, attribution, terms of use |
| UN World Population Prospects | Population and age structure projections by country | Free and open, attribution |
| OECD Pension Markets in Focus and Global Pension Statistics | Pension fund assets, allocations and funding indicators by country | Free to read, OECD terms |
| Federal Reserve Financial Accounts of the United States | Sector balance sheets of pension funds, insurers and households | Public domain |
| Bank of England climate biennial exploratory scenario publications | Supervisory climate scenario design and aggregate results for banks and insurers | Free reuse, attribution |
| Copernicus Climate Change Service | Climate reanalysis and projections for physical hazard analysis | Free and open, attribution |
Asset Management Nexus prepares evidence. The decisions below are taken by the authorities named, under their own rules, and never by the platform.
| Who decides | The question | Evidence this page serves |
|---|---|---|
| Pension trustees and boards of asset owners | Whether the strategic asset allocation and funding plan hold up across a range of long-horizon futures | Asset and liability sensitivities under named scenarios, and the assumptions each scenario fixes |
| Insurance boards and actuarial functions | How climate and longevity scenarios enter the own risk and solvency assessment | Scenario design notes; the variables each scenario does and does not move |
| Central banks and supervisors running climate exercises | Which scenarios, horizons and balance-sheet assumptions an exploratory exercise should use | Reviews of scenario construction and of known gaps in damage functions |
| Sovereign fund boards and ministries of finance | How long-horizon exposures inform the fund's mandate and reference portfolio | Sector and region exposures under transition and physical scenarios |
Physical climate change affects productivity, asset damage and the habitability of regions, with impacts growing over time. Transition policies and technologies change the value of carbon-intensive assets and create new sectors. Population ageing affects labour supply, savings, interest rates and demand for different goods. Technological change shifts which firms and sectors earn returns.
These forces are uncertain in timing and magnitude, but their direction is often well established. Markets may not price them fully, because standard risk models rely on historical data and short horizons. Repricing can then occur abruptly when new information, policy or events change expectations.
Industry incentives can shorten horizons. Performance is often assessed over short periods, and managers may be reluctant to deviate from benchmarks.
Coherent narratives and pathways for climate, demographics and technology, using scenario design and stress testing. Scenarios are not forecasts.
Linking physical and economic models to estimate impacts on growth and sectors. Damage functions are highly uncertain.
Long-run return and risk expectations. They rely on judgement and are sensitive to assumptions.
Studying past structural shifts. History may not repeat.
Long-horizon modelling carries deep uncertainty. Analyses show ranges and the assumptions that drive them.
The current service level is R0: information and enquiries. An enquiry receives a reference and names the next step; applications, payments, compute allocations and registrations open only when their team, terms and review capacity exist.