The Global Risks Alliance (GRA)
Pension funds, endowments and sovereign funds invest for horizons of decades, sometimes in perpetuity. Over those horizons, climate change, population ageing and technological change can reshape growth, interest rates and the value of whole sectors, while most risk measures look a year ahead. This page sets out how these slow-moving drivers reach institutional portfolios and liabilities, how scenario methods explore them, and why their outputs are explorations of plausible futures rather than forecasts.
GRA · Established · service level R0
Long-term risk for institutional investors is the risk over decades, sometimes in perpetuity, that climate change, population ageing and technological change reshape growth, interest rates and asset values. These slow drivers can reprice assets abruptly, move liabilities too and cannot be diversified away by universal owners.
How physical and transition risk could reach a loan book under different scenarios. Illustrative design values.
The working screen behind this subject: its structure, terms and states. Names are placeholders and values illustrative.
Long-term risk · Pension fund P · Valuation date Q3
| 1 | Cash and gilts | 420 | 0 |
| 2 | Index-linked | 646 | 1 |
| 3 | Credit | 1147 | 5 |
| 4 | Illiquid | 768 | over 30 |
Climate, demographic and technology. 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 damage, ageing and technology diffusion move gradually, but markets can reprice them suddenly when policy, a disclosure rule or an extreme event changes expectations. Timing of recognition matters as much as the underlying drift.
Funding plans and spending rules assume long-run returns, inflation and real rates. Ageing, slower productivity or a disorderly transition can lower those assumptions and raise contributions or cut spending for every fund at once.
Demographic change alters longevity, member flows and wage growth; climate and health shocks alter mortality. A driver that moves assets and liabilities in opposite directions is more dangerous than one that moves them together.
A fund that owns a slice of the whole market owns its exposure to economy-wide damage. Universal owners cannot trade away unmitigated warming or a broad productivity shock, which turns these risks into questions of stewardship and policy.
Each term as this page uses it. Where a standard-setting body defines the term, the wording follows that body.
| Term | Definition |
|---|---|
| Universal ownership | Holding a slice of the whole economy, so that systemic risks and externalities fall on the investor's own portfolio. |
| Real return assumption | The expected return above inflation used in long-term funding and spending plans. |
| Climate scenario | A plausible pathway of climate and policy used to test portfolios, not a forecast. |
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 |
|---|---|---|---|---|
| Portfolio value change under named climate scenarios | percent of portfolio value | annual | Scenario analysis on NGFS pathways | MODELLED |
| Financed emissions intensity | tonnes of carbon dioxide equivalent per unit of currency invested | annual | Issuer disclosures and estimation | ESTIMATED |
| Physical hazard exposure of real assets | share of real asset value in high hazard classes | annual | Asset locations against hazard layers | MODELLED |
| Long-run real return assumption | percent per year | at each valuation or strategy review | Disclosed capital market assumptions | DECLARED |
| Projected old-age dependency ratio | persons of pension age per person of working age | each projection round | United Nations and national population projections | MODELLED |
| Horizon covered by risk and scenario analysis | years | annual | Climate and risk disclosures of funds | DECLARED |
| Evaluation horizon in external manager mandates | years | per mandate | Investment management agreements and policy statements | DECLARED |
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 with macroeconomic variables for long-horizon analysis | Free reuse, attribution |
| IPCC Sixth Assessment Report | Physical climate projections and mitigation pathways underlying scenario design | Free to use with attribution |
| United Nations World Population Prospects | Population, fertility, mortality and dependency projections by country | Creative Commons attribution, IGO |
| European Commission Ageing Report | Long-term projections of pension, health and care spending in EU member states | Free reuse, attribution |
| EIOPA IORP stress test reports | Supervisory stress tests of occupational pension funds, including climate scenarios | Free reuse, attribution |
| IMF Global Financial Stability Report | Analysis of climate, demographic and technology risks to the financial system | Free to read, IMF terms |
| Climate and TCFD reports of large pension and sovereign funds | Disclosed scenarios, metrics, targets and governance of climate risk | Public records, terms per fund |
Institutional Funds 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 |
|---|---|---|
| Trustees and investment boards | Which long-horizon scenarios the strategic asset allocation and funding plan must withstand | Scenario sets with assumptions stated; effects on assets and liabilities shown together |
| Investment committees | Over what horizon to evaluate managers and how to reflect systemic risk in mandates | Mandate horizon practice, scenario sensitivity of portfolios and stewardship evidence |
| Pension regulators and EIOPA | Whether and how to require climate and long-term scenario analysis in own-risk assessments | Supervisory stress test design and disclosure practice across funds |
| Finance ministries owning sovereign funds | How long-horizon risks should shape mandates, benchmarks and spending rules | Scenario analysis of fund value and fiscal dependence under plausible pathways |
The questions concern horizons longer than the data.
Long-term risks affect funds through several channels at once. Physical climate hazards damage real assets and disrupt companies; transition policies and technologies revalue sectors; demographic ageing affects labour supply, savings and growth; technology shifts profits between firms and sectors. These drivers can move together, so diversification across asset classes may protect less than expected.
Standard risk models estimate volatility and correlation from recent history, which captures little of these structural shifts. Long-horizon analysis therefore relies more on scenarios and judgement, and less on statistical estimation, and must be explicit about its uncertainty.
| Method or data | What it shows | Limits |
|---|---|---|
| Climate scenario analysis | Portfolio effects under physical and transition pathways | Scenarios and damage functions are highly uncertain |
| Demographic and macroeconomic projection | Long-run growth, rates and liabilities | Long projections compound uncertainty |
| Narrative and storyline scenarios | Coherent pictures of structural change | Do not assign probabilities |
| Reverse stress testing | What would cause failure to meet obligations | Identifies vulnerabilities, not likelihoods |
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.