From Climate Risk to Economic Risk & Opportunity: The New Reality for Pension Schemes?

The Institute and Faculty of Actuaries and the University of Exeter have published a report on Global risk management for human prosperity (which you can find here) warning that climate change risks could push us towards what they call ‘Planetary Insolvency’ - defined as ‘significant societal disruption driven by climate and nature risks’. In other words, a world where the systems on which our economies rely begin to fail.

What are the headlines?

The crucial message from the 31-page report is that previous economic models have significantly underestimated the financial impact of climate change.

Previous estimates suggested a 2.1% fall in global GDP if global average temperatures rise by 3°C.  By comparison, the global economy shrank by 3.4% during the Covid‑19 pandemic (Statista).

The report highlights that previous methodologies for calculating economic impact ‘exclude many of the most material risks’ – meaning the true economic consequences could be far more severe.

A more ‘plausible’ scenario published by the UK’s Climate Financial Risk Forum, suggests that there could be a 15% to 20% global economic contraction. 

Can this economic impact be mitigated?

Chapter 4 sets out a five-point ‘Planetary Solvency recovery plan’, to help avoid an ‘economic collapse driven by the loss of nature’s critical support systems’. 

The recommendations include: 

1. Super-charge the energy transition 

A rapid, large-scale transition to clean energy is essential to decarbonise grids globally. The report notes that this is not just a climate imperative – it represents a major economic opportunity opening the door to new investment and manufacturing growth. 

2. Work with nature

The report calls for a strategic, coordinated approach to restoring natural carbon sinks. Crucially, nature must be recognised as a serious investment opportunity, not a cost. 

We initially read this report with pensions-related impact and opportunity in mind, but were reassured that Burges Salmon is acting in both of these spaces: 

• Please see here for our insights into Getting to Net Zero - Burges Salmon where we provide research and thought leadership on how achieving Net Zero requires practical solutions, sustainable investment, and a resilient approach to energy and infrastructure.
• Please see our press release reporting on our partnership with Oxygen Conservation for 8,000 UK-based premium quality carbon credits — the partnership demonstrates an important shift in how the voluntary carbon market operates – moving from transactional offsets to transformative investments that deliver measurable environmental and social benefits.

So, what does this mean for pension scheme investors?

The risks highlighted to our global economy are stark but the report also highlights significant investment opportunities for pension schemes to make material positive impact in transitioning to a more sustainable economy.

However, many trustees still find the legal landscape unclear – particularly around how far they can take climate and sustainability factors into account when exercising their investment duties.

Our recent article on Clarification on Pension Trustee Investment duties explores legislation on the horizon which hopes to provide trustees with the reassurance they need in order to confidently invest in opportunities that delivers both financial returns and a positive environmental impact.

As confirmed by the Pensions Minister on 22 January 2026, new statutory guidance will clarify trustees’ ability and offer practical support to consider system-level risks such as climate related risks and the long-term impacts of investments on members’ standards of living.

We’ll be keeping a close eye on the upcoming legislation and will share further updates as it progresses. 

More information 

For more information on navigating the developing landscape of ESG compliance, view our ESG focused tool.

If you would like to discuss balancing ESG compliance and trustee duties please contact Kate Granville Smith, Suzanne Padmore or your usual Burges Salmon contact.

This article has been co-authored by Emma Mitchell, Apprentice Solicitor. 

A Planetary Solvency recovery plan, modelled on principles from financial services recovery planning regulation, should establish a robust, forward-looking framework to restore and protect the planet’s ability to sustain human society and the economy.

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