Loading the DICE against pension funds: Flawed economic thinking on climate has put your pension at risk

Year Published

2023

Contributing Organizations

Carbon Tracker

Type of Resource

Research/Insights Report

Languages

English

Relevant Topics

Core Topic

Transition Finance

Topic 2

Climate Models & Scenarios

Target Audience

Asset Managers

Asset Owners

Banks

Financial Services Providers

Insurers

Relevant Geography

Global

Resource Description

This report critiques how flawed economic models, particularly the DICE model, have led pension funds to underestimate climate risks. It examines how these models shaped advice from consultants and informed regulatory assessments.

Why This Matters

Widespread use of inaccurate climate-economics in investment advice and regulation poses serious risks to pension assets and financial stability.

Key Insights

Economic models project limited GDP losses from 3–6°C warming, conflicting with scientific warnings of catastrophic risks from as low as 1–2°C
Damage functions used in these models ignore tipping points and non-linear impacts
Consultants like Mercer applied these models in advising pension funds, leading to understated climate risk in portfolio projections
This creates the risk of a sudden asset revaluation—a “Climate Minsky Moment”

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