Pension funds across the European Union could lose billions of euros from their investments in industries that pollute the environment if those industries do not mitigate their impact on climate change, as shown by the first stress test of its kind conducted in the European Union.
The European Insurance and Occupational Pensions Authority (EIOPA) announced that its test covered 187 pension funds from 18 EU member states, which hold more than €1.980 trillion in assets.
The assets were tested for resilience against a sudden, disorderly transition to carbon neutrality, which would result in a sharp increase in carbon prices.
The results showed that pension systems are ‘materially exposed’ to transition risks, according to EIOPA’s statement.
The stress scenario would cause a significant overall decline in pension fund assets by 12.9%, corresponding to losses from estimated asset values of around €255 billion, mainly from investments in stocks and bonds, EIOPA reported.
According to EIOPA’s scheme, funds invested six percent of capital and ten percent of investments in corporate bonds in carbon-intensive industries such as mining, electricity, gas, and land transport.
– Heavy losses on the asset side clearly demonstrate the sector’s vulnerability to climate risks, particularly regarding investments in carbon-intensive industries – said EIOPA Chair Petra Hielkema.
