According to investment advisory firm Frontier Advisors, even under the best conditions where governments around the world reduce carbon, superannuation will take a hit.
Under the worst-case scenario, investors in long-term assets such as superannuation will lose 0.5 of a percentage point a year by 2065 and nearly 1 per cent a year by 2100.
Principal consultant at Frontier Advisors Philip Naylor believes the upfront cost will be far less than the long-term implications.
“The primary driver of this downward revision has been the long-term impact on the global economy of climate change,” Mr Naylor outlined.
He said that “there are costs of transitioning to a low-carbon economy, but the long-term costs of global warming and extreme weather events are far greater”.
Frontier has completed modelling of a number of possible policy pathways and potential climate change impacts, including an ambitious model where global warming is limited to a 2 degree increase outcome and pledges made under the Paris Agreement outcome.
“There are a number of possible future scenarios, with the degree of impact dependent on a range of different policy path responses policymakers make in the future,” Mr Naylor explained.
When considering climate change impacts, Frontier examined the potential impact of climate change on investment returns across a number of different policy paths.
Their resultant downward revision is effectively based on a best-case outcome that governments around the world reduce carbon emissions and limit global warming.
Frontier concluded that if actions to limit temperature rises by reducing carbon emissions are not achieved, then the outcome for the economy and investments will be much worse.
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