Ortec Finance has warned that folding climate change into capital market assumptions (CMAs) is not, on its own, enough to capture the true scale of climate risk facing institutional portfolios.
The warning followed a virtual panel discussion hosted by Ortec Finance on 29 July, gathering perspectives from across the Asia-Pacific region under Chatham House Rule. It built on an earlier session that focused on North America, continental Europe and the UK. Panelists included representatives from CBUS Super, Prudential Plc, NZ Super Fund and Fidelity International.
According to Ortec Finance, blending climate pathways such as those from the NGFS into standard CMAs risks underestimating physical climate risk, creating inconsistencies with the bottom-up stress-testing many funds already run. The resulting shifts to expected returns were often described as modest, masking the systemic nature of climate change and overlooking disruption from supply chains, productivity losses, resource scarcity and migration.
Ortec Finance noted that climate-adjusted CMAs rarely trigger material change to strategic asset allocation, since traditional frameworks lean on mean-reverting historical data that cannot capture the range of possible future outcomes.
It stated that climate scenario analysis should sit alongside climate-adjusted CMAs rather than replace them, connecting insight across asset classes, investment teams and risk functions.
In practice, this means stress-testing portfolios against multiple plausible futures, shifting board conversations away from single central forecasts, and quantifying the cost of climate inaction for stakeholders. For superannuation funds in particular, scenario work offers members greater visibility of long-term risk across their retirement horizon.
Ortec Finance also pointed to a push to relax mean reversion assumptions within CMAs themselves, given that future market conditions may diverge materially from historical patterns.
Challenges remain, however. Panelists flagged the difficulty of translating macroeconomic climate impacts into company-level insight, the need for credible scenario selection, and the risk of treating scenario outputs as forecasts rather than decision-support tools.
Ortec Finance highlighted market repricing as a “third dimension” of climate risk alongside physical and transition risk, alongside supply chain fragility and uneven policy responses across regions that add further volatility to transition pathways.
Ultimately, Ortec Finance’s panel concluded that assessing climate resilience requires a broader organisational lens, one that considers members, business operations and future liabilities, not just portfolio returns, to build a fuller picture of long-term climate risk and opportunity.
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