Pension scheme trustees and chairs need to strengthen how they use climate scenario analysis to inform investment, risk, and stewardship decisions, Accounting for Sustainability (A4S) has argued.

Its guide, Using scenario analysis for future resilience: top tips for pension fund chairs and trustees, said that scenario analysis was too often treated as a technical or compliance-led exercise, rather than a practical tool for board-level decision making.

Many commonly used climate scenario approaches were found to give a misleading sense of precision, especially those that rely on simplified, linear models that do not fully capture tipping points, physical risks, nature loss, geopolitical instability, the rapid adoption of artificial intelligence, inflation, supply chain disruption, or other interconnected systemic risks.

A4S said these risks cannot be diversified away by pension scheme boards, and they had implications for asset allocation, default strategy design, liquidity, risk appetite, stewardship priorities, and long-term member outcomes.

The guide aims to support pension scheme boards with challenging underlying assumptions, ensuring analysis is informing decisions, and combining quantitative modelling with narrative-led approaches through peer-tested examples, actionable ‘top tips, and a series of questions.

It includes practical examples from the pensions industry that are going beyond traditional approaches, including the use of narrative scenarios to assess how climate transition, technology, geopolitics, and macroeconomic conditions may interact, and how those insights can inform real investment decisions.

“Pension trustees are sharply aware of the major long-term risks threatening to undermine economic performance and so the prospects for investment returns,” said Universities Superannuation Scheme trustee board chair, Dame Kate Barker.

“Clear evidence of climate change and of biodiversity loss concerns us deeply – but it can seem a daunting task to develop an appropriate response. The increasing use of scenarios to inform pension trustee decisions points a way forward.

“However, as this guide makes clear, scenarios need to be increasingly sophisticated and move away from the tempting simplicity of linear modelling.

“Even then we are reminded that all modelling has its limitations. So the ‘top tips’ set out here are welcome practical suggestions – a checklist for those already embarked on this path, and a to do list for those whose use of scenarios is less mature.”

A4S executive director, capital markets and partnerships, Kerry King, added: “Pension funds operate in a world where the past is no longer a reliable guide to the future.

“Boards do not need perfect predictions, but they do need analysis that helps them understand uncertainty, test resilience and make better-informed decisions.

"One of the most useful element of scenario analysis for boards is not the most technically complex. It is the analysis that changes the conversation in the boardroom and helps trustees understand what they may need to do differently.”

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