Climate Change Scenarios: Tailored Report GPFG - Regjeringen.no

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Climate Change Scenarios Tailored Report Norwegian Government Pension Fund (Global)

Published March 2012* *Most of the analysis in this report was carried out in 2011 and builds on Mercer’s public report “Climate Change Scenarios – Implications for Strategic Asset Allocation”, published 15 February 2011.

Tailored Report

Norwegian Government Pension Fund (Global)

Contents 1. Objective and overview..............................................................................................2 2. Overview of the scenarios and methodology..............................................................4 3. Current asset allocation approach and mix ..............................................................12 Quantitative analysis highlights..........................................................................12 Risk factor attribution .........................................................................................16 4. Listed equities..........................................................................................................18 5. Fixed income ...........................................................................................................25 6. Regional Divergence ...............................................................................................32 Qualitative Analysis............................................................................................32 7. Delayed Action ........................................................................................................37 Qualitative Analysis............................................................................................37 8. Stern Action.............................................................................................................42 Qualitative Analysis............................................................................................42 9. Climate Breakdown..................................................................................................47 Qualitative Analysis............................................................................................47 10. Conclusion and possible actions..............................................................................51 Appendix 1

Climate change risks – TIP framework...............................................................58 Appendix 2

Macroeconomic impacts ....................................................................................60 Appendix 3

Signposts for scenarios to 2050 .........................................................................66

Mercer

1

Tailored Report

Norwegian Government Pension Fund (Global)

1 Objective and overview This report considers the implications of the climate change scenario analysis study as set out in the Public Report for the strategic asset allocation (“SAA”) decision-making process for the Norwegian Government Pension Fund (Global) (the “Fund”). The objectives of this report are to: Analyse the possible impact of climate change for the Fund’s portfolio mix and strategic decision-making process, including: –

Qualitative assessment of risks and opportunities across the climate scenarios



Quantitative analysis to demonstrate the potential impact of the scenarios on the portfolio

The key actions for the Fund to consider based on the findings of Mercer’s analysis are as follows: Strategically: Build climate change scenario and factor risk analysis into ongoing strategic reviews and risk management processes Determine whether to revise asset exposure to climate change factors based upon the expected benefits in some of the climate change scenarios considered Monitor the signposts for each scenario as part of this review as detailed in Appendix 3, to guide decisions around which scenario is becoming more/less likely and the investment implications of any changes over