Statistics and Actuarial Science researcher studying the effects of climate change on pension funds

SFU Statistics and Actuarial Science professor Jean-François Bégin and Mathematics professor Mathieu Boudreault of Université du Québec à Montréal (UQAM) have received $160,000 from National Sciences and Engineering Research Council (NSERC) and Retraite Québec to study the effects of climate change on the long-term viability of public and private pension funds.

“In light of climate change, assessing risk and dealing with unknown unknowns is very difficult,” Bégin says. “The past is not necessarily a guide to the future as we are entering uncharted territories.”

Canadians have invested over $3 trillion in pension funds to support their retirement. However, climate change has the potential to disrupt the viability of these pension plans due to its impact on economic growth and demographics.

Bégin explains that climate change affects both sides of the balance sheet. Economic instability and changes to many sectors of the economy impacts funds’ assets by affecting the rate of return when members’ contributions are invested. At the same time, changing birth rate, mortality and immigration patterns affect funds’ liabilities, the reserves set aside to pay members after they have retired.

The researchers plan to use probabilistic models to create a framework that captures the interactions between climate change and pension assets and liabilities, as well as economic and financial data to develop parameters for this framework.

Their goal is to create a climate-based methodology that will enable actuaries and risk managers to model and assess risk in pension funds, become climate change leaders while managing pension funds, and accelerate the implementation of climate initiatives in pension risk management practices.

“We do not really know what the world will look like 25–50 years from now,” Bégin says, “but actuaries still need to provide sound and reliable answers to different financial stakeholders about the risks they are facing.”