In recent years, the European Insurance and Occupational Pensions Authority has made considerable efforts to improve the integration of climate risk into the assessment of the solvency of pensions and insurance institutions, notably with the first stress tests on the occupational pensions sector conducted in 2022 and the publication of the application guidance on how to reflect climate risk in Own Risk and Solvency Assessment (ORSA) the same year.

It is within this continuity that we wish to write to you today to alert you to the materiality of physical climate risk in unlisted infrastructure investment for institutional investors and notably insurance companies and pension funds, who correctly consider this asset class to be an important ingredient for both asset diversification and liability hedging. The research note that we are sending you today shows that the physical risks created by climate change are not limited to a distant future for investors in infrastructure, some of whom could well lose more than 50% of the value of their portfolio to physical climate risk before 2050 in the event of runaway climate change. Moreover, the average investor will also lose twice as much to extreme weather, mostly in OECD countries, compared to a low carbon scenario.