Using Scenario Analysis for future resilience: Top Tips for pension chairs and trustees
Many long-term investors recognize that systemic risks like climate change, nature loss and geopolitical instability are interconnected, undiversifiable and could threaten market stability. Yet their magnitude, timing and trajectory remain uncertain.
Scenario analysis offers a practical way to navigate this uncertainty – informing investment strategy, stewardship and long-term member outcomes. Yet, this potential is often underused, with scenario use limited to risk assessments, setting net zero targets and compliance.
In addition, commonly used scenario approaches rely on simplified quantitative models that can create a misleading sense of precision and comparability, masking important limitations and blind spots, and making it harder for boards to interpret results and provide effective challenge.
About this guide
This guide is designed to support pension fund chairs and trustees to strengthen how scenario analysis is used at board level, moving it from a primarily analytical exercise to a practical input into strategic decision making. With peer-tested examples from Universities Superannuation Scheme (USS), Norges Bank Investment Bank and APG, as well as actionable top tips, the guide supports boards:
- Ensure scenario analysis informs judgement on strategy, asset allocation, risk appetite and stewardship
- Combine quantitative outputs with narrative led approaches that explore uncertainty, non linear change and hard to model risks
- Build the organizational capabilities and culture needed to embed these risks into decision making over time
- Explicitly link scenario analysis to a scheme’s operations including how strategic asset allocation and default strategies are set, mandates are designed and stewardship is escalated
- Take essential steps even with limited resources
The guide recognizes differing levels of resource across funds and highlights essential actions that can be taken even where capacity is limited. Although written for pension funds, many of the approaches described are transferable to other asset owners, financial institutions and corporates.
