A risk assessment of Norges Bank Investment Management’s portfolio reveals global economic fragmentation as the most threatening risk scenario analysed, with the fund’s latest stress test highlighting that alienated trade blocs, aggressive tariffs and restrictions on foreign investments could erase more than a third of the fund’s value.

The analysis, which was revealed as a part of NBIM’s 2025 results, puts a rare dollar figure on the deglobalisation trend. Typically investors look at the impact of deglobalisation qualitatively and in structural terms, not actual figures.

NBIM now stands at NOK 21 trillion ($2.2 trillion) and it estimates that the case of a “fragmented world” could wipe out 37 per cent or NOK 7.7 trillion ($803 billion) of its portfolio value.

In this “very severe” scenario, NBIM expects lower global growth and more market volatility, which could lead to less profitable companies and higher equity risk premiums as investors demand compensation for taking on more risks.

The number was calculated using a “hypothetical stress test” approach. The fund examined four risk events and quantified the potential impacts on the drivers of equity and fixed income returns: dividend growth, equity risk premium, inflation expectations, real rates, and term premium.

The projected asset prices, taking shifts of these factors into account are then compared to current market pricing to evaluate the portfolio impacts.

The second most damaging case for NBIM on a total fund level is a market correction around AI which would shave 35 per cent or NOK 7.4 trillion ($767 billion) off its portfolio. This is largely driven by possible losses in its equities portfolio – which stood at NOK 14.8 trillion ($1.5 trillion) at the time of analysis and could be halved should there be an AI sell-off –  but is slightly offset by potential gains in fixed income.

Most of the fund’s listed equities are passively managed due to its size, which means it has a mammoth exposure to technology stocks. NBIM has a $261.06 billion exposure to the Magnificent Seven stocks collectively.

If tech companies with their massive capex spend fail to deliver the productivity miracle investors are expecting can result in a “downward shift in expected cash and an increase in the equity risk premium, transmitted to broader markets through wealth effects and funding market stress,” the stress test report reads.

“In fixed income markets, central banks’ intervention would lower short-term rates while long-term rates decline somewhat on reduced growth expectations.”

The third risk, which is a regional government debt crisis, would slash 32 per cent or NOK 6.8 trillion ($691 billion) on a fund level. As governments in Europe and the US accumulate outsized sovereign debts, NBIM is seeing worrying signs around their ability to pay back investors especially given new defence spending commitments and pressure from politicians on central bank independence.

But the global impact of this scenario might be comparatively muted if the sovereign debt crisis is limited to one region, as some markets may even enjoy capital inflows as investors seek alternative safe haven assets. Still, it’s the factor likely to have the largest negative impact on NBIM’s NOK 5.6 trillion ($596 billion) fixed income and NOK 853 billion ($86 billion) real assets portfolios.

The final risk scenario that was stress tested was extreme weather events caused by climate change which NBIM believes would cut 20 per cent or NOK 4.2 trillion ($427 billion) of its fund value. The fund war gamed how its portfolio would respond if there was a significant drop in food production and disruption to supply chains, which would lead to higher inflation and lower growth, but concluded that any impact would be “moderate”.

While these tail risks are analysed as separate events, NBIM highlights that they could result in similar underlying macroeconomic shocks and create a vicious cycle of crises feeding into each other.

“A combination of these scenarios would produce larger losses than any single scenario considered separately,” the report reads.

“The most severe scenario this year is a ‘fragmented world’, which may turn even worse if it undermines AI investment returns.”

NBIM is also concerned that there are limited ways to hedge against some of these four scenarios. While gains in fixed income can offer some reprieve for the in the AI market correction scenario, the other three cases will hammer returns across all asset classes the fund allocates to due to higher discount rates and worsening growth prospects, the report says.

Overall, the fund returned 15.1 per cent in the year to December 2025 but underperformed the benchmark by 28 basis points.

Equities was the highest returning asset class (19 per cent) driven by its technology, financials and industrials exposure.

While real estate had a muted return (4.4 per cent), unlisted renewable energy infrastructure, which was approved as investments by the Norwegian Ministry of Finance in 2019, gained 18.1 per cent. It has been slow at deploying capital in the asset class but deputy CEO Trond Grande said it will now ramp up the pace with the build-out of a 20-person infrastructure team.

The biggest transaction in 2025 was a €4.5 billion ($5.2 billion) investment in Germany’s largest electricity transmission system operator TenneT Germany, and the infrastructure portfolio now stands at NOK 91 billion ($9.2 billion).

While the equities and fixed income portfolios contributed alpha (7 and 16 basis points respectively), real assets and asset allocation, where the fund was underweight equities, detracted 42 and 8 basis points respectively.

“The real estate [performance] numbers have been flat, but what we measure it against is a combination of stocks and bonds,” chief executive Nicolai Tangen said during a press conference.

The Oregon State Treasury has been one of the longest-standing investors in private equity, a pioneering move that served it well. But as allocations in 2025 pushed beyond the outer policy limit – 28 per cent of the fund – and a maturing of the asset class puts pressure on returns, a recalibration was necessary. Amanda White spoke to Oregon State Treasurer, Elizabeth Steiner, about the future role and expectations of private equity. 

During 2025, the private equity portfolio of the Oregon State Treasury reached $26 billion, or 28 per cent of total assets, pushing the outer boundaries of its policy limits. 

This, together with the appointment of a new head of private equity, Tad Fergusson, and a looming asset allocation study, has prompted the investor to review its portfolio for purpose and efficiency. Among recent activities it’s been selling, effectively, on the secondaries market to reduce its allocation and conducting a complete review of managers and opportunities. 

“Tad is doing a really deep dive into our strategies for building out our portfolio of managers, assessing the range of managers we have in our portfolio, looking for opportunities that other entities who don’t have the same capacity as us to do that due diligence,” Treasurer Elizabeth Steiner told Top1000funds.com in an interview. 

“We are comfortable digging in. We have a range of good relationships with managers. He is looking at how best to deploy our assets in private markets and that is a very important conversation to continue over the next year or so.” 

Oregon was one of the earliest investors in private equity, having allocated since the 1980s, including being one of the original investors in KKR. In recent years return pressures and the changing nature of the asset class have prompted investors to review whether PE investments are meeting their expectations, and Oregon is no different. 

“It was easy in the days when PE was a new asset type to get in and see outsized returns, and it is obviously harder now and takes more investment of time and a lot more due diligence to make sure you are making the best possible choices,” Steiner says. 

In the early days of Oregon’s private equity investments it wasn’t unheard of to see return on investments of 300 to 400 per cent, but in recent times Oregon’s private equity portfolio has struggled. In the year to June 30, 2025, it returned 6.87 per cent, well below the benchmark (10.42 per cent) and as CIO Rex Kim describes it in the annual report “a disappointing year relative to public equity”. Over three and five years it has also fallen short with 3.75 per cent (versus the Russell 3000 index +300 bps of 11.25 per cent) and 14.86 per cent (versus 21.55 per cent) 

Steiner attributes the diminishing returns in part to the weight of money and a maturing asset class. 

“The early days of PE when it was a much newer strategy, risks were much higher because no one knew what they were doing, so the potential returns were really significant because you had to take significant risks,” she says. “Now the asset class is very well understood and so you’re not going to get the outsized returns from the early days and no one expects that. There are enough institutional investors putting money into PE you can’t get as great terms because of the glut of money in the market.” 

For Oregon, part of the focus in its manager review includes the balance between risk and innovation. 

“Tad Ferguson is taking a hard look at our strategy for identifying PE managers and trying to figure out how we identify ones that on the one hand offer an opportunity for some innovative thinking but don’t require taking ridiculous amounts of risk,” Steiner says. 

“That requires a lot of work to identify all that, and we are evaluating how best to do that because it is really important, and one of the ways we are addressing the returns question.” 

In addition, about 22 per cent, or around $290 million, of the fund’s total investment service and manager fees in the 2025 financial year were spent on private equity. 

The future of the PE allocation 

The review of private equity also ties into the timing of the four-yearly asset allocation review, a process which has just begun. The fund’s risk assessment will be finalised in the first half of 2026, the asset allocation strategy decided in the second half of the year, with implementation beginning in 2027. 

Steiner says it’s an opportunity to review private market allocations and ranges in the policy benchmark, which are currently quite large (15 to 27.5 per cent, with a 20 per cent target for private equity.) 

“For example, do we say we shave back on more traditional PE and create a specific allocation to private credit as part of our overall private markets’ allocation?” she says. “I want to be really clear: I’m not saying we are doing that, but is that something we could explore? I don’t know the answer to that, but we will be having more robust conversations around that at the Oregon Investment Council.” 

Current vice chair, Alline Akintore, will take over as chair of the council in March when Elmer Huh and Tim Miller will also join the six-person board. 

“We will be bringing a lot of new perspectives and new conversations and voices to the table which I think will be really important,” Steiner says. “I think it is really exciting to be here right now and heading into this cycle of reassessment, and at a time when there are some really interesting questions.” 

It is feasible that as part of the discussion the range and target for private equity is reduced beyond the current allocations “because we decide it’s less interesting at this point”, she says. 

“I’m not going to say PE is the ‘buggy whips’ of our generation – people kept investing in buggy whips when it was clear the automobile was coming – but maybe it’s not as interesting as it once was and we need to rethink that. 

“To be clear, we are still investing but we are just slowing our pacing.” 

Pacing has been reduced by about a third and the exposure has now fallen to about 24 per cent of the fund.  

“That has been a smart strategy, we have done really well on the secondary market,” she says. 

Steiner is clear there is still strong conviction for investing in private equity at the Oregon Investment Council. 

“We still believe that PE is a good investment and we still believe it belongs in our portfolio,” she says. “With a portfolio of $100+ billion you cannot put all your eggs in even two or three baskets, you have to be diversified. 

“The CIOs and their teams who do well are those that are nimble and willing to look at new opportunities and constantly re-evaluate what they are doing.” 

“And I am pretty darn confident we have a really, really good CIO and a good team under him, in all areas. Our team is working hard to think about this. 

“I am willing to take a certain amount of risk on a regular basis but… I’m never going to be cavalier.” 

ESG integration in BCI’s $25 billion private equity portfolio produces meaningful, double-digit percentage increases in value through focusing on strengthening operational resilience, unlocking growth, and build more valuable businesses.

Strategy at the the C$200 billion ($144 billion) pension fund doesn’t frame ESG in private markets as an ethical or reputational matter but is wholly focused on its role in core value creation.

BCI, together with Stanford University’s Long-Term Investing Initiative, produced research highlighted in a recent paper that finds rigorous, financially-driven ESG integration can materially enhance investment performance, showing that sustainability-linked drivers in a direct private equity portfolio can lead to meaningful, double-digit percentage increases in value.

The paper draws its conclusions from observed operational improvements rather than from realised exit outcomes.

One case study in the paper looks at BCI’s direct investment in a US logistics and transport group which ties delivery drivers’ compensation to a percentage of load revenue rather than miles driven, the industry norm, incentivising employees to complete deliveries efficiently and move to the next highest paying load, rather than maximise mileage. It’s helped the company cut driver turnover and associated recruitment and training costs, translating to approximately $18 million in avoided annual expense. A more experienced driver base has also contributed to a best-in-class safety record, with significantly fewer accidents and injuries, lowering insurance premiums from 8 cents per mile to 5 cents and generating an additional $12 million in annual savings.

Overall, BCI estimates that its ESG-linked strategy at the logistics firm contributes to a projected $144 million uplift in enterprise value, driven by improvements in retention, safety performance, fuel efficiency, and commercial differentiation.

BCI does not approach ESG as a political or philanthropic initiative, but as a strategic lever to strengthen operational resilience, unlock growth, and build more valuable businesses: ESG initiatives are prioritised only when they affect core levers of value creation that include margin expansion, cost of capital advantages, and positioning for exit multiple uplift.

“We define ESG as a set of societal issues that, due to their growing relevance, have become material to business performance. These factors influence core drivers of enterprise value such as profitability, risk exposure, capital allocation and readiness for exit. Viewed through this lens, ESG is not a parallel track or external obligation; it is embedded in investment judgment and aligned with fiduciary duty,” state the report authors Evan Greenfield, managing director of ESG at BCI Private Equity, Ashby Monk, executive director at the Stanford Long-Term Investing Initiative and his colleague Dane Rook, research engineer.

In another example, integrating health and safety protocols in a US industrial manufacturing group increased returns by cutting the frequency and severity of operational disruptions, lowering insurance premiums, and mitigating the risk of regulatory penalties or production delays, as well as supporting contract retention and new business wins.

Elsewhere, BCI’s investment in a global specialty insurance and reinsurance broker supported re-positioning the company to become a strategic partner in ESG risk management and climate transition planning in a return-boosting strategy.

During the diligence phase, BCI’s private equity team assesses ESG risks based on their potential to impact valuation and investment performance in a process that includes both sector-wide exposures and company-specific vulnerabilities.

“The focus is not just on identifying risks, but on determining whether they should be priced into the transaction, mitigated post-close, or monitored during ownership. These are not treated as “extra-financial” concerns; they are assessed entirely through an investment lens,” states the report.

Methodology at the investor emphasises data quality, transparent assumptions, replicable analysis, and measurable results that could be independently verified by a third party.

Where material risks are identified, the investment team proposes mitigants such as purchase price adjustments, enhanced reps and warranties, or targeted post-close interventions.

Moreover, deeper access to company data and management teams through equity ownership enables a more nuanced understanding of material ESG issues. BCI progresses from identifying ESG risks to managing them and, equally important, to capturing ESG-driven value. ESG is not just a defensive exercise: it is also a potential source of upside.

Every investment is linked to clear, measurable, and financially relevant outcomes. Many of BCI’s portfolio companies are middle-market businesses with limited internal resources. It means ESG is pursued with financial discipline and strategic focus – it cannot become an administrative burden or resource drain.

Investments must meet the same standard as any other operational priority and equate to a quantifiable contribution to enterprise value. BCI uses EBITDA as its core KPI and evaluates whether any ESG initiative has the potential to influence valuation multiples, typically requiring an expected uplift of at least 0.25x to merit further consideration. This screen, based on valuation multiples, is used to prioritise high-impact opportunities.

“ESG is not an overlay; it is embedded in the core value creation plan,” states the report.

As portfolio companies approach exit, ESG is a central part of how BCI positions them to buyers. The investor collaborates with management to craft a data-backed narrative that links ESG initiatives to specific business outcomes like improved margins, reduced volatility, customer stickiness, and stronger strategic positioning.

“For buyers assessing relevance and durability over time, a credible and proven ESG strategy enhances confidence in both the company and its future trajectory.”

While public market studies increasingly show valuation premiums for companies with stronger, financially material ESG performance, the purpose here is to isolate the impact of ESG actions on earnings quality, risk reduction, and growth, conclude the authors.

An investment banking expert has warned the CalPERS’ board of the risks inherent in AI, emphasising the importance of investors understanding how their exposure to AI is at risk because of Chinese competitors.

Investors should see the AI boom in the context of the US/China tech race because it distinguishes today’s digital revolution from previous leaps forward in industrialisation, according to Anikent Shah, managing director, sustainability and transition strategies at investment banking and capital markets firm Jefferies.

In a sweeping conversation on how AI will shape the reallocation of capital, Shah, who was speaking alongside CalPERS chief investment officer Stephen Gilmore at a CalPERS board education day in January, flagged key trends and risks in the emerging technology that long-term allocators like CalPERS must navigate for success.

He argued that AI adoption is part of a bipartisan industrial strategy in the US – yet flagged potential bumps in its adoption like more state-level regulation as both Republican and Democratic lawmakers respond to voters’ concerns around labour dislocation and high power prices.

He also urged the CalPERS board to be mindful that China is edging ahead in the AI race. US allocators should know what China’s equivalent AI-focused champions are doing in their home market, and assess “holding by holding” if they will forge ahead of their US equivalent. [See Where foreign capital fits in China’s parallel tech system.]

Industrial policy

Investors should see the AI boom in the context of the US/China tech race, he said. This is important because it distinguishes today’s digital revolution from previous leaps forward in industrialisation. Both republican and democratic parties are using industrial policy to compete with China in a strategy that short-circuits free markets.

Like the CHIPS Act that boosts domestic semiconductor production, or the US government’s 10 per cent stake in Intel, for example. Elsewhere, the government has pledged to build nuclear projects to support the energy demands of AI, and a recent trade deal with Japan will also focus on AI.

Shah urged the CalPERS board to understand the significance of this state intervention.

“The US government is also another huge provider of capital to AI. The US government is using its balance sheet to participate,” he said.

However, although US industrial policy is focused on supporting AI infrastructure to compete with China, domestic US politics increasingly dances to a different tune. Shah highlighted research that shows the public concern with the negatives of AI like labour dislocation and power prices.

“Fifty per cent of Americans are more concerned than excited about increased AI use,” he said. “Republican lawmakers know if they are pro-AI they will pay for it at the ballot box.”

Public discontent is stopping – or postponing – the construction of multiple data centres, he said. Elsewhere, US states continue to enact AI laws despite federal pre-emption efforts to limit regulation around AI . California’s new Transparency Frontier Artificial Intelligence Act introduces clauses asking corporates to publish a risk framework on how they will manage “catastrophic harms” from AI and whistleblower protections, for example.

China is winning the race

In recent years, China has taken the lead in critical technologies in a trend that became apparent when China revealed DeepSeek a year ago. The AI start-up made headlines and caused equity markets to sink when it revealed its own model, developed at a fraction of the cost of rivals like OpenAI’s ChatGPT. (See DeepSeek triggered rout highlights diversification dilemma.)

Shah said that although the narrative around China winning the race is downplayed in the US “we have a DeepSeek moment every month.” He said the US has advantages like Nvidia, which has the most advanced chips, and America’s computing infrastructure is deeper than China, however China has no issues around building data centres or any of America’s power constraints.

Even though many public US pension funds have no exposure to China, he urged investors to understand how their exposure to AI is at risk because of Chinese competitors. US allocators need to understand what the same AI-focused companies are doing in China and assess if they will forge ahead of their US equivalent.

“Many of our clients are doing this holding by holding,” he said.

Not many businesses USe AI yet

Importantly, over 80 per cent of U.S. businesses report not using AI in the production of their goods and services yet.  This matters, he explained, because the pace at which AI is rolled out in the economy and integrated into business models is inextricably linked to GDP growth and equity markets: 60 per cent of GDP growth in the US currently derives from AI capex.

“You need [AI] companies drawing revenues that are significant enough that they can finance the associated infrastructure,” Shah said.

Because US corporations are still at the early stages of integrating AI into their goods and services, it raises the question of where and when the revenues will come from to pay for the massive expansion in AI, and drive demand.

“Someone has to pay for it,” said Shah.

One reason for corporate reticence could be trust. He noted that although AI is increasingly matching human experts, people still trust humans more to carry out complex tasks. Areas where AI is gaining traction include coding, back-end professions, self-driving cars and robotics. He added that demographic challenges, particularly in China, will drive robotics.

Power prices

AI attracts hostility in the US because people are concerned about power prices. But Shah warned that the increase in power prices in the US so far has little to do with AI.

“Those increases are still to come,” he said.

He said power prices won’t come down until the US fixes its permitting system. The “single biggest” challenge facing the US power grid is a permitting system that brings layers of complexity to transmitting power across the country. Getting permission for new transmission lines can take decades, requiring different states and environmental approvals.

“Can the administration, in partnership with states and cities, have permitting reform that would have a net benefit to us all?” he asked.

Despite the current administration’s cheerleading of fossil fuel production, over 90 per cent of the incremental power in the US comes from renewables and storage, according to its own data. In a ringing endorsement of the wisdom of the decision by the CalPERS board to invest in renewables, Shah urged board members to continue not to “just follow headlines,” but look instead “at the real economy”, which shows that trillions of dollars continue to plough into solar and battery technology.

Shah warned that more risk is creeping into AI. For example, hyperscalers have begun raising debt finance.

These companies have used their profits to finance AI infrastructure but they are now going to the debt markets to tap private credit and the bond market in a notable shift. These companies have little leverage and do have the capacity to take on debt, but he warned that adding leverage to the system increases uncertainty and leaves these companies in the hands of forces outside their control.

For allocators, investing in debt involves a different risk profile and a different type of underwriting and he flagged the importance of diversification across the AI ecosystem. It requires a systems-level approach that invests across the spectrum from hyperscalers to the companies set to benefit from AI efficiencies.

Shah concluded with another risk: what if machine learning runs out of data? Experts in the field have flagged that at some point the data could dry up. One way ahead could result in more data being collected from AI watching and listening to how humans behave physically.

This is the final part in a series of six columns from WTW’s Thinking Ahead Institute exploring a new risk management framework for investment professionals, or what it calls ‘risk 2.0’. See other parts of the series here. 

In previous pieces in this series, we looked at historical and forward-looking risk events. There are a number of instructive commonalities of risk events and resulting benefits of a risk 2.0 mindset that can be drawn out.

Primacy of the market is a key driver of risk

Under a risk 1.0 lens, the economy/market is assumed to have primacy and all other actions are determined so as to optimise market outcomes. However, one consequence of this from a risk 2.0 perspective is that the singular focus on economic optimisation can, over time, create fragilities within societal systems. The pursuit of efficiency at the cost of resilience can lead us deeper into systemic risk. In addition, in some cases it is the propagation of risk events through the social system that leads to the financial impact of these events. For example:

  • urbanisation has resulted in increased efficiency by concentrating populations in smaller areas but this has also resulted in concentrated exposures to physical climate risks and increased vulnerability to other dangers (e.g., disease)
  • globalisation of food supply chains has allowed a significant increase in efficiency and profits but has created significant vulnerability to weather events in the major global bread baskets. Hungry populations are likely to cause financial losses.

An important shift when moving to a risk 2.0 mindset is therefore to move away from the system as a hierarchy with the economy/market at the apex, to a ‘flatter’ view where the health of all parts of the system needs to be thought about simultaneously when making risk management decisions.

Limits to quantitative analysis / “narratives eat models for breakfast”

Another important observation is that historical data is of relatively little use in pricing/quantifying the risks that materialise(d). As a result, a risk 1.0 mindset assumes the scenarios are technical problems that can be solved with limited long-term adverse impact.

In contrast, a risk 2.0 mindset recognises that these events are the result of the build-up of pressures that are not easily observed in historical data and are triggered by the crossing of key tipping points that are not easily reversed. This said, in most cases the process for understanding the scenarios and the important causes and effects is reasonably intuitive and, in the case of the future scenarios, superior insight is not needed to establish a reasonably vivid narrative for what is likely to happen. This highlights the need for the use of softer/more qualitative measures as part of risk 2.0 practice.

Upward sloping term structure of risk / ”inevitability”

A final set of observations particularly in relation to the forward-looking scenarios is that the risk 2.0 mindset highlights that:

  • climate change is a ‘threat multiplier’, i.e. beyond the direct impacts of climate change it can be a key catalyst for other systemic risks that would be expected to materialise over a shorter time horizon than the longer-dated impacts of physical climate risks
  • assuming no change to current economic and social probabilities, the cumulative probability of any one of these events occurring will continue to increase over time, i.e. under ‘business as usual’, some version of these events appears inevitable at some sufficiently-long time horizon.

This both supports the upward sloping term structure of risk described in part 2 as well as challenges the risk 1.0 view that systemic risks like climate change are too distant in nature to be incorporated into the current definition of fiduciary duty.

Insights gained from adopting a risk 2.0 mindset

An important result of adopting a risk 2.0 mindset is a better understanding of the key drivers of a given risk event, the broader impacts of these and the associated feedback loops and interaction effects. This is set out at a high level below for the uninsurable futures scenario described in part 5:

[Click to enlarge] Source: WTW
Another benefit is a more effective approach to risk management with a focus on transformational approaches that directly address underlying risk drivers rather than the resulting impacts of the risks. This is illustrated below using the ADAT2 framework introduced in the UHU-EHS technical paper [1] on the topic of Uninsurable futures.

Risk 1.0 Risk 2.0
Adapt–Delay

•    Focus on coping with impacts after the tipping point has been crossed, eg

–       Community-Based Catastrophe Insurance: Local schemes that pool risk and reduce administrative costs.

–       Informal risk-sharing mechanisms: Traditional community-based approaches to managing climate risk.

•    Limitations:

–       These approaches do not reduce underlying risk drivers.

–       They may be overwhelmed by escalating damages due to climate change.

 Adapt–Transform

•    Prepare society to live sustainably within a changed risk landscape, eg

–       Managed relocation: Moving communities from high-risk areas to safer zones.

–       Inclusive planning: Ensuring equitable outcomes for displaced populations, especially Indigenous communities.

•    Strategic value:

– Recognises that some areas may become permanently uninsurable.

–       Requires long-term planning, community engagement, and robust governance.
Avoid–Delay

•    Seek to maintain insurance availability through short-term fixes, eg

–       Government-backed reinsurance schemes.

–       Premium subsidies and affordability caps.

–       Improved data access and modelling using big data and remote sensing.

•    Limitations:

–       These measures are reactive and may not be sustainable as climate impacts intensify.

–       They address symptoms rather than root causes.

 

 Avoid–Transform

•    Target systemic change to prevent crossing tipping points, eg

–       Nature-based solutions: Restoring ecosystems to reduce hazard exposure.

–       Climate-resilient infrastructure and building design.

–       Insurance industry reform: Incentivizing adaptation, increasing transparency, and reducing support for fossil fuel producers.

–       Forward-planning: Red-zoning, land-use regulation, and climate risk commissions.

•    Strategic value:

–       Builds long-term resilience.

–       Reduces hazard, exposure, and vulnerability simultaneously.

–       Encourages cross-sector collaboration and innovation.

Source: UHU-EHS, TAI

A third benefit is that a risk 2.0 mindset starts by considering the system and systemic risk which means true risk management must include system stewardship. An investor with this mindset recognises that a current investment in the future public good can result in subsequent private gain and/or that reducing the likelihood or severity of systemic risks increases the value of all financial assets. This takes us from position T to U* or U in the figure below.

[click to enlarge]
Jeff Chee is global head of portfolio strategy at WTW.

[1] UNU Institute for Environment and Human Security. 2023. Uninsurable future

The Netherlands Central Bank, DNB, recently warned Dutch pension funds, insurers and investment institutions of the risk inherent in their large allocation to tech stocks. The regulator estimates institutional investors have doubled their equity investments in technology companies over the past five years, with invested capital amounting to €200 billion, over half of which (€95 billion) is invested in the Magnificent Seven.

“The value of tech stocks depends heavily on uncertain future profits, and there are growing doubts about whether these will materialise. Stock prices can also be strongly influenced by monetary policy interest rates. In addition, tech stocks are highly sensitive to factors such as geopolitical fragmentation, innovation, new regulation and antitrust cases,” warned the bank.

Against the backdrop of increasingly shrill warnings that the AI bubble could burst and puncture tech valuations, DNB warned of the risk to the country’s pension funds. At the end of July 2025, Dutch pension funds specifically had invested more than €150 billion ($177 billion) in tech companies, representing almost 43 per cent of their portfolios of listed shares and 8 per cent of their total balance sheet.

Notwithstanding the significant differences between the country’s diverse pension funds, DNB warned that “compared to January 2020, this represents an increase of almost 50 per cent. The weight of the seven large American tech companies in their share portfolio has risen even more sharply in recent years: from 7 per cent in January 2020 to 19 per cent in July 2025.”

DNB warned of the possibility of an “abrupt correction” and voiced its concern that investee companies are investing too much in AI. It also flagged concerns about the growing financial interdependence in the AI ecosystem whereby problems at one company can easily spread to others.

In response, PME Pensioenfonds, the €60 billion ($70 billion) Dutch pension fund for the Dutch metal and technology explained how it believes it is protected from the risk ahead.

Speaking in an interview on Dutch radio program ‘Money or your life’ broadcast on NPO Radio 1, Daan Spaargaren, senior strategist at PME, explained how PME safeguards its exposure by capping its individual weighting to tech stocks to 3 per cent. It means the share of tech companies in PME’s equity portfolio is currently about 25 per cent – not the DNB’s forecast 43 per cent.

“We’ve seen tech companies make up an increasingly large share of pension funds’ investment portfolios in recent years. And since those values ​​have risen dramatically, there’s also a risk that they could fall again if the promised returns fail to materialise,” Spaargaren said.

“We don’t invest more than 3 per cent of our equity in any one company – not even in any of these large companies. The Magnificent Seven currently represents about 4.5 per cent of our assets – equivalent to €2.7 billion of our assets are tied up in these companies. In a hypothetical scenario where the value of those Magnificent Seven companies to halve, we would lose approximately €1.4 billion of our assets.”

Alongside praising the role of the Central Bank in highlighting the risk, Spaargaren also stressed the importance that investors take a long-term view on key underlying trends like technology.

“The bubble is really mainly about whether those promised profits will materialise in the very short term, or whether they will actually be realised,” he said.

In other news, PME recently terminated a $5.9 billion equity mandate with BlackRock, the world’s biggest asset manager, because of PME’s different view on ESG alignment.

PME began defining its key ESG themes and ambitions in 2022.  Using this framework it constructed an ESG index portfolio in 2024 consisting of approximately one thousand companies in developed markets. Together with a focused portfolio of about 250 companies, this forms a “Portfolio of Tomorrow” in which every company is selected based on deliberate choices aimed at achieving solid returns and supporting a livable world.

“Implementing this strategy also means we carefully select and evaluate our external asset managers,” said the investor in a statement.

PFZW, the Dutch pension fund for the care and welfare sector, also terminated BlackRock in September.