14 March 2024
Actuaries are calling for more realistic climate risk assessments. This includes the ‘risk of ruin’: the point past which global society can no longer adapt to climate change.
Today’s report from the Institute and Faculty of Actuaries (IFoA) and the University of Exeter, ‘Climate Scorpion: the sting is in the tail’ puts forward the case for using financial services risk management to evaluate and communicate climate risk. It advocates for ‘worst-case’ scenario thinking around climate change.
The report warns that global heating could be accelerating. Breaching the 1.5°C goal appears increasingly likely, with the world having temporarily passed this threshold last year. This could trigger multiple tipping points, such as the collapse of the Greenland ice sheets, with potentially irreversible effects.
The climate could be more sensitive than expected. While often referred to as a ‘tail-risk’ the probability of significant temperature rise may be surprisingly large. New approaches are suggesting that doubling greenhouse gas concentrations could result in a 7°C or more temperature rise.
‘Climate Scorpion’ surveys the latest knowledge about extreme climate risks and outlines how we can best use actuarial thinking to inform policymakers. It introduces the idea of ‘Planetary Solvency’, that is an assessment of the different ecological threats, including those beyond climate change, to determine the risk of planetary ruin.
Sandy Trust, Lead author and IFoA Council Member, said: “There is an urgent need to provide policymakers with realistic assessments of climate risk, to support decisive policy action to accelerate the energy transition. Alongside clarity on the risks, we need to invest in educating policymakers and the public on positive tipping points and behavioural change to support a more rapid transition.
“As actuaries, we have a responsibility to play an active role in addressing the sustainability challenge. Our long-term thinking, financial system understanding, risk management mindset and probabilistic reasoning combine powerfully to complement climate science and communicate risks clearly to regulators and policymakers.”
Professor Tim Lenton, from the University of Exeter, said: “This report puts forward the case for why and how the actuarial approach can be used for climate change. It compellingly argues that we should view climate risk as a problem of ‘Planetary Solvency’, understanding and managing risks to the long-term survival of global society. In short, we need to have a best guess about the worst-case and make policy on that basis.”
Professor Johan Rockstrom, Director Potsdam Institute Climate Impact Research, said: “This report shows how important it is for us to collaborate across disciplines on climate change. It re-emphasises how important it is to treat 1.5°C as a physical limit and not a political target, recognizing the risk from tipping points. Four of these are showing scientific evidence of now being at risk already at 1.5°C, really putting humanity’s future at risk. This is a planetary crisis which we must address with co-ordinated policy action to accelerate the energy transition.”
Lord Stern, Chair Grantham Institute, said: “This report underlines just how overwhelming the scientific evidence is now: helping politicians to understand that climate change presents very serious global risks, to life, health and wealth, demanding an urgent global response from policymakers to avoid the worst impacts. We are already experiencing the impacts of climate change and these will worsen, impacting the basic elements of life for people around the world – access to water, food production, health and the environment. Unfortunately, the current pace of progress is not nearly rapid enough and if we fail to curb the impact of climate change, it could damage society and the global economy more than the World Wars.”
~ENDS~
Sonia Sequeira, Communications Lead, IFoA
Tel: 07525 592 198
Email: sonia.sequeira@actuaries.org.uk
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Actuaries provide commercial, financial and prudential advice on the management of a business’s assets and liabilities, especially where long term management and planning are critical to the success of any business venture. They also advise individuals, and advise on social and public interest issues.
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