The IFoA recognises that the climate is changing globally at an unprecedented rate because of human activity. This change presents ecological, social, economic, and financial risks. The potential impacts of climate change are global and systemic. As well as highly disruptive physical changes, there are significant implications for the entire financial system.
Climate change is one of the greatest risks facing our world today. Mitigating this risk is urgent. Future outcomes are uncertain, but the best value insurance premium society can pay is to reduce our emissions today to avoid the irreversible consequences of unmitigated climate change tomorrow.
Private finance has a critical role in financing the transition to a net-zero economy. Finance should be used as a force for good through active stewardship and products that incentivise behaviour in line with global climate targets.
Current scenario modelling excludes many of the most severe impacts we can expect from climate change, such as tipping points and second-order impacts. By applying an actuarial risk management approach, we can better identify, measure, and mitigate the effects of further temperature rises.
The IFoA believes the distinction between financial and non-financial factors in fiduciary duty should be removed. This is to enable investors to factor in not just the impacts of social and environmental issues on their investments. It would also allow them to assess the impact of their investment decisions on society and the environment.
The potential impacts of biodiversity loss are global and systemic. The loss of biodiversity threatens the health of ecosystems that provide services to the economy. Animal pollination of food crops, natural water treatment, and fertile soil, among others, are all under threat. It also has significant implications for the population’s health and longevity and for the entire financial system. Furthermore, support for biodiversity and nature is critical to net-zero ambitions through carbon capture and sequestration.
The IFoA recognises the significant social, economic, and financial risks posed by biodiversity loss. These risks are hard to quantify due to their long-term, uncertain, and intangible nature.
As risk management experts, actuaries can lead the way in promoting understanding of the risks associated with environmental destruction and loss of biodiversity. Asset owners and managers have a critical role to play, both by recognising the risks and by investing in a nature-positive and carbon-neutral way.
GDP growth is an appealing metric because it is familiar and quantifiable. However, a wider portfolio of metrics is needed to maximise societal wellbeing in a way that can be sustained over the long term. The IFoA supports the Dasgupta Review and its framework of produced capital, human capital, and natural capital as a foundation for broader, sustainable measures.
The SDGs were adopted by the United Nations in 2015. They are a universal call to action to end poverty, protect the planet, and ensure that by 2030 all people enjoy peace and prosperity. The 17 SDGs (and the 169 associated targets) are integrated, recognising that action in one area will affect outcomes in others.
Actuaries identify and manage long-term risk and can offer unique expertise into public policy priorities. The SDGs provide a blueprint for stakeholders, including governments across the world, to engage in long-term thinking.
There is a consensus in government that the SDGs can only be achieved with the involvement of the private sector. The role of the financial services industry in relation to the SDGs has so far remained relatively unexplored by policymakers.
However, financial services have a vital role to play. Fuelling the transition to a sustainable and inclusive global economy by 2030 will require significant amounts of capital.
Despite continued pressure from stakeholders, the UK government has made little progress on setting targets, developing guidelines, and reviewing the progress of SDG implementation. As of mid 2023, the halfway point towards the 2030 target, analysis suggests the world has only made about 12% of the required progress.
The IFoA, along with other finance and accountancy bodies, signed a joint letter in September 2023. It urged the UK government and international partners to do more to meet the deadline.