Actuaries' Role in Managing Climate Risk and Sustainability
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11/01/2022
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Driven by greenhouse gas emissions
•
Impacts vary greatly by location
•
1C rise since pre-industrial period
•
Current path is for a 5C rise if no further action is taken
•
Paris agreement to limit overall rise to “well below” 2C
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Net zero by 2050
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Will require major policy action with significant societal changes
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Current extinction rates 100 – 1000
times higher than baseline rates
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Need 1.6 Earths to maintain current
living standards
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Around US$4 – 6 trillion per year of
subsidies that damage Nature
18/03/2021
@LouisePryor
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Source:
https://www.gov.uk/government/publications/final-report-the-economics-of-biodiversity-the-dasgupta-review
Source:
IPBES The Global assessment
R
eport on Biodiversity and
Ecosystem Services Summary for Policymakers
https://ipbes.net/global-
assessment
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Physical risk: direct impacts from climate change / biodiversity loss
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Storms, floods, drought, changing agriculture, health effects...
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Transition risk: risks from adaptation or mitigation, including transition to a
lower-carbon economy
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Government policies, reputational risks, changes in consumer demand, disruptive
technologies, stranded assets...
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Liability risk: compensation for effects of climate change / biodiversity loss
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Corporations or governments held liable for causing climate change, or for not considering
the impacts
IFoA guide:
Climate Change for Actuaries: An Introduction
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Figure 4: Climate-adjusted GDP
growth across regions and
climate pathways (cumulative
difference to climate-uninformed
baseline pathway)
Figure 15: Percentage
difference in the level of UK
GDP explained by the various
climate risk drivers
(difference to climate-
uninformed baseline
pathway)
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11/01/2022
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Climate change is a certainty…
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… but its impacts pose risks in the short and long terms…
–
Severe weather events, agricultural and health effects
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Changing regulations
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Starvation, mass migration, civil unrest
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Changes to consumer demand, business models, financial system, economy
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… and transition poses risks too
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Actuaries cannot ignore the risks!
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The biggest risk is inaction today.
Mark Carney
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IFoA policy statement
–
We are a profession specialising in risk management, and 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 that society can pay is to reduce our emissions today in order to avoid the irreversible
consequences of unmitigated climate change tomorrow.
•
Actuaries should treat climate risk as a primary risk
•
Climate risk included in core exams
•
Lifelong learning resources
–
Practical guides, curated library, sustainability certificate (forthcoming)
•
Thought leadership webinars
•
Active area of research
•
Target for operational net zero
IFoA climate change statement
https://www.actuaries.org.uk/climate-
change-statement
Sustainability hub
https://www.actuaries.org.uk/about-
us/sustainability-hub
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Financial regulators increasing their emphasis on climate risk
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Financial disclosures
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ESG investing
(Environmental Social and Governance)
Do we invest money into the practices that take us deeper into
this crisis or in the solutions that could get us out of it?
David Attenborough
The financial sector is an enormously powerful and effective
force, and can be a force for good.
Mark Carney
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Every value chain is based on energy
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Changing business models will mean changing insurance requirements
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Over 50% of GI insurance worldwide is built environment or motor
Climate change has become a defining factor in companies’
long-term prospects.
Larry Fink, BlackRock
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Help organisations manage their own risk
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Help organisations support society in managing the wider risk
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Be people
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Investment
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Operations
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Products and services
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Supporting and enabling activities that help or hinder
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Speaking out
Insurers are risk managers of our society.
Gabriel Bernardino, EIOPA Chair
In any case, we have no choice: a 2°C world might be insurable,
a 4°C world certainly would not be.
Henri de Castries, CEO AXA 2015
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Think about your lifestyle
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Speak out
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Be actuaries!
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Ask questions
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Changing risk landscape
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The biggest business and career opportunity in several lifetimes
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@LouisePryor
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Actuaries play a crucial role in managing sustainability and climate risk by assessing various risks such as physical, transition, and liability risks associated with climate change and biodiversity loss. They provide insights on mitigation and adaptation strategies to address the impacts of environmental changes. The need for policy actions and societal changes to achieve net zero emissions by 2050 is emphasized, highlighting the significant challenges and opportunities in safeguarding our planet's future.
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Presentation Transcript
The role of actuaries in managing sustainability and climate risk Louise Pryor, President, IFoA 11/01/2022
Climate change Driven by greenhouse gas emissions Impacts vary greatly by location 1C rise since pre-industrial period Current path is for a 5C rise if no further action is taken Paris agreement to limit overall rise to well below 2C Net zero by 2050 Will require major policy action with significant societal changes Source: Global warming stripes 1850-2020 https://showyourstripes.info/ 2 11/01/2022 @LouisePryor
Biodiversity loss Current extinction rates 100 1000 times higher than baseline rates Need 1.6 Earths to maintain current living standards Around US$4 6 trillion per year of subsidies that damage Nature Source: IPBES The Global assessment Report on Biodiversity and Ecosystem Services Summary for Policymakers https://ipbes.net/global- assessment Source: https://www.gov.uk/government/publications/final-report-the-economics-of-biodiversity-the-dasgupta-review 3 18/03/2021 @LouisePryor
Types of sustainability risk Physical risk: direct impacts from climate change / biodiversity loss Storms, floods, drought, changing agriculture, health effects... Transition risk: risks from adaptation or mitigation, including transition to a lower-carbon economy Government policies, reputational risks, changes in consumer demand, disruptive technologies, stranded assets... Liability risk: compensation for effects of climate change / biodiversity loss Corporations or governments held liable for causing climate change, or for not considering the impacts IFoA guide: Climate Change for Actuaries: An Introduction 4 11/01/2022 @LouisePryor
Source: Climate Action Tracker, https://climateactiontracker.org/global/temperatures/ What might happen 5 11/01/2022 @LouisePryor
Mitigation and adaptation Mitigation Avoid the unmanageable Our impacts on the environment Reduce emissions / biodiversity loss Adaptation Manage the unavoidable Environment s impacts on us Handle changing climate / biodiversity 6 11/01/2022 @LouisePryor
GDP impacts in a failed transition IFoA/Ortec Finance paper on financial assumptions, June 2020 Figure 4: Climate-adjusted GDP growth across regions and climate pathways (cumulative difference to climate-uninformed baseline pathway) Figure 15: Percentage difference in the level of UK GDP explained by the various climate risk drivers (difference to climate- uninformed baseline pathway) Source: Climate change considerations for actuarial financial assumptions and the role of scenario analysis , June 2020 (Ortec Finance) 7 11/01/2022 @LouisePryor
Economic Collapse A risk management problem Low carbon transition Climate change is a certainty but its impacts pose risks in the short and long terms Severe weather events, agricultural and health effects Changing regulations Starvation, mass migration, civil unrest Changes to consumer demand, business models, financial system, economy and transition poses risks too Actuaries cannot ignore the risks! The biggest risk is inaction today. Mark Carney 8 11/01/2022 @LouisePryor
At the IFoA IFoA climate change statement https://www.actuaries.org.uk/climate- change-statement IFoA policy statement We are a profession specialising in risk management, and 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 that society can pay is to reduce our emissions today in order to avoid the irreversible consequences of unmitigated climate change tomorrow. Actuaries should treat climate risk as a primary risk Climate risk included in core exams Lifelong learning resources Practical guides, curated library, sustainability certificate (forthcoming) Thought leadership webinars Active area of research Target for operational net zero Sustainability hub https://www.actuaries.org.uk/about- us/sustainability-hub 9 11/01/2022 @LouisePryor
Regulatory environment Financial regulators increasing their emphasis on climate risk Financial disclosures ESG investing (Environmental Social and Governance) Do we invest money into the practices that take us deeper into this crisis or in the solutions that could get us out of it? David Attenborough The financial sector is an enormously powerful and effective force, and can be a force for good. Mark Carney 10 11/01/2022 @LouisePryor
Business environment Every value chain is based on energy Changing business models will mean changing insurance requirements Over 50% of GI insurance worldwide is built environment or motor Climate change has become a defining factor in companies long-term prospects. Larry Fink, BlackRock 11 11/01/2022 @LouisePryor
What can actuaries do? Help organisations manage their own risk Help organisations support society in managing the wider risk Be people 12 11/01/2022 @LouisePryor
Organisations managing their own risk Investment Operations Products and services 13 11/01/2022 @LouisePryor
Organisations managing societys risk Supporting and enabling activities that help or hinder Speaking out Insurers are risk managers of our society. Gabriel Bernardino, EIOPA Chair In any case, we have no choice: a 2 C world might be insurable, a 4 C world certainly would not be. Henri de Castries, CEO AXA 2015 14 11/01/2022 @LouisePryor
Be people Think about your lifestyle Speak out Be actuaries! Ask questions 15 11/01/2022 @LouisePryor
Challenge and opportunity Changing risk landscape The biggest business and career opportunity in several lifetimes 16 11/01/2022 @LouisePryor
