Actuaries have issued a call for more precise climate risk assessments, highlighting the concept of the “risk of ruin,” which refers to a critical juncture beyond which global society might be unable to adapt to the ramifications of climate change.
A collaboration between the Institute and Faculty of Actuaries (IFoA) and the University of Exeter has resulted in a report titled “Climate Scorpion: the sting is in the tail,” which makes a case for employing risk management strategies traditionally used in financial services to evaluate and convey the risks associated with climate change.
The report also advocates for the consideration of “worst-case” scenarios regarding climate change. It also issued a warning that the pace of global warming could be accelerating, with the likelihood it could surpass the 1.5°C target becoming increasingly plausible. This could lead to several tipping points, including the collapse of the Greenland ice sheets, which could have long-lasting consequences.
Unexpected sensitivity to climate change is also a concern, as what is often described as a “tail-risk” might have a higher probability of resulting in significant temperature increases. Methodologies are also now suggesting that a doubling of greenhouse gas concentrations could lead to temperature rises of 7°C or more.
Sandy Trust, lead author and IFoA council member, emphasised the importance of offering policymakers realistic climate risk assessments.
“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,” Trust said. “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 of the University of Exeter also remarked on the significance of adopting an actuarial approach to 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,” Lenton said.
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