In its Planetary Solvency report, the risk experts explain how unmitigated climate change and nature-driven threats have been “hugely underestimated” because they exclude real-world impacts such as human health and Earth system “tipping points”.
Complex modelling and a methodology based on a technique known as “reverse stress testing” suggest we should expect a 50% GDP loss “somewhere between 2070 and 2090” under current policies and 3°C of warming by 2100.
Although there are a wide range of possible economic loss scenarios, the authors claim that a prudent approach would be to take the highest estimate and reduce it when evidence becomes available that it is over-stated, rather than the other way round.
They say that the severity and frequency of extreme events are already “unprecedented” and “beyond model projections”, with increasingly severe impacts such as fires, floods, heat and droughts “highly likely”.
“Widely used but deeply flawed assessments of the economic impact of climate change show a negligible impact on GDP, rendering policymakers blind to the immense risk current policy trajectories place us in,” said Sandy Trust, lead author and IFoA council member.
“The risk-led methodology, set out in the report, shows a 50% GDP contraction between 2070 and 2090 unless an alternative course is chartered.”
Actuaries compile and analyse statistics to calculate insurance premiums, and have become increasingly concerned with climate-related risks over the last couple of decades.
The IFoA’s latest report explains how populations are already impacted by food system shocks, water insecurity, heat stress and infectious diseases. If unchecked, mass mortality, mass displacement, severe economic contraction, and conflict become more likely.
The report gives several recommendations to policymakers, such as implementing annual ‘planetary solvency’ risk assessments, leveraging resilience principles and reporting to the UN Security Council.
The authors also suggest rapidly implementing national transition plans, nature-positive pathways, and alternative economic models.
Trust added: “You can’t have an economy without a society, and a society needs somewhere to live. Nature is our foundation, providing food, water and air, as well as the raw materials and energy that power our economy.
“Threats to the stability of this foundation are risks to future human prosperity which we must take action to avoid.”
The IFoA and IEMA published a guide on climate-related financial disclosures last year, which you can read here.
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Chris Seekings is the Deputy Editor of IEMA’s Transform magazine, which is published biomonthly for IEMA members. Chris’s role involves writing sustainability-related news, features and interviews, as well as helping to plan and manage the magazine’s other day-to-day activities.