
Climate scorpion – the sting is in the tail: Introducing planetary solvency
The report explores the risks and impact of climate change on a global scale. The report emphasises the need for a realistic risk assessment urgently and laying out a blueprint on developing a Planetary Solvency framework.
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OVERVIEW
The report provides an actuarial approach to measuring the impact of climate change on a global scale. The following is a summary of the report’s key points and recommendations.
An actuarial approach to climate change
The report suggests that a regulatory system similar to the one existing for insurance to protect citizens from the ruin of their environment from greenhouse gas emissions should be implemented. Actuaries should use financial risk management techniques to calculate the full range of possible outcomes of climate change, including ruin scenarios, temperature thresholds, and determinants of societal fragility.
The sting in the tail – expected warming, extreme events, overshoots and climate uncertainty
The report discusses the impact of expected warming, climate uncertainty and the increasing frequency of extreme events. The report recommends a realistic risk assessment of climate change, assessing worst-case scenarios, societal and environmental tipping points, and how climate risks can compound.
Risky business – exploring the interconnectivity of risks
The report highlights the interconnectedness of climate risks and how they pose a unique challenge that requires a holistic approach. The report recommends developing a global risk management framework that explores intersecting societal, natural, climate and economic risks. Such a framework should recommend actions to address these risks.
Management actions for a stable climate
The report recommends three main actions to avert negative climate change impacts. These include (1) carrying out a realistic risk assessment of climate change and acting on it, (2) educating and taking action to accelerate positive tipping points in the economic system and (3) developing a Planetary Solvency framework to support human prosperity now and in the future. The framework should combine nature, climate and societal risk assessments while leveraging the planetary boundaries framework to assess risks to ecosystem services. The report also recommends financial services institutions to work towards real world decarbonisation and constructively supporting long-term policy making to increase the pace of the energy transition.
ESG issues
The report identifies a need for better communication of key assumptions and judgements in climate change modelling and scenario analysis. It highlights the importance of experience analysis and of reviewing key assumptions to bring about necessary changes. The report further recommends financial services institutions to consider how to constructively support policy action to accelerate positive tipping points.
In summary, this report highlights the need for a realistic risk assessment and the development of a Planetary Solvency framework to combat negative impacts of climate change on a global scale. The report recommends financial services institutions to work towards real world decarbonisation and constructive policy change and suggests a need for better communication of key assumptions and judgement in climate change modelling.