Climate Scorpion – the sting is in the tail

14 March 2024

Earth’s climate may be more sensitive than we thought

Climate change has arrived, with severe impacts emerging at lower temperatures than expected. The distribution has shifted – historic tail risks are now expected.

‘Climate Scorpion – the sting is in the tail’ is the IFoA’s third report in collaboration with climate scientists. It shows that climate risks are complex, interconnected, and could threaten the basis of our society and economy.

It calls for a realistic risk assessment of climate change as a matter of urgency, taking into account the full range of outcomes, including tipping points, realistic worst-case scenarios, and the risk of ruin – the point beyond which our global society can no longer successfully adapt to climate change.

It introduces the concept of Planetary Solvency to support long-term policy decisions. Just as financial solvency assessments assess the ability of a financial entity to pay claims, Planetary Solvency would combine nature, climate, and societal risk assessments to assess risks to the ecosystem services that underpin our society, both now and in the future.

Sandy Trust, Lead author and Past-Chair, IFoA Sustainability Board, said: “There is an urgent need to provide policymakers with realistic assessments of climate risk if we want to see long-term policy and decisive action to accelerate the energy transition. Alongside considerations of these risks, we need to invest in educating both the public and policymakers on the positive tipping points or behavioural change which would support a more rapid transition.

“As actuaries, we have a responsibility to play an active role in addressing the sustainability challenge. Our core expertise is the analysis of data to understand the range of uncertainty around future assumptions, considering risks and worst-case scenarios. The advice we provide informs the level of activity and urgency required to avoid those scenarios. In this report, we explore the idea of Planetary Solvency because we believe these techniques, most commonly used in the financial sector, could and should be adapted to manage climate risk more effectively.”

If you wish to learn more about climate risk concepts relevant to actuarial work, the IFoA offers an 8-week online Climate Risk and Sustainability Course.