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All Swans are Black in the Dark is a piece of research that helpfully illustrates how the short- term focus of financial analysis does not shed light on long term risks.
In 2006 a leading group of investors established the UN-backed Principles for Responsible Investment (PRI). At the time of writing, the PRI has nearly 1,200 signatories representing over $70trn. The PRI works:
- To understand the investment implications of environmental, social and governance (ESG) factors
- To support its international network of investor signatories in incorporating these factors into their investment and ownership decisions.
Leading organisations are starting to take a strategic response to ESG and sustainability, and are considering changes needed to products and market positioning, as well as to processes, operations and supply chains. Read more about ESG investing.
From 2020, PRI signatories must report how they have considered specific climate-change risks in their portfolios.
The financial risk of climate change has emerged as one of the primary issues that the PRI seeks to address. The Inevitable Policy Response (IPR) work involves PRI, Vivid Economics and Energy Transition Advisors. They are building a Forecast Policy Scenario (FPS) which lays out the policies that are likely to be implemented in the 2020s and quantifies the impact of this response on the real economy and financial markets. Much climate scenario work seeks to avoid specific forecasts so the FPS is particularly helpful in this regard.
In Europe the Institutional Investors Group on Climate Change (IIGCC) is a membership organisation of investors focusing on climate change. The Net Zero Investment Framework for Consultation is the first publication of the IIGCC’s Paris AliIGCgned Investment Initiative. Equivalent organisations to IIGCC are Ceres in North America, and C and AIGCC in Asia.
Leading asset owners are seeking to manage the strategic financial risks of climate change. This can lead to designing investment mandates (as a client) or products (as an investment manager) to meet that goal. Early pension fund movers include HSBC Bank (UK) Pension Scheme (TCFD Statement), NEST (Note to members and climate change policy), and the Environment Agency Pension Fund (EAPF).
Outside the UK examples include:
- France: ERAPF (SRI including climate), FRR (The FRR and Climate Change)
- Sweden: AP4 (Climate and the environment), AP1
- United States: CalPERS (Climate Change), New York State Common Retirement Fund (Climate Action Plan), CalSTRS (Transition to a Low-Carbon Economy)
- Australia: HESTA (Climate change)
- Canada: OPTrust (Climate Change Action Plan)
As well as strategic risk, strategic asset allocation and portfolio construction, investors are increasingly using their voting power to influence companies. Climate Action 100+ is a global investor initiative that seeks to ensure the world’s largest corporate greenhouse gas emitters take necessary action on climate change.
The Net-Zero Asset Owner Alliance is a growing group of international institutional investors delivering on a commitment to transition their investment portfolios to net-zero greenhouse gas emissions by 2050. Launched in September 2019 with no UK asset owners as m embers, Aviva and the Church Commissioners have since joined the Alliance.
The Investment Integration Project (TIIP) addresses system issues for investors. They continue to publish helpful reports. For example, Assessing System Level Investments is a guide to help asset owners assess their managers’ effectiveness in addressing systemic social and environmental risks and rewards.
The Transition Pathway Initiative (TPI) is a global, asset-owner led initiative that assesses companies' preparedness for the transition to a low carbon economy.
All Swans are Black in the Dark is a piece of research that helpfully illustrates how the short-term focus of financial analysis does not shed light on long-term risks.
The 2° Investing Initiative (2DII) is an international, non-profit think tank working to align financial markets and regulations with the Paris Agreement goals.
Understanding Physical Climate Risks and Opportunities, published by the IIGCC and lead-authored by Acclimatise, seeks to help investors understand physical climate risks and how they are measured. This guidance provides an overview of the physical climate science and illustrates how physical risks are manifesting and causing financial consequences. It provides investors with practical guidance on how they can begin to analyse, assess and manage the risks and opportunities presented by physical climate hazards, both acute and chronic.
Stranded assets are assets that have suffered a premature write-down in value and this may be caused by environment-related risks. You can see a paper that explores stranded assets On the IADB website.
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Wicked Problems, Clumsy Solutions and Leading Change
Dr Catherine Donnelly will present the basics of the structures for pooling longevity risks and summarise recent research results in this area in addition to outlinging future research around this topic. This is work under a research programme funded by the IFoA's Actuarial Research Centre, called 'Minimizing longevity and investment risk while optimising future pension plans'.
Climate-Related Risk - This free to view webinar on Climate-Related Risk is the first in a series focusing on some of the ‘Hotspots’ identified in the JFAR Risk Perspective bringing the Risk Perspective to life with practical illustrations and insights from subject experts from the IFoA and other Regulators
Recent decades have seen institutions, such as employers and financial services, give people more choice and flexibility, but these freedoms have come with more responsibilities. Individuals are now responsible for managing more of their own financial risks, from ensuring they put enough money into their pension to securing affordable protection to be financially resilient.
Join us for this brand new IFoA webinar weries comprising of a fortnight of webinars, panel sessions and a hackathon, that showcase the range of ways in which the actuarial profession has added value, in the public interest, to the understanding and management of the current and future pandemics through insight and learning.
This event is now temporarily closed on Monday 26 April, but the session will be repeated on Tuesday 27 April, 09.00-10.30. Please click here to register your place.
Actuaries have a lot to offer biodiversity management over the next decade as the world develops more depth to its response to this global challenge. This sessional offers an opportunity to learn about this emergent risk, to contribute to our thinking as a profession and help us develop the next steps forward.
IFoA Immediate Past President John Taylor would like to invite you to the Institute and Faculty of Actuaries’ (IFoA) virtual Europe Town Hall, hosted by John Taylor with IFoA Council Members Alan Rae, Jennifer Hartley, Maribel Vasquez Flores and IFoA Chief Executive, Stephen Mann.
Mis-estimation risk is a key element of demographic risk, and past work has focused on mis-estimation risk on a run-off basis. However, this does not meet the requirements of regulatory regimes like Solvency II, which demands that capital requirements are set through the prism of a finite horizon like one year. This paper presents a value-at-risk approach to mis-estimation risk suitable for Solvency II work
This year's Finance and Investment Virtual Conference takes on the timely theme of ‘resilience’, something we have all learnt a lot more about in the last year! Our diverse range of talks will explore the theme of resilience in a variety of ways including in building robust investment portfolios, in the incorporation of ESG factors, in govern
This talk will explore the potential benefits that wearable tech can bring to health & protection insurers and their customers. The traditional approach of integrating wearables into insurance has largely focused on measuring steps and using rewards-based incentive programs to encourage more activity.
Join us for this talk with Professor Sir Adrian Smith as part of the 'Dr Patrick Poon Presidential Speaker Series'. Professor Smith joined The Alan Turing Institute as Institute Director and Chief Executive in September 2018. In November 2020, he became President of the Royal Society, in addition to his leadership of the Turing. He is also a member of the government's AI Council, which helps boost AI growth in the UK and promote its adoption and ethical use in businesses and organisations across the country. He received a knighthood in the 2011 New Year Honours list.
We continue to live in a world of global uncertainty. Survival depends on our ability to simultaneously navigate through the diverse root-causes, ranging from: the consequences of Climate Change; on-going financial consequences of the COVID pandemic; or self-imposed changes in regulatory requirements and accounting standards.
Welcome to the programme for our 2nd Virtual Pensions Conference. This year's conference features 11 webinars offering members and non-members the opportunity to get up to date content from leading experts in the pension industry. There will also be opportunity to ask questions and contribute to the discussion.