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The UK’s Committee on Climate Change is an independent statutory body established under the Climate Change Act 2008.
Law, policy and regulation is evolving to manage climate change risk. This typically takes place in a national framework, although international networks promote knowledge-sharing and best practice.
The UK’s Committee on Climate Change is an independent statutory body established under the Climate Change Act 2008. Its purpose is to advise the UK on emissions targets and to report to parliament on progress made in reducing greenhouse gas emissions and preparing for, and adapting to, the impacts of climate change.
France also has significant climate legislation, which extends into the financial sector. The French Sustainable Investment Forum (FIR,) has produced an Article173 Handbook. In New Zealand the Climate Change Response (Zero Carbon) Amendment Act 2019 sets out how a country highly dependent on agriculture is tackling climate change. National legislation reflects local circumstances. Whereas a lot of the focus in the UK has been on decarbonising energy, the agricultural sector is a prime focus for New Zealand.
Government support extends to education. The Green Finance Education Charter is a commitment from chartered and professional bodies (including the IFoA) to integrate green finance and sustainability into their core curricula, new qualifications, and the continued professional development of their members.
The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) brings together a growing number of national central banks and financial regulators. At the time of writing, the US is notable for its absence. NGFS has published a number of reports, and climate scenario modelling is an early focus of its work. For example, you can find the NFGS paper on environmental risk analysis on the NGFS website.
There is a growing trend in climate change litigation. The Grantham Research Institute on Climate Change and the Environment and the Centre for Climate Change Economics and Policy have published Global trends in climate change litigation 2020 snapshot. Thomson Reuters Practical Law covers climate law. It is a commercial subscription service and actuaries could reasonably expect their legal departments to have access to it.
The environmental charity ClientEarth is active in using the law to reach climate goals. There is currently a case before the Australian courts (NSD1333/2018) in which a member of a pension fund is seeking confirmation from the trustees that they have taken specific actions to support their public statements on the risks of climate change. In the UK a pension fund member took a complaint to The Pensions Ombudsman that the fund would not provide all the information he had requested relating to how the fund was taking into consideration the potential risks of climate change.
In the UK the four principal financial regulators are developing their approach to the management of climate risk. This commenced publicly with the then-Governor of the Bank of England Mark Carney’s speech Breaking the tragedy of the horizon - climate change and financial stability in September 2015. The Bank of England Climate change page is a gateway to a number of resources including the 2015 insurance report and:
- Transition in thinking: The impact of climate change on the UK banking sector, an early (2018) examination of the financial risks from climate change that impact the PRA’s role.
- This was followed in April 2019 by Supervisory Statement SS 3/19 Enhancing banks' and insurers' approaches to managing the financial risks from climate change
- The December 2019 Discussion Paper The 2021 biennial exploratory scenario on the financial risks from climate change moved the UK regulatory position forward (although the timeline has slipped on account of the Covid-19 situation). More recently, the PRA’s CEO letter Managing climate-related financial risk - thematic feedback from PRA's review of firms' SS3/19 plans moved things along and clarified the regulator’s expectations and timeline.
The UK government published its Green finance strategy in 2019.
The Prudential Regulatory Authority (PRA), part of the Bank of England, published its Consultation on its proposals for stress testing the financial stability implications of climate change in December 2019. This involves a Biennial Exploratory Scenario (BES) exercise. Although not formally a stress test, the objective of BES is to test the resilience of the largest banks and insurers to the physical and transition risks associated with different possible climate scenarios, and the financial system’s exposure more broadly to climate-related risk.
In March 2020 the FCA issued consultation paper CP20/3 Proposals to enhance climate-related disclosures by listed issuers and clarification of existing disclosure obligations. In October a Letter from the FCA to the Minister for Pensions and Financial Inclusion set out the FCA’s plans to implement consistent climate-related disclosure requirements for asset managers and FCA-regulated pension schemes, and also references the cross-Whitehall/cross-regulator climate taskforce.
The PRA and FCA co-convened the Climate Financial Risk Forum (CFRF), an industry forum that seeks to build capacity and share best practice across financial regulators and industry to advance the sector’s responses to the financial risks from climate change. In June 2020 CFRF published an extensive guide together with a summary Climate Financial Risk Forum Guide 2020.
In February 2020 the Financial Reporting Council (FRC) announced a review to assess company and auditor responses to climate change. More recently, the FRC published A Matter of Principles: The Future of Corporate Reporting.
The Pensions Regulator in the UK will be responsible for enforcing regulations yet to be issued for consultation, which will flow from the Pensions Bill currently before Parliament when enacted. Parts of the Bill deal with climate matters. The Bill should complete its passage through parliament in the autumn of 2020. In August 2020 the DWP published a consultation Taking action on climate risk: improving governance and reporting by occupational pension schemes. This consultation proposes TCFD making reporting mandatory for large pension schemes. It is also the government’s intention that scenario analysis will increasingly be seen as best practice in the strategic risk management of climate change. The consultation proposes that trustees will use two scenarios on a best efforts basis.
UK parliamentary Select Committees are considering climate issues. In 2018 the House of Commons Environmental Audit Committee held a Green Finance inquiry. This resulted in two reports, and the Committee also sent a letter to the UK’s 25 largest pension funds seeking information on how they were tackling climate change. The Committee published their response to this information. The Treasury Select Committee held a Decarbonisation and Green Finance inquiry over 2020.
The EU has been developing the overlapping areas of climate and sustainability policy and regulation for some years. The EU Taxonomy is a classification tool aimed at investors, companies and financial institutions to define environmental performance of economic activities across a wide range of industries, and sets requirements that corporate activities must meet to be considered sustainable.
The Principles for Responsible Investment’s (PRI) EU Sustainable Finance Taxonomy is one place to start. This Finextra briefing EU adopts green taxonomy gives a June 2020 update on the adoption by the EU parliament of the Taxonomy Regulation. An internet search will deliver many commercial providers offering analysis, advice and services around the taxonomy.
In Ireland the government published the Climate Action Plan in 2019. An LSE Grantham report Governance of climate change policy: A case study of South Africa states “South Africa has put in place one of the most elaborate and consultative climate governance systems observable among developing and emerging economies.” Columbia University’s School of International and Public Affairs has published an extensive Guide to Chinese Climate Policy_2019. The IEA has published China’s Emissions Trading Scheme, as China introduces a national ETS in 2020.
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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.