29 August 2018
Climate change has risen up the financial sector’s agenda. Motivated by concerns that climate-related risks pose a threat to the stability of the global financial system, the Financial Stability Board created the Taskforce on Climate-related Financial Disclosures (TCFD) to encourage better disclosures and facilitate better market pricing. The TCFD has recommended that companies and investors use scenario analysis to understand climate-related risks and opportunities. This will require modelling of the impacts of climate change on macro-economic variables such as interest rates, inflation and equity market returns. Little work has been done in this area to date, and actuaries would seem well-placed to contribute to the development of the field.
The IFoA’s risk alert says all actuaries should consider how climate-related risks affect the advice they are providing. But so far, most attention has focused on the impact on investments and general insurance liabilities. What about the impact on long-term pension and insurance liabilities? How might we model the impact on key assumptions such as long-term bond yields and inflation?
Four IFoA working parties – spanning pensions, investment, life insurance and general insurance – are considering these questions. However, they recognise that this is an emerging topic where we can gain from each other’s knowledge and perspectives.
Join, Chair Colin Wilson, former IFoA President, on 26 November at Staple Inn, London, for the Resource and Environment cross-practice sessional research event. Come along to hear the working parties’ latest thinking on this topic, share your ideas in a cross-practice forum and discuss next steps.
We will be joined by an external speaker – expected to be from the Institutional Investors’ Group on Climate Change (IIGCC) – who will provide an overview of investors’ work to date on modelling the financial impact of climate change.
This event will include structured roundtable discussions, likely to cover:
- What work is already being done to allow for climate risks when setting long-term financial assumptions?
- What are the strengths and limitations of the approaches being developed?
- How can the challenges – particularly around quantifying the financial impacts of climate change, given the uncertainties – be addressed in a practical way that addresses the needs of pension schemes, insurance companies and their regulators?
- What should the IFoA and individual actuaries do next?
More details, including how to book, can be found on the events calendar.