This article originally appeared in the CIA (e)Bulletin.
By John Dark, FCIA
Climate change is on all our minds these days. Last month’s flooding in Eastern Canada is just one of many instances of climate-related catastrophes that are occurring more frequently and with increasing impacts on properties, finances, and well-being.
You might also have seen the most recent release of data from the Actuaries Climate Index, showing that the index has reached its highest point ever recorded. This means the frequency of extreme weather and sea level change has deviated the furthest from historical levels recorded since 1961. Last month also saw another record broken when the Keeling Curve recorded the highest-ever level of carbon dioxide in the atmosphere. Learn more about this alarming milestone in an article written by the CIA’s Yves Guérard.
To sum up, if there was ever any doubt that our climate is changing, the proof is growing stronger and harder to ignore every day.
Organizations, businesses, and decision makers around the world are voicing their concerns and supporting climate action. Recently, the Bank of Canada released its annual report, which identifies climate change as a top vulnerability for the economy and Canada’s financial system. It pledges to make climate risks part of its planning and research, explaining that “economic activity and the environment are intertwined.”
This aligns with the call from international bodies such as the Task Force on Climate-related Financial Disclosures (TCFD), which is working to establish a framework for transparency in investment decisions relating to the physical, liability, and transition risks associated with climate change. The CIA’s recent joint release with the Casualty Actuarial Society (CAS) and the Society of Actuaries (SOA) identified climate risk as the top emerging risk, while the World Economic Forum ranked extreme weather and the failure to address climate change as the top two global risks we face.
What does climate risk mean for actuarial practice?
As the world’s experts in risk management, there is no question that actuaries are best positioned to assess and incorporate climate change risks into decisions affecting future economic stability, and it’s time for the CIA to make its voice heard on this issue more widely.
You may be aware that the Climate Change and Sustainability Committee (CCSC) is working on a public statement that will speak to our public audience. This is an important first step in establishing the CIA’s voice on this topic. The draft will be circulated in the coming days for membership review, and we hope all members will take the time to read it and share their comments.
More importantly, we need to speak more to our internal audience – all of you – as we explore what climate risks mean for actuarial practice in Canada and how we should build them into our own standards and guidance.
In a recent (e)Bulletin article, CCSC Chair Gaetano Geretto called on CIA members: “Actuaries should ensure that they are aware of and understand new emerging climate-related risks, and are clearly communicating the extent to which they have taken these risks into account in any relevant actuarial work, such as recommendations, decisions, pricing, valuation, estimation, etc.”
And our global partners are expressing their agreement with this call, such as in this May 2017 Risk Alert from the IFoA:
“All actuaries should consider how climate-related risks affect the advice they are providing. For example:
- All investors should consider the potential implications of climate-related risks on their invested assets.
- Institutions with short-term liabilities (e.g., general insurers and re-insurers) should evaluate and manage the impact of extreme weather.
- Institutions with long-term liabilities (e.g., life insurers, re-insurers and pension funds) should evaluate and manage the impact of changing patterns of temperature and disease on mortality.
- Institutions with unfunded or partially funded liabilities should evaluate and manage the impact on the covenant of the sponsor or other funding bodies.”
What’s next for climate issues within the CIA?
We believe all actuaries should take climate change risks into account in their practice. We will soon be circulating a survey to find out how our members are recognizing and quantifying climate change risks in their work so we can create guidance and education on this topic. I urge you all to participate and share your thoughts on this important issue.
In the meantime, if you have any questions about the CIA’s climate activities or public statement, you can reach out to Gaetano Geretto, CCSC Chair, or Sandra Caya, Associate Director, Communications and Public Affairs.
John Dark, FCIA, is President of the Canadian Institute of Actuaries.