A 2019 survey of CIA members on climate change risks shows that less than one-third of respondents or their companies account for this emerging risk. However, a large percentage of respondents agree that guidance and education about the materiality of climate change risks may help with this type of risk disclosure.
The survey, conducted in July 2019 by the CIA’s Climate Change and Sustainability Committee (CCSC) (log in required), sought to identify existing gaps and opportunities related to climate change and the work of CIA members. The CCSC received 100 complete responses to the survey.
“We wanted to assess the level of climate change awareness among Canadian actuaries and in their respective companies,” says Christine Bisson-Roberge, ACIA, member of the CCSC. “We also wanted a better understanding of what CIA members need in terms of information or guidance that could come from the CIA regarding the risks of climate change.”
The proportion of respondents who account for climate change risks is low, with only 29% of respondents answering that they or their companies reflect this emerging risk.
“Not surprisingly, of the respondents who are accounting for climate change, 60% are in the P&C field, 37% in investments, and 35% in enterprise risk management,” says Bisson-Roberge. Respondents could pick more than one answer, which is why the numbers add up to more than 100%. “We know that extreme weather events are affecting the P&C industry, so it makes sense that climate change considerations would play a bigger role in the actuarial work of that practice area,” she adds.
How are climate change risks accounted for?
Companies that take the risks of climate change into account do so through various aspects of their business and actuarial work. Stress tests and scenario testing, their Own Risk and Solvency Assessment (ORSA), Dynamic Capital Adequacy Testing (DCAT), strategy, product underwriting, pricing, or coverage are all areas where actuaries or companies account for the risks of climate change, although none of these areas is significantly more prevalent than the other (ranging from 30% to 40% of respondents).
Why are so few accounting for climate change risks?
The low proportion of those who account for climate change risks might be due to a lack of understanding on how to incorporate climate change risks into work performed by actuaries. Among actuaries and companies that do not account for climate change risks, 70% have no plans to do so over the next few years and 34% are unsure about where in their business they might begin accounting for them.
When asked if their company planned to implement the recommendations of the Financial Stability Board’s Task Force on Climate-related Financial Disclosures (TCFD), 70 respondents said no and 16 said yes. Of those whose companies do not plan to implement the TCFD, 51% are not sure why not.
“It is striking that so few are working to implement the TCFD recommendations, considering that climate change risk has been identified as the top emerging risk in multiple surveys, such as the 12th Annual Survey of Emerging Risks sponsored by the CIA, Society of Actuaries and Casualty Actuarial Society,” says Maxime Delisle, FCIA, member of the CCSC. “I think that most actuaries recognize the risks posed by climate change, but for most, it is a challenge to implement something practical.” Having more climate change risk disclosures and having a better understanding of the materiality of climate change risks may help companies implement the TCFD recommendations.
A majority of respondents said that more guidance would be helpful in determining whether it is necessary to account for climate change risk in their work and how to do so. Popular choices for such resources include guidance for building climate change scenarios, fundamentals of climate change, links to important research, updates on the Actuaries Climate Index (ACI), and updates on the Actuaries Climate Risk Index (ACRI).
The CCSC hopes to address these gaps in knowledge, information, and guidance in 2020 through better and more varied communications to members on the topic. Plans include articles, presentations, podcasts, updated resource pages, webinars, and seminars.
“The survey indicates a lack of understanding and application of the impact of the risks of climate change in all actuarial practices, so it is really a top priority to develop actuarial guidance,” says Bisson-Roberge. “Beginning in 2020, we will be working on pension, investment, P&C, and stress- and scenario-testing guidance in line with our members’ priorities as per the survey.”
Christine Bisson-Roberge further discusses the survey on the Seeing Beyond Risk podcast:
This article originally appeared in the CIA (e)Bulletin.