Actuarial focus on mitigating climate risks and adapting to change

By Frédéric Matte, FCIA, Vice-Chair of the CIA Climate Change and Sustainability Committee, and Yves Guérard, FCIA, member of the CIA Climate Change and Sustainability Committee

In early March, the Canadian Institute of Actuaries (CIA) released the latest quarterly data update of the Actuaries Climate Index (ACI). This release puts the ACI at 1.23 for summer 2020, compared to 1.19 for the previous season, confirming a continued increase in the frequency and intensity of extreme weather events. The ACI computes a retroactive measure of climate risks based on a “basket” of extreme climate events and changes in sea level for the US and Canada.

The Index was launched in November 2016 to document the impacts of global warming, caused by the additional energy accumulated due to rising greenhouse gas (GHG) concentrations. Rising CO2 levels are also being tracked by the Keeling Curve, which reached over 416 ppm in March 2021. As the ACI and other measurements continue to tick upwards, the question is what do we do with these data?

The recent polar vortex that blasted Texas and the resulting deaths, loss of property, and impact on the state’s infrastructure is just one example of the need to better anticipate the consequences of extreme weather and build adequate resilience. In our own backyard, a recent report from the Intact Centre on Climate Adaptation at the University of Waterloo reveals that the flood preparedness of 16 major Canadian cities is rated C+, the same rating as was reported in 2015. Are Canada and the provinces putting enough effort towards adapting our infrastructure to the potential consequences of climate change?

There is some progress being made. Bill C-12, the Canadian Net-Zero Emissions Accountability Act, was introduced to the House of Commons in November 2020 as a proposal to establish national targets for reducing GHG emissions to net zero by 2050. Canada is the seventh-largest GHG emitter, but we are a country with the resources necessary to deliver on our net-zero promise and well positioned to achieve the necessary shift to a low-carbon economy. Our commitment, which places us alongside the European Union and more than 100 countries that have made similar commitments, was long awaited. The US, one of the world’s top emitters, has now rejoined the Paris Agreement. China has also issued a statement of intent to become carbon neutral by 2060, a stunning commitment given its reliance on coal-fired power plants. However, although Bill C-12 makes some important strides towards setting emissions targets, it is silent on adaptation measures that Canada should implement independently of the progress, or lack thereof, in a timely reduction of GHG emissions at the global level.

In September 2019, the CIA issued a public statement entitled Time to Act: Facing the Risks of a Changing Climate calling on “all levels of government, business leaders, and investors to take immediate action towards meeting the Paris Agreement target.” Since then, recent initiatives put forward by Canadian financial and industry stakeholders in support of national commitments are encouraging. For instance, the Bank of Canada and the Office of the Superintendent of Financial Institutions (OSFI) announced plans for a pilot project to use climate change scenarios to better understand the risks to the financial system related to a transition to a low-carbon economy. To achieve this, the two entities will work together with representatives from the banking sector as well as from life and property and casualty insurance industries. Similarly, Canada’s top eight pension funds joined forces and committed to strengthening environmental, social, and governance disclosures while asking companies and investors to do the same. Their statement earned support from many entities, including the CIA.

In addition to supporting Canada’s adaptation needs driven by the increasing frequency and severity of extreme weather events, the above initiatives offer excellent opportunities for Canadian actuaries to get more involved in climate-related risk management and apply their expertise to the challenge. The CIA’s Climate Change and Sustainability Committee will continue to support their contribution by providing guidance to better assess and manage climate-related risks. This support includes a practice resource document for members entitled Climate Change Scenario, CIA’s response to an OSFI consultation on climate-related risks, climate-focused content at the CIA’s next annual conference, and upcoming webcasts. In keeping with our professional responsibilities to the public, we will continue to monitor progress towards pledges made and we will play a constructive role in addressing climate change, both in providing advice to clients and providing input on public policy.

Visit the CIA climate resources page for even more climate-related content.

This article reflects the opinion of the author and does not represent an official statement of the CIA.

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