The Institute and Faculty of Actuaries says that the global economy could face a 50 per cent loss in GDP between 2070 and 2090, unless immediate policy action on risks posed by the climate crisis is taken.
Populations are already impacted by food system shocks, water insecurity, heat stress and infectious diseases. If unchecked, mass mortality, mass displacement, severe economic contraction and conflict become more likely.
‘Planetary Solvency – finding our balance with nature’ is the IFoA’s fourth report in collaboration with climate scientists.
The report develops a framework for global risk management to address these risks and show how this approach can support future prosperity. It also shows how a lack of realistic risk messaging to guide policy decisions has led to slower action than is needed.
The report proposes a novel Planetary Solvency risk dashboard, to provide decision-useful risk information to support policymakers to drive human activity within the finite bounds of the planet that we live on.
Sandy Trust, Lead author and IFoA Council Member, said, “You can’t have an economy without a society, and a society needs somewhere to live. Nature is our foundation, providing food, water and air, as well as the raw materials and energy that power our economy. Threats to the stability of this foundation are risks to future human prosperity which we must take action to avoid.
“Widely used but deeply flawed assessments of the economic impact of climate change show a negligible impact on GDP, rendering policymakers blind to the immense risk current policy trajectories place us in. The risk led methodology, set out in the report, shows a 50 per cent GDP contraction between 2070 and 2090 unless an alternative course is chartered.”
The report summarises the risk outlook
Increasingly severe climate and nature driven impacts are highly likely, including fires, floods, heat and droughts. This is a national security issue as food, water and heat stresses will impact populations. If unchecked then mass mortality, involuntary mass migration events and severe GDP contraction are likely.
Planetary Solvency defines catastrophic impacts as:
- Economic contraction, GDP loss of over 25 per cent
- Mass human mortality events resulting in over 2 billion deaths
- Warming of 2C or more, triggering high number of climate tipping points
- Breakdown of some critical ecosystem services and Earth Systems
- Major Extinction Events in multiple geographies
- Ocean circulation severely impacted
- Severe socio-political fragmentation in many regions, low lying regions lost
- Heat and water stress driving mass migration of billions
- Catastrophic mortality events from disease, nutrition, thirst and conflict.
The report summarises its policy recommendations
It will be overwhelmingly positive economically to avoid Planetary Insolvency. An urgent policy response is required as our current market led approach to mitigating climate and nature risks is not delivering.
This should include:
- Implementing annual Planetary Solvency risk assessments, leveraging the RESILIENCE principles, reporting to the UN Security Council
- Creating a function with responsibility for producing Planetary Solvency assessments, housed in an appropriate body such as the IMF or OECD
- Considering the need for systemic risk officers at supra-national, national and sub-national levels to enhance systemic risk management capability
- Rapidly implementing policy recommendations to reduce risk such as National Transition Plans, Nature Positive Pathways and alternative economic models.
- Developing appropriate tracking of delivery of solutions to mitigate risk, including oversight of progress, clear accountability and near-term
Read the report, Planetary Solvency – finding our balance with nature
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