Regulators help actuaries understand climate change science

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Regulators that are interested in actuarial work have jointly published a comprehensive report to help actuaries increase their knowledge of climate change and the science behind it.

The Joint Forum on Actuarial Regulation – a forum consisting of the Financial Reporting Council, the Institute and Faculty of Actuaries, the Financial Conduct Authority, the Pensions Regulator and the Prudential Regulation Authority – said the report highlights the urgency of climate change and the role actuaries have to play in mitigating its risks.

The report includes analysis of a range of different climate modelling scenarios, the impact of climate change on food security, efforts to mitigate climate change and the concepts of carbon budgets and net zero.
The paper also examined tipping points. “Observational data shows we are now closer to tipping points than previously thought, with more than half of the climate tipping points identified a decade ago now active,” said the report.
A tipping point is a critical threshold beyond which a system reorganises abruptly and irreversibly.
JFAR said many of these tipping points, such as effects in the Arctic and Antarctic regions, will be familiar, but there are others such as the effects on ocean circulation, permafrost thaw, and forest dieback, “which are less well known but equally important”.

Regulators stress need for skilled advisers

Mark Babington, the FRC’s executive director of regulatory standards, urged actuaries to familiarise themselves with the report and apply the content appropriately to their work.
David Fairs, TPR’s executive director of regulatory policy, analysis and advice, said pension trustees already have access to guidance in this area but stressed the need to receive support from skilled, competent and knowledgeable advisers.
He added that all pension schemes, regardless of size, are highly likely to be exposed to climate-related risks and opportunities.
“From worsening storms to increased risk of fire and flood, this report on the science of climate change makes for shocking but essential reading,” Fairs said.
“We welcome work to help improve actuaries’ understanding of climate-related risks and opportunities, so they are better equipped to help trustees manage, and ultimately protect, savers’ retirements.”

The FRC is currently proposing to introduce a requirement to ensure actuaries include climate change and ESG-related risks in the course of their work, with a consultation running until 7 September.

This is because informal feedback to the FRC suggests climate change is a “less well-considered” risk when actuaries perform technical work.

Neil Buckley, regulation board chair at the IFoA, said the IFoA has a broad range of guidance and resources to support members in considering climate-related risk as part of their work.

Buckley added: “As a member of JFAR, we believe this report represents another valuable resource to help actuaries better understand and communicate the ecological, social and economic impact of climate change, and the world-changing, systemic risks it presents.”

Do you agree that understanding the science behind climate change can help actuaries equip themselves to better advise pension trustees? 

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