A new report has said that without action, global warming is now likely to reach 2°C before 2050. This is a level associated with catastrophic impacts on societies and economies worldwide, with major disruption to water and food systems, migration, and human health.
The new 31-page report, "Parasol Lost: Recovery plan needed", was jointly produced by the IFoA and University of Exeter and is the fourth in a series.
The report draws attention to a legacy of economic modelling that has downplayed the impact of climate change on economies, leading to complacency and delays in policy change.
It warns that global temperatures are accelerating faster than predicted, driven by a loss of ‘aerosol cooling’, a hidden sunshade effect created by air pollution which has offset around 0.5°C of warming. This hidden sunshade is now receding as pollution is being cut down, particularly by shipping regulations.
This raises the risk of climate-driven inflation, financial shocks, and the withdrawal of insurance from high-risk areas much sooner than many expect, which, in turn, increases the chance of widespread financial instability and ‘Planetary Insolvency’ – the risk of societal and economic collapse from the loss of nature’s critical support systems.
IFoA sustainability board member and lead author of the report, Sandy Trust, said, “Planetary solvency is threatened, and we urgently need a recovery plan. An actuarial review of key climate change assumptions shows we may have seriously underestimated the rate of warming as well as the related economic impacts. Unless we rapidly change course, climate damages will start to impact growth and future prosperity.
“The parallels between the risk management failure of the Global Financial Crisis and inaction on the major systemic risk posed by climate change are clear. Both feature an over-reliance on benign risk model results and a failure to understand systemic risk.”