Actuaries find multiple climate change ‘tipping points’
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Global warming of 1.5˚C is extremely risky, with a high chance of triggering multiple climate “tipping points” that could be irreversible, actuaries have warned.
Those tipping points include the collapse of ice sheets in Greenland, West Antarctica and the Himalayas, permafrost melt, Amazon dieback and halting major ocean current circulation.
This is one of the major findings in a joint report by the Institute and Faculty of Actuaries and thinktank Climate Crisis Advisory Group, which explores how actuarial risk management techniques can be applied to climate change.
Actuaries argued tipping points mean there is even more uncertainty, “which we need to plan for by exploring tail risks and introducing prudence”.
Once triggered, those tipping points may be irreversible and would act to accelerate global warming and increase the severity of impacts, such as by accelerating multi-metre sea level rise.
Using a risk management approach, the report revealed other findings, including:
· climate change is progressing faster than expected, with more severe impacts;
· net zero carbon budgets give only a 50% chance or less of limiting global warming to 1.5°C, “which represents an unreasonable risk of not meeting our objectives”; and
· in addition to rapid reduction, delivering a stable climate will require removing greenhouse gases from the atmosphere.
Actuaries also urged policymakers to act decisively to accelerate a just transition to a carbon neutral economy.
Risk management versus scientific approach
The paper argued the actuarial approach to risk analysis is different from that followed by most in the scientific community: “Scientists are geared toward making predictions that are as accurate as possible. In contrast, actuaries are often concerned with predicting low-probability – high-impact events.”
It said in science, a hypothesis is proposed, data is gathered to test this hypothesis and conclusions are drawn about the validity of the hypothesis.
“In the case of climate change, where data is scarce or risks are hard to model, the scientific community has arguably been biased towards erring on the side of least drama. This has led to under-prediction on key attributes of global warming.”
The report added that a risk management approach instead requires that, even where evidence is not available, actuaries should explore plausible outcomes and take steps to manage the risk, especially if the outcomes have the potential to be severe.
“We apply expert judgment to estimate the likelihood and severity while ensuring that we revise our estimates as more evidence becomes available.”
How are insurers and pension funds mitigating the impact of climate change using actuarial expertise?
