Actuaries are calling for more realistic climate risk assessments, including the ‘risk of ruin’: the point past which global society can no longer adapt to climate change.

The latest report from the Institute and Faculty of Actuaries and the University of Exeter, Climate scorpion: the sting is in the tail, puts forward the case for using financial services risk management to evaluate and communicate climate risk. It advocates for worst-case scenario thinking around climate change.

The report warns that global heating could be accelerating. Breaching the 1.5C (2.7F) goal appears increasingly likely, with the world having temporarily passed this threshold last year. This could trigger multiple tipping points, such as the collapse of the Greenland ice sheets, with potentially irreversible effects.

The climate could be more sensitive than expected. While often referred to as a “tail-risk”, the probability of significant temperature rise may be surprisingly large. New approaches are suggesting that doubling greenhouse gas concentrations could result in a 7C (12.6F) or more temperature rise.

The report looks at the latest knowledge about extreme climate risks and outlines how we can best use actuarial thinking to inform policymakers. It introduces the idea of “planetary solvency” — an assessment of the different ecological threats, including those beyond climate change, to determine the risk of planetary ruin.

“There is an urgent need to provide policymakers with realistic assessments of climate risk, to support decisive policy action to accelerate the energy transition,” said Sandy Trust, lead author and IFoA council member.

“Alongside clarity on the risks, we need to invest in educating policymakers and the public on positive tipping points and behavioural change to support a more rapid transition.”

He said actuaries have a responsibility to play an active role in addressing the sustainability challenge.

“Our long-term thinking, financial system understanding, risk management mindset and probabilistic reasoning combine powerfully to complement climate science and communicate risks clearly to regulators and policymakers,” Mr Trust said.

University of Exeter professor Tim Lenton said the report put forward a case for why and how the actuarial approach can be used for climate change.

Lord Stern, chair of the Grantham Institute, said we are already experiencing the impacts of climate change and these will worsen, impacting the basic elements of life for people around the world — access to water, food production, health and the environment.

“Unfortunately, the current pace of progress is not nearly rapid enough and if we fail to curb the impact of climate change, it could damage society and the global economy more than the world wars,” he said.