The global economy could face a 50% loss in GDP between 2070 and 2090 unless immediate policy action on risks posed by the climate crisis is taken. This is the stark warning set out in ‘Planetary Solvency – finding our balance with nature’ by the Institute and Faculty of Actuaries (IFoA) in collaboration with climate scientists.
Now a new study, ‘New quantifications: Planetary Boundaries in the future’, from the Stockholm Resilience Centre, explores three potential future planetary scenarios. It finds that, under current trends and policies, planetary solvency is projected to worsen across all planetary boundaries by 2050, except for ozone depletion.
This is clearly disastrous. But the new study remains hopeful, saying that “targeted interventions and ambitious policy measures can reduce the negative effects and steer humanity toward more sustainable futures”. And yet time and again we are seeing climate deprioritised by valued institutions, resulting in business and society hurtling towards a future incompatible with life.
Food system shocks, water insecurity, heat stress, infectious diseases, economic contraction, conflict and the mass movement of people are already evident in news coverage as the planet struggles to deliver beyond its means. Understanding planetary solvency sits at the heart of finding solutions to all these conditions.
Helpfully, in March this year, the IFoA and University of Exeter launched a planetary solvency dashboard. It addresses the discrepancy between climate projections and policy outcomes. The dashboard delivers insights on current and projected risks (up to 2050) across four key domains: climate, nature, society, and the economy.
The point of the dashboard is the visualisation of the risks associated with failing to heed the warnings, and continuing to exceed planetary boundaries. In effect, actuaries are now using their risk management expertise to help decision-makers understand the earth system (the complex suite of systems such as the atmosphere and biosphere that create the conditions we live in on earth) to ensure we minimise risks and keep activities within planetary boundaries.
But we have to take notice, we have to act and the right policy environment has to be put in place if we are to make a difference.
Under-pricing the planet
Unfortunately, we have always under-priced climate damage within the global financial system. This is the challenge by Carbon Tracker. A paper by Professor Steve Keen (UCL) with Mark Campanale and Joel Benjamin (Carbon Tracker) and Professor Tim Lenton and Dr Jesse Abrams (University of Exeter) presented at the Yale Institute of Sustainable Finance in November 2024 demonstrated how the work of mainstream economists on assessing future climate-related damages has misrepresented the work of climate scientists.
“This leaves policy makers and the financial sector unprepared for the scale of likely losses, as the gulf in expectations between economists and climate scientists continues to grow,” says Carbon Tracker.
Professor Tim Lenton and Dr Jesse Abrams argued for a science-led peer review of economists work on climate change, and for new integrated assessment models to prepare investors and policy makers for expected financial disruption. Carbon Tracker also suggested that the work of economists has permeated the financial sector via investment consultants and, as a consequence of that, the science has been poorly translated and thereby become misleading.
Action/inaction
The Network of Central Banks and Supervisors for Greening the Financial System (NGFS) has also been active in this area. It launched a series of climate scenarios to provide a window into different plausible futures. The NGFS is a group of Central Banks and Supervisors who share best practice and contribute to the development of environment and climate risk management in the financial sector and mobilise transition finance.
It partnered with an expert group of climate scientists and economists to design a set of hypothetical long-term scenarios which provide a reference point for understanding how climate change (physical risk) and climate policy and technology trends (transition risk) could evolve. Each scenario was chosen to show a range of higher and lower risk outcomes. They are:
• Orderly scenarios which assume climate policies are introduced early and become gradually more stringent.
• Disorderly scenarios which explore higher transition risk.
• Hot house world scenarios which assume that some climate policies are implemented in some jurisdictions, but global efforts are insufficient to halt significant global warming.
• Too little, too late scenarios assume that a late and uncoordinated transition fails to limit physical risks.
These scenarios are designed to help central banks and supervisors explore the possible impacts on the economy and the financial system. But they have to be put to use as a priority.
Press reports claim the Bank of England has deprioritised climate. Whatever the situation, it is clear is that it has slipped down the rankings on green initiatives. Formerly a leading light, the Bank of England is now ranked seventh on The Green Central Banking Scorecard, produced by Positive Money, which scores and ranks the full range of green policies and initiatives adopted by G20 central banks. The EU and its G20 member countries (France, Germany and Italy) are in the top four positions, with Brazil and China also ranking highly.
But Green Central Banking concedes that, even among the top performers, there are substantial gaps in the adoption of high impact policies necessary to steer financial systems away from carbon-intensive activities and toward sustainable alternatives.
Lots to work with
Policy makers, financiers, investors, regulators, even consumers have ever increasing pools of information, tools, scenarios and dashboards to prompt climate and nature action. But are they being applied and do they work?
And are we to conclude that wilful blindness remains the prevailing characteristic across most actors, especially those with the capacity to make a difference.