Four More Years

Of ignoring the actuaries.

Today begins the second Trump administration in the United States. Yes, there will be backsliding on environmental protections. Climate change will largely be ignored. The US may pull out of the Paris agreement again. Businesses in the US are bending over backwards to get on the right side of an administration that is likely to be petty and vindictive - because they have said they will be. There is little cause for optimism in any leadership coming from the United States on climate change or ecological overshoot for four years.

So that is the political reality. What is the, you know … reality, reality?

Another report that won’t make you smile.

When a paper is titled, Planetary Solvency, you know you are not in for good news. Solvency is usually used in the context of the ability of one to pay their debts. You are insolvent if you cannot pay your debts. So you can imagine I wasn’t thrilled to see, Planetary Solvency - finding our balance with nature. Global risk management for human prosperity, from the Institute and Faculty of Actuaries in the UK last week.

Highlights/Lowlights

The report shows that 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. Populations are already impacted by food system shocks, water insecurity, heat stress and infectious diseases. If unchecked, mass mortality, mass displacement, severe economic contraction and conflict become more likely.

The authors come to the conclusion that climate change and nature driven risks have been hugely underestimated, noting that climate change impacts are materializing at lower temperatures than estimated. Mass mortality, involuntary mass migration, and severe economic contraction become more likely as we fail to act, and our ability to mitigate climate change may be eroded as resources become constrained.

The authors also state that the Paris Agreement goals were not informed by realistic risk assessments, and that global risk management practices by policymakers are inadequate, and that we have accepted higher levels of risk than is broadly understood.

Policymakers often prioritize the economy, but our dominant economic model doesn’t recognize a dependence on the Earth system, viewing climate and nature risks as externalities.

Current risk management approaches fall short of what is needed for sufficient risk management. This means that policymakers risk information is likely to significantly understate the potential impact of climate and nature risks, weakening the argument for urgent action.

We are therefore accepting much higher levels of risk than we realize.

Recommendations.

1. Implement Planetary Solvency Assessments

2. Set Planetary Solvency limits that respect planetary boundaries

3. Enhance governance structures to support planetary solvency

4. Build policymaker capacity on systemic risk management

5. Take action to mitigate risk.

We are not doing any of these to the scale needed.

I highly recommend you read the report. Actuaries use mathematical and statistical models to assess risk. When one of the largest actuarial organizations in the world tells you that you should pay attention to a certain risk - you should listen.

The report details a great set of RESILIENCE principles to let our leaders know what they need to focus on. I have to admit, I cringe a little when any organization makes a list of steps or principles and forces those items to spell out a word. And “resilience” is a 10-letter word. Educate stakeholders, collaborative across disciplines. Come on actuaries, you're trying too hard!

Here is the list, but I think they could have stopped at RESILI.

This is great to see, but …

No one seems to be taking the threat seriously. America voted for the giant meteor in the last election.

And companies, especially banks are falling all over themselves to get out of commitments to net-zero promises because that might hurt short-term profits.

Actuaries are paid to think about the long term. It seems they are the only ones.

Don’t despair, but also don’t expect a government that exists to serve the 1% to save the 99%.

I’ll leave you with two quotes from great thinkers that I think sums up our position, and what we need to do:

“Only a fool, would think someone could save you.” - The Clash

“You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.” - R. Buckminster Fuller