Actuaries, Environmental Policy and the Public Interest

Nick Silver and Paul Dickinson, Environmental Research Group

Contents

Introduction – why should actuaries be interested in the environment

Assets - Climate change and investment policy

Liabilities – actuarial modelling and climate change

Why should actuaries be interested in the environment?

Insurance

Long term

The big issue

Key Skills

Beneficiaries’ interests

Intergenerational equity

Date 2003 2033 2063

Grandchild -30 0 30

Child 0 30 60

Age 33 63 93

Damage > Growth

Who cares about climate change?

Greenpeace?

People in Bangladesh?

Small island states?

Carbon Disclosure Project signatory investors

Abbey National, Allianz / Dresdner, Baillie, Cooperative Insurance Society, Credit Suisse Group, Gartmore, Henderson, ING, Insight Investment, Jupiter, Legal & General, Merrill Lynch Investment Management, Morley Fund Management, Munich Re, Newton Investment Management, Ontario Municipal Employees Retirement Sys.Rabobank, Royal Bank of Scotland, Societe Generale, Storebrand, Swiss Re Asset Management, Threadneedle Investments, UBS Global Asset Management, University Superannuation Scheme

Investors, politicians and climate change

“Congratulations on the success of the Carbon Disclosure Project. It has some important messages for all of us. Crucially, it illustrates how the answer to reducing greenhouse gas emissions lies as much with companies and investors as it does with governments, international agencies and the public. I find your report enormously encouraging. I hope the Project goes from strength to strength.” Tony Blair, 17 February 2003

“Our business is to help investors vote with their money” Madeleine Albright, CDP launch 5 March 2003

Investors and systemic risk

“I applaud the project for at least three reasons. First it engages institutional investors constructively with the knowledge deficit and breaks the circularity of ignorance surrounding this systemic risk.

CDP is a very positive aspect of shareholder engagement and if there are more shareholders ready to sign up that can only be a very good thing.”

Derek Higgs, 17 February 2003

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Events

80 82 84 86 88 90 92 94 96 98

Year

Number of billion dollar weather disastersNumber of billion dollar weather disasters

Source: Watson 2001

The financial impact of climate change

“If something is true in reality, it must be true in theory”

In 2002 droughts shaved 0.75% off Australian GDP 2002

Destruction of the world through unmitigated climate change is against the regulations (in spirit if not in detail)

Systemic risk of positive feedbacks

The impact of climate change - problems

World warming up - 1.4 to 5.8 Centigrade by 2100

Sea level rising – 18 to 99cm by 2080

Increased incidence of extreme weather events

Water shortages, increased rainfall, flood

Socio-economic factors

The impact of climate change - problems

Past no guide to future

Non-linearity

“Sicilian actuary”

The impact of climate change - solution

RAMP

Risk analysis and management for projects

Actuarial Profession and Institution of Civil Engineers

Manages risk for projects and place financial values on that risk

The impact of climate change - solution

Adapt RAMP

Joint project with other professionals

Risk identification and analysis

Financial evaluation

Risk mitigation

Actuaries, Environmental Policy and the Public Interest

Nick Silver and Paul Dickinson, Environmental Research Group