Nature-related risks are as detrimental as climate risks: A call to action for actuaries
If nature-related risks are as detrimental as climate risks, do we have the right balance in the financial services industry on nature-risks? If being nature positive is critical for net-zero, how many climate scenarios include a nature-positive transition as a fundamental element?
In this blog post for the Institute and Faculty of Actuaries (IFoA), Milliman’s Nick Spencer and members of the IFoA’s Biodiversity working party outline the recent investigations into nature-related risks and the emergent quantification of economic impacts from nature-related risks.
Key highlights include:
- Equivalence of nature-related and climate risks: Recent academic papers show nature-related risks are likely to be as detrimental as climate risks to the UK economy over the next 10 years, yet they are often overlooked in the financial services industry.
- Importance of being nature-positive: Achieving a nature-positive status is deemed critical for reaching net-zero targets. However, many climate scenarios currently fail to incorporate a nature-positive transition as a fundamental element, undermining both the effectiveness of these scenarios and alignment with effective net-zero pathways.
- Economic impacts of nature-related risks: Recent investigations have begun to quantify the economic impacts of nature-related risks. These could reflect impacts as severe as the 2008 global financial crisis or, in stress scenarios, the COVID-19 pandemic.
- Call to action for actuaries: Actuaries are called upon to take a proactive role in addressing nature-related risks. This includes integrating these risks into financial models and advising clients on the potential economic impacts, thereby contributing to a more sustainable and resilient financial system.
- Need for integrated risk management: The necessity for an integrated approach to managing both climate and nature-related risks is underscored. This holistic perspective is essential for developing strategies that protect both the environment and the economy.
The blog outlines the urgent need to balance nature-related and climate risks, encouraging actuaries and risk managers to delve deeper into this emerging subject.