In January, the Institute and Faculty of Actuaries (IFoA) and the University of Exeter released a compelling new report – Planetary Solvency – finding our balance with nature (Global risk management for human prosperity). The report comes at a pivotal time when currently insufficient climate change and broader sustainability initiatives seem to be at risk of slowing further, and it is worth a deep dive.
Significantly, the IFoA report takes a risk management approach to climate change, one that I think can and must be applied not only to the climate challenge, but to the many sustainability challenges underpinning the Sustainable Development Goals (SDGs), including the many key elements underlying UNFAO’s focus on food system transformation to create more efficient, inclusive, resilient, and sustainable agrifood systems to achieve better production, better nutrition, a better environment, and a better life while leaving no one behind.
This report is an excellent follow up to many themes covered in the World Economic Forum’s February 2023 Global Risks Report, in which environmental risks comprised five of the top ten short term (two year horizon) risks selected by survey respondents and five of the top six long term global risks (ten year horizon) – including failure to mitigate climate change (the number one risk), failure of climate change adaptation, natural disasters and extreme weather events, biodiversity loss and ecosystem collapse, and natural resource crises.
And as I noted in this post, it’s important to mention that the fifth-ranked risk was large scale involuntary migration, which is of course a direct result of climate change degrading living conditions for millions in various regions.
The Global Risks Report also discussed the risk of polycrises – where “disparate crises interact such that the overall impact far exceeds the sum of each part.” This is a multiplier effect that the world cannot afford as the global temperature continues to hit record levels while progress on multiple SDGs is off track.
January’s IFoA report also builds on the World Economic Forum’s December 2024 report (Business on the Edge: Building Industry Resilience to Climate Hazards), which detailed the threat that the nature and climate crisis poses to business profitability, supply chains, and societal stability.
Further, the IFoA report builds on the work of the Global Footprint Network, including the essential need to operate within planetary boundaries and the concepts of Earth Overshoot and One-Planet Prosperity.
At a time of concerning pullback from ESG issues around the globe, the IFoA report is an excellent, and much needed, guide for policymakers now. One critical reason, as co-author Tim Lenton notes, is that today’s high-profile climate change assessments significantly underestimate risk because they exclude many of the most severe risks that society could face. He correctly adds that it is these very extremes that should be driving policy decisions regarding what negative outcomes society is willing to accept and what actions policymakers can take to mitigate them.
In describing the risk management approach in this report, IFoA members make a critical point regarding the action disconnect: In the decade since 2015, “the scale and pace of climate change impacts have outpaced expectations, while the scale and pace of human activity has continued to drive planetary outcomes, with a non-trivial risk of ruin.”
They add that “our current market-led approach to mitigating climate and nature risks is not delivering” and that “there is an increasing risk of severe societal disruption (Planetary Insolvency) as our economic system drives further global warming and nature degradation.”
Note the similarity to the theme of polycrises noted above.
Last, they suggest an appropriate flip of perspective, noting that since commonly used net zero carbon budgets only give a 50/50 chance of limiting global warming to below 1.5°C – we should therefore focus on the fact that the odds of failing to meet that mark are just as high as meeting it.
Key Concepts and Planetary Solvency
The IFoA report provides a brief primer on the effects of human activity on Earth’s systems, citing unprecedented resource extraction, high greenhouse gas emissions, deforestation, land degradation, biodiversity loss, and agricultural pollution in the post-Industrial Revolution era.
The authors note that human activity is having “a profound negative influence on our natural systems, as well as on human health” and that this activity presents “unprecedented risks, and profound responsibilities.”
In other words, we have a critical choice to make: We can continue with business as usual and push the planet into a far less habitable state, or we can take actions to get back within planetary boundaries and ensure a habitable world for future generations. I’m reminded of Marco Lambertini’s statement in the 2018 WWF Living Planet Report, in which he noted:
“This is today’s, and our generation’s, greatest challenge and opportunity: for the first time, we can fully grasp how protecting nature is also about protecting people. The environmental and human development agendas are rapidly converging.
Few people have the chance to be part of truly historic transformations. This is ours. We have before us a rapidly closing window for action and an unparalleled opportunity as we head into the year 2020. Today we still have a choice. We can be the founders of a global movement that changed our relationship with the planet, that saw us secure a future for all life on Earth, including our own. Or we can be the generation that had its chance and failed to act, that let Earth slip away. The choice is ours. Together, we can make it happen for nature and for people.”
Lambertini points to the inseparability of people and nature, which is at the heart of planetary solvency, and his action perspective is one that we desperately need among policymakers today.
The IFoA report makes the parallel to a solvent pension system for financial security, noting that a solvent Earth system is one that will continue to provide the ecological services that we require to survive in prosperity, while an insolvent system is one in which human activity has damaged ecosystems to such a degree (think tipping points) that we can no longer attain the needed ecoservices to support societal and economic needs. Obvious examples include degradation of food production due to rising temperatures, soil erosion, and/or water shortages.
The authors define planetary solvency as “managing human activity to minimize the risk of societal disruption from the loss of critical support services from nature.”
They add that if we are to maintain planetary solvency, we must put mechanisms in place that ensure that we respect the Earth’s biophysical limits to ensure sufficient natural capital for future generations.
Further, they remind us that “maintaining planetary solvency will require accelerated action.” Such actions include “transitioning to renewable energy, restoring ecosystems, adopting sustainable agriculture, reducing inequality, changing economic incentives, and transforming consumption patterns.”
Significantly, the report includes a critical humanity perspective – noting that as solutions are developed, we must recognize that “humanity is not separate from nature, we are embedded in it and reliant on it.”
Such a perspective effectively highlights the stakes behind planetary solvency and our associated action stance.
Moving to Planetary Solvency
The IFoA report describes the value of an actuarial approach to managing risk and uncertainty, linked to the shared objectives of the Paris Agreement, the Kunming-Montreal Biodiversity Framework, and the Sustainable Development Goals.
A key point here is that since scientists are reluctant to make statements that are not supported by evidence, and as a result there has been “underprediction on key attributes of global warming.”
In my mind, that “underprediction” point is especially important as global temperature continues to rise, with the World Meteorological Organization (WMO) recently confirming that 2024 was the warmest year on record (at about 1.55°C above the pre-industrial level). In other words, in just ten years we have breached the Paris Agreement goal.
In addition, the WMO stated that the past ten years are the ten warmest on record. It’s worth asking ourselves: What does that suggest for the future?
Those results indicate the need for a revised risk management perspective on climate change.
Further, the report reinforces the obvious point that “for risk management to be effective, decision makers must understand the business model and the risks.”
Finally, the report offers a set of ten Resilience Principles to support effective and realistic Planetary Solvency risk assessments for policymakers, including setting clear risk limits and tracking trends, focusing on Earth system primacy (the need to prioritize the health of the Earth system over short-term economic metrics), incentivizing risk identification, educating stakeholders, collaborating across disciplines, and providing effective governance and reporting.
Understanding Risks, Taking Action
In summary, the IFoA report lists five key findings which, when viewed together, provide powerful incentive for action on climate change, biodiversity, and all of the SDGs. They include:
- We are part of the Earth system, which we depend on.
- The stability of the Earth system is threatened.
- Unmitigated climate change and nature-driven risks have been hugely underestimated.
- Paris Agreement goals were not informed by realistic risk assessment, they implicitly accept high risk of crossing tipping points.
- Global risk management practices for policymakers are inadequate, we have accepted much higher levels of risk than is broadly tolerated.
These are all critical points, of course, and we need to embrace them.
We are seeing the impacts of climate change daily in the form of heat waves, drought, fires, and intense storms and floods, along with high food insecurity, and biodiversity loss.
But despite the compelling visual signals, the world is not acting on the global sustainability agenda on par with the threat, which implies an inadequate assessment of risk.
Importantly, the report lays out five high-level recommendations to mitigate risk, including:
- Implement Planetary Solvency assessments
- Set Planetary Solvency limits that respect planetary boundaries.
- Enhance governance structures to support Planetary Solvency.
- Build policymaker capacity on systemic risk management.
- Take action to mitigate risk.
I find it helpful during this chaotic period of pullback on climate and sustainability issues to step back with a risk management perspective.
We know we are moving in the wrong direction on climate and sustainability goals; the need for urgent collaborative action is increasingly clear.
Scientists warn that we are on the verge of hitting several tipping points, and while we might surmise the gravity to some degree, we don’t fully understand the scope and scale of all of the potential impacts nor the probability and rapidity of occurrence – and therefore we aren’t employing the appropriate risk assessment.
The IFoA report effectively illustrates our connection to the Earth system and the need for an appropriate risk assessment approach to address climate change and sustainability challenges, and it augments other key reports with a risk focus.
It provides a new perspective for action.
We need to understand and embrace our connection to Earth systems.
We need to be well-informed about the gravity of climate and sustainability risks, and the odds of incurring them (again, think tipping points).
We need to start asking “what if?” while truly understanding the consequences of “what if?” (think polycrises).
And we need urgent collaborative action to achieve planetary solvency.
As Tim Lenton noted in the report’s Foreword, “Policymakers are currently unable to hear warnings about risks to ongoing human progress, or unwilling to act upon them with the urgency required.”
That must change.
The urgency is clear; the IFoA report provides a new risk management perspective to spur needed action.
food for thoughtful action 