Institute and Faculty of Actuaries issues ‘risk alert’ on climate risk

Professional body highlights “material risk” in alert to members

The Institute and Faculty of Actuaries (IFoA), the international professional body for actuaries, has sent a ‘Risk Alert’ to all its members drawing their attention to the “material risk” that climate change poses, stressing its members’ responsibility to “consider how climate-related risks affect the advice they are providing”.

It says: “Actuaries should ensure that they understand and are clear in communicating the extent to which they have taken account of climate change implications in any relevant decisions or calculations”.

The latest alert (first reported by RI earlier this month), which is the first to address the issue of climate change, marks an important step for the IFoA in its campaign to not only raise the issue of climate related risk with its members but also begin to help them calibrate that risk, a risk that “many clients of actuaries are exposed to”.

In a statement, IFoA President Colin Wilson said there’s “increasing consensus” that environmental issues, especially climate change, are an area of financial risk that actuaries should consider.

Risk Alerts are the Institute’s mechanism for offering “non-mandatory guidance” to its members.

Speaking to Nico Aspinall, Chair of the Institute’s Environment and Resource Board and former Head of DC investment consulting for Willis Towers Watson, RI was told that when it comes to addressing the risks associated with climate change “regulators, companies, trustees, advisors need to get on the same page”, and the recent work of the IFoA is an attempt to encourage this.Three general areas are identified in the Risk Alert as relevant for actuaries:

1) Physical risks
2) Transition risks
3) Liability risks

Aspinall informed RI that the alert is designed to encourage members to consider whether climate related risks – which previously may have been considered non-financial within the profession – are in reality financial risks.

As part of the climate risk awareness drive, the IFoA has also released its ‘Resource and Environment Issues: A Practical Guide for Pensions Actuaries’, the first of its kind to be published by the IFoA.

The IFoA was prompted to send the alert in response to the Task Force on Climate-related Financial Disclosures’ (TCFD) 2016 Recommendations Report, which is cited in the alert.

The IFoA, which last month the IFoA issued a tender for research into climate change, is holding a webinar on May 22 on the TCFD.