CIA (e)Bulletin/(e)Bulletin de l'ICA
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January 2017
 
 

Unprecedented Momentum on Climate Change

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By Catherine Jacques-Brissette, ACIA

Climate change is receiving increasing attention from governments, businesses, the media, and the public all around the world. In 2016, an unprecedented global momentum has built up. Governments and businesses have taken ambitious commitments to reduce greenhouse gas emissions, demonstrating a strong willingness to transition to a lower-carbon economy. Greater transparency and management of climate-related financial risks and opportunities have been requested by investors and implemented by more and more companies. The key events below show a widespread acknowledgement from major stakeholders worldwide that climate change represents a substantial risk to the global economy and that it should be controlled.

The COP of Action

In November 2016, I attended the 22nd Conference of the Parties (COP22) of the United Nations Framework Convention on Climate Change (UNFCCC). Indeed, I had the privilege to join the official Canadian delegation in Marrakesh, led by the Honourable Catherine McKenna, Canada’s Minister of Environment and Climate Change, representing my employer, Bell Canada. The COP is the supreme decision-making body of the UNFCCC, bringing together business leaders, government representatives at all levels, and civil society members from nearly 200 countries.

COP22 was a pivotal point in international climate discussions, transitioning from the years of negotiation that led to the Paris Agreement, to a new stage targeting implementation. The Paris Agreement is an international agreement to reduce global greenhouse gas emissions to a level likely to limit global warming below 2°C over pre-industrial levels. The agreement became effective much earlier than expected, right before the opening of COP22. At the time of writing, it has been ratified by 118 parties, including Canada, China, the United States, India, and the European Union.

At COP22, parties jointly stated that the "extraordinary momentum on climate change worldwide . . . is irreversible". In the Marrakech Action Proclamation, conference delegates asserted their commitment to fully implement the Paris Agreement. In order to reach this objective, the international community has started putting together the nuts-and-bolts decisions known as the "Paris rule book", which should be finalized by 2018.

Canadian Action Plan

During COP22, the Canadian government announced its ambition to reduce national emissions by 80 percent from 2005 levels by 2050, in line with the Paris Agreement’s 2°C threshold. In December 2016, Canada’s first ministers released the Pan-Canadian Framework on Clean Growth and Climate Change, describing their "plan to grow our economy while reducing emissions and building resilience to adapt to a changing climate". The federal carbon pricing benchmark is at the core of this framework.

Private Sector Initiatives

Corporations around the world have also set up ambitious action plans to address climate change. Since COP21 in December 2015, the number of companies making climate commitments through the We Mean Business coalition has more than doubled. At the end of COP22, 200 companies aggregating $4.8 trillion in market value had put forward science-based emissions targets consistent with the Paris Agreement’s 2°C limit. During the COP, I attended an event showcasing leaders from major corporations around the world who explained why doing their fair share to address climate change makes business sense. This event also highlighted the rapidly growing number of businesses planning or currently implementing an internal price on their carbon emissions, adding up to more than 1,200 companies as of September 2016.

FSB Task Force on Climate-Related Financial Disclosures

In December 2016, the Task Force on Climate-related Financial Disclosures (TCFD) (known as the Bloomberg task force) created by the Financial Stability Board (FSB) released its recommendations, aiming to support organizations in disclosing climate-related financial risks and opportunities in their mainstream financial filings. Such increased transparency is meant to facilitate better pricing of the financial impacts of climate change, as well as optimal investment, lending, and insurance underwriting decisions. Ultimately, effective disclosure of these risks would contribute to a well-planned rather than a precipitated shift to a lower-carbon economy, thus minimizing disruptive impacts on financial markets.

The TCFD has put together four broadly applicable recommendations on climate-related financial disclosures for businesses from all sectors and jurisdictions, with supplemental guidance provided for financial-sector organizations, comprising banks, insurance companies, asset managers, and asset owners, including pension funds. Incidentally, numerous global asset managers and institutional investors attended COP22. Investors are increasingly demanding comprehensive climate disclosure, and the Bloomberg task force, which is expected to be a game changer, is already receiving significant attention from the financial sector.

The Actuarial Profession

Climate change involves complex and pervasive risks that impact many economic sectors. Thus, actuaries have an interest in understanding potential long-term impacts of climate change, as these may affect the assumptions used in assessing the value of assets and liabilities, as well as operating costs. The insurance and reinsurance sectors are already taking those risks into account in their assumptions, and they have started extending climate risk coverage to provide better risk management tools to their clients. Unsurprisingly, many insurance and reinsurance companies attended COP22.

Because climate change issues are global systemic challenges, they will be addressed best through a multidisciplinary approach, which was highlighted at COP22 by the great diversity in backgrounds and economic sectors of participants. I believe that actuarial expertise in risk analysis, combined with stakeholder cooperation, can serve the public interest by providing tools to manage the financial contingencies associated with the different climate risks, and contribute to the design of policy options for controlling them.

The Actuaries Climate IndexTM (ACI) and Actuaries Climate Risk Index (ACRI) are great illustrations of how existing actuarial techniques can be expanded into the climate change field, in collaboration with other stakeholders (i.e., climate scientists in this case). These indices are leveraging actuaries’ expertise in the assessment and mitigation of the financial consequences of risk into the analysis of climate change.

I am confident that the actuarial profession can play a meaningful role in overcoming climate change challenges, and I look forward to continuing to support the CIA toward that end, in collaboration with the Climate Change and Sustainability Committee.

Catherine Jacques-Brissette, ACIA, is Chair of the CIA Climate Change and Sustainability Committee.  

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