CIA (e)Bulletin/(e)Bulletin de l'ICA
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March 2018
 
 

COP23: Implementing the Paris Agreement

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By Catherine Jacques-Brissette, ACIA

This article is excerpted with permission from one in the February 2018 IAA Newsletter which provides a more in-depth look at climate change and the actuarial-related activities around it in 2017.

In November 2017, I attended the 23rd Conference of the Parties (COP23) of the United Nations Framework Convention on Climate Change (UNFCCC) in Bonn, representing CAP Développement durable. 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.

COP23 was hosted one year after the entry into force of the landmark Paris Agreement; an international agreement to reduce global greenhouse gas (GHG) emissions to a level likely to limit global warming below 2°C over pre-industrial levels. COP23 was all about the “Paris rule book”, a document outlining the nuts-and-bolts details on how to implement the Paris Agreement and achieve the 2°C target, which should be finalized in 2018.

Soaring Momentum in the Private Sector

Non-state actors from around the world are stepping up efforts to fight and adapt to climate change. A bustling atmosphere pervaded the COP23 non-party stakeholder zone, with numerous climate commitment announcements, and highlights of available solutions to decarbonize the economy.

I was proud to participate as an expert panelist in a high-level event on the enabling role of ICT solutions (information and communications technologies) in tackling climate change, organized by the UN-led Momentum for Change initiative. The role of the private sector in implementing the Paris Agreement is undeniable, as corporations emit nearly 70 percent of the world’s total GHGs. At the time of writing, more than 340 companies including Walmart, Dell, Sony, and Tesco, had committed to put forward science-based emissions reduction targets consistent with the Paris Agreement’s 2°C limit.

Responsible Investment Becoming Standard

Another key theme covered at COP23 was how environmental, social, and governance (ESG) factors have become mainstream decision-making considerations for institutional investors. Responsible investment allows better management of risks and fulfilment of investors’ fiduciary duty, and can even improve long-term returns. Indeed, a significant and growing body of research demonstrates that integrating sustainability factors into investment decision-making processes is beneficial from an economic perspective. There is little room left for hiding behind a narrow interpretation of fiduciary duties to justify a “business as usual” investment strategy.

Heightened Sense of Urgency

Although the Paris Agreement formalizes a 2°C target, current commitments taken by countries (called nationally determined contributions or NDCs) fall significantly short of achieving that target. According to the UN Emissions Gap Report 2017, “even if the current NDCs are fully implemented, the carbon budget for limiting global warming to below 2°C will be about 80 percent depleted by 2030”. Such sobering scientific warnings remind us that the window of opportunity is narrow and rapidly closing, particularly with evidence that 2017 was “a year of record-breaking climate events”.

What’s in it for Actuaries?

Climate change involves complex and pervasive risks that may impact all economic sectors, in terms of both assets and liabilities. As outlined in the CIA research paper on climate change and resource sustainability, traditional actuarial practice areas will not be spared, be it P&C or life insurance, investment, pension, or enterprise risk management (ERM).

Climate change is expected to increase both the frequency and intensity of floods, droughts, extreme temperatures, and hurricanes, while causing sea levels to rise (among other things). These impacts will necessarily pose higher risks to insured and non-insured property, infrastructures, as well as human life and health. On the asset side, investors cannot afford to ignore responsible investment trends and opportunities, especially investments with a long investment horizon, such as pension funds and life insurance assets. Thus, actuaries have a growing 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.

Actuaries Climate Index

In addition, actuarial expertise can have a complementary added value, in collaboration with other professionals, in managing risks related to climate change. 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 partnership with other stakeholders (i.e., climate scientists in this case). The ACI measures the frequency of extreme weather and the extent of sea level change. Following the latest data update in mid-January, the ACI received extensive media coverage in Canada and the US, showing a keen interest in this useful and objective monitoring tool.

I strongly believe that actuarial expertise in risk management, combined with stakeholder collaboration, can serve the public interest by providing tools to manage the financial contingencies associated with different climate risks, and contribute to the design of policy options for controlling them.

Now What?

The numerous and widespread efforts made in 2017 to tackle climate change are clear indicators of an accelerating momentum for climate action. Still, climate experts stress that a significant gap remains between commitments made so far under the Paris Agreement, and climate action required to achieve the agreed-upon 2°C target. Even though progress is being made, we need more ambitious commitments along with specific action plans to achieve them.

This heightened sense of urgency and calls for stronger efforts to fight climate change were among the key messages conveyed by delegations during the COP23 wrap-up. Governments at all levels have a role to play in the transition toward a lower-carbon economy, as does the private sector. As climate change issues are global systemic challenges spreading across all sectors of the economy, they will be addressed best through a multidisciplinary approach involving professionals from all economic sectors. I am confident that the actuarial profession, in collaboration with key stakeholders, can leverage its risk management expertise to play a meaningful role in addressing climate change challenges.

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

 

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