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Research project to tackle ‘limits to growth’ on financial markets

The Profession has announced the award of a research grant to investigate ‘limits to growth’ on financial markets and the consequent effect on financial advice.

05 APR 2012 | THE ACTUARY: PROFESSION NEWS

The grant was awarded in response to a call for further study into the area.

The objectives of the research are several-fold and aim to provide answers to the following questions and issues.

a) Actuaries understand that economic growth derived from physical growth cannot continue indefinitely. The mathematics of exponential growth, as illustrated by compound interest, tells us this. What happens if this type of economic growth does not continue for the reasons outlined above either regionally or globally?

b) The historical perspective has been that technological development and the advancement of human knowledge drives economic growth. What is the risk that resource or environmental constraints will outweigh improving technology and constrain growth, in a timescale relevant to our generation?

c) There is a need to investigate further the relationships between capital (financial and human), complexity, energy, money and GDP from a macro-economic perspective.

d) What would financial markets look like in a prolonged period of resource constraint? How would interest rates, credit spreads, equity risk premia, discount rates, inflation and mortality be affected?

It is the Profession’s intention for the research to continue after this initial project. The second stage would look at further implications of this issue and specifically at the impact on consumers in the future.

The initial project will have two aspects:

Part one: investigation of limits to growth, covering energy availability, energy security, climate change, population changes, environmental degradation, water scarcity, food prices and resource depletion.

Part two: what would happen to financial markets if economics became a ‘zero-sum game’, focusing on the actuarial implications of the slow-down or the cessation of, and regional variations in, global economic growth?

A multi-disciplinary team led by Aled Jones (pictured), director of the Global Sustainability Institute at Anglia Ruskin University, has been awarded funding for the initial project.

The team also comprises: Catherine Cameron, director, Agulhas; Ben Caldecott, head of European policy, Climate Change Capital; Nick Silver, director, Callund Consulting; and Irma Allen, research assistant.

The team will report its findings at an event to be organised by the Profession in late 2012.

For further information on the project, please email sarah.mathieson@actuaries.org.uk.