Wendy Walford and Nick Spencer outline their personal views on the IFoA regulatory consultation concerning climate, and the rationale for proposal A
The IFoA’s climate change statement recognises that the climate is changing globally at an unprecedented rate due to human activity and is one of the greatest risks facing our world. As members of a profession that specializes in risk management, actuaries need to understand where varied climate impacts may influence their activities.
In 2017, an IFoA non-mandatory climate-related risk alert was published, setting out that members should ensure they understand, and are clear in communicating, the extent to which they have taken account of climate-related risks. Since then, we have seen increasing attention from global regulators and policymakers. The IFoA has made commitments under the UK’s Green Finance Education Charter and the Professional Bodies Action Charter, and climate was the first risk hotspot identified in the Joint Forum on Actuarial Regulation’s 2020/21 risk perspective. Insurers such as AXA, Aviva and Allianz have stated that a 4°C warmer world is “uninsurable”. We believe actuaries failing to engage adequately with climate risks would threaten the IFoA’s credibility and viability.
Understanding climate’s impact on the financial risks and projections underlying actuarial work is no longer optional. Actuaries must not only embrace this challenge, but also be seen to embrace it. While the risks are large, the scale of transformation will see opportunities arise from both the economic transition and the extended areas in which actuaries may provide value and insights.
The IFoA should ensure that its members are competent and have access to the knowledge and skills required to incorporate climate considerations into their work. Unlike other risks, climate and sustainability have not been taught in the syllabus for almost all qualified actuaries. The Associateship syllabus has been updated, but climate impacts exist today, and we cannot wait for the next generation of actuaries before they are included.
Regulation should be proportionate, consistent, transparent and targeted, supporting both competency standards and public confidence. The current regulatory framework requires actuaries to have sufficient knowledge and competency to take material climate-related risks into account. We have seen from the results of a recent thematic review, and from events, that there is a big difference between the members who are engaging with these topics and those who aren’t. We feel these gaps highlight that the IFoA’s expectations for its members are not transparent enough, and current efforts risk the profession losing public confidence.
The Actuaries’ Code aims to build and promote confidence in the work of actuaries and the profession. Proposal A, to specifically include climate and sustainability issues in the Code, clearly signals these expectations and their relevance in actuarial work. While there may be other approaches, this one sets an unambiguous and public expectation for these risks to be considered. We believe the time needed to develop other regulatory approaches mentioned in the consultation would leave their implementation perilously close to the impacts of risk scenarios, such as the inevitable policy response.
Proposal A keeps the Code principles-based and simply highlights that relevant knowledge and skills on climate change and sustainability are essential for operating with competence and care, and for communicating appropriately. This doesn’t expand expectations for actuaries, but clarifies them. It raises awareness and supports public confidence by explicitly highlighting this important issue, which we all need to take into our working life.
An alternative proposal for the Code is to consider new and emerging areas. This would, we believe, extend expectations on actuaries beyond climate and sustainability considerations, but could help address potential knowledge gaps and help members and the IFoA itself manage future risks.
Have your say
Given the urgency of the issues, should we be doing more? The aim of a consultation is to hear your voice. What are your thoughts on further guidance or materials to support actuaries addressing climate risks (accessing opportunities) for the recipients of actuarial work?
Find the consultation package at bit.ly/Consult_Climate, take part in the online consultation at bit.ly/Climate_Surv and join the webinar on 11 November at bit.ly/3G6arLN
Wendy Walford is a member of the Sustainability Board
Nick Spencer is immediate past chair of the IFoA Sustainability Board
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