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The Actuary The magazine of the Institute & Faculty of Actuaries

Q&A: Leo Johnson

Do you believe that climate change is happening, and are the activities of mankind a major driver of this?
If we were to ask people in the Maldives and Bangladesh whether climate change is happening, they would say yes: they are suffering the consequences of it. In the end, I go with that and the scientific consensus: climate change is happening and contributed to by anthropogenic activities.

The Actuarial Profession’s motto is ‘making financial sense of the future’. How can and should environmental factors be taken into account?
The answer is risk-mapping, looking at how physical, market, regulatory and legal risk around sustainability issues can get internalised into the balance sheet. This is the domain of overlapping uncertainties, and the actuarial profession is at the centre of the project to make sense of it and provide signals for the market to incorporate into pricing.

What role should actuaries play in public discussions about climate and the environment?
The traditional model for growth dismissed the ecosystem as externality. What we have found is that it is not. If you cut down the mangroves in New Orleans it has a real cost: the loss of the flood absorption system. It is important that actuaries get involved in public discussions, and essential that they bring to the market their unique ability to quantify these risks.

Should actuaries be at the forefront of advising pension fund trustees about climate impacts?
Yes, absolutely. Their credible risk information is crucial.

Some insurance professionals are experts in risk management; what should be their input into climate discussion?
I think a lot of the most sophisticated thinking is being done by the insurance industry. The industry has experience in loss-mapping, looking at trends and considering potential impacts. It also has a vital role in incentivising mitigation, down to the good practice of providing lower premiums for hotels in hurricane areas in the Caribbean that use storm-proof solar power.

How can the insurance industry avoid criticism, if climate change continues, leading to insurers unable to offer affordable home insurance policies?
There are critical lessons to be learned, evidenced by the frequency and severity of weather-related catastrophes. The first is preventative: spreading good practice on avoidance of risks and mitigation. The second is around adaptation, including shared services for rapid response.

Can you see any parallels between the international consensus that led to the creation of the World Bank, IMF and UN, and what’s required on the world stage to address climate change?
The Bretton Woods project was a stabilisation and reconstruction project with growth as one of its core goals. Is what we need now a different form of growth: a growth that is both greener and more equitable? What is certain is that this will require both the capital and dynamism of the private sector, and the regulatory support of government.

We are said to have a finite carbon budget to limit global warming; how does this affect the developing world specifically?
There is a real issue around who gets what — around equity and the rights to grow — between developed and developing countries. It is estimated that we have used up more than half of the one trillion tonnes of CO2 emissions that is estimated as our carbon budget, and it is believed that the remainder could be used up in the coming half-century. The big question is: Are the same people who ate the first half of the carbon pie going to get the lion’s share of the remainder? In other words, the developed countries had a head start in industrialisation, thus how are we to fairly distribute the remainder? Can a form of good growth maintain living standards, but satisfy more of the ‘needs’ of more people rather than more of the ‘wants’ of fewer people, for example, shift the direction of travel towards equity rather than plutonomy?

To what extent are governments using the climate change-sceptic arguments to dither? Will it take an outlier climate-change event to shock the world into action?
To the first question, I think of the situation as a Quentin Tarantino-like three-way standoff, with the parties here being big businesses, the government and the electorate, all pointing fingers at one another. In terms of a wake-up call, I think we have had such events. We are wedded — psychologically — to the model of economic growth that links consumption to utility. But I think we are smarter than economists. We know that while utility is linked to consumption, it is a function of other components too, and climate change factors in here.

Finally, do you use your brother’s environmentally friendly ‘Boris Bikes’ to get around London?
Yes, I do; I love them! But a company called Bamboosero has just made a bamboo one...


Leo Johnson is a partner in PwC’s sustainability and climate change practice