Environmental concerns are growing across many parts of the globe. What started as a technical debate about climate change has permeated throughout society, making it into peoples daily discussions.
Environmental concerns are growing across many parts of the globe. What started as a technical debate about climate change has permeated throughout society, making it into people's daily discussions. Although the opinion that humans ought not to cause more damage seems unanimous, the debate isn't short on disagreement about what should be done.
Politicians have picked up on this trend and started to regulate multiple industries, including those that actuaries typically operate in. As such, the debate has recently reached financial regulation. The UK Prudential Regulation Authority is focusing on climate change, defining policy on how insurers and banks manage climate-related financial risks. The European Commission, meanwhile, has taken a broader approach, addressing sustainability issues such as environmental, social and governance (ESG) within the insurance industry. Pension schemes are also affected: in the UK, trustees will have to take account of financially material effects on ESG, integrate those into their investment principles and disclose. The ongoing pan-European stress test on pensions also requires assessment of ESG risks.
The Actuary has been very active in the ESG space, trying to help actuaries understand the strategic implications of sustainability and the impact these implications have on our day-to-day jobs. In this issue, Lawrence Habahbeh assesses climate change from a traded perspective and Gary Davis explains how technological and data improvements can help actuaries tackle climate risks. On a related note, Shane Latchman discusses improvements in catastrophe modelling.
As data becomes more readily available, actuaries can make more meaningful contributions to ESG strategy. Nevertheless, ample data availability can also create challenges - not least around ethics. In our monthly interview we got the opportunity to discuss these ethical issues with Hetan Shah, executive director of the Royal Statistical Society.
Enjoy the read!
Francisco Sebastian
Editor