A landmark report by the Institute and Faculty of Actuaries (IFoA) predicts that global economic growth could plummet by 50% between 2070 and 2090 due to escalating climate shocks unless immediate action is taken to combat the climate crisis.
Key Points at a Glance
- Severe Economic Risks: Climate impacts like fires, floods, and ecosystem collapse could halve economic growth within two decades.
- Flawed Assessments: Traditional models underestimate the real economic risks of climate change by ignoring critical tipping points.
- Urgent Action Needed: Policymakers are urged to accelerate decarbonization and invest in nature restoration.
- Proposed Solutions: A planetary solvency risk dashboard and a paradigm shift in global economic policies are recommended.
Global economic stability is under unprecedented threat from the accelerating effects of climate change, according to a new report co-authored by the Institute and Faculty of Actuaries (IFoA) and the University of Exeter. The study warns that without urgent intervention, climate shocks could reduce global economic growth by up to 50% between 2070 and 2090. This grim projection underscores the urgent need for political leaders to implement robust measures to mitigate the impacts of the climate crisis.
The IFoA’s findings reveal that traditional economic predictions have failed to account for the full scope of climate risks. These include not only extreme weather events like wildfires, floods, and droughts but also less visible but equally devastating factors such as biodiversity loss and the degradation of critical natural systems.
Key contributors to this economic fallout include:
- Rising sea levels disrupting coastal cities and infrastructure.
- Agricultural losses due to persistent droughts and unpredictable weather patterns.
- Mass migration triggered by uninhabitable regions, leading to geopolitical instability and conflict.
The report highlights that global heating of 3°C or more by 2050 could result in over 4 billion deaths, widespread state failure, and the collapse of societal and economic systems. “You can’t have an economy without a society, and a society needs somewhere to live,” stated Sandy Trust, lead author of the report.
The report criticizes prevailing economic models for significantly underestimating climate risks. Existing frameworks often ignore cascading effects, such as tipping points in ecosystems or the compounding nature of multiple climate crises. Instead of providing accurate assessments, these models risk blinding policymakers to the severe consequences of inaction.
The IFoA’s study calls this oversight a “risk of planetary insolvency,” where Earth’s systems become so degraded that they can no longer sustain the human societies and economies that depend on them. The current focus on short-term economic growth, driven by resource extraction, has left governments ill-equipped to respond to these long-term threats.
To avert the worst-case scenarios, the report advocates for a comprehensive shift in how policymakers approach climate change. Recommendations include:
- Accelerating Decarbonization: Transitioning rapidly to renewable energy sources and implementing large-scale carbon removal technologies.
- Restoring Ecosystems: Investing in reforestation, wetland restoration, and sustainable agriculture to rebuild natural systems.
- Risk Assessment Tools: Developing a planetary solvency dashboard to guide policy decisions and ensure human activities remain within Earth’s finite limits.
- Education and Leadership: Training political and business leaders to prioritize long-term sustainability over short-term economic gains.
Professor Tim Lenton, co-author of the report, emphasized the need for a risk-focused approach: “Planetary solvency applies the established practices of risk professionals to our life-support system. It offers a clear way of seeing global risks and prioritizing action to limit them.”
The IFoA’s report is a sobering reminder that the cost of inaction on climate change far outweighs the investments required to mitigate it. While the challenges are immense, the solutions are within reach if leaders act decisively. By embracing a paradigm shift in global economic policies and investing in the resilience of natural systems, humanity can secure a sustainable future for generations to come.
The time for action is now. Policymakers, businesses, and individuals alike must rise to the challenge and recognize the critical importance of safeguarding our planet’s systems to ensure economic and societal stability.
