The UK actuarial association is calling on pensions actuaries to think carefully about climate change and other environmental issues as part of their work.
The Institute and Faculty of Actuaries (IFoA), which has been becoming more vocal on environmental issues, published a “Risk Alert” on Friday to inform actuaries that they “should ensure they understand, and are clear in communicating, the extent to which they have taken account of climate-related risks in any relevant decisions, calculations, or advice”.
It said that pension funds and other institutions with long-term liabilities should evaluate and manage the impact of changing patterns of temperature and disease on mortality.
Institutions with unfunded or partially funded liabilities should evaluate and manage the impact on the covenant of the sponsor and other funding bodies, it added.
The IFoA said the alert was asking its members “to think carefully about the consequences of actions they are taking”.
Nico Aspinall, chair of the IFoA’s resource and environment board, said: “Many clients of actuaries are exposed to climate change risks and our industry has much to offer when helping all stakeholders to consider the potential impact.
“That’s why we’ve issued this alert which will help draw attention to the issue and provide useful information on three types of climate risk: physical, transition, and liability”.
The institute said its members should keep up-to-date with the risks developing in the area of climate change “and continue to consider the impacts of their work”.
The IFoA suggested actuaries should consult and consider the recommendations issued in December by the Financial Stability Board Taskforce on Climate-related Financial Disclosures.
In addition to the “Risk Alert”, the IFoA published a more detailed guide for pensions actuaries on a wider range of environmental and natural resource issues. These may be less visible and less well understood than issues usually considered by pensions actuaries, the institute said.
Colin Wilson, IFoA president, said: “There is increasing consensus that environmental issues are an area of financial risk that actuaries should consider in their work, particularly those relating to climate change. This is already happening in the sectors of general insurance and investment – we believe pensions funding is the logical next step.”
Environmental issues could affect covenant assessments, funding advice, and mortality, according to the institute’s guide.
It said that “resource and environment issues” would rarely be the top priority for a pension scheme, but were illustrative of more general challenges facing pensions actuaries, such as a tendency for covenant assessments to focus on short-term, quantifiable aspects.
“For some schemes, the most relevant consideration may be the extent and speed at which insurers factor [resource and environment issues’] impacts into annuity pricing,” it said.
Falco Valkenburg, chairperson of the pensions committee of the Actuarial Association of Europe (AAE), told IPE that AAE was also looking into climate risks, having set up a task force on risk management to consider this topic.