Climate Science: A Summary for Actuaries
In March 2022, the International Actuarial Association released an International Actuarial Note on climate change with the tagline What the IPCC Climate Change Report 2021 Means for the Actuarial Profession. The note provides a summary on climate science and focuses on the physical changes affecting the most common perils analyzed by actuaries.
The 61-page note first makes a concise case as to why human-induced climate change is no longer a contestable theory. It then moves onto attribution of weather to human causes, compound events, future scenarios and required mitigations. New Zealand-specific data is also provided.
So what’s the plan?
The Government released Aotearoa New Zealand’s first national adaptation plan on 3 August. The 196-page document sets out several planned actions to improve the country’s resilience to climate change. A repeated theme in media coverage has been “Who is going to pay?” for managed retreat. There may well be roles for the profession as the question moves to “How are we going to fund this?”
Westport is a real life, real time example for climate adaptation
We don’t need to wait for the deliverables under the national adaption plan – there is already a climate adaption process underway.
A very well written 98-page report by West Coast local government agencies titled Co-Investment in Westport’s Resilience makes the business case for $54m for climate adaption funding, $44m of which is being sought from central government.
The local authorities want to mitigate the flood risks around Westport for its 5,000 residents following the July 2021 flooding. The PARA model (Protect, Avoid, Retreat/Relocate, Accommodate) is utilised to categorise the actions being proposed, which are a mix of short- and long-term solutions. The role of private and public insurance is discussed.
Read more online
For further detail on the IAA note and the Westport business case, please see the latest General Insurance Committee update here
In July the External Reporting Board (XRB) released their final consultation document on the Climate-related Disclosures. XRB have released exposure drafts of the three proposed standards for the climate-related disclosure framework. The three documents are:
- NZ CS 1 – Aotearoa New Zealand Climate Standard 1: Climate-related Disclosures,
- NZ CS 2 – Aotearoa New Zealand Climate Standard 2: First-time Adoption of Aotearoa New Zealand Climate Standards and
- NZ CS 3 – Aotearoa New Zealand Climate Standard 3: General Requirements for Climate-related Disclosures.
Alongside the framework XRB have also released draft guidance documents which are intended to support users in their preparation of disclosures under the new framework and a comparison of the New Zealand framework with the Taskforce on Climate-related Financial Disclosures (TCFD) recommendations and the International Sustainability Standards Board’s draft climate standard.
Licensed insurers with more than $1 billion of assets or annual premium revenue in excess of $250 million will be required to prepare climate-related disclosures. Large banks, credit unions, building societies, investment managers and large listed companies will also be required to disclose.
The first disclosures are required for the financial reporting periods commencing on or after 1 January 2023.
XRB are seeking feedback on the exposure drafts by 26 September 2022 so that they can issue the drafts as final standards in December 2022. The Sustainability Interest Group are intending to respond to the consultation. If you have any specific comments on the consultation that you would like included in NZSA’s response please contact Darren Fleming (firstname.lastname@example.org).