In August 2023, a critical actuarial analysis highlighted the financial risks of climate change. By applying actuarial principles, this paper exposes the limitations and assumptions in current climate-change scenario modeling in financial services, particularly under hot-house world scenarios of 3˚C or more warming. The analysis reveals that current techniques fail to account for many of the most severe impacts, such as tipping points and second-order effects, which are glaringly absent from these models. While the intricate details of the analysis may be complex, the message is clear: the current climate-scenario models are flawed and do not accurately predict the future or its financial ramifications. It’s imperative that we acknowledge and address these shortcomings to prepare for the true extent of climate-related risks. Underestimating Financial Risk: An Actuarial Analysis
https://actuaries.org.uk/media/qeydewmk/the-emperor-s-new-climate-scenarios.pdf
