Should the Institute CONSIDER Adopting a Public View on Climate Change*?

Legendary American baseball coach ‘Yogi’ Berra was famous for his mangled use of the English language. In this case, however, I think he got it right, when I consider the Institute’s approach to adopting any form of public position on climate change.

There is an old saw that ‘nature abhors a vacuum’ and, in my experience, this applies to debates on contentious policy issues. If the Institute vacates the field on climate change (or doesn’t even express a view), then individual actuaries will, naturally, continue to comment as is their right and want. This means that, inevitably, individual views are likely to become interpreted as the views of the Profession (I have first hand experience of this on another issue).

Rather than letting this happen, why don’t we attempt to work out what makes sense for the Profession to talk about, and have the Institute speak on your behalf?

Currently, the Institute does not have a public view on climate change, and the Profession, seemingly, has chosen to avoid having a structured debate on the issue. Having said that, there are instances where we do comment on issues relating to climate change including, for example, the Institute’s response to the Productivity Commission’s Inquiry into natural disaster funding and our 2011 submission to the Garnaut update on climate change. Individual Members and committees, through News Bulletins, also comment on, or refer to, climate change developments in various ways.

Unusually, perhaps, I would like to start out by explaining what this article is not attempting to do.

Firstly, I am not making an argument, in favour or against, any policy position dealing with climate change mitigation. Nor am I lending any support to any theory about why climate change is occurring (or not occurring to the extent that is being claimed). I will also avoid any forensic assessment about the science behind the arguments, for and against, on climate change because I am not a scientist.

What I do want to do is tackle the issue of whether or not the Institute should consider adopting any public position on climate change. I would like to test Members’ views on the issue through feedback in a discussion forum (www.actuaries.asn.au/climatechange) which is now active. Alternatively you may wish to email me at david.bell@actuaries.asn.au.

Why I am doing this? There are different views within the Profession about the issue (not to mention the wider world). However, this fact, of itself, should not stop a rational discussion and a well-informed debate or limit our contribution in other areas. I have also been encouraged by a number of members to tackle the issue; equally, I’ve been told by others that the Institute should tread carefully.

Fundamentally, however, it seems to make sense for the Profession to consider seriously, whether it should have a view on one of the most important and debated public policy issues of this decade and into the future. It would be unremarkable if we were to do so. Public positions on climate change have been adopted by numerous leading financial services companies and other organisation, as have the actuarial bodies in the UK and US.

In fact, I think it is fair to state that climate change is always happening but, if extreme change occurred rapidly, then it would challenge the well-being of humans. Therefore the Profession should not ignore the risk of rapid and extreme climate change.

Actuaries are already involved with modelling and business decisions which relate to climate change, translating climate predictions into economic costs. Actuaries have professional and regulatory responsibilities to assess risks based on reasonable evidence at their disposal. If this is the case shouldn’t the Profession have a view if actuaries are already practising in this field, and will continue to do so, quite possibly at an increasing level? It also needs to be recognised that individual actuaries are already commenting on climate change related issues and have been doing so for some time and will continue to do so.

In response, one argument runs that by commenting on what is a controversial and politically-charged issue, the Institute runs the risk of being portrayed as having a ‘political’ agenda and getting dragged into matters outside of its expertise and remit.

Alternatively it can be said that if the Profession and Institute cannot comment on any aspect of climate change (where Members currently practice) then we look out-of-touch, and not prepared to debate the large and important issues that affect our country and our planet. Importantly, how can actuaries properly advise their business and clients about potential business risks if they are not across the debate over climate change?

I respect both these different points of view.

Drawing on this issue of respect, I would ask that contributors to the discussion forum provide their opinions and facts and avoid running-down the opinions of others. I would also encourage everyone who wants to have their say – it’s important that we receive a broad-based view on these matters. My understanding is that previously there has only been a relatively small number of Members who have contributed to discussion.

My assessment is that we are fortunate that individual actuaries and the Profession are, I believe, prepared to have the discussion in a mature and balanced way, applying their well-known reputation for rational process and intellectual rigour.

HOW I APPROACH THE ARGUMENT

My starting proposition is to consider the question as to whether the Profession should consider adopting a position on any aspect of climate change.

Firstly, I will set down what actuaries are doing, business-wise, in the climate change space.

Secondly, I will attempt to identify the different components of the climate change debate.

Thirdly, I will identify how best to make an assessment of what is relevant and appropriate for the Institute to comment upon in the climate change debate.

Finally, I will offer, as best I can, an assessment of where I think the balance of arguments lie about what role the Institute has in climate change policy and what areas we might be able to talk about.

ACTUARIES’ INVOLVEMENT IN CLIMATE CHANGE RELATED ACTIVITY

Currently actuaries are involved in many areas of business that are impacted by weather-related perils (storm, bushfire, cyclone, riverine flood) that are potentially affected by climate change. The range of impacted general insurance products alone includes:

• Personal lines: home and contents, domestic motor vehicles, travel and mortgage; and
• Commercial lines: fire, farm and crop, construction and engineering, marine and aviation and motor vehicle.

The Profession has already observed the potential for its involvement in ‘greenfield’ product development. In the Institute’s submission to the Garnaut Climate Change Review (2011) we identified opportunities for actuarial input into insuring mitigation activities such as bio-sequestration, geo-sequestration and nuclear power generation.

Actuarial expertise has also been required for the development of insurance and financial products that provide enhanced protection against operational disruption from weather events that could impact distribution and supply chains, as well as, water and energy supplies. Similarly, actuaries have also been involved on the investment side e.g. in the financial modelling of investment projects motivated by improved energy efficiency and carbon emission reductions.

More broadly, the Profession’s capacity to model the cost of weather-related peril, if climate does change, can provide invaluable assistance to policymakers grappling with future infrastructure, taxation, population and regional and urban development issues. Whichever way we look at the climate change debate, actuaries will be involved in assessing its potential risks across a number of commercial and public policy fronts.

BREAKING-DOWN THE DEBATE ON CLIMATE CHANGE

What are the different components of the climate change debate? I would assess them to be, in the most general terms:

1. What is the science behind the argument that climate change is occurring and, moreover, is climate change increasing in its extent and impact? Is this science valid?
2. Accepting the view that greenhouse gases are increasing due to human activity, what is the link between greenhouse gases and climate change?
3. What other factors (e.g. sunspot activity) are potentially responsible for changes in the climate?
4. What policy solutions are available for business and governments to deal with climate change mitigation and adaptation?
5. What roles are actuaries playing already and should play in to the future, in dealing with climate change activity (including either or both mitigation and adaption)?

A PRINCIPLES-BASED (AND COMMON-SENSE) APPROACH TO DETERMINING WHAT THE INSTITUTE SHOULD HAVE A VIEW ON

The established principles which guide the development of the Institute’s public policy are:

• The public benefit. As a professional body the Institute holds the ‘public interest’ or ‘common good’ as a key principle in developing policy.
• Risk-focus. In developing solutions to public policy problems, actuaries take an evidence-based approach that focuses on risks.
• Transparency and disclosure. The availability of quality data underpins the careful analysis that actuaries can provide.
• Equity and the ‘level playing field’. Individuals should be given fair treatment and should not be subject to unlawful discrimination.
• ‘Good’ regulation. Excessive or unnecessary regulation can obstruct an efficient market from functioning and can undermine the ‘public interest’.

In addition to guiding principles it also helps to use a healthy dose of common-sense.

From a ‘common-sense’ point-of-view the Institute should only comment on matters where it can bring expertise and credibility to bear. Presumably, what actuaries are already doing in climate change related activity will be relevant here.

AN ASSESSMENT OF WHERE THE INSTITUTE MIGHT HAVE A VIEW ON CLIMATE CHANGE POLICY

From a policy principles perspective an appropriate contribution by the Institute on climate change appears to meet the public interest test, as well as bringing into play the skills that actuaries have in the fields of risk and a commitment to data quality through transparency and disclosure. The Institute has skills in harnessing the expertise of actuaries into making a contribution on good regulation. The issues of equity and ‘level playing field’ are less clear.

Using a combination of our policy principles and a common-sense approach, I would draw the following conclusions

• it’s unlikely that the Profession can draw any conclusions on the broader ‘science’ of climate change identified earlier at points one to three framework for assessing climate risks and possible actions that might lower them (this is already happening);
• actuaries can make assessments about economic models associated with climate change (actuaries are expert in assessing and creating economic models);
• the Institute can make a meaningful contribution to the development of public policy (so long as it is in an area which reflects actuaries’ expertise); and
• the Institute should not be dragged into any political debate on climate change (this would be damaging to its reputation for impartiality).

WHAT NEXT?

I look forward to the debate that follows on whether Members think that the Institute should consider adopting a view on climate change and what the elements of that view should be.

I will then speak to the Public Policy Council Committee about whether it is possible to take the issue forward and how we might do that.

I will of course keep Members informed on developments.

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