Climate Risk Fluency Series – Part One
With Part Two of the Climate Risk Fluency series fast approaching, David Jenkins gives us a taste of what to expect by reporting on the highlights (including insights on Bureau of Meteorology climate data and CSIRO climate projections) from the Part One event focused on the financial implications of climate change.
On 4 April 2018, Part Two of the Climate Risk Fluency series will be held. View the Program Snapshot page, the Plenary Speakers page and Register to attend or view the live Webinar here. Early bird rates close Friday 16 March.
“Now, now and now. The ability to answer some of the risk questions is here now today.” – Dr Nick Wood.
Climate risk is not just a future risk, it is already emerging. Some aspects of climate change and our response can be anticipated, avoided or mitigated now. Similarly the financial implications of climate change can occur well ahead of physical affects. This was a central theme of the inaugural Climate Risk Fluency Series seminar, held on 24 October 2017, which saw a variety of expertise gathered for the half day session.
Emma Herd opened the seminar by asserting that business needs to act on climate change risks. The 2015 Paris Agreement signals to investors the need to limit greenhouse gas emissions, and the Taskforce on Climate Financial Disclosures (TCFD) process informs investors of potential climate risk exposures. There is a growing momentum with business playing a significant role in the developing the TCFD, which is consistent with the growing reaction within business to climate change risks. Business considering climate risk is now seen as being consistent with fiduciary duties, whereas in the past to do so was seen as a breach!
View presentations, video and audio from the first event on the Program Snapshot page.
In the following session, Sharanjit Paddam, Dr Nick Wood and Serena Blanch, discussed climate risk disclosure in the financial sector, initially focusing on the TCFD. Many companies intend on adopting these disclosures, with some investors planning to vote against companies that don’t adopt TCFD. The quality of early TCFDs may be questionable given the steep learning curve involved, however the panel agreed that TCFD will enable investors to make better-informed decisions regarding long-term investments.
Environmental impacts of current climate changes
Dr Nick Wood first established that everyone in the room understood that climate was already changing. For those in doubt, a recent heatwave in South Australia had unusually high overnight temperatures. This caused dairy cows to stop lactating, costing the industry $70m in lost production. Such events can have significant implications for the local economy and financial institutions operating there. Dr Wood concluded that information doesn’t need to be particularly detailed to identify trends and therefore inform sensible business decisions.
The second part of the seminar had more of a scientific rather than financial focus.
Dr Karl Braganza (Bureau of Meteorology) seeks to better understand climate risks using the BoM’s wealth of historic data, however noted that only some of that data is digitised. The historic data was not collected with climate change in mind and so needs cleaning.
Dr Braganza also discussed the combination of climate trends overlaid with natural variability, which can lead to extreme outcomes not seen in the historic record; such outcomes are difficult to forecast. For example, in Tasmania in 2015 the trend for warmer springs coincided with reduced rainfall of El Nino, leading to very low soil moisture and record fire danger in old growth forests; by October, one thousand year old trees were burning. The reduced rainfall also impacted hydro-electric generation, which coupled with a failure of the Victorian interconnector resulted in an energy crisis. By May 2016, the sea-surface temperature was at a record high, causing extreme rainfall and flooding in Tasmania, and the well-publicised bleaching of the Great Barrier Reef in North Queensland.
Climate predictions from CSIRO
John Clarke introduced delegates to CSIRO’s Australian climate projections. He presented www.climatechangeinaustralia.gov.au with its climate science 101, national climate projections and possible regional impacts and responses. While climate predictions are difficult with a range of possible outcomes, informed decisions can already be made, for example, analysis of regional risks faced by the wine industry, and risks to coastal assets from sea level rise. CSIRO ensures its analysis is robust by using 10th-90th percentiles outcomes from a variety of models.
Climate system change and modelling
Professor Andy Pitman (University of NSW) closed the day by outlining climate modelling. He stressed that climate change is not simply a warming of the climate, rather it is wholesale change in the climate system which can cause complex outcomes, which needs to be addressed by climate models.
Global climate system models are based on physical laws applied to a 100km x 100km grid at the earth’s surface. Regional models are nested within, and are dependent upon, the global models. Regional models enable a finer focus, however computing limitations mean that such regional models can only be run for short timeframes, and may understate extreme outcomes.
The reliability of forecasts can also vary – for example, there is high confidence in regional hail and heatwave projections, but less confidence in drought projections given the longer timeframes required to be forecasted.
Professor Pitman believes expert judgement along with scenario development, supported by models, is likely the best approach to assessing the likely physical risks associated with climate change. This seems like good advice for assessing the broader financial risks of climate change as well.
The seminar was well worth attending. I’d encourage any actuaries interested in financial risks to come along to future sessions.
On 4 April 2018, Part Two of the Climate Risk Fluency series will be held. View the Program Snapshot page, the Plenary Speakers page and Register to attend or view the live Webinar here. Earlybird rates close Friday 16 March.
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