Parasol Lost: Recovery plan needed
The latest report from the Institute of Actuaries highlights climate sensitivity and geoengineering following a warning that “catastrophic warming levels of above 2°C by 2050 are likely.”
The Institute and Faculty of Actuaries and the University of Exeter have released their annual supplementary risk report in the Planetary Solvency series this month.1 This follows the three previous reports issued since 2023.234 Coming from a sector synonymous with cold hard facts, sound financial reasoning and professional risk management, their conclusions and recommendations are worth taking seriously.
There are nine main findings in three themes.
That continued high emissions are accelerating warming past 1.5ºC.
That global catastrophic risks, including economic shocks, are proximate.
That a Planetary Solvency recovery plan is urgently needed.
Risk management
We all manage risks every day, and so do companies, funds and governments. We hold insurance on our homes and cars for example. We choose investments and even how to cross the road using innate risk management. Professional risk managers assess risks using two scales: likelihood and impact. These are often given a score out of 5 or 10 and then multiplied together to produce an overall risk score. Once all the risks have been scored, a rank ordered list allows focus on the highest scoring risks. Trajectories and post mitigation scores can also be worked out to ensure that the overall risk profile of a project, fund or policy is acceptable and remains manageable.
The chart below, from the report, shows this graphically.
The report then covers the three aspects of risk management. First - what it the likelihood of exceeding dangerous temperatures in the near future. Second - what are the impacts from these risks happening. Third - what can be done to mitigate or adapt to the risks.
Developing planetary stability standards as a priority
In the first section the report argues that planetary stability standards should be equivalent to global financial stability practices, with financial services risk management processes adopted to help manage climate change and other planetary risks.
The 2007-08 global financial crisis is an interesting parallel to the current climate crisis. Very few people saw it coming. Even when issues started to occur, it was treated with high levels of complacency with low levels of risk understanding and the issues cascaded into sectors thought immune and stable.
During the crisis, actions were taken by Governments and Central Banks that were inconceivable previously, but necessary to save the global economy from complete failure. Following the crisis, reports were prepared with wide recommendations to improve and standardise risk management practices in the sector.
The recommendation of Parasol Lost, and earlier reports, is that we should apply these well-developed financial services risk management practices to our global challenges on climate change and nature.
Insurers and risk managers set appetite levels for risks. They analyse the risk position and trajectory and highlight not only the level of risk but also the action required to mitigate it. The same approach is required for climate and nature. The report identified six key risks that should be well outside the risk appetite for humanity:
Crossing Earth system tipping points and triggering tipping cascades
Habitat loss and species extinctions
Breakdown of critical ecosystem services
Climate change above1.5°C
Climate and nature driven forced displacement, conflict and mass mortality events
Derailment risk, where society is too distracted by escalating crises to address root causes.
The current trajectory however is seeking all these risks, they are all likely as we move beyond 1.5°C and towards 2°C, rather than setting a course that seeks to avoid them. (This is still potentially an underestimate since current linear rate of warming would hit 2°C by the late 2030s with 2.5°C by 2050.)
“There is an increasing risk of Planetary Insolvency unless we act decisively. Without immediate policy action to change course, catastrophic or extreme impacts are eminently plausible, which could threaten future prosperity.”
Their economic analysis shows the potential for GDP damages to increase significantly as temperatures increase, leading to a 50% drop in GDP later in the century. A recent paper published by the UK’s Climate Financial Risk Forum suggests a specific and plausible but severe climate-nature scenario could result in a significant (15% to 20%) global GDP contraction over just a five-year period.5
The section concludes:
“Our strong recommendation is that our management of planetary systems should leverage well-established financial services risk management protocols. We suggest creating a Planetary Stability Board to leverage existing Earth System scientific outputs, enabling risk-informed policy decisions to mitigate a systemic planetary shock—analogous in scale and oversight to a global financial crisis, yet encompassing the foundational stability of our food, water, and political systems.”
An actuarial review of climate sensitivity (assessing the risk likelihood)
It is well established science that global warming is caused by the increasing levels of greenhouse gases in the atmosphere, due to human activity. Climate Sensitivity is a measure of how much warming you get for a given increase in GHG concentration once the various feedbacks have had a chance to settle into the new regime. Warming is currently accelerating as significant feedbacks take effect such as loss of reflective sea and land ice and reductions in cloud cover and brightness. These are putting the planet’s energy input and output out of balance.
The level of imbalance in the system determines whether the planet warms, stays stable or cools. Currently the Earth’s Energy Imbalance (EEI) is increasing steadily, driving accelerating warming. Even if we stopped emissions overnight, the Earth would continue to warm until this imbalance returned to zero and the Earth reached a new thermal equilibrium.
The latest IPCC estimate of climate sensitivity is between 2°C and 5°C for a doubling of CO2. Most models and projections use a middle value of 3°C, but new evidence has emerged from satellite measurements of Earth’s Energy Imbalance, analysis of recent warming observations and paleoclimate records. These all put the actual value at the high end of the range, centring on 4.5°C. In addition to analysis in the main report, it is accompanied by a technical appendix diving deeper into the scientific evidence on climate sensitivity.6 I also have an article on climate sensitivity which you can find in the footnotes.7
Higher sensitivity means more warming for any given level of emissions, and a faster approach to dangerous temperature thresholds. This has obvious significant effects on the risk profile and increases the urgency of mitigation. It means (so called) remaining carbon budgets, amounts of emissions remaining to stay below certain temperatures, are grossly overestimated. It also shows that net zero carbon budgets will not be even close to limiting the temperature to 1.5°C.
Returning to the six identified risks, their likelihoods are now all likely or highly likely in my opinion.
The section concludes:
“The key policy implication is that relying on optimistic (low sensitivity) scenarios is not congruent with up-to-date climate analysis based on physical reality. Using these assumptions for climate planning will systematically underestimate both the speed and magnitude of future climate change, potentially leaving societies underprepared for the scale of adaptation and mitigation required.”
Climate change is a risk to Planetary Solvency (assessing the risk impacts)
Having established the likelihood of the risks using climate sensitivity and the current trajectory, the following section deals with the impacts these risks could have on the planet and society.
Additional levels of global warming will drive increasingly severe events – fires, floods, heat, storms and droughts, together with rising sea levels which are increasingly impacting critical human systems including food, water, transportation and health. As infrastructure systems are tuned for efficiency, not resilience, and with crisis events multiplying, cascading failure becomes increasingly plausible.
Tipping points are a very real threat, especially with higher climate sensitivity since critical temperatures are reached earlier. Tipping points are critical thresholds after which changes are irreversible and self sustaining. Crossing these points risks significant global impacts. Once 1.5°C is passed, the world enters a danger zone for major tipping elements including ice sheet melt, forest diebacks and ocean current disruption, especially the AMOC. On top of this, various tipping elements interact and can trigger cascading failures and impacts.
There is also a tipping point where the Earth could be pushed out of the current cold house state into a cool house, intermediate or even warm house state which would fundamentally reorganise the planet making it totally different from the one we have evolved into and rely on today.
A key societal impact of the set of climate risks, is that of insurance withdrawal. Economic growth and stability is impossible without readily available insurance. It allows people to secure mortgages, companies to secure loans to invest in assets, even drive a car or take a holiday. The consequences of accelerated global warming and increasing climate hazards may result in increasing claims, premiums and uninsurability, with the potential withdrawal of insurance from some areas. This is already happening with fire and flood insurance across many regions.
The current annual rate of increase of overall insurance losses from natural catastrophes of 5 to 7% is equivalent to a doubling every 10 to 15 years. If this rate doesn’t increase further, average annual losses could amount to $250 billion by 2035. The findings in this report indicate that this trend is almost certain to continue and likely to accelerate, with significant consequences for the insurance business model, the economy at large and society.
Given the very likely higher value of climate sensitivity, the risk profile of climate change is substantially worse than many current models suggest. If we have underestimated the rate of change, then we have also underestimated the damage profile. This has affected decision making to date, since when climate is incorrectly perceived as a distant or immaterial threat, taking action to mitigate climate change may be seen as lower priority (something being employed ruthlessly by populist politicians and vested interests).
“Many first-generation climate risk analyses produced overly benign economic impact assessments, due to model limitations in the damage function which are not always well understood by model users. Many mainstream methodologies simply exclude many of the risks now anticipated, such as tipping points, nature degradation or human health impacts. One early methodology (Nordhaus) excluded nearly 90% of the economy from analysis, assuming that those who work indoors would not be impacted by climate. These methodologies are still widely cited as rationale for delaying climate action, including by the current US Energy Secretary.“
Leveraging existing financial services techniques such as reverse stress testing yields far more realistic answers with 80-90% GDP reduction between 3° and 4°C of warming and significant, and hard to manage reductions between 1.5° and 2°C (our current trajectory). It is these extremes that should drive policy decisions. What is society willing to accept? And what actions can we take to mitigate those outcomes that we find unacceptable? These are value judgements, and it will be important to be transparent about who makes them, as well as the implications of decisions.
Human prosperity is deeply interconnected with the health of the Earth system. This provides the essentials that underpin all our activity: food, water, species, energy, raw materials, climate regulation and more. Many of these critical support functions, or ecosystem services, are not substitutable or replaceable. If Earth system processes are disrupted so that they can no longer sustain the functioning of society and the economy, there is a risk of Planetary Insolvency.
Our activities currently risk the Earth leaving its “safe operating space for humanity”. Much of this has been accidental until now. Today we understand the risks and impacts and so our actions are deliberate. This does however give us an informed choice or some agency in the future.
In summary, Climate change is an unprecedented risk management problem on a global scale.
Returning to the risk register (again in my opinion):
Developing a Planetary Solvency recovery plan
This final section of the report lays out recommendations for developing a risk-based, coordinated Planetary Solvency recovery plan and indicative components of such a plan.
From the earlier conclusions it’s clear that the risks are more severe than thought given the higher level of climate sensitivity. This means remaining carbon budgets are smaller than estimated (and indeed negative for 1.5ºC). This is analogous to a financial firm finding it has overstated its reserves. There is an urgent restatement of the solvency position, and rapid action is required from management.
“Planetary Solvency is threatened and a recovery plan is needed: a fundamental, policy-led change of direction, informed by realistic risk assessments that recognise our current market-led approach is failing, accompanied by an action plan that considers broad, radical and effective options.”
The objectives of the plan are therefore to avoid Planetary Insolvency and the risk of societal and economic collapse, and to take action to minimise global catastrophic risks, ensuring the continuity of vital ecosystem services and restoration of natural capital.
To achieve this the plan is consistent with Climate Crisis Advisory Group’s 4R campaign, a holistic climate action framework centred on Reduction of emissions, Removal of GHGs, Repair of damaged climate systems, and comprehensive action to build Resilience to climate impacts.8
The report provides an indicative five-point record plan as illustrated in the figure below.
A range of options are discussed, illustrating that despite the severity of the risks, a number of viable options are available to avoid catastrophe and change course. These are not ready to implement but show where research and policy focus should be pointed with urgency.
They will require a range of enabling conditions including policy support, international collaboration, innovative financing structures and – perhaps greatest of all – a mindset shift that recognises our fundamental reliance on the Earth system and the need to manage our activity to avoid destabilising the foundation that our society and economy rest upon.
Mindset shift - Rapidly develop a Planetary Solvency manager mindset
This challenge demands a change in perspective from grass roots to international organisations, corporations and governments. It’s a huge challenge but necessary to ensure that our social, economic, and political systems respect the planet’s biophysical limits.
There are existing frameworks such as the Paris Agreement, Montreal Treaty, High Seas Treaty etc. but they are fragmented and currently under attack by new regressive policies, but need to be strengthened and made more coherent.
In addition to developing and enforcing appropriate frameworks, the root causes of global catastrophic risks will need to be addressed and must be at the forefront of any plans. The prevailing economic system is a risk driver and requires reform, as economic dependency on nature is unrecognised in dominant economic theory which incorrectly assumes that natural capital is substitutable by manufactured capital. A particular barrier to climate action has been lobbying from incumbents and incredible levels of disinformation which has contributed to slower than required policy implementation.
Quick wins
Two areas of high opportunity are identified. Methane and deforestation.
Methane is a highly potent GHG but short lived in the atmosphere. The concentration in the air has more than doubled since the pre-industrial and it is responsible for a third of the temperature rise. The world agreed to a Global Methane Pledge to cut emissions by 30% by 2030 but has not yet made any progress despite the detection and capping techniques being widely available.
Action on other short lived climate forcers including black carbon, ozone, hydrofluorocarbons and other aerosols, would support further rapid reductions in the EEI.
Halting global deforestation could reduce emissions hugely, on a par with those of the US. The benefits from more stable local weather, carbon sink security and biodiversity are also extremely valuable.
Supercharge the energy transition, a classic tech disruption story
This is well underway despite fierce opposition from incumbents. Speeding up the inevitable with progressive policy and phasing out the massive fossil fuel subsidies currently being paid will help complete this challenge. This will bring massive investment and growth opportunities as well as increasing energy security for most countries.
Work with nature on a global scale
It is difficult to envisage a viable Planetary Solvency recovery plan that does not include an intentional, structured and strategic approach to protecting and restoring natural carbon sinks. Nature should be recognised as a strategic investment opportunity, and critically important for climate given the link between carbon sinks and natural tipping elements.
Natural carbon sinks have been in decline since 2008. This will need to be reversed to stabilise the climate even as our emissions slow.
The oceans absorb about a quarter of our emissions, but as acidification increases and other pollutants such as micro plastics affect the delicate biology and chemistry, action is required here too to protect and restore this resource.
Research and deploy emergency brakes
Here the report stands out as being one of the first to openly discuss the controversial topic of geoengineering. This is quite appropriate in any proper risk management exercise as it exists as one of the potential tools available to mitigate the risks.
Two forms of geoengineering are involved. Carbon Dioxide Removal (CDR) and Solar Radiation Modification (SRM).
There is little controversial about CDR. It will be required and has to be scaled both through natural methods and technological ones. As we are entering 1.5°C overshoot, the only way to safely bring it back down is to remove the CO2 already in the atmosphere.
Solar Radiation Modification is more controversial and involves deploying solutions that reduce the amount of sunlight reaching the Earth’s surface and therefore reducing the EEI. Earth’s reflectiveness, or albedo, has reduced by 2% this century, mainly through cloud reduction and ice loss, allowing that much more short wave radiation to reach the surface. SRM proposes to replace this loss by other means.
This is not a small task. Prof Eliot Jacobsen recently calculated that to replace the full loss of albedo so far this century would require a line of high efficiency mirrors wrapped around the whole equator 130 km wide! Obviously implausible but it does highlight the scale of the albedo loss, which continues to drop, raising the EEI.
More plausible proposals include:
Stratospheric Aerosol Injection (SAI) - injecting aerosols, probably sulphates into the upper atmosphere to reflect incoming short wave radiation from the sun, much like has been observed after a volcanic eruption.
Marine Cloud Brightening (MCB) - spraying salt crystals into the air from ships or barges to enhance clouds brightness and coverage.
Cirrus Cloud Thinning - reducing high-altitude cloud that reflects outgoing long wave radiation back to Earth.
Space-based methods - mirrors in space, speculative at best.
Surface albedo enhancement - not just mirrors, but white roofs or slightly more plausibly brighter crops.
Glacial geoengineering - targeted cooling in polar regions to slow melting such as shading or ice thickening
Of these SAI and MCB are the most advanced and likely to be deployable at scale, although SAI would have planetary effect, while BCB is more local. There are however significant practical, political and ecological risks attached to these methods. The most significant are uncertain side effects which could cause further or varying damage, even regional issues that could strain geopolitical tensions, and termination shocks should the approach be used then abandoned in the future.
There are significant governance challenges since there is currently no international framework to regulate research or deployment. Effective governance frameworks would need to address not only technical deployment questions but also issues of consent, liability, and equitable distribution of both benefits and risks across different populations and regions. These questions are particularly important if those making the decisions on SRM are not those likely to be most affected, either from unmitigated climate change or from side effects of SRM, an issue that the Degrees Initiative seeks to address.9
There is also a moral hazard present since deployment could be used as an excuse to continue emissions and other damaging practices since SRM only treats a symptom, not the disease itself.
ARIA, the UK funding agency currently supporting SRM research states: “Ethical and governable interventions to prevent tipping points, or adaptations to adjust to a post tipping point climate, could be possible, but an enormous amount of research is needed to determine how such approaches could work and what their regional and global effects might be.”
For more on this topic I wrote an article last year which you find in the footnotes.10
Returning to our risk register:
Placing these on the risk chart from above shows not just the severity of the current predicament, but also the trajectories with and without a Planetary Solvency recover actions.
Sir David King sums everything up well in his forward:
Unmitigated climate change risks Planetary Insolvency, defined as ‘significant societal disruption driven by climate and nature risks’. Without immediate policy action to change course, catastrophic impacts are eminently plausible. These include fires, floods, heat and droughts. This is a national security issue as food, water, heat stresses and rising sea levels will impact populations. If unchecked then mass mortality, involuntary mass migration events and severe GDP contraction are likely.
The key message is that we still have agency here and the ability to change course. To avoid Planetary Insolvency, policymakers must urgently implement a fundamental, policy-led change of direction, informed by up-to-date information on what is happening, what is likely, the risks associated with ongoing global warming and a willingness to address the root causes of the problems we face.
Parasol Lost: Recovery Plan Needed: https://actuaries.org.uk/media/isvotyer/parasol-lost.pdf
Emperor’s New Climate Scenarios – a warning for financial services: https://actuaries.org.uk/news-and-media-releases/news-articles/2023/july/04-july-23-emperor-s-new-climate-scenarios-a-warning-for-financial-services/
Climate Scorpion – the sting is in the tail: https://actuaries.org.uk/news-and-media-releases/news-articles/2024/mar/14-mar-24-climate-scorpion-the-sting-is-in-the-tail/
Planetary Solvency – finding our balance with nature: https://actuaries.org.uk/news-and-media-releases/news-articles/2025/jan/16-jan-25-planetary-solvency-finding-our-balance-with-nature/
Climate Financial Risk Forum - Developing an approach to nature risk in Financial Services. https://www.fca.org.uk/publication/corporate/developing-approach-nature-risk-financial-services.pdf
Scientific Evidence on Climate Sensitivity: A technical appendix to accompany Parasol Lost https://actuaries.org.uk/media/5m3pdc2w/parasol-lost-technical-appendix.pdf
Climate Crisis Advisory Group’s 4R campaign: https://www.ccag.earth/campaigns
The Degrees Initiative: https://www.degrees.ngo/
The geo engineering issue is fascinating. We plan to move the furniture around in order to delay the results. Of our continued mismanagement. 🤷♂️
Or to put it another way
We take the earths health, convert it into money, commodity into bank. Now we will try to ‘buy’ time from an empty glass, by desperately fiddling with the dials. The earths oceans are not a bottomless drain, her sky not an infinite bubble.
Moving the furniture to make room for more garbage. What a species. 🤷♂️
Applying actuarial risk management to planetary systems is brillant - the analogy to the 2008 financial crisis really clarifies how we systematically underestimate risks. The higher climate sensitivity finding basically means our carbon budgets are negative, like discovering your retirement account is alredy overdrawn. The geoengineering discussion is necessary even if uncomfortable, though the moral hazard worries me - it could become another excuse for delaying emissions cuts rather than the emergency brake it should be.