Background – the IFoA Climate Change Statement
The guidance is based on the Institute and Faculty of Actuaries Climate Change Statement, published on the IFoA website, that emphasises:
“We are a profession specialising in risk management, and climate change is one of the greatest risks facing our world today. Mitigating this risk is urgent.”
“We will continue to work <…> to better align the finance system with a net zero ambition. We are confident that all actuaries will play their part in leading change in the financial system to serve the public interest in the management of climate-related risk.”
Ethical and professional guidance on climate change. A Guide for Members
This non-mandatory guidance provides members with a summary of their regulatory responsibilities in connection with climate risk as well as an introduction to the opportunities open to actuaries in this area.
The Guide is a part of the non-mandatory guidance produced by the IFoA for their members.
Relevance
The Guide explains terms ‘Climate change' and ‘Sustainability’. It stresses the Paris Agreement's goal of achieving 'net zero' emissions by 2050.
The relevance of climate change and sustainability in various areas of actuarial practice is emphasised. Actuaries are urged to consider climate risks in pensions, life assurance, health, and general insurance, and to influence sustainable investment strategies. Additionally, engaging at the Board level allows actuaries to shape corporate strategy and compliance with climate-related disclosures.
Professional obligations and guidance
Professional obligations of members of the IFoA include among others adherence to:
- the six principles of the Actuaries’ Code
- Actuarial Professional Standards (APSs)
as well as:
- Non-mandatory guidance, including climate and sustainability related Risk Alerts
The Guide provides an outline of how the six principles and APSs can relate to climate change and sustainability.
1. Integrity
Principle 1 – Integrity requires members to act honestly and with integrity. Given their influential roles in managing entities subject to climate change and sustainability reporting, members must ensure accuracy and avoid overstatement in sustainability claims. They should encourage balanced, informed discussions on climate considerations, maintaining integrity by neither misleading nor avoiding complexity.
2. Competence and care
Principle 2 – Competence and care stipulates that members must carry out work competently and with care. As climate change and sustainability are directly relevant to the four amplifications of this principle, members need an appropriate understanding of these issues to manage risks effectively. They must assess their expertise and seek additional support if needed.
3. Impartiality
Principle 3 – Impartiality mandates that members must ensure their professional judgment remains unbiased and uninfluenced by conflicts of interest or undue influence. Regarding climate risk and sustainability, members should guard against both ethical and technical biases, staying open to evolving scientific understanding and avoiding pressure to present findings in a certain light.
4. Compliance
Principle 4 – Compliance dictates members must adhere to legal, regulatory, and professional standards. With climate change and sustainability evolving as regulatory priorities, members must stay informed of relevant requirements that can vary depending on legal jurisdiction.
5. Speaking up
Principle 5 – Speaking up requires members to raise concerns about unethical or unlawful actions. They must consider legal and regulatory guidelines, including those on ESG matters, and speak up if actions deviate from ethical principles. Members providing advice in respect of climate risk should consider carefully the impact of their advice on decision-making and communicate effectively any uncertainties, including the underlying climate data and assumptions.
Members are required to challenge colleagues or speak up if they have concerns related to climate-related disclosures.
6. Communication
Principle 6 – Communication mandates members to convey information appropriately. Members must understand the purpose of their work and communicate results and limitations clearly, including the extent to which they have, or have not, considered climate change risks. They should articulate the basis of estimates, incorporate climate scenarios transparently, and use narratives to enhance user understanding.
APS X1: Applying Standards to Actuarial Work
APS X1 guides members in applying standards to actuarial work, emphasising consistency with international and UK standards. Climate change, when considered a relevant material factor, requires thorough consideration. Members must communicate effectively with users the inherent uncertainty of climate risk assessment and limitations of their advice.
APS X2: Review of Actuarial Work
APS X2 mandates actuaries to evaluate if conducting a review for their actuarial tasks is necessary, underlining that reviewers must demonstrate competence in climate change and sustainability. Seeking assistance from non-members with relevant expertise may be appropriate.
Risk Alerts
As per January 2024, the IFoA has issued three climate and sustainability risk alerts. They emphasise importance of consideration of climate change and sustainability impacts, appropriate use of climate scenarios, and clear communication.
Opportunities for actuaries
The Guide suggests four key areas where actuaries can apply their skill set:
- Risk Identification and Management
Actuaries identify and manage climate risks, including those from climate change and mitigation efforts. - Financial System
Actuaries advocate for sustainable practices, influencing policy and collaboration for climate change mitigation. - Consistent Policy Frameworks
Actuaries push for consistent policies to ensure sustainable benefits, influencing decisions at various levels. - Financial Risk
Actuaries assist individuals and businesses facing climate-related financial risks, shaping proactive strategies for sustainability.
Further learning
The Guide provides further materials to assist members in meeting their professional obligations relating to climate and sustainability risk.
- Case studies
Five case studies in the appendices to the Guide illustrate professional obligations in advising on climate change and sustainability, offering discussion points to aid member comprehension. -
Guidance and resources on the IFoA website
The suggested sources include:
- Guidance to support the Actuaries’ Code
- IFoA Sustainability Hub
- IFoA Sustainability and Lifelong Learning page
- IFoA’s Virtual learning Environment
- The Sustainability Board’s Climate Change Reading List
- Guidance to support the Actuaries’ Code
In conclusion
Actuaries play an important role in navigating climate risks, influencing investment and corporate strategies. The IFoA Guide is a useful guidance as it aligns professional duties with ethical and regulatory standards, ensuring relevance and practicality for addressing climate challenges effectively. SAI members can make use of the guidelines as they are very relevant to the actuarial profession in Ireland. Regulatory requirements and actuarial opportunities related to the climate risks should be considered by actuaries in Ireland, and the available further learning resources are useful for personal development in this area.
Svetlana Gatova
About the author
Svetlana Gatova is a member of both SAI and IFoA. She is an active participant in the Sustainability and Climate Change Committee of the SAI.
The views of this article do not necessarily reflect the views of the Society of Actuaries in Ireland, the Sustainability and Climate Committee, or the author’s employer.