The 2023 UN Climate Change Conference (COP28), held recently in Dubai, has far-reaching implication for all sectors of industry. Although the focus remains on environmental and policy measures, the financial risks and opportunities are a key talking point. Actuaries face the task of assessing and managing the financial risks of reaching Net Zero.
The annual COP conference remains a pivotal event to monitor the progress of our climate targets and the climate risks to consider in future. Firms need to understand the implications of these, and consider risk assessments, financial modelling and the evolving importance of financial frameworks to address these challenges.
Navigating risks and opportunities
A key topic coming out of COP28 is the heightened awareness and scrutiny of climate-related risks. The two-week event brought discussions around the long-term financial implications of reaching Net Zero, and also raised questions around climate mitigation and phasing out fossil fuels specifically. There was no detailed plan but it's clear that industry-specific policies will be coming in to support this transition. For example, the Transition Plan Taskforce (TPT) launched by the Treasury is a major component in ensuring just and accountable transition plans are adopted by the market. Actuaries have an important role to play in safeguarding intergenerational fairness as we move to a Net-Zero economy.
We also expect to see regulatory changes to support this outcome. Phasing out fossil fuels requires strong climate action and severe changes to financial planning for firms. Actuaries should prepare to integrate updated climate risk assessments into their financial models and long-term projections. Keeping up to date with the regulatory landscape will be critical in meeting these demands, and being prepared for these will help you stay ahead of the curve.
Long-term investment opportunities
COP28 also shone a spotlight on long-term investment strategies. Providing improved climate-related opportunities and environmental, social and governance (ESG) financing were leading themes for investors to consider. Firms should make more considered investments and contributions to their ESG initiatives for long-term benefits.
Sustainable investment is crucial. Firms need to consider how they can upscale their financial models to make investments that align with the targets of stakeholders and regulators alike. COP28 highlighted the importance of collaboration in meeting climate targets, and actuaries must consider how to implement this in their financial planning. Long-term planning is important to remain compliant, and ensure you're meeting your long-term financial targets.
Finance day at COP28 highlighted the next steps for firms in meeting their climate goals. Here are the key takeaways.
COP28 finance day: What we learned
Leveraging artificial intelligence
AI is expected to become a critical tool in meeting climate targets. COP28 addressed how to leverage advanced learning tools in the fight against climate change. Eighty-seven percent of world leaders acknowledged that AI will be pivotal in climate action, and critical to meeting Net Zero on schedule. Governments and policymakers are likely to address the demand for AI with updated regulation and changes to embrace this emerging technology.
The US Government has already declared its aim to incorporate AI into its COP outcomes, with more countries set to follow. Actuaries need to consider how AI will impact financial risks and opportunities. It will be important to assess your climate impact modelling and long-term plans to address AI, and consider the policy implications.
Actions for actuaries and firms
COP28 has far-reaching implications on the risks and opportunities of climate issues. As the world collectively grapples with the challenges of climate change, actuaries provide valuable insight. Developing sustainable and resilient financial systems is crucial in meeting Net-Zero targets.
The outcomes of COP28 highlight a shift in how firms and policymakers will operate, so actuaries must be ready to adapt. Prepare to innovate and collaborate moving forward to build a sustainable and resilient financial future.
For more insight and guidance, contact Irina Velkova and Zubair Arshed.
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The FCA has published the latest edition of its regulatory initiatives grid, with key priorities for the year ahead.
The FCA’s regulatory initiatives grid is now live
