Global economic growth could shrink by up to 50% between 2070 and 2090 as a result of climate change-related shocks.
A new report by risk management professionals at the Institute and Faculty of Actuaries (IFoA) has issued stark warnings about the severe economic risks posed by extreme weather events such as floods, fires, droughts, and rising temperatures, urging political leaders to take immediate action to decarbonise and restore nature.
This alarming assessment, published in collaboration with scientists from the University of Exeter, challenges previous economic projections that underestimated the full extent of the economic damage caused by global warming.
According to the IFoA report, the existing climate risk assessments used by governments and financial institutions fail to account for the devastating effects of climate change, such as tipping points, sea temperature rises, migration, and conflict.
The report stresses that without accelerated efforts to reduce carbon emissions, remove carbon from the atmosphere, and repair ecosystems, the global economy faces a worst-case scenario where it could lose half of its economic output in the two decades leading up to 2090. A rise of 3°C or more by 2050 could result in catastrophic consequences, including over 4 billion deaths, political instability, state failures, and potential extinction events.
Sandy Trust, the lead author of the report, criticised current economic models, which suggest that the impact of a 3°C rise in global temperatures would only reduce global economic output by 2%. He argues that such predictions are deeply flawed and blind political leaders to the true risks posed by climate change.
The report calls for a paradigm shift in economic thinking, urging global leaders to recognise the real threats posed by environmental degradation.
It emphasises that nature is the foundation of society and the economy, providing essential resources like food, water, and air. If the stability of the Earth’s systems is compromised, it could lead to what the report describes as "planetary insolvency," where humans can no longer rely on the planet’s resources to support their societies and economies.
The IFoA's report also proposes the creation of a "planetary solvency risk dashboard," which would provide essential information to help policymakers drive human activities within the Earth’s finite limits. Professors from the University of Exeter further emphasise that current approaches are failing to properly assess or manage the escalating risks to the planet, and they call for urgent action to prioritise global risks and limit the damage.