Economic growth could fall 50% over 20 years from climate shocks, say actuaries

Global economic growth could plummet by 50% between 2070 and 2090 from the catastrophic shocks of climate change unless immediate action by political leaders is taken to decarbonise and restore nature, according to a new report.

The stark warning from risk management experts the Institute and Faculty of Actuaries (IFoA) hugely increases the estimate of risk to global economic wellbeing from climate change impacts such as fires, flooding, droughts, temperature rises and nature breakdown. In a report with scientists at the University of Exeter, published on Thursday, the IFoA, which uses maths and statistics to analyse financial risk for businesses and governments, called for accelerated action by political leaders to tackle the climate crisis.

Their report was published after data from the EU’s Copernicus Climate Change Service (C3S) showed climate breakdown drove the annual global temperature above the internationally agreed 1.5C target for the first time in 2024, supercharging extreme weather.

Without urgent action to accelerate decarbonisation, remove carbon from the atmosphere and repair nature, the plausible worst-case hit to global economies would be 50% in the two decades before 2090, the IFoA report said.

At 3C or more of heating by 2050, there could be more than 4 billion deaths, significant sociopolitical fragmentation worldwide, failure of states (with resulting rapid, enduring, and significant loss of capital), and extinction events.

A fire in Athens in July 2023. The effects of global heating could cause migration and failure of states, leading to enormous economic shocks. Photograph: Petros Giannakouris/AP

Sandy Trust, the lead author of the report, said there was no realistic plan in place to avoid this scenario.

He said economic predictions, which estimate that damages from global heating would be as low as 2% of global economic production for a 3C rise in global average surface temperature, were inaccurate and were blinding political leaders to the risks of their policies.

The climate risk assessments being used by financial institutions, politicians and civil servants to assess the economic effects of global heating were wrong, the report said, because they ignored the expected severe effects of climate change such as tipping points, sea temperature rises, migration and conflict as a result of global heating.

“[They] do not recognise there is a risk of ruin. They are precisely wrong, rather than being roughly right,” the report said.

If these risks were taken into account the world faced an increasing risk of “planetary insolvency”, where the Earth’s systems were so degraded that humans could no longer receive enough of the critical services they relied on to support societies and economies.

“You can’t have an economy without a society, and a society needs somewhere to live,” said Trust.

“Nature is our foundation, providing food, water and air, as well as the raw materials and energy that power our economy. Threats to the stability of this foundation are risks to future human prosperity which we must take action to avoid.”

The report, named Planetary Solvency – finding our balance with nature, criticises the dominant economic theory used by governments in the UK, US and across the developed world, which focuses on what humans can take from the planet to create growth for themselves and fails to take into account the real risks from nature degradation to societies and economies.

The report called for a paradigm shift by political leaders, civil servants and governments to tackle global heating. It said: “Leaders and decision-makers across the globe need to understand why these changes are needed.

“It is these extremes that should drive policy decisions … policymakers are currently unable to hear warnings about risks to ongoing human progress or unwilling to act upon them with the urgency required.”

The report proposes a planetary solvency risk dashboard, to provide information to support policymakers to drive human activity within the finite bounds of the Earth.

Prof Tim Lenton, the chair of climate change and earth system science at the University of Exeter, and a co-author on the report, said: “Current approaches are failing to properly assess escalating planetary risks or help control them. Planetary solvency applies the established approaches of risk professionals to our life-support system and finds it in jeopardy. It offers a clear way of seeing global risks and prioritising action to limit them.”