Today we publish ‘Planetary Solvency – finding our balance with nature’, the IFoA’s fourth report in collaboration with climate scientists. Here, report author Sandy Trust introduces the concept of Planetary Solvency and why it is essential for future prosperity.
Until recently, we didn’t have to worry about Planetary Solvency. The scale of human activity wasn’t having a material impact on the Earth system. We could focus on human progress, developing technologies and creating wealth to improve standards of living, without having to be concerned about the stability of the Earth system.
This has now changed, with scientific assessments of planetary health showing that we have exceeded six out of nine planetary boundaries, including climate change, water use and pollution.
This matters because we rely on the stability of the Earth system for essentials such as food, water, air, energy and the raw materials that are critical inputs to our economy.
A solvent pension scheme is one that continues to be able to provide pensions. Likewise, a solvent Earth system is one that continues to provide the essential services we rely on. It supports ongoing prosperity and a safe and just future.
We define Planetary Solvency as ‘managing human activity to minimise the risk of societal disruption from the loss of critical support services from nature.’
In ‘Planetary Solvency – finding our balance with nature’, we develop a methodology for adapting actuarial risk and solvency management techniques to the problem in hand. Namely, that of continuing to enjoy the benefits of a stable Earth system. We also create a Planetary Solvency risk dashboard. This leverages the detailed understanding of the Earth system provided by science but has risk-led communication, synthesising the science and creating an impact scale.
We hope this will be effective in communicating to policymakers what catastrophic downside risks might be experienced if we don’t change course on climate change, nature and societal risks.
The report details the full methodology as well as an illustrative Planetary Solvency reporting output. We find that the risk of planetary insolvency looms unless we act decisively. Without immediate policy action to change course, catastrophic or extreme impacts are eminently plausible, which could threaten future prosperity.
The growing risk of ‘planetary insolvency’ by 2050 underscores the urgency for immediate policy action. Without course correction, we face severe climate and nature-driven impacts. They range from catastrophic economic contraction to mass mortality, widespread migration, and socio-political breakdowns. These risks could threaten not only the stability of global ecosystems but also our economic and social systems.
To prevent this, the report calls for several urgent measures. First, annual Planetary Solvency risk assessments must be implemented to monitor and respond to escalating threats. Second, the creation of a central body, such as the IMF or OECD, to lead and manage these assessments will be key in aligning global policy responses. Third, integrating systemic risk officers at national and international levels will improve coordination and the implementation of risk-reduction strategies.
The full report provides actionable recommendations for achieving these objectives, including the development of national transition plans, nature positive pathways, and alternative economic models that can mitigate these risks. It’s clear that the costs of inaction far outweigh the investment required to ensure the long-term stability of our planet’s life-supporting systems.
For policymakers, business leaders, and risk professionals, the message is clear: Planetary Solvency is crucial for future prosperity. The time to act is now.
Read the full report to explore the methodology behind the Planetary Solvency risk dashboard and the full set of recommendations for ensuring a sustainable future.
