IFoA Alternative Economic Thinking Series - The invisible infrastructure of climate change

In the second event in the IFoA Alternative Economic Thinking Thought Leadership Series, part of the 2022/2023 Presidential Speaker Series, Simon Sharpe (Director of Economics for the UN Climate Champions, and a Senior Fellow at the World Resources Institute) discussed the ideas in his forthcoming book ‘Five Times Faster: Rethinking the Science, Economics and Diplomacy of Climate Change’.

In his book, Simon argues that under-recognised conceptual and institutional failures are blocking effective action on climate change and that addressing these is necessary to give the world a chance of limiting temperature rise to low levels and avoiding extreme risks.

In summary:

Science is focused on prediction rather than risk assessment. Government leaders are not being given a clear picture of the full extent of the threat (and neither are societies).
Economics is assuming equilibrium when the challenge is one of innovation and structural change. This results in consistently wrong advice being given to governments.
Diplomacy is focused on the point of least leverage: long-term economy-wide emissions targets; when it ought to be focused on coordinating action within specific sectors.
The finance community has an interest in each of these failures, beyond its general interest in society as a whole. Failures of risk assessment mean the potential for large losses in asset values over the long term is not well understood. Failures in economic analysis mean that investment opportunities in clean technologies are not created or realised as quickly as they could be, and this effect is amplified by the failure of diplomacy.

Within the finance community, the actuarial profession stands out for its long-term view, and the thought leadership that it has exercised on issues of climate change risk assessment and economics. The IFoA co-sponsored the work on risk assessment described in the first section of the book.

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