Risky business

The document argues that climate risk is now a financially material factor that UK DB pension actuaries must address to avoid legal negligence claims, regulatory sanctions, and professional misconduct findings. It details how climate risk impacts investment strategies, funding assumptions, and employer covenants, and provides a framework for actuaries to manage these liabilities.

• Climate risk is categorized into two broad types: physical risks, which include direct impacts like 'increased severity of extreme weather events' or 'sea level rise', and transition risks, which arise from 'policy, legal, technology, and market changes' as the economy moves toward a low-carbon model.
• Trustees of DB pension schemes are legally required to consider climate risk if it is financially material to investment decisions. This includes its application in 'Setting investment beliefs and preparing a SIP', 'Determining strategic asset allocation', and 'Selecting, mandating and monitoring the activities of investment managers'.
• Climate risk affects the three main strands of DB pension risk management: investment, funding, and the employer covenant. For the employer covenant, risks are particularly high for 'fossil fuel-based industries, energy-intensive manufacturers, and transportation activities' (transition risk) and 'agriculture, transportation and building infrastructure, insurance, and tourism' (physical risk).
• Actuaries may face legal liability for negligence or breach of contract if they fail to exercise 'reasonable skill and care' by ignoring climate risk, as industry standards are evolving through guidance from the Pensions Regulator (tPR) and the Institute and Faculty of Actuaries (IFoA).
• Failure to account for climate risk can lead to regulatory sanctions from the IFoA and the Financial Reporting Council (FRC), including 'termination or suspension of membership, or the issuing of fines'.
• Actuaries have statutory whistleblowing obligations to report breaches of the law to tPR, which may include a failure by trustees to consider climate risk if such a failure is of 'material significance', such as when 'assets of the scheme are being appropriately safeguarded'.

APA

ClientEarth (2017). Risky business. https://www.clientearth.org/media/qqwe2gs3/risky-business-climate-change-and-professional-liability-risks-for-db-pensions-actuaries-ce-en.pdf

Chicago

ClientEarth. Risky business. 2017. https://www.clientearth.org/media/qqwe2gs3/risky-business-climate-change-and-professional-liability-risks-for-db-pensions-actuaries-ce-en.pdf.

Wikipedia

{{cite report |author=ClientEarth |title=Risky business |date=November 2017 |url=https://www.clientearth.org/media/qqwe2gs3/risky-business-climate-change-and-professional-liability-risks-for-db-pensions-actuaries-ce-en.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{clientearth2017risky, author = {{ClientEarth}}, title = {{Risky business}}, institution = {ClientEarth}, year = {2017}, month = nov, url = {https://www.clientearth.org/media/qqwe2gs3/risky-business-climate-change-and-professional-liability-risks-for-db-pensions-actuaries-ce-en.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }