The fact that climate damage also impacts the economy has long been evident, with numerous studies addressing this issue. However, the findings often lack clarity, as they involve significant sums spread over long time horizons. A new report adds to this discourse, concluding that in fifty years, half of economic value could be consumed by climate-related costs. Yet, these studies share a critical flaw: they focus on averages, which fail to reflect the urgency and severity of the real-world situation. The reality is far graver and more immediate than these models suggest.
A report by the Institute and Faculty of Actuaries (IFoA) warns that the global economy could halve between 2070 and 2090 due to catastrophic climate change impacts unless immediate action is taken to decarbonize and restore nature. Collaborating with scientists at the University of Exeter, the IFoA highlights severe risks from climate-related phenomena such as wildfires, floods, droughts, and biodiversity loss. The report criticizes current economic models and risk assessments for underestimating the potential damages, warning of “planetary insolvency”—a state where ecological collapse renders Earth uninhabitable for societies and economies.
Post-Heating Costs
The report follows data from the EU’s Copernicus Climate Change Service, which revealed that global temperatures surpassed the critical 1.5°C threshold for the first time in 2024, exacerbating extreme weather. In a worst-case scenario with over 3°C of warming by 2050, the consequences could include over 4 billion deaths, widespread sociopolitical fragmentation, state failures, significant capital loss, and extinction events. The IFoA warns that current approaches overlook critical tipping points and cascading effects, such as rising sea temperatures, climate migration, and conflict.
Sandy Trust, the report’s lead author, calls for immediate global action. He criticizes economic models that assume damages from a 3°C rise would amount to just 2% of global GDP. Trust argues these models fail to recognize existential risks to human prosperity. Instead, they focus on short-term growth while neglecting nature’s essential role in supporting life and economies. He emphasizes that “nature is our foundation,” providing necessities like food, water, and energy.
Greater Criticism
Another flaw in such reports is their reliance on averages over long periods, which obscures the extremes of climate impacts already occurring. For instance, while the IPCC uses a 1.5°C average temperature rise over ten years as a critical benchmark, this masks the extremes already causing significant damage. Regions like the Arctic and Europe have experienced far higher temperature increases, leading to widespread destruction.
Christian Aid estimates that the ten largest climate disasters of 2024 alone caused a minimum of $230 billion in damages. The ongoing wildfires in Los Angeles are projected to incur similar costs, erasing two years of U.S. economic growth within just 12 months.
Call to Action
The report, Planetary Solvency – Finding Our Balance with Nature, calls for a paradigm shift in governance, urging leaders to prioritize long-term sustainability. It recommends a planetary solvency risk dashboard to guide human activity within Earth’s limits. Co-author Prof. Tim Lenton highlights the failure of current risk assessments to account for escalating climate damages and advocates for applying actuarial expertise to protect Earth’s life-support systems.
The report criticizes dominant economic theories in developed nations that prioritize resource extraction over sustainability and urges policymakers to act. Failure to address these risks threatens both societies and economies. Embracing a planetary solvency framework would help leaders better understand and mitigate escalating threats to global prosperity.
