Working together: Analysing climate risk in government

This blog is part of our ‘Working Together’ series for Analysis in Government (AiG) Month 2022. Throughout the month we will be sharing blogs from colleagues across government to highlight the power of working together.

In the Government Actuary’s Department (GAD) we are committed to building our skills and capabilities to support government and the wider public sector as they make sense of long-term climate-related risks.

This included contributing expertise to the 26th United Nations Climate Change conference, or ‘COP26’. Delegates from around the world, including heads of states, climate experts and campaigners, came together to agree co-ordinated action to tackle climate change.

Climate change and analysis

In the lead up to COP26, a GAD actuary was seconded to HM Treasury’s Private Finance Hub. She used her analytical skills and experience of GAD’s climate work to support a range of new climate finance analysis challenges.

The Hub was led by the UK Prime Minister’s Finance Adviser for COP26 – former Governor of the Bank of England Mark Carney. An important part of his role was to help create a global financial system where “every professional financial decision takes climate change into account”.

Net zero

Before the climate summit, the UK had already set out its landmark strategy to reach net zero emissions by 2050. But, during COP26 the government announced the UK’s intention to become the world’s first Net Zero-aligned Financial Centre.

GAD’s analytical expertise supports several projects to help departments realise their own net zero ambitions, such as:

• financial modelling for the Department for Education (DfE) to help decarbonise the school estate – this includes identifying schools most in need of replacing gas boilers with heat pumps
• working closely with the DfE’s Risk Protection Arrangement team to build up flood resilience in schools across the country
• chairing cross-department discussions on Power Purchase Agreements (PPAs) and considering the types of financial risk these may involve – PPAs allow an electricity user to buy directly from a renewable energy provider at an agreed cost for a set length of time

Climate risk

Alongside our analytical skills, actuaries are well-practised at making sense of long-term financial risk and uncertainty. As climate change is a significant source of long-term uncertainty and risk, this is an area in which our skillset can add value.

Our expertise also includes embedding climate considerations into our ‘traditional’ areas of actuarial work, such as pensions and insurance. We also support other government workstreams where consideration of climate risk is relevant.

Examples of this include:

• embedding climate scenario analysis across a range of workstreams – such as the actuarial valuations GAD does for around 20 public service pension schemes
• supporting climate-related financial disclosures and supporting clients who are required to report their climate related risks and opportunities – risk management, including the use of climate scenario analysis, is an important part of these disclosure requirements
• considering the effects that climate change may have on mortality rates – this includes thinking about how this may affect government pension schemes and social security arrangements

To achieve net zero, it’s important that organisations – public and private alike – develop realistic transition plans and strategies, setting out how they will decarbonise.

GAD can support the government to understand and mitigate against the risks associated with the transition, and other climate-related financial risks.

Analysing and communicating risk

Our climate challenge is ongoing. As we look to COP27 and beyond, climate-related work undertaken by UK government departments and the public sector will increase.

Actuaries are well placed to help with many aspects of this work, with valuable experience in analysing and communicating risk. GAD is committed to supporting our clients and the wider public sector with whatever future climate challenges they face.