3 days ago
Curious Cook: Planetary insolvency
It was concerning to see that the UK Institute and Faculty of Actuaries (IFA) has now determined that 'planetary insolvency' is now a relevant risk for our planet. This means that this factor will be utilised by actuaries in estimating future business and domestic losses. This will then have a direct impact on our insurance premiums.
Therefore, let us understand what planetary insolvency means.
A January 2025 IFA report introduced the concept of planetary insolvency, highlighting stark warnings that without urgent policy shifts, our planet risks crossing irreversible ecological and environmental thresholds by mid-century.
The term 'planetary insolvency' refers to a point where ecological and economic systems collapse under compounding climate and biodiversity crises, threatening global stability. This is not a distant hypothetical; it is a global security emergency unfolding in real time.
Impacts of planetary insolvency
Planetary insolvency is framed as a systemic failure to maintain Earth's life-support systems. This is akin to a business going bankrupt. The report describes catastrophic impacts such as:
• Economic devastation: Global GDP contraction exceeding 25%, dwarfing losses seen during the Great Depression.
• Unimaginable human toll: Potentially over two billion deaths due to heatwaves, disease, famine, and conflict.
• Climate tipping points: Global warming beyond 2°C, triggering cascading collapses like Amazon dieback and/or Arctic ice loss.
• Ecological unravelling: Critical ecosystems – coral reefs, pollinators, freshwater sources – collapse, alongside mass extinctions.
• Societal breakdown: Mass migration of billions of people, political fragmentation, and the loss of low-lying lands to rising seas.
'This is a national security issue,' the IFA report stressed firmly, as food shortages, clean water scarcity, un-survivable heatwaves, severe hurricanes, lethal droughts, and catastrophic floods destabilise nations and ignite conflicts.
The risk matrix
As someone who worked in risk management for decades, the subtitle of the report was what originally caught my attention. It was 'Global Risk Management for Human Prosperity' and like all high-level risk reports, it contained a matrix of the assessed global risks.
Pollinator decline threatens 75% of food crops and could unravel food systems within decades. — THANGPU PAITE/Pexels
The risk matrix outlined is harrowing, as it indicated that climate and biodiversity crises are interconnected amplifiers of disaster. A summary of the risks identified by the IFA are:
1. Economic freefall: A 25% GDP loss would cripple global trade, erase pensions, and collapse industries. As a comparison, Covid-19 caused a 3.5% GDP drop in 2020. The triggers? Supply chain disruptions from extreme weather, agricultural failures, and mass displacement.
2. Mortality crisis: Heat stress alone could claim millions of lives annually by 2050. Combined with malnutrition, waterborne diseases, and conflict, death tolls could surpass two billion, roughly a quarter of humanity. Recent heatwaves in India (2023) and Europe (2024), which killed thousands, are likely to be previews of what may be coming. The strain on national healthcare and medical systems will be without precedent.
3. Tipping points of no return: Crossing 2°C warming risks activating feedback loops, such as permafrost thaw releasing methane or Amazon deforestation turning the rainforest into a savannah. Once triggered, these processes cannot be stopped.
4. Ecosystem collapse: coral reefs, which support 25% of marine life, are nearing extinction. Pollinator decline threatens 75% of food crops. The report warns that losing these 'ecosystem services' could unravel food systems within decades.
5. Migration time bomb: By 2040, over one billion people in South Asia, the Middle East, and Africa may face lethal heat conditions. Mass migrations, which are already visible in Central America's 'dry corridor' and drought/conflict stricken African nations, will strain borders and ignite horrendous xenophobia.
Current approaches are failing
The report reflects on the current steps taken by various nations, and established that existing market-led solutions like carbon trading and corporate sustainability pledges are wholly insufficient. Voluntary measures have failed to curb emissions (which hit record highs in 2024) or halt deforestation (over 10 million hectares lost annually).
National policies remain fragmented or incoherent. The EU's Green Deal is probably the most significant initiative, but it lacks binding global coordination. The US have resigned from the Paris Agreement on climate change and their government have now bizarrely forbidden official documents from even mentioning the words 'climate change'.
Meanwhile, subsidies supporting the continued use of fossil fuel hit US$7 trillion (RM30 trillion) in 2023, according to the IMF. This is a glaring, wholly inconsistent contradiction.
A blueprint for survival
As the report was written by actuaries, it is no surprise to find that it urges governments to treat planetary insolvency with the same rigour as financial crises. Key recommendations include:
1. Annual planetary solvency assessments: Modelled after stress tests for banks, these assessments would evaluate risks like crop failures or infrastructure collapse. Findings would be reported to the UN Security Council, framing ecological collapse as a threat to peace.
2. A global risk authority: A new body within the IMF or OECD would oversee risk assessments and coordinate policy. This mirrors the Intergovernmental Panel on Climate Change (IPCC) but with enforcement powers.
3. Systemic risk officers: Appointing officers at all governance levels from local to global to integrate risk management and share risk mitigation strategies. For example, cities like Miami and Jakarta, battling sea-level rise, could develop tailored resilience plans and the expertise shared with other cities.
4. National transition plans: Binding laws to phase out fossil fuels, restore ecosystems, and transition to circular economies. Costa Rica's reforestation success (doubling forest cover since 1980) and Denmark's wind energy strategy (50% of electricity) prove such models work.
Crossing 2°C warming risks could turn the Amazon rainforest into a savannah. — TOM FISK/Pexels
5. Accountability mechanisms: Public dashboards tracking progress on emissions, biodiversity, and adaptation. Sanctions may be applied for non-compliance, or tactics such as the Paris Agreement's 'name and shame' announcements could pressure laggard countries.
Cost of inaction vs dividend of action
Of course no country would take action unless it was economically sound, and therefore it is interesting that some of the world's best actuaries have stressed that avoiding planetary insolvency is extremely economically prudent.
Investing US$1.3 trillion (RM5.7 trillion) annually in renewables, green infrastructure, and conservation could yield US$26 trillion (RM114 trillion) in economic benefits by 2030. Conversely, unchecked warming could cost the global economy US$23 trillion (RM101 trillion) annually by 2100.
'This isn't about saving polar bears,' said economist Lord Nicholas Stern. 'It's about safeguarding civilisation. The math is clear: mitigation is cheaper than collapse.'
Unequal crisis
Compounding and confusing the issue is how the impacts of planetary insolvency are unequally distributed. Poorer countries face disproportionately larger risks despite them contributing least to emissions. For example:
• South Asia: By 2050, wet-bulb temperatures (heat plus humidity) are expected to regularly exceed 35°C – the limit for human survival – for 300 million people. Extreme weather events such as droughts or floods also threaten farming outputs.
• Africa: Droughts could shrink crop yields by 20%, exacerbating famine in large regions of the continent. Desertification and erosion of large areas of farmland, such as what has happened in southern Madagascar, mean that such land becomes permanently unavailable for agriculture.
• South America: Changes in weather patterns risk turning the vast forests of the Amazon into savannah grasslands, turning the area from carbon sinks to carbon emitters.
• Small island states: Nations like Tuvalu and the Maldives confront existential threats from sea-level rises.
Yet wealthier nations are not immune. The 2021 Pacific Northwest heatwave killed 1,400 people in North America, while Europe's 2022 drought caused US$20bil (RM88bil) in agricultural losses.
The recent fires in California have incurred losses of over US$150bil (RM660bil), according to the latest statistics. That is on top of an estimated US$500bil (RM2.2 trillion) of damage/losses in 2024 due to hurricanes in the US alone.
And even though we now know 2024 was the hottest year in human history, by the next decade, it may turn out then that 2024 was the coolest year in recent history.
Beyond individual choices
While personal actions (eg, reducing meat consumption, using less fossil fuels, recycling, etc) matter, the report emphasised systemic overhauls at national levels.
Basically, we cannot diet, recycle, or economise our way out of apocalypse. The world needs binding laws, not more low-energy lightbulbs.
Public pressure is slowly mounting. The 2024 Global Climate Strike saw 10 million protesters demand binding policies.
Window is closing, but not shut
As the report was written by actuaries, one normally expected a section about the probability of planetary insolvency. Unfortunately, there was no probability range offered, just a cautiously worded statement that avoiding planetary insolvency is still possible, but only with 'unprecedented cooperation'. It suggested the 2025 UN Summit for the Future offers a pivotal moment to adopt their recommendations.
As the UN Secretary-General said, 'We are the first generation to feel climate chaos and the last who can stop it. The choice is between collective action or collective suicide.'
In summary, the IFA believes the time for half-measures is over. Avoiding planetary insolvency demands nothing less than a reimagining of global and national governance immediately, before our planet goes bust. And this is now a risk factor which we will all feel sooner or later in our insurance premiums.
The views expressed here are entirely the writer's own.
