Financial Models on Climate Risk 'Implausible,' Say Actuaries (ft.com) 41
Financial institutions often did not understand the models they were using to predict the economic cost of climate change and were underestimating the risks of temperature rises, research led by a professional body of actuaries shows. From a report: Many of the results emerging from the models were "implausible," with a serious "disconnect" between climate scientists, economists, the people building the models and the financial institutions using them, a report by the Institute and Faculty of Actuaries and the University of Exeter finds. Companies are increasingly required to report on the climate-related risks they face, using mathematical models to estimate how resilient their assets and businesses might be at different levels of warming.
The International Sustainability Standards Board last week launched long-awaited guidance for companies to inform investors about sustainability-related risks, including the climate scenarios chosen in their calculations. Countries including the UK and Japan have said they plan to integrate these standards into their reporting rules. Companies will also have to report the full scope of their emissions, including those from their supply chains, from the second year they begin to report under the guidelines due to come into effect in 2024. That was a particular "challenge," since companies would need to collect the data from all their suppliers, said George Richards, head of ESG reporting and assurance at KPMG. [...] Some models were likely to have "limited use as they do not adequately communicate the level of risk we are likely to face if we fail to decarbonise quickly enough," the paper released on Tuesday said.
The International Sustainability Standards Board last week launched long-awaited guidance for companies to inform investors about sustainability-related risks, including the climate scenarios chosen in their calculations. Countries including the UK and Japan have said they plan to integrate these standards into their reporting rules. Companies will also have to report the full scope of their emissions, including those from their supply chains, from the second year they begin to report under the guidelines due to come into effect in 2024. That was a particular "challenge," since companies would need to collect the data from all their suppliers, said George Richards, head of ESG reporting and assurance at KPMG. [...] Some models were likely to have "limited use as they do not adequately communicate the level of risk we are likely to face if we fail to decarbonise quickly enough," the paper released on Tuesday said.
Yeah, but don't worry (Score:2)
We're gonna have to pay for your blunder, as usual.
Wouldn't be the first time (Score:5, Insightful)
"Financial institutions often did not understand the models they were using"
This statement applies in a lot of areas that "Financial institutions" get involved in.
Re:Wouldn't be the first time (Score:5, Insightful)
Maybe. I rather suspect that it was often "didn't choose to understand".
Re: (Score:2)
Our computer models are right and yours are wrong...
And people wonder why the scientific community is loosing the faith of the people.
Did not say which way the error was. (Score:5, Informative)
The summary did not say, but the article did clearly state that the financial institutions were UNDERESTIMATING the risk, not over-estimating the risk.
They were not accounting for secondary risks, including but not limited to migration, war, and increased chance of stronger natural disasters.
This is extremely important in a world where people deny science etc, some one could read this summary and think the banks were over-spending to account for non-existent risk, rather than underspending.
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In other words, they're closer than the rest. Now they'll be just as far off...unless they ask for the numbers, not the adjusted numbers, and do the calculations themselves.
People disagree, so what (Score:1)
One group of experts models a set of scenarios to project their risk under different conditions
Another group of experts with different models disagrees with them.
So what? They are both expert groups, they disagree. You decide which one is right
The NGFS scenarios are here: https://www.ngfs.net/sites/def... [ngfs.net]
The other view is here: https://actuaries.org.uk/media... [actuaries.org.uk]
Re:People disagree, so what (Score:4, Insightful)
Right, everything is just a matter of opinion, and one opinion is as good as another, so pick the opinion you *wish* were true.
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Right, everything is just a matter of opinion, and one opinion is as good as another, so pick the opinion you *wish* were true.
This is two panels of experts using different models who come to different conclusions. How are you deciding that group B is more right than group A?
Have we heard from group A responding to why group B is wrong? And even if we did, then what?
In the end the business leaders will take these reports under advisement and determine which course makes the most sense for their institution.
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When you hear a debate, do you decide who wins by who has the best opening statement?
We're talking about predicting the future here. Everyone always gets it pretty wrong on the first attempt.
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When you hear a debate, do you decide who wins by who has the best opening statement?
We're talking about predicting the future here. Everyone always gets it pretty wrong on the first attempt.
Sure. Are you taking a position on who's right or wrong here?
Group A says: "This second iteration of the scenarios takes a huge step forward. Not only does it include a mapping to impacts at a country level, but it includes nearly 1,000 economic, financial, transition and physical variables across six different scenarios. These have been created through a suite of models, supported by a consortium of world leading climate scientists and modelling groups. The variables are calibrated to the latest available
Re:People disagree, so what (Score:4, Insightful)
"Picking who's model right" is a gross oversimplification of what you need to do with this stuff.
I think you mischaracterized the second statement. For one thing the authors aren't climate scientists, they're actuaries. They have no models of their own for you to believe instead of the other guys' models. The whole point of the paper is right in the title: "Limitations and assumptions of commonly used climate change scenarios".
Their point on the excessive conservatism of some climate models is really a very minor one -- it's not a controversial point, but really it's just one of many things to take into account. The real target of the actuaries' critique is the various ways financial planners misunderstand and misuse climate model results. They're saying that planners don't understand assumptions they're incorporating into their plans when they plug a specific model result into them; that they don't understand the statistical dispersion of model results; and that they're using simplistic extrapolations of economic history that ignore the potential for discontinuous economic responses ("tipping points").
In a nutshell: the actuaries think the financial industry doesn't have a firm grasp of the risks.
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Frankly, any economic model is going to fail when you push it too far outside of the known (e..g,. s
Re:People disagree, so what (Score:4, Informative)
From page 41 of the NGFS report:
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From page 41 of the NGFS report:
Interesting point, sharp eyes
Deliberately sandbagging (Score:5, Informative)
'several large UK financial institutions had reported that they would fare equally well or better economically in a hothouse scenario compared with more moderate warming scenarios'
'an assessment of global gross domestic product loss in a so-called “hothouse” world of 3C higher temperatures ... did not include impacts related to extreme weather, sea-level rise or wider societal impacts from migration or conflict'
Well gee, if you ignore all the cascading detrimental effects of global warming everything will obviously come up roses. Most importantly, an analyst doesn't get fired today for painting a happy picture about the future.
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'several large UK financial institutions had reported that they would fare equally well or better economically in a hothouse scenario compared with more moderate warming scenarios'
'an assessment of global gross domestic product loss in a so-called “hothouse” world of 3C higher temperatures ... did not include impacts related to extreme weather, sea-level rise or wider societal impacts from migration or conflict'
Well gee, if you ignore all the cascading detrimental effects of global warming everything will obviously come up roses. Most importantly, an analyst doesn't get fired today for painting a happy picture about the future.
But are they wrong? Financial institutions often thrive on volatility, not stability.
They make money whether things go up or down
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I think it depends on exactly what kind of financial institution you are talking about. Insurance companies have a critical need to estimate future payouts to properly price policies. If they as a whole get that wrong, the whole reinsurance system could collapse.
Likewise secondary mortgate markets are highly vulnerable to climate miscalculations.
Banks, on the other hand, will making money both financing the creation of the problem and then financing the efforts to mitigate it. Businesses always need cred
To be fair lot models faulty predicting the future (Score:1)
Many doomsday scenarios like the hockey puck curve, no more ice caps by 2010.... Experts make a lot of very well researched theories but no model I have seen so far is exact
Before anyone comments, that I am denying climate change, I am not... I agree climate change is an important issue that needs to be remediated asap, a lot of good science too. And though there are some very opinionated people and there is a consensus that there is a major impact. no one is really knows for sure (at this stage) exactly wh
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What a brilliant, well-informed comment from a person of obvious scientific literacy! Now if only you could tell me what "the hockey puck curve" is, I could successfully overcome my unfortunate penchant for sarcasm and ridicule.
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Could you give a reverence to a reputable climate scientist predicting "no more ice caps by 2010". Until I see it I won't believe it. (Yeah, the Weekly World News made that kind of prediction. They also announced that we were being invaded by giant chambered nautilus from Mars.)
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I think he might have been referring to one of Greta's speeches. Or possibly Al Gore's.
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I think he might have been referring to one of Greta's speeches. Or possibly Al Gore's.
You are probably right. And this illustrates the issue with activists. The scientists say things that are true with a bunch of caveats. The activists cherry-picks a few facts, twists them until they aren't true for scare value and broadcasts them far and wide. Then when the activist's prediction fails to come to pass, they try to move the goal posts, burning the original scientists credibility in the process. It is far past the time where scientists need to distance themselves from activists who care n
Insurance Companies? (Score:2)
So the rest of these guys are just catching up? I mean, the public, here on Shlashdot, yeah, most of here don't control stuff. Let the pants-shitting begin because they are going to act like complete asses thinking that no one else had ever conceiv
And? This is surprising to you? (Score:4, Informative)
Apparently someone doesn't know how the economy works. It's speculative. There is no value created. Only assumed and extracted.
We’ve chosen to (Score:4, Insightful)
Scientists and engineers need to be ready with geoengineering solutions, because we’re gonna need them.
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The department of redundancy department (Score:2)
All financial models are implausible ergo models of climate change are also implausible.
Cite the full model with data... (Score:1)
The full data is not disclosed. The models are not disclosed.
Absent that... there's no discussion. You can't hand wave it. You publish it all so it can be actually reverse engineered by third parties or this is just politics.
And you can see that by the people that get excited about this... same crew that told us we had to wear four masks and forcibly vaccinate children against covid.
Same group telling us there is no such thing as a woman.
I'm sorry... but a lot of people are just tribal political animals tha
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a lot of people are just tribal political animals that have no regard what so ever for truth.
You win the award for least self-aware.
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Yep, as expected... snarky comments that have zero substantiation or basis.
I could as easily say "burning women at the stake is barbaric" and you could infer I'm in league with demons.
If you have something besides insults... now is your moment. If that is all you have... then you're just supporting my point. ;)
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Cool story, bro.
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No, cool story from you.
I make a comment about how some people only have bad faith arguments defending this stuff.
You then respond with a baseless insult.
Now its "cool story, bro".
Worthless.
Fair Insurance Settlements Are Always Implausable (Score:2)
So, let's see.... (Score:2)
Here is the correct model. The chances that humanity will cease to exist in 50 years is 10%. The cost of that happening is infinity dollars. Therefore the dollar cost risk each year is infinity*10%/50 = infinity. They grossly underestimated the risk.
Or, maybe someone is grossly underestimating the nonsense of articles like this.