Report calls for ‘planetary solvency’ recovery plan informed by a “mindset shift” towards active stewardship, recognising humanity’s reliance on nature.
Investments that strengthen the resilience of real assets to extreme weather and increase adaptation to the physical risks of climate change have long lagged those in mitigation projects like solar and wind farms.
But calls for increased finance flows toward adaptation and resilience are growing. This includes their role supporting a global strategy of rapid interventions, which actuaries and scientists believe is needed in response to faster and intensifying climate change impacts.
A new report from the Institute and Faculty of Actuaries (IFoA) and the University of Exeter (UoE) makes the case for increased and coordinated action, following extensive use of flawed models by policymakers and financial institutions which have underestimated climate risks.
It asserts that achieving net zero by 2050 will not limit climate change to 1.5°C, with urgent and radical responses needed to avoid “catastrophic warming levels” of above 2°C by the middle of the century.
Speaking at a webinar launching the report, Faith Ward, Chief Responsible Investment Officer at the Brunel Pension Partnership, said both the financial and corporate sectors were still underestimating the need for investments in adaptation and resilience.
“Corporates are making some aspects of their value chain more resilient, but activity is quite siloed, rather than seeing the aggregate impact that this potentially could have on their business. Amplifying adaptation and resilience is a core priority,” she said.
Upward revisions
While past estimates have predicted climate damages to be as low as 2.1% of global GDP for a 3°C rise in temperature and 7.9% of global GDP for a rise of 6°C, more comprehensive models have revised expectations sharply upwards.
These include analysis from the UK’s Climate Financial Risk Forum outlining a combined climate and nature shock scenario causing a 15-20% contraction in global GDP over a five-year period.
The delaying impact of incomplete and inadequate models on public and private sector action has increased the likelihood of heightened financial instability, widespread social upheaval and the breaching of planetary tipping points, the report said.
Specific financial impacts highlighted include climate-driven inflation, financial shocks, and the withdrawal of insurance from high-risk areas.
According to the IFoA/UoE, the need for accelerated action is also being increased by a reduction in the cooling effect previously provided by aerosols – due to measures being taken against air pollution – which has historically limited warming by 0.5°C.
The report, titled ‘Parasol Lost’, also highlighted scientific evidence of heightened ‘climate sensitivity’, meaning planetary responses to greenhouse gas emissions are more intense than expected.
It urged governments to work together to create and roll out a ‘planetary solvency’ recovery plan informed by a “mindset shift” towards active stewardship, recognising humanity’s reliance on nature.
The plan should include ‘quick wins’ such as cutting methane emissions and halting deforestation, as well as accelerating the energy transition, investing strategically in nature protection and restoration, and developing technology solutions that can serve as emergency brakes.
“The effects and sensitivity [to climate change] are higher, the impacts are going to be greater. That means the financial impact on people’s savings and investments is going to be even more profoundly felt,” said Ward, also Chair of the Institutional Investors Group on Climate Change (IIGCC) and a member of the strategic committee of the UK’s Transition Finance Council.
The IIGCC published its Climate Resilience Investment Framework in June 2025 to help investors develop climate adaptation and resilience plans.
Closing the gap
The United Nations Environment Programme’s latest Adaptation Gap Report estimates that the adaptation finance needs of developing countries will reach US$310 billion by 2035. But international public adaptation finance flows to these countries were US$26 billion in 2023: down from US$28 billion the previous year.
While total climate mitigation finance rose to US$1.78 trillion in 2023, according to the Climate Policy Initiative, total tracked adaptation finance stood at US$65 billion. The private sector contribution to adaptation is typically reckoned at below 10% of the total, versus more than 50% for mitigation.
A recent World Economic Forum analysis cited “lack of direct financial returns” as the biggest barrier to adaptation finance from the private sector. But there is an increasing range of channels for institutional investment, including sovereign and municipal bonds focused on adaptive and resilient infrastructure, as well as innovative risk pooling solutions, such as Australia’s Cyclone Reinsurance Pool.
Brunel’s Ward said adaptation and resilience were increasingly important to value creation and risk management across asset owner portfolios.
“Investment in adaptation and physical resilience can really add value, particularly in infrastructure and real estate projects,” she said.
“Taking action to make yourself more resilient will pay. I can’t always tell you exactly by what degree, but we need to see this as a strategic priority at companies as well as at the policy level.”
Systemic interconnections
Sandy Trust, former chair of the IFoA’s sustainability board and Director of Sustainability Risk at asset manager Baillie Gifford, said that prevailing climate models had not taken enough account of the interconnectivity of climate-related risks, drawing parallels with failures to identify the root causes or predict the ramifications of the Global Financial Crisis.
“Climate change risk models are under-representing risks and not showing systemic interconnections,” he said. “Put simply, our approach to climate modelling would not meet actuarial standards on the risk side. The models exclude many risks scientists tell us are increasingly likely to happen.”
Trust said that both regulators and regulated firms were aware of the inadequacies and omissions of prevailing models for measuring climate risks to the finance sector, but said there was little incentive for the latter to admit the extent of potential losses.
This could be addressed, however, through working groups which would collaborate on private submissions to a regulator in order to stress test a more rigorous systemic risk scenario that accounted for plausible disruptions as well as capturing higher sensitivity and tipping points to produce a “best guess on the worst case”, he said.
Trust further urged regulators to take a stronger lead to address the inadequacy of climate risk assessment. “My concern would be that unless regulators instruct the market, the market is probably not going to take action, particularly smaller institutions because it is complicated and resource intensive,” he added.
Mandate the regulators
Ward said regulators had reduced their focus on tackling climate risk in line with a fracturing of political consensus on net zero in recent years.
“Because of geopolitical pressures, because of the difficulties when it gets real, when these issues need to be embedded, we’ve seen a rollback of this commitment. The deprioritisation of climate is incredibly bad for investors – and for society.”
She called for climate risks to be reintroduced into the mandates of financial regulators “to protect financial stability, and therefore the investment returns of pension funds and other investors”.
Asked about the impact of the Trump administration’s rollback of climate action such as the US Inflation Reduction Act, Ward predicted a reduction in innovation and adoption in cleantech and renewable energy.
“It will be harder and less transparent to evidence action, which will quell the opportunity for innovation. People won’t feel the ability to be vocal about the positive action that’s being undertaken by companies to address their own resilience and address climate change.”
But she described plans announced by the UK’s Department of Work and Pensions in December to develop statutory guidance on how pension funds should look at systemic risks as “a great step forward”.
Ward further added that the IFoA/UoE report’s call for a planetary solvency plan was an opportunity for the UK and like-minded countries to evidence claims of climate leadership.
“There is an opportunity for the UK to grab this planetary solvency report and be the first country to issue a plan to take forward and to address these issues, and reprioritise climate within the mandate of all the financial regulators, because it needs to be reinforced so that investors can take action.”
