The Canadian Institute of Actuaries (CIA) says nature risk, not just climate risk, but the risk of loss related to the erosion of natural capital, is a crucial part of climate scenario analysis that risks being overlooked in the discussion about climate change and regulation.
In a statement the institute’s lead author of Integrating Nature in Climate Scenario Analysis for Enhanced Resilience, Michael Tencer says “including nature risk in climate scenario analysis is crucial for prudent financial risk management. Ignoring biodiversity loss and ecosystem degradation leaves a significant gap in understanding the full spectrum of risks.”
Managing exposure
Similar to climate risk, they add, nature risk can be categorized into physical, transition and liability risks. “A climate risk scenario analysis framework that does not consider nature is insufficient in preparing for the future. We urge all risk stakeholders to integrate nature risk into their frameworks. This involves not only conducting scenario analyses to manage exposure to nature loss but also raising awareness about the impact of business activities on nature.”
The statement draws attention to international targets related to climate change and how they are influencing Canadian policy action which will, in turn, impact financial institutions.
“The risk related to loss from the decline in nature and from policy changes to slow this decline must be part of the climate risk conversation. Canada’s actuaries advise that nature-related risk must be included in climate-related risk scenario analysis frameworks for prudent financial risk management.”
