Economic Impacts of Climate Change Could Lead to Severe Global Losses

A new report from the Institute and Faculty of Actuaries (IFoA) and the University of Exeter has warned that global GDP could be reduced by up to 50% if immediate action is not taken to address climate change. Titled “Planetary Solvency – Finding Our Balance with Nature,” the report stresses the urgency of global decarbonization and environmental restoration efforts to avoid catastrophic economic consequences.

As climate change continues to worsen, populations are already experiencing the effects through food system shocks, water insecurity, heat stress, and the spread of infectious diseases. The IFoA report indicates that without decisive action, risks such as mass mortality, large-scale displacement, severe economic contraction, and conflict could become inevitable. The report also highlights that crossing the 1.5°C global temperature limit, which has already been breached according to recent data from the EU’s Copernicus Climate Change Service, could trigger irreversible “tipping points,” leading to severe and widespread environmental damage.

Revisiting Economic Models and the Need for Stronger Climate Action

The IFoA report criticizes existing economic assessments of climate change, which it claims downplay the potential losses by excluding compounded risks. Current models often focus on isolated risks rather than accounting for interconnected consequences, resulting in underestimation of the economic impact. For instance, previous studies, including one by Nordhaus and Boyer predicting only a 2% GDP decline by 2100, fail to account for the catastrophic cascading effects that unchecked climate change could have on the global economy.

According to the report, the costs associated with mitigating climate change are far less than the potential economic losses from inaction. If policies are not altered, global economies could suffer significant setbacks, with GDP potentially contracting by 50% between 2070 and 2090. The IFoA argues that these findings should drive policymakers to adopt more aggressive climate policies and commit to a green transition to prevent a devastating future.