Report highlights impact of resource constraints

Published: 21 January 2013 at 12:04

Anglia Ruskin and Institute and Faculty of Actuaries research shows danger of inaction

Untitled Page

New research published by Anglia Ruskin University and the Institute and Faculty of Actuaries highlights the risks that resource constraints pose to the global economy and financial services, and in particular pensions.

The Institute and Faculty of Actuaries conducted a series of literature reviews to explore the current evidence for resource constraints and climate change.  To build on this work, the Global Sustainability Institute at Anglia Ruskin was commissioned to undertake further research and modelling of the possible impacts of resource constraints on actuarial advice.

The research found that the evidence for resource constraints is significant but this is not currently factored in to decision-making by politicians, economists and business leaders in a meaningful and proactive way.

The authors examined the current situation and projections for a range of resources including oil, coal, natural gas, uranium, land, food, water and metals.  For example, the report details how at the current rate of consumption there is only 50 years of oil remaining, while worldwide supplies of coal will run out in just over 100 years.

Using actuarial modelling techniques that project ahead for 25 years and longer, and applying this model to pensions, several scenarios were generated, ranging from positive to severely negative.  

Reactive policies and responses to resource constraints all led to negative outcomes and in one scenario this led to the collapse of pension savings.  Were the global economy to go into long-term decline the legal basis on which financial products sit could conceivably be undermined, the sponsor employer may no longer exist to pay contributions and the financial markets may also cease to exist, at least in their current form. 

However, if governments and economic agents anticipate resource constraints and act in a constructive manner, many of the worst affects can be avoided.

Peter Tompkins, from the Institute and Faculty of Actuaries said:

“Despite strong evidence that there is a risk that resource constraints could have significant economic impacts, this risk is not being factored in by many actors in the global economy.
“Our research is focused, in particular, on the impact to the financial services industry and to businesses.  Modelling work suggests that factoring resource constraints into risk management measures now could significantly limit future damage.  Our research finds that many current savings structures, such as pension schemes, may have to be re-designed if we are entering a low-growth economic paradigm.
“Actuaries have a key role to play in advising decision makers on risk. With this research we aim to help actuaries to lead the way in modelling these risk factors and providing a voice for these risks within their sectors.”

Dr Aled Jones, Director of Anglia Ruskin’s Global Sustainability Institute and an author of the report, said:

“This is the first time resource constraint data has been applied to the financial services sector using actuarial modelling techniques.
“The resulting scenarios are compelling.  We will be running more models for other sectors of the financial services industry across 2013 and look forward to sharing our results with corporate leaders and policy makers who are interested in seeing how such data can be practically applied and utilised in decision making processes.”

Please visit www.anglia.ac.uk/gsi for further information about Anglia Ruskin’s Global Sustainability Institute.  The research is available by visiting www.actuaries.org.uk