Dr Aled Jones Global Sustainability Institute, Anglia Ruskin University

© 2011 The Actuarial Profession www.actuaries.org.uk

Dr Aled JonesGlobal Sustainability Institute, Anglia Ruskin University

Resource Constraints

Sharing a finite world

Resource constraints research project

• Taking a systems view of the natural and social (human) capitals what do scarce resources potentially mean for the system flows in a global economy and in particular to financial capital?

– Energy availability – Food availability – Water availability – Land availability – Metals availability – Social mobility and health– Capital availability– Environmental loading

Global pressures & trends

A growing world population

But…

Slide 7

Local challenges: Water availability

Slide 8

Local challenges: Degradation of soils

0

50

100

150Oil

Gas

Coal

Uranium

SilverIndium

Zinc

Copper

Tin

Global challenges: resource constraints

[1] Current global reserves divided by current annual consumption (assuming no growth in demand).[2] Data taken from BP Statistical Review 2012, http://bp.com/statisticalreview and David Cohen, 'Earth's natural wealth: an audit', New Scientist, Issue 2605 (23 May 2007) pp. 34-41

Global challenges: Environmental loading

Economic losses already occurring

Limits to growth: financial imbalances

Summary

• Resources are getting more expensive

• Environmental damage is getting more expensive

• Capital is becoming more constrained

• (Global) population will peak

• … and they are all interconnected

So What?

So What? Commentary

• Growth is the solution

• Green growth

• The end of growth

• Beyond the limits

Possible financial impacts

• Reduced economic growth.

• Reduced access to many commodities, and hence increased prices (or price shocks) or lack of availability.

• Reduced international security and coordination.

• Repression of investment returns by governments.

• Possible changes to life expectancy and morbidity.

Inflation

• A series of economic price shocks from lack of availability of resources would lead to short-term inflation.

• Government response to price shocks, in particular their approach to money supply, is key for long-term inflation.

• Wage expectations will go up with more expensive resources however capital may be needed for resource extraction potentially keeping wages down.

Demographic assumptions

• Impact of climate change: increase the incidence of premature deaths from heat-waves but lower cold winter deaths.

• Lack of access to resources: Certain elements, such as rare earth metals, may become unavailable and could lead to disruption in medical supply chains.

• Change in societies’ priorities: economy as a whole will have to devote more (economic) resources to securing (physical) resources which could lead to less investment in healthcare.

Scenarios for the future

Scenario runs for actuarial model

• Each scenario has an optimistic and pessimistic outcome

– 4 scenarios deliver 8 sets of outcomes that are tested

• Compared to a ‘no constraints’ world

No resource constraints basis (N):Under this scenario resources to do not constrain growthDiscount rate: 3%Investment return: 3%Wage inflation: 2%Mortality: PMA92/PFA92 (Medium cohort 2005 projections): life expectancy to increase by 1 year every 5 years

Business as usual (B)

Severe Decline (Scenario B1):Discount rate: 3%Investment return: 3% reducing to 0% with severe periodic negative shocksWage inflation: 2% reducing to 0%Mortality: PMA92/PFA92 (Medium cohort 2005 projections): life expectancy to increase in line with N, then remain static with periodic negative shocks

Islands of stability (B2): Discount rate: 3%Investment return: 3% reducing to 0% with periodic negative shocksWage inflation: 2% Mortality: PMA92/PFA92 (Medium cohort 2005 projections): life expectancy to increase in line with N, then remain static

Defined contribution replacement ratios

Defined benefit assets

Defined benefit (increasing contributions)

Contact details

Dr Aled Jones, Director

Global Sustainability Institute

Anglia Ruskin University

Tel: 0845 196 2931

aled.jones@anglia.ac.uk

http://www.anglia.ac.uk/gsi