Climate change has been one of the greatest failures of risk management in modern history. The scientific evidence has been clear for decades, but decision-makers have failed to act in a manner consistent with the scale of the risk. Even with advanced modelling tools at their disposal, financial institutions have underestimated the scale, complexity and interconnected nature of climate threats, including ocean acidification, which has the potential to destabilise global food systems and coastal economies. The economic stakes are enormous: in a worst case scenario, the world could see a 50% loss in GDP between 2070 and 2090.

Yet climate risks are still treated with softer measures than other financial risks. “The standards applied in insurance, pensions or most other spheres of human endeavour are not applied when it comes to climate change,” says Sandy Trust, Director of Sustainability Risk at Baillie Gifford and Fellow at the Institute and Faculty of Actuaries (IFoA), which has undertaken a multi-year partnership with climate scientists to apply actuarial risk-management techniques to climate change.

Step one in applying an actuarial lens to climate is framing it as a risk-management problem: what do we want to avoid and what action do we need to take? In practical terms, that means setting a budget. In climate science, a carbon budget defines the maximum amount of carbon dioxide that can be emitted while keeping global warming below a chosen threshold, such as 1.5°C or 2°C. Defining legally binding temperature limits translates to budgets, which form an integral part of the Paris Agreement and UN Framework Convention on Climate Change negotiations.

The planetary boundaries framework extends this “budget” approach beyond climate, applying it to other critical environmental limits, including ocean warming. Introduced in 2009 by an international team of researchers led by Professor Johan Rockström at Stockholm University, the framework identifies nine key Earth system processes that support a stable planet: climate change, ocean acidification, biodiversity loss, biogeochemical flows (of nitrogen and phosphorus, for example), land-system change, freshwater use, atmospheric aerosol loading, stratospheric ozone depletion and novel entities (such as plastics and chemical pollution). “Every planetary boundary, once quantified at the global level, translates into a finite resource budget,” says Professor Rockström. “These budgets serve as a benchmark for risk assessment.”

As of the latest assessment, in 2024, all boundaries except atmospheric aerosol loading, stratospheric ozone depletion and ocean acidification have been breached. This analysis placed ocean acidification just within the boundary, but the trajectory is worsening, and the planet as a whole is well outside the safe zone.

The framework’s strength lies in its systems view, recognising that crossing any one limit risks destabilising multiple functions in the earth system. Coral reefs illustrate this complexity. They are intricate webs of species threatened by marine heat waves, acidification, pollution and overfishing, with each stressor amplifying the others. While ocean acidification is primarily driven by CO2 dissolving in oceans, excess nitrogen and phosphorus further exacerbate the effects of both acidification and marine biodiversity loss, and novel pollutants add additional strain. “The planet is a complex, self-regulating system that has tipping points, which drive self-amplified negative impacts across the rest of the system, such as warming, loss of fresh water or collapse of ecosystems,” says Professor Rockström.

This interconnectedness is where many current climate risk models fall short. They often treat each hazard in isolation, missing the compounding effects of multiple stressors. “You can only understand the climate through a systems lens,” says Professor Tim Lenton, the founding director of the Global Systems Institute at the University of Exeter. “If you come at it from one discipline, you’d quickly find yourself asking questions that require expertise from other disciplines.”

To overcome fragmented thinking when it comes to planetary-scale risks, Professor Lenton’s team has established the concept of planetary solvency. Developed by the IFoA and the University of Exeter, the planetary-solvency approach adapts proven risk-management tools from finance and insurance to Earth’s life-support systems. “We’re not doing any new science, we’re communicating existing science within a risk framework,” says Mr Trust.

In finance, solvency measures a company’s ability to meet long-term obligations. Planetary solvency asks a similar question: can ecosystems continue to support human and economic systems under mounting pressures, even once tipping points are reached? It reframes climate change, biodiversity loss and ocean degradation as societal and macro-economic risks, through the merging of actuarial expertise and Earth system science.

A 2023 report produced by the IFoA and the University of Exeter revealed that many climate models used by financial-services providers underestimate climate risk by ignoring tipping points, failing to consider systemic interactions, and neglecting critical domains like human migration, biodiversity collapse and socio-political fragmentation, as well as the ocean. “Ocean impacts are completely excluded,” says Mr Trust. “This is a stunning underestimation, which runs contrary to actuarial principles and risk-management principles that require having a best guess about the worst case.”

Widely used economic climate-risk calculations have largely shown limited impacts, negligible at the 1.5°C mark and only single percentage GDP losses even at warming of 3°C. In fact, in these models an economic recession is not foreseen, even in the worst-case scenario. This approach to risk would be considered irresponsible in any other industry; actuaries are trained to account for low-probability, high-impact events. When actuaries met Professor Lenton, and read some of the detailed research on the approaches used, they were shocked that many of the most material risks were simply excluded from the climate-risk models used by major pension funds and asset managers, some of which were based on historical data. “Our shared purpose was to highlight the systemic underestimation of risk in the financial sector,” says Professor Lenton. “We then wanted to show that you could take these well-established processes and adapt them to planetary-scale risks.”

Looking at the ocean through this lens, the financial stakes are clear. Ocean acidification has the potential to disrupt food supplies for billions of people. The ecosystem services affected by acidification span mollusc, crustacean and finfish harvest, subsistence and recreational fishing, and coral-reef recreation. Reefs prevent an estimated US$94 bn in coastal damage from erosion annually, and are severely weakened by marine heatwaves and acidification. These are only the measurable benefits; the value of the countless interconnected biological processes taking place in the ocean is impossible to put into financial terms.

Within the planetary boundaries framework, the ocean-acidification budget is tracked through aragonite saturation, a measure of the calcium carbonate in the ocean derived from atmospheric carbon. The ocean absorbs 25% of atmospheric carbon dioxide: as more carbon enters the atmosphere, more enters the ocean. Aragonite is essential for marine life such as corals and molluscs, and serves as a natural carbon sink, but there is only so much the ocean can take – and although aragonite levels have not yet breached the boundary, the direction of travel is clear as carbon emissions continue to increase. “This is a stress response of a planet that’s doing everything it can to remain in a stable state,” says Professor Rockström. Therefore, although the ocean-acidification boundary is stable for now, the fact that the carbon-dioxide boundary has been breached warns that trouble is ahead. This is why, from an actuarial perspective, being inside the safe zone is no guarantee of safety. Six planetary boundaries have already been breached, flooding the ocean with excess carbon dioxide, nitrogen, phosphorus and chemical pollutants. Risk planning must therefore account for the worst-case scenarios in which these pressures interact and compound each other.

If planetary solvency can help us to understand the planet’s budget, ocean solvency can do the same for the ocean. An ocean is solvent if it can sustain its ecological and economic functions under current and future pressures. By that definition, warning signs are emergingt. “Coral reefs appear to be passing their thermal tipping point even below 1.5°C of global warming,” says Professor Lenton. “This could be an irreversible catastrophe that’s happening in front of our eyes, and it’s not just coral—we see the impacts in mangroves, sea grasses and fish stocks.”

A solvency approach recognises that continued functioning today does not ensure resilience tomorrow. If reefs and other critical habitats collapse, the consequences will cascade through fisheries, coastal protection, carbon sequestration and biodiversity, ultimately hitting food security, migration patterns, insurance markets and economic stability. In a world where trade, finance and supply chains are interlinked with ocean warming, biodiversity, freshwater use and land system change, planetary solvency is economic solvency.

The next step is to integrate these planetary boundaries into risk-management models and prepare society for what will happen if the tipping points are reached. With the rise of regulatory frameworks like the Task Force on Nature-related Financial Disclosures, the pressure is mounting on the financial services sector. Over 500 organisations have committed to voluntarily reporting their nature-related issues in line with the task force’s recommendations. Institutions like the European Central Bank and the Network for Greening the Financial System have sought advice from the planetary solvency project team on how to build their future risk frameworks. “Companies have just got their heads around climate by boiling it down to carbon emissions, and now they’ve got to take into account nature impacts as well, and paralysis by complexity is setting in,” says Professor Lenton. “We need a workable framework that can help make some progress on climate, nature and the rest of the planetary boundaries.”

In March 2025 the Planetary Solvency Risk Dashboard was launched. It lays out five different risk scenarios—limited, severe, decimation, catastrophic and extreme—which are quantified across clear indicators, such as percent GDP loss, human mortality or number of tipping points triggered. A traffic-light rating of green, yellow, amber or red is given to the current risk and the risk trajectory. Although the risk trajectories can be shocking (both climate and nature’s trajectories earned a red rating), the dashboard is meant not to paralyse but to motivate. Planetary boundaries provide a scientific accounting framework that can be applied across scales, from global to national to corporate.

What will this mean for the ocean? There is still a limited understanding of the extent of the economic impacts of ocean acidification compared to its biophysical impacts. But it is evident that things are changing amid increasing and unpredictable marine heatwaves. Insurance premiums in reef-adjacent areas have increased by 30-45% in areas at high risk of reef loss, and areas with severely degraded reef protection have seen property devaluation of 15-25%. Entire regions may become uninsurable in the near future, putting other financial services at risk as well, with experts warning that the entire global financial system may be unable to adjust. “There’s relatively little appreciation of the importance of oceans in the financial services sector, given how important it is to the global climate,” says Mr Trust.

There are glimmers of progress when it comes to ocean initiatives in the financial sector. Many major insurance companies recognise the direction of travel. The Nature Conservancy collaborated with local governments, insurers, and the tourism industry to develop the first insurance policy for coral reefs, which the Ocean Risk and Resilience Action Alliance, which includes multinational insurer AXA, is looking to apply more broadly. The policy releases payouts when wind thresholds are exceeded and helps to fund coral restoration efforts. British-American insurer WTW has also developed an innovative insurance mechanism for Belize that automatically releases funds when anticipated environmental disasters occur. Allianz has partnered with Sea Shepherd to support environment and biodiversity protection in the Mediterranean and get plastic out of the ocean. But overall, financial services and ocean protection remain separate disciplines. This is what the planetary-solvency approach aims to change. “These catastrophic outcomes are preventable, and we want governments to implement structured planetary-solvency assessments as a key part of national-security assessments,” says Mr Trust. “You can change your trajectory by taking action.”