Under AASB S2 (Appendix D, Paragraphs 14 and 18), a disclosure is considered material if “omitting, misstating or obscuring that information could reasonably be expected to influence decisions that primary users of general purpose financial reports make on the basis of those reports” and is described as “an entity-specific aspect of relevance”. While the reporting will largely be driven by finance teams, in insurance entities, actuaries have a key role to play by supporting the process and bringing additional insight. Actuaries will need to collaborate closely with finance, accounting, and sustainability teams when entities set appropriate materiality thresholds. Given that materiality in the context of AASB S2 hinges on information that could influence primary users, actuaries can bring their expertise in quantifying risks and assessing future projections to ensure financial statements provide relevant and decision-useful information.

At a high level, actuaries should develop a framework that incorporates both quantitative and qualitative factors, including the identification of the perils covered by each class of business that will be affected by climate change and the impact of transition risks aligned with the key metrics set out by the entity. By working with other teams, they can also ensure that an entity’s specific risk profile and sustainability goals are considered in the sensitivity and scenario analysis.

[ASRS 2: 10] “An entity shall disclose information that enables users of general purpose financial reports to understand the climate-related risks and opportunities that could reasonably be expected to affect the entity’s prospects.”

In assessing an entity's resilience, it is important to ensure that actuarial functions are actively involved in the assessment across the broader business, particularly in the following areas:

• Reserving: While outstanding claims liabilities (OCL) may not be heavily impacted by uncertainty relating to climate change, the premium liability (PL) could be more exposed, particularly when contracts have long contract boundaries. 
• Pricing: Actuaries should develop strategies to ensure premiums remain sustainable and affordable in the long-term considering the market hardening or softening based on the organisation’s strategic approach in navigating the climate risks and opportunities relative to competition. In either case, consideration of profit margins for financial modelling will be required for both physical risks and transition risks. Carbon costs and consequences of not meeting net zero targets should be brought into consideration. 
• Reinsurance: Actuaries must account for the potential impact of maintaining the same percentage of business with Reinsurers considering the impact of emission-based strategies and impact of risk to be insured in the medium to long term. 
• Underwriting and product design: In the medium to long term, actuaries should evaluate how products are designed to ensure their sustainability and safeguarding that continued growth or market share is maintained by exploiting opportunities for new products that align with the emission targets set by the insurer. 
• Investments: Actuaries should consider the impact on investment returns if shifts are made in the investment strategy towards green sectors and how they integrate sustainability risks in their investment decisions that align with emission targets. 
• Capital requirements and solvency: Determine capital requirements and solvency over the projection horizon considering any climate-related guidance from APRA as it becomes available.

After the climate related risks and opportunities have been identified, the assumptions that correspond with the varying levels of climate warmth needs to be modelled. Actuaries can play a key role in building out a range of sensitivities across affected perils that relate to the chosen levels of climate warming scenarios over the chosen short, medium and long-time horizons – at a minimum the entity would need to model two warming climate scenarios in terms of the regulatory requirements.

The two warming scenarios needs to be calibrated to impacts on the entity, this can be achieved with collaboration with climate scientists and risk management teams in identifying relevant risks and calibrating the quantitative impacts on the financial modelling.

Importantly, actuaries should not be confined to internally developed inputs, assumptions, sensitivities and scenarios. Widely recognised scenarios, such as those provided by the Network for Greening the Financial System (NGFS), offer valuable external benchmarks for scenario testing climate-related risks and inputs and assumptions to be used in quantitative modelling.