The IPCC report is a wake-up call to the stark realities of climate change. With climate change firmly in the spotlight and with COP26 just around the corner, it is up to investors, businesses and regulators alike to turn impetus into action.
The Sixth Assessment Report from the Intergovernmental Panel on Climate Change(IPCC) prepared by 234 scientists from 66 countries, concluded that it is “unequivocal that human influence has warmed the atmosphere, ocean and land”. Unless decisive action is taken to lower GhG emissions, the global temperature is expected to reach or exceed 1.5°C of warming within the next 20 years. A 2°C scenario will be also be beyond reach in the absence of urgent action. Even if action were to be taken, the report concludes that certain effects of climate change will be irreversible for centuries or even millennia, for instance for the global mean sea level to reverse course. All of this amounts to what IPCC Working Group I Co-Chair Valérie Masson-Delmotte describes as a “reality check”.
Who is at fault?
The coverage of the report has focused widely on the effect of climate change, but little on the causes of these effects. The 42 page executive summary for policymakers does not mention fossil fuels at all, as Emily Atkins points out. The second and third part of the report, set to be published in February and March 2022 will however discuss causes and what needs to be done. These were leaked in June and “blamed disinformation and lobbying campaigns — including by Exxon Mobil — for undermining government efforts to reduce greenhouse gas emissions and increasing the dangers of global warming to society.” It is unclear if the final report will call out the culprits in this way, since it ultimately must be approved by the world’s governments, including those who rely on oil as a major source of revenue.
However, it is crucial we do not lose sight of the culprits and causes in the midst of these existential threats. Multi-stakeholder frameworks are more important than ever to develop a clear picture of who is actively exacerbating the climate crisis and who is fighting to keep the Paris Agreement’s targets alive.
More ambitious targets
If there’s one takeaway that stands out from the report, it is that to reach the IPCC’s most optimistic scenario, urgent action must be taken now. This means that existing commitments must be adjusted to reflect the urgency of the situation.
The widely hailed Science Based Targets initiative (SBTi) is reaching the same conclusion. They recently changed their minimum ambition in corporate target setting from ‘well below 2°C’ to ‘1.5°C’ above pre-industrial levels.
Net-zero must also come a lot faster. As we wrote about in last month’s “in the spotlight”, net-zero pledges must be grounded in interim short-term goals. There is no longer time for baseless long-term ambitions. The UN-convened Net-Zero Asset-Owner Alliance urge investors to set interim goals for 2025. The ICPP report will hopefully rapidly accelerate existing net-zero pledges.
Less risk, more action
It is crucial that the financial industry receives the report as a wake-up call and not just another reason to prioritise risk and financial materiality analysis. Emma Cox, global sustainability and climate change leader at PwC, said: “For companies with a global footprint, the report provides the most detailed analysis of where and how your operations, supply chains and markets are vulnerable to the impacts of climate change”.
However, this focus on financial materiality fails to emphasise the responsibility of corporations to contribute to the fight against climate change. To prevent the bleak future outlined in the report, it is crucial that the financial industry transcends the conventional material and risk-based understanding of climate change and sustainability and embraces the necessary responsibility.
All eyes on the COP
The focus now turns to COP26 in November for world leaders to translate these stark warnings into action. With green finance one of the key focus themes in Glasgow, investors should prepare themselves for a renewed spotlight to be placed upon their real impact on climate change. We are therefore going to see a lot of pledges and commitments from now until the COP26 Summit November. Our standards and expectations must match the alarm that the IPCC report conveys.