The sixth UN Intergovernmental Panel on Climate Change (IPCC) report has stated the impact of manmade climate change will become increasingly devastating unless we go well beyond governments’ current targets to reduce emissions.
Following the report, financial services have come under fire for their indirect role in fuelling climate catastrophe.
According to the authors of Climate Change 2021: The Physical Science Basis the increases seen in greenhouse gases in the atmosphere since around 1750 are “unequivocally caused by human activities”.
Many of the changes caused by past and future greenhouse gas emissions will now be with us for centuries to millenia with sea level rise now classed as “irreversible.”
CO2 levels in 2019 were higher than any other time in “at least 2 million years”, the report stated.
The message to the world from the panel was every degree of warming counts and the effects of manmade global heating will mean more heatwaves, flooding and extreme weather in the future – unless we act very, very fast.
Despite the Paris Agreement in which states across the world signed up to keep global heating to no more than 1.5°C by the end of the century, analysis by Climate Action Tracker (CAT) showed current government commitments to reduce emissions would see global temperatures rise by 2.4°C by then. And if we were to carry on the current policy course we would see a 2.9°C world by 2100. CAT estimated in 2020 we were already at 1.2°C of warming.
In the most ambitious scenario set out by the IPCC, including “immediate, rapid and large-scale reductions”, we would pass 1.5°C warming in the middle of this century and see heating stablise at 1.5°C at the end of the century.
Given the role of fossil fuels in the crisis, some groups turned their attention to the funding of that industry and made urgent appeals to finance.
Time to decarbonise
Speaking about the broader global economy, UN secretary-general Antonio Guterres said the IPCC’s warnings must be a “death knell” for fossil fuels: “We need immediate action on energy. Without deep carbon pollution cuts now, the 1.5°C goal will fall quickly out of reach.
“This report must sound a death knell for coal and fossil fuels, before they destroy our planet. There must be no new coal plants built after 2021. OECD countries must phase out existing coal by 2030, with all others following suit by 2040.”
He continued: “Countries should also end all new fossil fuel exploration and production, and shift fossil fuel subsidies into renewable energy. By 2030, solar and wind capacity should quadruple and renewable energy investments should triple to maintain a net-zero trajectory by mid-century.”
Amy Clarke, co-founder and chief impact officer of Tribe Impact Capital said: “This current report confirms the state and scale of the challenges now facing us – it makes for sobering reading and is a clarion call for action. This report draws a line in the sand that as a global finance industry we must not cross.”
Clarke said goals to be carbon neutral by 2050 were insufficient and urged finance players to step up: “As an industry, global finance’s collective pledges and supporting actions need to be more aggressive and more focused in their deployment and in their timetables.
“Net zero by 2050 is not enough given what we know about the cumulative effect of greenhouse gas emissions and the associated lag in carbon performance. Coupled with the diversity of approaches in net-zero pledges in finance – varying inclusion of different scopes, and the often over reliance on offset schemes and creative carbon accountancy – it is clear that we will all have to work harder and with more urgency.
“The call to finance has already come. This report re-iterates that call. The question is who has listened and heard, and is now willing to step up and lean in harder to deliver the change that is so evidently required?”
WWF chief adviser on climate change and WWF lead on the IPCC, Dr Stephen Cornelius, had a reminder about the timeframe we face to address these issues.
“The IPCC report is a stark assessment of the frightening future that awaits us if we fail to act. The opportunity to limit temperature rise to 1.5°C is still possible, but only with rapid and deep cuts to greenhouse gas emissions and protecting and restoring nature,” he said.
“With less than three months to go until COP26, the decisions made in the weeks ahead will define our future.”
He said financial institutions still have opportunities: “We all have a part to play and the financial sector, as one of the UK’s biggest indirect contributors to climate change, is no exception.
“The opportunity is there to lead the way in clean, green lending and investment but it’s too late for warm words and empty promises.
“Financial institutions need to align their activities with the goals of the Paris Agreement by putting in place net-zero transition plans that cover their worldwide financing – and we need government to mandate the publication of these transition plans through legislation, so progress against these targets can be monitored.
“We won’t forget who steps up to the greatest challenge we’ve ever faced.”
Mark Campanale, founder and executive director of think tank Carbon Tracker, said the IPCC report ramped up the risk on fossil fuel investments: “In our report Decline and Fall: The Size & Vulnerability of the Fossil Fuel System we identified the huge vulnerability that threatens financial stability, as investors comprehensively de-rate the fossil fuel sector and reprice negatively the risk to their exposure.
“The new IPCC report is yet another trigger moment that adds to the already fundamentally negative case for investors owning shares or bonds in the fossil fuel economy. The IPCC report just keeps on adding to the risk stacking up for fossil fuel investors.”
Campanale expressed concerns about the resilience and ability of banks to transition at the speed necessary: “What the IPCC report does is create another solid foundation, a backstop to challenge any doubts that investors may still have as to the serious of the climate crisis and the speed in which financial markets have to respond.
“One of the main questions we believe financial regulators have to address is whether the banks can write down the value of their loans to the fossil fuel system, without imperilling financial stability and the viability of the banks. I don’t even think that regulators know the quantum of outstanding debt owed to the banks by the fossil fuel system. I find that quite worrying.”
The publishing of the IPCC report also prompted many calls to put climate science at the heart of investment processes.
Nick Stansbury, head of climate solutions at Legal & General Investment Management said: “The strength of message and clarity from the IPCC is more than mere rhetoric and is very significant.
“This report definitely settles the matter – climate risk is unambiguously fundamentally important for global investors – it is a primary issue with tangible risk and return considerations. Investors must consider them as a first order concern.
“Not only are the physical consequences real, but they are here now, and they are going to get worse whatever we do. The physical impacts are broader, more complex and more far reaching, which means the policy imperative for change is greater than ever before.”
This echoes a statement from former Bank of England governor Mark Carney, now the UN special envoy for climate action and finance, who said: “The IPCC’s assessment is critical to understanding the scale of the climate crisis, and the policy and strategic responses required to address it.
“The ambition of these policy, business and financing decisions must be based on the science, including the reality of the world’s rapidly diminishing carbon budget and the fast increasing physical risks to people and planet.”
Emma Cox, global sustainability and climate change leader at consultancy giant 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.
“Climate science should remain the hard basis for all decision making and target setting. In parallel, it must be used to inform and instigate a strong policy response to close the remaining ambition gap to keep the Paris Agreement objectives alive.”
At Lombard Odier, Dr Michael Urban, senior sustainability analyst, and Dr Christopher Kaminker, head of sustainable investment research and strategy, also noted the strengthened case for putting climate at the heart of investing:“The latest IPCC report unequivocally strengthens the scientific evidence on the risks as well as the opportunities associated with the climate transition.
“Generally, it solidifies the importance for investors to consider transition, physical and litigation risks into their investment decision-making.
“Consider that in 2020, the market cap of clean tech companies grew by $1tn, while the market cap of oil and gas companies contracted by about $680bn. Without a doubt, the IPCC report should strengthen an already buoyant demand for investment solutions that tackle climate mitigation and adaptation.”