Increasing global temperatures by just 2°C will cause catastrophic damage to the planet and the clock is ticking. Governments and investors need to act now.
Humanity has about a decade to avoid the worst effects of climate change, according to the latest report from the world’s leading body of climate change experts.
The International Panel on Climate Change released its latest report in early October. It will be a key scientific input into the Katowice Climate Change Conference in Poland in December, when governments review the Paris Agreement to tackle climate change.
The report is plainspoken; climate change is here and overshooting the 1.5°C goal could become very costly, very quickly.
“We are already seeing the consequences of 1°C of global warming through more extreme weather, rising sea levels and diminishing Arctic sea ice,” the panel says. “Every extra bit of warming matters, especially since warming of 1.5°C or higher increases the risk associated with long-lasting or irreversible changes.”
Mercer agrees. In 2011, Mercer published its first global research report on climate change and asset allocation. In June 2015 we released a major update Investing in a Time of Climate Change, both studies undertaken in partnership with institutional investment clients representing funds under management of approximately $US3 Trillion.
The New York Times described Mercer’s work on climate change as the most significant on the subject linked to asset allocation ever. A new edition of the report will be released later this year.
Climate change is “a risk all investors need to acknowledge and start managing now”, says Helga Birgden, leader of Mercer’s global Responsible Investment team.
“We need to be FutureMakers, not FutureTakers,” Birgden says. “Time and scale for action on climate change is now of the essence for investors and Governments.”
Mercer’s new work comes with portfolio modelling analysis that investors can apply to current portfolio assets. It gives investors a way to assess how their portfolios are placed as regards climate risk, allowing for a forward-looking ‘climate impact on return’ and to avoid assets being ‘stranded’ or ‘worthless’ due to changes in regulation, demand and technology.
But a proactive approach to climate change could present investment opportunities in the green fields of the low carbon economy.
According to the IPCC report two degrees of warming could destroy ecosystems on around 13% of the world’s land area. Holding warming to 1.5°C would reduce that risk by half. The Arctic could experience ice-free summers once every decade or two in a 2°C world, versus once in a century at 1.5°C. Coral reefs would almost entirely disappear with 2°C of warming, with just 10–30% of existing reefs surviving at 1.5°C.
The Panel says limiting the global average temperature rise to 1.5°C is still possible; but requires “rapid, far-reaching and unprecedented changes in all aspects of society” including our use of land, energy, industry, buildings, transport, and cities.
To hold global temperatures to 1.5 degrees above preindustrial levels, the world must cut greenhouse-gas emissions 45% below 2010 levels by 2030 and become carbon neutral by 2050.
“Limiting warming to 1.5ºC is possible within the laws of chemistry and physics but doing so would require unprecedented changes,” the panel says. “The good news is that some of the kinds of actions needed are already underway around the world.”
A low-carbon economy
The recently published New Climate Economy report shows tackling climate change could provide an economic boost rather than a brake on global growth.
The report, published by the Global Commission on the Economy and Climate, finds action on climate change could add $2.8 trillion to government coffers and create more than 65 million new low-carbon jobs.
Commission co-chair Nicholas Stern says government prevent 700,000 premature deaths from air pollution over the next decade.
“The risks of the damage from climate change are immense and irreversibility gets ever closer,” Stern says. “Current economic models fail to capture the very attractive qualities of new technologies and structures… we are grossly underestimating the benefits of this new growth story.”