Does the IPCC report change anything?
Does the IPCC report change anything?
The Intergovernmental Panel on Climate Change (IPCC) has published its sixth assessment report (AR6). The latest IPCC report underlines the scale of the challenge ahead and adds impetus to political action and social pressure, but doesn’t change the destination toward which we are heading.
What we’ve learned from the report
The updated analysis leaves no doubt in the scale of the threat ahead. The IPCC has helpfully underlined the consequences of inaction. More physical damage is unavoidable; in any of the scenarios it paints, temperatures will rise 1.5°C in the 2030s.
If emissions are cut through 2050, temperatures will fall later in the century, but initial increases – the results of lags between emissions and temperature rises – are inevitable. Without action to cut emissions in coming decades, temperatures will rise by up to 4°C over that historical baseline before the end of the 20th century.
What this means
While the difference between 1.5°C and 4.0°C might sound minor, the human consequences are not. A 1.5°C temperature rise will lead to 2.4 times more frequent droughts and a 1.5 times increase in extreme precipitation. At 4°C, those risks roughly double to 5.1 times and 2.8 times higher frequencies, at which point many parts of the world will become uninhabitable, mass migration becomes unavoidable and the economic impacts will be severe. Those warnings may provide the catalyst governments still need to coordinate ambitious and comprehensive action to reach net zero emissions by the middle of the century.
What needs to be done
Reaching that goal will require halving global emissions over the next decade, or 6-7% annual reductions. While possible, that scenario is highly optimistic unless significantly more aggressive steps are taken.
To date, governments representing over 70% of the world’s emissions and economic output have established national net zero targets, and green infrastructure spending commitments may tally to ~$2 trillion over the next decade, with the vast majority of funding expected from private sources.
Despite this ambition, much of the hard work on delivering on these pledges is still to come and will rely heavily on technological advancements for those harder-to-abate sectors: the IEA anticipates that close to half of the CO2 emissions savings beyond 2030 will come from technologies that are still under development.
Companies must do more
Companies have started to follow suit but have further to go. Companies representing around 15% of the value of global equity markets have committed to reducing emissions quickly enough to limit long run temperature rises to 1.5°C, based on our analysis of companies setting goals through the Science Based Target initiative.
Investment in clean technologies and new growth products is similarly rising, but too often remains siloed in discrete product categories rather than targeting wholesale redesign of their entire product range.
Given the scale of change required, whether the global economy will deliver a net zero transition in the next three decades is debatable. But the timing is the key question, not the imperative of a transition. Less ambitious goals to limit long run temperature rises to around 2°C will stretch the process out by a few decades but don’t alter the need to reach net zero emissions or the imperative for action.
Earlier this year, we committed to setting a Science Based Target and are finalising its details. We have also joined other asset managers to urge political leaders to step up their climate ambitions. More importantly, we are defining the path we will take to get there and ensuring we are as equipped as possible to manage the risks and seize the opportunities facing the investments we manage for our clients.
- Global Market Perspective Q4 2021: economic and asset allocation views
- China: the most radical climate reformer of all?
- How we are engaging on ESG in Asian real estate credit
- Why capex is key to solving the supply chain issues hampering the economy
- Our review of the 2021 AGM season and how we voted
- Are local emerging market bonds approaching a turning point?
The contents of this document may not be reproduced or distributed in any manner without prior permission.
This document is intended to be for information purposes only and it is not intended as promotional material in any respect nor is it to be construed as any solicitation and offering to buy or sell any investment products. The views and opinions contained herein are those of the author(s), and do not necessarily represent views expressed or reflected in other Schroders communications, strategies or funds. The material is not intended to provide, and should not be relied on for investment advice or recommendation. Any security(ies) mentioned above is for illustrative purpose only, not a recommendation to invest or divest. Opinions stated are valid as of the date of this document and are subject to change without notice. Information herein and information from third party are believed to be reliable, but Schroder Investment Management (Hong Kong) Limited does not warrant its completeness or accuracy.
Investment involves risks. Past performance and any forecasts are not necessarily a guide to future or likely performance. You should remember that the value of investments can go down as well as up and is not guaranteed. You may not get back the full amount invested. Derivatives carry a high degree of risk. Exchange rate changes may cause the value of the overseas investments to rise or fall. If investment returns are not denominated in HKD/USD, US/HK dollar-based investors are exposed to exchange rate fluctuations. Please refer to the relevant offering document including the risk factors for further details.
This material has not been reviewed by the SFC. Issued by Schroder Investment Management (Hong Kong) Limited.