The warning from the Intergovernmental Panel on Climate Change’s (IPCC) Sixth Assessment Report is stark: our window of time to achieve the goal established in the 2015 Paris Agreement of limiting global temperature increases to 1.5°C above pre-industrial levels is rapidly closing.
The IPCC’s preceding Fifth Assessment Report, published in 2014, struck many of the same chords as the Sixth iteration and contained the key warning that “continued emission of greenhouse gases will… increase the likelihood of severe, pervasive and irreversible impacts for people and ecosystems”.
This is a warning that the IPCC have been repeating since their inaugural report in 1990 but as of yet the concerted decarbonisation effort that they are calling for has not been realised.
If we are to have any chance of achieving the aims of the Paris Agreement, we need businesses to accelerate their decarbonisation efforts. This is an effort that is necessary not only to ensure that society can survive, but also for any business that is hoping to thrive as society transitions from a high carbon-intense model to a low carbon-intense model.
The World Economic Forum warned in 2023 that as climate-related natural disasters become more prevalent and global weather patterns become more severe, global business operations will be disrupted. As global supply chains become interrupted by fluctuating weather patterns, businesses will see their ability to deliver their services to customers becoming increasingly hampered.
It, therefore, becomes an existential necessity for global businesses to become climate-positive, and push their industries to follow, otherwise there is a significant risk that they will not be able to deliver to their clients, investors and other stakeholders.
This is not a fanciful warning, we are already seeing industries impacted by climate change and companies having to react, at great cost, or see their operations go under. PWC have already noted examples of conglomerates that learned the hard way that extreme weather could cost several hundred million dollars a year by 2030.
According to The Australian Bureau of Agricultural and Resource Economics, more than AUD 1 billion dollars (c. £542 million) were lost in Australia’s agricultural sector between 1999-2019 as a result of increasingly frequent and damaging droughts.
Based on Deloitte’s Job Vulnerability Index, the industries that are most at risk of having their operations negatively impacted by worsening climate change are:
The largest institutional investors have been viewing climate as a systemic risk and taking action for many years now. These large institutional investors, or ‘Universal Owners’, have highly-varied portfolios and as a result are exposed to the long-term effects of climate change. Any worsening of the impacts of climate change will have an oversized impact on their portfolio and, therefore, their return on investment.
To combat this, Universal Owners already engage with companies on their climate-mitigation strategies and influence the way in which business is conducted to limit their exposure to climate change-related costs.
The faster companies work to reduce climate-related risks and costs, the better it is for their investment case. Businesses from across society should be looking inwards and asking what they can do to reduce the impacts of climate change on their business model, and, subsequently, on their investors, stakeholders, and society.
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