New climate change report points to the urgency of Net Zero

Key findings of the third and final Intergovernmental Panel on climate change report, Climate Change 2022: Mitigation of Climate Change, are that to keep global temperature rise to 1.5°C by 2100, we must reach peak emissions by 2025.

“But that current policies, if not changed, would lead to a median of about 3.2°C temperature rise.”

This third report takes stock of the current trajectory of temperature rise based on global climate policies and examines various possible futures.

A recent Moody’s analysis unpacks the report’s implications for lenders and investors, including the risk of stranded assets in the near term, as well as the wealth of investment opportunities that comes alongside the need to rapidly transition to a low carbon economy.

The unit cost of some forms of renewable energy and of batteries for passenger EVs have fallen, and their use continues to rise.

Among other key takeaways of the report there are the potential for between $1-4 trillion in unburned fossil fuel and stranded fossil fuel infrastructure if we limit temperature rise to 2°C.

Financial stakeholders will be able to incorporate this knowledge into their portfolio strategies thanks to future datasets that include data on carbon emissions, climate-adjusted likelihood of default models, and data indicating firms’ predicted temperature hikes.

Climate change and low carbon

The IPCC emphasizes that the technological means by which to transition to a low-carbon economy exist today.

There is significant potential for emissions reductions through scaling up both established and emerging low-carbon technology across industry, energy and other key sectors, as well as addressing demand side solutions, including through car shares, public transportation and less meat intensive diets, among many other possible actions.

This demonstrates the range of opportunities for companies to create products that help promote the transition to a low-carbon economy and for investors and lenders to contribute to the transition by financing such companies.

Ongoing climate-driven events, including deadly floods in South Africa, wildfires in the US, and others offer ongoing reminders of the need to increase adaptation finance alongside financing the transition to a low-carbon economy.

“In light of this year’s Earth Day theme, “Invest in Our Planet” we further explore the investment opportunities in biodiversity, climate mitigation and proactive climate adaptation, in a recent post, Doom and gloom or economic boom? Opportunity in climate-positive investment,” writes Moody’s.

Spotlight on climate risk disclosure

The International Sustainability Standards Board recently launched draft proposal standards for sustainability- and climate-related disclosures.

The proposals are open for public consultation until July 29th. The draft climate disclosure guidelines align closely with the Task Force on Climate-related Financial Disclosures, which has been integrated into new disclosure requirements in several jurisdictions over the last year.

“This is an important step toward increasing the comparability and standardization of climate disclosure globally. It comes as the US Securities and Exchange Commission has launched an open public consultation on a proposed set of rules requiring climate-related disclosure by publicly listed companies and the Canadian government’s budget included mandatory climate risk disclosure for financial institutions starting in 2024.” Moody’s adds.