Let this sink in. The difference between 1.5 and two degrees Celsius change with global warming is a stark one for Australia: It is the difference between losing 70 per cent of the Great Barrier Reef or all of it.
What if I also told you that the solutions were available today and increasingly cost competitive? Indeed in many cases it would be cheaper to move to new technologies, particularly for energy, where our world-leading renewable energy potential could secure a low-carbon future and long-term prosperity.
These two realities are driving the greatest momentum shift around climate change we have seen, but before we explore this let’s consider the context.
This finding of the latest Intergovernmental Panel on Climate Change’s special report on the impacts of global warming of 1.5 °C above pre-industrial levels continues the long and increasingly severe warnings from the international scientific community on the dangers of climate breakdown.
The importance of the new report is that it clearly shows what the difference between 1.5 °C and two °C of warming will mean. Both scenarios will incur tremendous costs, but the latter will be orders of magnitude greater. It also makes clear we are rapidly running out of time to avoid two °C let alone 1.5 °C – these are the facts we can no longer afford to sugar coat.
Chart one, for example, illustrates at a global level the change in risk across a number of dimensions as temperatures increase. Risks increase more rapidly for some areas than others. At four °C the risks of catastrophic impacts are high across all areas. It also shows the current temperature change (about one °C above pre-industrial levels) has already increased risks which, as demonstrated above, is having significant impacts. The current cumulative effect of national commitments made through the Paris agreement would only reduce likely warming to somewhere between 2.5°C and three °C.
Chart 1: Climate scenario impacts on risk
Source: Intergovernmental Panel on Climate Change
To achieve the ambitious goal, a net-zero carbon economy is required by 2050, which implies reductions in the order of 50 per cent by 2030 – less than 12 years away. However, even this does not fully capture the urgency as most energy-related investment decisions made by governments, companies and allocators of capital have lifespans of decades – we are building our climate future today and energy is only part of the change which is required.
It is easy to become overwhelmed by the immensity of it all. Perhaps that is part of the reason we have been slow to act over the past few decades. However, despite the enormity of the challenge it is also true that we are seeing strong signs of a massive shift in the way this issue is being addressed by investors, companies and regulators.
The gears of our corporate, national and global legal and governance systems are turning into action as the systemic implications of climate change are now clearly apparent. Systems originally designed to respond to more traditional financial and economic crisis are now focused on the dangers posed by climate breakdown.
In December 2015 Mark Carney, the Governor of the Bank of England and the chair of the Financial Stability Board (FSB) stated: “The challenges currently posed by climate change pale in significance compared with what might come. The far-sighted amongst you are anticipating broader global impacts on property, migration, political instability, as well as food and water security.”
In Australia, the Australian Prudential Regulation Authority (APRA) has made increasingly confident statements regarding the systemic risks posed by climate change to the financial system and their intention to incorporate these into their supervision activities.
The Australian Securities and Investments Commission (ASIC) recently assessed the climate change disclosures of Australia’s largest listed companies and found only 17 per cent provide adequate climate change disclosures.
And just last week, the annual survey of company directors by the Australian Institute of Company Directors (AICD) found climate change and renewable energy were the number one policy concern for directors for the first time.
Critically, the solutions exist today and can be deployed at scale, with the initiative Draw Down providing the most comprehensive catalogue of solutions ever compiled. The best news is that many of the solutions save money and have other co-benefits including cleaner air, better health and wider access to energy. These are no regret options we can begin to take today.
In our research, Colonial First State Global Asset Management has identified five areas of risk and opportunity for companies and investors. These include the physical impacts of climate change itself, carbon regulation, low-carbon transition, fiduciary duty, and finally reputation.
Australian investors are beginning to rise to this challenge. Two weeks ago, 46 per cent of shareholders voted in favour of a resolution requesting Origin Energy improve its disclosure on industry association’s climate lobbying. The Climate Action 100+ initiative is the largest collaborative effort ever undertaken by investors to engage with the largest and most exposed companies in the world.
However, investors, like regulators and companies, have much further to go, starting with our disclosure of how we are managing and contributing to the issue and its solutions. No one is perfect in this area, it is transition after all, and yet the tendency to not voluntarily offer mixed news discourages many from greater transparency.
The stakes are too high for this approach to continue. We must step up to the challenge that climate change poses including opening ourselves up to greater engagement, and at times criticism, from our clients and other stakeholders. Be it by design or disaster, business as usual is not an option.
Pablo Berrutti is head of responsible investment (Asia Pacific) at Colonial First State Global Asset Management.