Intergovernmental Panel on Climate Change PDF

A Brief on IPCC
On 9 August 2021, the Intergovernmental Panel on Climate Change (IPCC), comprised of the world’s
leading climate experts, published the first part of its sixth global climate assessment. The IPCC was set
up by the UN and World Meteorological Organization in 1988 to provide policymakers with regular
scientific assessments on the current state of knowledge about climate change.
The first report focuses on physical science. The second report (expected in February 2022) will focus on
climate impacts and adaptation and the third report (expected in March 2022) will focus on climate
mitigation, with the final synthesis report pulling everything together in September/October 2022.
What the report says..
The title of the IPCC’s press release pretty much says it all: climate change is widespread, rapid
and intensifying. The UN Secretary-General, Antonio Guterres, described it as “code red” for
humanity and that it “must sound a death knoll for fossil fuels”.
The IPCC’s latest findings says it is “unequivocal” that human activity is responsible for the current
climate crisis and that the goals of the Paris Agreement will be missed without deep and rapid cuts to
greenhouse gas emissions (in particular, carbon emissions but also other potent GHGs like methane).
An increase of 1.5 degrees Celsius (above pre-industrial levels) in global temperature is thought to be the
level beyond which the impact of climate change (which we are already seeing now) will get much worse
- with higher frequency and severity of floods, heatwaves, wildfires and droughts. According to the
IPCC’s best-case scenario (i.e., even with deep reductions in GHG emissions), we’re expected to
reach the 1.5C increase by 2040. According to one of the report’s lead authors, Piers Forster: “If the
world can substantially reduce emissions in the 2020s and get to net zero carbon emissions by 2050,
temperature rise can still be limited to 1.5C”. Which is why this decade is being heralded as the “make-
or-break decade” for climate action.
For those who have been following the climate debate closely, these findings won’t come as a big
surprise. We just need a look at news footage over the last couple of months to see this in real time:
devastating flooding, heatwaves and wildfires raging across the globe. But for those who are still at an
earlier stage of their climate journey, the IPCC’s latest findings will make it harder to justify either not
taking any action or just doing the bare minimum.
What does it mean in practice?
1. Prepare for more climate regulatory policy
It’s likely that the IPCC’s report(s) will put pressure on governments across the globe to consider
introducing new or more stringent climate regulation and policies. These might include rules on the phase
out of coal power plants and internal combustion engines, climate reporting for corporates and the
financial sector, climate stress testing for banks and insurers combined with “supervisory expectations” of
how financial regulators expect banks and insurers to deal with climate risks, anti-greenwash rules for
investment products, and possibly carbon taxes and emissions trading schemes.
The EU and UK are already quite advanced on this front. And no sooner has the European Commission
published its mammoth “Fit for 55” package (EU has adopted a climate law enshrining its new climate
targets of at least a 55% reduction in greenhouse gas emissions by 2030 compared to 1990 levels and net

zero by 2050 ) of proposed changes to EU legislation and policy than questions are already being asked as
to whether considering the IPCC’s latest report will be enough to avert climate disaster.
All eyes are now on COP26 where global leaders will meet in November in Glasgow to hammer out the
next global climate agreement – with some of the key questions being:
 Will governments commit to more ambitious climate targets and action?
 Will developed nations agree a finance package that enables developing countries to sign up to
steeper reductions in their GHG emissions?
 Will a global agreement be reached on the phasing out of coal and other fossil fuels by a certain
date?
 Will mandatory climate reporting become the global norm?
 Will global leaders reach a consensus on the need to put a price on the cost of carbon? Be it
through cap & trade emissions trading schemes (like the EU ETS and UK ETS), a carbon tax or
more complex hybrids such as the EU’s proposed Carbon Border Adjustment Mechanism.
INTRODUCTION OF ESG RELATED POLICIES FOR DIFFERENT INDUSTRIAL AND BUSINESS
SEGMENTS IS UNAVOIDABLE AND IMMINENT. BEST FOR CORPORATIONS TO BE PREPARED
WITH AN AUDIT AND EXECUTION PLAN TO CURB THEIR ENERGY DEMANDS AND HENCE
SAVE COSTS IN THE LONG RUN. WIN-WIN.
2. Climate change will impact all asset classes in pretty much all regions
The IPCC report makes it crystal clear that it’s warming almost everywhere and it’s warming rapidly.
However, there will be some variations depending on your geographic location.
In any event, for asset managers and owners as well as lenders and insurers worldwide,
the clear message is that climate change can impact all asset classes regardless of where they are located.
So, climate change is clearly financially relevant to investment portfolios, putting a greater emphasis on
the need for climate risk assessments and risk management programs. And asset owners should also be
asking their asset managers if their business models are fit for purpose and whether they align with asset
owners’ own climate objectives and commitments.
And for investee companies, now is also the time to rethink business models and strategies if you
haven’t already started. Greater investor scrutiny and engagement will likely speed up the trend we are
already seeing in terms of the reallocation of capital to more sustainable investments and market repricing
to reflect the risk of potential stranded assets. According to the executive chair of the Carbon Tracker
Initiative: “any company whose core business exposure is to a high carbon economy faces significant
reweighting by markets in the next decade”.
But you don’t have do this alone or start from scratch – there are a number of industry initiatives that
have sprouted over the last 12-18 months to help the financial sector and corporates roll out credible
climate strategies, such as the Net Zero Asset Owners Alliance, the Net Zero Asset Managers Initiative,
the Partnership for Carbon Accounting Financials,
(PCAF is a global partnership of financial institutions that work together to develop and implement a
harmonized approach to assess and disclose the greenhouse gas (GHG) emissions associated with their
loans and investments and the Race to Net Zero alliance)
INDUSTRY AND BUSINESS DYNAMICS IS BOUND TO SEE A SHIFT IN THE WAY THEY OPERATE.
WITH EMPHASIS ON SUSTAINABLE INVESTMENTS FROM BOTH A PR AND A FUTURE

STANDPOINT. ALSO, THE INCREASE IN ADVERSE WEATHER CONDITIONS WILL LEAD TO A
GREATER RISE IN HVAC DEMAND AND GREENER WORKSPACES. CENTRALIZED COOLING
FOR ECONOMIC ZONES IS GOING TO BE AN AREA OF LARGE FOCUS TO BOOST ITS
EFFECTIVENESS AND EFFICIENCY.
3. Be ready for disruptions to supply chains
It stands to reason that if climate change can impact all asset classes in all regions of the world, then this
will also impact global supply chains. Although the agri-food sector is likely to be particularly affected,
this is not the only sector at risk.
And it’s not just about reducing the risks of climate change (be they physical or transition risks), it’s
also about adapting and building resilience to the climate impacts that are already happening.
DUE TO THE CHANGING WEATHER PATTERNS, INDUSTRIES RELYING ON PERISHABLE
RESOURCES ARE GOING TO WITNESS AN ADVERSE REACTION IN SUPPLY BOTH FINANCIALLY
AND IN RELIABILITY. EVEN SOURCING IS GOING TO BECOME A CHALLENGE AS NORMS STEP
IN REGARDING SUSTAINABLE SUPPLY CHAIN.
4. Foreseeable change in Investor engagement with companies wrt climate issues
Earlier this month, a group of 53 global investors with US$14 trillion in asset under management called
on companies to disclose a net zero transition plan, identify the director responsible for the plan, and
provide a means for investors to vote annually on progress against the plan. The group of investors has
warned corporates in carbon-intensive sectors to prepare for climate change to remain firmly on the
agenda for the 2022 AGM season.
The IPCC’s latest findings provide investors with an even stronger case to demand more action from
businesses (e.g. earlier targets, clearer intermediate targets by 2030, more stringent criteria for use of
carbon offsets, etc).
THE LANDSCAPE OF COMPANY VALUATION IS GOING TO CHANGE INCLUDING
SUSTAINABLITY GOALS AS A PRIMARY FACTOR. INVESTOR PRESSURES ARE GOING TO PUSH
COMPANIES TOWARDS ADOPTING AND EXECUTING PLANS TOWARDS EFFECTIVE
SUSTAINABILITY GOALS, NOT JUST FROM A PR PERSPECTIVE BUT ALSO FUTURES.
5. More power to climate litigators
According to the Grantham Institute’s latest report on global trends in climate change litigation published
in July 2021, there has been an exponential increase in climate change litigation across the globe, with
cases targeting not just government inaction but also companies and the financial sector. The recent
decision in the Shell climate case in particular has led to much speculation as to whether this is likely to
result in copy-cat litigation against other companies (not just oil & gas companies) both in the
Netherlands and other countries.
ENERGY AND CARBON-RELATED AUDITS ARE GOING TO INCREASE IN NUMBER AND COME
WITH MORE RAMIFICATIONS NOT ONLY FROM A FINANCIAL BUT LEGAL STANDPOINT AS
WELL. SERIOUS IMPLICATIONS COULD INVOLVE HALT OF OPERATIONS, ENVIRONMENTAL
AND COMMUNITY BASED SERVICES.