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IPCC Report 2022 – Our thoughts

To protect our planet, investors must all urgently raise our game

The Intergovernmental Panel on Climate Change (IPCC) has launched the second part of its 6th Assessment Report.

The report makes clear that

  1. We have already passed climate change tipping points
  2. We will likely pass 1.5 degrees in a decade
  3. We’re on track for widespread species extinction in the latter half of the century

The report classifies as much as 40% of the world’s population as ‘highly vulnerable’ to the impact of climate change. The most severe impacts will disproportionately affect poor and marginalised communities – indeed, they already are.

For investors, this latest iteration of the report should be seen as an urgent call to action. The IPCC warns no region in the world can escape the impact of climate change. Many of the most devastating impacts of climate change on ecosystems are now found to be irreversible.

The IPCC warns, “Any further delay in concerted global action will miss a brief and rapidly closing window to secure a liveable future.” In investment terms, there are no ‘safe havens’ for investors looking to manage climate risk, says the United Nations.

As the scientific community ramps up its rhetoric, investors must raise our game.

What should the financial sector do?

The IPCC report demonstrates that markets are not properly pricing the climate crisis. Markets continue to finance economic activities which are not compatible with limiting global warming to 1.5°C. Investments that look profitable in the short-term, but are inconsistent with long-term environmental and financial goals, are still being chased by too many in our industry.

The IPCC report also outlines the need to not only cut emissions, but also adapt. In 2016, the UN said the annual costs of adaptation in developing countries alone would be $140-300bn by 2030 ($155-330bn in 2020 prices), and this is thought to have increased further due to climate hazards becoming more frequent and extreme.

The $100bn climate finance pledge, agreed at COP15 in Copenhagen in 2009, has been missed every year since.

Despite recent momentum, government action to tackle the climate crisis has so far been highly insufficient. Governments – and investors – have some catching up to do.

At Cardano, we’ve:

  • Committed our investment portfolios to net zero greenhouse gas emissions by 2050, with 50% emissions reduction by 2030
  • Increased our investments in green bonds
  • Allocated to a low carbon, ESG-screened equity portfolio
  • Partnered with Sustainalytics to engage companies with their sustainability transition, and;
  • We’re a signatory to the UK stewardship code

ACTIAM’s extensive sustainability expertise will also help us go further, faster.

We know the data is imperfect and methodologies are still under development, particularly for hard-to-reach asset classes such as private equity, infrastructure, and derivatives, but that shouldn’t stop us.

As our understanding of science, technology, corporate and investment practices advance, so too must we all evolve our approach. The health of our planet and safety of our communities won’t wait.