This decade will be decisive in determining if the world can limit climate change or not
Buried in the pages of the latest report by the Intergovernmental Panel on Climate Change (IPCC) is one number each of us should be acutely aware of – 300. This latest report (AR6) was released in August and is a blunter, starker document than its predecessor published in 2013 – but that is no surprise.
While the science surrounding climate change is becoming better, the news is not. The report stresses that we are living through the beginnings of climate change, not watching it draw near. This conclusion comes from improved computer models, advances in the understanding of planetary processes and, increasingly, direct observations of the changes taking place as the planet heats up.
These advances enable the 721 authors of AR6 to define conclusions with greater confidence and to more accurately estimate what lies dead ahead. One estimate is 300 gigatonnes (Gt) CO₂ – this relates to the carbon budget, the maximum amount of CO₂ we can emit while having a chance to limit warming to 1.5°C by the end of the century compared to pre-industrial levels.
According to AR6, the world can only emit 300Gt more from 1 January 2020 for a high likelihood of limiting warming to 1.5°C. The world currently emits about 40GtCO₂ annually, meaning that we will burn through the remaining budget in about seven years.
This deadline is looming far faster than expected. This is the reason many people prefer to discuss carbon budgets of 400 or 500GtCO₂. But make no mistake, larger budgets do not provide more time to arrest climate change, just less likelihood of keeping warming below 1.5°C.
The world is about 1.1°C warmer than during the second half of the 19th century. With each further fractional increase in warming, life on earth will become increasingly difficult and unpredictable, with greater rainfall, rising sea levels, and droughts and wildfires more severe than any observed before.
If average global temperatures rise above 1.5°C – the ambitious goal set out in the Paris Agreement of 2015 – the heat is expected to push natural systems that sustain us past a dangerous turning point. Then many climatic impacts will switch from being merely destructive to catastrophic.
I am an investor. My colleagues and I are entrusted to manage clients’ money and ensure adequate retirement provisions. Our responsibilities are to ensure optimum returns, avoid losses and on no account lose the principal. Because of the experiences of a lifetime of calculating risks and rewards, I advocate for 300GtCO₂ as the budget to use when aiming for net-zero greenhouse-gas (GHG) emissions.
Arresting climate change within a budget of 300GtCO₂ gives us an 83% chance of remaining below the 1.5°C threshold. A budget of 500GtCO₂ reduces the chances to 50%. In my line of work, 50/50 is a foolhardy risk, not a carefully calculated one, especially given the global stakes at play.
Delay is no longer an option
Institutional investors are embracing efforts to achieve net-zero GHG emissions by 2050. The UN-convened Net-Zero Asset Owner Alliance has welcomed 46 members, comprising pension funds and insurance companies representing $7trn (€6trn) in assets under management.
As members, we are committed to transitioning our portfolios to net-zero emissions by 2050, consistent with a maximum temperature rise of 1.5°C. Already, 28 of the asset owners have established concrete interim targets every five years and are committed to regularly reporting on progress.
The Alliance was formed because we believe that asset owners have a unique role in the global economy and financial systems. We want to signal that we are ready to work on the development of assets. We are willing to bring sustainability targets at the level of financial targets and are ready to work on the long-term transformation of the economy. We also want to show that we are prepared to lead the way by first changing ourselves and then reaching out to others to join us.
However, given the findings of AR6, it is evident that the delay in a fast transition to a low-carbon, renewable energy-driven economy is pushing the world farther from our objective of achieving net-zero emissions by 2050. Climate change is not a problem that can be put off. It is here, and the impacts are already too costly for people and the planet.
Decisive advances must be taken this decade to hit the mid-century target of 1.5°C. The damage climate change will end up doing depends on the human response over the next few years. Further delays mean dramatically more harm and a vastly more costly bill to make up for the lost time.
Ahead of the upcoming UN Climate Change Conference in Glasgow (COP26) in November, the Alliance is urging investors, companies, and governments to act definitively to limit temperature increase by adopting transformational measures that will rapidly reduce carbon emissions. It is time to go beyond announcements and urgently adopt concrete and actionable carbon-reduction strategies.
We are asking governments to end subsidies that reduce the cost of fossil fuels and distort energy markets, further fuelling the climate crisis. We support programmes to ensure a market-based price of carbon. The transition to a low-carbon, renewable-energy-driven economy is hindered, if not made impossible, if competitors do not face the cost of not changing.
Alliance members, working individually and through the Alliance, stand ready to support the decarbonisation of the economy. We believe meeting the 2050 targets requires that climate impact be immediately included in every investment decision. Indeed, for many of our members, reducing emissions across our portfolios has become a target on par with meeting financial targets
If you ever wondered what sustainable capitalism could look like and how it might be achieved, I dare to state that integrating climate impact into financial targets and reporting and, therefore, the decision making of investors is a solid step towards a changed capitalism, if not a sustainable capitalism.
Günther Thallinger, a member of the board of management of Allianz SE, is chair of the UN-convened Net-Zero Asset Owner Alliance
Towards Net Zero: COP26 and Beyond
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Günther Thallinger: 300 – the budget the world dare not spend