March 2, 2022

The IPCC’s latest climate impact report: what businesses need to know

On Monday, the Working Group II of the International Panel on Climate Change (IPCC) released what might be their bleakest warning to date, with co-chair Hans Otto Pörtner warning that “any further delay in concerted global action will miss a brief and rapidly closing window to secure a livable future.” The 3500-page report outlines the increasingly severe impacts of climate change, and how humanity can adapt to these.

Although tailored mainly to governments and policymakers, the value that the report provides for the private sector should not be overlooked. Companies must stay on top of the latest climate science to ensure that they are prepared for the changes that await them, as only so, they can become more resilient. In this piece, we’ll go over some of the key takeaways of the report, as well as the implications that they have for business.

 

Firstly: what is the IPCC 2022 climate change report?

This paper is the second part of the IPCC’s sixth assessment report, which is likely the last to be published while there still is a small window of opportunity to avoid the very worst consequences of climate change. While the first segment of the report, published in August of last year, focuses on the physical basis of climate science and makes it clear that the climate crisis is unequivocally the result of human activity, the 2022 report communicates the impacts that climate breakdown will have on

our society and the planet, as well as how we can try to best deal with what’s to come. A third section on how to avoid the very worst warming scenarios is expected to be released in April, along with a final summary that’ll come out in connection with the UN COP27 in October.

Let’s now dive into some of the main findings outlined in the landmark report.

 

Climate change is already happening, and its impacts are more severe than previously anticipated

With around half of the global population living in places “highly vulnerable” to climate change, the report states that no inhabited area will be exempt from the dire impact of the heating of our planet. We are already seeing this, as even at 1.1°C degrees warming – which is where we roughly are at right now – extreme weather phenomena such as droughts, heat waves, floods, and storms are threatening the livelihoods of millions of people. The World Resources Institute (WRI) reports that since 2008, 20 million people have been forced to leave their homes because of floods and storms. Extreme weather also has economic consequences. The European Environment Agency estimate that between 1980 and 2020, extreme weather has come with the hefty price tag of 450-520 billion euros – and this is only for Europe.

Extreme weather can pose both direct and indirect risks to companies, the latter of which can present itself for instance in the form of wildfires burning down forests that have been invested in for carbon offsetting purposes. As temperatures continue to rise, the IPCC also warns that we can expect multiple hazards to occur at the same time, both interacting with each other and causing ripple effects. For example, heatwaves and droughts put not only crops at risk, but also human lives. This, in turn, might lead to substantive agriculture production losses, which, coupled with a decrease in labor productivity, will drive down smallholders’ incomes while raising food prices, threatening the food security of millions.

 

Irreversible changes will be unavoidable

It is essential that all actors of society do their very best to limit global warming to 1.5°C, because when we hit that mark (which, if things continue at their current pace, might already happen in the early 2030s) we can expect to have caused some extremely serious and even irreversible damage, the IPCC warns. At 1.5°C, we will see the loss of many of Earth’s glaciers and Arctic ice sheets, 14% of terrestrial species facing high risk of extinction, and an additional 350 million people without enough water by 2030 – to only name a few consequences.

Every 0.1 matters. Companies need to realize that setting climate objectives aligned with the 1.5°C target of the Paris Agreement is now not only a recommendation but a must if we want to steer clear of a fully-fledged global catastrophe.

 

Europe will have to deal with four key risks

The report also delves into 7 different geographical regions and the specific climate change impacts, risks, and vulnerabilities that each of these regions are subject to. Below, we quote the key risks that the IPCC predicts Europe will have to tackle as we’re moving towards warmer temperatures:

  1. Increase in mortality and morbidity of people due to heat. The number of deaths and people at risk of heat stress will increase two- to threefold at 3°C compared with 1.5°
  2. Heat and drought stress on crops. Substantive agricultural production losses are projected for most European areas over the 21st century, which will not be offset by gains in Northern Europe.
  3. Water scarcity. In Southern Europe, more than a third of the population will be exposed to water scarcity at 2°C. Under 3°C, this risk will double, and significant economic losses in water and energy dependent sectors may arise.
  4. River flooding and sea level rise. Above 3°C, damage costs and people affected by precipitation and river flooding may double. Coastal flood damage is projected to increase at least 10-fold by the end of the 21st century, and even more or earlier with current adaptation and mitigation, Sea level rise represents an existential threat for coastal communities and their cultural heritage, particularly beyond 2100.

Meanwhile, already vulnerable nations will have to face even grimmer realities. Coastal areas and small island states around the globe will suffer from the consequences of inundation already at anything warmer than 1.5°C. Depending on how much temperatures rise, between 31 million and 143 million people could become displaced in sub-Saharan Africa, Latin America, and South Asia. African nations could in the worst-case scenario be exposed to heat 118 times historical levels. This stands in contrast to Europe, where heat exposure would go up only fourfold.

 

What will these new realities mean for business?

The newest IPCC report can be translated into the following takeaways for companies and investors:

Increased investments into nature-based solutions. The new IPCC report underlines the largely untapped and often overlooked potential that nature itself offers. The authors write: “By restoring and safeguarding ecosystems on land and in the ocean, we help plants and animals to build climate resilience. Nature, in turn, can help us regulate the climate, give us clean, safe water, control pests and diseases and pollinate our crops. … Only diverse and healthy ecosystems are able to provide the services that are essential for reducing climate change risks.” Last year, the United Nations estimated that investments into nature-based solutions need to triple if we are to meet climate change, biodiversity, and land degradation targets.

Cutting greenhouse gas emissions and the reliance on fossil fuels must continue to be prioritized. The IPCC recognizes that solely relying on nature won’t be enough, and that drastic emissions reduction must continue to rank highest on the list of priorities moving forward. Setting ambitious mitigation targets – for example with the help of the Science-Based Targets initiative – and actively measuring progress towards these, will be of crucial importance for firms wanting to remain competitive in a changing market.

Conducting proper risk assessment can spare companies large and unexpected financial losses. To manage the uncertainty that the future holds, organizations should consider what the coming years might look like under various climate circumstances, drawing on for example the five emission scenarios outlined in the 2021 IPCC report. Platforms like Climanomics, which is aligned with the Task Force on Climate-Related Financial Disclosures (TCFD), can also help companies understand the vulnerability of their different assets under different plausible climate futures.

Preventing damage is easier than fixing it. Early adaptation is key if we are to become more climate resilient. In a recent Bloomberg article, Patrick Verkooijen, chief executive officer of the Netherlands-based Global Center on Adaptation, estimates that for example Sub-Saharan Africa will require an investment of USD 15 billion a year into agriculture and food system adaptation. In contrast to the USD 200 billion a year that could arise as the cost of inaction, USD 15 billion suddenly seems like a small price to pay.

Collaborating more closely with the scientific community. Climate change is complex, hence, why a multidisciplinary approach is required. This is even demonstrated in the IPCC report itself, as its working group consists of hundreds of scientists across various fields of research.