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The sustainable investor for a changing world

In the final article in our three-part series on net zero and climate change [1], Alex Bernhardt takes a closer look at the science around carbon neutrality and keeping the rise in world temperatures to 1.5C.  

As we have previously highlighted, getting to net zero emissions globally by mid-century is key to meeting the aims of the Paris Agreement on containing climate change. We have already explored one version of what a net-zero world would look like, from the perspective of the International Energy Agency (IEA).

Here we dive deeper into the UN’s Intergovernmental Panel on Climate Change’s (IPCC) latest science on climate change, net zero and 1.5C.

What is the IPCC, and how has it approached 1.5C?

The IPCC provides governments worldwide with scientific information for effective policies to address global warming.

It compiles gargantuan reports every five-to-seven years that reflect the most up-to-date thinking on climate change. These are based on the work of thousands of scientists, which is then compiled into three reports – 

  • Working Group I (WGI) looks at the physical science of climate change
  • Climate change impacts, adaptation and vulnerability are handled by WGII
  • WGIII tackles climate change mitigation. 

A synthesis report is published at the end of the reporting cycle.

In August, IPCC WGI released the first part of its Sixth Assessment Report, or AR6. The WGII and WGIII reports and the synthesis will follow in 2022.

This latest report is based in large part on climate assessments included in the Coupled Model Intercomparison Project Phase 6 (CMIP6) of the World Climate Research Programme. Compared to models in CMIP5, CMIP6 models include new and better representations of physical, chemical and biological processes, as well as higher resolution outputs.

New scenarios were devised which are intended to support the investigation of targeted science and policy questions.

As per chapter 1 of the AR6 report: “The new set of scenarios [2] now features a higher top level of CO2 emissions [3], although the most significant change is…the addition of a very low climate change mitigation scenario [4].”

The sixth assessment cycle included a special report on global warming by 1.5C, known as SR1.5, which was published in 2018 and played a large part in initiating widespread dialogue on net zero.

SR1.5 was produced at the request of the United Nations Framework Convention on Climate Change (UNFCCC), after 2015’s Paris Agreement contained an ambition to keep global temperature rises to 1.5C above pre-industrial levels.

What does the IPCC say about net zero?

Part one of AR6 finds that although some temperature rises – and associated impacts – are inevitable, they could be limited to 1.5C if global CO2 emissions at least reach net zero by mid-century.

The report estimates there is a remaining global carbon budget of around 300 gigatonnes to retain an 83% chance of staying below 1.5C – or about seven years of emissions at current levels.

SR1.5, which dives deeper into what net-zero emissions pathways would look like, states that to reach 1.5C with a limited temperature ‘overshoot’ – i.e. where temperatures temporarily exceed this threshold and then fall – global CO2 emissions must decline by 45% on 2010 levels by 2030 and reach net zero by 2050.

Recent research indicates that containing the amount of overshoot will play a key role in limiting the costs of climate change mitigation and economic losses.

SR1.5 highlights that putting a high price on emissions is necessary if a 1.5C-friendly pathway is to be met cost-effectively. Additional annual clean energy-related investments need to rise above today’s levels by around USD 830 billion a year, in 2010 dollars.

As with the IEA, the IPCC places a large emphasis on electrification and a concurrent rapid decline in the carbon intensity of electricity provision to meet net zero.

The IPCC makes it clear that limiting temperatures to 1.5C as opposed to 2C relies on rapid emissions cuts nearer term. There is a trade-off here – if this is not done, more onus will need to be placed on CO2 removal or negative-emissions technologies to draw down CO2 from the atmosphere in the future. All SR1.5 scenarios outlined, however, rely to some degree on taking CO2 out of the atmosphere.

It’s important to note that deploying negative emissions technologies at scale is unproven, and that the pathways chosen, for example using bioenergy and carbon capture and storage (BECCS), could clash with other sustainable development objectives due to their requirements for land and water use. The IPCC describes these land-use transitions as ‘profound’.

The IPCC is realistic about the challenges of carrying out such a transition at this pace, for which there is no historic precedent. Governance systems to enable accelerated behaviour change are recommended, particularly as these will limit the reliance on removing CO2 from the atmosphere.

More detail on the measures the IPCC sees as necessary to keep warming to 1.5C will be forthcoming in the AR6 WGIII report on mitigation.

How do these messages translate into (investor) action?

The UNFCCC process aims to utilise the best scientific evidence, and indeed the evidence from AR6 and SR1.5 was acknowledged in COP26’s Glasgow Climate Pact struck last month.

Both AR6 and SR1.5 advocate rapid and sustained reductions in methane emissions in line with a 1.5C-friendly pathway. In this vein, the Global Methane Pledge made at COP26 was a welcome development.

 What we have of AR6 so far notes the difference in climate impacts between warming of 1.5C and 2C, which in many cases are significant, highlighting the need for swift action.

Indeed, every fraction of a degree matters to limit the likelihood of heat, precipitation and drought extremes, and so does every tonne of CO2. The results from the WGII and WGIII will provide helpful evidence for investor scenario planning as economic impacts are quantified and promulgated.

The technological and energy focus for investors is clear, but it’s also true that reaching net zero will require an unprecedented level of global cooperation. Investors can play a key part here by, among other things, investing in leaders and engaging with laggards to steward the changes needed to realise the path to net zero.

[1] Read Getting to net zero – The view for the energy sector and COP26: Why net-zero is key to meeting the Paris Agreement  

[2] SSP1-1.9 to SSP5-8.5. SSP: Shared Socioeconomic Pathways  

[3] SSP5-8.5 compared to RCP8.5. RCP: Representative Concentration Pathway  

[4] SSP1-1.9, compared to the previous low scenario, RCP2.6 


Please note that articles may contain technical language. For this reason, they may not be suitable for readers without professional investment experience. Any views expressed here are those of the author as of the date of publication, are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may take different investment decisions for different clients. This document does not constitute investment advice. The value of investments and the income they generate may go down as well as up and it is possible that investors will not recover their initial outlay. Past performance is no guarantee for future returns. Investing in emerging markets, or specialised or restricted sectors is likely to be subject to a higher-than-average volatility due to a high degree of concentration, greater uncertainty because less information is available, there is less liquidity or due to greater sensitivity to changes in market conditions (social, political and economic conditions). Some emerging markets offer less security than the majority of international developed markets. For this reason, services for portfolio transactions, liquidation and conservation on behalf of funds invested in emerging markets may carry greater risk.

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