7 min read 20 Apr 22
Summary: As the world eases out of the pandemic restrictions and life begins to resemble some form of normalcy it would be easy to think that our global challenges are coming to an end. However, the dramatic effects of climate change continue unabated, posing their own threat to natural habitats, human populations and the economy.
Despite the economic downturn of 2020, concentrations of greenhouse gases like carbon dioxide (CO2) in the atmosphere are at record highs and continue to rise. These emissions from human activity are driving climate change. Without sustained action to reduce them, the UN estimates that the world’s average surface temperature will rise to 3°C degrees above pre-industrial level by the end of the 21st century.
The 2015 Paris Agreement on climate change committed countries to keep the increase to well below 2°C and pursue efforts to limit the increase to 1.5°C – a level at which the risks and impacts of climate change are much lower. According to the Intergovernmental Panel on Climate Change (IPCC), a 2°C temperature increase would exacerbate extreme weather, rising sea levels, diminishing Arctic sea ice, coral bleaching, and the loss of ecosystems.
The COP26 summit in Glasgow last year was encouraging as we saw the UK, US and EU set out nearer term targets for carbon emissions reduction targeting the coming decade. Their aim was to show nearer terms targets that they could be judged on but also leadership so that emerging markets would follow. What did follow were the leaders of major emitting countries such as India, Brazil and Vietnam affirm their own targets for emission reduction and for stopping deforestation.
Transformational action can no longer be postponed. The UN estimated in 2019 that global emissions must fall by 7% a year on average from 2020 to 2030 to get on track to achieve the 1.5°C goal. By 2050, we must achieve net zero greenhouse gas emissions worldwide.
Meeting this challenge demands deep and far-reaching reductions in emissions across all aspects of the economy. Looking at the primary sources of greenhouse gases, we can see where solutions can have the greatest impact.
There are some elements of the climate equation – reducing food waste and flying less often, for instance – that we can address individually through decisions in our daily lives. Lifestyle choices can only cut emissions so far, though. As the world population continues to grow, sustainable solutions need to be found.
Altering the course of climate change demands that we find and embrace alternative energy sources and more efficient ways of producing goods and services. This will require vast investment. The International Energy Agency estimates that around US$1.3 trillion a year needs to be invested if UN Sustainable Development Goal 7 – affordable and clean energy for all – is to be achieved by 2030.
With growing recognition of the urgency of the challenge, we believe there are compelling long-term opportunities for companies that are actively accelerating the shift to a low carbon economy.
These companies might be “pioneers” – whose products or services have a transformational effect on combating climate change – “leaders” – which spearhead and mainstream sustainability in their sectors – or “enablers” – which provide the tools for others to deliver climate solutions.
We can look at three key areas where companies can have a positive impact in the fight against climate change. The first is where activities or innovations directly cut greenhouse gas emissions.
Alternative energy is an obvious sector for investment. Replacing carbon-intensive fossil fuels with green electricity, harnessed from the wind and sun, would make the single biggest contribution to meeting global climate goals. Less obvious investment candidates, perhaps, are components and systems that improve energy efficiency, thereby reducing emissions.
The second group of impactful companies are those whose solutions make industry and transportation – which account for 35% of emissions combined – less polluting. This may include companies whose technologies underpin the future of mobility or energy storage.
Then there is also the power we all have to keep waste to a minimum and recycle the products we use in everyday life. The concept of a ‘circular economy’ where we reduce, reuse and recycle everyday products to avoid the carbon emissions of them going to landfill and from the requirement to produce virgin materials. There are many companies now that have a ‘closed loop’ business model where they collect waste and then repurpose it for re-use. In most cases this is a cheaper alternative and provides for a strong business advantage.
Now that we have clear goals to reach net zero in 2050, we can see the risks of inaction are mounting. We need to understand how investments impact – and are impacted by – the risks and opportunities associated with climate change.
Where companies do not act, they will not only expose themselves – and their investors – to possible financial losses, but they will miss the opportunities for success that lie in tackling this challenge. As Mark Carney, former governor of the Bank of England, said the transition to net zero is “creating the greatest commercial opportunity of our age”.
There does not need to be a trade-off between profits and the planet. Where companies can successfully deliver solutions that mitigate climate change, their shareholders can aspire to achieve sustainable financial returns and contribute to a demonstrably positive impact for the planet and its people.
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