hongkongen
IPCC warns we’re not on track to limit global warming despite having the tools and know-how

IPCC warns we’re not on track to limit global warming despite having the tools and know-how

05-04-2022 | Insight
Latest insights from climate science underscore the need for a massive, near-term reallocation of capital toward low-carbon energy, transport and urban infrastructure.
  • Lucian Peppelenbos
    Lucian
    Peppelenbos
    Climate Strategist

Speed read

  • Greenhouse gas emissions rose by 12% in the last decade
  • Low-cost solutions are available to halve emissions by 2030
  • Decisive policies and leadership across all sectors are needed

We are not on track in tackling global warming, but we do hold the answer. With the right leadership, the world can avoid dangerous climate change. That’s the key message from the just-published UN Climate Science Panel IPCC report.

For investors, there is an urgency to respond to the IPCC’s assessment that the financial sector is not pricing in climate risk sufficiently. The IPCC concludes that there must be a massive shift in investments in the next 5-10 years towards low-carbon energy, transport and urban infrastructure.

Stay informed on Sustainable Investing with monthly mail updates
Stay informed on Sustainable Investing with monthly mail updates
Subscribe

What’s the report about?

This IPCC1 report outlines how the global economy needs to transition to become climate neutral. Written by 278 scientists from 65 countries, it is the final report in a series of three. In August last year, the IPCC released their physical analysis, concluding that global warming will inevitably reach 1.5 °C in the 2030s. Late February, the IPCC shared their findings as to how humankind needs to adapt to the impact of global warming.2

The three reports will be summarized into the Sixth Assessment Report (AR6)3 that will be released in October this year. Notably, the AR6 report will be the key reference point for international climate policy negotiations in the coming years.

What does the IPCC conclude about limiting global warming?

The IPCC concludes that we are not on track, and that climate mitigation is challenging but feasible. Let’s consider these insights in more detail.

We are not on track. Over the last decade, global emissions rose by 12% to 59 GtCO2e in 2018. The good news is that, over this period, the average emissions growth rate of 1.3% per year was lower than in previous decades. We are using less energy per unit of GDP (-2.2% per year), and in many countries there is a decoupling of greenhouse gas (GHG) emissions from economic growth. But absolute emissions continue to rise due to the global growth of per capita GDP.

Although this growth is concentrated in Asia, it is a globally shared responsibility. Around 40% of emissions from developing countries are associated with exports to industrialized countries. The richest 10% of the world population cause around 40% of global emissions. Some of the largest growth rates in emissions are in high-income areas such as aviation (+50%), SUVs (+17%), meat (+12%) and residential cooling (+40%).

Mitigation is challenging but feasible. Despite significant developments since the Paris Agreement, climate action is insufficient and the world is still headed towards 3 °C. The key challenge is our continued dependency on fossil fuels. In many regions renewables are now a cheaper option, but still fossil fuels account for the bulk of total energy supply.

Yet the IPCC notes that we have the tools and know-how that is needed. In all key sectors, low-cost abatement options are available, and these are sufficient for halving emissions by 2030 (see table below). It is estimated that limiting global warming to 1.5 °C would cost between 2-4% of global GDP by 2050. This is a considerable, but not unaffordable cost.

Table 1 | Overview of low-cost options for curbing GHG emissions

Source: IPCC (2022), Climate Change 2022: Mitigation of climate change

So what is holding us back? The IPCC points to the need for clear public policies and coordinated action across all sectors. For instance, investments in renewable energy need to go hand in hand with increased storage, more network capacity and better integrated networks. When one piece stays behind, overall progress is jeopardized. The net-zero transition is about systemic transformation. In the absence of coordinated policies, progress will be slow.

What does this mean for investors?

The Paris Agreement allocates a special responsibility to the financial sector: to align financial flows with pathways that will keep us below 2 °C. But the IPCC notes that the sector does not yet live up to this. Climate investment is around USD 600 billion per year, which is about six times short of what is needed. Notably, investments in the supply of oil and coal are higher than this, at around USD 800 billion per year.

According to the IPCC, the financial sector is not pricing in climate risk sufficiently. The reason for this is the high degree of uncertainty we’re facing. The future risks of climate change depend on our actions today. A swift net-zero transition entails investment risks and opportunities that are sharply different from a delayed-response scenario. In the absence of clear policy signals, investors tend to wait and see: there will be no massive reallocation of capital. In the meantime, financial risks are building up. The IPCC estimates the discounted value of stranded assets in the energy sector in the coming decades at USD 1-4 trillion. This amount increases with every year of delayed action.

The IPCC concludes that there must be a massive shift in investments in the next 5-10 years towards low-carbon energy, transport and urban infrastructure.

How does Robeco view the report?

The IPCC report resonates well with the insights from our 2022 Global Climate Survey. Three-quarters of global investors see climate as a strategic priority. They are working on net-zero commitments and portfolio decarbonization. Investors regard the lack of global policy agreement as the key challenge, and they underscore a lack of opportunities for investing in climate solutions.

Robeco is committed to work with clients to reach net-zero emissions by 2050, for which we developed a roadmap based on the IPCC 1.5 °C emission pathway. We recognize the challenges put forward by the latest IPCC report. For near-term reallocation of capital, we continue to develop strategies oriented to climate solutions. At the same time, for systemic transformation, we are decarbonizing portfolios and engaging with companies and governments to accelerate their transition. The IPCC report is a reminder of what a daunting task this is. But it also gives confidence that avoiding dangerous climate change is feasible, provided we work together.

1Intergovernmental Panel on Climate Change, https://www.ipcc.ch/
2See our Insight on that IPCC report here.
3The Sixth Assessment Report also integrates the findings from the special IPCC reports on 1.5 °C, land use and oceans that were published in 2018 and 2019.
4These are direct emissions such as fugitive emissions from coal mining or refining. If indirect emissions are taken into account (i.e. Scope 3), then the energy sector represents 20 Gt CO2e or 34% of global emissions. In the table, emissions from electricity and heat are re-allocated to the sectors where they are used.

Important information

The contents of this document have not been reviewed by the Securities and Futures Commission ("SFC") in Hong Kong. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice. This document has been distributed by Robeco Hong Kong Limited (‘Robeco’). Robeco is regulated by the SFC in Hong Kong.
This document has been prepared on a confidential basis solely for the recipient and is for information purposes only. Any reproduction or distribution of this documentation, in whole or in part, or the disclosure of its contents, without the prior written consent of Robeco, is prohibited. By accepting this documentation, the recipient agrees to the foregoing
This document is intended to provide the reader with information on Robeco’s specific capabilities, but does not constitute a recommendation to buy or sell certain securities or investment products. Investment decisions should only be based on the relevant prospectus and on thorough financial, fiscal and legal advice. Please refer to the relevant offering documents for details including the risk factors before making any investment decisions.
The contents of this document are based upon sources of information believed to be reliable. This document is not intended for distribution to or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation.
Investment Involves risks. Historical returns are provided for illustrative purposes only and do not necessarily reflect Robeco’s expectations for the future. The value of your investments may fluctuate. Past performance is no indication of current or future performance.

Logo

Disclaimers

1. General
Please read this information carefully.

This website is prepared and issued by Robeco Hong Kong Limited ("Robeco"), which is a corporation licensed by the Securities and Futures Commission in Hong Kong to engage in Type 1 (dealing in securities); Type 4 (advising in securities) and Type 9 (asset management) regulated activities. The Company does not hold client assets and is subject to the licensing condition that it shall seek the SFC’s prior approval before extending services at retail level. This website has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

2. Important risk disclosures
2. Important risk disclosures Robeco Capital Growth Funds (“the Funds”) are distinguished by their respective specific investment policies or any other specific features. Please read carefully for the risks of the Funds:

  • Some Funds are subject to investment, market, equities, liquidity, counterparty, securities lending and foreign currency risk and risk associated with investments in small and/or mid-capped companies.
  • Some Funds are subject to the risks of investing in emerging markets which include political, economic, legal, regulatory, market, settlement, execution, counterparty and currency risks.
  • Some Funds may invest in China A shares directly through the Qualified Foreign Institutional Investor (“QFII”) scheme and / or RMB Qualified Foreign Institutional Investor (“RQFII”) scheme and / or Stock Connect programmes which may entail additional clearing and settlement, regulatory, operational, counterparty and liquidity risk.
  • For distributing share classes, some Funds may pay out dividend distributions out of capital. Where distributions are paid out of capital, this amounts to a return or withdrawal of part of your original investment or capital gains attributable to that and may result in an immediate decrease in the net asset value of shares.
  • Some Funds’ investments maybe concentrated in one region / one country / one sector / around one theme and therefore the value of the Fund may be more volatile and may be subject to concentration risk.
  • The risk exists that the quantitative techniques used by some Funds may not work and the Funds’ value may be adversely affected.
  • In addition to investment, market, liquidity, counterparty, securities lending, (reverse) repurchase agreements and foreign currency risk, some Funds are subject to risk associated with fixed income investments like credit risk, interest rate risk, convertible bonds risk, ABS risk and the risk of investments in non-investment grade or unrated securities and the risk of investments made in non-investment grade sovereign securities.
  • Some Funds can use derivatives extensively. Robeco Global Consumer Trends Equities can use derivatives for hedging and efficient portfolio management. Derivatives exposure may involve higher counterparty, liquidity and valuation risks. In adverse situations, the Funds may suffer significant losses (even a total loss of the Funds’ assets) from its derivative usage.
  • Robeco European High Yield Bonds is subject to Eurozone risk.
  • Investors may suffer substantial losses of their investments in the Funds. Investor should not invest in the Funds solely based on the information provided in this document and should read the offering documents (including potential risks involved) for details.

3. Local legal and sales restrictions
The Website is to be accessed by “professional investors” only (as defined in the Securities and Futures Ordinance (Cap.571) and/or the Securities and Futures (Professional Investors) Rules (Cap.571D) under the laws of Hong Kong). The Website is not directed at any person in any jurisdiction where (by reason of that person’s nationality, residence or otherwise) the publication or availability of the Website is prohibited. Persons in respect of whom such prohibitions apply or persons other than those specified above must not access this Website. Persons accessing the Website need to be aware that they are responsible themselves for the compliance with all local rules and regulations. By accessing this Website and any of its pages, you acknowledge your agreement with understanding of the following terms of use and legal information. If you do not agree to the terms and conditions below, do not access this Website or any pages thereof.

The information contained in the Website is being provided for information purposes.

Neither information nor any opinion expressed on the Website constitutes a solicitation, an offer or a recommendation to buy, sell or dispose of any investment, to engage in any other transaction or to provide any investment advice or service. The information contained in the Website does not constitute investment advice or a recommendation and was prepared without regard to the specific objectives, financial situation or needs of any particular person who may receive it. An investment in a Robeco product should only be made after reading the related legal documents such as management regulations, prospectuses, most recent annual and semi-annual reports, which can be all be obtained free of charge at www.robeco.com/hk/en and at the Robeco Hong Kong office.

4. Use of the Website
The information is based on certain assumptions, information and conditions applicable at a certain time and may be subject to change at any time without notice. Robeco aims to provide accurate, complete and up-to-date information, obtained from sources of information believed to be reliable. Persons accessing the Website are responsible for their choice and use of the information.

5. Investment performance
No assurance can be given that the investment objective of any investment products will be achieved. No representation or promise as to the performance of any investment products or the return on an investment is made. The value of your investments may fluctuate. The value of the assets of Robeco investment products may also fluctuate as a result of the investment policy and/or the developments on the financial markets. Results obtained in the past are no guarantee for the future. Past performance, projection, or forecast included in this Website should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. Fund performance figures are based on the month-end trading prices and are calculated on a total return basis with dividends reinvested. Return figures versus the benchmark show the investment management result before management and/or performance fees; the fund returns are with dividends reinvested and based on net asset values with prices and exchange rates of the valuation moment of the benchmark.
Investments involve risks. Past performance is not a guide to future performance. Potential investors should read the terms and conditions contained in the relevant offering documents and in particular the investment policies and the risk factors before any investment decision is made. Investors should ensure they fully understand the risks associated with the fund and should also consider their own investment objective and risk tolerance level. Investors are reminded that the value and income (if any) from shares of the fund may be volatile and could change substantially within a short period of time, and investors may not get back the amount they have invested in the fund. If in doubt, please seek independent financial and professional advice.

6. Third party websites
This website includes material from third parties or links to websites maintained by third parties some of which is supplied by companies that are not affiliated to Robeco. Following links to any other off-site pages or websites of third parties shall be at the own risk of the person following such link. Robeco has not reviewed any of the websites linked to or referred to by the Website and does not endorse or accept any responsibility for their content nor the products, services or other items offered through them. Robeco shall have no liability for any losses or damages arising from the use of or reliance on the information contained on websites of third parties, including, without limitation, any loss of profit or any other direct or indirect damage. Third party off-site pages or websites are provided for informational purposes only.

7. Limitation of liability
Robeco as well as (possible) other suppliers of information to the Website accept no responsibility for the contents of the Website or the information or recommendations contained herein, which moreover may be changed without notice.
Robeco assumes no responsibility for ensuring, and makes no warranty, that the functioning of the Website will be uninterrupted or error-free. Robeco assumes no responsibility for the consequences of e-mail messages regarding a Robeco (transaction) service, which either cannot be received or sent, are damaged, received or sent incorrectly, or not received or sent on time.
Neither will Robeco be liable for any loss or damage that may result from access to and use of the Website.

8. Intellectual property
All copyrights, patents, intellectual and other property, and licenses regarding the information on the Website are held and obtained by Robeco. These rights will not be passed to persons accessing this information.

9. Privacy
Robeco guarantees that the data of persons accessing the Website will be treated confidentially in accordance with prevailing data protection regulations. Such data will not be made available to third parties without the approval of the persons accessing the Website, unless Robeco is legally obliged to do so. Please find more details in our Privacy and Cookie Policy.

10. Applicable law
The Website shall be governed by and construed in accordance with the laws of Hong Kong. All disputes arising out of or in connection with the Website shall be submitted to the exclusive jurisdiction of the courts of Hong Kong. 

Please click the “I agree” button if you have read and understood this page and agree to the Disclaimers above and the collection and use of your personal data by Robeco, for the purposes for which such data is collected and used as set out in the Privacy and Cookie Policy, including for the purpose of direct marketing of Robeco products or services. Otherwise, please click “I Disagree” to leave the website.

I Disagree