Global warming is affecting humans and ecosystems across the globe, and we need to step up to better prepare for it. That’s the key message from the just-published UN Climate Science Panel IPCC report. The findings underline the need for investors to continue driving the net zero transition through investments and stewardship. But the report makes clear that this alone is not enough.
What’s the report about?
The IPCC1 reports the scientific consensus on what impact climate change will have on the world, and what we need to do to adapt to these changes. The report was produced by 270 scientists from 67 countries, based on a review of 34,000 scientific publications. The report forms part of a series:
The IPCC released their findings on the physical science of climate change in late August 2021. The main conclusion was that global warming will inevitably reach 1.5°C in the 2030s. The report was described as ‘code red for humanity’.
The IPCC will release their report on climate mitigation in May. It will focus on how the global economy could transition to reach net zero emissions.
These three reports will be summarized into the so-called Sixth Assessment Report (AR6) 1 in October. Notably, the AR6 report will be the key reference point for international climate policy negotiations in the coming years. IPCC assessment reports are written every six to seven years; the last one (AR5) was published in 2014.
What does the IPCC conclude about climate impact?
Climate change is already leading to widespread disruption of nature. Climate impact is felt in every region, but it is particularly strong for over 3 billion vulnerable people living in the most exposed areas in Africa, Asia and small island states. Climate impact is also magnified in cities, compounded by air pollution, heat stress and rainfall flooding.
Climate impact in the next 10 to 15 years will be greater than what we are experiencing today. Every region will face more extreme weather events such as heatwaves and heavy precipitation. Ecosystems and biodiversity will be under increasing pressure. At 1.5°C warming, some ecosystems will exceed their limits of resilience, including warm-water coral reefs, the Arctic and coastal wetlands. Production of multiple crops in a single year, which is common in tropical regions, will be increasingly difficult.
Over a billion people will be subject to flood risks. Those living on small islands or mountain areas will critically lack access to fresh water. The climate impact will be felt especially by poor communities in developing countries, which had less of a role in causing climate change. They will be hardest hit through food insecurity, water scarcity, infectious diseases, and loss of livelihood.
What, according to the IPCC, should we do about it?
The IPCC observes that global efforts to adapt to climate change are expanding in ambition and scale. There are clear successes with adapting agriculture, restoring ecosystems, managing water and scaling disaster-risk finance. But overall, adaptation is piecemeal rather than systemic. Most of the attention from public policy as well as private sector action goes to climate mitigation as opposed to adaptation. A notable example is green bonds. While the IPCC considers the growth of green bond markets as a clear showcase of improved climate action, in general only 5-10% of proceeds goes to climate adaptation.
Near-term adaptation certainly is possible, but it has to move higher on the agenda, and it must go beyond building resilient infrastructure. The IPCC stresses that adaptation is essentially about the Sustainable Development Goals (SDGs) at large. It is about investing in things like resilient farming systems, land-use planning, healthcare, (climate) education, and protection and risk-transfer schemes. Only half of countries have weather services capable of providing early warning.
Finally, adaptation is about investing in nature. This means not only large-scale ecosystem restoration, but also weaving nature into cities on rooftops, green corridors, blue spaces, etc.
What does this mean for investors?
The findings underline the need for investors to continue driving the net zero transition through investments and stewardship. But the report makes clear that this alone is not enough. Investors need to consider two further areas of action.
First, from this report we know with certainty that as early as the coming decade, economic activities and financial assets will be subject to increased physical climate impacts. There will be global spinoff effects from regional food insecurity, human displacement and increased political tension in vulnerable regions in Asia, Africa and Latin America. Closer to home, we can expect disruption in urban economies from increased flooding and heat stress. These and other physical effects create investment risk that needs to be factored into investment analysis and decisions. Good forward-looking data on physical risk, in combination with in-house expertise to properly use this data, is going to be a salient factor for investment performance.
Second, climate adaptation will develop into an important space for investment opportunity, particularly in developing countries, where investors can seek risk-adjusted returns combined with positive real-world impact. Tools like the EU Taxonomy will help to direct more capital flows to climate adaptation activities. Collaboration with development banks and through blended finance approaches must be used to help trigger more private sector investments. Overall, climate finance needs to grow at least threefold – and more likely sixfold – from current levels.
How does Robeco invest in climate adaptation?
In line with the IPCC’s findings, we do see investment opportunity in the financing of climate adaptation, although this is still limited. While most proceeds in our green bond investments go to climate mitigation, we increasingly see issuance of bonds with substantial contribution to adaptation, such as flood protection infrastructure projects, disaster risk management activities, climate monitoring solutions, and engineering activities for climate adaptation.
In Robeco’s SDG framework we classify investments in natural disaster reinsurance as contributing to climate adaptation (SDG 13.1). Other sectors, such as agriculture, engineering and construction, may become eligible as and when data improves as a result of the EU Taxonomy. We concur with the IPCC’s conclusion that a broad approach that encompasses all SDGs is required for a systemic approach to investing in climate adaptation and resilience.
Webinar: Tackling climate change and green financing within global fixed income markets
In this webinar, Regina Borromeo and Michiel de Bruin, Portfolio Managers in the Global Macro team, will explain the thinking behind two distinct Robeco strategies. The Climate Fixed Income and Green Bonds strategies have just celebrated their first anniversaries, with impressive results. Both are helping to fund the climate finance gap while also offering attractive returns.
1 Intergovernmental Panel on Climate Change, https://www.ipcc.ch/
2 The Sixth Assessment Report also integrates the findings from the special IPCC reports on 1.5°C, land use and oceans, which were published in 2018 and 2019.
当資料は情報提供を目的として、Robeco Institutional Asset Management B.V.が作成した英文資料、もしくはその英文資料をロベコ・ジャパン株式会社が翻訳したものです。資料中の個別の金融商品の売買の勧誘や推奨等を目的とするものではありません。記載された情報は十分信頼できるものであると考えておりますが、その正確性、完全性を保証するものではありません。意見や見通しはあくまで作成日における弊社の判断に基づくものであり、今後予告なしに変更されることがあります。運用状況、市場動向、意見等は、過去の一時点あるいは過去の一定期間についてのものであり、過去の実績は将来の運用成果を保証または示唆するものではありません。また、記載された投資方針・戦略等は全ての投資家の皆様に適合するとは限りません。当資料は法律、税務、会計面での助言の提供を意図するものではありません。 ご契約に際しては、必要に応じ専門家にご相談の上、最終的なご判断はお客様ご自身でなさるようお願い致します。 運用を行う資産の評価額は、組入有価証券等の価格、金融市場の相場や金利等の変動、及び組入有価証券の発行体の財務状況による信用力等の影響を受けて変動します。また、外貨建資産に投資する場合は為替変動の影響も受けます。運用によって生じた損益は、全て投資家の皆様に帰属します。したがって投資元本や一定の運用成果が保証されているものではなく、投資元本を上回る損失を被ることがあります。弊社が行う金融商品取引業に係る手数料または報酬は、締結される契約の種類や契約資産額により異なるため、当資料において記載せず別途ご提示させて頂く場合があります。具体的な手数料または報酬の金額・計算方法につきましては弊社担当者へお問合せください。 当資料及び記載されている情報、商品に関する権利は弊社に帰属します。したがって、弊社の書面による同意なくしてその全部もしくは一部を複製またはその他の方法で配布することはご遠慮ください。 商号等： ロベコ・ジャパン株式会社 金融商品取引業者 関東財務局長（金商）第２７８０号 加入協会： 一般社団法人 日本投資顧問業協会